INSTITUTE OF CHILD NUTRITION • PROCUREMENT IN THE 21
st
CENTURY • PARTICIPANT’S WORKBOOK 115
Type of Contracts Advantages and Disadvantages Summary
Type of Contract Advantages and Disadvantages
Fixed Price and
Fixed Fee Price
■ Protects against escalating costs
■ Provides a stated price
■ No upward or downward adjustment for the duration of the contract,
including all renewal periods
■ Firm prices and do not change
■ Price will generally be higher
■ Provides maximum incentives for vendor efficiency
■ Least administrative burden on the contracting parties
■ Competitive sealed solicitations (i.e., IFB) must result in a fixed price
contract
■ May contain an economic price adjustment tied to an appropriate index
Cost
Reimbursable
■ Reimburses the vendor for costs incurred under the contract
■ Does not provide for any other payment
■ Allowable costs will be paid from the nonprofit school nutrition account
to the vendor net of all discounts, rebates, and other applicable credits
accruing to or received by the vendor
■ Requires vendors to provide sufficient information to permit the SFA to
identify allowable and unallowable costs and the amount of all such
discounts, rebates, and credits on invoices and bills presented for
payment to the SFA; Vendor required to identify those costs
■ Use when uncertainties involved in a contract’s performance will not
allow costs to be estimated with enough accuracy to use fixed contract
pricing
■ Frequently occur in the SNP as cost plus fixed fee contracts
■ Must require the return of rebates, discounts, and other applicable
credits
■ Must include provisions
■ SFA can only pay allowable costs
■ Documentation of these costs and discounts, rebates, and other
applicable credits will be required to be available for review by the SFA,
state agency, or FNS
■ Failure to comply with program regulations could require a district to
utilize general funds to cover some or all of the costs of the contract
116 INSTITUTE OF CHILD NUTRITION • PROCUREMENT IN THE 21
st
CENTURY • PARTICIPANT’S WORKBOOK
Type of Contracts Advantages and Disadvantages Summary
Type of Contract Advantages and Disadvantages
Cost Plus Fixed
Fee
■ Provides for the reimbursement of allowable costs plus the payment of a
fixed fee to the vendor
■ Use when market conditions are such vendors are unwilling to commit to
a fixed price for an extended period
■ Provides for upward and downward revision of the stated contract price
upon the occurrence of specified occurrence of specified contingencies
(i.e., cost indexes of labor or material)
■ Must be specifically identified
■ Fees are clearly defined in the contract and incidentals, such as
promotion allowances, cash discounts, label allowances, rebates,
applicable credits, and freight rates
■ Fees discussed and agreed upon before signing the contract
■ Clearly state that price adjustments should reflect both increases and
decreases (e.g., fuel prices drastically increase price goes up and when
fuel prices decrease price goes down).
■ RFPs can result in either a fixed price or cost reimbursable contract.
■ Vendor provides supporting documentation for auditing purposes upon
request from the SFA staff
■ Cost must be adequately documented for the vendor to receive
reimbursement.
■ Include fees that are fixed, documented, and cannot fluctuate based on
volume.
■ Fixed fee component of the cost plus fixed fee contract does not
represent the costs associated with the item and/or service being
purchased. The fixed fee component of the cost plus fixed fee
represents the vendor’s related costs (i.e., storage and distribution,
delivery of the products, and the vendor’s profit for performing the
services).
■ Provisions for changes to the fixed fee component must be identified in
both the solicitation and the contract.
■ Provides the vendor with only minimum incentives to control costs
■ Work required presents too great a risk to vendor
