This is the slide deck from a recent Unanet webinar. We looked at the three main types of government contracts and the new hybrids that have cropped up in recent years. Whether you are new to Government Contracting, or are a long-term GovCon, there will be a little something for contractors of all shapes and sizes and all levels of experience. Learn more at: https://www.unanet.com/news/demand-webinars

1. Rich Wilkinson
Director of Solutions Engineering
Government Contracts 101
Understanding the Basics of
Contract Types
Copyright © 2017 Unanet

2. Agenda
• Brief Introduction of Rich Wilkinson & Unanet
• Background
• Public Awareness
• Basic Contract Types
• Contract Types by Obligation of the Parties
• Contract Types by Risks to the Parties
• More on Types and Special Factors
• Hybrids
• Questions
4/26/2017 2

3. Tracking
Budgeting,
Planning,
Forecasting
Billing &
Revenue
Recognition
Real-Time
Analytics
KPIs
Dashboards
Financials
Managing the
Entire Project Lifecycle
• Pipeline
Management
• Resource Scheduling
& Skills Mgmt
• Scenario Planning
• Revenue / Cost /
Margin Forecasting
• Pricing
• Timesheets
• Expense
Reports
• Per Diems
• Approvals
• Project Notes
• Utilization
• Project Status
• % Complete
and EVM
• Gross &
Net Margin
• Backlog
• Customer Relations
• GAAP Compliance
• Invoicing
• % Complete
• Rev Rec Schedules
• T&M, FP and CP
• GL
• AP
• AR
• Cost Pools
Copyright © 2017 Unanet
Integrates with Payroll, Purchasing, Other Functions

4. Copyright © 2017 Unanet
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5. Poll #1
What is the size of your organization?
< 50
50-200
201-500
501-1000
>1000
Copyright © 2017 Unanet

6. Background
• In the beginning, all contracts were Fixed Price
• World War I introduced the concept of “teardown and
repair” contracts
– A Fixed Price order to “tear down” a piece of failed
equipment and diagnose the problem (and prepare a
repair proposal)
– A Time & Materials order (parts and labor) to make the
repair
– Still in use today at your friendly, local auto repair shop
except the diagnosis is usually done “on spec”
• World War II introduced the concept of cost reimbursable
contracts
– No time for definitive specs
4/26/2017 6

7. The 1950’s
• U.S. Government forays into Research &
Development (such as Project MoHole) further
developed the cost-reimbursable concept
– Courts held that Government should accept both
performance and cost risk when there is high level
of uncertainty
– DOD continued to experiment with Fixed Price R&D
periodically
• Last significant FP R&D contract was $5B contract for
the Navy A-12
• Contract terminated for default in 1991
• Promptly converted to T for C
• The last lawsuits arising out of the termination claims
were settled in 2011
4/26/2017 7

8. Political Considerations
• Politicians LOVE “Fixed Price” contracts – good press
– Results in extreme preference for FFP in legislation and
regulation
– Makes life VERY difficult for program managers
• Politicians love to pound podiums and demonize “Cost Plus”
contracts and the contractors who hold them
– Results in initiatives to reduce or “wipe out” cost plus
contracting
– No real effect on procurement processes to date
• Politicians ignore “T&M” contracts because neither they nor the
public know what they are or how they work
– In all of Congress, there are probably less than a dozen
legislators that could accurately describe the characteristics of
the three basic contract types
4/26/2017 8

9. Public Awareness
• You’re kidding, right?
4/26/2017 9

10. Contracts in the Press
• In the Press, the basic contract types are:
– “No Bid” (sole source – whether appropriate or not)
• In the visual media, speaking the phrase apparently
requires a distasteful look to go with it
• The implication is one of malfeasance on the part of
the awarding agency
– Wasteful (anything other than fixed price)
– Fixed Price (referred to in glowing terms)
4/26/2017 10

11. Contract Types in
Acquisition
• 3 Basic Contract Types:
– Fixed Price (also called Firm Fixed Price (FFP)
– Time and Material/Labor Hour (T&M/LH)
– Cost Reimbursement (also called “Cost Plus” type contracts)
• Many variations and combinations
– Fixed price labor with cost-reimbursable ODCs (the successor
to T&M)
– Fixed price contract with time as the unit of measure
– Fixed price services with a Level of Effort
– Cost-type labor with fixed price options for products
– Etc.
4/26/2017 11

