FAR 36.207—Pricing fixed-price construction contracts.
Plain-English Summary
FAR 36.207 explains how the Government should price fixed-price construction contracts and when different pricing methods are appropriate. It covers the general rule that construction should be acquired using firm-fixed-price contracts, the three acceptable pricing approaches within that contract type—lump-sum, unit-price, or a combination of both—and the preference for lump-sum pricing over unit pricing. It also identifies the specific situations where unit pricing is appropriate, such as large quantities of work, uncertain quantities, significant quantity changes during performance, or when estimating would require unusual effort. Finally, it addresses when fixed-price contracts with economic price adjustment may be used, namely when such clauses are customary for the work or when omitting them would reduce competition or cause offerors to build unwarranted contingencies into prices. In practice, this section helps contracting officers choose a pricing structure that matches the nature of the construction work, supports competition, and reduces avoidable pricing risk and contingency costs.
Key Rules
Use firm-fixed-price construction
The general rule is that construction should be acquired using firm-fixed-price contracts. This means the contractor bears the risk of performing the work for the agreed price, subject to the contract terms.
Choose among three pricing methods
Construction may be priced on a lump-sum basis, a unit-price basis, or a combination of the two. The pricing structure should fit the work being acquired and the level of certainty available for estimating quantities.
Prefer lump-sum pricing
Lump-sum pricing is preferred over unit pricing unless one of the listed exceptions applies. The Government should use lump-sum pricing when the work can be defined and estimated with enough confidence to support a total price.
Use unit pricing for uncertain quantities
Unit pricing is appropriate when large quantities of work are involved, quantities cannot be estimated confidently without a substantial contingency, quantities may change significantly during construction, or offerors would need unusual effort to prepare adequate estimates.
Allow combinations when needed
A contract may use both lump-sum and unit-price elements when some parts of the work are well defined and others are better handled by measurable units. This allows the pricing method to match the character of each portion of the project.
Economic price adjustment only when justified
Fixed-price contracts with economic price adjustment may be used when such clauses are customary for the type of work or when omitting the clause would discourage competition or cause inflated pricing due to contingency allowances.
Responsibilities
Contracting Officer
Select the pricing method that best fits the construction requirement, defaulting to firm-fixed-price and preferring lump-sum pricing unless a listed exception supports unit pricing. The contracting officer must also determine whether an economic price adjustment clause is appropriate based on industry custom or competition and pricing effects.
Agency
Structure the acquisition to use the pricing approach that best supports fair competition, accurate pricing, and efficient contract administration. The agency should ensure the requirement is described clearly enough to support the chosen pricing method.
Offerors/Contractors
Prepare proposals using the pricing structure requested by the solicitation and price the work based on the contract’s lump-sum, unit-price, or mixed structure. If an economic price adjustment clause is included, contractors must account for it in their pricing and performance planning.
Practical Implications
The biggest day-to-day decision is whether the work is stable enough for a lump-sum price or uncertain enough to justify unit pricing. Getting this wrong can lead to inflated bids, disputes over quantities, or poor cost control.
Contracting officers should document why unit pricing is used instead of lump-sum pricing, especially when quantities are hard to estimate or likely to change. A weak rationale can create acquisition and audit risk.
Economic price adjustment clauses should not be used automatically; they are appropriate only when market practice or competition concerns justify them. Overuse can shift unnecessary risk to the Government and complicate administration.
Contractors should pay close attention to how quantities are defined and measured, because unit-price contracts depend heavily on accurate quantity tracking and payment administration.
Mixed pricing can be useful on complex projects, but it requires careful solicitation drafting so bidders understand which portions are lump-sum and which are unit-priced, reducing ambiguity and claims later.
Official Regulatory Text
(a) Generally, firm-fixed-price contracts shall be used to acquire construction. They may be priced- (1) On a lump-sum basis (when a lump sum is paid for the total work or defined parts of the work), (2) On a unit-price basis (when a unit price is paid for a specified quantity of work units), or (3) Using a combination of the two methods. (b) Lump-sum pricing shall be used in preference to unit pricing except when- (1) Large quantities of work such as grading, paving, building outside utilities, or site preparation are involved; (2) Quantities of work, such as excavation, cannot be estimated with sufficient confidence to permit a lump-sum offer without a substantial contingency; (3) Estimated quantities of work required may change significantly during construction; or (4) Offerors would have to expend unusual effort to develop adequate estimates. (c) Fixed-price contracts with economic price adjustment may be used if such a provision is customary in contracts for the type of work being acquired, or when omission of an adjustment provision would preclude a significant number of firms from submitting offers or would result in offerors including unwarranted contingencies in proposed prices.