FAR 31.102—Fixed-price contracts.
Plain-English Summary
FAR 31.102 explains when the cost principles in FAR Part 31 apply to fixed-price contracting. It covers fixed-price contracts, subcontracts, and modifications, and it applies when the government performs cost analysis or when a fixed-price clause requires the determination or negotiation of costs. The section also clarifies an important limit: using cost principles in a fixed-price setting does not turn the negotiation into an agreement on each individual cost element, because the parties are still agreeing only to the total price. In practice, this means contracting officers and contractors may use cost data to support pricing, evaluate reasonableness, and negotiate adjustments, but the end result remains a negotiated fixed price rather than an item-by-item cost settlement. The section’s purpose is to ensure consistent use of cost principles where needed while preserving the basic nature of fixed-price contracting and the goal of obtaining fair and reasonable prices considering cost and other factors.
Key Rules
Part 31 applies when needed
The applicable subparts of FAR Part 31 must be used in pricing fixed-price contracts, subcontracts, and modifications whenever cost analysis is performed or a fixed-price clause requires cost determination or negotiation. This makes cost principles relevant even in fixed-price environments when the government needs cost-based support for pricing decisions.
No element-by-element agreement
Applying cost principles to a fixed-price action does not mean the parties must negotiate and agree on each individual cost element. The regulation preserves the distinction between cost analysis used to inform pricing and a full cost-reimbursement style agreement on every cost component.
Only the total price is agreed
The final negotiated outcome is agreement on the total fixed price, not on each underlying cost item. Cost data may inform the negotiation, but the legal and practical agreement is the overall price to be paid.
Fair and reasonable remains the goal
Even when cost principles are mandatory, the objective is still to negotiate prices that are fair and reasonable, considering cost and other relevant factors. Cost analysis supports that judgment; it does not replace broader pricing judgment.
Applies to modifications too
The rule expressly covers modifications to contracts and subcontracts, not just initial awards. If a modification requires cost analysis or cost-based negotiation under a clause, Part 31 principles apply in the same way.
Responsibilities
Contracting Officer
Use the applicable FAR Part 31 cost principles when cost analysis is required or when a fixed-price clause calls for cost determination or negotiation. Ensure the negotiation focuses on establishing a fair and reasonable total price, not on converting the action into an agreement on each cost element.
Contractor
Provide cost or pricing information as required to support fixed-price negotiations or modifications, and use the applicable cost principles when preparing pricing proposals. Understand that submitting cost data supports the total-price negotiation but does not create a requirement for the government to accept each proposed cost element.
Subcontracting Parties
Apply the same Part 31 principles in fixed-price subcontract pricing and modifications when cost analysis or clause-based cost negotiation is required. Negotiate and document the total subcontract price while recognizing that cost principles may inform the analysis.
Agency
Ensure acquisition personnel apply the correct cost principles consistently in fixed-price pricing actions and train staff on the distinction between cost analysis and agreement on total price. Maintain policies and review practices that support fair and reasonable pricing decisions.
Practical Implications
Cost data can matter in fixed-price deals, especially for complex buys, changes, and clauses that require cost analysis, so contractors should be ready to support their pricing with credible records.
A common mistake is treating a fixed-price negotiation like a cost-reimbursement audit of every cost element; FAR 31.102 says the agreement is on total price, not each line item cost.
Contracting officers should use cost principles to test reasonableness and support negotiations, but they should avoid language or documentation that suggests the government is approving every proposed cost component as a separate agreement.
The rule applies to modifications as well as initial awards, so change pricing often requires the same disciplined cost analysis as the original contract.
For contractors, the practical takeaway is to build a defensible total price using applicable cost principles, while understanding that the government may still negotiate based on market conditions, risk, technical factors, and other pricing considerations.
Official Regulatory Text
The applicable subparts of part 31 shall be used in the pricing of fixed-price contracts, subcontracts, and modifications to contracts and subcontracts whenever (a) cost analysis is performed, or (b)a fixed-price contract clause requires the determination or negotiation of costs. However, application of cost principles to fixed-price contracts and subcontracts shall not be construed as a requirement to negotiate agreements on individual elements of cost in arriving at agreement on the total price. The final price accepted by the parties reflects agreement only on the total price. Further, notwithstanding the mandatory use of cost principles, the objective will continue to be to negotiate prices that are fair and reasonable, cost and other factors considered.