Overview
A labor-hour contract is a specific variation of a time-and-materials contract used when the government requires labor but the contractor does not provide the materials. It is governed by the same regulatory limitations and application standards as time-and-materials contracts.
Key Rules
- Definition: Distinguished from time-and-materials contracts solely by the fact that materials are not supplied by the contractor.
- Regulatory Alignment: The application and limitation rules found in FAR 16.601(c) and (d) for time-and-materials contracts apply equally to labor-hour contracts.
- Commercial Services: Specific provisions under FAR 12.207(b) govern the use of labor-hour contracts for the acquisition of certain commercial services.
- Prerequisites: Like T&M contracts, they may only be used when it is not possible at the time of placement to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence.
Practical Implications
- Government Oversight: Because the contractor is paid per hour rather than for a completed deliverable, the government assumes the risk of labor efficiency and must provide surveillance to ensure hours are used productively.
- Simplified Material Handling: This format is ideal for scenarios where the government already owns the necessary equipment or materials and only needs to "rent" the contractor's expertise and time.