Federal Acquisition Regulation: Revolutionary Federal Acquisition Regulation Overhaul Parts 16, 17, and 35

OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 16, 17, 35, and 52

[FAR Case 2026-006, Docket No. FAR-2026-0006, Sequence No. 1]

RIN 9000-AO91

Federal Acquisition Regulation: Revolutionary Federal Acquisition Regulation Overhaul Parts 16, 17, and 35

AGENCY:

Office of Federal Procurement Policy (OFPP), Office of Management and Budget (OMB); Department of Defense (DoD); General Services Administration (GSA); and National Aeronautics and Space Administration (NASA).

ACTION:

Proposed rule.

SUMMARY:

OFPP, DoD, GSA, and NASA (collectively referred to as the Federal Acquisition Regulatory Council or FAR Council) are proposing to amend the Federal Acquisition Regulation (FAR) to implement Executive Order (E.O.) 14275, Restoring Common Sense to Federal Procurement. The E.O. directs the elimination of excessive acquisition regulations to stop the inefficient use of American taxpayer dollars. The FAR Council is issuing twelve proposed rules that collectively, if finalized, would streamline the FAR in its entirety. This rule proposes revisions to FAR part 16, Types of Contracts, part 17, Special Contracting Methods, part 35, Research and Development Contracting, and part 52, Solicitation Provisions and Contract Clauses.

DATES:

Interested parties should submit written comments to the Regulatory Secretariat Division at the address shown below on or before October 19, 2026, to be considered in the formation of the final rule.

ADDRESSES:

Submit comments in response to FAR Case 2026-006 to the Federal eRulemaking portal at

https://www.regulations.gov.

Follow the instructions for sending comments.

Instructions:

Please submit comments only and cite “FAR Case 2026-006” in all correspondence related to this case. Include your name, company name (if any), and “FAR Case 2026-006” on any attached document. Comments received generally will be posted without change to

https://www.regulations.gov,

including any personal and/or business confidential information provided. Public comments may be submitted as an individual, as an organization, or anonymously (see frequently asked questions at

https://www.regulations.gov/faq

). To confirm receipt of your comment(s), please check

https://www.regulations.gov,

approximately two to three days after submission to verify posting.

Docket:

For access to the docket to read background documents or comments received, go to

https://www.regulations.gov/FAR-2026-0006.

FOR FURTHER INFORMATION CONTACT:

For clarification of content, contact

FARpolicy@gsa.gov

or call 202-969-4075 and cite “FAR Case 2026-006.” For information pertaining to status, publication schedules, or alternate instructions for submitting comments if

https://www.regulations.gov

cannot be used, contact the Regulatory Secretariat Division at 202-501-4755 or

GSARegSec@gsa.gov.

Please cite “FAR Case 2026-006.”

SUPPLEMENTARY INFORMATION:

I. Background

E.O. 14275, Restoring Common Sense to Federal Procurement (April 15, 2025), resets the foundation for Federal buying by requiring the FAR Council to produce a streamlined FAR that is simpler, clearer, and structured for speed. According to the E.O., the FAR has evolved from its original purpose (

i.e.,

to establish uniform procedures across executive departments and agencies), into an excessive and overcomplicated regulatory framework and bureaucracy. While meant to “deliver, on a timely basis, the best value product or service to the customer, while maintaining the public's trust and fulfilling public policy objectives,” the FAR has become an expensive barrier to achieving those objectives. As a result, the E.O. directed the FAR Council and OMB to create an agile, effective, and efficient regulation that contains only provisions required by statute or essential to sound procurement.

To implement E.O. 14275, OMB issued Memorandum M-25-26, Overhauling the Federal Acquisition Regulation, which announced the “Revolutionary FAR Overhaul” (RFO) and created a roadmap for producing simpler regulations aligned to statute, rewritten in plain language, and including nonstatutory requirements that are necessary to conducting a sound procurement. The memorandum described a new streamlined vision for the FAR, to be maintained alongside nonregulatory governmentwide guidance to provide a common-sense authoritative foundation for nimble response and delivery of mission capability.

This new vision represents a paradigm shift where over-engineered regulations designed for paperwork and compliance are replaced with streamlined regulations focused on core stewardship principles and nonregulatory guidance that will be used in concert with the streamlined FAR focused on proven buying strategies, critical thinking, market awareness (including to expand awareness of goods, products, and materials offered in the United States), and risk literacy to enhance workforce problem-solving. The significant reduction of unnecessary mandates is intended to clarify and reinforce the contracting officer's discretion to determine the best way to apply policies and practices. The newly established, nonregulatory guidance, which has been inspired by acquisition innovation advocates, category managers, other experienced practitioners, and many years of feedback from the contractor community—is expected to facilitate contracting officers' use of their discretion more efficiently and effectively to make smarter buying decisions.

