Firm-Fixed Price? No Need To Budge
In this era of strict budgets and an ever-increasing emphasis on lowering prices and costs, it’s no surprise that contractors are feeling pressure from procurement officials to provide the lowest prices possible. Such pressure might even extend to the original negotiated prices of existing contracts. This pressure may take the form of rejected invoices, for example, or an agency’s argument that the contractor is performing more efficiently than originally anticipated and that an adjustment to the contract price is, therefore, required. If the contract was awarded as a Firm-Fixed Price (FFP) contract, however, and all deliverables are being met, a contractor is entitled to receive the full contract amount, regardless of any unanticipated efficiencies it’s able to achieve during performance.
Typically, if your contract is awarded on a FFP basis, you have little recourse to adjust the price based on your actual cost experience in performance. FFP contracts place the maximum risk and full responsibility for all costs and resulting profit or loss squarely on the contractor. It also provides maximum incentive for the contractor to control costs and perform effectively and imposes a minimum administrative burden upon the contracting parties. See FAR 16.202-1. For example, if you have a FFP services contract and discover that the work requires a larger staff than was originally judged to be necessary, no additional compensation can be forthcoming under a FFP contract, absent a specific contract clause authorizing such an adjustment. By the same token, the accomplishment of the work with fewer workers than was initially thought needed would go to your benefit.
The lack of adjustment for awards made under FFP makes sense because the first word in FFP is “firm.” The Civilian Board of Contract Appeals (CBCA) recently decided a case along these lines. In Jane Mobley Assoc., Inc. v. General Services Admin., CBCA No. 2878, 13-1 BCA ¶ 35447 (Oct. 31, 2013), the CBCA held that, since the contract had been awarded as a firm fixed-price contract and the contractor had satisfactorily performed and was paid the contract price, the contractor could not have “overbilled” the government, even where the contractor was required to submit documentation supporting the number of hours worked. (“If the contract is a firm fixed-price contract, appellant could not have over-billed for the work, as it billed the contract price.”)
The CBCA held that, since the contract was awarded as a firm fixed-price contract and the parties had not negotiated any subsequent modifications to the contrary, the contracting officer’s requirement that invoices be submitted to document hours did not transform the contract into one for cost-type services. A contract cannot be a combination of a fixed-price and cost-type contract because the two types have different incentives, risks, and purposes: “Accordingly, when the Government chooses the type of contract it wishes to enter into, it can have it one way or the other, but it cannot have it both ways. The contract must be either fixed-price or cost-type.”
Much in the same way that the government is protected if the services actually required on a FFP contract far exceed the FFP agreed to with the contractor, so is the contractor protected in knowing that it will receive the FFP it agreed to with the government for delivering the services it has been asked to provide. If your customer begins to push back against the fixed amount due and you have consistently provided the required deliverables, you are within your rights to stand firm on the existing negotiated price.