FAR 16.600—Scope.
Plain-English Summary
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.
Key Rules
Not fixed-price contracts
Time-and-materials contracts and labor-hour contracts are expressly excluded from the fixed-price category. They must be treated as separate contract types with their own pricing and administration rules.
Different risk allocation
Because these contracts are not fixed-price, the Government does not receive the same price certainty it would under a fixed-price contract. The contractor is paid for labor hours, and under T&M, for materials as well, subject to the contract terms.
Classification matters
Correctly identifying the contract type is essential for selecting the proper clauses, evaluation methods, and oversight controls. Mislabeling a T&M or labor-hour arrangement as fixed-price can create compliance and administration problems.
Responsibilities
Contracting Officer
Must classify the contract correctly and avoid treating T&M or labor-hour arrangements as fixed-price contracts. Must ensure the contract structure, clauses, and administration approach match the actual contract type.
Contractor
Must understand that payment will be based on labor hours and, for T&M contracts, materials under the contract terms rather than a fixed deliverable price. Must bill in accordance with the contract’s labor categories, rates, and material provisions.
Agency
Must apply the correct acquisition and oversight framework for these contract types, including internal review and approval processes that recognize they are not fixed-price contracts.
Practical Implications
Do not assume a T&M or labor-hour contract gives the Government fixed-price certainty; it does not.
Use the correct contract type from the start, because misclassification can affect clause selection, pricing review, and administration.
Watch billing carefully: labor-hour contracts are paid for hours worked, while T&M contracts also allow payment for materials under the contract terms.
These contract types generally require closer monitoring than fixed-price contracts because cost growth risk is higher for the Government.
A common pitfall is using fixed-price assumptions in planning or oversight, which can lead to weak controls and disputes over payment or scope.
Official Regulatory Text
Time-and-materials contracts and labor-hour contracts are not fixed-price contracts.