FAR 16.2—Subpart 16.2

General.

FAR 16.201 explains what counts as a fixed-price contract and how fixed-price pricing can be structured. It covers firm-fixed-price contracts, fixed-price contracts with an adjustable price, and the possible use of a ceiling price, target price, or target cost when the price is adjustable. It also explains when those prices may be changed, limiting changes to equitable adjustments or other revisions allowed by specific contract clauses or stated circumstances. A major practical point is that contracting officers must generally use firm-fixed-price or fixed-price with economic price adjustment contracts when buying commercial products and commercial services, unless an exception in FAR 12.207(b) applies. Finally, the section makes clear that time-and-materials and labor-hour contracts are not fixed-price contracts, which matters because those contract types carry different risk allocations, pricing rules, and administration requirements.

Firm-fixed-price contracts.

Fixed-price contracts with economic price adjustment.

Fixed-price incentive contracts.

FAR 16.204 defines what a fixed-price incentive contract is and places it within the broader incentive-contract framework in FAR subpart 16.4. The section explains that this type of contract is still a fixed-price contract, but the final price is adjusted by a formula tied to the relationship between final negotiated total cost and total target cost, with profit also adjusted under that formula. It points readers to FAR 16.403 for the fuller rules on when these contracts are appropriate, how they work, and their limitations, and to FAR 16.406 for the prescribed clauses that must be used. In practice, this section matters because it signals that the government and contractor are sharing cost risk through a pre-set pricing formula rather than using a purely firm fixed-price arrangement. Contracting officers use it to structure incentives for cost control and performance, while contractors use it to understand how actual costs can affect final price and profit. The section is short, but it is important because it establishes the basic concept and directs users to the controlling implementation requirements elsewhere in the FAR.

Fixed-price contracts with prospective price redetermination.

Fixed-ceiling-price contracts with retroactive price redetermination.

Firm-fixed-price, level-of-effort term contracts.