List of All Types of Government Contracts

types of government contracts

Your businesses can gain valuable experience and a vast network of contacts if you work in government contracting. If you have relevant experience, it is easier to get a job as a federal contractor than if you don’t have that experience.

Government contracts will vary depending on the industry and business structure. Your contract requirements will change as your company expands.

We’ve compiled all the government contracts that might be suitable for your business needs.

What are the five elements of the contract bidding process?

When two entities agree to do a business legally, they make a contract—however, several factors to consider to be an official government contractor.

A legally binding agreement has the following five components:

I. The offer

An offer is a verbal or written commitment to do something or not do something in exchange for specified conditions. The terms of the offer must be appropriately identified to ensure that both parties understand the deal.

If the offer is unclear, the contract may not be specific enough to be enforced by a court of law.

However, it isn’t easy to substantiate verbal offers in court if the scenario arises. When feasible, it is best to avoid this form of contracting.

II. Acceptance

Acceptance is when the recipient of the offer agrees to the terms of the deal. Acceptance must be a free choice of the parties involved. A contract must include these two elements:

  • The terms of the offer
  • Scope of the contract’s terms and conditions

III. Consideration

The value that each party brings to a contract is known as consideration. It is the part of a contract that you get in return for what you’re getting from the other part of the contract.

It could be in the form of money or a commitment to perform a particular task. There are two types of acts in consideration:

  • Those expected to be performed
  • Those expected not to be performed

It is customary for consideration to be expressed in monetary terms. However, if you offer to share your knowledge and expertise with a potential employer, you’d still be given consideration.

IV. Mutuality of obligation

The mutuality of obligation is the contractual agreement between parties to the terms of consideration. In mutuality of obligation, one party holds more leverage than another party.

For example, one of them has the right to cancel. In that case, a court may assess whether or not the mutuality of obligation has been met. If it is not reached, the court might void the contract.

V. Competency and capacity

Each party must be legally competent and able to consent to the conditions of the contract. A judge will rule that the person in question lacks the legal ability to enter into a contract in most cases.

Different types of government contracts establish strong businesses

All types of federal government contract

Big and small companies can profit significantly from government contracts. It makes large and small purchases of many goods and services.

Here is a comprehensive list of all government contracts of every kind:

The three main types of federal contracts

Contracts with the federal government are frequently classified into three categories.

Fixed-price contracts

Fixed-price contracts are government contracts in which the payment amount doesn’t change based on how much money the contractor spends or how long they work. Fixed-price contracts are also known as lump-sum contracts because they have a set price.

This contract is recommended if you have a clear idea of what exactly you want to happen.

A fixed-price contract also makes it easier for buyers to plan their finances. Customers can design their budgets accordingly because they know how much the product or service costs upfront.

Cost-plus contracts

A cost-plus contract states that a company will get reimbursed for its incurred costs and a percentage of the total contract price as profit. These agreements are helpful in specific industries like the construction industry.

There are four kinds of cost-plus contracts:

  • Cost-plus award fee contract: This contract allows an initial fee to be changed later based on the relationship between total allowed costs and target costs.
  • Cost-plus fixed fee contract: The contractor is paid a predetermined charge at the beginning of the agreement, rather than based on actual costs incurred.
  • Cost-plus incentive fee contract: It provides for an initial fee to be increased later by a formula depending on the connection between total permissible costs and target costs.
  • Cost-plus percent-of-cost contract: A fixed percentage of profit or overhead is paid to the contractor and the contractor’s actual expenses incurred on the contract.

Time and materials contracts

Time and materials contracts are used when the project has no definite structure. The time and materials contracts are deals that goes with the flow.

This type of contract is excellent for people who are still undecided when starting their project. People who sell things use time and materials contracts when they can’t figure out how long it will take them to do the job and what kind of materials they’ll need.

A seller will charge for the cost of any materials they use and an hourly or daily wage. Rates for materials and wages and any extra charges are included in the contract. These rates will stay the same as long as the contract is in place.

The most common types of government contracts

Most common government contracts

There are a lot of government contracts, but here are the standard contracts you are most likely to encounter:

Cost-reimbursement contracts

A cost-reimbursement contract is a deal between the owner and the contractor that says the owner will pay the contractor for their costs while working on the project.