12. Awards Overview
Federal Obligations on Contracts – GFYs 2008-2017*
• *Data from USASpending.gov
4/26/2017 12

13. Awards Overview
Federal Obligations on Contracts – GFYs 2008-2017*
• *Data from USASpending.gov
4/26/2017 13

14. Contracts on the Web
Federal Obligations on Contracts – GFYs 2010 – 2014*
• *Data from USASpending.gov
4/26/2017 14
2010 2011 2012 2013 2014
Fixed Price 336,922$ 336,563$ 333,799$ 293,586$ 281,909$
Cost-Reimbursable 168,461$ 168,281$ 161,684$ 149,123$ 143,192$
T&M/LH 27,171$ 27,142$ 20,862$ 18,640$ 17,899$
Other 10,868$ 10,857$ 5,216$ 4,660$ 4,475$
543,422$ 542,843$ 521,561$ 466,010$ 447,474$
All Amounts in $ Billion

15. Contracts on the Web
Federal Obligations on Contracts – GFYs 2010 – 2014*
• *Data from USASpending.gov
4/26/2017 15
2010 2011 2012 2013 2014
Cost 31% 31% 31% 32% 32%
Fixed Price 62% 62% 64% 63% 63%
T&M 5% 5% 4% 4% 4%
Other 2% 2% 1% 1% 1%
100% 100% 100% 100% 100%

16. Poll #2
What percentage of your firm’s
contracts are cost-reimbursable
(by dollar amount)?
80% - 100%
40%-79%
10%-39%
< 10%
Copyright © 2017 Unanet

17. Usage of the Contract Types
• FFP
– Requirements are known and can be described with
precision
– Cost of performance can be predicted with a
reasonable degree of certainty
• T&M/LH
– Requirements poorly described or subject to
frequent or unpredictable change
– Cost of performance can be predicted with a
reasonable degree of certainty
• Cost Plus
– Requirements or ability to perform are uncertain
– Costs cannot be predicted with any degree of
certainty
4/26/2017 17

18. Types by Risk and
Obligations of the Parties
• Performance Risk
– Can this SOW even be done? Are we sure?
– Is the schedule realistic?
– If it can’t be done or the schedule is impossible,
who takes the hit?
• Cost Risks
– Do we know what this will cost?
– Are there factors beyond the control of either
party?
– If we’re wrong, who takes the hit?
• The Contract Risk Spectrum
4/26/2017 18

19. Obligations of the Parties
4/26/2017 19
Contract Type Contract Form Contractor Obligations Government Obligations
Completion
To deliver goods or services
(Performance-based contract)
To pay promptly on delivery,
inspection, acceptance and
presentation of a proper invoice
Level of Effort
To deliver the hours specified in the
contract level of effort clause in
pursuit of the stated objectives in the
SOW
To pay promptly on delivery,
inspection, acceptance and
presentation of a proper invoice -
often treated like a T&M during
performance
Completion N/A N/A
Level of Effort
To deliver the hours specified in the
contract in pursuit of the stated
objectives in the SOW and to acquire
the materials required in
performance of the SOW
To pay for hours delivered and
accepted upon preasentation of a
proper statement of work
Completion
To provide the contractor's "best
efforts" in pursuit of the objectives
stated in the SOW
To reimburse the contractor's total
cost of performance subject to the
allowability and allocability rules of
FAR and CAS and the restrictions of
the contract clauses
Level of Effort
To provide the contractor's "best
efforts" AND the level of effort stated
in the LOE clause of the contract in
pursuit of the objectives in the SOW
To reimburse the contractor's total
cost of performance subject to the
allowability and allocability rules of
FAR and CAS and the restrictions of
the contract clauses
Firm Fixed Price
Time and Materials
Cost Reimbusable

20. Obligations of the Parties
4/26/2017 20
Contract Type Contract Form Contractor Obligations Government Obligations
Completion
To deliver goods or services
(Performance-based contract)
To pay promptly on delivery,
inspection, acceptance and
presentation of a proper invoice
Level of Effort
To deliver the hours specified in the
contract level of effort clause in
pursuit of the stated objectives in the
SOW
To pay promptly on delivery,
inspection, acceptance and
presentation of a proper invoice -
often treated like a T&M during
performance
Completion N/A N/A
Level of Effort
To deliver the hours specified in the
contract in pursuit of the stated
objectives in the SOW and to acquire
the materials required in
performance of the SOW
To pay for hours delivered and
accepted upon preasentation of a
proper statement of work
Completion
To provide the contractor's "best
efforts" in pursuit of the objectives
stated in the SOW
To reimburse the contractor's total
cost of performance subject to the
allowability and allocability rules of
FAR and CAS and the restrictions of
the contract clauses
Level of Effort
To provide the contractor's "best
efforts" AND the level of effort stated
in the LOE clause of the contract in
pursuit of the objectives in the SOW
To reimburse the contractor's total
cost of performance subject to the
allowability and allocability rules of
FAR and CAS and the restrictions of
the contract clauses
Firm Fixed Price
Time and Materials
Cost Reimbusable

