10.3 Selecting & Documenting Contract Type
Key Takeaways
Select contract type by matching requirement definition, cost uncertainty, market practice, and administrative capability—not by habit, convenience, or “flexibility” slogans.
Contract type and fee are negotiable business terms within legal limits; negotiation objectives should address type/fee when they are not fixed by the solicitation structure.
Different CLINs or contract line items may use different types when justified (combining types); the file must explain the hybrid structure.
Document the rationale in the acquisition plan and contract file so a successor can see why the chosen type allocates risk appropriately.
Common exam trap: choosing cost-reimbursement or T&M when requirements are well defined and fixed-price is suitable—or forcing FFP when uncertainty makes fixed pricing unrealistic.
10.3 Selecting & Documenting Contract Type
Quick Answer: Match requirement clarity + cost uncertainty + market + admin capacity to contract type. Negotiate type and fee when the deal allows. Combine types on CLINs only with logic. Document the rationale in the acquisition plan/file. Avoid the trap of cost-type/T&M for well-defined work and the opposite trap of forced FFP for pure R&D uncertainty.
Sections 10.1 and 10.2 built the type catalog. Section 10.3 is the decision engine CON 3990V actually tests: given facts, which type, why, how documented, and what negotiation moves make sense. Award-phase competencies (price/cost analysis, negotiation planning, source selection) all assume you did not cripple the deal with the wrong risk allocation.
The selection framework
Use a repeatable filter—closed-book friendly:
Step 1 — How well is the requirement defined?
| Definition level | Type lean |
|---|---|
| Commercial / clear completion or performance standards | FFP (or FP EPA if inputs volatile) |
| Definable with residual cost-efficiency opportunity | FPIF / FPAF if admin supports |
| Effort toward objectives; outcome path uncertain | Cost-reimbursement family |
| Hours-based support; no better completion form fits | T&M/LH (limited) with ceiling |
Step 2 — Who should hold cost risk?
- If the contractor can control and estimate costs → put cost risk on contractor (fixed-price).
- If neither party can estimate well → Government accepts more cost risk (cost-reimbursement) with controls.
- If you need start-now authority → letter contract then definitize to the right long-term type.
Step 3 — What will the market accept and price competitively?
Market research (Part 10) tells you whether industry will bid FFP or will walk / load impossible contingency. A theoretically “preferred” FFP that yields no offers or fantasy prices fails best value.
Step 4 — Can the Government administer the type?
| Type | Admin demand |
|---|---|
| FFP | Acceptance against standards; lighter cost audit |
| FP EPA | Index tracking, adjustment calculations |
| FPIF / CPIF | Cost tracking, share-line settlement |
| FPAF / CPAF | Award-fee plans, boards, documentation |
| Cost types generally | Invoice allowability, systems, funding controls |
| T&M/LH | Hour surveillance, skill mix, ceiling management |
Selecting CPAF with no capacity to run award fee is a planning failure.
Step 5 — Document and solicit consistently
The solicitation must implement the chosen type (clauses, pricing schedules, evaluation of price/cost). Changing type midstream without amendments and fairness analysis creates integrity problems (Chapter 4 themes).
Matching risk and requirement definition (master table)
| Fact pattern | Preferred lean | Avoid |
|---|---|---|
| Commercial supplies, clear qty/delivery | FFP | CPFF “for flexibility” |
| Multi-year commodity with published index | FP EPA | Pure FFP with huge contingency only option, or open cost-type |
| Stable production, cost-sharing motivation | FPIF | CPFF if fixed-price incentive works |
| R&D prototype, unknown technical path | CPFF / CPIF / CPAF as facts fit | Forced FFP that invites massive REAs |
| Emergency repair, unknown hours | T&M with ceiling + surveillance | Perpetual T&M after scope becomes clear |
| Recurring IT support, measurable SLAs | FFP PWS | T&M because “tickets vary” without analysis |
| Immediate start, definitive pricing later | Letter contract → definitive type | Undefinitized forever |
| Unknown order quantities over years | IDIQ vehicle + order-level type | Treating parent award as final price for all future work |
Negotiation of type and fee
Contract type is a business term. In competitive procurements, the Government often specifies the type in the solicitation. In negotiated acquisitions, especially sole-source or when the solicitation allows alternative pricing structures, type and fee may be negotiated.
