Glossary / Contracts, Finance
Firm Fixed PriceFFP
Firm Fixed Price (FFP) is a contract type under which the government pays a predetermined price for a defined deliverable regardless of the contractor's actual cost. FFP places all cost risk on the contractor and all cost savings as profit. FAR Part 16 prefers FFP when the requirement is well-defined. Variants include FFP with Economic Price Adjustment (FFP-EPA) for long-duration contracts with commodity risk. FFP usually does not require a DCAA-adequate accounting system, which makes it easier for smaller firms.
Why it matters to your pipeline
FFP caps the government's cost, which is why buyers prefer it when the requirement is well defined. For contractors, FFP is profitable when scope is genuinely well-defined and the firm executes efficiently, and dangerous when requirements creep or the scope was under-estimated. Translating ambiguous government requirements into crisp, FFP-priceable statements of work is a core proposal-management skill.
When this term shows up in an opening GovSmith finds for you, your vCM explains what it means for that pursuit and does whatever it calls for. You decide; we do the work.
Example
A firm wins an FFP $4.5M contract to deliver 50 network-security appliances. Actual costs come in at $3.6M. Its profit is $900K. Had costs run to $5M because of supply-chain issues, the firm would absorb the $500K loss, not the government.
Find out what applies to you
Some terms will matter to your business right away and some won’t for years. A vCM can tell you which are which.