SBIR Corner: FFP vs. CPFF contracts:
In the SBIR/STTR world, the single most important decision you need to make is whether you are going to bid a job as Firm Fixed Price (FFP) or as Cost plus Fixed Fee (CPFF). These are two very different contract types and the decision to use one contract type over the other is very important to the overall success of a program. If your sponsor gives you a choice on the matter, the decision to go with one contract type over the other should be well thought out prior to submitting your proposal.
A Firm Fixed Price (FFP) contract is a lot like the tag price you would find on a pair of sneakers. If the price tag on the sneakers is $54.99, then the consumer will pay $54.99 for those sneakers. No more. No less. The profit margin of those sneakers to the manufacturer is built into that price and is transparent to the buyer. Likewise, if a FFP contract to research XYZ, is $99,999, then the Government is going to pay you $99,999 for that body of research. They will not pay you any more and they will not pay you any less. It is critical in this kind of contract to nail down exactly what you are and are not going to do for that price. You do this by writing a specific Statement of Work and by carefully reviewing your deliverables during contract negotiations.
A word to the wise. This isn't to say that you can put a proposal together to do XYZ in which your cost is $50,000 and you sell it to the Government for $99,999. That could be considered defective pricing in accordance with the Federal Acquisition Regulation (FAR) guidelines and it also exceeds the statutory maximum profit you can make on a contract such as this.
A Cost plus Fixed Fee (CPFF) contract is a contract type that reimburses you for fair and reasonable expenses up to a certain amount (a ceiling of some sort) and then pays you a prenegotiated fixed fee above any beyond your expenses. Accordingly, your profit margin or "fee" as one should call it, is exactly that renegotiated fixed fee. No more. No less. Depending on the billing method, your fee may be paid to you as one lump sum, or on some prorated basis where you earn a portion of the fee each billing cycle. In the end, if the job is done satisfactorily, the entire fixed fee amount will have been paid or will be payable to the contractor. If your total cost on the job is less than the ceiling, then your fee will not change, if your cost on the job is more than the ceiling, then your fee will not change either. It is essential to remember that you will not receive any more or any less fee than the renegotiated amount hence the terminology "fixed fee." So, for example, if your cost ceiling is 90,000 and your fixed fee is $9,000 for a total contract value of $99,000, you will be reimbursed for your cost incurred up to, but not exceeding, $90,000 and you will receive $9,000 as a fee. If you spend more than $90,000 (and this doesn't get you in hot water with your sponsor - i.e. a default situation) you may not be reimbursed for the amount that you go over $90,000 but you will get your $9,000 fee. If you only spend $80,000 you will be reimbursed for $80,000 and you will still receive $9,000 since your fee is, you got it? fixed!
Lisa DeMaio is the president and founder of Virtual Contract Manager, LLC, which is a one-stop "information shop" for and about the Contract Management Community and the SBIR (Small Business Innovative Research) Program. Let Virtual Contract Manager coach you on how to integrate the SBIR program into your existing business. Come visit Virtual Contract Manager and get a wealth of FREE SBIR information on our Free Articles Page and to sign up for our content-rich monthly newsletter which features one article a month on the SBIR program. Let Virtual Contract Manager help you tap the federal market and help fund your research or innovative technology. http://www.virtualcontractmanager.com/
Alto Pass chicago limos ..Cleaning the trailers towed by big trucks is not easy,... Read More
Have Some Time to Yourself One of the most important... Read More
If you're anything like me then you dislike with a... Read More
In the 2003 Auto Laundry News Survey it was determined... Read More
Why do you need an account plan?When you first decide... Read More
For many small businesses, the "S" corporation is the business... Read More
If you want to start a business in 2005, and... Read More
Sacred cows take a long time to die. We get... Read More
Business owners rarely go into business to deal with the... Read More
Many mobile pressure-washing companies turn to government contacts to make... Read More
Imagine that you have operated a successful franchise business for... Read More
What's your job profitability? Do you know?Many business owners are... Read More
An observation while returning home from a seminar: Getting away... Read More
1. Everyone Makes A Difference ? Despite not letting him... Read More
THE PSYCHOLOGY OF PRICINGIn case you hadn't noticed, people can... Read More
$elling $elling $ellingWhat makes a great sales person? Well, the... Read More
CARD SHARK7 Card Tricks That Improve Your Personal Networking PowerThe... Read More
Do you have all the customers your business can use?The... Read More
Each day we hear of companies entering the franchising industry.... Read More
IntroductionIt is widely recognised that Email and the Internet is... Read More
You bet it's worth it. Publicity via news releases, along... Read More
I've got good news and bad news. The good news... Read More
So you want to start a business but you don't... Read More
We have all seen the mobile washing units cruising our... Read More
By outsourcing to skilled professionals you'll be able to grow... Read More
Alto Pass cool limo ..The stock market is still on a wild roller coaster... Read More
Grow your Professional Organizer business by branching out into related... Read More
Ongoing support for a franchise system is omnipotent. A major... Read More
Most business owners know when they need an accountant, but... Read More
And is having a logo really that important?My answer to... Read More
Never underestimate the power of perception! Perception plays a major... Read More
A suggestion box is a really good idea for your... Read More
Mr/Ms, 'not me' is often on holidays in your business.... Read More
If you own a Pressure Washing Company and wish to... Read More
Outsourcing is the strategic use of outside resources to perform... Read More
Do you sometimes find yourself just going "through the motions"... Read More
Sexual Harassment is a disturbing part of employment life in... Read More
If you've been considering incorporating your small business, you've probably... Read More
How careful are you with the data you collect from... Read More
What is the satisfaction & expectation review of the business... Read More
Many new ventures are preoccupied with all the money they... Read More
What is the best time to expand a mobile car... Read More
In many industries, image is one of the last things... Read More
While I was hard at work last week, an everyday... Read More
When does your ego get in the way?Let's go back... Read More
Administrative and clerical tasks are the bane of every industry.... Read More
Your on-line success is based on your efforts and yours... Read More
Last summer the FTC put forth a report and then... Read More
Today required franchise disclosure documents are over 200 pages generally.... Read More
Do you need grant funding for your nonprofit organization? If... Read More
Small Business |