Limitations
Firm-fixed-price, level-of-effort term contracts are only allowed when work cannot be clearly defined, the effort is agreed in advance, and the price is within the simplified acquisition threshold unless specially approved.
Overview
FAR 16.207-3 outlines the specific limitations for using firm-fixed-price, level-of-effort term contracts. This contract type is only appropriate when the work cannot be clearly defined, but the required level of effort can be specified and agreed upon in advance. Additionally, there must be reasonable assurance that the desired outcome cannot be achieved with less effort than stipulated. The regulation also restricts the use of this contract type to situations where the contract price does not exceed the simplified acquisition threshold, unless a higher amount is approved by the chief of the contracting office. These limitations are designed to ensure that this contract type is only used in appropriate circumstances, preventing misuse and ensuring proper oversight.
Key Rules
- Work Definition Limitation
- Use only when the work cannot be clearly defined in advance.
- Level of Effort Agreement
- The required level of effort must be identified and agreed upon before contract award.
- Assurance of Effort
- There must be reasonable assurance that the intended result cannot be achieved with less effort than specified.
- Contract Price Threshold
- The contract price must not exceed the simplified acquisition threshold unless approved by the chief of the contracting office.
Responsibilities
- Contracting Officers: Ensure all four limitations are met before selecting this contract type and obtain necessary approvals for contracts exceeding the threshold.
- Contractors: Agree to the specified level of effort and understand the limitations of the contract type.
- Agencies: Provide oversight and approval for exceptions to the price threshold.
Practical Implications
- This section exists to prevent inappropriate use of firm-fixed-price, level-of-effort contracts, ensuring they are only used when truly necessary.
- It impacts daily contracting by requiring careful justification and documentation before using this contract type.
- Common pitfalls include failing to properly define the level of effort or exceeding the price threshold without proper approval.