FAR 52.216-24—Limitation of Government Liability.
Plain-English Summary
FAR 52.216-24, Limitation of Government Liability, is a clause used when a letter contract is contemplated under FAR 16.603. It addresses two related subjects: the contractor’s spending authority before final contract terms are fully negotiated, and the Government’s maximum financial exposure if the letter contract is terminated. In practice, the clause sets a dollar ceiling on the contractor’s authorized expenditures and obligations, and it separately caps the amount the Government may owe upon termination. The clause is designed to let work begin quickly while protecting both parties from open-ended liability during the interim period before a definitive contract is executed. It is especially important in urgent acquisitions where performance must start before all terms are finalized, because it makes clear that the contractor proceeds at its own risk beyond the stated limit and that the Government’s termination liability is limited to the stated amount. The clause therefore functions as a financial control mechanism, a risk-allocation tool, and a transition device from a preliminary agreement to a final contract.
Key Rules
Use with letter contracts
This clause is prescribed for solicitations and contracts when a letter contract is contemplated. Its purpose is tied to the special nature of letter contracts, which authorize immediate performance before a final contract is negotiated and executed.
Spending authority is capped
The contractor is not authorized to make expenditures or incur obligations above the stated dollar amount. Any costs or commitments beyond that ceiling are outside the contractor’s authorized scope unless the Government later increases the limit in writing.
Termination liability is limited
If the letter contract is terminated, the Government’s liability is capped at the stated maximum amount. This prevents open-ended termination exposure during the interim period before the final contract terms are settled.
Dollar amounts must be inserted
The clause contains blanks for two separate dollar figures: one for the contractor’s authorized expenditures and one for the Government’s maximum termination liability. These amounts must be carefully negotiated and filled in before use.
Risk remains with the contractor above the cap
Because the contractor is expressly not authorized to exceed the stated amount, costs or obligations incurred beyond that limit may not be recoverable from the Government. Contractors must monitor spending closely and seek written authorization before crossing the ceiling.
Responsibilities
Contracting Officer
Insert the clause when a letter contract is contemplated, negotiate and state the dollar limits, ensure the limits reflect the Government’s intended exposure, and issue any written changes if the authorized amount must be increased.
Contractor
Limit expenditures and obligations to the stated amount, track costs carefully, avoid committing beyond the authorized ceiling, and notify the contracting officer promptly if additional funding or authority is needed.
Agency
Ensure the letter contract process is used appropriately, provide funding and oversight consistent with the stated limits, and manage the transition from the letter contract to the final contract so liability remains controlled.
Practical Implications
This clause is a hard stop on spending authority, so contractors should not treat a letter contract like a fully funded final contract.
The two dollar figures serve different purposes: one limits what the contractor may spend, and the other limits what the Government may owe if the contract is terminated.
A common pitfall is assuming verbal direction or informal encouragement allows work beyond the stated ceiling; only written authorization changes the limit.
Contracting officers should make sure the amounts are realistic enough to support the intended interim performance, but not so high that they create unnecessary Government exposure.
Both parties should monitor performance and funding closely, because the clause is meant to bridge an urgent start of work, not to replace timely completion of the final contract.
Official Regulatory Text
As prescribed in 16.603-4 (b)(2) , insert the following clause in solicitations and contracts when a letter contract is contemplated: Limitation of Government Liability (Apr 1984) (a) In performing this contract, the Contractor is not authorized to make expenditures or incur obligations exceeding __________ dollars. (b) The maximum amount for which the Government shall be liable if this contract is terminated is ___________ dollars. (End of clause)