Firm Fixed Price(FFP)

Overview

A Firm Fixed Price (FFP) contract establishes a price that remains constant regardless of the contractor's actual costs of performance. The contractor bears full financial responsibility — if costs run over the agreed price, the contractor absorbs the loss; if costs come in under, the contractor keeps the savings. FFP is the government's preferred contract type.

Why It Matters in GovCon

FFP contracts are the most common type in federal procurement because they offer the government price certainty and minimal administrative burden. For contractors, accurate cost estimation is critical — underpricing an FFP contract can be financially devastating, while overpricing makes you uncompetitive.

Key Details

• Risk Allocation: Maximum risk on the contractor, minimum on the government.
• When Used: Appropriate when requirements are well-defined, specifications are clear, and costs can be estimated with reasonable certainty.
• Profit Incentive: Contractors are motivated to control costs since any savings go directly to the bottom line.
• Modifications: Price changes require a formal contract modification signed by the Contracting Officer, typically due to scope changes rather than cost overruns.
• FAR Preference: FAR 16.103 states that FFP contracts shall be used when the risk allows and are preferred over cost-type contracts.

Related Terms

• Cost Plus Fixed Fee (CPFF)
• Contract Line Item Number (CLIN)
• Contract Modification
• Contracting Officer (CO)