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/

---

Small Business Survival

In today's economic climate, the first priority for the small... Read More

How to Manage Your Pipeline

How is your pipeline structured?I assume most of you have... Read More

How to Start a Paper Shredding Business

Paper Shredding Business Opportunities are blossoming up everywhere because in... Read More

Become The Squeaky Wheel and Watch Your Business Skyrocket!

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

Franchisor Prospect Checklist Sample Form

Due to the over regulation in the Franchising Industry and... Read More

Small Business Success - It?s a Matter of Confidence

I was floored! I couldn't believe what they were saying!... Read More

Pressure Washing; How to Bid Concrete Cleaning Jobs

Remember the cleaning business is all about time ratio to... Read More

How to Profit Handsomely From a Secret Business Model Virtually No Small Business is Using!

Have you been searching for the perfect home-based business? I... Read More

Packing Material Thats Cheap!

Shipping materials can be expensive! Even the styrofoam "peanuts" can... Read More

How To Plant Seeds of Success With Small Business Ideas

Think of all of your business ideas as tiny seeds... Read More

Do Your Best; Hire the Rest

One of the hidden perks of raising six children is... Read More

Small Business Marketing Secrets: Look Like Sizzle, Be The Steak

You've heard marketing and advertising gurus quip, "Sell the sizzle,... Read More

Franchise Territories are Generally Delineated On a Map; Why?

If you own a mobile service or home based franchise... Read More

Top 7 Small Business Resources for 2005

If you want to start a business in 2005, and... Read More

Starting a Small Business? ?Tips from a Veteran

Congratulations, you are starting a small business! You are taking... Read More

Why the Over Regulation on the Franchising Model?

Franchising is the fastest way to build small businesses, provide... Read More

More Business Card Uses

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

Marketing Your Small Business with Success Stories

-- The One Pager Shortcut Series --An effective and compelling... Read More

Is This The Way Its Always Been Done?

Let's face it, we all tend to get stuck in... Read More

How Mastering 5 Essential Money Making Ideas Can Lead Your Business to Longterm Cashflow

Essentially there are 5 tremendously powerful methods to make money... Read More

Small Does Not Mean Invisible!

Running a business on the net these days can be... Read More

California Department of Corporations Attempts to PR Their Benefits to Consumers

On Monday the Department of Corporations in California revoked franchise... Read More

You Dont Yet Know What You Dont Know

Someone new to business ownership recently told me, "Before I... Read More

Is Your Business Profitable?

What's your job profitability? Do you know?Many business owners are... Read More

Small Business Planning -- Three Myths

Are you -- like 70 percent of small business owners... Read More

Are You a Small Business Lone Ranger? Take My 10-Question Quiz To Find Out!

So what exactly is a "Small Business Lone Ranger?" A... Read More

Analyzing Customers in Your Business Plan

The Customer Analysis section of the business plan assesses the... Read More

Loose Lips Sink Ships - The Fastest Way to Put Yourself Out of Business

I agree that knowledge should be free, but the next... Read More

Measuring Your Way to Success

Are you a motivational speaker who consistently gets rave reviews... Read More

Detailing Business Options

So you want to get into the auto detailing business... Read More

When to Say NO!

When is it a good thing to say no to... Read More

Administration Of Your Small Business

You've been meaning to tend to the administration part of... Read More

Five Simple Software Tips for Small Business Owners

The start of a new year is a time for... Read More