Contract types are grouped into two broad categories: fixed price and cost reimbursement.

Fixed-price contracts place the full responsibility for the costs and risk of loss on the contractor, and generally do not permit any adjustment on the basis of the contractor’s costs during the performance of the contract.

It provides maximum incentive for the contractor to control costs and perform effectively and imposes a minimum administrative burden upon the contracting parties. This type of contract is used in all sealed bid and some negotiated procurement's.

Cost reimbursement contracts provide for the payment of allowable costs incurred by the contractor plus a reasonable profit, to the extent stated in the contract. The contract establishes a ceiling price, above which a contractor may not exceed without the approval of the contracting officer. Cost reimbursement contracts are commonly used in research and development contracts.

Contracting officers normal trend is negotiating the contract type and negotiating prices which are closely related, and considered together. The objective is to negotiate a contract type and price (or estimated cost and fee) that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance.

Factors that are considered in selecting contract type by the contracting officer are, price competition, price analysis, cost analysis, type and complexity of the requirement, and its urgency.

Different types of contracts are as follows:

Fixed Price Contracts:

Fixed Price Incentive Contract
Fixed Price with Economic Price Adjustment
Fixed Price with Prospective Price Redetermination
Fixed Price with Retroactive Price Redetermination
Firm Fixed Price Level of Effort Term Contract

Cost Reimbursement Contracts:
Cost Contract
Cost Plus Award Fee Contract
Cost Plus Fixed Fee Contract

Incentive Contracts:
Fixed Price Incentive Contract
Fixed Price Contract with Award Fee
Cost Plus Incentive Fee
Cost Plus Award Fee

Indefinite Delivery Contracts:
Definite Quantity Contract
Requirement Contract
Indefinite Quantity Contract

Time and Material Contracts
Labor Hour Contracts
Letter Contracts
Basic Agreement
(not a contract)
Basic Ordering Agreement (not a contract)