Negotiation themes (CON 3990V)
- Government opening position: Prefer the type that matches risk and policy (often FFP when suitable).
- Contractor position: May push cost-type or higher fee to shift risk or increase return.
- Trade space: Type, fee, incentives, ceilings, data requirements, and surveillance rights move together.
- Fee is not free money: Fee should reflect complexity, risk, investment, and policy limits—not a reward for accepting a type the facts do not support.
- Pre-negotiation objectives (link to later chapter): Document target type/fee and minimum acceptable positions before sitting down.
| Negotiation scenario | Sound CO posture |
|---|---|
| Sole-source contractor demands CPFF for commercial repair with clear SOW | Challenge suitability; push FFP or justify why uncertainty is real |
| Competitive RFP set as FFP; offeror proposes cost-type alt without authority | Follow solicitation rules; alternatives only if solicitation allows |
| CPIF share line dispute | Analyze motivation and Government exposure; do not give max fee + soft targets |
| Award fee pool inflated relative to base | Align pool to value of excellence; avoid fee that pays for ordinary compliance |
Exam trap: “Type is never negotiable; only unit prices are.” Type can be fixed by solicitation, but in many negotiated settings type and fee are central business issues within legal constraints.
Combining types
A single contract may combine types—for example:
- FFP CLINs for hardware production lots
- CPFF CLIN for concurrent development support
- FFP options for spares
- T&M CLIN for surge repair with a ceiling
Rules of thumb for hybrids
| Do | Don’t |
|---|---|
| Separate CLINs with clear work boundaries | Blur cost-type and fixed-price work so costs migrate to the “easier” CLIN |
| Explain why each type fits each portion | Use a token FFP CLIN to claim “mostly fixed-price” while the real effort is open-ended T&M |
| Align inspection/acceptance and payment instructions per CLIN | Apply one surveillance model blindly to all CLINs |
| Ensure accounting can segregate costs | Invite cost charging games across CLINs |
Combining types is a feature when the work is truly heterogeneous; it is a bug when used to disguise the wrong primary type.
Documenting rationale in the acquisition plan and file
FAR Part 7 acquisition planning and Part 16 selection policy both expect the file to answer: Why this type?
Minimum content for a defensible type decision
- Description of requirement and stability of definition
- Period of performance and uncertainty over time
- Market research findings on how industry prices similar work
- Risk analysis (cost, schedule, technical, administrative)
- Alternatives considered (e.g., FFP vs CPFF vs T&M) and why rejected
- Selected type and fee approach
- Administration plan (COR, cost/fee controls, award-fee process if any)
- Approvals required by agency procedures for certain types (e.g., T&M determinations, UCA approvals)
| Audience reading the file | What they need to see |
|---|---|
| Successor CO | Why risk sits where it sits |
| Reviewer / IG / GAO | Policy compliance and logic |
| Negotiation team | Objectives for type/fee |
| COR | How to surveillance the chosen type |
Weak: “Contract type: CPFF.”
Strong: “Technical approach for prototype radar signal processing is not stable enough for FFP; market research shows only cost-type bids on analogous efforts; CPFF term form for 12-month level of effort selected; transition to FFP production contemplated after CDR; DCAA audit support coordinated; limitation of costs controls and monthly burn review assigned to COR.”
Exam scenarios — choosing type from facts
Work these as closed-book drills:
Scenario A — Well-defined commercial training
Facts: commercial course delivery, fixed syllabus, fixed number of sessions, competitive market.
Answer lean: FFP.
Trap: CPFF “because student counts might change” without using options/mods for real changes.
Scenario B — Uncertain remediation after discovery
Facts: hazardous materials found; extent of cleanup unknown; urgency to start characterization.
Answer lean: Possibly T&M or cost-type for characterization phase; letter contract if immediate start required; plan to definitize or recompete defined remediation as FFP when scope clarifies.
Trap: Single long-term FFP with no knowledge of quantity of work—or perpetual T&M with no ceiling.
Scenario C — Production with cost motivation
Facts: mature design, known BOM, Government wants share of underruns.
Answer lean: FPIF (or FFP if incentives unnecessary).
Trap: CPAF with no evaluation capacity; CPFF when uncertainty is low.
Scenario D — Program pressure
Facts: PM says “use cost-plus so we can change requirements without mods.”
Answer lean: Reject as primary rationale. Changes need authority regardless of type; cost-type is for estimating uncertainty, not to avoid configuration control.
