TABLE OF CONTENTS | Firm Fixed Price | Cost Reimbursement |
|---|---|
| Profit based on performance or cost control | Profit based on agreement |
| Interim Progress Payments Possible | Fee or fee formula agreed to in advance |
| Firm cost requirement | High cost risk |
| Guaranteed delivery | Best effort delivery |
| Well defined scope | Performance requirements vs. existing product |
| Paid on delivery | Paid as cost incurred |
A contract is a legal agreement that creates duties and obligations between all the parties involved. It establishes a legal relationship between parties defining the objectives, responsibilities, and obligations of each party.
It provides control of the program and flexibility for modifications. The objective of many contracts is to acquire needed systems, supplies, and services that are reasonably priced, delivered on time, and are of acceptable quality.
The beginning (top) of the following list of contract types represents a lower risk to the buyer and a higher risk to the seller. Conversely, the end (bottom) of the list represents a higher risk to the buyer but a lower risk to the seller.
| Firm Fixed Price: | Buyer pays specified price. Financial risks are on seller. |
| Fixed Price Incentive: | Contains a target price, ceiling price, and variable profit formula. Seller's profit is $0.00 at the ceiling price. |
| Fixed Price with Redetermination: | Amounts of labor and materials are initially unknown. The price cannot go higher than the temporary set price. The fixed price results after the unknowns are resolved. |
| Fixed Price with Escalation: | Prices of wages and materials are uncertain. Long periods of production are anticipated. Prices are... |
