48 CFR Part 16 — Types of Contracts

PART 16—TYPES OF CONTRACTS Authority: 41 U.S.C. 1121(b); 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and 10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C. 20113. Source: 48 FR 42219, Sept. 19, 1983, unless otherwise noted. 16.000 Scope of part. This part describes types of contracts that may be used in acquisitions. It prescribes policies and procedures and provides guidance for selecting a contract type appropriate to the circumstances of the acquisition. [48 FR 42219, Sept. 19, 1983, as amended at 60 FR 34756, July 3, 1995; 61 FR 39197, July 26, 1996] 16.001 Definitions. As used in this part— Award-Fee Board Established price (1) Is an established catalog or market price for a commercial product sold in substantial quantities to the general public; and (2) Is the net price after applying any standard trade discounts offered by the contractor. Fee-Determining Official (FDO) Rollover of unearned award fee [74 FR 52858, Oct. 14, 2009, as amended at 86 FR 61027, Nov. 4, 2021] Subpart 16.1—Selecting Contract Types 16.101 General. (a) A wide selection of contract types is available to the Government and contractors in order to provide needed flexibility in acquiring the large variety and volume of supplies and services required by agencies. Contract types vary according to (1) the degree and timing of the responsibility assumed by the contractor for the costs of performance and (2) the amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals. (b) The contract types are grouped into two broad categories: fixed-price contracts (see subpart 16.2) and cost-reimbursement contracts (see subpart 16.3). The specific contract types range from firm-fixed-price, in which the contractor has full responsibility for the performance costs and resulting profit (or loss), to cost-plus-fixed-fee, in which the contractor has minimal responsibility for the performance costs and the negotiated fee (profit) is fixed. In between are the various incentive contracts (see subpart 16.4), in which the contractor's responsibility for the performance costs and the profit or fee incentives offered are tailored to the uncertainties involved in contract performance. 16.102 Policies. (a) Contracts resulting from sealed bidding shall be firm-fixed-price contracts or fixed-price contracts with economic price adjustment. (b) Contracts negotiated under part 15 may be of any type or combination of types that will promote the Government's interest, except as restricted in this part (see 10 U.S.C. 3321(a) and 41 U.S.C. 3901). Contract types not described in this regulation shall not be used, except as a deviation under subpart 1.4. (c) The cost-plus-a-percentage-of-cost system of contracting shall not be used (see 10 U.S.C. 3322(a) and 41 U.S.C. 3905(a)). Prime contracts (including letter contracts) other than firm-fixed-price contracts shall, by an appropriate clause, prohibit cost- plus-a-percentage-of-cost subcontracts (see clauses prescribed in subpart 44.2 for cost-reimbursement contracts and subparts 16.2 and 16.4 for fixed-price contracts). (d) No contract may be awarded before the execution of any determination and findings (D&F's) required by this part. Minimum requirements for the content of D&F's required by this part are specified in 1.704. [48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 79 FR 24202, Apr. 29, 2014; 87 FR 73898, Dec. 1, 2022] 16.103 Negotiating contract type. (a) Selecting the contract type is generally a matter for negotiation and requires the exercise of sound judgment. Negotiating the contract type and negotiating prices are closely related and should be considered together. The objective is to negotiate a contract type and price (or estimated cost and fee) that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance. (b) A firm-fixed-price contract, which best utilizes the basic profit motive of business enterprise, shall be used when the risk involved is minimal or can be predicted with an acceptable degree of certainty. However, when a reasonable basis for firm pricing does not exist, other contract types should be considered, and negotiations should be directed toward selecting a contract type (or combination of types) that will appropriately tie profit to contractor performance. (c) In the course of an acquisition program, a series of contracts, or a single long-term contract, changing circumstances may make a different contract type appropriate in later periods than that used at the outset. In particular, contracting officers should avoid protracted use of a cost-reimbursement or time-and-materials contract after experience provides a basis for firmer pricing. (d)(1) Each contract file shall include documentation to show why the particular contract type was selected. This shall be documented in the acquisition plan, or in the contract file if a written acquisition plan is not required by agency procedures. (i) Explain why the contract type selected must be used to meet the agency need. (ii) Discuss the Government's additional risks and the burden to manage the contract type selected ( e.g., (A) How the Government identified the additional risks ( e.g., (B) The nature of the additional risks ( e.g., (C) How the Government will manage and mitigate the risks. (iii) Discuss the Government resources necessary to properly plan for, award, and administer the contract type selected ( e.g., (iv) For other than a firm-fixed price contract, at a minimum the documentation should include— (A) An analysis of why the use of other than a firm-fixed-price contract ( e.g., (B) Rationale that detail the particular facts and circumstances ( e.g., (C) An assessment regarding the adequacy of Government resources that are necessary to properly plan for, award, and administer other than firm-fixed-price contracts; and (D) A discussion of the actions planned to minimize the use of other than firm-fixed-price contracts on future acquisitions for the same requirement and to transition to firm-fixed-price contracts to the maximum extent practicable. (v) A discussion of why a level-of-effort, price redetermination, or fee provision was included. (2) Exceptions to the requirements at (d)(1) of this section are— (i) Fixed-price acquisitions made under simplified acquisition procedures; (ii) Contracts on a firm-fixed-price basis other than those for major systems or research and development; and (iii) Awards on the set-aside portion of sealed bid partial set-asides for small business. [48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 54 FR 5054, Jan. 31, 1989; 60 FR 34756, July 3, 1995; 60 FR 48260, Sept. 18, 1995; 61 FR 39198, July 26, 1996; 76 FR 14546, Mar. 16, 2011; 77 FR 12927, Mar. 2, 2012; 79 FR 70348, Nov. 25, 2014] 16.104 Factors in selecting contract types. There are many factors that the contracting officer should consider in selecting and negotiating the contract type. They include the following: (a) Price competition. (b) Price analysis. (c) Cost analysis. (d) Type and complexity of the requirement. (e) Combining contract types. (f) Urgency of the requirement. (g) Period of performance or length of production run. (h) Contractor's technical capability and financial responsibility. (i) Adequacy of the contractor's accounting system. (1) When the contract type requires price revision while performance is in progress; or (2) When a cost-reimbursement contract is being considered and all current or past experience with the contractor has been on a fixed-price basis. See (j) Concurrent contracts. (k) Extent and nature of proposed subcontracting. (l) Acquisition history. [48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 62 FR 44814, Aug. 22, 1997; 62 FR 51270, Sept. 30, 1997; 76 FR 14547, Mar. 16, 2011] 16.105 Solicitation provision. The contracting officer shall complete and insert the provision at 52.216-1, Type of Contract, in a solicitation unless it is for— (a) A fixed-price acquisition made under simplified acquisition procedures; or (b) Information or planning purposes. [60 FR 34756, July 3, 1995, as amended at 61 FR 39198, July 26, 1996] Subpart 16.2—Fixed-Price Contracts 16.201 General. (a) Fixed-price types of contracts provide for a firm price or, in appropriate cases, an adjustable price. Fixed-price contracts providing for an adjustable price may include a ceiling price, a target price (including target cost), or both. Unless otherwise specified in the contract, the ceiling price or target price is subject to adjustment only by operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances. The contracting officer shall use firm-fixed-price or fixed-price with economic price adjustment contracts when acquiring commercial products and commercial services, except as provided in 12.207(b). (b) Time-and-materials contracts and labor-hour contracts are not fixed-price contracts. [77 FR 197, Jan. 3, 2012, as amended at 86 FR 61027, Nov. 4, 2021] 16.202 Firm-fixed-price contracts. 16.202-1 Description. A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor's cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss. It provides maximum incentive for the contractor to control costs and perform effectively and imposes a minimum administrative burden upon the contracting parties. The contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives. [48 FR 42219, Sept. 19, 1983, as amended at 68 FR 13201, Mar. 18, 2003] 16.202-2 Application. A firm-fixed-price contract is suitable for acquiring commercial products or commercial services (see parts 2 and 12) or for acquiring other supplies or services on the basis of reasonably definite functional or detailed specifications (see part 11) when the contracting officer can establish fair and reasonable prices at the outset, such as when— (a) There is adequate price competition; (b) There are reasonable price comparisons with prior purchases of the same or similar supplies or services made on a competitive basis or supported by valid certified cost or pricing data; (c) Available cost or pricing information permits realistic estimates of the probable costs of performance; or (d) Performance uncertainties can be identified and reasonable estimates of their cost impact can be made, and the contractor is willing to accept a firm fixed price representing assumption of the risks involved. [48 FR 42219, Sept. 19, 1983, as amended at 60 FR 48248, Sept. 18, 1995; 75 FR 53148, Aug. 30, 2010; 86 FR 61027, Nov. 4, 2021] 16.203 Fixed-price contracts with economic price adjustment. 16.203-1 Description. (a) A fixed-price contract with economic price adjustment provides for upward and downward revision of the stated contract price upon the occurrence of specified contingencies. Economic price adjustments are of three general types: (1) Adjustments based on established prices. (2) Adjustments based on actual costs of labor or material. (3) Adjustments based on cost indexes of labor or material. (b) The contracting officer may use a fixed-price contract with economic price adjustment in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains fixed-price with economic price adjustment when used with these incentives. [48 FR 42219, Sept. 19, 1983, as amended at 68 FR 13201, Mar. 18, 2003] 16.203-2 Application. A fixed-price contract with economic price adjustment may be used when (i) there is serious doubt concerning the stability of market or labor conditions that will exist during an extended period of contract performance, and (ii) contingencies that would otherwise be included in the contract price can be identified and covered separately in the contract. Price adjustments based on established prices should normally be restricted to industry-wide contingencies. Price adjustments based on labor and material costs should be limited to contingencies beyond the contractor's control. For use of economic price adjustment in sealed bid contracts, see 14.408-4. (a) In establishing the base level from which adjustment will be made, the contracting officer shall ensure that contingency allowances are not duplicated by inclusion in both the base price and the adjustment requested by the contractor under economic price adjustment clause. (b) In contracts that do not require submission of certified cost or pricing data, the contracting officer shall obtain adequate data to establish the base level from which adjustment will be made and may require verification of data submitted. [48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 60 FR 34739, July 3, 1995; 75 FR 53148, Aug. 30, 2010] 16.203-3 Limitations. A fixed-price contract with economic price adjustment shall not be used unless the contracting officer determines that it is necessary either to protect the contractor and the Government against significant fluctuations in labor or material costs or to provide for contract price adjustment in the event of changes in the contractor's established prices. 