Large and small businesses benefit from the government market thanks to diverse types of contracting vehicles. However, there are many types of government contracts available, and it can be confusing which contract suits your business.
Learn more about the primary contracting vehicles that may help you successfully venture with the government.
What is a contracting vehicle?
Contracting vehicle refers to a method that government agencies use to buy goods and services from vendors or contractors. Establishing these vehicles makes purchasing more straightforward and complying with relevant requirements more efficient.
You may want to read: How to Start a Joint Venture and What are The Benefits of Joint Ventures for the Government
Contracting Vehicles: Understanding GSA Schedules, IDIQs, and beyond
We’ve compiled the four common types of contracting vehicles for government contractors.
GSA Schedule
The GSA Schedule is a long-term contract between the government and businesses that allows government entities to acquire goods and services at fair and practical prices. It starts with a five-year term and comes with another three five-year options. The GSA Schedule is called by different terms, including:
- GSA Listing
- GSA Number
- GSA Schedule
- GSA Contract
- Multiple Award Schedule (MAS)
- Federal Supply Schedule (FSS)
The GSA Schedule is one of the most versatile government contracts. For a contractor to sell its products and services through a GSA schedule, it has to bid and negotiate with agencies individually.
Indefinite Delivery, Indefinite Quantity (IDIQ)
An Indefinite Delivery/Indefinite Quantity contract allows the purchaser to have an indefinite number of goods and services from a vendor for an indefinite duration. The contracting process is more efficient with IDIQs as it takes little time to compute all the project’s expenses.
IDIQ contracts complete agreements without the exact estimating of products and services. There are two main types of IDIQ contracts: single-award IDIQ contracts and multiple-award IDIQ contracts.
- A single-award IDIQ is ideal for government projects that award only one contractor.
- A multiple-award IDIQ works best with complex programs with two or more vendors.
Fixed-Price Contract
Under a fixed-price contract, the government compensates the contractor based on the specific predetermined price. The contractor saves resources and time through this contract type because the government sets the price before signing and starting the project.
The most common types of fixed-price contracts include:
- Fixed-price incentive contracts
- Firm fixed-price contracts
- Fixed-price contracts with economic price adjustment
- Fixed-ceiling-price contracts with price redetermination
- Firm fixed-price level-of-effort contracts
Fixed-price contracts may also come with some risks. This kind of agreement may cause the contractor to be responsible for the cost overruns if there are any. It usually happens when the government has already set its payment, followed by increased market prices.
Cost-Reimbursable Contracts
Two parties can enter into a cost-reimbursement contract if they agree to pay each other for reasonable expenses. The underlying deal and the actual project costs are used to calculate the exact pricing of the transaction.
This federal government contract specifies that the estimated amount for required funds and the maximum price the contractor can go beyond the set price, particularly with the contracting officer’s approval.
The cost-reimbursement contract has four primary types, namely:
- Cost contracts
- Cost-sharing contracts
- Cost-plus-fixed-fee (CPFF) contracts
- Cost-plus-incentive-fee (CPIF) contracts
Incentive Contracts
In incentive contracts, government clients reward vendors with incentives on top of the original budget. The additional compensation is a recognition of the contractor’s performance and motivation to complete the project.
Here are the five types of incentive contracts:
- Fixed-price incentive contracts
- Cost-plus or cost-reimbursement incentive contracts
- Performance incentive contracts
- Schedule incentive contracts
- Multiple incentive contracts
The two most used types of incentive contracts are fixed-price incentive contracts and cost-reimbursement incentive contracts. The government uses these contracts if the value of the products and services has already been estimated.
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