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mw35019

FFP vs FPLOE

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First, let's get the names right: firm-fixed-price (FFP) and firm-fixed-price, level-of-effort term (FFP-LOE).

Both types of contract stipulate payment of a firm-fixed-price. The difference is in the nature of the contractor's obligation. Under a plain old firm-fixed-price contract, FAR 16.202, the contract is obligated to complete specified work in order to be entitled to payment of the fixed-price. Under a firm-fixed-price, level-of-effort term contract, FAR 16.207, the contractor is obligated to perform specified work within a specified period of time until it has expended a stipulated level of effort (usually a number of hours), at which point its obligation is at an end and it is entitled to payment of the firm-fixed-price. Both contracts include the payment clause at FAR 52.232-1 Payments (APR 1984) or 52.232-2, Payments Under Fixed-Price Research and Development Contracts (APR 1984).

The plain old FFP contract is appropriate when you want the contractor to do work for which there is a natural completion state: Clean the floor. Repair the toaster. Bake a cake. Build a house. The government can easily specify when those tasks are complete and when the contractor's obligation has been fulfilled.

The FFP-LOE contract is appropriate when you want the contractor to do work for which there is no natural completion state and the only practical way to specify the contractor's obligation is to stipulate a number of hours of work. For instance, let's say that the Department of Agriculture wants a contractor to study the effect of the spread of fire ants on southern agriculture. Well, there's no natural completion state for that undertaking. It could go on indefinitely without producing a conclusive result. So the Department tells the contractor: Devote 10,000 hours of entomologist and economist research to the study of the effect of the spread of fire ants on southern agriculture and report whatever you learn no later than DD-MM-YYYY. When the contractor has completed the study it turns in whatever is has learned (usually in the form of a research report) and the government pays the firm-fixed price. The contractor is entitled to payment when it has (1) performed the requisite number of hours, (2) doing the kind of work specified, and (3) completed the work on time.

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