Predefined Types of Pricing Basis

When you're preparing to bid on or manage a federal contract, understanding pricing basis types is essential for structuring your proposal and managing financial risk. These established frameworks determine how you'll calculate and justify costs throughout the contract lifecycle. The choice between fixed-price, cost-reimbursable, or time-and-materials arrangements fundamentally shapes your cash flow, accounting requirements, and profit potential.

How It Works

The Government of Canada Supply Manual outlines how different pricing structures apply across federal procurement. Fixed-price contracts offer the most predictability—you agree to deliver specific goods or services for a set amount, regardless of your actual costs. This works well when the scope is clear and you can estimate accurately. Public Services and Procurement Canada (PSPC) often uses this approach for straightforward purchases like office supplies or standard IT equipment.

Cost-reimbursable arrangements take a different tack. The government agrees to reimburse your allowable costs plus a fee or profit margin. You'll need detailed cost tracking and regular reporting, but you're protected if the project takes unexpected turns. DND frequently uses cost-reimbursable contracts for complex defence projects where technical requirements may evolve—think shipbuilding programs or advanced radar systems where requirements can't be fully specified upfront. The Supply Manual provides specific guidance on what constitutes an allowable cost and how overhead rates get calculated.

Time-and-materials pricing falls somewhere between the two. You bill based on hours worked at pre-agreed rates, plus materials at cost. In practice, this gives you flexibility for projects with uncertain scope—common in professional services or emergency response situations. Shared Services Canada sometimes employs this model for technical support contracts where the workload varies significantly. Most time-and-materials contracts include a ceiling price to protect the government from runaway costs.

Key Considerations

• Contract value thresholds matter. Smaller contracts under $25,000 often default to fixed-price for administrative simplicity, while larger procurements allow for more sophisticated pricing models based on risk allocation.

• Your accounting systems need to match the pricing basis. Cost-reimbursable contracts require detailed cost tracking that can pass audit scrutiny. Many small businesses struggle with this requirement and should honestly assess whether they have the infrastructure before bidding.

• Payment schedules vary dramatically by pricing type. Fixed-price contracts might pay on milestones or delivery, while cost-reimbursable arrangements typically involve monthly provisional payments subject to later adjustment.

• The government's preference isn't always obvious from the tender notice. Pay attention to evaluation criteria and contract type specifications in the solicitation documents posted on Buy and Sell to understand what approach evaluators favour.

Related Terms

Contract Type, Cost Principles, Allowable Costs, Overhead Rates, Payment Terms

Sources

• Government of Canada Supply Manual - Official federal procurement policy and procedures

• Canada Buys - Procurement Portal - Federal government procurement information and opportunities

• Buy and Sell - Federal government tender opportunities

Before responding to any solicitation, review the pricing basis requirements carefully and assess whether your organization can meet the associated administrative and financial obligations. The wrong pricing structure can turn a winning bid into an unprofitable headache.