Firm-Fixed-Price Contract (FFP)
A contract with a set price that doesn't change regardless of the contractor's actual costs — placing the financial risk on the contractor, not the government.
How It Works
Firm-fixed-price contracts are the simplest and most common type of federal contract. The price is agreed upon upfront, and the contractor bears the risk of cost overruns. FFP contracts work best when requirements are well-defined and costs are predictable — buying commercial products, routine services, or well-established technology. The government prefers FFP because it provides cost certainty and maximum incentive for the contractor to control costs. About 70% of contract dollars are awarded as fixed-price.
Related Terms
- Cost-Plus Contract — A contract where the government reimburses the contractor for allowable costs plus a fee (profit) — used for complex projects where total costs are hard to predict upfront.
- Federal Contract — A legally binding agreement between the U.S. government and a private company to provide goods or services — from fighter jets to IT consulting.
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About This Definition
This definition is part of the TaxDollarData Federal Spending Glossary — 31 terms explaining how the U.S. government spends taxpayer money. All definitions are written in plain language for taxpayers, journalists, contractors, and researchers.