This contract ensures that the contractor doesn’t go over the agreed-upon price without getting the buyer’s approval first. However, if it reaches the limit, the contractor has the option of ceasing work.

Aleatory contracts

Aleatory contracts are agreements in which the parties concerned do not have to take action until an event of their choosing occurs.

Both parties do not influence the events that trigger an aleatory contract’s call for action. Risk assessment is an essential aspect of constructing aleatory agreements to ensure that all parties are aware of the chance of an event occurring.

Unit price contracts

Unit price contracts require the contractor to first break down the overall job into “units” before determining a price for each. When all units are ready, he creates a price estimate for each.

A Unit Price Contract is the most commonly used contract for public building projects.

Bilateral contracts

In bilateral contracts, one party promises to provide a solution, and the other agrees to pay for it. A breach of contract occurs if the buyer fails to pay or the seller fails to deliver.

The main feature of bilateral contracts is exchanging value for another value, known as consideration. The most prevalent application of bilateral agreements is in sales transactions.

Unilateral contracts

In a unilateral contract, there is an explicit agreement that payment is only made when one party does what they say. In a unilateral contract, the offeror can back out of the deal before the offeree does their work. The revocation needs to be very clear.

However, legal complications usually arise when the offeree believes they are entitled to money based on their particular actions. The offeror refuses to pay the given sum. The court will evaluate whether or not the contract was breached based on the contract’s provisions and the offeree’s ability to prove they are qualified for payment.

Express contracts

An Express contract is when two parties express their agreement using words in a contract. An express contract can be made through a verbal or written agreement.

All terms, such as offer, acceptance, and consideration, must be stated clearly to have an express contract. Other factors include mutual agreement, legal terms, and capacity. Some popular express contracts are contracts for property sale, employment, and even a contract to perform a service.

Implied contracts

Implied contracts are based on the activities taken by the involved parties. If a contract is not written down or uttered, it is called an implied contract. The agreement will automatically start once the correct steps are taken to create the government contracts.

The law defines different implicit contracts – those implied in fact and those indicated in the law.

  1. Implied-in-fact: Implied contracts are made when two people act as if they had an agreement in place.
  2. Implied-in-law: A judge can use implied-in-law contracts when one party takes advantage of the other in a case.

Simple contracts

Simple contracts are an agreement that requires discussion to be legally binding, either verbally or in writing. Another way of putting it is that consideration is the trade of one thing for another, which can be anything of value, such as time, money, or an item.

A simple contract does not have to record or sign a contract. But in court, the judge can still decide if someone can wear breeches. There is also a breach of contract if one or more agreement terms are not kept.

Unconscionable contracts

An unconscionable contract is severely unfair and one-sided that the law can’t enforce it. If someone sues over an unconscionable agreement, the court will rule that it is void. In this case, no money is paid out, but the parties will be free from their contractual obligations.

An unfair or oppressive contract could make a court think that one party was harmed when the agreement was made, so the court might not be able to enforce it.

Adhesion contracts

In an adhesion contract, one party has disproportionate power to dictate the terms. The standard terms and conditions must be presented to all clients for an adhesion agreement.

This lack of negotiation is not done maliciously. It is typical for the offeror of adhesion contracts to offer all of their offerees the same terms and conditions. Every arrangement is precisely the same.

Some adhesion contracts can be found in various business transactions. For example, if you purchase a gadget and agree to the terms of service, you have entered into an adhesion contract.

GSA schedule contracts

GSA schedule contract lets anyone sell your products or services to the federal government and other groups and state and local governments.

Having a GSA contract also means you can sell to any government agency in the United States. Without this contract, you would have to bid on and negotiate with agencies on your own, which would be a lot of work.

Different types of government contracts for small enterprises

Set-aside small enterprises contracts

To increase competition for small enterprises, the government restricts procurement for some government contracts to smaller businesses.

Competitive set-aside contracts

All government contracts with less than $150,000 are immediately subject to competitive set-aside agreements. For a government contract to be given to a small business, at least two must be able to do the work or supply the goods and services themselves.

Set-asides are available to many businesses. Businesses that get help from the U.S. Small Business Administration (SBA) with contracting can get this contract faster.

Sole-source set-aside contracts

Sole-source contracts don’t have to go through a bidding process. It usually happens when only one business can meet the needs of a contract.

