There are several kinds of government contracts. Knowing the kinds of government contracts is a very important part of decision making because it has financial effect on the decision being made. For instance, depending on the type of contract, the financial effects on the changes in the plan vary.
It is important to understand the kinds of government contracts as well as their features so that both parties (the government and the contractor) can find a way bringing satisfactory results on financial use. Project managers, experienced managers and those dealing with government contracts will benefit from knowing the fundamentals of the types of government contracts.
Kinds of Government contracts include:
Fixed Price Contracts:
This is a type of contract that states its price once and discourages and only allow minimal changes to be done to it as the contract progresses. The terms of this kind of government contract is discussed only when the price to be paid for the contract can be calculated. Fixed price contract is good for the contractor because government give minimal supervision here but a disadvantage of fixed price contract is that the contractor may end up paying for the changes in the usage of money in the contract.
This is the opposite of fixed price contract because in case of changes in the allocation of finances in the contract, the government will pay for all those extra expenses plus additional money to give room for profit for the contractor. It is used in most cases where the cost of the contract cannot be readily defined. It is also good because the it saves the contractor form not meeting the cost of the contract.
Time and Material Contract:
In this kind of government contract, the contractor is paid according to the actual cost of the labor incurred in the project, the actual cost of the materials and some more to cover the expenses of the contractor and profit. It is the least desirable time of government contract and it is chosen when there is no other appropriate type of contract suitable.
This contract directs the contractor to start working on a project immediately. It sometimes comes with no price stated. The government may then choose to work with the contractor to determine the price of the contract or reimburse the cost made by the contractor during the execution of the contract.
Depending on any particular government, there are many more types of contract types available. For instance there is Incentive Contract, Orders, Cost Sharing Contracts, Cost_plus-award fee contract, Cost-Plus-fixed Fee Contract, Cost-plus-Incentive-Fee and Re-determinable Contracts etc.
A contract issued by the government gives room for changes according to a signed agreement between the contractor and the government. Changes can also be made by the government officer for administrative reasons of the government.
There are several things that a government contracting officer has to consider when choosing the type of contract to use. This includes:
The competition in the market.
The price analysis.
The complexity of the contract
Determining of the cost etc.