Please see the text below: I found this in the WIFCON archives and this is part of a response provided by Vern Edwards. I don't think you are required to fully fund a FFP/FUP clin, since it is treated like a cost or T&M clin. Not 100% sure, this is why I am asking for help. Firm-fixed-unit-price contracts are used when it is difficult or impossible to predict the amount of work that the contractor will have to do. They are an alternative to cost-reimbursement contracts and are similar to a labor hour pricing arrangement except that payments are based on units of output (e.g. cubic yards of excavation), rather than units of input (e.g., labor hours). These kinds of contracts are very standard in both government and the private construction sector. A firm-fixed-unit-price contract does not compensate the contractor on the basis of its "cost experience." The contractor's cost experience is not relevant to the payment determination. It compensates the contractor for its production. Eric, a firm-fixed-unit-price contract does provide an incentive to control costs. I have seen construction supervisors raise all kinds of hell with equipment operators for inefficient production. (I'll bet Joel has, too.) The company is getting paid per unit of production, not per hour, and heavy equipment rental is expensive. The contractor cannot control how many units he has to produce, but he can and must control how much input he uses to produce those units, or he'll go broke. However, firm-fixed-unit-price contracts are administratively more burdensome than lump sum contracts.