If you want to get a sole-source set-aside contract, ensure your business is registered with the System for Award Management. You must also participate in any contracting programs.

Occasionally, a sole-source contract will have to be made public and recognized. These contracts can still be seen and bid on by potential suppliers. Changing one’s mind about going with a single vendor is possible once the bidding process has begun.

Other types of government contracts and business contracts

You need to draft and negotiate clear and well-prepared contracts to avoid misunderstandings. Here are the other vital contracts and agreements that will help your business expand:

Firm-fixed-price contracts

A firm-fixed-price contract means that the price won’t change based on how much the contractor spent. It means that the contractor is in charge of all risks and costs.

This contract is a smart way to obtain commercial goods and services when the contracting officer can determine fair and reasonable costs beforehand.

Other reasons to use the firm-fixed-price contracts are:

  • There is enough price competition.
  • There are legitimate comparisons between prices paid for similar items or services in the past based on valid, certified costs or expenses.
  • Cost or pricing information makes it possible to make realistic estimates of performance costs.
  • The contractor is willing to take a firm set price representing the risks’ assumption.

Incentive contracts

Incentive contracts are helpful when a Fixed-Price Contract is not applicable because the essential supplies or services can be obtained at cheaper pricing.

Contractors often get incentive contracts to do better work while keeping the costs down, making them receive more profit. As soon as you have a good foundation in incentive contracts, you can efficiently enhance performance and save finances.

Research and development contracts

A research and development contract is a way to do basic and applied research systematically. It’s a way to find solutions to problems or develop new goods and knowledge.

Whenever a research and development contract is linked to a grant or project plan, it must be tailored to meet the needs of those grants or projects. The research and development contracts must also be sent to the funding agency.

Labor-hour contracts

The labor-hour contract is a similar kind of contract to the time-and-materials agreement. Still, it’s only different because the contractor doesn’t provide the materials.

Labor hour contracts are primarily helpful when the contracting officer decides that no other type of contract is suitable for the job.

The person who owns the contract provides the materials and pays a fixed price that includes overhead and profit for a certain number of work hours, which has been agreed upon in the contract.

Fixed-price incentive contracts

A fixed-price incentive contract is a variation of a fixed-price contract that lets you adjust profit and set the final contract price. It uses a formula that considers how much money you make and how much money you spend.

This type of contract is helpful when buying large amounts of goods or services. It is possible to agree on a fair and reasonable price for an initial period but not for the rest of the contract’s performance.

Fixed-price contracts with economic price adjustment

Under the terms of a fixed-price contract with an economic price adjustment, the contract price may rise or fall in some instances. These are certain unforeseen circumstances that the contractors cannot control.

Fixed-price contracts with economic price adjustments based on these three common factors:

  1. Adjustments based on established prices: These price changes are based on changes from an agreed-upon level in the prices of certain items or the items at the end of the contract.
  2. Adjustments aligned on labor or materials costs: These price changes are based on changes or decreases in the costs of labor or materials that the contractor actually sees while working on the contract.
  3. Labor or material cost indexes are used to make changes: These price changes are based on changes or reductions in labor or material cost standards or price indexes that are written into the contract.

Firm-fixed-price, level-of-effort term contracts

Research and development projects that need to be done in one specific area can benefit from a firm-fixed-price, level-of-effort term deal. These contracts usually come with a report showing clear steps to get their expected results.

However, this contract has its imitations. It can only be used when:

  • There isn’t enough information about what needs to be done to make it clear.
  • It’s agreed in advance how much work each person will have to put in.
  • The contract value can’t be more than the simplified acquisition threshold or less unless the head of the contracting office gives it the go.

Fixed-price contracts with prospective price redetermination

There is a set price for the first delivery period or performance under the contract in Fixed-price contracts with prospective price redetermination. The price is subject to prospective redetermination at a specified time or times during performance at a future date or time.

Quantity production or service acquisitions may benefit from fixed-price contracts with prospective price redetermination. However, a fair and reasonable firm set fee can be negotiated for the first period of the contract’s performance.

