16.207
Firm-fixed-price, level-of-effort term contracts
Firm-fixed-price, level-of-effort term contracts are best suited for research or exploratory work where the government needs a set amount of effort, not a guaranteed result.
Overview
FAR 16.207 covers firm-fixed-price, level-of-effort (LOE) term contracts, a specialized contract type used when the work required cannot be precisely defined but a general scope is known. Under this arrangement, the contractor agrees to provide a specified level of effort (e.g., labor hours) over a set period for a fixed price, regardless of the actual results achieved. This contract type is typically used for research and development or study projects where the outcome is uncertain, but the government can estimate the required effort. The section outlines when these contracts are appropriate, their limitations, and the responsibilities of both contracting officers and contractors.
Key Rules
- Description of LOE Term Contracts
- These contracts require the contractor to provide a specified level of effort over a stated period for a fixed price, with payment based on effort expended rather than results achieved.
- Application
- Appropriate for research, studies, or preliminary exploration where the work cannot be precisely defined and the government needs a certain amount of effort rather than a specific deliverable.
- Limitations
- Should not be used when the work can be clearly defined or when performance can be measured by deliverables. The contract must specify the level of effort and period of performance, and the contractor is paid only for the effort provided, not for results.
Responsibilities
- Contracting Officers: Must ensure the contract is suitable for LOE use, define the required effort and period, and verify that payment is based on effort, not results.
- Contractors: Must provide the agreed level of effort within the specified period and maintain records to demonstrate compliance.
- Agencies: Should oversee contract suitability and ensure proper use of this contract type.
Practical Implications
- This section exists to provide a contract structure for uncertain or exploratory work where outcomes can't be guaranteed.
- It impacts daily contracting by requiring careful definition of effort and monitoring of contractor performance.
- Common pitfalls include misapplying this contract type to work that could be more precisely defined or failing to document the level of effort provided.