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.

Firm fixed-price contracts are agreements between a buyer and seller that state an exact amount to be paid for goods or services provided, regardless of actual costs incurred. The preferred preference for companies under this contract is that they receive a predetermined fee for the agreed upon work, which allows them to gain clear cost estimates in advance and helps reduce their financial risks. Cost reimbursement contracts, on the other hand, place more of the financial risk on the government by reimbursing buyers for all allowable costs plus a fee based on performance milestones. This type of contract may be preferred by companies as it allows them to recoup any additional expenses or overhead involved in providing services to the government. However, there can be greater uncertainty with this method since it is difficult to predict outcomes due to varying levels of effort required from both parties. Therefore, when deciding on a type of contract it will depend on what each company values most: guaranteed payment amounts (firm fixed-price) or potential profits (cost reimbursement).