The best argument for always bidding firm-fixed-price is that it is the only contract type that asks nothing of you after award except the work. There is no pre-award accounting system survey, because overhauled FAR 16.301-3(a)(3) attaches that condition to cost-reimbursement contracts. There are no provisional billing rates to defend and no hourly timesheets for a government auditor to reconcile against invoices. You deliver, you invoice the price, and every dollar you save by working smarter is yours to keep. For a small firm with a part-time controller, that matters.
As of this summer the government agrees. Executive Order 14402, signed April 30, 2026, made fixed price the default, and the rewritten FAR 16.102(b) now calls fixed-price types "the default and preferred contract types." Everything else, including T&M, labor-hour, and firm-fixed-price level-of-effort, is a "covered" contract under 16.104 that needs a written justification approved at the agency head level once it crosses a threshold, $100 million for DoD. DoD's own profit model points the same way. The weighted guidelines, the structured method DoD contracting officers use to build a profit objective whenever certified cost or pricing data is obtained, assign a firm-fixed-price contract with no financing a normal contract-type risk value of 5 percent of cost, and a cost-plus-fixed-fee contract 0.5 percent. Fixed price is simpler and pays better. Why would anyone want anything else?
Because the simplicity belongs to the government, and the profit is a premium for insurance you are selling.
What the profit table is actually pricing
FAR 16.202-1 describes a firm-fixed-price contract as one whose price "is not subject to any adjustment on the basis of the contractor's experience in performing the contract." That sentence is the whole risk transfer. The extra 4.5 points in the weighted guidelines are the government's estimate of what carrying that risk is worth. Test it against your own history.
On a hypothetical $2 million cost base, the gap between the two normal values is $90,000 of profit objective. A five percent labor overrun on the same base costs $100,000. One modest miss erases the premium that made fixed price look generous.
A fixed price is a promise that your estimate is right. The premium is what you are paid for being wrong on your own dime.
FAR 16.202-2 says when that promise is safe to make: work described by "clearly defined functional or detailed specifications," priced when fair and reasonable prices can be set "at the outset." Even the new fixed-price-first text in 16.102(c) calls for firm-fixed-price when risk is "minimal or can be predicted with an acceptable degree of certainty," and points negotiators elsewhere when "a reasonable basis for firm pricing does not exist." A small firm that takes a fixed price on a vague statement of work has written an insurance policy against its customer's ambiguity, at a premium someone else set.
Five contract types, five different owners of the overrun
Firm-fixed-price gives you all the cost risk and all the upside. The government needs little from your books; you need a monthly job cost report, or you learn about the loss at closeout.
Firm-fixed-price, level-of-effort carries the fixed-price name, but EO 14402 lists it among the covered types for good reason. Under 16.206 you deliver a specified level of effort over a stated period, the government pays a fixed amount for that effort, and payment rests "on the effort expended rather than on the results achieved." The risk you carry is narrower than it sounds: what an hour costs you, not how many hours the result takes. DoD's weighted guidelines treat it like CPFF for profit purposes, at the same 0.5 percent.
Time-and-materials and labor-hour split the risk at the hourly rate. Under 16.601 each fixed hourly rate includes wages, overhead, G&A and profit, so the government carries the number of hours and you carry everything inside the rate. If your overhead climbs mid-contract, the rates do not follow it. The contract must carry a ceiling the contractor "exceeds at its own risk" (16.601-3(c)), and the payments clause at 52.232-7 requires written notice when the next 30 days' billings would push past 85 percent of it. It also needs a contracting officer's finding that "no other contract type is suitable." Your books must let an auditor walk from timesheet to invoice; the SF 1408 walkthrough shows what that takes.
Cost-plus-fixed-fee moves most cost risk back to the government: allowable costs are reimbursed up to an estimated cost that, under 16.301-1, you "may not exceed (except at its own risk)" without approval. Your exposure is the fee. It is fixed in dollars, capped at 10 percent of estimated cost (15 percent for research and development) by overhauled FAR 15.404-9(c)(4), and it does not grow with an overrun, so every overrun dollar dilutes your margin. Unallowable costs are yours under any type. The price of admission is an accounting system that can "segregate, accumulate and allocate costs," the condition the SF 1408 survey tests.
Cost-plus-incentive-fee shares the overrun through a formula. Under 16.405 the contract sets a target cost, target fee, minimum and maximum fees, and a formula that raises the fee when costs come in under target and lowers it when they run over, until the minimum or maximum is reached. A target cost you cannot hit is a fee cut you agreed to in advance.
Pricing the risk you cannot control
Three risks sink small-firm fixed-price work more often than bad engineering: scope the statement of work leaves open, government-furnished equipment or access that arrives late, and key personnel who leave. You control none of them. A proposal has three tools for them, and the wrong one costs either the award or the margin.
Contingency is money in the price, and FAR 31.205-7(c) separates two kinds. A contingency that arises from known conditions with effects "foreseeable within reasonable limits of accuracy" belongs inside the estimate; staff turnover is the textbook case if you have attrition history to support a replacement and onboarding allowance. A contingency whose effect cannot be measured precisely enough to be fair to either side stays out of the estimate but should be disclosed separately, with its basis, so the parties can negotiate coverage for it. On a competitive fixed-price bid, every dollar of it is a dollar a competitor may leave out.
Assumptions state the conditions your price depends on. "Government-furnished test hardware delivered by day 30" turns an unpriceable risk into a defined baseline. When the hardware is late, the Government Property clause at 52.245-1 has the contracting officer "consider an equitable adjustment" on your "timely written request," and an assumption written into the proposal is the record that makes the request concrete. The limit is real: an assumption that rewrites a requirement can read as an exception to the solicitation, and exceptions to material terms can make a proposal unawardable. Write assumptions about what the government will provide, never about what it requires.
Exclusions say what the price does not buy, such as travel beyond a stated count or migration from an unnamed legacy system. They are clean when the solicitation is silent and dangerous when it is not.
The other move is structural. 16.102(b) tells contracting officers to consider fixing price on part of a contract when the whole cannot be fixed, and 16.102(a)(2) lets a solicitation invite offerors to propose an alternative type. A firm that prices defined deliverables as fixed-price line items and puts the undefined work in a labor-hour line is giving the government the fixed price it prefers on exactly the work that can bear one.
MacTech's own pricing system, PricingOS, encodes this as fixed rules rather than judgment calls. It warns when a fixed price carries no risk premium, flags a price under 85 percent of the estimated value as underpricing, and carries the weighted guidelines table with its citation, so the profit a contracting officer is likely to compute sits beside the price. It does not choose the contract type; it makes the preparer look at the allocation first.
So read the contract type before the statement of work, and price it as what it is. Fixed price is the right answer when you can describe the work tightly enough to promise it. When you cannot, the job is to make the solicitation's ambiguity visible in your assumptions, your exclusions and your line-item structure, so that the risk you cannot control is priced by both parties, not absorbed by one. ◆