If you’re looking to win more government contracts this year or start bidding on them, understanding the types of government contracts is a great place to start. Every year the US Federal government and its various agencies procure more than $300 billion in bids in more than 4,000 categories.
Most government contacts over $150,000 are sent through a competitive bidding process overseen by a contracting officer.
A secure and reliable way to grow your business, indifferent of any size, could benefit from winning a government contract. It also gives your business a stamp of approval. How?
Think about it. If you can meet the government’s standards for quality of product, price, and service, most likely you can meet any of your potential customer’s requests.
The government frequently buys in very large volumes and has lengthy contracts at times. The kind of customer that can provide a solid foundation for growing your company, especially in this economy.
It is also important to know, as we are a veteran woman-owned business, laws are in place to set aside all or part of many contracts to women-owned businesses, small businesses, and minority-owned businesses.
What types of government contracts are there?
The types of government contracts generally fall under a few different categories, that entail different necessities and varying risk for you.
Understanding the type of government contracts, you’re competing for can help give you a better sense of what to be ready for, the risk involved and how to write a more compelling and competitive proposal.
Government contracts fall into 2 main categories: fixed price and cost reimbursement.
Each government contract requires a special pricing strategy and a unique way to approach writing the RFP.
Out of these 2 categories, we will look over the top four most common types of government contracts and their intricacies within those categories:
- Fixed Price Contracts
- Cost-Reimbursement and Cost-Plus Contracts
- Time-and-Materials Contracts
- Indefinite Delivery/Indefinite Quantity Contracts
Understanding these types of government contracts can be a bit confusing and can get difficult for any proposal team, which is why in this article, SAS-GPS will help you develop a strategy.
1- Fixed Priced Contracts
Fixed-price contracts are used by all federal agencies and generally provide a firm price for the contract.
Under a fixed-price contract, the government contractor agrees to deliver the product or service required at a price and charge no more than the agreed maximum.
Fixed-price contracts are normally used when the contract risk is relatively low, and the government contractor and the government can reasonably agree on a maximum price. An example of a low-risk contract would be one for production.
Examples of higher risk contracts, in which fixed price would not be a used are concept studies or research.
Since a lot of federal agencies use fixed-price contract, the number of opportunities for government contractor are large and many.
These types of contracts are also very common in state and local procurements.
Types of Fixed Price Contracts
Withing Fixed Priced Contracts there are also variations that exist. They Are:
- Firm-Fixed-Price (FFP) Contract
- Firm-Fixed-Price (FFP) Level-Of-Effort Term Contract
- Firm-Fixed-Price (FFP) Materials Reimbursement Type Contract
- Fixed-Price Contract with Award Fees
- Fixed-Price Contract with Economic Price Adjustment
- Fixed-Price Incentive (FPI) Contracts
- Fixed-Price with Prospective Price Redetermination
- Fixed-Ceiling-Price with Retroactive Price Redetermination Contracts
If you are looking to go deep into these variations, check out this great PDF by GovWin that goes even more in detail.
2- Cost-Reimbursement and Cost-Plus Contracts
Cost-reimbursement, or cost-plus, is a type of contract where the government contractor is paid for all its allowed expenditures up to an agreed-upon limit, plus additional money to allow the government contractor to make some positive revenue.
Cost-reimbursement contracts differ from fixed-price contracts, in which the contractor is paid a negotiated amount regardless of sustained expenses during the project.
In a cost-reimbursement contract, the government contractor agrees to provide its top effort to complete the obligatory contract.
These contracts provide for reimbursement of allowable costs, detailed within the initial contract. The initial contract includes a total amount of money to be paid to the government contractor and establishes a ceiling that the contractor cannot exceed (except at its own risk) without the consent of the contracting officer.