16.203-4 Contract clauses. (a) Adjustment based on established prices—standard supplies. (i) A fixed-price contract is contemplated. (ii) The requirement is for standard supplies that have an established catalog or market price. (iii) The contracting officer has made the determination specified in 16.203-3. (2) If all the conditions in subparagraph (a)(1) above apply and the contracting officer determines that the use of the clause at 52.216-2 is inappropriate, the contracting officer may use an agency-prescribed clause instead of the clause at 52.216-2. (3) If the negotiated unit price reflects a net price after applying a trade discount from a catalog or list price, the contracting officer shall document in the contract file both the catalog or list price and the discount. (This does not apply to prompt payment or cash discounts.) (4) The contracting officer may modify the clause by increasing the 10 percent limit on aggregate increases specified in 52.216-2(c)(1), upon approval by the chief of the contracting office. (b) Adjustment based on established prices—semistandard supplies. (i) A fixed price contract is contemplated. (ii) The requirement is for semistandard supplies for which the prices can be reasonably related to the prices of nearly equivalent standard supplies that have an established catalog or market price. (iii) The contracting officer has made the determination specified in 16.203-3. (2) If all conditions in subparagraph (b)(1) above apply and the contracting officer determines that the use of the clause at 52.216-3 is inappropriate, the contracting officer may use an agency-prescribed clause instead of the clause at 52.216-3. (3) If the negotiated unit price reflects a net price after applying a trade discount from a catalog or list price, the contracting officer shall document in the contract file both the catalog or list price and the discount. (This does not apply to prompt payment or cash discounts.) (4) Before entering into the contract, the contracting officer and contractor must agree in writing on the identity of the standard supplies and the corresponding line items to which the clause applies. (5) If the supplies are standard, except for preservation, packaging, and packing requirements, the clause prescribed in 16.203-4(a), shall be used rather than this clause. (6) The contracting officer may modify the clause by increasing the 10 percent limit on aggregate increases specified in 52.216-3(c)(1), upon approval by the chief of the contracting office. (c) Adjustments based on actual cost of labor or material. (i) A fixed-price contract is contemplated. (ii) There is no major element of design engineering or development work involved. (iii) One or more identifiable labor or material cost factors are subject to change. (iv) The contracting officer has made the determination specified in 16.203-3. (2) If all conditions in subparagraph (c)(1) above apply and the contracting officer determines that the use of the clause at 52.216-4 is inappropriate, the contracting officer may use an agency-prescribed clause instead of the clause at 52.216-4. (3) The contracting officer shall describe in detail in the contract Schedule— (i) The types of labor and materials subject to adjustment under the clause; (ii) The labor rates, including fringe benefits (if any) and unit prices of materials that may be increased or decreased; and (iii) The quantities of the specified labor and materials allocable to each unit to be delivered under the contract. (4) In negotiating adjustments under the clause, the contracting officer shall— (i) Consider work in process and materials on hand at the time of changes in labor rates, including fringe benefits (if any) or material prices; (ii) Not include in adjustments any indirect cost (except fringe benefits as defined in 31.205-6(m)) or profit; and (iii) Consider only those fringe benefits specified in the contract Schedule. (5) The contracting officer may modify the clause by increasing the 10 percent limit on aggregate increases specified in 52.216-4(c)(4), upon approval by the chief of the contracting office. (d) Adjustments based on cost indexes of labor or material. (1) A clause providing adjustment based on cost indexes of labor or materials may be appropriate when— (i) The contract involves an extended period of performance with significant costs to be incurred beyond 1 year after performance begins; (ii) The contract amount subject to adjustment is substantial; and (iii) The economic variables for labor and materials are too unstable to permit a reasonable division of risk between the Government and the contractor, without this type of clause. (2) Any clause using this method shall be prepared and approved under agency procedures. Because of the variations in circumstances and clause wording that may arise, no standard clause is prescribed. [48 FR 42219, Sept. 19, 1983, as amended at 52 FR 19803, May 27, 1987; 60 FR 48217, Sept. 18, 1995; 62 FR 259, Jan. 2, 1997; 82 FR 4714, Jan. 13, 2017; 86 FR 61027, Nov. 4, 2021] 16.204 Fixed-price incentive contracts. A fixed-price incentive contract is a fixed-price contract that provides for adjusting profit and establishing the final contract price by a formula based on the relationship of final negotiated total cost to total target cost. Fixed-price incentive contracts are covered in subpart 16.4, Incentive Contracts. See 16.403 for more complete descriptions, application, and limitations for these contracts. Prescribed clauses are found at 16.406. [48 FR 42219, Sept. 19, 1983, as amended at 59 FR 11387, Mar. 10, 1994; 62 FR 12695, Mar. 17, 1997] 16.205 Fixed-price contracts with prospective price redetermination. 16.205-1 Description. A fixed-price contract with prospective price redetermination provides for (a) a firm fixed price for an initial period of contract deliveries or performance and (b) prospective redetermination, at a stated time or times during performance, of the price for subsequent periods of performance. 16.205-2 Application. A fixed-price contract with prospective price redetermination may be used in acquisitions of quantity production or services for which it is possible to negotiate a fair and reasonable firm fixed price for an initial period, but not for subsequent periods of contract performance. (a) The initial period should be the longest period for which it is possible to negotiate a fair and reasonable firm fixed price. Each subsequent pricing period should be at least 12 months. (b) The contract may provide for a ceiling price based on evaluation of the uncertainties involved in performance and their possible cost impact. This ceiling price should provide for assumption of a reasonable proportion of the risk by the contractor and, once established, may be adjusted only by operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances. 16.205-3 Limitations. This contract type shall not be used unless— (a) Negotiations have established that (1) the conditions for use of a firm-fixed-price contract are not present (see 16.202-2), and (2) a fixed-price incentive contract would not be more appropriate; (b) The contractor's accounting system is adequate for price redetermination; (c) The prospective pricing periods can be made to conform with operation of the contractor's accounting system; and (d) There is reasonable assurance that price redetermination actions will take place promptly at the specified times. 16.205-4 Contract clause. The contracting officer shall, when contracting by negotiation, insert the clause at 52.216-5, Price Redetermination—Prospective, in solicitations and contracts when a fixed-price contract is contemplated and the conditions specified in 16.205-2 and 16.205-3(a) through (d) apply. 16.206 Fixed-ceiling-price contracts with retroactive price redetermination. 16.206-1 Description. A fixed-ceiling-price contract with retroactive price redetermination provides for (a) a fixed ceiling price and (b) retroactive price redetermination within the ceiling after completion of the contract. 16.206-2 Application. A fixed-ceiling-price contract with retroactive price redetermination is appropriate for research and development contracts estimated at the simplified acquisition threshold or less when it is established at the outset that a fair and reasonable firm fixed price cannot be negotiated and that the amount involved and short performance period make the use of any other fixed-price contract type impracticable. (a) A ceiling price shall be negotiated for the contract at a level that reflects a reasonable sharing of risk by the contractor. The established ceiling price may be adjusted only if required by the operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances. (b) The contract should be awarded only after negotiation of a billing price that is as fair and reasonable as the circumstances permit. (c) Since this contract type provides the contractor no cost control incentive except the ceiling price, the contracting officer should make clear to the contractor during discussion before award that the contractor's management effectiveness and ingenuity will be considered in retroactively redetermining the price. [48 FR 42219, Sept. 19, 1983, as amended at 75 FR 53133, Aug. 30, 2010; 85 FR 40067, July 2, 2020] 16.206-3 Limitations. This contract type shall not be used unless— (a) The contract is for research and development and the estimated cost is the simplified acquisition threshold or less; (b) The contractor's accounting system is adequate for price redetermination; (c) There is reasonable assurance that the price redetermination will take place promptly at the specified time; and (d) The head of the contracting activity (or a higher-level official, if required by agency procedures) approves its use in writing. [48 FR 42219, Sept. 19, 1983, as amended at 75 FR 53133, Aug. 30, 2010; 85 FR 40067, July 2, 2020] 16.206-4 Contract clause. The contracting officer shall, when contracting by negotiation, insert the clause at 52.216-6, Price Redetermination—Retroactive, in solicitations and contracts when a fixed-price contract is contemplated and the conditions in 16.206-2 and 16.206-3(a) through (d) apply. 16.207 Firm-fixed-price, level-of-effort term contracts. 16.207-1 Description. A firm-fixed-price, level-of-effort term contract requires (a) the contractor to provide a specified level of effort, over a stated period of time, on work that can be stated only in general terms and (b) the Government to pay the contractor a fixed dollar amount. 16.207-2 Application. A firm-fixed-price, level-of-effort term contract is suitable for investigation or study in a specific research and development area. The product of the contract is usually a report showing the results achieved through application of the required level of effort. However, payment is based on the effort expended rather than on the results achieved. 