A FFP contract obligates the supplier to deliver the product or service specified by the contract for a fixed price; the amount of profit the supplier receives will depend on the actual cost (AC) outcome. Clause 2-26: Payment — Fixed Price stipulates payment terms for suppliers when this contract type is used and is to be included in all FFP contracts.
An FFP contract places full responsibility on the supplier for all costs and the resulting profit or loss. It maximizes suppliers’ incentive to control costs and perform effectively. The FFP is the least burdensome type of contract for the Postal Service to administer if the requirements are stable; if frequent changes are made, administration becomes difficult.
FFP contracts are appropriate when specifications are definite, there is little cost or no scheduled risk, and competition has established best value. There are also mechanisms built into an FFP contract to anticipate instances when the supplier can request additional funds. For example, if the Postal Service does not deliver a specification to a supplier by the agreed-upon date, this may cause the supplier’s schedule to slip, which may result in higher costs.
