FAR 16.603-4—Contract clauses.
Plain-English Summary
FAR 16.603-4 tells contracting officers which clauses must be included when using a letter contract, both in the letter contract itself and in the related solicitation or contract documents when a letter contract is contemplated. It covers the required clauses for the anticipated definitive contract type, plus any other clauses already known to be appropriate, and it specifically addresses the use of FAR 52.216-23, Execution and Commencement of Work; FAR 52.216-24, Limitation of Government Liability; FAR 52.216-25, Contract Definitization; and FAR 52.216-26, Payments of Allowable Costs Before Definitization. The section also explains when the contracting officer may delete certified cost or pricing data language from the definitization clause, and when Alternate I must be used for price-competition awards. In practice, this provision is about making sure the government has the right interim protections and definitization mechanics in place before work starts, while limiting government liability and preserving the ability to convert the letter contract into a fully definitized contract on proper terms. It is especially important because letter contracts are used when urgent work must begin before final terms and price are settled, so clause selection and completion must be done carefully to avoid gaps, disputes, or unauthorized commitments.
Key Rules
Include definitive-contract clauses
The contracting officer must include in each letter contract the clauses required for the type of definitive contract that is contemplated, along with any additional clauses already known to be appropriate. This means the letter contract should be built as if it is the front end of the final contract, not as a bare interim agreement.
Add required letter-contract clauses
When a letter contract is contemplated, the contracting officer must insert FAR 52.216-23, 52.216-24, and 52.216-25 in the solicitation and contract, subject to the specific exceptions and completions stated in the rule. These clauses establish when work may begin, cap the Government’s liability, and require timely definitization.
Execution and commencement clause
FAR 52.216-23, Execution and Commencement of Work, is required unless the letter contract is awarded on SF 26, in which case it may be omitted. This clause helps control when the contractor may start performance and ties commencement to proper execution of the letter contract.
Limit government liability clause
FAR 52.216-24 must be included with dollar amounts completed consistently with FAR 16.603-2(d). The clause limits the Government’s financial exposure before definitization, so the stated ceiling must match the authorized interim commitment.
Definitization clause requirements
FAR 52.216-25, Contract Definitization, must be included with paragraph (b) completed consistently with FAR 16.603-2(c). If the contracting officer already knows the definitive contract will be based on adequate price competition or otherwise qualifies under FAR 15.403-1, the certified cost or pricing data language may be deleted from paragraph (a). If the letter contract is awarded on the basis of price competition, Alternate I must be used.
Allowable-cost payments before definitization
FAR 52.216-26, Payments of Allowable Costs Before Definitization, must be inserted when a cost-reimbursement definitive contract is contemplated, unless the acquisition involves conversion, alteration, or repair of ships. This clause authorizes interim payment treatment for allowable costs while the final contract is still being negotiated.
Responsibilities
Contracting Officer
Select and insert all clauses required for the contemplated definitive contract type, plus any additional clauses known to be appropriate. The contracting officer must also include the required letter-contract clauses, properly complete the dollar limits and definitization terms, decide whether the certified cost or pricing data language may be deleted, use Alternate I when price competition applies, and include the allowable-cost payment clause when a cost-reimbursement definitive contract is planned unless the shipwork exception applies.
Agency/Acquisition Team
Support the contracting officer by identifying the anticipated definitive contract type, the expected basis for price or cost analysis, and any special terms needed for the interim arrangement. The team should ensure the letter contract package aligns with the planned final contract and the agency’s funding and performance needs.
Contractor
Review the letter contract clauses carefully before starting work, understand the limits on Government liability and the schedule for definitization, and comply with the execution and performance requirements once the letter contract is issued. The contractor should also be prepared to submit the information needed to support definitization, unless the pricing-data requirement has been properly removed.
Practical Implications
Letter contracts are a controlled exception for urgent starts, so missing or incomplete clauses can create serious problems with authority to perform, payment, and later definitization.
The Government’s liability is intentionally capped before definitization; if the dollar amount is completed incorrectly, the agency may either overcommit funds or underauthorize needed work.
The definitization clause drives the timeline and process for turning the letter contract into a final contract, so both sides should track deadlines and required submissions closely.
Whether certified cost or pricing data is required depends on the expected pricing basis; getting this wrong can lead to unnecessary requirements or an invalid clause package.
For cost-reimbursement definitive contracts, the interim payment clause is important for cash flow and cost allowability, but it does not apply to ship conversion, alteration, or repair acquisitions, so that exception must be checked before inclusion.
Official Regulatory Text
(a) The contracting officer shall include in each letter contract the clauses required by this regulation for the type of definitive contract contemplated and any additional clauses known to be appropriate for it. (b) In addition, the contracting officer shall insert the following clauses in solicitations and contracts when a letter contract is contemplated: (1) The clause at 52.216-23 , Execution and Commencement of Work, except that this clause may be omitted from letter contracts awarded on SF 26 ; (2) The clause at 52.216-24 , Limitation of Government Liability, with dollar amounts completed in a manner consistent with 16.603-2 (d); and (3) The clause at 52.216-25 , Contract Definitization, with its paragraph (b) completed in a manner consistent with 16.603-2 (c). If at the time of entering into the letter contract, the contracting officer knows that the definitive contract will be based on adequate price competition or will otherwise meet the criteria of 15.403-1 for not requiring submission of certified cost or pricing data, the words "and certified cost or pricing data in accordance with FAR 15.408 , Table 15-1 supporting its proposal" may be deleted from paragraph (a) of the clause. If the letter contract is being awarded on the basis of price competition, the contracting officer shall use the clause with its Alternate I. (c) The contracting officer shall also insert the clause at 52.216-26 , Payments of Allowable Costs Before Definitization, in solicitations and contracts if a cost-reimbursement definitive contract is contemplated, unless the acquisition involves conversion, alteration, or repair of ships.