Government Contracts Monitor

Short Take: DoD Issues New Guidance on Contract Types

April 19, 2016

By: Eric Whytsell

The Department of Defense (DoD) recently issued new guidance concerning the proper selection of contract type for use in procurements. The “Guidance on Using Incentive and Other Contract Types” will be posted within the DFARS Procedures, Guidance and Information (PGI) at DFARS PGI 216.104.

In her April 1, 2016 issuing memorandum, Claire M. Grady, Director of Defense Procurement and Acquisition Policy, explained the guidance “addresses, in a comprehensive way, the considerations [DoD] contracting and acquisition professionals should take into account when selecting and negotiating the most appropriate contract type for a give procurement.” She went on to state, “Selection of contract type should balance risk fairly between a firm and the Government, providing the opportunity for industry to earn a reasonable profit/fee for successful delivery of products and services. Profit should not be targeted as a cost-cutting measure, but should instead be reflective of actual performance, with higher profit levels tied to better performance and lower levels to poorer performance.”

The guidance discusses a wide variety of cost-reimbursement, fixed-price, and incentive contracts and describes their unique characteristics that may impact the selection of the proper contract type for a given procurement when considered in conjunction with contract performance risk, market risk, and other factors. As such, the guidance promises to not only be helpful to DoD contracting personnel, but also useful to contractors negotiating with them over the selection of a contract type.

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