Choosing the Right Procurement Path

Eric Marquette

Hey everyone, welcome back to FAR & DFARS: Procurement Power! I'm Eric Marquette, here with my co-host Paul Netopski. Today we're talking about something that can either make or break your procurement—the contract type you choose. Now, we throw around terms like "fixed-price," "cost-reimbursement," "time-and-materials," but I think a lot of folks still get stuck on what they really mean in practice, or why they matter. So let’s break down the big ones first. Paul, want to jump in and give us the high-level categories?

Paul Netopski

Sure, Eric. There are really four primary contract types when you're working in federal procurement: fixed-price, cost-reimbursement, time-and-materials, and incentive-based contracts. Each one has its own risk profile, both for the contractor and for the government. For example, with a firm-fixed-price contract, the risk is almost entirely on the contractor—they agree to deliver a product or service at a set price, no matter what hiccups occur. The government just has to pay on delivery, which keeps their risk pretty low.

Eric Marquette

Right, and on the flip side, cost-reimbursement contracts are kind of the opposite. The contractor agrees to use “best efforts,” which usually means delivering to the best of their ability within the estimated cost, but it’s the government who takes on most of the risk if things go off the rails—let’s say, unexpected issues or tech hurdles pop up during the project. I always mix this up, but it’s like the difference between saying “I’ll try my best to finish the marathon,” versus “I absolutely guarantee I’ll cross the finish line no matter what.” That’s a terrible analogy, but you get what I mean.

Paul Netopski

Ha—no, that works. And then there are time-and-materials contracts, which split the difference a bit. The government pays for actual labor hours and materials used. It’s often used when you can’t pin down the exact scope up front, but you still need to move quickly—like for a rapid-response need where you don’t have time to sit down and estimate every detail.

Eric Marquette

Yeah, I remember covering a project like that early in my career—a time-and-materials deal for an urgent IT deployment. We had no real way to know how many hours we'd need, but the government needed something in place yesterday. So, speed over certainty, and all that. But then you start seeing options like incentive-based contracts, too, right?

Paul Netopski

Exactly. Incentive contracts—like fixed-price incentive fee or cost-plus-incentive fee—are built to motivate better performance. Bonuses for coming in under target cost, or for hitting higher quality benchmarks. It's meant to push contractors to focus on both efficiency and quality, with the contract structure reflecting that goal. But the risk and reward levels get more complex as you move from fixed-price to cost-plus, then to these hybrid incentives.

Eric Marquette

And each contract type not only shifts the risk, it actually changes the day-to-day process. Like, who’s sending in reports, when payments hit the bank, how much oversight you’re putting up with. I mean, we're talking max government admin on cost-reimbursement versus way less hassle on firm-fixed-price. It's a real tradeoff depending on your project and your risk tolerance.

Paul Netopski

That's right. The contract type you choose will dictate things like cash flow, reporting, and how you allocate resources, which sets the stage for how the whole project unfolds. Understanding these differences is crucial if you want successful outcomes—and it's a point that just keeps coming up, episode after episode.

Eric Marquette

Let’s dig into why certain contract types get picked over others. I mean, it’s not random, right? FAR 16.104 actually spells out a bunch of factors. We’re talking price competition, project complexity, how urgent the requirement is, or even the technical capabilities of the contractor. Paul, you probably see these decisions playing out firsthand all the time, especially in defense work?

Paul Netopski

Absolutely. The selection is rarely arbitrary. Think of project complexity—if the requirements are crystal clear and you’ve got solid market data, fixed-price is the default. In fact, commercial contracts under FAR Part 12 basically have to be firm-fixed-price, unless you can justify otherwise. The risk's low for the government, and acquisition can move fast. But if the requirements are shifting, like in early R&D or when the technical landscape is uncertain, you need more flexibility. That’s where cost-reimbursement and sometimes incentive contracts come in.

Eric Marquette

See, that’s interesting, because folks always ask “Why can’t we just use fixed-price for everything?” But the reality is, if you don’t know what you’re going to build or how long it’ll take, locking in a firm fixed-price is, uh, sort of pointless—and super risky for the contractor. They could get underwater fast.

