FAR 16.602—Labor-hour contracts.
Plain-English Summary
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.
Key Rules
Labor-hour is a T&M variant
A labor-hour contract is defined as a variation of a time-and-materials contract. The key difference is that the contractor provides labor only, not materials.
No contractor-supplied materials
Under a labor-hour contract, materials are not supplied by the contractor. If materials are needed, they must be handled outside the labor-hour structure or under another authorized arrangement.
T&M limitations also apply
The application and limitation rules in FAR 16.601(c) and 16.601(d) apply to labor-hour contracts as well. This means the same policy controls and restrictions that govern time-and-materials contracts also govern labor-hour contracts.
Commercial services cross-reference
FAR 12.207(b) specifically addresses the use of labor-hour contracts for certain commercial services. Contracting officers must follow that provision when considering labor-hour contracting in the commercial-item context.
Not a standalone authority
This section does not itself authorize use of labor-hour contracts in every situation. It simply defines the contract type and points to the governing rules that determine when it may be used.
Responsibilities
Contracting Officer
Determine whether a labor-hour contract is appropriate only after applying the related FAR limitations and commercial-item rules. Ensure the contract structure excludes contractor-supplied materials and complies with the same controls that apply to time-and-materials contracts.
Contractor
Provide labor hours in accordance with the contract terms and understand that materials are not part of the contractor’s performance under this contract type. If materials are needed, the contractor must not assume they are included unless another authorized contract mechanism covers them.
Agency
Use labor-hour contracting only within the bounds of the FAR provisions cross-referenced in this section. Maintain oversight and policy compliance because labor-hour contracts carry the same risk profile and control concerns as time-and-materials contracts.
Practical Implications
This section matters because it tells you that labor-hour contracts are not a separate, unrestricted contract type; they are a narrower form of time-and-materials contracting.
A common pitfall is treating labor-hour contracts as if they can be used whenever labor is needed. The FAR cross-references mean the contracting officer must still satisfy the applicable limitations and approvals.
Another practical issue is scope creep around materials. If the work requires supplies, equipment, or other materials, those items must be addressed separately because the contractor is not furnishing them under a labor-hour contract.
For contractors, pricing and performance expectations should focus on labor hours and labor categories, not on recovering material costs through the labor-hour line items.
For contracting officers, the main day-to-day concern is ensuring the contract file shows why this structure is permissible and how the government will control cost, since labor-hour arrangements can be difficult to monitor if used loosely.
Official Regulatory Text
Description. A labor-hour contract is a variation of the time-and-materials contract, differing only in that materials are not supplied by the contractor. See 12.207 (b), 16.601 (c), and 16.601 (d) for application and limitations, for time-and-materials contracts that also apply to labor-hour contracts. See 12.207 (b) for the use of labor-hour contracts for certain commercial services.