16.207-2
Application
Firm-fixed-price, level-of-effort term contracts are ideal for R&D studies where payment is based on documented effort, not guaranteed results.
Overview
FAR 16.207-2 explains when a firm-fixed-price, level-of-effort (LOE) term contract is appropriate. This contract type is best used for research and development (R&D) projects where the main deliverable is a report or similar documentation of findings, rather than a tangible product or guaranteed outcome. The contract specifies a required level of effort (such as labor hours), and payment is made based on the effort provided, not on the results achieved. This structure is particularly useful when the outcome of the work cannot be precisely predicted, but the government needs a thorough investigation or study in a defined area.
Key Rules
- Appropriate Use
- Use firm-fixed-price, LOE term contracts for R&D investigations or studies where the deliverable is a report, not a specific product or result.
- Payment Basis
- Payment is tied to the level of effort expended (e.g., hours worked), not the achievement of specific results.
Responsibilities
- Contracting Officers: Must ensure the contract is suitable for the intended R&D purpose and that the level of effort is clearly defined.
- Contractors: Must document and report the effort expended as required by the contract.
- Agencies: Should monitor that payment aligns with the documented level of effort, not the outcome.
Practical Implications
- This section exists to provide a contract structure for uncertain R&D outcomes, ensuring fair compensation for effort.
- It impacts how contractors plan, track, and report their work.
- Common pitfalls include unclear effort definitions or inadequate documentation of expended effort, which can lead to payment disputes.