16.603
Letter contracts
Letter contracts allow urgent work to begin before all terms are finalized, but strict limitations and prompt definitization are required to control risk and government liability.
Overview
FAR 16.603 covers the use of letter contracts, which are written preliminary contractual instruments that authorize contractors to begin work immediately when negotiating a definitive contract is not possible in time to meet the government's needs. Letter contracts are used in urgent situations but are subject to strict limitations and requirements to ensure proper control and minimize risk. The section outlines when letter contracts may be used, the limitations on their use, and the required contract clauses to be included. It also emphasizes the need for prompt negotiation of the final contract terms and limits the government's financial liability until the contract is definitized.
Key Rules
- Description of Letter Contracts
- Letter contracts are preliminary agreements allowing work to start before all contract terms are finalized.
- Application
- Used only when the government's interests demand immediate contractor commitment and negotiation of a definitive contract is not feasible in time.
- Limitations
- Must not be used unless absolutely necessary; must include a not-to-exceed price; must be definitized as soon as possible, usually within 180 days or before 40% of the work is completed, whichever comes first.
- Required Clauses
- Specific FAR clauses must be included in letter contracts to address definitization, limitations on government liability, and other protections.
Responsibilities
- Contracting Officers: Must justify the use of a letter contract, set a not-to-exceed amount, include required clauses, and ensure timely definitization.
- Contractors: Must comply with the terms of the letter contract and support timely negotiation of the definitive contract.
- Agencies: Must oversee use of letter contracts and ensure compliance with FAR limitations and reporting requirements.
Practical Implications
- Letter contracts allow urgent work to begin but carry risks if not properly managed.
- Strict controls and deadlines are imposed to protect both parties and limit government liability.
- Delays in definitization or exceeding authorized amounts can result in noncompliance and financial exposure.