Fixed price contract with prospective price redetermination

Definition
A fixed-price contract with prospective price redetermination provides for


 * (a) A firm fixed price for an initial period of contract deliveries or performance; and
 * (b) Prospective redetermination, at a stated time or times during performance, of the price for subsequent periods of performance.

Overview
Such a contract may be used in acquisitions of quantity production or services for which it is possible to negotiate a fair and reasonable firm fixed price for an initial period, but not for subsequent periods of contract performance.

The initial period should be the longest period for which it is possible to negotiate a fair and reasonable firm fixed price. Each subsequent pricing period should be at least 12 months. The contract may provide for a ceiling price based on evaluation of the uncertainties involved in performance and their possible cost impact. This ceiling price should provide for assumption of a reasonable proportion of the risk by the contractor and, once established, may be adjusted only by operation of contract] clauses providing for equitable adjustment or other revision of the [[contract price under stated circumstances.

Source
Federal Acquisition Regulations 16.205-1, 16.205-2.