Contracting Approach

A contracting approach is the part of a procurement strategy that determines how a buyer will structure its contract. It sets the contract type, the price and cost model, and the kind of ongoing relationship the buyer wants with the supplier, so that the contract achieves the intended results and value for money over its term.

The closely related term contract strategy carries the same definition in guidance from multilateral development banks. Canadian federal, NATO and allied defence documents use the phrases "contracting approach" and "contracting strategy" in the same sense, as the set of decisions about contract type, compensation, risk allocation and supplier relationship that a buyer applies to a given procurement.

What a contracting approach decides

A contracting approach answers three questions. First, what type of contract will be used, for example fixed-price, cost-reimbursement or incentive. Second, how will the price and costs be set and paid. Third, what ongoing relationship does the buyer want with the supplier once the contract is awarded.

It sits alongside other parts of procurement planning, including the requirement, the selection method, the evaluation method and contract management. Guidance also says the depth of analysis should match the risk, value and complexity of the purchase, so high-value, high-risk procurements tend to have the most detailed contracting approaches.

Contract type and risk allocation in NATO procurement

NATO documents show the term at work. The Bi-SC Command Procurement Directive 60-70 tells contracting officers to assess the attributes of a proposed procurement early and to formulate a contracting strategy that minimizes risk. It describes the selection of contract type as the principal method of allocating and mitigating risk between NATO and the contractor, and it names firm-fixed-price as the default type while recognizing that no single type suits every situation.

The NATO competitive procurement procedure requires the procurement authority to determine the most suitable contract type. It lists fixed-price, cost-reimbursement, incentive, indefinite delivery and hybrid forms, and it says the contract must be structured to manage risk, ensure accountability and achieve the procurement objectives. It also describes Basic Ordering Agreements, which set up framework arrangements against which orders can later be placed competitively.

The NATO Procurement Manual adds that procurement staff must devise a contracting strategy at the end of the planning phase, weighing risks and protecting NATO's interests. It links that strategy to the Source Selection Plan, the internal document explaining how suppliers will be evaluated and a winner selected.

Flexible and collaborative contracting approaches

Some buyers use the term for newer, more flexible models. The NATO Commercial Space Strategy reports industry calls for flexible and streamlined contracting approaches. It says small and medium-sized enterprises and start-ups would benefit from more flexible contracting and financing models, and that NATO will explore agreements with pools of commercial providers to keep access to services rapid and persistent.

Australia's Defence Industry Development Strategy 2026 describes a "minimum viable contracting approach". Contracting is kept proportionate to the priority, size, complexity and risk of each procurement, and effort is focused on the artefacts and requirements essential to delivering capability. The strategy states that this does not remove accountability or reduce standards.

Australian Defence also publishes a Collaborative Contracting Better Practice Guide. It places collaborative contracting on a spectrum from traditional purchasing to highly collaborative alliances with joint decision-making and gainshare and painshare arrangements. It says these approaches should generally be reserved for higher-risk procurements, which ties the choice of approach directly to risk.

Contracting approach in Canadian federal procurement

In Canada, the phrase appears as a named item in the responsibility matrix in the CanadaBuys page on agreements with the Department of National Defence. Item 3.5.2, "Contracting approach", is listed as a distinct responsibility area in joint DND and Public Services and Procurement Canada procurement governance.

The related CanadaBuys guidance on how to choose the method of supply sits within the step of determining the procurement strategy. It sets out three methods of supply, including contracts (with task authorizations) and standing offers.

What a contracting approach means for suppliers

A buyer's contracting approach tells a bidder how the work will be priced, who carries the risk and how the relationship will run after award. Read the solicitation for the contract type, the pricing mechanism and any framework or standing arrangement. A firm-fixed-price contract puts cost risk on the supplier, while cost-reimbursement and incentive types share it differently. On higher-risk, complex work, expect more transparency and collaboration. Align your pricing, risk register and bid team resources with the approach the buyer has chosen.