FAR 16.207-2—Application.
Plain-English Summary
FAR 16.207-2 explains when a firm-fixed-price, level-of-effort term contract is appropriate and how it works in practice. This section covers suitability for investigation or study in a specific research and development area, the expected contract product, the relationship between effort and deliverables, and the key pricing concept that payment is based on the level of effort expended rather than on the results achieved. In practical terms, it tells contracting officers and contractors that this contract type is meant for R&D efforts where the government wants a defined amount of labor or effort applied to a study, not a guaranteed technical outcome. It also signals that the primary deliverable is usually a report or similar documentation of the work performed and findings. The section matters because it helps distinguish this contract type from performance-based arrangements and prevents misuse where the government expects a specific result but the contract is structured around effort instead. For contractors, it clarifies that successful performance is measured by providing the required effort and deliverable, not by achieving a particular research breakthrough.
Key Rules
Use for R&D studies
A firm-fixed-price, level-of-effort term contract is suitable for investigation or study in a specific research and development area. It is intended for work where the government needs sustained effort applied to a defined research question or technical problem.
Deliverable is usually a report
The expected product of the contract is usually a report describing the results achieved through the required level of effort. The report is the normal tangible output of the effort, even though the contract is not priced on the basis of a specific end result.
Payment follows effort, not results
Payment is based on the effort expended rather than on the results achieved. This means the contractor is paid for providing the agreed level of work, not for guaranteeing a successful research outcome.
Fixed-price structure applies
Although the contract is a level-of-effort arrangement, it is still a firm-fixed-price term contract. The price is fixed for the stated effort, so the government and contractor must define the required effort clearly at award.
Responsibilities
Contracting Officer
Determine whether the requirement is a specific R&D investigation or study that is appropriate for a firm-fixed-price, level-of-effort term contract. Define the required level of effort and expected report or other deliverable clearly enough to support a fixed-price arrangement.
Contractor
Provide the required level of effort for the research or study and produce the expected report or other deliverable. Manage performance so the agreed effort is actually expended, since payment depends on effort rather than on achieving a particular research result.
Agency/Program Office
Identify research or study needs that are suitable for effort-based performance and ensure the requirement is framed around the needed level of effort. Avoid using this contract type when the real need is a guaranteed technical outcome or product.
Practical Implications
This contract type is useful when the government wants disciplined research effort but cannot define a specific successful outcome in advance.
The biggest pitfall is confusing effort with results: if the requirement is really for a completed solution or measurable technical success, this structure may be inappropriate.
Contract language should clearly state the level of effort, period of performance, and expected report so there is no dispute about what the contractor must provide.
Contractors should track labor and effort carefully, because payment depends on demonstrating that the required effort was performed.
Contracting officers should watch for vague statements of work; if the effort is not well defined, the fixed-price nature of the contract can create performance and payment disputes.
Official Regulatory Text
A firm-fixed-price, level-of-effort term contract is suitable for investigation or study in a specific research and development area. The product of the contract is usually a report showing the results achieved through application of the required level of effort. However, payment is based on the effort expended rather than on the results achieved.