My answer to What kind of contract can a newly minted contractor bid for?
Answer by Ken Larson:
Your contract type will be driven by two factors:
- The business you are in
- The amount of risk in the contract.
A contractor is either in the products or services business or both. A service contract could be a mix of products and services or a product contract could have services connected to in to support the product life cycle.
Contracts types generally refer to risk involved. A firm fixed price contract has the highest risk, since the price is locked and not subject to an increase unless the specification or work scope changes. A cost plus contract will reimburse every cent the contractor incurs plus a reasonable profit.
Perhaps the greatest mix of government contract types is with the federal government. In between the above types are a myriad of other contract arrangements explained in the following article.