FAR 39.103—Modular contracting.
Plain-English Summary
FAR 39.103 explains when and how agencies should use modular contracting for information technology acquisitions, especially major IT systems. It covers the policy goal of reducing program risk, improving contractor performance incentives, and keeping pace with rapidly changing technology, while tying the approach to the agency’s information technology architecture. The section describes what makes an acquisition “modular,” including breaking a system into smaller increments that are easier to manage, deliver, test, and improve over time. It also addresses compatibility and architecture requirements, performance and interface planning, the need to choose a contract structure that supports later increments, and the timing expectations for award and delivery to avoid obsolescence. In practice, this section pushes agencies to buy IT in manageable pieces rather than as one large, rigid effort, and it requires contracting officers to structure contracts so the Government is not locked into buying more increments than it wants or needs.
Key Rules
Use modular contracting broadly
Agencies should use modular contracting to the maximum extent practicable for major IT systems, and they may also use it for non-major IT systems. The approach is intended to reduce risk and improve the Government’s ability to obtain timely technology.
Break work into increments
A modular acquisition may be divided into smaller increments that are easier to manage, address complex objectives step by step, and allow delivery, implementation, and testing in discrete pieces. Each increment should be a workable system or solution that does not depend on a later increment to perform its principal functions.
Preserve flexibility and reduce risk
Modular increments should allow later phases to benefit from technology changes or changing needs during implementation. The structure should also reduce overall project risk by isolating and avoiding custom-designed components where possible.
Follow standards and architecture
Each increment should use common or commercially acceptable IT standards when available and appropriate, and must conform to the agency’s master information technology architecture. Performance requirements for each increment should align with the performance requirements of the completed system and address interfaces with later increments.
Choose a contract structure that supports follow-on increments
For each increment, contracting officers must select a contract type and acquisition method suited to the circumstances under FAR parts 16 and 17, such as IDIQ, options, successive contracts, multiple awards, or task orders. The contract must be structured so the Government is not obligated to buy additional increments.
Award and deliver quickly
To avoid obsolescence, modular IT contracts should be awarded within 180 days after solicitation issuance to the maximum extent practicable. If award cannot be made within that period, agencies should consider canceling the solicitation, and deliveries should generally be scheduled within 18 months after solicitation issuance.
Responsibilities
Agency
Use modular contracting to the maximum extent practicable for major IT systems, and may apply it to non-major IT systems as well. Ensure the acquisition approach fits the agency’s IT architecture and supports timely access to current technology.
Contracting Officer
Structure the acquisition into appropriate increments, select the proper contract type and method for each increment, and ensure the contract does not obligate the Government to buy additional increments. Also monitor timing so award and delivery occur quickly enough to avoid obsolescence.
Contracting Officer
When award cannot be made within 180 days after solicitation issuance, consider cancellation of the solicitation under the applicable FAR provisions.
Agency IT/Program Officials
Define increments, performance requirements, interface needs, and architecture compliance so each increment is workable on its own and compatible with the overall system.
Contractor
Deliver workable increments that meet the stated requirements, conform to applicable standards and architecture, and support integration with later increments as planned.
Practical Implications
Modular contracting is meant to prevent large IT buys from becoming all-or-nothing projects; agencies should plan for usable pieces that can stand on their own.
A common pitfall is creating increments that are too dependent on future phases, which defeats the purpose of modular contracting and increases integration risk.
Another frequent issue is failing to align each increment with the agency’s architecture and interface requirements, which can cause compatibility problems later.
Contracting officers should be careful not to structure the contract in a way that effectively forces the Government to order all future increments.
Timing matters: if the procurement drags on too long, the technology may become outdated before award, so agencies should watch the 180-day award target and 18-month delivery expectation closely.
Official Regulatory Text
(a) This section implements 41 U.S.C. 2308 . Modular contracting is intended to reduce program risk and to incentivize contractor performance while meeting the Government’s need for timely access to rapidly changing technology. Consistent with the agency’s information technology architecture, agencies should, to the maximum extent practicable, use modular contracting to acquire major systems (see 2.101 ) of information technology. Agencies may also use modular contracting to acquire non-major systems of information technology. (b) When using modular contracting, an acquisition of a system of information technology may be divided into several smaller acquisition increments that- (1) Are easier to manage individually than would be possible in one comprehensive acquisition; (2) Address complex information technology objectives incrementally in order to enhance the likelihood of achieving workable systems or solutions for attainment of those objectives; (3) Provide for delivery, implementation, and testing of workable systems or solutions in discrete increments, each of which comprises a system or solution that is not dependent on any subsequent increment in order to perform its principal functions; (4) Provide an opportunity for subsequent increments to take advantage of any evolution in technology or needs that occur during implementation and use of the earlier increments; and (5) Reduce risk of potential adverse consequences on the overall project by isolating and avoiding custom-designed components of the system. (c) The characteristics of an increment may vary depending upon the type of information technology being acquired and the nature of the system being developed. The following factors may be considered: (1) To promote compatibility, the information technology acquired through modular contracting for each increment should comply with common or commercially acceptable information technology standards when available and appropriate, and shall conform to the agency’s master information technology architecture. (2) The performance requirements of each increment should be consistent with the performance requirements of the completed, overall system within which the information technology will function and should address interface requirements with succeeding increments. (d) For each increment, contracting officers shall choose an appropriate contracting technique that facilitates the acquisition of subsequent increments. Pursuant to parts 16 and 17 of the Federal Acquisition Regulation, contracting officers shall select the contract type and method appropriate to the circumstances ( e.g., indefinite delivery, indefinite quantity contracts, single contract with options, successive contracts, multiple awards, task order contracts). Contract(s) shall be structured to ensure that the Government is not required to procure additional increments. (e) To avoid obsolescence, a modular contract for information technology should, to the maximum extent practicable, be awarded within 180 days after the date on which the solicitation is issued. If award cannot be made within 180 days, agencies should consider cancellation of the solicitation in accordance with 14.209 or 15.206 (e). To the maximum extent practicable, deliveries under the contract should be scheduled to occur within 18 months after issuance of the solicitation.