21. Obligations of the Parties
4/26/2017 21
Contract Type Contract Form Contractor Obligations Government Obligations
Completion
To deliver goods or services
(Performance-based contract)
To pay promptly on delivery,
inspection, acceptance and
presentation of a proper invoice
Level of Effort
To deliver the hours specified in the
contract level of effort clause in
pursuit of the stated objectives in the
SOW
To pay promptly on delivery,
inspection, acceptance and
presentation of a proper invoice -
often treated like a T&M during
performance
Completion N/A N/A
Level of Effort
To deliver the hours specified in the
contract in pursuit of the stated
objectives in the SOW and to acquire
the materials required in
performance of the SOW
To pay for hours delivered and
accepted upon preasentation of a
proper statement of work
Completion
To provide the contractor's "best
efforts" in pursuit of the objectives
stated in the SOW
To reimburse the contractor's total
cost of performance subject to the
allowability and allocability rules of
FAR and CAS and the restrictions of
the contract clauses
Level of Effort
To provide the contractor's "best
efforts" AND the level of effort stated
in the LOE clause of the contract in
pursuit of the objectives in the SOW
To reimburse the contractor's total
cost of performance subject to the
allowability and allocability rules of
FAR and CAS and the restrictions of
the contract clauses
Firm Fixed Price
Time and Materials
Cost Reimbusable

22. Obligations of the Parties
4/26/2017 22
Contract Type Contract Form Contractor Obligations Government Obligations
Completion
To deliver goods or services
(Performance-based contract)
To pay promptly on delivery,
inspection, acceptance and
presentation of a proper invoice
Level of Effort
To deliver the hours specified in the
contract level of effort clause in
pursuit of the stated objectives in the
SOW
To pay promptly on delivery,
inspection, acceptance and
presentation of a proper invoice -
often treated like a T&M during
performance
Completion N/A N/A
Level of Effort
To deliver the hours specified in the
contract in pursuit of the stated
objectives in the SOW and to acquire
the materials required in
performance of the SOW
To pay for hours delivered and
accepted upon preasentation of a
proper statement of work
Completion
To provide the contractor's "best
efforts" in pursuit of the objectives
stated in the SOW
To reimburse the contractor's total
cost of performance subject to the
allowability and allocability rules of
FAR and CAS and the restrictions of
the contract clauses
Level of Effort
To provide the contractor's "best
efforts" AND the level of effort stated
in the LOE clause of the contract in
pursuit of the objectives in the SOW
To reimburse the contractor's total
cost of performance subject to the
allowability and allocability rules of
FAR and CAS and the restrictions of
the contract clauses
Firm Fixed Price
Time and Materials
Cost Reimbusable

23. Discussion
• Why no completion type T&M?
• Does “reimburse the total cost of performance” mean
everything, no matter what?
4/26/2017 23

24. Risks of the Parties
4/26/2017 24
Conract Type Contract Form Performance Cost Performance Cost
Completion Very High Very High Very Low Very Low
Level of Effort Very Low Moderately Low Moderately High Moderately Low
Fixed Price Incentive Completion High High Very Low Low
Time & Materials Level of Effort Very Low Moderately Low High Moderately High
Completion Very Low Very Low Very High Very High
Level of Effort Very Low Very Low Very High Very High
Completion Very Low Low Very High High
Level of Effort (?) Very Low Low Very High High
Completion Very Low Low Very High Very High
Level of Effort Very Low Low Very High Very High
Cost Plus Incentive Fee
Cost Plus Award Fee
Cost Plus Fixed Fee
Contractor Risk Government Risk
Firm Fixed Price

25. Contract Risk Spectrum
4/26/2017 25
Contractor Risk
GovernmentRisk
FFP
FPI/FPR
T&M CPFF
CPIF
CPAF
FP LOE

26. Contract Risk Spectrum
4/26/2017 26
Contractor Risk
GovernmentRisk
FFP
FPI/FPR
T&M
CPFF
CPIF
CPAF
FP LOE

27. Factors in Selecting Types
• Competition
• Price analysis when competition not present
• Cost analysis when price analysis impractical or impossible
• Complexity of the requirement
• History and frequency
• Segregation or fragmentation
• Urgency
• Laziness or incompetence
4/26/2017 27

