Fixed-Price with Cost Adjustment (FCA)
A Fixed-Price with Cost Adjustment contract is a government contract type with an agreed-upon base price that may be adjusted if specific, predefined cost conditions occur during performance. It balances price stability for the government with limited cost protection for contractors.
What Is Fixed-Price with Cost Adjustment?
A Fixed-Price with Cost Adjustment contract is a government contract type with an agreed-upon base price that may be adjusted if specific, predefined cost conditions occur during performance.
These contracts are used when future cost uncertainty makes a pure fixed-price contract risky, typically appearing in long-term or market-sensitive procurements.
Key Characteristics
Starts with a fixed contract price at award
Includes clauses allowing price adjustments under defined conditions
Adjustments are tied to objective cost factors, such as labor or material indices
Conditions and formulas for adjustment are documented in advance
Limits contractor exposure to certain cost fluctuations
How It Works in Government Contracting
Contracting officers include adjustment clauses that specify triggers, calculation methods, and documentation requirements. Contractors monitor eligible cost drivers and request adjustments only when contract conditions are met.
The approach balances price stability for the government with limited cost protection for contractors.
Regulatory Framework
Fixed-Price with Cost Adjustment contracts fall under Federal Acquisition Regulation (FAR) Part 16, which covers fixed-price contract types and economic price adjustment mechanisms.
Only cost factors specifically allowed by the contract may be adjusted.
Why It Matters for Contractors
This contract type helps contractors manage financial risk tied to inflation or volatile input costs and supports more accurate pricing for long-term bids. Contractors must maintain strong cost tracking and documentation practices.
Improper or unsupported adjustment requests can lead to disputes or disallowed costs.
Common Misconceptions About Fixed-Price with Cost Adjustment
Fixed-price means the price can never change.
FCA contracts include specific, predefined provisions that allow limited price adjustments under defined conditions.
Cost adjustments apply to all cost increases.
Only cost factors specifically identified in the contract, such as labor rates or material indices, are eligible for adjustment.
Adjustments are automatic once costs rise.
Contractors must request adjustments and the government contracting officer must review and approve them based on contract terms.
Frequently Asked Questions
What costs can be adjusted in an FCA contract?
Only costs specifically identified in the contract, such as labor rates or material indices.
Are price adjustments unlimited?
No. Adjustments are limited by the terms, formulas, and caps defined in the contract.
Who approves cost adjustments?
The government contracting officer reviews and approves all adjustments.
Is this the same as a cost-reimbursement contract?
No. The contract remains fixed-price in structure, with only limited and predefined adjustment provisions.
Related Government Contracting Topics
Fixed-Price Contract: A contract with a set price that generally does not change, providing maximum cost certainty for the government.
Economic Price Adjustment Clause: A contract clause allowing price changes tied to economic indices such as labor or material cost indices.
Cost-Reimbursement Contract: A contract that reimburses allowable costs plus fee, providing more flexibility than fixed-price arrangements.
Time-and-Materials Contract: A hybrid contract based on labor hours and materials, used when the scope of work cannot be precisely defined.
Contract Modifications: Formal changes to contract terms or pricing, including those triggered by cost adjustment clauses.
FAR Part 16: Regulations governing contract types in federal procurement, including fixed-price and economic price adjustment mechanisms.