Firm Fixed Price (FFP)

Definition

Firm Fixed Price (FFP) is a contract type under which the government pays a predetermined price for a defined deliverable regardless of the contractor's actual cost. FFP places all cost risk on the contractor and all cost savings as profit. FAR Part 16 prefers FFP when the requirement is well-defined. Variants include FFP with Economic Price Adjustment (FFP-EPA) for long-duration contracts with commodity risk. FFP does not require a DCAA-compliant accounting system, making it attractive to smaller firms.

Why It Matters

FFP is the government's preferred structure — DoW now targets 80%+ of major programs as FFP — because it caps taxpayer exposure. For contractors, FFP is profitable when scope is genuinely well-defined and the firm executes efficiently, and dangerous when requirements creep or the scope was under-estimated. Translating ambiguous government requirements into crisp, FFP-priceable statements of work is a core proposal-management skill.

Example

A firm wins an FFP $4.5M contract to deliver 50 network-security appliances. Actual costs come in at $3.6M. Its profit is $900K. Had costs run to $5M because of supply-chain issues, the firm would absorb the $500K loss, not the government.

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