Fixed-ceiling-price contracts with retroactive price redetermination

As long as the research and development project is projected to be less than the streamlined acquisition threshold, a fixed ceiling price contract with retroactive price determination is appropriate. Before obtaining this contract, it must show that a reasonable and acceptable fixed-price contract is not negotiable due to the high stakes and short deadline.

For the contractor to keep costs down, this contract type doesn’t give them any other incentive than the ceiling price.

Firm-fixed-price, level-of-effort term contracts

A firm-fixed-price, level-of-effort term contract is applicable to research or study in a specific field of research and development.

It requires the contractor to put in a certain amount of effort over a certain amount of time for work that can only be described in general terms. The government will pay the contractor a fixed amount of compensation.

Cost-plus incentive contracts

Cost-plus incentive contracts allow an agreed-upon fee to be changed later based on the correlation of total allowable costs and total goal costs.

In this contract type, the fee adjustment formula is specified together with the target charge. The procedure determines the contractor’s compensation after the contract is completed.

Concerning overall allowable costs, the formula allows for increases above goal fee and decreases below target fee. This raise or reduction encourages the contractor to handle the contract well. The contractor is paid the total authorized cost plus the minimum or maximum charge, depending on the range of expenses.

Indefinite-Delivery and Indefinite-quantity Contracts

The indefinite-delivery, indefinite-quantity contracts supply services indefinitely. This type of contract is helpful when GSA cannot estimate the exact amounts of commodities or services required by the government during the contract period.

IDIQ contracts are primarily obtained for service contracts and architectural work.

Definite-quantity contracts

A definite-quantity contract states that a specified amount of a given product or service will be delivered or performed at a specific place for a predetermined time.

Definite-quantity contracts are used when you can figure out in advance how many supplies or services you’ll need during the contract period. Only use this contract when it is possible to get a lot of stores and services at any time, or they’ll come in a short time.

Requirements contracts

A requirements contract allows the federal government to buy all the supplies and services it needs from one contractor during a set time. The government orders the contractor to arrange a time for the contractor to deliver or perform.

The contracting officer must include an estimated total quantity in the solicitation and contract to benefit bidders and contractors. This estimate does not guarantee that the expected amount will be ordered. The contracting officer should use the most recent information available to make an accurate estimate.

Letter contracts

A letter contract is a documented preliminary contract that allows the contractor to begin manufacturing or providing services immediately.

A letter contract may be utilized when the federal government’s interests need an immediate binding commitment from the contractor and negotiating a formal contract is not feasible. A written agreement should be as detailed and specific as possible.

Indefinite delivery contracts

An indefinite-delivery contract or framework agreement is a contract in which a person or group of people are hired for a set amount of time and budget. These hired people to advise on a specific activity that cannot be planned.

Supply and service orders can be fulfilled using an Indefinite Delivery Contract, which is a vehicle granted to one or more organizations. And if your business is performing well, the government can also extend the contract.

Federal government contracting with a small business.

How can businesses benefit from government contracts?

If you are running a business, there are a lot of positives to trying to get government contracts. Competition for government contracts is high because there are many benefits to getting a good deal.

Government contracts support small firms

Small businesses are given preferential treatment when it comes to government contracts. The GSA’s procurement programs provide excellent opportunities for collaboration. With the support of the Office of Small and Disadvantaged Business Use (OSDBU).

Increasing the value of a firm

A good reputation, such as meeting all government standards, can instantly boost your company’s value.

If your business is in a place that has a growing economy, you are likely to be a part of that growth. It is an excellent thing about getting government contracts. When you spend money in your community, the value of your business can go up.

Business and profit stability

Contracts with the government sound great because they may provide a solid foundation for a firm and help it grow more steadily over time. Having a government contract as a starting point can put you in a stable position to work with big corporations.

Equal Competition Rules

All contracts are open to qualified bidders, and favoritism is expressly prohibited in every transaction. To do business with the government, it must choose its vendors ethically, transparently, and professionally.

On-time payment

Having a business with a government agency usually means getting paid timely. People who do work and then don’t get paid are less likely because of this.

Payments are usually made within a month, but income comes even faster in specific industries like construction. If you don’t get paid on time, the government will also pay you interest on the money they owe.

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Written by Dawn Pamulaya

Dawn is a professional writer who formerly worked on different websites across Asia, Europe, and America. Today, she focuses more on creating informative content, helping people find their source of business news through GovCon.

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