FAR 16.102—Policies.
Plain-English Summary
FAR 16.102 sets the basic policy rules for choosing and using contract types in federal procurement. It covers four main topics: the contract types allowed under sealed bidding, the flexibility allowed for negotiated procurements under FAR part 15, the prohibition on cost-plus-a-percentage-of-cost contracting, and the requirement that any needed determinations and findings (D&Fs) be completed before award. In practice, this section tells contracting officers which contract structures are permissible, limits the government’s ability to use nonstandard contract types, and reinforces that contract type decisions must be made within the boundaries of the FAR and applicable statutes. It also protects the Government from incentive structures that can encourage higher costs rather than better performance. For contractors, this section matters because it affects pricing risk, allowable subcontracting arrangements, and whether an award can legally proceed.
Key Rules
Sealed bidding limits
When a contract is awarded through sealed bidding, the contract must be either a firm-fixed-price contract or a fixed-price contract with economic price adjustment. Other contract types are not permitted under sealed bidding.
Negotiated flexibility under Part 15
For negotiated procurements under FAR part 15, the Government may use any contract type, or combination of contract types, that best promotes the Government’s interest, unless another rule in FAR part 16 restricts that choice. Contract types not recognized by the FAR may not be used unless approved through a deviation under subpart 1.4.
No cost-plus-percentage-of-cost
The cost-plus-a-percentage-of-cost system is prohibited. This ban applies to prime contracts and also requires prime contracts other than firm-fixed-price contracts to include clauses that prevent the same pricing method from being used in subcontracts.
Subcontract flowdown protection
Prime contracts, including letter contracts, that are not firm-fixed-price contracts must include an appropriate clause prohibiting cost-plus-a-percentage-of-cost subcontracts. This ensures the prohibited pricing method cannot be used indirectly through subcontracting.
D&F required before award
A contract may not be awarded until any required determinations and findings under this part have been executed. The minimum content requirements for those D&Fs are found in FAR 1.704.
Responsibilities
Contracting Officer
Select a contract type that is permitted by the procurement method and FAR restrictions, ensure any required deviation is properly approved, include required clauses in prime contracts to bar prohibited subcontract pricing, and confirm all required D&Fs are executed before award.
Agency
Ensure acquisition planning and contract-type decisions comply with statutory and FAR limits, approve deviations when justified, and maintain internal controls so awards are not made without required D&Fs.
Contractor
Understand the contract type being offered, comply with pricing and subcontracting clause requirements, and avoid proposing or using prohibited cost-plus-a-percentage-of-cost arrangements in prime or subcontract structures.
Subcontractor
Follow the pricing restrictions passed down through the prime contract and avoid any subcontract arrangement that would operate as a cost-plus-a-percentage-of-cost system.
Practical Implications
Contract type selection is not just a business decision; it is a legal compliance issue tied to the procurement method and the FAR’s specific limits.
Sealed bidding is much narrower than negotiated procurement, so contracting officers cannot use flexible contract structures in an IFB award.
The prohibition on cost-plus-a-percentage-of-cost applies broadly and must be addressed in both prime contract drafting and subcontract oversight.
A missing or incomplete D&F can delay or invalidate an award, so acquisition teams should verify D&F execution early in the process.
Contractors should review solicitation and contract clauses carefully because the contract type affects risk allocation, pricing strategy, and subcontracting terms.
Official Regulatory Text
(a) Contracts resulting from sealed bidding shall be firm-fixed-price contracts or fixed-price contracts with economic price adjustment. (b) Contracts negotiated under part 15 may be of any type or combination of types that will promote the Government’s interest, except as restricted in this part (see 10 U.S.C. 3321(a) and 41 U.S.C. 3901 ). Contract types not described in this regulation shall not be used, except as a deviation under subpart 1.4 . (c) The cost-plus-a-percentage-of-cost system of contracting shall not be used (see 10 U.S.C. 3322(a) and 41 U.S.C. 3905(a) ). Prime contracts (including letter contracts) other than firm-fixed-price contracts shall, by an appropriate clause, prohibit cost-plus-a-percentage-of-cost subcontracts (see clauses prescribed in subpart 44.2 for cost-reimbursement contracts and subparts 16.2 and 16.4 for fixed-price contracts). (d) No contract may be awarded before the execution of any determination and findings (D&F’s) required by this part. Minimum requirements for the content of D&F’s required by this part are specified in 1.704 .