16.603-3
Limitations
Letter contracts are strictly limited in use, require written justification, and must not exceed available funds or bypass competition requirements.
Overview
FAR 16.603-3 outlines the limitations on the use of letter contracts, which are preliminary contractual instruments that authorize contractors to begin work before a definitive contract is finalized. This section establishes strict conditions to prevent misuse and ensure fiscal responsibility and competition. It requires a written determination by the head of the contracting activity (or designee) that no other contract type is suitable before issuing a letter contract. The regulation also prohibits committing the government to obligations beyond available funds, entering into letter contracts without required competition, and amending letter contracts to cover new, unrelated requirements.
Key Rules
- Written Determination Requirement
- Letter contracts can only be used if the head of the contracting activity (or designee) provides a written justification that no other contract is suitable.
- Funding Limitation
- Letter contracts must not obligate the government beyond the funds available at the time of execution.
- Competition Requirement
- Letter contracts cannot be used to bypass competition requirements outlined in FAR Part 6.
- Amendment Restrictions
- Amendments to letter contracts must not introduce new requirements unless inseparable from the original contract, and such amendments are subject to the same limitations as new letter contracts.
Responsibilities
- Contracting Officers: Ensure written determination is obtained, adhere to funding and competition requirements, and restrict amendments as specified.
- Contractors: Must not expect obligations beyond available funds or unrelated amendments.
- Agencies: Must provide oversight and ensure compliance with competition and funding rules.
Practical Implications
- This section exists to prevent the overuse or misuse of letter contracts, ensuring fiscal discipline and fair competition. It impacts daily contracting by requiring careful documentation, funding checks, and adherence to competition rules. Common pitfalls include exceeding available funds, improper amendments, or bypassing competition requirements.