Firm-Fixed-Price (FFP) Contract

What is a Firm-Fixed-Price Contract?

A firm-fixed-price contract (often abbreviated as FFP) is one of the most common contract types in government contracting. By definition, it sets a fixed price that is not subject to adjustment based on the contractor’s costs or performance. This structure places maximum risk and responsibility on the contractor to control costs and deliver as agreed.

When asked “What is a firm-fixed-price contract?”, the answer is simple: it is a contract where the government pays a set price, regardless of the actual costs incurred by the contractor.

Firm-Fixed-Price Contract Example

For example, if the government issues an FFP contract for $5 million to build equipment, the contractor must complete the work within that price, even if actual costs rise to $5.5 million. Conversely, if the contractor completes the project for $4.5 million, they retain the savings as profit. This illustrates how maximum profit on firm-fixed-price contracts depends on cost control and efficiency.

Advantages and Disadvantages

Advantages:

• Predictable cost for the government.

• Opportunity for contractors to maximize profit through efficiency.

• Offers a simple structure with less administrative burden compared to cost-reimbursement contracts.
  
  

Disadvantages:

• High financial risk for contractors if costs exceed estimates.

• Limited flexibility if requirements change during performance.

• It may discourage innovation if contractors prioritize cost-cutting over improvements.
  
  

Understanding firm-fixed-price contract advantages and disadvantages helps both contracting officers and contractors evaluate when this contract type is the best fit.

Contract Management and Modifications

Firm-fixed-price contract management focuses on performance monitoring rather than cost tracking, since the price is predetermined. Contractors must meet delivery, schedule, and quality requirements to succeed.

A common question is, “Can you modify a firm-fixed-price contract?” The answer is yes—but only under certain conditions. Modifications typically occur when there are changes to scope, schedule, or terms mutually agreed upon by the government and the contractor. However, unilateral price changes are rare and generally require extraordinary circumstances.

Why Firm-Fixed-Price Contracts Matter in GovCon

• They are widely used for well-defined requirements with low performance risk.

• They encourage contractors to manage costs tightly and deliver efficiently.

• They shift most financial risk to contractors, while the government benefits from price certainty.

• They require disciplined firm-fixed-price contract management practices.
  
  

Takeaways

A firm-fixed-price (FFP) contract provides price certainty for the government while placing financial risk on the contractor. By understanding its definition, advantages, disadvantages, and management requirements, contractors can better evaluate opportunities and maximize profitability under this common GovCon contract type.

FFP FAQs 

Q1. What is a firm-fixed-price contract?
A firm-fixed-price (FFP) contract is an agreement where the government pays a set price that does not change based on the contractor’s actual costs. The contractor assumes most of the financial risk but can increase profit by controlling costs.

Q2. Can you modify a firm-fixed-price contract?
Yes, a firm-fixed-price contract can be modified, but only under specific conditions such as changes in scope, schedule, or agreed-upon terms. Price adjustments are rare and usually require extraordinary circumstances or mutual agreement.

Q3. What are the advantages and disadvantages of firm-fixed-price contracts?
Advantages include predictable costs for the government and higher profit potential for efficient contractors. Disadvantages include higher financial risk for contractors and less flexibility if requirements change during performance.