FAR 16.202-2—Application.
Plain-English Summary
FAR 16.202-2 explains when a firm-fixed-price (FFP) contract is appropriate and what conditions must exist before a contracting officer should use it. The section covers the types of acquisitions suited to FFP contracts, including commercial products and commercial services, as well as other supplies or services described by reasonably definite functional or detailed specifications. It also explains the core pricing requirement: the contracting officer must be able to establish a fair and reasonable price at the outset. To do that, the rule identifies four common bases for price reasonableness: adequate price competition, comparison to prior competitive purchases or purchases supported by valid certified cost or pricing data, realistic cost estimates based on available cost or pricing information, and situations where performance uncertainties can be identified and priced into the offer. In practice, this section is the FAR’s guide for deciding when the government can shift cost risk to the contractor and lock in a fixed price without needing a cost-reimbursement structure. It matters because choosing FFP in the wrong situation can lead to poor pricing, excessive risk, weak competition, or contract performance problems, while choosing it correctly supports efficiency, predictability, and strong contractor incentives to control costs.
Key Rules
Use for commercial buys
An FFP contract is suitable for acquiring commercial products or commercial services. This reflects the FAR’s preference for fixed-price arrangements when the market and the requirement support a stable price.
Use with definite specifications
FFP is also suitable for other supplies or services when the requirement is described by reasonably definite functional or detailed specifications. The more precise the requirement, the easier it is to set a fixed price up front.
Price must be fair and reasonable
The contracting officer must be able to establish a fair and reasonable price at the outset. If the price cannot be determined with enough confidence before award, FFP may not be the right contract type.
Adequate competition supports pricing
One acceptable basis for using FFP is adequate price competition. When multiple offers create a reliable market price, the contracting officer can use that competition to support a fair and reasonable fixed price.
Prior purchases can support pricing
Reasonable price comparisons with prior purchases of the same or similar supplies or services may justify FFP, especially when those prior purchases were competitive or supported by valid certified cost or pricing data.
Cost data must permit realistic estimates
Available cost or pricing information must allow realistic estimates of probable performance costs. If the government can reasonably forecast costs, it can set a fixed price that reflects those expectations.
Uncertainties must be identifiable and priced
If performance uncertainties exist, they must be identifiable and their cost impact reasonably estimated. The contractor must also be willing to accept a fixed price that reflects the risk it is taking on.
Responsibilities
Contracting Officer
Determine whether the requirement is suitable for a firm-fixed-price contract and ensure the acquisition fits one of the listed pricing bases. The contracting officer must establish a fair and reasonable price at award and confirm that the contractor is accepting the performance risk inherent in the fixed-price structure.
Contractor
Submit a price that reflects the requirement, the risks involved, and the contractor’s willingness to perform for a fixed amount. Where uncertainties exist, the contractor must accept the risk that actual costs may exceed the fixed price.
Agency
Structure requirements and acquisition planning so that work is described with enough clarity to support fixed pricing. The agency should provide the market research, historical pricing, or cost information needed to justify the contract type and price decision.
Practical Implications
This section is a key decision point for contract type selection: if the government can define the work well and price it confidently, FFP is often the preferred choice.
Market research and pricing history matter a great deal. Weak competition, poor historical data, or vague requirements can make it hard to justify FFP.
Contracting officers should be careful not to force FFP onto requirements with major unknowns unless those uncertainties can be identified and reasonably priced.
Contractors should understand that FFP shifts cost overrun risk to them, so they need to price contingencies carefully and avoid underbidding.
A common pitfall is treating a requirement as “definite enough” when the statement of work still leaves major technical, schedule, or quantity uncertainties unresolved.
Official Regulatory Text
A firm-fixed-price contract is suitable for acquiring commercial products or commercial services (see parts 2 and 12 ) or for acquiring other supplies or services on the basis of reasonably definite functional or detailed specifications (see part 11 ) when the contracting officer can establish fair and reasonable prices at the outset, such as when- (a) There is adequate price competition; (b) There are reasonable price comparisons with prior purchases of the same or similar supplies or services made on a competitive basis or supported by valid certified cost or pricing data; (c) Available cost or pricing information permits realistic estimates of the probable costs of performance; or (d) Performance uncertainties can be identified and reasonable estimates of their cost impact can be made, and the contractor is willing to accept a firm fixed price representing assumption of the risks involved.