28. Type Details – Fixed Price
• Firm Fixed Price contracts are not subject to any
adjustment based on cost of performance
• Firm Fixed Price places all cost risk and full responsibility
for the resulting profit or loss on the contractor
• The Contractor is (theoretically) responsible for delivering
the required product or service no matter how long it takes
or how much it costs
• SPECIAL FACTORS
• Failure to deliver (default) can expose the contractor to risk
of “excess procurement costs”
4/26/2017 28

29. Type Details – Fixed Price
• Firm Fixed Price contracts with Economic Price Adjustment
(EPA) provisions can be adjusted up or down based on
contingencies
• EPA adjustments are of three general types:
– Adjustments based on established prices
– Adjustments based on actual costs of labor or material
– Adjustments based on cost indexes of labor or material
• EPA adjustments are typically small and within a very
narrow range
4/26/2017 29

30. Type Details – Fixed Price
• Other Fixed Price Variants
– Fixed Price Contracts with Prospective Price
Redetermination
• Contains points at which the price of FUTURE
deliverables can be adjusted
– Fixed Price Contracts with Retroactive Price
Redetermination
• Contains points at which the price of goods or
services already delivered can be adjusted
– Firm Fixed Price Level of Effort Term Contract
4/26/2017 30

31. Type Details –
Cost Reimbursable
• Cost-reimbursable contracts provide for payment of allowable
costs up to a funds ceiling
• Funding cannot be exceeded (Limitation of Funds Clause)
• SPECIAL FACTORS
• Cost reimbursable contracts contain the “Allowable Cost and
Payment” clause which establishes the requirement for an
annual Incurred Cost Submission
4/26/2017 31

32. Type Details –
Cost Reimbursable
• Cost reimbursable variants
– Cost Plus Fixed Fee: Fee is fixed at inception of contract
– Cost-No Fee Contracts: No fee permitted
– Cost-Sharing Contract: No fee and only agreed upon
portion of allowable costs are reimbursed
– Cost Plus Incentive Fee Contract: Fee is adjusted based
on formula of total allowable costs to total target costs
– Cost Plus Award Fee Contract: Fee based on judgmental
evaluation by the Government
4/26/2017 32

33. Type Details –
T&M Contracts
• A T&M contract provides for services on the basis of—
– Direct labor hours at specified fixed hourly rates that
include wages, overhead, general and administrative
expenses, and profit; and
– Actual cost for non-labor items:
• Materials (usually supplies), Subcontracts and Other
Direct Costs (travel, computer usage charges, etc.)
• SPECIAL FACTORS
• T&M contracts ALSO contain the “Allowable Cost and
Payment” clause which establishes the requirement for an
annual Incurred Cost Submission
4/26/2017 33

34. Type Details –
T&M Contracts
• A labor-hour contract is a variant of the T&M contract,
differing only in that materials are not supplied by the
contractor.
4/26/2017 34

35. Hybrid - Motivation
• The current administration has a declared preference for
fixed price contracts
• Government agencies (DOD in particular) have been
“pushing” fixed price contracts for at least the last ten years
• The result…
– More fixed price contracts
– More contracts classified as fixed price
– Hybrid contracts with features of multiple contract types,
but labeled as fixed price
4/26/2017 35

36. Fixed Price
Labor Hybrids
• New contracts with fixed price labor and cost reimbursable
materials and ODCs
– Labor often billed as a unit of time
– Sometimes billed by position filled and unit of time
– Sometimes billed by position with unit of time as hours
• Materials and ODCs estimate or ceiling often much larger
than fixed price for the labor
4/26/2017 36

37. Hybrid Contract
Special Factors
• These hybrid contracts should and usually do contain the
Allowable Cost and Payment clause and trigger the
requirement for an Incurred Cost Submission
• DCAA considers the fixed price labor hybrids (with cost
reimbursable materials and ODCs) to be cost-type contracts
with one or more fixed price line items or features
• They are looking for them in ICS schedules and rejecting
the submission when hybrid “improperly classified”
• Difficult to detect and often missed initially
4/26/2017 37

38. Hidden Costs of
Contract Types
• The “dreaded” incurred cost submission
– Establishes a firm’s indirect rates for each year
– Required if a firm has any contracts with the
“Allowable Costs & Payment clause”
(FAR 52.216-7)
• All Cost-type contracts
• All T&M contracts
• Certain other contracts with cost-reimbursable features
Copyright © 2017 Unanet

39. Poll #3
Does your firm do an annual Incurred
Cost Submission?
• No, we have only fixed price contracts
• No, but maybe we should be
• Yes
Copyright © 2017 Unanet

40. Q & A
4/26/2017 40
Rich Wilkinson
Director, Solutions
Engineering
rwilkinson@unanet.com