Firm Fixed Price (Ffp) Definition
A Firm Fixed Price (FFP) contract is a type of pricing arrangement in which the price for a good or service is set in advance and not subject to change, even if costs go up or down. This type of pricing is often used in government contracting, where it is important to know exactly how much something will cost before work begins. FFP contracts can be used for both goods and services, but they are most commonly used for services.
There are several benefits to using an FFP contract. First, it provides certainty to both the buyer and the seller about what the final price will be. This can be helpful in budgeting and planning for the project. Second, it can help reduce risk for the buyer, since they know they will not have to pay more than the agreed-upon price no matter what happens. Finally, it can incentivize the seller to control costs and be efficient, since they will not make any more money if costs go down.
There are also some potential drawbacks to using an FFP contract. First, it may be difficult to accurately estimate all costs upfront, which could lead to the buyer overpaying or the seller underperforming. Second, if costs do go up during the course of the project, the seller may need to absorb those additional costs, which could lead to financial hardship. Finally, FFP contracts can sometimes lead to a lack of flexibility on both sides, which can make it difficult to make changes mid-project.
