52.232-7
Payments under Time-and-Materials and Labor-Hour Contracts
FAR 52.232-7 requires strict documentation, timely notification, and adherence to cost ceilings for payment under time-and-materials and labor-hour contracts, ensuring transparency and accountability for both contractors and the government.
Overview
FAR 52.232-7 outlines the payment procedures and requirements for time-and-materials (T&M) and labor-hour contracts. It details how contractors are to be compensated for labor and materials, establishes documentation and substantiation requirements for payment, sets limits on allowable costs, and describes the process for interim and final payments. The clause also addresses the handling of overtime, withholding of payments, audit rights, and the necessity of a release of claims before final payment. The regulation is designed to ensure transparency, accountability, and proper cost control in contracts where the exact scope of work cannot be precisely determined at the outset.
Key Rules
- Hourly Rate Payments
- Contractors are paid at contract-specified hourly rates for qualified labor, including subcontractor and affiliate labor, with strict documentation and substantiation requirements.
- Material Reimbursement
- Materials are reimbursed at cost, subject to allowability under FAR 31.2, with no profit or fee allowed on materials except as permitted by FAR 31.205-26(e) and (f).
- Ceiling Price and Notification
- Payments cannot exceed the contract ceiling price; contractors must notify the CO if costs are projected to exceed 85% of the ceiling.
- Withholding and Release
- The CO may withhold up to 5% (not exceeding $50,000) until a release of claims is executed at final payment.
- Audit and Documentation
- The government may audit vouchers and supporting documentation at any time before final payment.
- Interim and Final Payments
- Interim payments are subject to specific timelines and are not subject to Prompt Payment Act interest penalties (except for services, which are covered by the Act).
Responsibilities
- Contracting Officers: Approve vouchers, enforce documentation requirements, manage withholdings, and ensure compliance with cost ceilings.
- Contractors: Submit substantiated vouchers, maintain detailed records, notify the CO of cost overruns, obtain required consents for subcontracts, and execute a release of claims before final payment.
- Agencies: Oversee payment processes, conduct audits, and ensure regulatory compliance.
Practical Implications
- This clause ensures that payments under T&M and labor-hour contracts are controlled and justified, protecting government interests and ensuring contractors are paid fairly for actual work performed. Contractors must maintain rigorous documentation and be proactive in communicating with the CO to avoid payment delays or disallowances. Common pitfalls include inadequate recordkeeping, failure to notify the CO of cost overruns, and not obtaining required subcontract consents.