OMB Memorandum M-25-26 also directed the FAR Council to complete the regulatory overhaul in two phases, each with robust public input. The FAR Council conducted its phase one effort in fiscal year 2025 by issuing model class deviations to replace each part in the FAR until such time as formal rulemaking occurred. This proposed rule is one of a series that constitute the FAR Council's phase two effort to obtain public comment through formal rulemaking.

II. Discussion and Analysis

A summary of proposed changes to existing FAR parts 16, 17, and 35, and their corresponding provisions and clauses in part 52 follows:

A. General

1. General RFO Updates.

This proposed rule generally reorganizes the FAR parts into phases of acquisition and simplifies the text into plain language, where possible. The plain language efforts include changes to active voice, edits to improve readability, and reorganization to present information more logically. None of the plain language edits are

intended to change existing FAR requirements. The rewriting of the entire FAR also required edits to harmonize the changes being proposed such as updating the cross-references. This aligns with the Federal plain language guidelines as directed by the Plain Writing Act of 2010 (5 U.S.C. 301 note).

2. Standardization of prescriptions.

This rule proposes revisions to standardize prescriptions for provisions and clauses. These changes are intended to provide better clarity around the applicability of provisions and clauses such as whether they apply to commercial products and services.

3. Use of “must” instead of “shall”.

Additional revisions are being proposed throughout the FAR text and FAR provisions and clauses to replace the use of the term “shall” with “must” or “will,” as appropriate, to impose requirements.

4. Non-statutory requirements.

Section 4 of the E.O. required amendments to the FAR to ensure it contains only provisions that are required by statute or that are otherwise necessary to support simplicity and usability, strengthen the efficacy of the procurement system, or protect economic or national security. The FAR Council reviewed all non-statutory requirements to determine if they are still relevant and essential to sound procurement in today's contracting environment based on the criteria from section 4 of the E.O. The proposed rule retains non-statutory requirements that further one or more of the elements of sound procurements, including those requirements that serve as guardrails to protecting taxpayer interests and promote taxpayer confidence in the procurement system. Non-statutory requirements that were beneficial but not essential were retained in the non-regulatory guidance documents. Other non-statutory requirements that did not meet these standards, were removed. The Council considered the extent to which regulation is the most efficient means for capturing the benefit of the policy. For example, most “how to” requirements were found to be more appropriately suited for non-regulatory coverage which better enables a contracting officer to use discretion in determining the application of a strategy to a given situation and limits the risk of overapplication, which can create wasteful burden on the contracting parties.

As part of the RFO, the FAR Council has created a number of non-regulatory resources, including the FAR Companion, which provides insight from experienced practitioners across the government on using more streamlined practices and processes. The migration of significant coverage to non-regulatory guidance is intended to ensure that the benefits of the policy are not outweighed by the compliance burden of a more rigidly written regulation that is prone to application in an overly broad manner. This approach was explained to the public in a set of “frequently asked questions” that were posted on the Revolutionary FAR Overhaul homepage shortly after the initiative was launched.

B. FAR Part 16

The proposed rule, if finalized, would revise FAR part 16 to eliminate excessive acquisition regulations to stop the inefficient use of American taxpayer dollars through the removal of obsolete and non-statutory content not essential to sound procurement, and to simplify, clarify, and streamline the policies and procedures pertaining to contract types. These revisions would further emphasize the use of fixed-price contract types. The proposed rule would also reorganize FAR part 16 to first address contract types, then contract mechanisms (indefinite-delivery contracts, letter contracts, and agreements), with subparts updated as follows.

Existing FAR Reference

Proposed FAR Subpart

16.1 Selecting Contract Types

16.1 Selecting Contract Types.

16.2 Fixed-Price Contracts

16.2 Fixed-Price Contracts.

16.3 Cost-Reimbursement Contracts

16.3 Cost-Reimbursement Contracts.

16.4 Incentive Contracts

16.4 Incentive Contracts.

16.5 Indefinite-Delivery Contracts

16.6 Indefinite-Delivery Contracts.

16.6 Time-and-Materials, Labor-Hour, and Letter Contracts

16.5 Time-and-Materials and Labor-Hour Contracts.

16.603 Letter Contracts

16.7 Letter Contracts.

16.7 Agreements

16.8 Agreements.

The following is a list of substantive changes proposed for FAR part 16.

