Federal agencies use procurement contracts to purchase goods and services from the private market to carry out their missions. A key element of federal procurement is the selection of a contract type by a contracting officer. Contracting officers have a variety of contract types available to provide the flexibility needed to support agency missions. Contract types vary in the proportion of cost risk assumed by the contractor versus the government and the types of incentives offered to contractors for controlling costs, meeting deadlines, or performance goals. The Federal Acquisition Regulation (FAR) and its agency supplements provide uniform policies for the selection of contract types within the executive branch. Part 16 of the FAR describes the types of contracts that the federal government may use in acquisitions and provides policies, procedures, and guidance for selecting a contract type. The four most commonly used federal procurement contracts are: fixed-price, cost-reimbursement, incentive, and indefinite-delivery. A fixed-price contract is a category of contracting in which the government sets a price for a good or service and the vendor’s profit varies depending on costs. There are six subcategories of fixed price contracts: (1) firm-fixed price; (2) fixed-price with economic price adjustment; (3) fixed-price incentive; (4) fixed-price with prospective price redetermination; (5) fixed-ceiling-price with retroactive price redetermination; and (6) firm-fixed-price with a level-of-effort term. The government chooses fixed-price price contracts when it wants to minimize the risk to the government and align contractor profit motive with the government’s interests. However, a fixed-price contract may not be appropriate when the contract’s price and risk cannot be adequately predicted, and/or the program being contracted for is technically complex. Compared to a fixed-price contract, which uses a pre-set contract cost, a cost-reimbursement contract reimburses the contractor for any allowable incurred costs. There are five subcategories of cost-reimbursement contracts: (1) cost, (2) cost-sharing, (3) cost-plus-incentive-fee, (4) cost-plus-award-fee, and (5) cost-plus-fixed-fee. A contracting officer selects a cost-reimbursement contract when they cannot determine the contract’s requirements or cost sufficiently to use a fixed-price contract. Contractors assume less financial risk when operating under a cost-reimbursement contract. The FAR states that cost-reimbursement contracts provide vendors “only a minimum incentive to control costs” and thus provides specific instructions and restrictions on their use. An incentive contract contains additional incentives for vendors to attain certain goals, and are either fixed-price or cost-reimbursement contracts. A contracting officer may opt for an incentive contract to encourage contractors to meet certain cost or delivery performance targets. An indefinite-delivery contract or indefinite-delivery vehicle (IDV) is a contract that has been awarded to one or more vendors to facilitate the delivery of supply and service orders. IDVs may be used to acquire supplies or services when the exact times or exact quantities of future deliveries are not known at the time of contract award. There are three types of indefinite delivery contracts: (1) definite-quantity; (2) requirements; and (3) indefinite delivery, definite-quantity. Once an IDV has been established, an agency may place task orders for services and delivery orders for supplies to fulfill a need. The FAR also lists other miscellaneous contracts, including time-and materials, labor-hour, and letter contracts. President Trump issued two executive orders (E.O.) during his second term that may affect the selection of contract types. In March 2025, President Trump issued E.O. 14240 titled “Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement,” which directs agencies to make greater use of General Services Administration (GSA) government-wide IDVs. In April 2025, President Trump issued E.O. 14275 titled “Restoring Common Sense to Federal Procurement,” which directs the Federal Acquisition Regulatory Council (FAR Council), to “amend the FAR to ensure that it contains only provisions that are required by statute or that are otherwise necessary to support simplicity and usability, strengthen the efficacy of the procurement system, or protect economic or national security interests.” The Administration has referred to this effort as the “FAR Overhaul.” Congress has the constitutional authority to appropriate funds and conduct oversight over government contracting practices. As such, Congress has often sought to encourage cost-effective and efficient contracting mechanisms to help the government acquire high-quality goods and services that serve taxpayers’ interests. As part of its oversight and legislative functions, Congress may consider (1) how the current statutory preference for fixed-price contracting may affect high risk acquisitions, (2) the potential impacts of the second Trump Administration’s ongoing FAR Overhaul on Part 16 of the FAR, and (3) the operational impacts of agencies increasing their contract spending toward General Services Administration (GSA) IDVs.
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