What are the differences between firm-fixed-price and time-and-materials contracts?

In California, two of the most commonly used contract types in government contracts law are firm-fixed-price (FFP) and time-and-materials (T&M) contracts. While both contracts are used in the procurement process, they are very different in the way they operate. Under an FFP contract, the seller agrees to provide goods or services to the buyer at a predetermined price. This means that the buyer must agree to the total purchase price before the contract becomes effective. The seller is then responsible for any costs that exceed the agreed upon price. The advantage of an FFP contract is that the buyer knows exactly what they are paying upfront and the seller takes on the risk in the event that costs increase. In contrast, a T&M contract is designed so that the buyer is charged for the labor, materials and services used during the project on an hourly or other unit basis. This type of contract does not involve a fixed price, but rather the buyer pays for the actual work completed. The advantage of a T&M contract is that the buyer can adjust the scope of work or add additional services if needed, and the seller is not at risk for cost overruns. In conclusion, FFP and T&M contracts are two of the most commonly used contract types in California government contracts law. With an FFP contract, the buyer agrees on a total purchase price upfront and the seller assumes the risk if costs exceed that amount. With a T&M contract, the buyer pays for the actual work completed and they have the flexibility to modify the scope of work if needed.

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What are the differences between firm-fixed-price and time-and-materials contracts?

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