Institutional Framework of Federal Acquisitions the Fixed

Institutional Framework of Federal Acquisitions

The fixed price contract is a vital element in creating effective, efficient, and accountable acquisition planning. Fixed pricing is typically used when the product or service being purchased is fairly easy to determine a fair market value. For example, a fixed price contract might be used to purchase office equipment because the price structure isn't subject to much fluctuation. It also is efficient because it cuts out some of the administrative burden that is placed on the relevant parties (U.S. Government, N.d.). However, when the deal is subject to price fluctuations there are also economic price adjustments that can be added to account for these differences.

Cost reimbursement contracts also serve and important role in creating effective, efficient, and accountable acquisition planning. A cost contract is a cost-reimbursement contract in which the contractor receives no fee and therefore there is no need to worry about profitability in the contract (U.S. Government, N.d.). These are useful when a non-profit organization is providing some good or service. Under this type of contract the organization is free to provide their goods or services without having to obtain any further verification up to a certain monetary limit.

The time and materials contracts are useful when labor is involved in providing some service and it is difficult to estimate exactly how much labor will be required. For example, when building a road there estimate for total labor might include an estimate of anywhere between one year and two years with a wide range of possible labor costs. Instead of having the contractor bid the project for the highest possible costs that they might incur, it is useful to just pay them for the actual time that they worked on the project by logging their labor hours and basing the contract on this aspect of the project.

Cost-plus contracts are another useful way of managing government procurement and are somewhat similar to time and materials contracts. As opposed to logging labor times, cost-plus contracts can focus on the actual cost a contractor pays and then provide a profit based on a rate that can be figured as a percentage of the total cost. Or a cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract (U.S. Government, N.d.).