FAR 37.102—Policy.
Plain-English Summary
FAR 37.102 sets the government-wide policy framework for acquiring services. It establishes performance-based acquisition as the preferred approach, requires agencies to use it to the maximum extent practicable, and sets an order of precedence for service acquisitions, including those made under supply contracts or orders. It also identifies important exceptions, such as architect-engineer services, construction, utility services, and services incidental to supply purchases. Beyond acquisition method, the section addresses reliance on the private sector for commercial services, the prohibition on contracting for inherently governmental functions, and the general authority for non-personal service contracts. It assigns program officials responsibility for clearly describing service needs, directs agencies to adopt management practices to prevent fraud, waste, and abuse, and requires service acquisitions to be cost-effective, competition-friendly, and free of conflicts of interest. The section also requires agencies to have sufficiently trained and experienced personnel to oversee contract administration, to align service contracts involving products with the FAR’s product/environmental requirements, and to observe special limitations on lowest-price technically acceptable source selection for certain services outside DoD. In practice, this section is the core policy statement that shapes how agencies plan, compete, award, and manage service contracts.
Key Rules
Performance-based acquisition preferred
Agencies must use performance-based acquisition methods to the maximum extent practicable when buying services, including services acquired under supply contracts or orders. This is the default policy unless a listed exception applies.
Order of precedence for services
When acquiring services, agencies must follow the statutory order of precedence: first a firm-fixed-price performance-based contract or task order, then a performance-based contract or task order that is not firm-fixed-price, and lastly a non-performance-based contract or task order.
Key service exceptions
The performance-based acquisition preference does not apply to architect-engineer services, construction, utility services, or services that are merely incidental to supply purchases. These categories are governed by other FAR parts or statutory schemes.
Private sector reliance for commercial services
Agencies should generally rely on the private sector for commercial services. This reflects the policy that the government should buy commercial services rather than perform them in-house when appropriate.
No inherently governmental functions
Agencies may not award contracts for inherently governmental functions. These activities must remain under government control and cannot be outsourced to contractors.
Clear need description required
Program officials must accurately describe the need or problem to be solved in a way that allows contractors to understand the requirement and respond effectively. To the maximum extent practicable, they should use performance-based acquisition methods and seek help from contracting officials as needed.
Management controls against abuse
Agencies must establish effective management practices for service contracting to prevent fraud, waste, and abuse. This includes oversight, controls, and accountability measures consistent with OFPP policy.
Cost-effective, competitive, conflict-free buying
Services must be obtained in the most cost-effective manner, without barriers to full and open competition, and free from potential conflicts of interest. This policy drives acquisition planning, competition strategy, and organizational safeguards.
Qualified oversight personnel
Agencies must ensure they have sufficiently trained and experienced officials to manage and oversee contract administration. Proper oversight is a required part of service contracting, not an optional administrative function.
Products in service contracts
If a service contract requires delivery, use, or furnishing of products, the acquisition must be consistent with FAR subpart 23.1 and related requirements. Agencies must consider product-related policy issues when services include supplies or equipment.
LPTA limits for services
Except for DoD, agencies must follow FAR 15.101-2(d) on limitations on using lowest price technically acceptable source selection for certain services. This restricts when LPTA may be used for service acquisitions.
Responsibilities
Agency
Use performance-based acquisition to the maximum extent practicable; follow the required order of precedence for service acquisitions; rely on the private sector for commercial services when appropriate; avoid contracting for inherently governmental functions; establish management practices to prevent fraud, waste, and abuse; ensure service acquisitions are cost-effective, competitive, and free of conflicts of interest; provide trained and experienced personnel for contract administration; and ensure product-related service contracts comply with FAR subpart 23.1. Agencies must also observe the applicable LPTA limitations for services.
Program Officials
Accurately define the need to be filled or problem to be solved; describe requirements in a way that supports full contractor understanding and responsive performance; use performance-based acquisition methods to the maximum extent practicable; and obtain assistance from contracting officials when needed.
Contracting Officials
Assist program officials in shaping service requirements; help ensure the acquisition strategy aligns with performance-based policy, competition requirements, conflict-of-interest safeguards, and source selection limitations; and support effective contract administration oversight.
Contracting Officer / Contract Administration Personnel
Manage and oversee service contracts using trained and experienced personnel; ensure the contract structure and administration support performance, compliance, and oversight; and apply the correct policy framework for service acquisitions, including any applicable product and source-selection rules.
Agency Leadership / Acquisition Management
Put in place effective oversight and internal controls for service contracting; ensure workforce capability for administration and surveillance; and maintain policies and practices that reduce fraud, waste, abuse, and conflicts of interest.
Contractor
Respond to clearly stated service requirements, perform in accordance with performance-based or other applicable contract terms, and comply with any product-related, competition-related, or conflict-of-interest requirements imposed by the acquisition.
Practical Implications
This section pushes agencies to start with performance outcomes, not detailed task prescriptions, so statements of work should focus on results, measures, and accountability.
A common mistake is treating all services the same; the exceptions for A-E, construction, utilities, and incidental services matter and can change the applicable acquisition rules.
Agencies often run into trouble when requirements are vague or overly prescriptive, which can undermine competition and make performance harder to measure.
The policy on inherently governmental functions is a hard stop: if the work crosses that line, it cannot be outsourced even if a contractor could technically perform it.
Service contracts frequently involve products, labor, and oversight issues at the same time, so acquisition teams must coordinate FAR Part 23, source selection rules, and contract administration capability early in planning.
Official Regulatory Text
(a) Performance-based acquisition (see subpart 37.6 ) is the preferred method for acquiring services (Public Law106-398, section 821). When acquiring services, including those acquired under supply contracts or orders, agencies must- (1) Use performance-based acquisition methods to the maximum extent practicable, except for- (i) Architect-engineer services acquired in accordance with 40 U.S.C. 1101 et seq. ; (ii) Construction (see part 36 ); (iii) Utility services (see part 41 ); or (iv) Services that are incidental to supply purchases; and (2) Use the following order of precedence (Public Law106-398, section 821(a)); (i) A firm-fixed price performance-based contract or task order. (ii) A performance-based contract or task order that is not firm-fixed price. (iii) A contract or task order that is not performance-based. (b) Agencies shall generally rely on the private sector for commercial services (see OMB Circular No. A-76, Performance of Commercial Activities and subpart 7.3 ). (c) Agencies shall not award a contract for the performance of an inherently governmental function (see subpart 7.5 ). (d) Non-personal service contracts are proper under general contracting authority. (e) Agency program officials are responsible for accurately describing the need to be filled, or problem to be resolved, through service contracting in a manner that ensures full understanding and responsive performance by contractors and, in so doing, should obtain assistance from contracting officials, as needed. To the maximum extent practicable, the program officials shall describe the need to be filled using performance-based acquisition methods. (f) Agencies shall establish effective management practices in accordance with Office of Federal Procurement Policy (OFPP) Policy Letter 93-1, Management Oversight of Service Contracting, to prevent fraud, waste, and abuse in service contracting. (g) Services are to be obtained in the most cost-effective manner, without barriers to full and open competition, and free of any potential conflicts of interest. (h) Agencies shall ensure that sufficiently trained and experienced officials are available within the agency to manage and oversee the contract administration function. (i) Agencies shall ensure that service contracts that require the delivery, use, or furnishing of products are consistent with subpart 23.1 (see 23.103 (c)). (j) Except for DoD, see 15.101-2 (d) for limitations on the use of the lowest price technically acceptable source selection process to acquire certain services.