Subpart 16.6
Time-and-Materials, Labor-Hour, and Letter Contracts
FAR Subpart 16.6 governs the use of flexible contract types—time-and-materials, labor-hour, and letter contracts—requiring strict justification, oversight, and documentation to manage government risk.
Overview
FAR Subpart 16.6 provides the regulatory framework for the use of time-and-materials (T&M), labor-hour, and letter contracts in federal procurement. These contract types are used when it is not possible to accurately estimate the extent or duration of the work or the costs involved at the time of contract award. The subpart outlines the definitions, appropriate use cases, limitations, and procedural requirements for each contract type, ensuring that agencies and contractors understand when and how these flexible contracting methods may be applied. It also addresses the necessary oversight and documentation to mitigate risks associated with these less definitive contract forms.
Key Rules
- Time-and-Materials Contracts
- Used when it is not possible to estimate the extent or duration of the work or costs with any reasonable degree of confidence. Requires careful government oversight and justification.
- Labor-Hour Contracts
- Similar to T&M contracts but only pays for labor hours; materials are not separately reimbursed. Used under similar circumstances as T&M contracts.
- Letter Contracts
- A written preliminary contractual instrument that authorizes the contractor to begin work immediately when negotiating a definitive contract is not possible in time to meet the government’s needs.
Responsibilities
- Contracting Officers: Must justify and document the use of these contract types, ensure proper oversight, and comply with approval and limitation requirements.
- Contractors: Must accurately track labor hours and materials (where applicable), submit required documentation, and comply with contract terms.
- Agencies: Must monitor contract performance, ensure compliance with FAR requirements, and maintain appropriate records for audit and review.
Practical Implications
- This subpart exists to provide flexibility in contracting when requirements cannot be fully defined upfront, but it also introduces higher risk for the government.
- Contractors and contracting officers must be vigilant in documentation, oversight, and compliance to avoid misuse or overextension of these contract types.
- Common pitfalls include inadequate justification, insufficient oversight, and lack of timely definitization for letter contracts.