16.207-3 Limitations. This contract type may be used only when— (a) The work required cannot otherwise be clearly defined; (b) The required level of effort is identified and agreed upon in advance; (c) There is reasonable assurance that the intended result cannot be achieved by expending less than the stipulated effort; and (d) The contract price is the simplified acquisition threshold or less, unless approved by the chief of the contracting office. [48 FR 42219, Sept. 19, 1983, as amended at 75 FR 53133, Aug. 30, 2010; 85 FR 40067, July 2, 2020] Subpart 16.3—Cost-Reimbursement Contracts 16.301 General. 16.301-1 Description. Cost-reimbursement types of contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract. These contracts establish an estimate of total cost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed (except at its own risk) without the approval of the contracting officer. 16.301-2 Application. (a) The contracting officer shall use cost-reimbursement contracts only when— (1) Circumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract ( see (2) Uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy to use any type of fixed-price contract. (b) The contracting officer shall document the rationale for selecting the contract type in the written acquisition plan and ensure that the plan is approved and signed at least one level above the contracting officer ( see See also [76 FR 14547, Mar. 16, 2011, as amended at 77 FR 12927, Mar. 2, 2012] 16.301-3 Limitations. (a) A cost-reimbursement contract may be used only when— (1) The factors in 16.104 have been considered; (2) A written acquisition plan has been approved and signed at least one level above the contracting officer; (3) The contractor's accounting system is adequate for determining costs applicable to the contract or order; and (4) Prior to award of the contract or order, adequate Government resources are available to award and manage a contract other than firm-fixed-priced (see 7.104(e)). This includes appropriate Government surveillance during performance in accordance with 1.602-2, to provide reasonable assurance that efficient methods and effective cost controls are used. (b) The use of cost-reimbursement contracts is prohibited for the acquisition of commercial products and commercial services (see parts 2 and 12). [48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 59 FR 64785, Dec. 15, 1994; 60 FR 48248, Sept. 18, 1995; 63 FR 34073, June 22, 1998; 76 FR 14547, Mar. 16, 2011; 77 FR 12927, Mar. 2, 2012; 77 FR 44066, July 26, 2012; 86 FR 61027, Nov. 4, 2021] 16.302 Cost contracts. (a) Description. (b) Application. (c) Limitations. [48 FR 42219, Sept. 19, 1983, as amended at 72 FR 27384, May 15, 2007] 16.303 Cost-sharing contracts. (a) Description. (b) Application. (c) Limitations. 16.304 Cost-plus-incentive-fee contracts. A cost-plus-incentive-fee contract is a cost-reimbursement contract that provides for an initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs. Cost-plus-incentive-fee contracts are covered in subpart 16.4, Incentive Contracts. See 16.405-1 for a more complete description and discussion of application of these contracts. See 16.301-3 for limitations. [48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12695, Mar. 17, 1997] 16.305 Cost-plus-award-fee contracts. A cost-plus-award-fee contract is a cost-reimbursement contract that provides for a fee consisting of (a) a base amount (which may be zero) fixed at inception of the contract and (b) an award amount, based upon a judgmental evaluation by the Government, sufficient to provide motivation for excellence in contract performance. Cost-plus-award-fee contracts are covered in subpart 16.4, Incentive Contracts. See 16.401(e) for a more complete description and discussion of the application of these contracts. See 16.301-3 and 16.401(e)(5) for limitations. [48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12695, Mar. 17, 1997; 74 FR 52858, Oct. 14, 2009] 16.306 Cost-plus-fixed-fee contracts. (a) Description. (b) Application. (i) The contract is for the performance of research or preliminary exploration or study, and the level of effort required is unknown; or (ii) The contract is for development and test, and using a cost-plus- incentive-fee contract is not practical. (2) A cost-plus-fixed-fee contract normally should not be used in development of major systems (see part 34) once preliminary exploration, studies, and risk reduction have indicated a high degree of probability that the development is achievable and the Government has established reasonably firm performance objectives and schedules. (c) Limitations. (d) Completion and term forms. (1) The completion form describes the scope of work by stating a definite goal or target and specifying an end product. This form of contract normally requires the contractor to complete and deliver the specified end product (e.g., a final report of research accomplishing the goal or target) within the estimated cost, if possible, as a condition for payment of the entire fixed fee. However, in the event the work cannot be completed within the estimated cost, the Government may require more effort without increase in fee, provided the Government increases the estimated cost. (2) The term form describes the scope of work in general terms and obligates the contractor to devote a specified level of effort for a stated time period. Under this form, if the performance is considered satisfactory by the Government, the fixed fee is payable at the expiration of the agreed-upon period, upon contractor statement that the level of effort specified in the contract has been expended in performing the contract work. Renewal for further periods of performance is a new acquisition that involves new cost and fee arrangements. (3) Because of the differences in obligation assumed by the contractor, the completion form is preferred over the term form whenever the work, or specific milestones for the work, can be defined well enough to permit development of estimates within which the contractor can be expected to complete the work. (4) The term form shall not be used unless the contractor is obligated by the contract to provide a specific level of effort within a definite time period. [48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 60 FR 37777, July 21, 1995; 62 FR 236, Jan. 2, 1997; 63 FR 34073, June 22, 1998] 16.307 Contract clauses. (a)(1) The contracting officer shall insert the clause at 52.216-7, Allowable Cost and Payment, in solicitations and contracts when a cost-reimbursement contract or a time-and-materials contract (other than a contract for a commercial product or commercial service) is contemplated. If the contract is a time-and-materials contract, the clause at 52.216-7 applies in conjunction with the clause at 52.232-7, but only to the portion of the contract that provides for reimbursement of materials (as defined in the clause at 52.232-7) at actual cost. Further, the clause at 52.216-7 does not apply to labor-hour contracts. (2) If the contract is a construction contract and contains the clause at 52.232-27, Prompt Payment for Construction Contracts, the contracting officer shall use the clause at 52.216-7 with its Alternate I. (3) If the contract is with an educational institution, the contracting officer shall use the clause at 52.216-7 with its Alternate II. (4) If the contract is with a State or local government, the contracting officer shall use the clause at 52.216-7 with its Alternate III. (5) If the contract is with a nonprofit organization other than an educational institution, a State or local government, or a nonprofit organization exempted under the OMB Uniform Guidance at 2 CFR part 200, appendix VIII, the contracting officer shall use the clause at 52.216-7 with its Alternate IV. (b) The contracting officer shall insert the clause at 52.216-8, Fixed Fee, in solicitations and contracts when a cost-plus-fixed-fee contract (other than a construction contract) is contemplated. (c) The contracting officer shall insert the clause at 52.216-9, Fixed-Fee—Construction, in solicitations and contracts when a cost-plus-fixed-fee construction contract is contemplated. (d) The contracting officer shall insert the clause at 52.216-10, Incentive Fee, in solicitations and contracts when a cost-plus-incentive-fee contract is contemplated. (e)(1) The contracting officer shall insert the clause at 52.216-11, Cost Contract—No Fee, in solicitations and contracts when a cost-reimbursement contract is contemplated that provides no fee and is not a cost-sharing contract. (2) If a cost-reimbursement research and development contract with an educational institution or a nonprofit organization that provides no fee or other payment above cost and is not a cost-sharing contract is contemplated, and if the contracting officer determines that withholding of a portion of allowable costs is not required, the contracting officer shall use the clause with its Alternate I. (f)(1) The contracting officer shall insert the clause at 52.216-12, Cost-Sharing Contract—No Fee, in solicitations and contracts when a cost-sharing contract is contemplated. (2) If a cost-sharing research and development contract with an educational institution or a nonprofit organization is contemplated, and if the contracting officer determines that withholding of a portion of allowable costs is not required, the contracting officer shall use the clause with its Alternate I. (g) The contracting officer shall insert the clause at 52.216-15, Predetermined Indirect Cost Rates, in solicitations and contracts when a cost-reimbursement research and development contract with an educational institution (see 42.705-3(b)) is contemplated and predetermined indirect cost rates are to be used. [48 FR 42219, Sept. 19, 1983, as amended at 50 FR 23606, June 4, 1985; 61 FR 31622, June 20, 1996; 61 FR 67419, Dec. 20, 1996; 71 FR 74664, Dec. 12, 2006; 72 FR 27384, May 15, 2007; 77 FR 44061, July 26, 2012; 81 FR 45852, July 14, 2016; 86 FR 61027, Nov. 4, 2021] Subpart 16.4—Incentive Contracts 16.401 General. (a) Incentive contracts as described in this subpart are appropriate when a firm-fixed-price contract is not appropriate and the required supplies or services can be acquired at lower costs and, in certain instances, with improved delivery or technical performance, by relating the amount of profit or fee payable under the contract to the contractor's performance. Incentive contracts are designed to obtain specific acquisition objectives by— (1) Establishing reasonable and attainable targets that are clearly communicated to the contractor; and (2) Including appropriate incentive arrangements designed to (i) motivate contractor efforts that might not otherwise be emphasized and (ii) discourage contractor inefficiency and waste. (b) When predetermined, formula-type incentives on technical performance or delivery are included, increases in profit or fee are provided only for achievement that surpasses the targets, and decreases are provided for to the extent that such targets are not met. The incentive increases or decreases are applied to performance targets rather than minimum performance requirements. (c) The two basic categories of incentive contracts are fixed-price incentive contracts (see 16.403 and 16.404) and cost-reimbursement incentive contracts (see 16.405). Since it is usually to the Government's advantage for the contractor to assume substantial cost responsibility and an appropriate share of the cost risk, fixed-price incentive contracts are preferred when contract costs and performance requirements are reasonably certain. Cost-reimbursement incentive contracts are subject to the overall limitations in 16.301 that apply to all cost-reimbursement contracts. (d) A determination and finding, signed by the head of the