Discuss firm fixed-price and cost reimbursement contracts and what the preferred preference would be for each company when the government decides on a type.

A firm fixed price contract is an agreement between the buyer and seller which states a specific amount that will be paid regardless of any actual cost incurred. Companies prefer to have a fixed fee, as it allows for a more accurate cost estimate and reduces their risk. The government takes on more financial risks with cost reimbursement contracts. They reimburse buyers for their entire allowable expenses plus an additional fee that is based on milestones. Companies may prefer this type of contract as they can recoup additional costs or overheads associated with providing government services. There can be more uncertainty when using this approach because it is hard to predict results due to the varying effort levels required on both sides. Determining the type of contract will be based on which is more important for each business: a fixed payment amount (firm-fixed price) or possible profits (cost reimbursement).