1. Shift from Restrictive to Permissive Framework in Contract Type Selection.

The proposed rule, if finalized, would shift the guiding principles on contract type selection from a restrictive to a permissive framework, consistent with 10 U.S.C. 3321 and 41 U.S.C. 3901. This change would allow agencies to more easily utilize contract types not explicitly mentioned in the FAR and would allow for better congruence with commercial practices if the contract type promotes the best interest of the Government and is not expressly prohibited by statute. Alternate I to provision 52.216-1, Type of Contract, would provide offerors the opportunity to propose an alternative contract type.

2. Changes Reflective of

E.O.

14402, Promoting Efficiency, Accountability, and Performance in Federal Contracting.

On April 30, 2026, the President issued E.O. 14402, Promoting Efficiency, Accountability, and Performance in Federal Contracting. Section 3(b) of the E.O. directed the Administrator for Federal Procurement Policy, in coordination with the FAR Council, to propose amendments to the Federal Acquisition Regulation, consistent with the policies of the order.

Section 1 of the E.O. states that fixed-price contracts with performance-based considerations should serve as the default and preferred method of procurement in order to advance cost predictability and budget discipline, appropriate contractor incentives and accountability, and streamlined procurement and contract administration.

Section 2 of the E.O. requires agencies to justify the use of non-fixed-price contract types in writing, with the justification signed by the agency head. The E.O. requires agency head approval of the contract at various total potential contract value thresholds.

The proposed rule would revise FAR part 16 to adhere to the preference for fixed-price contracts with performance-based considerations, and adds justification and approval requirements for other than fixed-price contracts and firm-fixed-price, level-of-effort term contracts. New section 16.104 describes the justification and approval requirements.

3. Consumption-Based Solutions.

The proposed rule includes changes consistent with section 1825 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2026 (Pub.

L. 119-60) for consistent use across the Federal Government. New language would include the definition of “consumption-based solution,” and clarification that contracting officers may acquire consumption-based solutions where supplies and services are capable of being metered and billed based on actual usage as fixed-price units. The acquisition of fixed-priced units on a consumption basis would be considered a firm-fixed price contract. The inclusion of this language would support the use of consumption-based contracts, a common commercial practice for a variety of supplies and services, including but not limited to cloud computing capacity.

4. Delineation Between “Ordering Period” and “Period of Performance.”

The proposed 16.601-2 would include a clear delineation between “ordering period” for task-order contracts and delivery-order contracts, “period of performance” for their orders, and “effective period of the contract.” The clauses at 52.216-21, Requirements, and 52.216-22, Indefinite Quantity, have been edited for clarity given the delineation of these terms.

5. On-ramps and Off-ramps under Multiple-Award Contracts.

The proposed rule, if finalized, would include policies and procedures related to “on-ramping” (adding new contractors) and “off-ramping” (removing contractors) from a multiple-award contract to maintain a current, competitive, and innovative pool of vendors. Alternates I and II to provision 52.216-22, Indefinite Quantity, are proposed to provide for off-ramps with various cancellation policies.

6. Inclusion of Blanket Purchase Agreements (BPAs) under Multiple-Award Contracts.

The proposed rule would include the policies and procedures to issue and use BPAs under multiple-award contracts, similar to those permitted under the Federal Supply Schedules. If finalized, this policy would allow contracting officers to utilize fair opportunity procedures to issue BPAs within the scope of the contract if authorized under the multiple-award contract.

7. Significant Reorganization of Ordering Procedures for Task-Order Contracts and Delivery-Order Contracts.

The proposed rule would reorganize the postaward ordering placement into two sections: 16.606, which would be applicable to all task-order contracts and delivery-order contracts, regardless of the number of awardees, and 16.607, which would be applicable to multiple-award contracts only. Section 16.607 would address purchases at or below the micro-purchase threshold, fair opportunity procedures applicable to all purchases above the micro-purchase threshold, and specific instructions for fair opportunity depending on dollar value. The instructions in 16.607 would further emphasize the broad discretion the contracting officer has in developing appropriate order placement procedures for the acquisition at hand and encourages utilization of innovative techniques.

8. Inclusion of FAR Case 2020-005, Explanations to Unsuccessful Offerors on Certain Orders Under Task-Order Contracts and Delivery-Order Contracts (88 FR 53855).

The proposed rule would revise the FAR to implement section 874 of the NDAA for FY 2020 (Pub. L. 116-92) which, for task orders or delivery orders exceeding the simplified acquisition threshold (SAT) but not greater than $7.5 million, requires contracting officers to provide, upon written request from an unsuccessful offeror, a brief explanation as to why the offeror was unsuccessful, including the rationale for award and an evaluation of the significant weak or deficient factors in the offeror's offer.