contracting activity, shall be completed for all incentive- and award-fee contracts justifying that the use of this type of contract is in the best interest of the Government. This determination shall be documented in the contract file and, for award-fee contracts, shall address all of the suitability items in 16.401(e)(1). (e) Award-fee contracts are a type of incentive contract. (1) Application. (i) The work to be performed is such that it is neither feasible nor effective to devise predetermined objective incentive targets applicable to cost, schedule, and technical performance; (ii) The likelihood of meeting acquisition objectives will be enhanced by using a contract that effectively motivates the contractor toward exceptional performance and provides the Government with the flexibility to evaluate both actual performance and the conditions under which it was achieved; and (iii) Any additional administrative effort and cost required to monitor and evaluate performance are justified by the expected benefits as documented by a risk and cost benefit analysis to be included in the Determination and Findings referenced in 16.401(e)(5)(iii). (2) Award-fee amount. (3) Award-fee plan. (i) Be approved by the FDO unless otherwise authorized by agency procedures; (ii) Identify the award-fee evaluation criteria and how they are linked to acquisition objectives which shall be defined in terms of contract cost, schedule, and technical performance. Criteria should motivate the contractor to enhance performance in the areas rated, but not at the expense of at least minimum acceptable performance in all other areas; (iii) Describe how the contractor's performance will be measured against the award-fee evaluation criteria; (iv) Utilize the adjectival rating and associated description as well as the award-fee pool earned percentages shown below in Table 16-1. Contracting officers may supplement the adjectival rating description. The method used to determine the adjectival rating must be documented in the award-fee plan; Table 16-1 Award-Fee Adjectival Rating Award-Fee Pool Available To Be Earned Description Excellent 91%—100% Contractor has exceeded almost all of the significant award-fee criteria and has met overall cost, schedule, and technical performance requirements of the contract in the aggregate as defined and measured against the criteria in the award-fee plan for the award-fee evaluation period. Very Good 76%—90% Contractor has exceeded many of the significant award-fee criteria and has met overall cost, schedule, and technical performance requirements of the contract in the aggregate as defined and measured against the criteria in the award-fee plan for the award-fee evaluation period. Good 51%—75% Contractor has exceeded some of the significant award-fee criteria and has met overall cost, schedule, and technical performance requirements of the contract in the aggregate as defined and measured against the criteria in the award-fee plan for the award-fee evaluation period. Satisfactory No Greater Than 50% Contractor has met overall cost, schedule, and technical performance requirements of the contract in the aggregate as defined and measured against the criteria in the award-fee plan for the award-fee evaluation period. Unsatisfactory 0% Contractor has failed to meet overall cost, schedule, and technical performance requirements of the contract in the aggregate as defined and measured against the criteria in the award-fee plan for the award-fee evaluation period. (v) Prohibit earning any award fee when a contractor's overall cost, schedule, and technical performance in the aggregate is below satisfactory; (vi) Provide for evaluation period(s) to be conducted at stated intervals during the contract period of performance so that the contractor will periodically be informed of the quality of its performance and the areas in which improvement is expected ( e.g. (vii) Define the total award-fee pool amount and how this amount is allocated across each evaluation period. (4) Rollover of unearned award fee. (5) Limitations. (i) All of the limitations in 16.301-3, that are applicable to cost-reimbursement contracts only, are complied with; (ii) An award-fee plan is completed in accordance with the requirements in 16.401(e)(3); and (iii) A determination and finding is completed in accordance with 16.401(d) addressing all of the suitability items in 16.401(e)(1). (f) Incentive- and Award-Fee Data Collection and Analysis. (g) Incentive- and Award-Fee Best Practices. [48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12695, Mar. 17, 1997; 74 FR 52858, Oct. 14, 2009; 75 FR 60263, Sept. 29, 2010] 16.402 Application of predetermined, formula-type incentives. 16.402-1 Cost incentives. (a) Most incentive contracts include only cost incentives, which take the form of a profit or fee adjustment formula and are intended to motivate the contractor to effectively manage costs. No incentive contract may provide for other incentives without also providing a cost incentive (or constraint). (b) Except for award-fee contracts (see 16.404 and 16.401 (e)), incentive contracts include a target cost, a target profit or fee, and a profit or fee adjustment formula that (within the constraints of a price ceiling or minimum and maximum fee) provides that— (1) Actual cost that meets the target will result in the target profit or fee; (2) Actual cost that exceeds the target will result in downward adjustment of target profit or fee; and (3) Actual cost that is below the target will result in upward adjustment of target profit or fee. [48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12696, Mar. 17, 1997; 62 FR 51379, Oct. 1, 1997; 74 FR 52859, Oct. 14, 2009] 16.402-2 Performance incentives. (a) Performance incentives may be considered in connection with specific product characteristics (e.g., a missile range, an aircraft speed, an engine thrust, or a vehicle maneuverability) or other specific elements of the contractor's performance. These incentives should be designed to relate profit or fee to results achieved by the contractor, compared with specified targets. (b) To the maximum extent practicable, positive and negative performance incentives shall be considered in connection with service contracts for performance of objectively measurable tasks when quality of performance is critical and incentives are likely to motivate the contractor. (c) Technical performance incentives may be particularly appropriate in major systems contracts, both in development (when performance objectives are known and the fabrication of prototypes for test and evaluation is required) and in production (if improved performance is attainable and highly desirable to the Government). (d) Technical performance incentives may involve a variety of specific characteristics that contribute to the overall performance of the end item. Accordingly, the incentives on individual technical characteristics must be balanced so that no one of them is exaggerated to the detriment of the overall performance of the end item. (e) Performance tests and/or assessments of work performance are generally essential in order to determine the degree of attainment of performance targets. Therefore, the contract must be as specific as possible in establishing test criteria (such as testing conditions, instrumentation precision, and data interpretation) and performance standards (such as the quality levels of services to be provided). (f) Because performance incentives present complex problems in contract administration, the contracting officer should negotiate them in full coordination with Government engineering and pricing specialists. (g) It is essential that the Government and contractor agree explicitly on the effect that contract changes (e.g., pursuant to the Changes clause) will have on performance incentives. (h) The contracting officer must exercise care, in establishing performance criteria, to recognize that the contractor should not be rewarded or penalized for attainments of Government-furnished components. [48 FR 42219, Sept. 19, 1983, as amended at 62 FR 44815, Aug. 22, 1997] 16.402-3 Delivery incentives. (a) Delivery incentives should be considered when improvement from a required delivery schedule is a significant Government objective. It is important to determine the Government's primary objectives in a given contract (e.g., earliest possible delivery or earliest quantity production). (b) Incentive arrangements on delivery should specify the application of the reward-penalty structure in the event of Government-caused delays or other delays beyond the control, and without the fault or negligence, of the contractor or subcontractor. 16.402-4 Structuring multiple-incentive contracts. A properly structured multiple-incentive arrangement should— (a) Motivate the contractor to strive for outstanding results in all incentive areas; and (b) Compel trade-off decisions among the incentive areas, consistent with the Government's overall objectives for the acquisition. Because of the interdependency of the Government's cost, the technical performance, and the delivery goals, a contract that emphasizes only one of the goals may jeopardize control over the others. Because outstanding results may not be attainable for each of the incentive areas, all multiple-incentive contracts must include a cost incentive (or constraint) that operates to preclude rewarding a contractor for superior technical performance or delivery results when the cost of those results outweighs their value to the Government. 16.403 Fixed-price incentive contracts. (a) Description. (b) Application. (1) A firm-fixed-price contract is not suitable; (2) The nature of the supplies or services being acquired and other circumstances of the acquisition are such that the contractor's assumption of a degree of cost responsibility will provide a positive profit incentive for effective cost control and performance; and (3) If the contract also includes incentives on technical performance and/or delivery, the performance requirements provide a reasonable opportunity for the incentives to have a meaningful impact on the contractor's management of the work. (c) Billing prices. [48 FR 42219, Sept. 19, 1983, as amended at 59 FR 64785, Dec. 15, 1994] 16.403-1 Fixed-price incentive (firm target) contracts. (a) Description. (b) Application. (c) Limitations. (1) The contractor's accounting system is adequate for providing data to support negotiation of final cost and incentive price revision; and (2) Adequate cost or pricing information for establishing reasonable firm targets is available at the time of initial contract negotiation. (d) Contract Schedule. [48 FR 42219, Sept. 19, 1983, as amended at 59 FR 64785, Dec. 15, 1994] 16.403-2 Fixed-price incentive (successive targets) contracts. (a) Description. (i) An initial target cost. (ii) An initial target profit. (iii) An initial profit adjustment formula to be used for establishing the firm target profit, including a ceiling and floor for the firm target profit. (This formula normally provides for a lesser degree of contractor cost responsibility than would a formula for establishing final profit and price.) (iv) The production point at which the firm target cost and firm target profit will be negotiated (usually before delivery or shop completion of the first item). (v) A ceiling price that is the maximum that may be paid to the contractor, except for any adjustment under other contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances. (2) When the production point specified in the contract is reached, the parties negotiate the firm target cost, giving consideration to cost experience under the contract and other pertinent factors. The firm target profit is established by the formula. At this point, the parties have two alternatives, as follows: (i) They may negotiate a firm fixed price, using