The key differences between a Firm Fixed Price (FFP) contract and a Cost-reimbursement (cost-plus) contract lie in how financial risk is allocated and how payments are structured. A firm-fixed-price contract provides for a price that is not subject to any adjustment based on the contractor's cost experience, placing maximum risk and full responsibility for all costs and resulting profit or loss on the contractor, as stated in FAR 16.202-1. This means your firm agrees to a set price upfront and is responsible for managing costs to ensure profitability.
Conversely, cost-reimbursement contracts provide for payment of allowable incurred costs to the extent prescribed in the contract, and they establish an estimated total cost as a ceiling the contractor may not exceed without the contracting officer's approval. This structure places more financial risk on the government because it reimburses the contractor for actual, allowable costs. For your firm, this means you would track and submit actual costs for reimbursement, plus any agreed-upon fee or profit. Cost-reimbursement contracts are generally used when uncertainties in contract performance do not permit costs to be estimated with sufficient accuracy to use a firm-fixed-price contract, as detailed in FAR 16.301-2.