FAR 16.207-3—Limitations.
Plain-English Summary
FAR 16.207-3 sets the limits on when a level-of-effort contract may be used. It addresses four core subjects: whether the work can be clearly defined, whether the required level of effort has been identified and agreed to in advance, whether there is reasonable assurance that the intended result cannot be achieved with less effort, and whether the contract price stays at or below the simplified acquisition threshold unless higher use is approved by the chief of the contracting office. In practice, this section is a gatekeeping rule: it prevents agencies from using this contract type unless the requirement is genuinely uncertain in scope but still measurable in terms of effort. The rule is intended to keep the government from paying for effort that is not justified by the expected outcome and to ensure the contract type is used only in limited, controlled circumstances. For contracting officers, it means documenting why this contract type fits and securing any required approval before award. For contractors, it means understanding that the government is buying a specified amount of effort, not an open-ended promise of results, and that the pricing and scope constraints are strict.
Key Rules
Use only for unclear work
This contract type may be used only when the work required cannot otherwise be clearly defined. If the requirement can be described well enough to support a more definite contract type, this limitation is not met.
Pre-agree on effort level
The required level of effort must be identified and agreed upon in advance. The parties must know the amount of effort being purchased before award, rather than determining it later.
Effort must be justified
There must be reasonable assurance that the intended result cannot be achieved by expending less than the stipulated effort. This requires a rational basis for believing the stated effort is necessary to reach the objective.
Price cap applies
The contract price must be at or below the simplified acquisition threshold unless the chief of the contracting office approves a higher amount. This makes the contract type generally limited to lower-dollar acquisitions unless special approval is obtained.
Responsibilities
Contracting Officer
Determine whether the requirement meets all four limitations before using this contract type, document the basis for the decision, and obtain approval from the chief of the contracting office when the price will exceed the simplified acquisition threshold.
Agency
Ensure internal controls and approval processes are in place so this contract type is used only in appropriate cases and only within the authorized dollar limits.
Contractor
Review the stated level of effort and pricing assumptions, confirm that the contract is structured around effort rather than a guaranteed outcome, and comply with the agreed level of effort if awarded.
Chief of the Contracting Office
Review and approve use of this contract type when the contract price exceeds the simplified acquisition threshold.
Practical Implications
This section is a threshold check: if the work can be clearly defined, another contract type is usually more appropriate.
The level of effort must be specific enough to support pricing and administration; vague effort statements create risk of noncompliance.
The contracting officer should be prepared to justify why less effort would not reasonably achieve the intended result.
Dollar limits matter: exceeding the simplified acquisition threshold without approval is a compliance problem, not just a pricing issue.
A common pitfall is treating this contract type as a convenient fallback when the requirement is actually better suited to a fixed-price, labor-hour, or time-and-materials structure.
Official Regulatory Text
This contract type may be used only when- (a) The work required cannot otherwise be clearly defined; (b) The required level of effort is identified and agreed upon in advance; (c) There is reasonable assurance that the intended result cannot be achieved by expending less than the stipulated effort; and (d) The contract price is the simplified acquisition threshold or less, unless approved by the chief of the contracting office.