the firm target cost plus the firm target profit as a guide. (ii) If negotiation of a firm fixed price is inappropriate, they may negotiate a formula for establishing the final price using the firm target cost and firm target profit. The final cost is then negotiated at completion, and the final profit is established by formula, as under the fixed-price incentive (firm target) contract (see 16.403-1 above). (b) Application. (1) Available cost or pricing information is not sufficient to permit the negotiation of a realistic firm target cost and profit before award; (2) Sufficient information is available to permit negotiation of initial targets; and (3) There is reasonable assurance that additional reliable information will be available at an early point in the contract performance so as to permit negotiation of either (i) a firm fixed price or (ii) firm targets and a formula for establishing final profit and price that will provide a fair and reasonable incentive. This additional information is not limited to experience under the contract, itself, but may be drawn from other contracts for the same or similar items. (c) Limitations. (1) The contractor's accounting system is adequate for providing data for negotiating firm targets and a realistic profit adjustment formula, as well as later negotiation of final costs; and (2) Cost or pricing information adequate for establishing a reasonable firm target cost is reasonably expected to be available at an early point in contract performance. (d) Contract Schedule. [48 FR 42219, Sept. 19, 1983, as amended at 59 FR 64785, Dec. 15, 1994] 16.404 Fixed-price contracts with award fees. Award-fee provisions may be used in fixed-price contracts when the Government wishes to motivate a contractor and other incentives cannot be used because contractor performance cannot be measured objectively. Such contracts shall establish a fixed price (including normal profit) for the effort. This price will be paid for satisfactory contract performance. Award fee earned (if any) will be paid in addition to that fixed price. See 16.401(e) for the requirements relative to utilizing this contract type. [74 FR 52859, Oct. 14, 2009] 16.405 Cost-reimbursement incentive contracts. See 16.301 for requirements applicable to all cost-reimbursement contracts, for use in conjunction with the following subsections. [48 FR 42219, Sept. 19, 1983. Redesignated at 62 FR 12696, Mar. 17, 1997] 16.405-1 Cost-plus-incentive-fee contracts. (a) Description. (b) Application. (i) A cost-reimbursement contract is necessary (see 16.301-2) and (ii) A target cost and a fee adjustment formula can be negotiated that are likely to motivate the contractor to manage effectively. (2) The contract may include technical performance incentives when it is highly probable that the required development of a major system is feasible and the Government has established its performance objectives, at least in general terms. This approach may also apply to other acquisitions, if the use of both cost and technical performance incentives is desirable and administratively practical. (3) The fee adjustment formula should provide an incentive that will be effective over the full range of reasonably foreseeable variations from target cost. If a high maximum fee is negotiated, the contract shall also provide for a low minimum fee that may be a zero fee or, in rare cases, a negative fee. (c) Limitations. [48 FR 42219, Sept. 19, 1983. Redesignated at 62 FR 12696, Mar. 17, 1997, as amended at 62 FR 44815, Aug. 22, 1997] 16.405-2 Cost-plus-award-fee contracts. A cost-plus-award-fee contract is a cost-reimbursement contract that provides for a fee consisting of (1) a base amount fixed at inception of the contract, if applicable and at the discretion of the contracting officer, and (2) an award amount that the contractor may earn in whole or in part during performance and that is sufficient to provide motivation for excellence in the areas of cost, schedule, and technical performance. See 16.401(e) for the requirements relative to utilizing this contract type. [74 FR 52859, Oct. 14, 2009] 16.406 Contract clauses. (a) Insert the clause at 52.216-16, Incentive Price Revision—Firm Target, in solicitations and contracts when a fixed-price incentive (firm target) contract is contemplated. If the contract calls for supplies or services to be ordered under a provisioning document or Government option and the prices are to be subject to the incentive price revision under the clause, the contracting officer shall use the clause with its Alternate I. (b) Insert the clause at 52.216-17, Incentive Price Revision—Successive Targets, in solicitations and contracts when a fixed-price incentive (successive targets) contract is contemplated. If the contract calls for supplies or services to be ordered under a provisioning document or Government option and the prices are to be subject to incentive price revision under the clause, the contracting officer shall use the clause with its Alternate I. (c) The clause at 52.216-7, Allowable Cost and Payment, is prescribed in 16.307(a) for insertion in solicitations and contracts when a cost-plus-incentive-fee contract or a cost-plus-award-fee contract is contemplated. (d) The clause at 52.216-10, Incentive Fee, is prescribed in 16.307(d) for insertion in solicitations and contracts when a cost-plus-incentive-fee contract is contemplated. (e) Insert an appropriate award-fee clause in solicitations and contracts when an award-fee contract is contemplated, provided that the clause— (1) Is prescribed by or approved under agency acquisition regulations; (2) Is compatible with the clause at 52.216-7, Allowable Cost and Payment; and (3) Expressly provides that the award amount and the award-fee determination methodology are unilateral decisions made solely at the discretion of the Government. [48 FR 42219, Sept. 19, 1983. Redesignated and amended at 62 FR 12696, Mar. 17, 1997; 64 FR 72449, Dec. 27, 1999] Subpart 16.5—Indefinite-Delivery Contracts 16.500 Scope of subpart. (a) This subpart prescribes policies and procedures for making awards of indefinite-delivery contracts and establishes a preference for making multiple awards of indefinite-quantity contracts. (b) This subpart does not limit the use of other than competitive procedures authorized by part 6. (c) Nothing in this subpart restricts the authority of the General Services Administration (GSA) to enter into schedule, multiple award, or task or delivery order contracts under any other provision of law. Therefore, GSA regulations and the coverage for the Federal Supply Schedule program in subpart 8.4 and part 38 take precedence over this subpart. (d) The statutory multiple award preference implemented by this subpart does not apply to architect-engineer contracts subject to the procedures in subpart 36.6. However, agencies are not precluded from making multiple awards for architect-engineer services using the procedures in this subpart, provided the selection of contractors and placement of orders are consistent with subpart 36.6. (e) See subpart 19.5 for procedures to set aside part or parts of multiple-award contracts for small businesses; to reserve one or more awards for small business on multiple-award contracts; and to set aside orders for small businesses under multiple-award contracts. [65 FR 24318, Apr. 25, 2000, as amended at 85 FR 11757, Feb. 27, 2020] 16.501-1 Definitions. As used in this subpart— Delivery-order contract Task-order contract [60 FR 49725, Sept. 26, 1995, as amended at 65 FR 24318, Apr. 25, 2000; 75 FR 13421, Mar. 19, 2010] 16.501-2 General. (a) There are three types of indefinite-delivery contracts: Definite-quantity contracts, requirements contracts, and indefinite-quantity contracts. The appropriate type of indefinite-delivery contract may be used to acquire supplies and/or services when the exact times and/or exact quantities of future deliveries are not known at the time of contract award. Pursuant to 10 U.S.C. 3401 and 41 U.S.C. 4101, requirements contracts and indefinite-quantity contracts are also known as delivery-order contracts or task-order contracts. (b) The various types of indefinite-delivery contracts offer the following advantages: (1) All three types permit (i) Government stocks to be maintained at minimum levels and (ii) direct shipment to users. (2) Indefinite-quantity contracts and requirements contracts also permit (i) flexibility in both quantities and delivery scheduling and (ii) ordering of supplies or services after requirements materialize. (3) Indefinite-quantity contracts limit the Government's obligation to the minimum quantity specified in the contract. (4) Requirements contracts may permit faster deliveries when production lead time is involved, because contractors are usually willing to maintain limited stocks when the Government will obtain all of its actual purchase requirements from the contractor. (c) Indefinite-delivery contracts may provide for any appropriate cost or pricing arrangement under part 16. Cost or pricing arrangements that provide for an estimated quantity of supplies or services (e.g., estimated number of labor hours) must comply with the appropriate procedures of this subpart. [48 FR 42219, Sept. 19, 1983. Redesignated and amended at 60 FR 49725, Sept. 26, 1995; 75 FR 13421, Mar. 19, 2010; 79 FR 24202, Apr. 29, 2014' 87 FR 73898, Dec. 1, 2022] 16.502 Definite-quantity contracts. (a) Description. (b) Application. [48 FR 42219, Sept. 19, 1983, as amended at 60 FR 49725, Sept. 26, 1995] 16.503 Requirements contracts. (a) Description. (1) For the information of offerors and contractors, the contracting officer shall state a realistic estimated total quantity in the solicitation and resulting contract. This estimate is not a representation to an offeror or contractor that the estimated quantity will be required or ordered, or that conditions affecting requirements will be stable or normal. The contracting officer may obtain the estimate from records of previous requirements and consumption, or by other means, and should base the estimate on the most current information available. (2) The contract shall state, if feasible, the maximum limit of the contractor's obligation to deliver and the Government's obligation to order. The contract may also specify maximum or minimum quantities that the Government may order under each individual order and the maximum that it may order during a specified period of time. (b) Application. (2) No requirements contract in an amount estimated to exceed $150 million (including all options) may be awarded to a single source unless a determination is executed in accordance with 16.504(c)(1)(ii)(D). (c) Government property furnished for repair. estimated maximum (d) Limitations on use of requirements contracts for advisory and assistance services. (2) The limitation in paragraph (d)(1) of this section is not applicable to an acquisition of supplies or services that includes the acquisition of advisory and assistance services, if the contracting officer or other official designated by the head of the agency determines that the advisory and assistance services are necessarily incident to, and not a significant component of, the contract. [48 FR 42219, Sept. 19, 1983, as amended at 56 FR 15150, Apr. 15, 1991; 60 FR 49725, Sept. 26, 1995; 71 FR 57367, Sept. 28, 2006; 73 FR 54010, Sept. 17, 2008; 75 FR 13421, Mar. 19, 2010; 75 FR 53133, Aug. 30, 2010; 80 FR 38297, July 2, 2015; 85 FR 62488, Oct. 2, 2020; 90 FR 41878, Aug. 27, 2025] 16.504 Indefinite-quantity contracts. (a) Description. (1) The contract must require the Government to order and the contractor to furnish at least a stated minimum quantity of supplies or services. In addition, if ordered, the contractor must furnish any additional quantities, not to exceed the stated maximum. The contracting officer should