Firm-Fixed-Price vs Time-and-Materials vs Cost-Plus
Contract type determines who eats the cost of scope uncertainty, and it should shape both your pricing strategy and how much management reserve you build in.
- Option A
- Firm-fixed-price
- Option B
- Time-and-materials and cost-plus
- Bottom line
- FFP shifts risk to the contractor; cost-plus shifts risk to the government; T&M splits the difference
- Best for
- Federal bidders choosing where to spend limited capture budget
Key takeaways
- Compare on outcomes — awards won — not on feature counts.
- Factor total effort, not just price: proposal labor is usually the larger cost.
- Most firms end up using both at different stages of maturity.
- Decide based on your pipeline volume and how repeatable your content is.
Where they actually differ
Under FFP, the price is fixed regardless of actual cost, rewarding efficient contractors and punishing underestimation. T&M pays labor hours at fixed rates plus materials at cost, useful when scope is not fully known but capping the government's cost protection. Cost-plus reimburses allowable costs plus a fee, used for high-risk research and development work where requirements cannot be fixed in advance, and it requires an approved accounting system.
When Firm-fixed-price is the right choice
Favor FFP when requirements are well defined and you can estimate labor and materials confidently; the upside from efficient execution belongs entirely to you.
When Time-and-materials and cost-plus is the right choice
Favor T&M for support work with uncertain hours, and expect to justify cost-plus only when you have a DCAA-approved accounting system and the work is genuinely undefinitized R&D or high-risk development.
FAQ
Which contract type is most common for small business?
FFP dominates small business awards because it requires no approved cost accounting system.
Can a contract mix types?
Yes, hybrid contracts with FFP and cost-reimbursable line items are common on larger programs.
Does cost-plus guarantee profit?
No, fee is earned or reduced based on performance evaluation, not guaranteed regardless of cost.
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