Firm-Fixed-Price (FFP) Contract

A firm-fixed-price contract pays a single set price for the work regardless of the supplier's actual costs. PSPC implements the idea through its fixed price and firm price bases of payment, and the supplier carries the cost risk.

What it is

A firm-fixed-price (FFP) contract pays one set price for the work, no matter what the supplier actually spends to deliver it. In Canadian federal procurement the official vocabulary splits this idea in two. The PSPC Practitioner's Guide for Procurement Pricing (August 2023) lists fixed price as one of the four primary bases of payment — "sets a total fixed price for the delivery of a good or service for the duration of a contract regardless of actual costs incurred" — while the SACC Manual clause C0207C covers firm price, firm unit price(s) and firm lot price(s). "Firm-fixed-price" itself is the US Federal Acquisition Regulation (FAR 16.202-1) term for a price "not subject to any adjustment on the basis of the contractor's cost experience" — same concept, different labeling.

Fixed price vs. firm price

PSPC treats the two labels distinctly. A fixed price can be established by market competition with more than one bidder, negotiated at the outset, or made subject to economic price adjustment. A firm price is the traditional Canadian basis of payment under SACC C0207C, where the contractor is paid an agreed price for satisfactorily completing all contract obligations. For non-competitive contracts, PSPC notes that a price can only be fixed "with strong certainty, assurance and validation of estimated requirements, costs and profit" — and that a fixed price contract carries no Discretionary Audit clause, so once it is signed the contracting officer can no longer validate the contractor's costs and profit.

Why it matters for vendors

Under a firm or fixed price the supplier carries the cost risk: if your actual costs run over, the overage comes out of your margin, because the government will not adjust the price for cost overruns. Pricing negotiability reflects that risk — PSPC's Supply Manual (Chapter 10) caps profit at 4 to 7 percent maximum for both the fixed price and firm price bases of payment, the widest profit range of any basis of payment because the contractor bears the most risk. Negotiated contracts priced on estimated costs must follow the Contract Cost Principles in SACC 1031-2, and contracts at or above $50,000 with a fixed price or fixed time rate basis generally require cost or price negotiation (with an exception for commercial goods and services).

Common questions

When should a supplier accept a firm-fixed-price arrangement?

When the requirement is well defined and you can estimate your costs with confidence. It rewards efficient suppliers — any cost savings you achieve stay with you — but punishes cost overruns.

Can a fixed price change during the contract?

Only through a formal amendment or change order, or if the contract was set up with economic price adjustment from the start. Cost experience alone never moves the price.

Related definitions

Unit price vs. lump sum contracts · Contract ceiling price · RFSO