establish a reasonable maximum quantity based on market research, trends on recent contracts for similar supplies or services, survey of potential users, or any other rational basis. (2) To ensure that the contract is binding, the minimum quantity must be more than a nominal quantity, but it should not exceed the amount that the Government is fairly certain to order. (3) The contract may also specify maximum or minimum quantities that the Government may order under each task or delivery order and the maximum that it may order during a specific period of time. (4) A solicitation and contract for an indefinite quantity must— (i) Specify the period of the contract, including the number of options and the period for which the Government may extend the contract under each option; (ii) Specify the total minimum and maximum quantity of supplies or services the Government will acquire under the contract; (iii) Include a statement of work, specifications, or other description, that reasonably describes the general scope, nature, complexity, and purpose of the supplies or services the Government will acquire under the contract in a manner that will enable a prospective offeror to decide whether to submit an offer; (iv) State the procedures that the Government will use in issuing orders, including the ordering media, and, if multiple awards may be made, state the procedures and selection criteria that the Government will use to provide awardees a fair opportunity to be considered for each order (see 16.505(b)(1)); (v) Include a description of the activities authorized to issue orders; and (vi) Include authorization for placing oral orders, if appropriate, provided that the Government has established procedures for obligating funds and that oral orders are confirmed in writing. (b) Application. (c) Multiple award preference Planning the acquisition. (ii)(A) The contracting officer must determine whether multiple awards are appropriate as part of acquisition planning. The contracting officer must avoid situations in which awardees specialize exclusively in one or a few areas within the statement of work, thus creating the likelihood that orders in those areas will be awarded on a sole-source basis; however, each awardee need not be capable of performing every requirement as well as any other awardee under the contracts. The contracting officer should consider the following when determining the number of contracts to be awarded: ( 1 ( 2 ( 3 ( 4 (B) The contracting officer must not use the multiple award approach if— ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 (C) The contracting officer must document the decision whether or not to use multiple awards in the acquisition plan or contract file. The contracting officer may determine that a class of acquisitions is not appropriate for multiple awards (see subpart 1.7). (D)( 1 ( i ( ii ( A ( B ( iii ( iv ( 2 1 iv ( 3 ( i ( ii (2) Contracts for advisory and assistance services. (A) The contracting officer or other official designated by the head of the agency determines in writing, as part of acquisition planning, that multiple awards are not practicable. The contracting officer or other official must determine that only one contractor can reasonably perform the work because either the scope of work is unique or highly specialized or the tasks so integrally related; (B) The contracting officer or other official designated by the head of the agency determines in writing, after the evaluation of offers, that only one offeror is capable of providing the services required at the level of quality required; or (C) Only one offer is received. (ii) The requirements of paragraph (c)(2)(i) of this section do not apply if the contracting officer or other official designated by the head of the agency determines that the advisory and assistance services are incidental and not a significant component of the contract. [65 FR 24318, Apr. 25, 2000, as amended at 71 FR 57367, Sept. 28, 2006; 73 FR 54010, Sept. 17, 2008; 75 FR 13421, Mar. 19, 2010; 75 FR 53133, Aug. 30, 2010; 78 FR 13767, Feb. 28, 2013; 80 FR 38297, July 2, 2015; 84 FR 38838, Aug. 7, 2019; 85 FR 40071, July 2, 2020; 85 FR 62488, Oct. 2, 2020; 90 FR 41878, Aug. 27 2025] 16.505 Ordering. (a) General. (2) Individual orders shall clearly describe all services to be performed or supplies to be delivered so the full cost or price for the performance of the work can be established when the order is placed. Orders shall be within the scope, issued within the period of performance, and be within the maximum value of the contract. (3) Performance-based acquisition methods must be used to the maximum extent practicable, if the contract or order is for services (see 37.102(a) and subpart 37.6). (4) The following requirements apply when procuring items peculiar to one manufacturer: (i) The contracting officer must justify restricting consideration to an item peculiar to one manufacturer ( e.g., (ii) Requirements for use of items peculiar to one manufacturer shall be justified and approved using the format(s) and requirements from paragraphs (b)(2)(ii)(A), (B), and (C) of this section, modified to show the brand-name justification. A justification is required unless a justification covering the requirements in the order was previously approved for the contract in accordance with 6.302-1(c) or unless the base contract is a single-award contract awarded under full and open competition. Justifications for the use of brand-name specifications must be completed and approved at the time the requirement for a brand-name is determined. (iii)(A) For an order in excess of $40,000, the contracting officer shall— ( 1 ( 2 (B) The justifications for brand-name acquisitions may apply to the portion of the acquisition requiring the brand-name item. If the justification is to cover only the portion of the acquisition which is brand-name, then it should so state; the approval level requirements will then only apply to that portion. (C) The requirements in paragraph (a)(4)(iii)(A) of this section do not apply when disclosure would compromise the national security ( e.g., (D) The justification is subject to the screening requirement in paragraph (b)(2)(ii)(D)( 4 (5) When acquiring information technology and related services, consider the use of modular contracting to reduce program risk (see 39.103(a)). (6) Orders may be placed by using any medium specified in the contract. (7) Orders placed under indefinite-delivery contracts must contain the following information: (i) Date of order. (ii) Contract number and order number. (iii) For supplies and services, line item number, subline item number (if applicable), description, quantity, and unit price or estimated cost and fee (as applicable). The corresponding line item number and subline item number from the base contract shall also be included. (iv) Delivery or performance schedule. (v) Place of delivery or performance (including consignee). (vi) Any packaging, packing, and shipping instructions. (vii) Accounting and appropriation data. (viii) Method of payment and payment office, if not specified in the contract (see 32.1110(e)). (ix) North American Industry Classification System code (see 19.102(b)(3)). (8) Orders placed under a task-order contract or delivery-order contract awarded by another agency ( i.e., (i) Are not exempt from the development of acquisition plans (see subpart 7.1), and an information technology acquisition strategy (see part 39); (ii) May not be used to circumvent conditions and limitations imposed on the use of funds ( e.g., (iii) Shall comply with all FAR requirements for a consolidated or bundled contract when the order meets the definition at 2.101 of “consolidation” or “bundling”. (9) In accordance with section 1427(b) of Public Law 108-136 (40 U.S.C. 1103 note), orders placed under multi-agency contracts for services that substantially or to a dominant extent specify performance of architect-engineer services, as defined in 2.101, shall— (i) Be awarded using the procedures at subpart 36.6; and (ii) Require the direct supervision of a professional architect or engineer licensed, registered or certified in the State, Federal District, or outlying area, in which the services are to be performed. (10)(i) No protest under subpart 33.1 is authorized in connection with the issuance or proposed issuance of an order under a task-order contract or delivery-order contract, except— (A) A protest on the grounds that the order increases the scope, period, or maximum value of the contract; or (B)( 1 ( 2 (ii) Protests of orders in excess of the thresholds stated in 16.505(a)(10)(i)(B) may only be filed with the Government Accountability Office, in accordance with the procedures at 33.104. (iii) For protests of small business size status for set-aside orders, see 19.302. (11) Publicize orders funded in whole or in part by the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5) as follows: (i) Notices of proposed orders shall follow the procedures in 5.704 for posting orders. (ii) Award notices for orders shall follow the procedures in 5.705. (12) When using the Governmentwide commercial purchase card as a method of payment, orders at or below the micro-purchase threshold are exempt from verification in the System for Award Management as to whether the contractor has a delinquent debt subject to collection under the Treasury Offset Program (TOP). (b) Orders under multiple-award contracts Fair opportunity. (A) As provided for in paragraph (b)(2) of this section; or (B) Orders issued under 19.504(c)(1)(ii). (ii) The contracting officer may exercise broad discretion in developing appropriate order placement procedures. The contracting officer should keep submission requirements to a minimum. Contracting officers may use streamlined procedures, including oral presentations. If the order does not exceed the simplified acquisition threshold, the contracting officer need not contact each of the multiple awardees under the contract before selecting an order awardee if the contracting officer has information available to ensure that each awardee is provided a fair opportunity to be considered for each order. The competition requirements in part 6 and the policies in subpart 15.3 do not apply to the ordering process. However, the contracting officer shall— (A) Develop placement procedures that will provide each awardee a fair opportunity to be considered for each order and that reflect the requirement and other aspects of the contracting environment; (B) Not use any method (such as allocation or designation of any preferred awardee) that would not result in fair consideration being given to all awardees prior to placing each order; (C) Tailor the procedures to each acquisition; (D) Include the procedures in the solicitation and the contract; (E) Consider price or cost under each order as one of the factors in the selection decision; (F) Except for DoD, ensure the criteria at 15.101-2(c)(1)-(5) are met when using the lowest price technically acceptable source selection process; and (G) Except for DoD, avoid using the lowest price technically acceptable source selection process to acquire certain supplies and services in accordance with 15.101-2(d). (iii) Orders exceeding the simplified acquisition threshold. (B) The contracting officer shall— ( 1 ( 2 (iv) Orders exceeding $7.5 million. (A) A notice of the task or delivery order that includes a clear statement of the agency's requirements; (B) A reasonable response period; (C) Disclosure of the significant factors and subfactors, including cost or price, that the agency expects to consider in evaluating proposals, and their relative importance; (D) Where award is made on a best value basis, a written statement documenting the basis for award and the relative importance of quality and price or cost factors; and (E) An opportunity for a postaward debriefing in