FAR 16.6—Subpart 16.6

Scope.

FAR 16.600 is a short scope provision that makes one core point: time-and-materials (T&M) contracts and labor-hour contracts are not fixed-price contracts. Its purpose is to classify these contract types correctly so contracting officers, contractors, and reviewers apply the right pricing, administration, and risk-allocation rules. In practice, this distinction matters because T&M and labor-hour arrangements are paid based on labor hours and, in the case of T&M, materials at stated rates rather than on a firm commitment to deliver a completed end item for one set price. The section signals that these contracts carry different oversight requirements than fixed-price contracts, especially because the Government bears more cost risk than it would under a fixed-price arrangement. It also helps prevent misclassification, which can lead to using the wrong clauses, wrong evaluation approach, or wrong contract administration procedures. Although brief, the section is foundational because it frames how the rest of FAR Part 16 treats these contract types.

Time-and-materials contracts.

FAR 16.601 explains when and how the Government may use time-and-materials (T&M) contracts and labor-hour contracts, and it sets the core rules that make these contract types work. This section covers the definitions of direct materials, hourly rate, and materials; the basic structure of a T&M contract; when T&M is appropriate; the need for Government surveillance; how fixed hourly rates must be structured; special rules for interorganizational transfers and commercial services; treatment of material handling costs; the limitations on use, including the required determination and findings (D&F) and ceiling price; post-award requirements before increasing the ceiling price; and the solicitation provision for noncommercial acquisitions without adequate price competition. In practice, this section matters because T&M contracts shift significant cost risk to the Government unless tightly controlled, so the FAR requires careful justification, pricing structure, surveillance, and file documentation. It is especially important when the scope or duration of work cannot be estimated with confidence, but it also warns contracting officers to use other contract types whenever possible. Contractors should understand that labor is paid at fixed hourly rates while materials are reimbursed at actual cost, subject to the FAR’s cost principles and any contract-specific limits. Contracting officers must ensure the contract includes the right clauses, the right rate structure, a ceiling price, and the required approvals before award or ceiling increases.

Labor-hour contracts.

FAR 16.602 is a short definitional and cross-reference provision that explains what a labor-hour contract is and how it fits within the broader family of time-and-materials contracting. It states that a labor-hour contract is essentially a time-and-materials contract except that the contractor does not furnish materials, so the government is paying only for labor hours at specified rates. The section also directs readers to the rules in FAR 12.207(b), 16.601(c), and 16.601(d), which contain the application limits, approval requirements, and other restrictions that apply to both time-and-materials and labor-hour contracts. In practice, this means the section is not a standalone authority to use labor-hour contracting; it is a classification rule that must be read together with the governing limitations on when these contracts may be used, especially for commercial services. Its practical significance is that it alerts contracting officers and contractors that labor-hour contracts carry the same policy concerns as time-and-materials contracts—such as cost control, oversight, and justification—while removing the materials component from the contractor’s performance obligations.

Letter contracts.