FAR 16.103—Negotiating contract type.
Plain-English Summary
FAR 16.103 explains how contracting officers should choose and justify a contract type during negotiation. It covers the relationship between contract type and price negotiation, when firm-fixed-price is preferred, when other contract types may be appropriate, how changing circumstances can justify moving to a different contract type over time, and what documentation must be placed in the contract file or acquisition plan. It also requires the Government to explain why the selected contract type is necessary, what additional risks it creates, how those risks will be identified and managed, what resources are needed to administer it, and—when using other than firm-fixed-price—why that choice is appropriate and how the agency will transition toward firm-fixed-price in the future where practicable. The section matters because contract type directly affects risk allocation, pricing incentives, administrative burden, and the Government’s ability to control cost and performance. In practice, it pushes acquisition teams to make a deliberate, supportable choice rather than defaulting to a familiar contract type. It also creates a paper trail that should show the reasoning behind the decision and the plan for managing the resulting risks.
Key Rules
Contract type is negotiated
Selecting the contract type is generally a matter for negotiation and requires sound judgment. Contract type and price should be considered together because the goal is to balance reasonable contractor risk with strong incentives for efficient, economical performance.
Use firm-fixed-price when feasible
A firm-fixed-price contract should be used when the risk is minimal or can be predicted with acceptable certainty. It best leverages the profit motive, but only when there is a reasonable basis for firm pricing.
Choose other types when pricing is uncertain
If firm pricing is not reasonably possible, the contracting officer should consider other contract types or combinations of types. Negotiations should aim to tie profit to performance in a way that fits the uncertainty and risk profile of the requirement.
Reassess contract type over time
As an acquisition program, series of contracts, or long-term contract evolves, later periods may justify a different contract type than the one used initially. Contracting officers should avoid continuing cost-reimbursement or time-and-materials arrangements longer than necessary once firmer pricing becomes possible.
Document the selection rationale
Each contract file must explain why the selected contract type was chosen, either in the acquisition plan or in the contract file if no written plan is required. The documentation must show why that type is needed to meet the agency’s requirement.
Address risks and management burden
For the selected contract type, the file must discuss the Government’s added risks and the burden of administering that type. For cost-reimbursement and similar arrangements, this includes identifying the risks, describing their nature, and explaining how the Government will manage and mitigate them.
Show resource adequacy
The documentation must address whether the Government has the resources needed to plan for, award, and administer the chosen contract type. It should also explain the consequences if adequate resources are not available.
Extra documentation for non-FFP
For any contract other than firm-fixed-price, the file must include why that type is appropriate, the facts and circumstances supporting the choice, an assessment of Government resources, and a plan to minimize future use of non-FFP and transition to firm-fixed-price to the maximum extent practicable.
Explain special pricing provisions
If the contract includes a level-of-effort, price redetermination, or fee provision, the documentation must explain why that provision was included.
Limited exceptions apply
The detailed documentation requirements in paragraph (d)(1) do not apply to fixed-price acquisitions under simplified acquisition procedures, firm-fixed-price contracts other than major systems or research and development, and awards on the set-aside portion of sealed bid partial set-asides for small business.
Responsibilities
Contracting Officer
Negotiate the contract type and price together, select the contract type that best fits the risk and pricing situation, and ensure the file contains the required justification and risk discussion. The contracting officer must also reassess whether a different contract type is appropriate as circumstances change and avoid unnecessary continued use of cost-reimbursement or time-and-materials contracts.
Acquisition Team
Support the contract type decision by analyzing requirement complexity, pricing uncertainty, contractor capability, accounting system adequacy, and Government resource needs. The team should help identify risks, propose mitigation measures, and document the rationale for using or avoiding non-firm-fixed-price arrangements.
Agency
Establish procedures for when a written acquisition plan is required and ensure contract files contain the required contract-type documentation when no plan is required. The agency must also provide sufficient personnel and resources to plan, award, and administer the selected contract type.