accordance with paragraph (b)(6) of this section. (v) The contracting officer should consider the following when developing the procedures: (A)( 1 ( 2 ( 3 ( 4 ( 5 ( i ( ii e.g., e.g., e.g., (B) Formal evaluation plans or scoring of quotes or offers are not required. (2) Exceptions to the fair opportunity process. (A) The agency need for the supplies or services is so urgent that providing a fair opportunity would result in unacceptable delays. (B) Only one awardee is capable of providing the supplies or services required at the level of quality required because the supplies or services ordered are unique or highly specialized. (C) The order must be issued on a sole-source basis in the interest of economy and efficiency because it is a logical follow-on to an order already issued under the contract, provided that all awardees were given a fair opportunity to be considered for the original order. (D) It is necessary to place an order to satisfy a minimum guarantee. (E) For orders exceeding the simplified acquisition threshold, a statute expressly authorizes or requires that the purchase be made from a specified source. (F) In accordance with section 1331 of Public Law 111-240 (15 U.S.C. 644(r)), contracting officers may, at their discretion, set aside orders for any of the small business concerns identified in 19.000(a)(3). When setting aside orders for small business concerns, the specific small business program eligibility requirements identified in part 19 apply. (G) For DoD, NASA, and the Coast Guard, the order satisfies one of the exceptions permitting the use of other than full and open competition listed in 6.302 (10 U.S.C. 3406(c)(5)). The public interest exception shall not be used unless Congress is notified in accordance with 10 U.S.C. 3204(a)(7). (ii) The justification for an exception to fair opportunity shall be in writing as specified in paragraph (b)(2)(ii)(A) or (B) of this section. No justification is needed for the exception described in paragraph (b)(2)(i)(F) of this section. (A) the micro-purchase threshold e.g., (B) Orders exceeding the simplified acquisition threshold. ( 1 ( 2 ( 3 ( 4 see e.g., ( 5 ( 6 ( 7 ( 8 ( 9 e.g., ( 10 (C) Approval. 1 ( 2 3 4 ( 3 ( i ( ii ( A ( B ( iii ( 4 (D) Posting. 1 5 ( i ( ii ( 2 ( i https://www.sam.gov ( ii ( iii ( 3 ( 4 ( 5 ( i e.g., ( ii (3) Pricing orders. (4) Cost reimbursement orders. (5) Time-and-materials or labor-hour orders. (6) Postaward notices and debriefing of awardees for orders exceeding $7.5 million. (i) The procedures at 15.503(b)(1) shall be followed when providing postaward notification to unsuccessful awardees. (ii) The procedures at 15.506 shall be followed when providing postaward debriefing to unsuccessful awardees. (iii) A summary of the debriefing shall be included in the task or delivery order file. (7) Decision documentation for orders. (ii) The contract file shall also identify the basis for using an exception to the fair opportunity process ( see (iii) Except for DoD, the contracting officer shall document in the contract file a justification for use of the lowest price technically acceptable source selection process, when applicable. (8) Task-order and delivery-order ombudsman. (9) Small business. (c) Limitation on ordering period for task-order contracts for advisory and assistance services. (2) The 5-year limitation does not apply when— (i) A longer ordering period is specifically authorized by a statute; or (ii) The contract is for an acquisition of supplies or services that includes the acquisition of advisory and assistance services and the contracting officer, or other official designated by the head of the agency, determines that the advisory and assistance services are incidental and not a significant component of the contract. (3) The contracting officer may extend the contract on a sole-source basis only once for a period not to exceed 6 months if the contracting officer, or other official designated by the head of the agency, determines that— (i) The award of a follow-on contract is delayed by circumstances that were not reasonably foreseeable at the time the initial contract was entered into; and (ii) The extension is necessary to ensure continuity of services, pending the award of the follow-on contract. [65 FR 24319, Apr. 25, 2000] Editorial Note: For Federal Register www.govinfo.gov. 16.506 Solicitation provisions and contract clauses. (a) Insert the clause at 52.216-18, Ordering, in solicitations and contracts when a definite-quantity contract, a requirements contract, or an indefinite-quantity contract is contemplated. (b) Insert a clause substantially the same as the clause at 52.216-19, Order Limitations, in solicitations and contracts when a definite-quantity contract, a requirements contract, or an indefinite-quantity contract is contemplated. (c) Insert the clause at 52.216-20, Definite Quantity, in solicitations and contracts when a definite-quantity contract is contemplated. (d)(1) Insert the clause at 52.216-21, Requirements, in solicitations and contracts when a requirements contract is contemplated. (2) If the contract is for nonpersonal services and related supplies and covers estimated requirements that exceed a specific Government activity's internal capability to produce or perform, use the clause with its Alternate I. (3) If the contract includes subsistence for both Government use and resale in the same Schedule, and similar products may be acquired on a brand-name basis, use the clause with its Alternate II (4) If the contract involves a partial small business set-aside, use the clause with its Alternate III (5) If the contract— (i) Includes subsistence for Government use and resale in the same schedule and similar products may be acquired on a brand-name basis; and (ii) Involves a partial small business set-aside, use the clause with its Alternate IV. (e) Insert the clause at 52.216-22, Indefinite Quantity, in solicitations and contracts when an indefinite-quantity contract is contemplated. (f) Insert the provision at 52.216-27, Single or Multiple Awards, in solicitations for indefinite-quantity contracts that may result in multiple contract awards. Modify the provision to specify the estimated number of awards. Do not use this provision for advisory and assistance services contracts that exceed 3 years and $20 million (including all options). (g) Insert the provision at 52.216-28, Multiple Awards for Advisory and Assistance Services, in solicitations for task-order contracts for advisory and assistance services that exceed 3 years and $20 million (including all options), unless a determination has been made under 16.504(c)(2)(i)(A). Modify the provision to specify the estimated number of awards. (h) See 10.001(d) for insertion of the clause at 52.210-1, Market Research, when the contract is over $7.5 million for the procurement of items other than commercial products or commercial services. (i) See 7.107-6 for use of 52.207-6, Solicitation of Offers from Small Business Concerns and Small Business Teaming Arrangement or Joint Ventures (Multiple-Award Contracts) in solicitations for multiple-award contracts above the substantial bundling threshold of the agency. (j) Insert the clause at 52.216-32, Task-Order and Delivery-Order Ombudsman, in solicitations and contracts when a multiple-award indefinite-delivery indefinite-quantity contract is contemplated. Use the clause with its Alternate I when the contract will be available for use by multiple agencies ( e.g., [48 FR 42219, Sept. 19, 1983; 60 FR 48260, Sept. 18, 1995. Redesignated and amended at 60 FR 49726, 49727, Sept. 26, 1995; 65 FR 24320, Apr. 25, 2000; 71 FR 57367, Sept. 28, 2006; 75 FR 53133, Aug. 30, 2010; 76 FR 14565, Mar. 16, 2011; 80 FR 38298, July 2, 2015; 81 FR 67772, Sept. 30, 2016; 84 FR 38838, Aug. 7, 2019; 85 FR 62489, Oct. 2, 2020; 86 FR 61027, Nov. 4, 2021; 90 FR 41878, Aug. 27, 2025] Subpart 16.6—Time-and-Materials, Labor-Hour, and Letter Contracts 16.600 Scope. Time-and-materials contracts and labor-hour contracts are not fixed-price contracts. [77 FR 197, Jan. 3, 2012] 16.601 Time-and-materials contracts. (a) Definitions for the purposes of Time-and-Materials Contracts. Direct materials Hourly rate (1) Performed by the contractor; (2) Performed by the subcontractors; or (3) Transferred between divisions, subsidiaries, or affiliates of the contractor under a common control. Materials means (1) Direct materials, including supplies transferred between divisions, subsidiaries, or affiliates of the contractor under a common control; (2) Subcontracts for supplies and incidental services for which there is not a labor category specified in the contract; (3) Other direct costs ( e.g. (4) Applicable indirect costs. (b) Description. (1) Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; and (2) Actual cost for materials (except as provided for in 31.205-26(e) and (f)). (c) Application. (1) Government surveillance. (2) Fixed hourly rates. (ii) For acquisitions of other than commercial products or commercial services awarded without adequate price competition (see 15.403-1(c)(1)), the contract shall specify separate fixed hourly rates that include wages, overhead, general and administrative expenses, and profit for each category of labor to be performed by— (A) The contractor; (B) Each subcontractor; and (C) Each division, subsidiary, or affiliate of the contractor under a common control. (iii) For contract actions that are not awarded using competitive procedures, unless exempt under paragraph (c)(2)(iv) of this section, the fixed hourly rates for services transferred between divisions, subsidiaries, or affiliates of the contractor under a common control— (A) Shall not include profit for the transferring organization; but (B) May include profit for the prime contractor. (iv) For contract actions that are not awarded using competitive procedures, the fixed hourly rates for services that meet the definition of “commercial service that are transferred between divisions, subsidiaries, or affiliates of the contractor under a common control may be the established catalog or market rate when— (A) It is the established practice of the transferring organization to price interorganizational transfers at other than cost for commercial work of the contractor or any division, subsidiary or affiliate of the contractor under a common control; and (B) The contracting officer has not determined the price to be unreasonable. (3) Material handling costs. (d) Limitations. (1) The contracting officer prepares a determination and findings that no other contract type is suitable. The determination and finding shall be— (i) Signed by the contracting officer prior to the execution of the base period or any option periods of the contracts; and (ii) Approved by the head of the contracting activity prior to the execution of the base period when the base period plus any option periods exceeds three years; and (2) The contract or order includes a ceiling price that the contractor exceeds at its own risk. Also see 12.207(b) for further limitations on use of time-and-materials or labor-hour contracts for acquisition of commercial products and commercial services. (e) Post award requirements. (1) Conduct an analysis of pricing and other relevant factors to determine if the action is in the best interest of the Government; (2) Document the decision in the contract or order file; and (3) When making a change that modifies the general scope of— (i) A contract, follow the procedures at 6.303; (ii) An order issued under the Federal Supply Schedules, follow the procedures at 8.405-6; or (iii) An order issued under multiple award task and delivery order contracts, follow the procedures at 16.505(b)(2). (f) Solicitation provisions. (2) The contracting officer shall insert the provision at 52.216-30, Time-and-Materials/Labor-Hour Proposal Requirements—Other Than Commercial Acquisition Without Adequate Price Competition, in solicitations for the acquisition of other than commercial products or commercial services contemplating use of a time-and-materials or labor-hour type of contract if the price is not expected to be based on adequate price competition. (3) The contracting officer shall insert the provision at 52.216-31, Time-and-Materials/Labor-Hour Proposal Requirements—Commercial Acquisition, in solicitations contemplating use of a commercial time-and-materials or labor-hour contract. [71 FR 74664, 74677, Dec. 12, 2006, as amended at 78 FR 13767, Feb. 28, 2013; 86 FR 61027, Nov. 4, 2021] 16.602 Labor-hour contracts. Description. [71 FR 74677, Dec. 12, 2006] 16.603 Letter contracts. 