Lh Labor Hour

What is Lh Labor Hour?

Lh, or Labor Hour, represents the basic unit of measure for direct labor on many government contracts. It reflects one hour of an employee's time spent directly working on a specific contract task or deliverable and is a crucial element in determining contract costs and payments.

Definition

In government contracting, Lh Labor Hour signifies one hour of direct labor that is billable to a government contract. Labor Hour contracts, as defined under FAR Part 16, are a type of contract where the government pays the contractor for the direct labor hours at specified fixed hourly rates, plus allowable materials and other expenses. Proper tracking and allocation of labor hours are essential for complying with contract terms, as discrepancies can lead to disallowed costs and potential penalties. Contractors must maintain accurate records that demonstrate the direct relationship between the reported labor hours and the contracted work.

The determination of labor rates is governed by the Cost Accounting Standards (CAS) and other applicable regulations, as well as the FAR, to ensure fair and reasonable pricing. Understanding how labor hours are defined, calculated, and tracked is paramount for contractors bidding on and executing government contracts.

Key Points

• Direct Labor Focus: Labor Hours exclusively represent the time employees spend directly working on contract deliverables or tasks.
• Accurate Tracking: Contractors must use auditable timekeeping systems to accurately record and allocate labor hours to specific contracts or CLINs.
• Rate Calculation: Labor Hour rates include not just base salary but also fringe benefits, overhead, and G&A expenses attributable to direct labor.
• Compliance Imperative: Compliance with FAR and CAS regulations regarding labor hour tracking and allocation is critical for avoiding audit findings and penalties.

Practical Examples

1. Software Development Project: A software development company bids on a government contract to develop a new application using a Labor Hour contract. The company estimates 1,000 Lh of software engineer labor and includes this in their proposal, calculating costs based on their established labor rates.
2. IT Support Services: An IT support company provides ongoing help desk services to a government agency under a Labor Hour contract. They track the number of hours each technician spends resolving user issues, and bill the government based on the total labor hours recorded.
3. Engineering Consulting: An engineering firm provides consulting services to the Department of Transportation. The contract specifies that the government will pay for the actual labor hours worked by the engineers, multiplied by the negotiated hourly rates. The engineers meticulously document their time spent on each project task to ensure accurate billing.