The Department of the Air Force (DAF) utilizes a variety of contract types to procure goods and services. Understanding these different types is crucial for contractors to submit competitive bids and effectively manage their performance. Here’s a breakdown of some common contract types, with a focus on their application within the DAF:

1. Fixed-Price Contracts:

• Description: In a fixed-price contract, the contractor agrees to perform the work for a predetermined, firm price.¹ This price remains fixed regardless of the contractor’s actual costs, unless specific clauses allow for adjustments (e.g., economic price adjustment clauses).²
• Variations:
  • Firm-Fixed-Price (FFP): The most common type, offering the least risk to the government and the most risk to the contractor. The price is not subject to any adjustment.
  • Fixed-Price with Economic Price Adjustment (FP-EPA): Allows for pre-defined adjustments to the price based on specific economic factors, such as inflation or changes in material costs.³ This is useful for longer-term contracts where economic fluctuations are anticipated.⁴
  • Fixed-Price Incentive Fee (FPIF): Motivates the contractor to control costs and improve performance by offering a potential bonus or fee adjustment based on achieving specific targets.
  • Fixed-Price with Award Fee (FPAF): Includes a subjective evaluation component where the government awards a fee based on the contractor’s performance against a set of criteria. This is often used for complex, service-based contracts.
• DAF Application: FFP contracts are widely used for acquiring well-defined goods and services where the requirements are stable and the risk is relatively low, such as the procurement of standard aircraft parts or construction of facilities.⁵ FPIF and FPAF contracts are used when incentivizing performance or innovation is a priority, for example, in research and development efforts or complex weapon systems development.

2. Cost-Reimbursement Contracts:

• Description: These contracts reimburse the contractor for allowable and allocable costs incurred in performing the work, plus a fee. They are typically used when the scope of work is uncertain, or the costs are difficult to estimate accurately in advance.
• Variations:
  • Cost-Plus-Fixed-Fee (CPFF): The contractor is reimbursed for allowable costs and receives a fixed fee that is negotiated at the outset.⁶
  • Cost-Plus-Incentive Fee (CPIF): Similar to CPFF, but the fee can be adjusted based on performance against cost and schedule targets.⁷
  • Cost-Plus-Award Fee (CPAF): Includes a subjective performance evaluation component where the government awards a fee based on the contractor’s performance.⁸
• DAF Application: Cost-reimbursement contracts are often used in research and development efforts, particularly for advanced technologies or complex systems where the outcome is uncertain. They are also used for large, complex sustainment efforts where the full scope of work may not be known at the outset.

3. Time-and-Materials (T&M) and Labor-Hour (LH) Contracts:

• Description: These contracts provide for acquiring supplies or services on the basis of direct labor hours at specified fixed hourly rates (which include wages, overhead, general and administrative expenses, and⁹ profit) and the actual cost of materials.
• DAF Application: T&M and LH contracts are suitable for tasks where the level of effort is difficult to define precisely, such as repair work, technical support services, or short-term studies. They are often used when urgent requirements arise, and a quick response is needed.

4. Indefinite-Delivery, Indefinite-Quantity (IDIQ) Contracts:

• Description: These contracts provide for an indefinite quantity of supplies or services within a fixed period and specified minimum and maximum quantities. They are useful when the government’s needs are recurring but the exact timing and quantity are uncertain.
• DAF Application: IDIQ contracts are extensively used by the DAF for a wide range of requirements, including aircraft maintenance, IT services, and logistics support. They provide flexibility and efficiency in meeting ongoing needs.

5. Other Contract Types:

• Incentive Contracts: These contracts use various incentive structures to motivate contractors to achieve specific performance goals, such as cost reduction, schedule acceleration, or technical innovation.¹⁰
• Letter Contracts: A preliminary contractual instrument that authorizes the contractor to begin immediately manufacturing supplies or performing services.¹¹¹²
• Agreements: Legally binding arrangements between the government and a contractor that may not meet the strict definition of a contract.

Choosing the Right Contract Type:

The selection of the appropriate contract type is a critical decision in the acquisition process. Factors to consider include:

• Risk: Who bears the most risk (cost, schedule, performance)?
• Complexity: How well defined is the requirement?
• Incentives: What motivates the contractor to perform?
• Market Conditions: What is the level of competition?

By understanding the different contract types and their implications, contractors can position themselves for success in the competitive world of Air Force contracting.