vol4_ch1 - Ch 1 Establishing And Monitoring Contract Type...

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Ch 1 - Establishing And Monitoring Contract Type 1.0 - Chapter Introduction 1.1 - Matching Contract Type to Contract Risk 1.2 - Utilizing Fixed-Price Economic Price Adjustment Contracts o 1.2.1 - Establishing Terms And Conditions For Economic Price Adjustment o 1.2.2 - Making an Economic Price Adjustment Using Cost Indexes 1.3 - Structuring And Applying Incentive Pricing Arrangements o 1.3.1 - Structuring A Cost Incentive Pricing Arrangement o 1.3.2 - Applying a Cost Incentive Pricing Arrangement 1.4 - Structuring and Applying Award-Fee Pricing Arrangements o 1.4.1 - Structuring an Award-Fee Pricing Arrangement o 1.4.2 - Applying an Award-Fee Pricing Arrangement 1.5 - Structuring a Fixed-Price Redeterminable Pricing Arrangement Appendix 1A - Performance Evaluation Criteria Appendix 1B - Contractor Performance Evaluation Report 1.0 Chapter Introduction When used in this chapter, the terms "contract type" and "type of contract" refer to the contract compensation arrangement. The contract compensation arrangement is the method of determining the dollars due to the contractor under the contract. In this chapter, you will learn about the development and application of common compensation arrangements: 1.1 Matching Contract Type To Contract Risk Points to Consider ( FAR 16.103 ). Contract type selection is the principal method of allocating cost risk between the Government and the contractor. There is no single contract type that is right for every contracting situation. Selection must be made on a case-by-case basis considering
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contract risk, incentives for contractor performance, and other factors such as the adequacy of the contractor's accounting system. Your objective should be to select a contract type that will result in reasonable contractor risk with the greatest incentive for efficient and economical contract performance. Selecting the proper contract type will make the work more attractive to more potential offerors, thereby increasing competition. As you match contract type to contract risk, consider the following: Identify available contract types; Consider acquisition method; Consider commerciality of the requirement; Consider cost risk associated with the contract action; Consider appropriate performance incentives; Consider the accounting system adequacy; and Document the selection decision. Identify Available Contract Types . The table on the following pages compares the most common compensation arrangements. Most of those arrangements fit into two general categories fixed-price and cost-reimbursement, but labor-hour and time-and-materials contracts have characteristics of both: Fixed-Price ( FAR Subpart 16.2 ). Under a fixed-price contract, the contractor agrees to deliver the product or service required at a price not in excess of the agreed-to maximum. Fixed-price contracts should be used when the contract risk is relatively low, or defined within acceptable limits, and the contractor and the Government can reasonably agree on a maximum price. Contract types in this category include:
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