Section 874 of the NDAA uses the term “unsuccessful offeror.” The proposed FAR 16.607-4 would use the term “contractor who competed for the order, but was not awarded the order.” Both terms are synonymous; referring to an entity who has been awarded a basic contract but has been unsuccessful for the award of an order competed under the basic contract.

The proposed rule would require contracting officers to notify all contractors who competed for the order, but were not awarded the order, when the total price of a task order or delivery order exceeds $7.5 million. If the $7.5 million threshold is met or exceeded, contracting officers would be directed to the procedures at FAR part 15 when providing a postaward notification or postaward debriefing, respectively.

The FAR threshold at 16.505 (included in the proposed rule at 16.607-4 and 16.607-5) is currently $7.5 million as a result of three inflation adjustments in accordance with FAR 1.109. FAR Case 2014-022 published on July 2, 2015, at 80 FR 38293, which raised the threshold from $5 million to $5.5 million; 2019-013 published on October 2, 2020, at 85 FR 62485, which raised the threshold to $6 million; and FAR Case 2024-001 published on August 27, 2025, at 90 FR 41872, which raised the threshold to $7.5 million.

The proposed rule would implement the requirement for contracting officers to, upon written request from an unsuccessful awardee, provide a brief explanation as to why the awardee was unsuccessful for a task order or delivery order exceeding the SAT but not exceeding $7.5 million. While the statutory threshold is $5.5 million, the proposed rule would impose these brief explanation requirements at the higher $7.5 million threshold to align with the current threshold. This would avoid a gap between $5.5 million and $7.5 million. This new brief explanation requirement for orders above the SAT and below $7.5 million would not provide a debriefing at the level of detail currently afforded to unsuccessful awardees over $7.5 million, however, this information is expected to benefit entities by improving future offers. While not expressly required by the statute, the proposed rule would add a postaward notification requirement for the applicable task orders and delivery orders to ensure unsuccessful awardees are provided an opportunity to obtain the brief explanation as to why the awardee was unsuccessful in a timely manner.

9. Streamlining of 52.216-7, Allowable Cost and Payment.

The proposed rule would remove a number of items required for an adequate indirect cost proposal in clause 52.216-7, Allowable Cost and Payment, paragraph (d)(2)(iii).

Paragraph (j), Subcontract Information, would be limited to only those subcontracts with a value exceeding the threshold for requiring certified cost or pricing data as prescribed in FAR 15.403-3.

The detailed information previously required by paragraph (k) for time-and-materials and labor-hour contracts such as labor rates, labor hours, and other detailed costs elements would be removed. The summary level information previously required by paragraph (k) would be relocated to paragraph (h).

Paragraph (l), which required submission of reconciliation of total payroll per IRS form 941 to total labor costs distribution, would be removed in its entirety.

The information previously required by paragraph (o) for contracts physically completed in this fiscal year would be relocated to paragraph (h) and is limited to level-of-effort information, contract ceiling amount, and an indication of whether the contract is ready to close. Contract fee computations would no longer required.

The removal of these items would reduce the amount of information required from contractors for an incurred cost audit submission and would therefore reduce the time

required for contract closeout and impact settlement agreements.

10. Clarification on Applicability of 52.216-7, Allowable Cost and Payment, to Cost-Type Incentive Contracts.

FAR paragraph 16.305(a), clause 52.216-16, Incentive Price Revision-Firm Target, and clause 52.216-17, Incentive Price Revision-Successive Targets, would be altered to clarify applicability of 52.216-7, Allowable Cost and Payment, to cost-type incentive contracts, including fixed-price cost incentive contracts.

Fixed-price cost incentive contracts are hybrid contracts that use actual costs, including indirect costs, to negotiate a final incentive payment. FAR 42.503-1(c)(2) and FAR 31.103(b)(3) would require the use of established final indirect cost rates (FICR) to calculate costs in fixed-price cost incentive contracts in order to comply with 10 U.S.C. 3743(a) and 41 U.S.C. 4303(a). This change would erase ambiguity in the applicability of FAR clause 52.216-7, which includes the process to calculate FICR.

FAR clauses 52.216-16 and 52.216-17 currently acknowledge that “costs” mean “allowable costs” in accordance with the cost principles in FAR Part 31. The proposed rule adds language clarifying that FICR should be used for calculating incurred costs and, if the contractor does not already have a contract which establishes FICR, they should follow the process in paragraph (d) of the allowable cost and payment clause to establish FICR.

C. FAR Part 17

The proposed rule would revise FAR part 17 to eliminate excessive acquisition regulations to stop the inefficient use of American taxpayer dollars through the removal of obsolete and non-statutory content not essential to sound procurement, and to simplify, clarify, and streamline the policies and procedures pertaining to special contracting methods. Subparts would be rearranged to remove reserved subparts and ensure similar content is placed together.

