FAR 37.115-2—General policy.
Plain-English Summary
FAR 37.115-2 sets the government’s policy and evaluation rules for uncompensated overtime when acquiring professional or technical services priced by the number of hours to be provided rather than by task or deliverable. It explains that uncompensated overtime is not encouraged, requires solicitations to identify uncompensated overtime hours and rates for direct-charge FLSA-exempt personnel and certain subcontractor proposals, and extends that disclosure to uncompensated overtime embedded in indirect cost pools when those employees are normally charged direct. The section also requires contracting officers to assess whether uncompensated overtime could reduce technical quality, create unrealistic pricing, or concentrate low-cost labor in key positions, and it ties that review to competitive negotiations and cost realism analysis. Finally, it requires use of an adjusted hourly rate that reflects uncompensated overtime for all proposed hours, not just overtime hours, whenever uncompensated overtime is present. In practice, this section is meant to prevent artificially low labor pricing from masking performance risk and to ensure the government evaluates labor-hour proposals on a realistic basis.
Key Rules
Uncompensated overtime is discouraged
The FAR states that use of uncompensated overtime is not encouraged. This is a policy signal that agencies should treat it cautiously, especially where it may distort labor pricing or performance expectations.
Disclose overtime in labor-hour proposals
When services are bought based on hours rather than tasks, the solicitation must require offerors to identify uncompensated overtime hours and the uncompensated overtime rate for direct-charge FLSA-exempt personnel and subcontractor proposals. The disclosure requirement also reaches uncompensated overtime in indirect pools for personnel who are normally charged direct.
Protect technical quality
Contracting officers must ensure uncompensated overtime will not reduce the level of technical expertise needed to meet the requirement. The concern is not just price, but whether the staffing approach will actually support acceptable performance.
Perform a risk assessment
For these hour-based service acquisitions, contracting officers must conduct a risk assessment and evaluate proposals for signs of quality risk. The assessment should look for unrealistically low labor rates or other costs, as well as unbalanced use of uncompensated overtime across skill levels or in key technical positions.
Use adjusted hourly rates
Whenever uncompensated overtime exists, the adjusted hourly rate that includes uncompensated overtime must be applied to all proposed hours. The government does not evaluate regular hours and overtime hours at different unadjusted rates when uncompensated overtime is part of the pricing structure.
Tie to source selection analysis
The section cross-references competitive negotiations and cost realism analysis, signaling that uncompensated overtime is a source selection issue as well as a pricing issue. Contracting officers should use those tools to test whether the proposed labor mix and rates are realistic.
Responsibilities
Contracting Officer
Ensure solicitations for hour-based professional or technical services require disclosure of uncompensated overtime hours and rates where applicable. Conduct a risk assessment, evaluate proposals for technical and pricing risk, and apply adjusted hourly rates when uncompensated overtime is present.
Offeror/Contractor
Identify uncompensated overtime hours and the uncompensated overtime rate in proposals for direct-charge FLSA-exempt personnel, including relevant subcontractor proposals and applicable indirect-pool situations. Price proposals on a basis that can be evaluated using adjusted hourly rates.
Subcontractor
Provide required uncompensated overtime information to the prime or directly in its proposal, as applicable, so the prime can comply with solicitation requirements and the government can evaluate the labor mix accurately.
Agency/Source Selection Team
Support evaluation of whether proposed uncompensated overtime creates performance risk, including cost realism and technical acceptability concerns. Ensure the evaluation record reflects the impact of overtime on labor quality and staffing adequacy.
Practical Implications
Uncompensated overtime can make labor rates look cheaper than they really are, so contracting officers should not accept low hourly rates at face value in hour-based service buys.
A common pitfall is failing to require or review overtime disclosures for FLSA-exempt direct-charge personnel, which can hide the true cost of the labor mix.
Another risk is concentration of uncompensated overtime in senior or key technical positions, which may signal burnout, reduced quality, or unrealistic staffing assumptions.
When overtime is present, evaluators should use the adjusted hourly rate across all hours; otherwise, the government may understate the true evaluated price.
This section matters most in competitive procurements for professional and technical services where labor hours drive the price and performance risk is closely tied to staffing quality.
Official Regulatory Text
(a) Use of uncompensated overtime is not encouraged. (b) When professional or technical services are acquired on the basis of the number of hours to be provided, rather than on the task to be performed, the solicitation shall require offerors to identify uncompensated overtime hours and the uncompensated overtime rate for direct charge Fair Labor Standards Act-exempt personnel included in their proposals and subcontractor proposals. This includes uncompensated overtime hours that are in indirect cost pools for personnel whose regular hours are normally charged direct. (c) Contracting officers must ensure that the use of uncompensated overtime in contracts to acquire services on the basis of the number of hours provided will not degrade the level of technical expertise required to fulfill the Government’s requirements (see 15.305 for competitive negotiations and 15.404-1 (d) for cost realism analysis). When acquiring these services, contracting officers must conduct a risk assessment and evaluate, for award on that basis, any proposals received that reflect factors such as- (1) Unrealistically low labor rates or other costs that may result in quality or service shortfalls; and (2) Unbalanced distribution of uncompensated overtime among skill levels and its use in key technical positions. (d) Whenever there is uncompensated overtime, the adjusted hourly rate (including uncompensated overtime) (see definition at 37.101 ), rather than the hourly rate, shall be applied to all proposed hours, whether regular or overtime hours.