16.601
Time-and-materials contracts
Time-and-materials contracts are only permitted when costs cannot be estimated up front, require strict oversight, and must include a ceiling price and specific contract clauses.
Overview
FAR 16.601 defines and governs the use of time-and-materials (T&M) contracts, which are used when it is not possible to estimate the extent or duration of the work or costs with reasonable confidence. T&M contracts pay contractors based on fixed hourly labor rates and actual material costs, and are subject to strict oversight due to the lack of profit incentive for cost control. The section outlines definitions, contract structure, application criteria, limitations, post-award requirements, and mandatory solicitation provisions.
Key Rules
- Definitions
- Clarifies terms such as direct materials, hourly rate, and materials for T&M contracts.
- Contract Structure
- Requires fixed hourly rates for labor (including wages, overhead, G&A, and profit) and actual costs for materials.
- Application Criteria
- T&M contracts may only be used when costs or duration cannot be reasonably estimated; requires government surveillance for cost control.
- Limitations
- Must include a determination and findings (D&F) by the contracting officer, and a ceiling price that the contractor exceeds at its own risk.
- Post-Award Requirements
- Any increase in ceiling price requires analysis, documentation, and adherence to specific procedures if the contract scope changes.
- Solicitation Provisions
- Mandates inclusion of specific FAR clauses (52.216-29, -30, -31) in solicitations depending on the acquisition type and competition.
Responsibilities
- Contracting Officers: Must justify use of T&M contracts, set ceiling prices, ensure proper contract clauses, and conduct oversight and documentation for any changes.
- Contractors: Must comply with labor rate and material cost requirements, and operate within the contract ceiling price.
- Agencies: Must approve D&F for contracts exceeding three years and ensure effective surveillance.
Practical Implications
- T&M contracts are a last-resort option due to their risk to the government; strict controls and documentation are required.
- Contractors must be diligent in tracking labor and material costs and understand the limitations on profit and billing.
- Failure to comply with ceiling price or documentation requirements can result in nonpayment or contract disputes.