52.216-24
Limitation of Government Liability
This clause strictly limits both the contractor’s spending authority and the government’s liability under letter contracts, requiring careful cost control and clear communication.
Overview
FAR 52.216-24, Limitation of Government Liability, is a mandatory clause for letter contracts, establishing strict financial limits on the contractor’s authority to incur costs and on the government’s liability if the contract is terminated. This clause requires the contracting officer to specify two dollar amounts: the maximum the contractor may obligate and the maximum government liability. These limits protect both parties by clarifying financial exposure during the interim period before a definitive contract is finalized.
Key Rules
- Expenditure Limit
- The contractor may not incur costs or obligations exceeding the specified dollar amount without written authorization.
- Government Liability Cap
- If the contract is terminated, the government’s maximum liability is capped at the stated amount, regardless of actual costs incurred.
Responsibilities
- Contracting Officers: Must insert this clause in all letter contracts and specify the dollar limits.
- Contractors: Must monitor and control expenditures to stay within the authorized limit and understand the government’s liability cap.
- Agencies: Must ensure compliance with the clause and monitor contract performance and spending.
Practical Implications
- This clause exists to manage risk and prevent unauthorized commitments before a definitive contract is in place.
- Contractors must carefully track costs and seek written approval for any increases.
- Exceeding the stated limits can result in non-reimbursement and potential disputes.