FAR 35.006—Contracting methods and contract type.
Plain-English Summary
FAR 35.006 explains how contracting officers should choose the contracting method and contract type for research and development (R&D) acquisitions. It addresses why negotiation is usually necessary in R&D, the continuing need to follow FAR Part 6 competition requirements, and the contracting officer’s responsibility to select the contract type after considering technical advice. The section also explains why cost-reimbursement contracts are usually appropriate for R&D, when fixed-price arrangements may still work, and how incentive contracts fit into the decision. It further discusses short-duration fixed-price contracts for defined effort, minor projects with reliable cost estimates, and the normal progression from cost-reimbursement to fixed-price contracts as R&D matures into production. In practice, this section helps agencies match contract structure to technical uncertainty, cost risk, and development maturity so they avoid forcing an unsuitable contract type onto work that is still too uncertain to price accurately.
Key Rules
Negotiation is usually necessary
R&D work generally cannot be described with the precise specifications needed for sealed bidding, so negotiation is normally the appropriate contracting method. Even so, using negotiation for R&D does not excuse the Government from complying with FAR Part 6 competition requirements.
CO selects contract type
The contracting officer is responsible for choosing the contract type, but should do so after obtaining recommendations from technical personnel because technical uncertainty drives the decision. The contract type must fit the work, not the other way around.
Fixed-price preference is limited
Although the Government generally prefers fixed-price contracting, that preference applies to R&D only when goals, objectives, specifications, and cost estimates are sufficiently clear to support it. If the work cannot be defined with enough precision, fixed-price contracting is usually not appropriate.
Cost-reimbursement is usually appropriate
Because R&D often involves uncertain specifications and unreliable cost estimates, cost-reimbursement contracts are normally the better choice. Development work often calls for a cost-reimbursement completion arrangement when the Government needs a completed effort rather than just a level of effort.
Use incentives when practical
If cost and performance incentives are desirable and feasible, fixed-price incentive contracts and cost-plus-incentive-fee contracts should be considered, with fixed-price incentive generally preferred before cost-plus-incentive-fee. These structures can help manage risk while still motivating performance.
Short fixed-price contracts may work
When the level of effort can be defined in advance, a short-duration fixed-price contract may be useful for concept development, problem resolution, and reducing Government risk. Fixed-price contracting may also be suitable for minor projects when research objectives are well defined and cost estimates are reliable.
Move toward fixed-price as risk falls
For projects with production follow-on requirements, the contract approach should generally move from cost-reimbursement to fixed-price as designs stabilize, risks decrease, and tooling, equipment, and processes are developed and proven. The Government should avoid making a final commitment to specific product development and testing until feasibility is reasonably established and minimum requirements and desired objectives are defined.
Responsibilities
Contracting Officer
Determine the appropriate contracting method and contract type for the R&D acquisition, using technical recommendations and matching the contract structure to the level of uncertainty, risk, and definability of the work. Ensure compliance with FAR Part 6 when using negotiation, and consider cost-reimbursement, fixed-price incentive, cost-plus-incentive-fee, or short-duration fixed-price approaches as appropriate.
Technical Personnel
Provide recommendations on the technical aspects of the R&D effort, including how well the work can be defined, the realism of cost estimates, the maturity of the design, and the level of risk. Their input supports the contracting officer’s contract type decision.
Agency/Program Office
Define research goals, performance objectives, and desired outcomes as clearly as possible, and help determine when the project has matured enough to support a change from cost-reimbursement to fixed-price contracting. Avoid premature commitments to development and testing before feasibility and requirements are sufficiently established.
Contractor
Understand that the contract type will reflect the uncertainty and maturity of the R&D effort, and be prepared for cost-reimbursement or incentive-based structures when specifications and costs cannot be predicted with confidence. For follow-on production, be ready to transition to fixed-price arrangements as the design becomes stable and production processes are proven.
Practical Implications
R&D acquisitions are often poor candidates for sealed bidding because the Government usually cannot write precise enough specifications at the outset.
Contracting officers should not default to fixed-price simply because it is generally preferred; they need a realistic assessment of technical maturity and cost estimate reliability.
A common mistake is using fixed-price when the work is still exploratory, which can create pricing disputes, excessive risk premiums, or performance problems.
Another pitfall is failing to involve technical experts early enough, leading to a contract type that does not match the actual state of the science or engineering effort.
For follow-on production, agencies should plan for a transition in contract type as the design stabilizes, rather than locking into one structure too early or committing to production before feasibility is demonstrated.
Official Regulatory Text
(a) In R&D acquisitions, the precise specifications necessary for sealed bidding are generally not available, thus making negotiation necessary. However, the use of negotiation in R&D contracting does not change the obligation to comply with part 6 . (b) Selecting the appropriate contract type is the responsibility of the contracting officer. However, because of the importance of technical considerations in R&D, the choice of contract type should be made after obtaining the recommendations of technical personnel. Although the Government ordinarily prefers fixed-price arrangements in contracting, this preference applies in R&D contracting only to the extent that goals, objectives, specifications, and cost estimates are sufficient to permit such a preference. The precision with which the goals, performance objectives, and specifications for the work can be defined will largely determine the type of contract employed. The contract type must be selected to fit the work required. (c) Because the absence of precise specifications and difficulties in estimating costs with accuracy (resulting in a lack of confidence in cost estimates) normally precludes using fixed-price contracting for R&D, the use of cost-reimbursement contracts is usually appropriate (see subpart 16.3 ). The nature of development work often requires a cost-reimbursement completion arrangement (see 16.306 (d)). When the use of cost and performance incentives is desirable and practicable, fixed-price incentive and cost-plus-incentive-fee contracts should be considered in that order of preference. (d) When levels of effort can be specified in advance, a short-duration fixed-price contract may be useful for developing system design concepts, resolving potential problems, and reducing Government risks. Fixed-price contracting may also be used in minor projects when the objectives of the research are well defined and there is sufficient confidence in the cost estimate for price negotiations. (See 16.207 .) (e) Projects having production requirements as a follow-on to R&D efforts normally should progress from cost-reimbursement contracts to fixed-price contracts as designs become more firmly established, risks are reduced, and production tooling, equipment, and processes are developed and proven. When possible, a final commitment to undertake specific product development and testing should be avoided until- (1) Preliminary exploration and studies have indicated a high degree of probability that development is feasible and (2) The Government has determined both its minimum requirements and desired objectives for product performance and schedule completion.