Overview
This section defines the firm-fixed-price, level-of-effort term contract, a hybrid-style arrangement where the government pays a set price for a specific amount of labor (effort) over a defined period, typically used for research and development where specific results are unpredictable.
Key Rules
- Labor-Based Performance: The contractor is required to provide a specific level of effort (e.g., a set number of man-hours) rather than a specific end-item or guaranteed result.
- Fixed Payment: The government pays a predetermined fixed dollar amount regardless of the actual outcome, provided the agreed-upon effort is expended.
- Scope Nature: This contract type is used only when the work can be stated only in general terms and cannot be clearly defined.
- Suitability: It is primarily applicable to investigations, studies, or research and development where the output is usually a report of results.
- Monetary Limitations: The contract price must be at or below the simplified acquisition threshold unless the Chief of the Contracting Office provides specific approval.
- Prerequisites: There must be reasonable assurance that the goal cannot be achieved with less effort than stipulated, and the required effort must be agreed upon in advance.
Practical Implications
- Risk Allocation: The government assumes the risk regarding the quality or utility of the results, while the contractor assumes the risk of performing the specified labor within the fixed-price ceiling.
- Administrative Utility: It allows agencies to fund intellectual exploration and R&D activities with the budget certainty of a fixed-price contract, even when they cannot define a specific "completion" criteria beyond the expiration of labor hours.