Contractor
Provide pricing, technical, accounting, and performance information needed for negotiation and risk assessment. Where applicable, the contractor must be able to support the chosen contract type through adequate systems and financial responsibility, especially for non-firm-fixed-price arrangements.
Practical Implications
Contract type is not a clerical choice; it is a core risk-allocation decision that should be made with the same care as price negotiation.
A common mistake is defaulting to cost-reimbursement or time-and-materials because the requirement is uncertain, without documenting why firm-fixed-price is not feasible or how the Government will manage the added risk.
Another pitfall is failing to revisit contract type after the agency gains experience and better pricing data; FAR 16.103 expects movement toward firmer pricing when possible.
The file documentation should be specific, not generic. Boilerplate statements about complexity or uncertainty are usually not enough without facts, risk identification, and mitigation steps.
Contracting officers should confirm that the Government has the staff, technical expertise, and oversight tools needed for the chosen contract type; otherwise, the contract may be poorly administered even if the selection was technically permissible.
Official Regulatory Text
(a) Selecting the contract type is generally a matter for negotiation and requires the exercise of sound judgment. Negotiating the contract type and negotiating prices are closely related and should be considered together. The objective is to negotiate a contract type and price (or estimated cost and fee) that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance. (b) A firm-fixed-price contract, which best utilizes the basic profit motive of business enterprise, shall be used when the risk involved is minimal or can be predicted with an acceptable degree of certainty. However, when a reasonable basis for firm pricing does not exist, other contract types should be considered, and negotiations should be directed toward selecting a contract type (or combination of types) that will appropriately tie profit to contractor performance. (c) In the course of an acquisition program, a series of contracts, or a single long-term contract, changing circumstances may make a different contract type appropriate in later periods than that used at the outset. In particular, contracting officers should avoid protracted use of a cost-reimbursement or time-and-materials contract after experience provides a basis for firmer pricing. (d) (1) Each contract file shall include documentation to show why the particular contract type was selected. This shall be documented in the acquisition plan, or in the contract file if a written acquisition plan is not required by agency procedures. (i) Explain why the contract type selected must be used to meet the agency need. (ii) Discuss the Government’s additional risks and the burden to manage the contract type selected ( e.g. , when a cost-reimbursement contract is selected, the Government incurs additional cost risks, and the Government has the additional burden of managing the contractor’s costs). For such instances, acquisition personnel shall discuss – (A) How the Government identified the additional risks ( e.g. , pre-award survey, or past performance information); (B) The nature of the additional risks ( e.g. , inadequate contractor’s accounting system, weaknesses in contractor's internal control, non-compliance with Cost Accounting Standards, or lack of or inadequate earned value management system); and (C) How the Government will manage and mitigate the risks. (iii) Discuss the Government resources necessary to properly plan for, award, and administer the contract type selected ( e.g. , resources needed and the additional risks to the Government if adequate resources are not provided). (iv) For other than a firm-fixed price contract, at a minimum the documentation should include – (A) An analysis of why the use of other than a firm-fixed-price contract ( e.g. , cost reimbursement, time and materials, labor hour) is appropriate; (B) Rationale that detail the particular facts and circumstances ( e.g. , complexity of the requirements, uncertain duration of the work, contractor’s technical capability and financial responsibility, or adequacy of the contractor’s accounting system), and associated reasoning essential to support the contract type selection; (C) An assessment regarding the adequacy of Government resources that are necessary to properly plan for, award, and administer other than firm-fixed-price contracts; and (D) A discussion of the actions planned to minimize the use of other than firm-fixed-price contracts on future acquisitions for the same requirement and to transition to firm-fixed-price contracts to the maximum extent practicable. (v) A discussion of why a level-of-effort, price redetermination, or fee provision was included. (2) Exceptions to the requirements at (d)(1) of this section are – (i) Fixed-price acquisitions made under simplified acquisition procedures; (ii) Contracts on a firm-fixed-price basis other than those for major systems or research and development; and (iii) Awards on the set-aside portion of sealed bid partial set-asides for small business.