FAR 16.207—Firm-fixed-price, level-of-effort term contracts.

Description.

FAR 16.207-1 describes the basic structure of a firm-fixed-price, level-of-effort term contract. This section covers two core features: first, the contractor must provide a specified level of effort for a stated period of time on work that can only be described in general terms; second, the Government pays a fixed dollar amount for that effort. In practice, this type of contract is used when the Government can define the required labor or effort more clearly than a precise end product or measurable result, but still wants price certainty. The section matters because it distinguishes this contract type from other fixed-price arrangements by focusing on effort expended rather than completion of a fully defined deliverable. For contracting officers, it helps frame when this contract type is appropriate and how it should be structured. For contractors, it clarifies that payment is tied to furnishing the agreed level of effort, not to achieving a specific outcome beyond that effort commitment.

Application.

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.

Limitations.

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.