FAR 16.205-1—Description.
Plain-English Summary
FAR 16.205-1 describes the basic structure of a fixed-price contract with prospective price redetermination. This section covers two core features: first, a firm fixed price applies to an initial period of deliveries or performance; second, the contract includes scheduled points during performance when the price for later periods will be redetermined prospectively. In practice, this means the contractor and the Government agree up front to a fixed price for the near term, while preserving a mechanism to reset prices for future work based on information available at the time of redetermination. The purpose is to give both sides more pricing stability than a cost-type arrangement while still allowing adjustment when long-term pricing is uncertain. This structure is most useful when the work extends over time and future costs cannot be reliably fixed at award for the entire period. For contracting officers and contractors, the key practical significance is that the initial price is firm only for the stated initial period, and later pricing depends on the contract’s redetermination schedule and terms.
Key Rules
Firm initial price
The contract must establish a firm fixed price for the initial period of deliveries or performance. During that initial period, the price is not subject to redetermination under this clause structure.
Prospective redetermination
The contract must also provide for price redetermination at stated times during performance. The redetermined price applies only prospectively, meaning it governs future periods rather than revising prices already earned or performed.
Scheduled timing required
Redetermination cannot be open-ended or ad hoc; the contract must identify the times or periods when the price will be reset. This gives both parties notice of when pricing will be revisited.
Applies to later periods
The redetermined price is for subsequent periods of performance, not the initial fixed-price period. The structure separates near-term certainty from later-term pricing flexibility.
Responsibilities
Contracting Officer
Must structure the contract to clearly state the initial firm fixed-price period and the specific times or periods when prospective redetermination will occur. The contracting officer must ensure the pricing terms are clear enough to avoid disputes over when the new price applies.
Contractor
Must perform the initial period at the firm fixed price and prepare for later pricing adjustments based on the contract’s redetermination mechanism. The contractor should maintain cost and pricing information needed to support future redetermination.
Agency
Must use this contract type only when it fits the acquisition need and when future pricing uncertainty makes prospective redetermination appropriate. The agency must support administration of the redetermination schedule during performance.
Practical Implications
This contract type gives the Government and contractor a stable price for the near term, but not for the full period of performance.
The biggest pitfall is failing to define the redetermination points clearly, which can lead to disputes about when the new price starts.
Contractors should not assume the initial price carries forward automatically; future periods depend on the redetermination process.
Contracting officers should make sure the contract distinguishes between the fixed initial period and later periods so invoices, funding, and performance expectations align.
Because the price is reset prospectively, both sides need current cost data and a clear administrative process before each redetermination point.
Official Regulatory Text
A fixed-price contract with prospective price redetermination provides for- (a) A firm fixed price for an initial period of contract deliveries or performance; and (b) Prospective redetermination, at a stated time or times during performance, of the price for subsequent periods of performance.