Frequently Asked Questions
What is a firm fixed price contract and why is it favored by many organizations?
A Firm Fixed Price (FFP) contract is a type of fixed price contract that is highly favored by many organizations. The primary reason for its popularity is the certainty it provides in terms of cost. In an FFP contract, the price is set and cannot be changed unless there is a change in the scope of the expected work. This means that any cost increases that arise due to the seller's performance are the responsibility of the seller, not the buyer. This provides a level of financial security for the buyer, making FFP contracts a preferred choice. In contrast to other types of fixed price contracts, such as Fixed Price Incentive Fee (FPIF) and Fixed Price with Economic Price Adjustment (FP-EPA), the FFP contract does not allow for price adjustments based on performance metrics or market fluctuations. While FPIF contracts offer sellers the opportunity to earn additional compensation for higher performance, and FP-EPA contracts allow for price adjustments in response to market changes, FFP contracts provide a firm, unchangeable price.
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