FAR 16.206-1—Description.
Plain-English Summary
FAR 16.206-1 describes the basic structure of a fixed-ceiling-price contract with retroactive price redetermination. This section covers two core features: a fixed ceiling price that limits the Government’s payment exposure, and a later, retroactive redetermination of the final price after the contract is completed. In practice, the clause is used when the parties need a firm upper limit during performance but cannot determine the final fair price in advance with enough confidence to use a fully fixed-price arrangement. The section matters because it tells contractors and contracting officers that the contract price is not finally settled at award, even though the ceiling is binding, and that the final amount will be adjusted after completion based on the redetermination process. It is a risk-allocation tool: the contractor bears the risk of costs above the ceiling, while both parties accept that the final price will be established later within that ceiling. Understanding this structure is important for pricing, accounting, cash flow, and closeout because the ceiling controls payment during performance, but the final contract price remains open until redetermination is completed.
Key Rules
Fixed ceiling price required
The contract must state a fixed ceiling price. That ceiling is the maximum amount the Government can pay, regardless of the contractor’s actual costs or the eventual redetermined price.
Final price set later
The contract also provides for retroactive price redetermination after completion. This means the final price is not determined at award and will be adjusted later based on the agreed redetermination method.
Redetermination occurs after completion
The price adjustment happens only after the contract work is completed. The section does not authorize an in-process final price adjustment; it contemplates a post-performance settlement.
Price remains within ceiling
Any retroactive redetermination must stay within the ceiling price. The ceiling operates as an absolute cap, so the final price cannot exceed it even if actual costs or negotiated results would otherwise justify a higher amount.
Responsibilities
Contracting Officer
Establish the fixed ceiling price and ensure the contract clearly states that the final price will be retroactively redetermined after completion. The contracting officer must manage the contract so the ceiling is enforced and the final settlement is completed in accordance with the contract terms.
Contractor
Perform the work knowing the ceiling price is the maximum payable amount and maintain records needed to support the later redetermination. The contractor must be prepared for the final price to be adjusted after completion and cannot assume the ceiling will be increased.
Agency
Use this contract type only when a ceiling price is needed but the final price cannot be determined at award. The agency must support administration of the redetermination process and ensure the arrangement is used consistently with procurement policy.
Practical Implications
The ceiling price is the contractor’s hard stop for payment, so cost overruns above the ceiling are generally unrecoverable.
Because the final price is not settled until after completion, contractors need strong cost tracking and documentation to support the later redetermination.
Contracting officers should make sure the contract language clearly distinguishes the ceiling from the final price to avoid disputes.
This arrangement can create cash-flow and closeout delays because final settlement cannot occur until the work is complete and the redetermination is finished.
A common pitfall is treating the ceiling as if it were the final negotiated price; it is only the maximum price, not the final amount owed.
Official Regulatory Text
A fixed-ceiling-price contract with retroactive price redetermination provides for- (a) A fixed ceiling price; and (b) Retroactive price redetermination within the ceiling after completion of the contract.