FFP vs. CPFF Contracts

SBIR Corner: FFP vs. CPFF contracts:

In the SBIR/STTR world, the single most important decision you need to make is whether you are going to bid a job as Firm Fixed Price (FFP) or as Cost plus Fixed Fee (CPFF). These are two very different contract types and the decision to use one contract type over the other is very important to the overall success of a program. If your sponsor gives you a choice on the matter, the decision to go with one contract type over the other should be well thought out prior to submitting your proposal.

A Firm Fixed Price (FFP) contract is a lot like the tag price you would find on a pair of sneakers. If the price tag on the sneakers is $54.99, then the consumer will pay $54.99 for those sneakers. No more. No less. The profit margin of those sneakers to the manufacturer is built into that price and is transparent to the buyer. Likewise, if a FFP contract to research XYZ, is $99,999, then the Government is going to pay you $99,999 for that body of research. They will not pay you any more and they will not pay you any less. It is critical in this kind of contract to nail down exactly what you are and are not going to do for that price. You do this by writing a specific Statement of Work and by carefully reviewing your deliverables during contract negotiations.

A word to the wise. This isn't to say that you can put a proposal together to do XYZ in which your cost is $50,000 and you sell it to the Government for $99,999. That could be considered defective pricing in accordance with the Federal Acquisition Regulation (FAR) guidelines and it also exceeds the statutory maximum profit you can make on a contract such as this.

A Cost plus Fixed Fee (CPFF) contract is a contract type that reimburses you for fair and reasonable expenses up to a certain amount (a ceiling of some sort) and then pays you a prenegotiated fixed fee above any beyond your expenses. Accordingly, your profit margin or "fee" as one should call it, is exactly that renegotiated fixed fee. No more. No less. Depending on the billing method, your fee may be paid to you as one lump sum, or on some prorated basis where you earn a portion of the fee each billing cycle. In the end, if the job is done satisfactorily, the entire fixed fee amount will have been paid or will be payable to the contractor. If your total cost on the job is less than the ceiling, then your fee will not change, if your cost on the job is more than the ceiling, then your fee will not change either. It is essential to remember that you will not receive any more or any less fee than the renegotiated amount hence the terminology "fixed fee." So, for example, if your cost ceiling is 90,000 and your fixed fee is $9,000 for a total contract value of $99,000, you will be reimbursed for your cost incurred up to, but not exceeding, $90,000 and you will receive $9,000 as a fee. If you spend more than $90,000 (and this doesn't get you in hot water with your sponsor - i.e. a default situation) you may not be reimbursed for the amount that you go over $90,000 but you will get your $9,000 fee. If you only spend $80,000 you will be reimbursed for $80,000 and you will still receive $9,000 since your fee is, you got it? fixed!

Lisa DeMaio is the president and founder of Virtual Contract Manager, LLC, which is a one-stop "information shop" for and about the Contract Management Community and the SBIR (Small Business Innovative Research) Program. Let Virtual Contract Manager coach you on how to integrate the SBIR program into your existing business. Come visit Virtual Contract Manager and get a wealth of FREE SBIR information on our Free Articles Page and to sign up for our content-rich monthly newsletter which features one article a month on the SBIR program. Let Virtual Contract Manager help you tap the federal market and help fund your research or innovative technology. http://www.virtualcontractmanager.com/

---

6 of 1, Half Dozen of the Other

Motivational author and speaker Jim Rohn says that for a... Read More

Can Your Business Run Without You?

What would happen if you decided to take an extended... Read More

Financial Dose for Business

The goals of businesses have undergone much evolution from the... Read More

Motorcycle Detailing Procedures Manual Sample Outline

If you are a motorcycle detailer and need to expand... Read More

Looking for a Business to Run in the New Revitalized Downtown Area?

Looking for a place to add a Quick Lube away... Read More

Small Business Owners - They Owe You The Money Why Dont They Pay?

Doesn't it frustrate you when you've given good service, sometimes... Read More

North County San Diego Small Business

North County San Diego has had some significant growth, and... Read More

Going Public: The Process for Small and Mid-size Companies to Go Public

It's the dream of every person who starts a business... Read More

Small Business Owners - Form a Relationship with Your Bank Manager

It's just like a marriageTo expect a bank manager or... Read More

Overcoming Your Biggest Competitor

Before you read any further in this article, I'd like... Read More

Small Business Failure? Nuts!

Pardon my enthusiasm, but a large part of your small... Read More

How to Get Maximum Results With Minimum Effort

Get maximum results with minimum effort. Sounds great doesn't it?... Read More

Attributes Of Companies You Don?t Want To Buy!

There are no "rules of thumb" in the pursuit of... Read More

Do You Microbifer in Your Cleaning Business?

Microfiber cleaning towels have been around for about ten years... Read More

The SBAs Savviest Program

Forget everything you've ever heard about the U.S. Small Business... Read More

Become The Squeaky Wheel and Watch Your Business Skyrocket!

Providing high quality customer service is a must for any... Read More

How To Select a Franchise

Here are some useful tips on how to select a... Read More

Bogus Investor and Consumer Complaints and Consumer Misrepresentation

Like most regulatory bodies in the United States, the Federal... Read More

How to Prepare for Your Start-Up Venture!

When you awoke this morning, you found yourself buzzing with... Read More

1 Overlooked Key to Small Business Success

Is this you?You dreamed of owning your own business, doing... Read More

Environmental Pressure Washing in Pennsylvania

If you run a mobile car wash, mobile fleet washing... Read More

Business Checks are an Added Cost to Your Small Business - Try Making Them Yourself!

Starting and managing a small business is no fun chore,... Read More

Outsourcing ? A Positive Approach For Small Businesses

Outsourcing is the strategic use of outside resources to perform... Read More

7 Tips To Improve Your Cash Flow

Cash is King?That is what everyone tells us and it... Read More

Todays Chef, Tomorrows Restaurateur -- Startup Tips by Restaurant Consultants Inc

Researching information for a recent business plan, I came across... Read More

Alliances: What works, what does not

Why Alliances FailWhen do you know an alliance is falling... Read More

How To Choose A Franchise

You'd like to go into business for yourself, and believe... Read More

Mobile Truck Washing, Case Study

Most folks in the pressure washing business are happier to... Read More

Successfully Adding a Service To Your Business

There will come a time in your business where you... Read More

More Business Card Uses

Why would you use an event pass?Event passes are often... Read More

Image is Everything - Secrets to Cleaning Car Fleets

A recent survey indicated that clean Taxi Cabs Fleets have... Read More

Making Direct Mail Work for Small Businesses

If you own a small business, then you know the... Read More

Create a Win Win for Your Small Business

Discover How Specialized Cost Containment Creates A New Win-Win Position... Read More