FAR 16.307—Contract clauses.
Plain-English Summary
FAR 16.307 tells contracting officers which cost-related contract clauses must be included when the government contemplates specific contract types. It covers the mandatory use of the Allowable Cost and Payment clause and its alternates, including special treatment for cost-reimbursement contracts, time-and-materials contracts, labor-hour contracts, construction contracts, educational institutions, State and local governments, and nonprofit organizations. It also identifies when to use the Fixed Fee, Fixed-Fee-Construction, Incentive Fee, Cost Contract-No Fee, Cost-Sharing Contract-No Fee, and Predetermined Indirect Cost Rates clauses. In practice, this section is a clause-selection roadmap: it ensures the contract’s payment, reimbursement, fee, and indirect cost terms match the contract structure and the type of contractor. The rule matters because using the wrong clause can create payment errors, compliance problems, and disputes over what costs are allowable, how fee is earned, and whether withholding or indirect cost treatment applies. For contractors, it signals what billing and accounting rules will govern performance; for contracting officers, it is a required checklist item during solicitation and award preparation.
Key Rules
Use Allowable Cost and Payment
Insert FAR 52.216-7 in cost-reimbursement contracts and in time-and-materials contracts other than those for commercial products or commercial services. For T&M contracts, the clause applies only to the materials portion reimbursed at actual cost and does not apply to labor-hour contracts.
Apply required alternates
Use Alternate I for construction contracts that also include the Prompt Payment for Construction Contracts clause. Use Alternate II for contracts with educational institutions, Alternate III for State or local governments, and Alternate IV for certain nonprofit organizations not otherwise exempted under OMB Uniform Guidance.
Use Fixed Fee clause
Insert FAR 52.216-8 when a cost-plus-fixed-fee contract is contemplated, except for construction contracts. This clause governs fixed fee payment under non-construction CPFF arrangements.
Use construction fixed-fee clause
Insert FAR 52.216-9 when a cost-plus-fixed-fee construction contract is contemplated. This is the construction-specific fixed-fee clause and replaces the non-construction fixed-fee clause for that contract type.
Use Incentive Fee clause
Insert FAR 52.216-10 when a cost-plus-incentive-fee contract is contemplated. This clause establishes the incentive-fee structure tied to performance or cost outcomes.
Use no-fee cost clauses
Insert FAR 52.216-11 for cost-reimbursement contracts with no fee that are not cost-sharing contracts. Use Alternate I for certain R&D contracts with educational institutions or nonprofits when withholding part of allowable costs is not required.
Use cost-sharing clause
Insert FAR 52.216-12 when a cost-sharing contract is contemplated. Use Alternate I for certain R&D cost-sharing contracts with educational institutions or nonprofits when withholding of allowable costs is not required.
Use predetermined indirect rates
Insert FAR 52.216-15 for cost-reimbursement R&D contracts with educational institutions when predetermined indirect cost rates will be used, consistent with FAR 42.705-3(b).
Responsibilities
Contracting Officer
Identify the contemplated contract type and insert the correct FAR clause and any required alternate in the solicitation and contract. The contracting officer must also determine when special treatment applies, such as T&M materials-only reimbursement, construction prompt payment, nonprofit or educational institution alternates, and whether withholding of allowable costs is required.
Contractor
Review the solicitation and contract clauses to understand billing, fee, reimbursement, and indirect cost rules that will govern performance. The contractor must bill only in accordance with the applicable clause, distinguish labor from materials where required, and comply with any special requirements tied to educational, nonprofit, or government entity contracts.
Agency
Support acquisition planning and contract administration so the selected contract type and clause set are consistent with policy, funding, and payment requirements. The agency must ensure its contracting personnel use the correct clause framework for the contemplated procurement.
Practical Implications
Clause selection is not optional; it is tied directly to the contract type, so a mismatch can create payment and administration problems.
Time-and-materials contracts require special attention because 52.216-7 applies only to the materials portion, while labor-hour contracts are excluded from that clause.
Educational institutions, State and local governments, and nonprofits may require alternates that change how allowable costs or withholding are handled, so entity status must be verified early.
Construction contracts need the construction-specific versions of the fee and payment clauses, especially when prompt payment requirements are in play.
Contractors should confirm the clause set before pricing and billing, because the clause choice affects fee entitlement, indirect cost treatment, and what costs can be reimbursed.
Official Regulatory Text
(a) (1) The contracting officer shall insert the clause at 52.216-7 , Allowable Cost and Payment, in solicitations and contracts when a cost-reimbursement contract or a time-and-materials contract (other than a contract for a commercial product or commercial service) is contemplated. If the contract is a time-and-materials contract, the clause at 52.216-7 applies in conjunction with the clause at 52.232-7 ), but only to the portion of the contract that provides for reimbursement of materials (as defined in the clause at 52.232-7 ) at actual cost. Further, the clause at 52.216-7 does not apply to labor-hour contracts. (2) If the contract is a construction contract and contains the clause at 52.232-27 , Prompt Payment for Construction Contracts, the contracting officer shall use the clause at 52.216-7 with its Alternate I. (3) If the contract is with an educational institution, the contracting officer shall use the clause at 52.216-7 with its Alternate II. (4) If the contract is with a State or local government, the contracting officer shall use the clause at 52.216-7 with its Alternate III. (5) If the contract is with a nonprofit organization other than an educational institution, a State or local government, or a nonprofit organization exempted under the OMB Uniform Guidance at 2 CFR part 200 , appendix VIII, the contracting officer shall use the clause at 52.216-7 with its Alternate IV. (b) The contracting officer shall insert the clause at 52.216-8 , Fixed Fee, in solicitations and contracts when a cost-plus-fixed-fee contract (other than a construction contract) is contemplated. (c) The contracting officer shall insert the clause at 52.216-9 , Fixed-Fee-Construction, in solicitations and contracts when a cost-plus-fixed-fee construction contract is contemplated. (d) The contracting officer shall insert the clause at 52.216-10 , Incentive Fee, in solicitations and contracts when a cost-plus-incentive-fee contract is contemplated. (e) (1) The contracting officer shall insert the clause at 52.216-11 , Cost Contract-No Fee, in solicitations and contracts when a cost-reimbursement contract is contemplated that provides no fee and is not a cost-sharing contract. (2) If a cost-reimbursement research and development contract with an educational institution or a nonprofit organization that provides no fee or other payment above cost and is not a cost-sharing contract is contemplated, and if the contracting officer determines that withholding of a portion of allowable costs is not required, the contracting officer shall use the clause with its Alternate I. (f) (1) The contracting officer shall insert the clause at 52.216-12 , Cost-Sharing Contract-No Fee, in solicitations and contracts when a cost-sharing contract is contemplated. (2) If a cost-sharing research and development contract with an educational institution or a nonprofit organization is contemplated, and if the contracting officer determines that withholding of a portion of allowable costs is not required, the contracting officer shall use the clause with its Alternate I. (g) The contracting officer shall insert the clause at 52.216-15 , Predetermined Indirect Cost Rates, in solicitations and contracts when a cost-reimbursement research and development contract with an educational institution (see 42.705-3 (b)) is contemplated and predetermined indirect cost rates are to be used.