Private companies can receive various types of government contracts, including fixed price, cost reimbursement, time and materials, and letter contracts. Each type has different financial arrangements and levels of risk for the contractor. Some contracts offer incentives for completing work ahead of schedule.
Private companies may be eligible to receive many different types of government contracts, many of which can become lucrative over time. These contracts are classified according to the financial arrangements that a particular contract entails. The major categories of government contracts include fixed price contracts, cost reimbursement contracts, time and materials (T&M) contracts, and letter contracts.
In a fixed price contract, the government pays a fixed price when the contractor completes a certain task. Payment may not arrive until an entire project is complete, or it may come periodically as the project goes through different stages of completion. This type of contract places some degree of financial risk on the contractor, but can be profitable due to the contractor’s ability to control the pace of work.
Cost reimbursement agreements do not have fixed prices for completing a project or an activity within the project. Instead, contractors routinely issue government bills to cover costs accrued during a particular project. The terms of an expense reimbursement agreement may vary with respect to billing times and any cost limitations.
T&M contracts provide the least risk for the contract in question. The government simply buys a contractor’s work at a specific negotiated rate. In other words, the government pays the contractor on an hourly or incremental basis for his work. The T&M contract may stipulate a maximum number of hours for a specific activity and the contractor will charge the contract accordingly. This type of contract allows the contractor to receive payment as his work progresses, rather than continuing work without payment until the end of the project.
The government typically uses a literal contract only in the most urgent circumstances to allow a contractor to begin work immediately. This type of public contract places a great responsibility on the government. Since the contract usually estimates the price of project completion from the outset, there is little control over the final costs of the contract.
Each of these major government contract categories also contains variations. Some contracts add incentive fees for contractors who complete tasks or projects within a specific time frame or below a specific level of cost. These types of government contracts allow the contractor to earn additional money for work completed ahead of schedule.
Protect your devices with Threat Protection by NordVPN