Agencies that use this government contract type include, but not limited to, these:
- Federal Transit Administration
- National Weather Service
- U.S. Department of Defense
Types of Cost-Reimbursement Contracts
- Cost Contracts
- Cost-Plus-Fixed-Fee (CPFF) Contracts
- Cost-Plus-Incentive Contracts
- Cost-Sharing Contracts
What are the good and the bad parts of a Cost-Reimbursement Contract
A cost-reimbursement contract is often used when long-term quality is a much higher concern than the amount paid to the government contractor, such as in the United States Military.
In contrast to a fixed-price contract, a cost-plus government contractor has little incentive to cut corners.
The final cost may also be less than a fixed-price contract because contractors do not have to exaggerate the price to cover the risk.
Nevertheless, this contract type does have some disadvantages. There is limited certainty as to what the final cost will be, and there is less incentive to be cost-effective compared to a fixed-price contract.
It requires additional oversight and administration to ensure that only permissible costs are paid and that the government contractor is exercising acceptable overall cost controls.
Properly designing award or incentive fees also requires additional oversight and administration.
3- Time-and-Materials Contracts (T&M)
A time-and-materials (T&M) contract are very liked by government contractors.
The government sidesteps them whenever possible because they change the risk from the government contractor to the contracting agency.
There are good reasons, however, for contractors to approach them thoughtfully. T&M contracts are a hybrid of fixed-price and cost-reimbursement contracts.
This type of contract is a good example of the way contractors and the government do not always have the same interests: T&M contracts present the main risk to the government and lowermost risk to the government contractor, and hence are the least wanted contract type for the government.
Time-and-Materials (T&M) contracts allow government purchasing officials to purchase supplies or services based on:
- Direct labor hours at specified fixed hourly rates that include wages, overhead, profit and general and administrative expenses
- Real material costs
A T&M government contract may be used only when it’s not likely to accurately estimate the amount or duration of the work or to foresee costs with any sensible degree of assurance.
4– Indefinite Delivery/Indefinite Quantity Contracts
One of the most dominant contract types being used by the federal government is the indefinite delivery/indefinite quantity (IDIQ) contract.
These contracts can be used on both a fixed-price and cost-reimbursement basis. When the federal government decides to purchase a product or service, it doesn’t always identify how many hours of a professional’s time, it will need.
Most types of contracts the government uses entail it to list exact quantities, so it occasionally needs the elasticity of an IDIQ contract. IDIQs are often various award contracts and have become quite popular in recent years.
Using an IDIQ allows the government to select numerous possible vendors for a an agency to rely on, then ask that small group of vendors to bid against one another to complete each separate task; giving the government a good price for each task without initiating a new contract competition and all that it would demand of contracting officers.
For industry, however, this can make winning a position on an IDIQ contract necessary.
An IDIQ contract provides for an indefinite quantity of a product or service, with limits, during a fixed period from the government contractor chosen for the specific task.
This type of contract requires the government to order (and the contractor to supply) at least a stated minimum quantity of supplies or services. The contracting officer decides a reasonable maximum quantity for the overall contract.
Types of IDIQ Contracts<h3>
IDIQ contracts can take the form of agency specific contracts or multi-agency contracts under the government-wide acquisition contracts (GWAC) system.
- Task-Order Contract (TOC) and Job-Order Contract (JOC) IDIQs
- Advisory and Assistance (A&A) Services
How to find government contracts?
The best source where you can find your government opportunities is at SAS.GOV.
If you are looking to find a GWAC (Government Acquisition Contract) check out this link from GAS.gov
How to win government contracts?
First thing first, become a federal government contractor. Learn how to do that here: https://www.usa.gov/become-government-contractor
Check out this great article from the SBA on how to win government contracts as well.
Incorporated in 2002, our experienced team of writers and designers has helped our clients win over $30+ billion in contracts. We are a service-disabled veteran and female-owned small business, with U.S. military veterans as key members of our management team.
We have extensive firsthand proposal development experience and connections with the Department of Defense, the U.S. Armed Forces, and other Federal agencies and their contracting practices, as well as those of the private sector.
Our clients range from brand-new start-ups to Fortune 500 firms.