Trap: Agreeing that cost-type eliminates need for scope discipline.
Scenario E — IDIQ order
Facts: Multiple-award IDIQ for professional services; this order has a clear 6-month PWS deliverable.
Answer lean: FFP task order if order-level definition supports it; fair opportunity among holders.
Trap: “Parent is cost-type flavor, so every order must be cost-type,” if the instrument allows FFP orders and facts support them.
Common traps (high-yield)
| Trap | Why it’s wrong | Better path |
|---|---|---|
| Cost-type when requirements are well defined | Shifts cost risk to Government unnecessarily; weaker cost control | FFP / fixed-price incentive |
| T&M as default for all services | Hours incentive problem; policy least preferred when other types work | PWS + FFP |
| FFP for pure undefined R&D | Unrealistic pricing, contingency, claims | Cost-type with controls |
| Award fee without evaluation engine | Fee becomes entitlement theater | FFP or formula incentive |
| Letter contract for convenience | UCA risk, pricing leverage loss | Plan earlier; definitive contract |
| No documentation | Cannot defend selection | Plan/file rationale |
| Type shopping mid-evaluation | Fairness/integrity failure | Amend solicitation properly if change is needed |
| Ignoring admin capacity | Type fails in execution | Match type to team capability |
Integration with other FAR parts (exam map)
| Part | Link to contract type |
|---|---|
| Part 7 | Acquisition plan addresses type |
| Part 10 | Market research supports feasibility of type |
| Part 12 | Commercial preference for fixed-price |
| Part 15 | Negotiation of type/fee; cost/price analysis interactions |
| Part 16 | Primary type policy and descriptions |
| Part 31 | Allowability backbone for cost-type |
| Part 42 / 46 | Administration and quality surveillance intensity by type |
| Part 43 | Changes still require authority under all types |
Closed-book decision checklist
- Are requirements clear enough to price fixed?
- Is uncertainty technical/estimating reality or planning laziness?
- What does market research say firms will bid?
- Which party should hold cost risk for best mission value?
- Can we administer the type (fee, hours, costs, EPA)?
- Is a hybrid CLIN structure justified?
- Is type/fee a negotiation issue, and are objectives written?
- Is the rationale in the plan/file?
- Does the solicitation match the decision?
- Would this choice survive a protest/audit story about risk and fairness?
Bottom line: Selecting contract type is a risk-matching and documentation exercise under FAR Part 16, informed by planning and market research. Negotiate type and fee when the acquisition structure allows; combine types only with clear CLIN logic; write down why the choice fits. On CON 3990V, the winning answer pairs the facts to the type—and rejects both cost-type convenience for well-defined work and forced FFP when uncertainty makes fixed pricing unrealistic.
A program manager argues for cost-plus-fixed-fee on a well-defined commercial software implementation with a detailed PWS so the team can “change requirements freely without modifications.” What is the best Contracting Officer assessment?
Agree—cost-type eliminates the need for scope control or modifications
Agree only if the fee is set to zero
Disagree only because T&M is mandatory for all software work
Disagree—well-defined commercial work generally favors fixed-price, and requirement changes still require authorized modifications regardless of contract type
Which documentation best supports selection of contract type in the acquisition plan/file?
An analysis of requirement definition, cost uncertainty, market research, alternatives considered, risk allocation, and administration approach for the selected type
A one-word entry stating the type with no analysis
A note that the contractor prefers cost-plus, with no Government analysis
A copy of an unrelated prior contract type from a different requirement
When may combining different contract types on separate CLINs within one contract be appropriate?
Never; each contract may use only one type under all circumstances
Whenever the team wants maximum invoice flexibility without explaining boundaries
When distinct portions of the work have different definition/risk profiles and the structure is clearly bounded and documented (e.g., FFP production CLIN plus CPFF development CLIN)
Only on letter contracts after definitization is complete
In a negotiated sole-source acquisition for complex developmental effort with high cost uncertainty, which statement about negotiating contract type and fee is most accurate?
Type and fee are never negotiable once market research exists
Type and fee can be central negotiation issues within legal and policy limits, and pre-negotiation objectives should address the Government’s position on both
Fee may be negotiated but contract type is fixed exclusively by the contractor’s accounting system
The CO must always accept CPFF if the contractor requests it
Sections you finish are checked off in the contents.