Paul Netopski

Exactly. Policies really shape this. Under DFARS, cost-reimbursement contracts have a lot of limitations, especially for major defense acquisition programs—they’re pretty much banned for production unless you’re in an exception case. And for construction, the government isn’t allowed to use cost-plus types at all. So, sometimes there just isn’t a choice—the rules pick for you.

Eric Marquette

That’s a good point. And then there are incentive contracts, which can do a nice job of keeping everyone honest on both price and performance. You had a story about this from your defense contracting days, right?

Paul Netopski

Yeah, one program stands out. We had an incentive fee structure—so there was a target cost set by the government, and we could earn more profit if we delivered ahead of schedule or with better quality. It really motivated the whole team. There’s almost a competitive element: as costs went down, profit went up; but if we missed the targets, our potential fee dropped. It wasn’t purely about money, either. There was a reputational element—delivering early gets you recognized, better odds of follow-on business. So it’s about more than just a financial calculus. I see incentive contracts as a way for the government to nudge industry into behaviors it values—and only when those behaviors are actually possible given the uncertainty in the contract.

Eric Marquette

Yeah, that makes sense. And negotiation is baked into the process. Negotiating contract type and price happen at the same time. According to FAR 16.103, the aim is to land on a mix that gives the contractor a real incentive for efficiency, but keeps government risk under control. The details aren’t always black and white; it’s about matching the situation, the urgency, the unknowns, and coming up with something that actually works in the real world.

Paul Netopski

I think that’s why acquisition planning takes so long. The rationale for your contract choice has to be defensible—you need documentation about why the contract type fits, what risks exist, and how the selection supports mission need. That’s not just bureaucratic red tape—it really does influence how the project performs and, honestly, whether it’s set up for success or for drama from day one.

Eric Marquette

So speaking of drama, let's get into how contract type impacts speed and compliance. Because, when you need to move fast—like really fast—some contract types are clearly easier to manage than others. In my experience, firm-fixed-price—especially the plain old FFP—tends to be a favorite because it's so much simpler to administer. You just don’t have to jump through as many bureaucratic hoops compared to something like cost-reimbursement, where you need ongoing oversight and a mountain of documentation at every stage.

Paul Netopski

Yeah, in terms of procurement velocity, firm-fixed-price and sometimes time-and-materials contracts will almost always beat the cost-reimbursement forms. FFP means you budget to a negotiated number—that’s it. Less audit, fewer mandatory flowdowns, and faster award. That's why for urgent needs, or commercial services under certain conditions, agencies will lean into these contract types. Cost-reimbursement, on the other hand, comes with max government administration and slower payments—cash flow only as costs are incurred, not on delivery.

Eric Marquette

Right, I remember a case—well, one of those fire-drill scenarios—where the government absolutely needed rapid response. They opted for a contract with fewer embedded FAR and DFARS clauses to move things along fast. The tradeoff, of course, is increased risk—because with fewer compliance touchpoints, you might miss something that could come back to bite you later. But sometimes you don't have the luxury of a perfect process when time's ticking.

Paul Netopski

That’s a real tension in contracting. You want agility and speed, but there’s always a compliance baseline. FAR and DFARS set minimums, especially around cybersecurity and reporting, but firm-fixed-price contracts—and even time-and-materials, within limits—do generally have less admin overhead. That was something we discussed a few episodes ago too—the balance of meeting mission needs but not letting perfect compliance stall urgent work. And sometimes, to meet the mission, risk has to be managed—not just avoided.

Eric Marquette

Totally. So, whether you're chasing speed or aiming for watertight compliance, the contract type you pick is a big part of how you get there—or whether you ever get there at all. And that's why, like Paul said, picking and documenting your decision isn't just red tape—it's what sets the ground rules for the whole project. Alright, I think that covers it for today’s deep dive on choosing the right procurement path. We’ve got a lot more to unpack in future episodes, but we’ll leave it here for now. Thanks for joining me, Paul!

Paul Netopski

Thanks, Eric. Always great insights and a solid conversation. Looking forward to our next episode—till then, take care everyone.

Eric Marquette

Alright, everybody, see you next time on FAR & DFARS: Procurement Power!