Winning a government contract can be a major opportunity for small businesses, but understanding contract types is key to success. Firm-Fixed-Price (FFP) contracts are one of the most common government contract types, offering a set payment amount that doesn’t change, no matter the contractor’s actual costs.
For small businesses, FFP contracts provide stability but require careful pricing and cost control to remain profitable. Unlike cost-reimbursement contracts, where the government covers actual expenses, FFP contracts put the financial responsibility on the contractor—meaning any cost overruns come out of the business’s pocket.
In an FFP contract, a contractor agrees to deliver a product or service at a pre-determined price. The contractor is responsible for managing expenses and ensuring profitability while meeting contract requirements.
Why does the government prefer FFP contracts?
✔ Cost Predictability: Agencies know their exact spending upfront
✔ Simplified Administration: Fewer adjustments and contract modifications
✔ Encourages Efficiency: Contractors have an incentive to control costs
One of the biggest risks in FFP contracts is underbidding. If costs exceed estimates, the contractor absorbs the loss.
✔ Research past pricing on SAM and USAspending to see what similar contracts have been awarded for
✔ Factor in all costs, including inflation, supply chain issues, and unexpected expenses
✔ Include a buffer for potential cost increases while remaining competitive
Once the contract is awarded, keeping costs down while delivering quality work is key to profitability.
✔ Negotiate supplier pricing to lock in stable material costs
✔ Optimize workforce efficiency to prevent unnecessary labor expenses
✔ Use technology to streamline project management and operations
A construction company wins an FFP contract to renovate a federal building. By securing fixed-rate supplier contracts before starting work, they avoid unexpected material cost increases and protect their profit margins.
Scope creep—when an agency asks for extra work without extra pay—is a common pitfall in FFP contracts.
✔ Clarify project details before signing the contract
✔ Track all change requests and request a formal contract modification if needed
✔ Communicate clearly with contracting officers about what’s included in the agreement
A janitorial services company secures an FFP contract for government facility cleaning. Midway through, the agency requests additional deep cleaning services. Instead of absorbing the cost, the company refers to the contract, documents the request, and negotiates an additional payment.
Not every FFP contract is a good fit. Before bidding, ask:
✔ Is the scope well-defined? If contract details are vague, the risk of unexpected costs increases
✔ Can you deliver efficiently? Businesses with predictable costs and strong project management are best suited for FFP contracts
✔ Do you have past experience? If similar projects have been profitable for your business, FFP contracts may be a great opportunity
FFP contracts can be highly profitable when properly managed. They work best for:
✔ Businesses with stable material and labor costs
✔ Companies experienced in fixed-price government work
✔ Projects with clear deliverables and minimal cost variability
For small businesses ready to compete in the federal marketplace, FFP contracts provide a path to consistent revenue and business growth—as long as cost control and pricing strategies are carefully planned.
If you're preparing to bid on an FFP contract, USFCR can help you develop a competitive pricing strategy and ensure compliance. Our experts have helped thousands of businesses secure and execute government contracts successfully. Read the full article "What's Next?" strategy for federal contractors.
Contact us today to ensure your next contract is both winnable and profitable.
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