FAR 37.104—Personal services contracts.
Plain-English Summary
FAR 37.104 explains what a personal services contract is, why such contracts are generally prohibited, and how to tell when a service arrangement crosses the line into an employer-employee relationship with the Government. It covers the legal prohibition on using contracts to obtain personal services unless Congress has specifically authorized that approach, the core test of whether Government personnel exercise relatively continuous supervision and control over contractor personnel, and the distinction between permissible oversight of contract results and impermissible supervision of individuals. The section also lists practical indicators that suggest a contract may be personal in nature, such as performance on-site, Government-furnished tools and equipment, direct support to an agency’s mission, use of civil service personnel for similar work, expected duration beyond one year, and the need for Government direction to protect the Government’s interests or retain control of the function. It further requires legal review when specific statutory authority is cited and notes special limits and coordination requirements for personal services contracts involving individual experts or consultants, including Classification Act constraints and Office of Personnel Management requirements. In practice, this section is meant to prevent agencies from bypassing civil service hiring rules and to help contracting officers identify, document, and manage arrangements that could be viewed as personal services contracts.
Key Rules
Personal services are generally barred
A contract is personal services when it creates an employer-employee relationship between the Government and contractor personnel. Agencies may not use contracts to obtain personal services unless Congress has specifically authorized that method.
Statutory authority is required
An agency may award a personal services contract only when a statute expressly authorizes it, such as 5 U.S.C. 3109. Without that authority, the arrangement is not permitted even if the work is needed.
Continuous supervision is the key test
The central question is whether Government officers or employees will exercise relatively continuous supervision and control over contractor personnel. Routine acceptance of deliverables or rejection of finished work does not, by itself, create a personal services relationship.
Facts and circumstances control
Each arrangement must be evaluated on its own facts, including both the contract terms and how the contract is actually administered. Sporadic or isolated supervision may not matter, but ongoing supervision of a substantial number of contractor employees is a strong indicator of a personal services contract.
Use the listed indicators as guidance
The regulation provides descriptive elements to help assess whether a contract is personal in nature, including on-site performance, Government-furnished tools, direct support to an agency mission, comparable civil service performance, expected need beyond one year, and the need for Government direction to protect interests or retain control.
Legal review is mandatory when authorized
If a personal services contract is proposed under specific statutory authority, the contracting officer must obtain legal counsel review and opinion before proceeding.
Expert and consultant services have extra limits
Personal services contracts for individual experts or consultants are limited by the Classification Act and subject to Office of Personnel Management requirements, including issues such as benefits, taxes, and conflicts of interest. The contracting officer must coordinate with the cognizant civilian personnel office.
Responsibilities
Agency
Must not award personal services contracts unless a statute specifically authorizes them. The agency must ensure its acquisition approach does not circumvent civil service hiring laws.
Contracting Officer
Must evaluate whether the proposed or administered contract creates an employer-employee relationship, using the continuous supervision and control test and the listed indicators. The contracting officer must obtain legal counsel review when statutory authority is cited and coordinate with the civilian personnel office for expert or consultant personal services arrangements.
Government Officers and Employees
Must avoid administering service contracts in a way that amounts to relatively continuous supervision and control of contractor personnel. They may direct contract results, but not manage contractor employees as if they were Government staff.
Legal Counsel
Must review and provide an opinion when a personal services contract is proposed under specific statutory authority.
Civilian Personnel Office
Must coordinate with the contracting officer on personal services contracts for individual experts or consultants, including applicable personnel-related requirements such as benefits, taxes, and conflicts of interest.
Contractor
Must understand that its personnel remain contractor employees unless the arrangement is lawfully authorized as a personal services contract. The contractor should structure performance to avoid Government control that could create an improper employer-employee relationship.
Practical Implications
The biggest day-to-day risk is accidental conversion of a normal service contract into an improper personal services contract through how the work is managed, not just how the contract is written.
Contracting officers should watch for signs like Government supervisors assigning daily tasks, approving leave, directing individual work methods, or otherwise treating contractor staff like agency employees.
On-site work, Government-furnished equipment, and close integration with agency operations are not automatically prohibited, but they increase the need for careful review because they can support a personal-services finding.
If the work looks like it should be performed by Government employees, the safer path is often direct hire rather than contracting unless there is clear statutory authority.
For expert or consultant support, agencies must not assume ordinary service-contract procedures are enough; personnel-office coordination and legal review are important to avoid pay, benefits, and conflict-of-interest problems.
Official Regulatory Text
(a) A personal services contract is characterized by the employer-employee relationship it creates between the Government and the contractor’s personnel. The Government is normally required to obtain its employees by direct hire under competitive appointment or other procedures required by the civil service laws. Obtaining personal services by contract, rather than by direct hire, circumvents those laws unless Congress has specifically authorized acquisition of the services by contract. (b) Agencies shall not award personal services contracts unless specifically authorized by statute ( e.g., 5 U.S.C. 3109 ) to do so. (c) (1) An employer-employee relationship under a service contract occurs when, as a result of (i) the contract’s terms or (ii) the manner of its administration during performance, contractor personnel are subject to the relatively continuous supervision and control of a Government officer or employee. However, giving an order for a specific article or service, with the right to reject the finished product or result, is not the type of supervision or control that converts an individual who is an independent contractor (such as a contractor employee) into a Government employee. (2) Each contract arrangement must be judged in the light of its own facts and circumstances, the key question always being: Will the Government exercise relatively continuous supervision and control over the contractor personnel performing the contract. The sporadic, unauthorized supervision of only one of a large number of contractor employees might reasonably be considered not relevant, while relatively continuous Government supervision of a substantial number of contractor employees would have to be taken strongly into account (see (d) of this section). (d) The following descriptive elements should be used as a guide in assessing whether or not a proposed contract is personal in nature: (1) Performance on site. (2) Principal tools and equipment furnished by the Government. (3) Services are applied directly to the integral effort of agencies or an organizational subpart in furtherance of assigned function or mission. (4) Comparable services, meeting comparable needs, are performed in the same or similar agencies using civil service personnel. (5) The need for the type of service provided can reasonably be expected to last beyond 1 year. (6) The inherent nature of the service, or the manner in which it is provided, reasonably requires directly or indirectly, Government direction or supervision of contractor employees in order to- (i) Adequately protect the Government’s interest; (ii) Retain control of the function involved; or (iii) Retain full personal responsibility for the function supported in a duly authorized Federal officer or employee. (e) When specific statutory authority for a personal service contract is cited, obtain the review and opinion of legal counsel. (f) Personal services contracts for the services of individual experts or consultants are limited by the Classification Act. In addition, the Office of Personnel Management has established requirements which apply in acquiring the personal services of experts or consultants in this manner ( e.g., benefits, taxes, conflicts of interest). Therefore, the contracting officer shall effect necessary coordination with the cognizant civilian personnel office.