16.603-1 Description. A letter contract is a written preliminary contractual instrument that authorizes the contractor to begin immediately manufacturing supplies or performing services. 16.603-2 Application. (a) A letter contract may be used when (1) the Government's interests demand that the contractor be given a binding commitment so that work can start immediately and (2) negotiating a definitive contract is not possible in sufficient time to meet the requirement. However, a letter contract should be as complete and definite as feasible under the circumstances. (b) When a letter contract award is based on price competition, the contracting officer shall include an overall price ceiling in the letter contract. (c) Each letter contract shall, as required by the clause at 52.216-25, Contract Definitization, contain a negotiated definitization schedule including (1) dates for submission of the contractor's price proposal, required certified cost or pricing data and data other than certified cost or pricing data; and, if required, make-or-buy and subcontracting plans, (2) a date for the start of negotiations, and (3) a target date for definitization, which shall be the earliest practicable date for definitization. The schedule will provide for definitization of the contract within 180 days after the date of the letter contract or before completion of 40 percent of the work to be performed, whichever occurs first. However, the contracting officer may, in extreme cases and according to agency procedures, authorize an additional period. If, after exhausting all reasonable efforts, the contracting officer and the contractor cannot negotiate a definitive contract because of failure to reach agreement as to price or fee, the clause at 52.216-25 requires the contractor to proceed with the work and provides that the contracting officer may, with the approval of the head of the contracting activity, determine a reasonable price or fee in accordance with subpart 15.4 and part 31, subject to appeal as provided in the Disputes clause. (d) The maximum liability of the Government inserted in the clause at 52.216-24, Limitation of Government Liability, shall be the estimated amount necessary to cover the contractor's requirements for funds before definitization. However, it shall not exceed 50 percent of the estimated cost of the definitive contract unless approved in advance by the official that authorized the letter contract. (e) The contracting officer shall assign a priority rating to the letter contract if it is appropriate under 11.604. [48 FR 42219, Sept. 19, 1983, as amended at 60 FR 48248, Sept. 18, 1995; 62 FR 51270, Sept. 30, 1997; 75 FR 53148, Aug. 30, 2010] 16.603-3 Limitations. A letter contract may be used only after the head of the contracting activity or a designee determines in writing that no other contract is suitable. Letter contracts shall not— (a) Commit the Government to a definitive contract in excess of the funds available at the time the letter contract is executed; (b) Be entered into without competition when competition is required by part 6; or (c) Be amended to satisfy a new requirement unless that requirement is inseparable from the existing letter contract. Any such amendment is subject to the same requirements and limitations as a new letter contract. [48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 51 FR 31426, Sept. 3, 1986] 16.603-4 Contract clauses. (a) The contracting officer shall include in each letter contract the clauses required by this regulation for the type of definitive contract contemplated and any additional clauses known to be appropriate for it. (b) In addition, the contracting officer shall insert the following clauses in solicitations and contracts when a letter contract is contemplated: (1) The clause at 52.216-23, Execution and Commencement of Work, except that this clause may be omitted from letter contracts awarded on SF 26; (2) The clause at 52.216-24, Limitation of Government Liability, with dollar amounts completed in a manner consistent with 16.603-2(d); and (3) The clause at 52.216-25, Contract Definitization, with its paragraph (b) completed in a manner consistent with 16.603-2(c). If at the time of entering into the letter contract, the contracting officer knows that the definitive contract will be based on adequate price competition or will otherwise meet the criteria of 15.403-1 for not requiring submission of certified cost or pricing data, the words “and certified cost or pricing data in accordance with FAR 15.408, Table 15-2 supporting its proposal” may be deleted from paragraph (a) of the clause. If the letter contract is being awarded on the basis of price competition, the contracting officer shall use the clause with its Alternate I. (c) The contracting officer shall also insert the clause at 52.216-26, Payments of Allowable Costs Before Definitization, in solicitations and contracts if a cost-reimbursement definitive contract is contemplated, unless the acquisition involves conversion, alteration, or repair of ships. [48 FR 42219, Sept. 19, 1983, as amended at 60 FR 48217, Sept. 18, 1995; 62 FR 51270, Sept. 30, 1997; 75 FR 53149, Aug. 30, 2010] Subpart 16.7—Agreements 16.701 Scope. This subpart prescribes policies and procedures for establishing and using basic agreements and basic ordering agreements. (See 13.303 for blanket purchase agreements (BPA's) and see 35.015(b) for additional coverage of basic agreements with educational institutions and nonprofit organizations.) [48 FR 42219, Sept. 19, 1983, as amended at 62 FR 64926, Dec. 9, 1997] 16.702 Basic agreements. (a) Description. (b) Application. (1) Basic agreements shall contain (i) clauses required for negotiated contracts by statute, executive order, and this regulation and (ii) other clauses prescribed in this regulation or agency acquisition regulations that the parties agree to include in each contract as applicable. (2) Each basic agreement shall provide for discontinuing its future applicablity upon 30 days' written notice by either party. (3) Each basic agreement shall be reviewed annually before the anniversary of its effective date and revised as necessary to conform to the requirements of this regulation. Basic agreements may need to be revised before the annual review due to mandatory statutory requirements. A basic agreement may be changed only by modifying the agreement itself and not by a contract incorporating the agreement. (4) Discontinuing or modifying a basic agreement shall not affect any prior contract incorporating the basic agreement. (5) Contracting officers of one agency should obtain and use existing basic agreements of another agency to the maximum practical extent. (c) Limitations. (1) Cite appropriations or obligate funds; (2) State or imply any agreement by the Government to place future contracts or orders with the contractor; or (3) Be used in any manner to restrict competition. (d) Contracts incorporating basic agreements. (2) The contracting officer shall include clauses pertaining to subjects not covered by the basic agreement, but applicable to the contract being negotiated, in the same manner as if there were no basic agreement. (3) If an existing contract is modified to effect new acquisition, the modification shall incorporate the most recent basic agreement, which shall apply only to work added by the modification, except that this action is not mandatory if the contract or modification includes all clauses required by statute, executive order, and this regulation as of the date of the modification. However, if it is in the Government's interest and the contractor agrees, the modification may incorporate the most recent basic agreement for application to the entire contract as of the date of the modification. 16.703 Basic ordering agreements. (a) Description. (b) Application. (c) Limitations. (1) Each basic ordering agreement shall— (i) Describe the method for determining prices to be paid to the contractor for the supplies or services; (ii) Include delivery terms and conditions or specify how they will be determined; (iii) List one or more Government activities authorized to issue orders under the agreement; (iv) Specify the point at which each order becomes a binding contract (e.g., issuance of the order, acceptance of the order in a specified manner, or failure to reject the order within a specified number of days); (v) Provide that failure to reach agreement on price for any order issued before its price is established (see paragraph (d)(3) below) is a dispute under the Disputes clause included in the basic ordering agreement; and (vi) If fast payment procedures will apply to orders, include the special data required by 13.403. (2) Each basic ordering agreement shall be reviewed annually before the anniversary of its effective date and revised as necessary to conform to the requirements of this regulation. Basic ordering agreements may need to be revised before the annual review due to mandatory statutory requirements. A basic ordering agreement shall be changed only by modifying the agreement itself and not by individual orders issued under it. Modifying a basic ordering agreement shall not retroactively affect orders previously issued under it. (d) Orders. (1) Before issuing an order under a basic ordering agreement, the contracting officer shall— (i) Obtain competition in accordance with part 6; (ii) If the order is being placed after competition, ensure that use of the basic ordering agreement is not prejudicial to other offerors; and (iii) Sign or obtain any applicable justifications and approvals, and any determination and findings, in accordance with 1.602-1(b), and comply with other requirements, as if the order were a contract awarded independently of a basic ordering agreement. (2) Contracting officers shall— (i) Issue orders under basic ordering agreements on Optional Form (OF) 347, Order for Supplies or Services, or on any other appropriate contractual instrument; (ii) Incorporate by reference the provisions of the basic ordering agreement; (iii) If applicable, cite the authority under 6.302 in each order; and (iv) Comply with 5.203 when synopsis is required by 5.201. (3) The contracting officer shall neither make any final commitment nor authorize the contractor to begin work on an order under a basic ordering agreement until prices have been established, unless the order establishes a ceiling price limiting the Government's obligation and either— (i) The basic ordering agreement provides adequate procedures for timely pricing of the order early in its performance period; or (ii) The need for the supplies or services is compelling and unusually urgent (i.e., when the Government would be seriously injured, financially or otherwise, if the requirement is not met sooner than would be possible if prices were established before the work began). The contracting officer shall proceed with pricing as soon as practical. In no event shall an entire order be priced retroactively. [48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 61 FR 39198, July 26, 1996; 62 FR 64926, Dec. 9, 1997]

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