What each contract type is for, how risk is allocated, and which accounting demands each one creates.
Last reviewed on May 12, 2026.
Federal contracting has two largely independent classifications. The pricing arrangement describes how the government pays — fixed price, reimbursement of costs, or a hybrid. The contract structure describes how work is ordered — a definite scope, a series of task orders under a master contract, blanket ordering arrangements, or a government-wide vehicle. Most contracts combine one pricing arrangement with one structure.
The government pays a fixed total price regardless of the contractor's actual costs. The contractor absorbs the risk if costs come in higher than expected and keeps the upside if costs come in lower. FFP is the standard for commercial items and well-defined scopes.
The government and contractor share cost overruns and underruns according to a negotiated formula until a ceiling is reached. Used for complex work where the parties want to share risk and reward.
The government pays labor at fixed hourly rates by labor category, plus materials at cost. T&M has a not-to-exceed ceiling; the contractor is paid only for hours actually worked and materials actually used. Labor-Hour is the same arrangement without materials.
The government pays the contractor's allowable costs plus a fixed fee negotiated at award. The fee does not vary with actual costs. Total cost risk sits primarily with the government.
Variations of cost-reimbursement contracts that adjust the fee based on cost performance (CPIF) or subjective evaluation (CPAF). Both require the same accounting discipline as CPFF, plus additional administration for the fee mechanism.
A family of contract structures rather than a pricing arrangement. See "Contract structures" below.
A single contract for a defined scope, period of performance, and total value. Most one-off federal awards take this form.
A master contract that establishes the framework — terms, conditions, labor categories, pricing structure — but does not commit the government to a specific quantity beyond a minimum. The government issues task orders or delivery orders against the IDIQ during its term. Most major federal vehicles are IDIQs.
A simplified arrangement that lets agencies buy repeatedly from one or more contractors under pre-agreed terms. BPAs can be issued against Schedule contracts or as standalone arrangements. They are particularly useful for recurring low-dollar purchases.
An IDIQ designated for use by multiple agencies, operated by a sponsoring agency or by GSA. GWACs focus on IT and professional services. Examples include SEWP, CIO-SP4, 8(a) STARS III, Alliant 3, and OASIS+.
A pre-negotiated set of contracts available to all federal agencies (and some non-federal entities). Not technically an IDIQ, but functions similarly. See GSA Schedules overview.
A non-FAR vehicle used by DoD and some civilian agencies for prototype development and related research. OTAs offer flexibility and faster award timelines but apply only to specific authorized purposes.
| Contract type | Contractor risk | Government risk | Profit potential | Audit intensity |
|---|---|---|---|---|
| Firm-Fixed-Price (FFP) | High | Low | High (if you control costs) | Low |
| Fixed-Price Incentive (FPI) | Moderate-High | Moderate-Low | Moderate-High | Moderate |
| Time-and-Materials (T&M) | Moderate | Moderate | Moderate | Moderate |
| Cost-Plus-Fixed-Fee (CPFF) | Low | High | Low-Moderate | High |
| Cost-Plus-Incentive-Fee (CPIF) | Moderate-Low | Moderate-High | Moderate | High |