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FAR and DFARS › FAR Part 16: Types of Contracts › Subpart 16.2

FAR 16.205-3 Limitations.

The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.

In plain English

This section limits when a fixed-price contract with prospective price redetermination can be used. It requires that negotiations show firm-fixed-price and fixed-price incentive contracts are not suitable, the contractor's accounting system is adequate for price redetermination, pricing periods align with the accounting system, and price redeterminations will occur promptly. For contractors, this means meeting these conditions is necessary for this contract type to be used.

Applies to: Contracting officers and contractors considering a fixed-price contract with prospective price redetermination

What it requires

  • Ensure negotiations establish that firm-fixed-price conditions are not present and a fixed-price incentive contract would not be more appropriate
  • Have an accounting system adequate for price redetermination
  • Make prospective pricing periods conform with the contractor's accounting system
  • Provide reasonable assurance that price redetermination actions will take place promptly at specified times

Key terms: firm-fixed-price contract · fixed-price incentive contract · price redetermination · accounting system · pricing periods

Written by AI from this section's text. A guide, not legal advice: the text below rules.

The text

This contract type shall not be used unless—

(a) Negotiations have established that (1) the conditions for use of a firm-fixed-price contract are not present (see 16.202-2), and (2) a fixed-price incentive contract would not be more appropriate;

(b) The contractor's accounting system is adequate for price redetermination;

(c) The prospective pricing periods can be made to conform with operation of the contractor's accounting system; and

(d) There is reasonable assurance that price redetermination actions will take place promptly at the specified times.

Sections it refers to

Sections that refer to it

← 16.205-2 Application. · 16.205-4 Contract clause. →

Rule changes for FAR Part 16

Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.

FAR 16.205-3 Limitations · SpendQuery