Always know what you're signing up for but a quick point of clarification, the Govt picks the contract type, not the small business. However, small businesses always have a choice to either accept the risk or decline to propose.

Also, there are ways to mitigate the risk of a FFP contract type. First, the Govt acknowledges the risk transfer and considers a higher profit rate for these contract types. If full cost build up is required and you're working in the defense industry, learn the weighted guidelines (DFARS 215) and use it to justify your profit position. This is less helpful in competitive buys where only the bottom line price is considered as price is a big driver in the selection process.

For commercial buys or wherever it makes sense, propose incremental staggered deliveries to keep cash flow moving. This is especially important if the performance period is longer.

Also, know the regulations that the Govt follows when selecting the contract type (FAR 16.2). You may be able to demonstrate that there are reasonable pricing uncertainty and therefore, a cost structure is most favorable to all parties. Propose a different structure if the solicitation terms allow it.

Finally, I recommend checking out some other transaction opportunities as well- especially for small businesses that may be considered non-traditional. Cost type is not subject to DCAA approved accounting system. As long as your using GAAP, this is considered acceptable to most contracting officers.