Existing FAR reference

Proposed FAR subpart

17.1 Multiyear Contracting

17.1 Multiyear Contracting.

17.2 Options

17.2 Options.

17.3 [Reserved]

N/A.

17.4 Leader Company Contracting

17.3 Leader Company Contracting.

17.5 Interagency Acquisitions

17.4 Interagency Acquisitions.

17.6 Management and Operating Contracts

17.6 Management and Operating Contracts.

17.7 Interagency Acquisitions: Acquisitions by Nondefense Agencies on Behalf of the Department of Defense

17.5 Interagency Acquisitions: Acquisitions by Nondefense Agencies on Behalf of the Department of Defense.

17.8 Reverse Auctions

17.7 Reverse Auctions.

The following substantive changes are proposed to FAR part 17.

1. Clarification on Multiyear Contracts for Supplies and Services for DoD, NASA, and the Coast Guard.

The proposed rule would include language reflective of the limitations on the use of multiyear contracts for supplies and services by DoD, NASA, and the Coast Guard in accordance with 10 U.S.C. 3501 and 10 U.S.C. 3531 in 17.103-1.

2. Removal of General Five-Year Limitation on Contract Duration.

The proposed rule would replace the non-statutory five-year limitation on contract duration for all contracts previously included at 17.204(e) with a requirement to “follow any statutory or regulatory limits on contract duration.” An example of such a statutory limitation is the five-year limit on initial ordering periods, and ten-year limit on total potential ordering period, for indefinite-delivery contracts given in 10 U.S.C. 3403.

3. Modernize Option for Increased Quantity Clauses to Apply to Both Services and Supplies.

The proposed rule would remove limitations on the use of clause 52.217-6, Option for Increased Quantity, and clause 52.217-7, Option for Increased Quantity—Separately Priced Line Item, in solicitations and contracts for the purchases of services. As currently written, the FAR prescribes the provisions and clauses contracting officers use when including options in solicitations and contracts, but lacks a FAR clause for use when contracting officers identify a potential need for additional quantities of services during a contract's performance period. An example of such a need is when a program office has a bona fide need for a definite quantity of services but identifies circumstances where an increase in the demand for those services may reasonably occur.

While FAR subpart 17.2, as currently codified, permits the use of options for increased quantities of services, the FAR lacks any corresponding clause for doing so. The limiting language included in these prescriptions have prevented many agencies from adequately utilizing 52.217-6 and 52.217-7, or forced increased acquisition time and costs associated with seeking a deviation or drafting of acquisition-unique clause.

The proposed rule would provide contracting officers with a corresponding policy to allow the use of FAR clause 52.217-6 and 52.217-7 when procuring additional requirements during a contract's performance period. The inclusion of such a clause during initial competition of the contract would allow for the prices included for such surge requirements to be determined on the basis of competition, rather than negotiated as a sole-source modification during contract administration. The cost and lead time associated with exercising an option for increased quantity is less than that of issuing a sole-source modification or engaging in a competition for a new award of the same items.

4. Modernize Option To Extend Services to Apply to Services and Supplies.

The proposed rule would allow for the use of clause 52.217-8, Option to Extend Services, renamed Option to Extend, in task-order contracts and delivery-order contracts for requirements other than services. This clause allows for the Government to continue to utilize an existing contract for up to six months at the current rate.

The clause was previously prescribed for use in solicitations and contracts “for services when the inclusion of an option is appropriate.” FAR subpart 17.2, as currently codified, permits the use of options for extensions of contract duration.

The limiting language included in the codified prescription has prevented many agencies from adequately utilizing 52.217-8, or forced increased acquisition time and costs associated with seeking a deviation or drafting of acquisition-unique clause.

Allowing use of this clause for an indefinite delivery contract for critical supplies, for example, would provide

for the provision of supplies without interruption in the case of a delay in a follow-on award due to protest or other reasons. The transaction cost associated with the extension of a contract utilizing 52.217-8 is less than that of issuing a competitive or sole-source bridge contract.

The proposed rule updates this clause and prescribes it for use in solicitations and contracts “when adding an option to extend the period of performance for services, ordering period for any requirement, or both to ensure continuity of services for up to six months is appropriate.” Limiting the use of this clause to services for periods of performance, specifically, is appropriate to prevent the inadvertent use of the clause in increasing the end date of a supply contract.

5. Add Language on Handling of Expiring Contracts During a Lapse in Appropriations.

The proposed rule would include a new paragraph in clauses 52.217-8, Option to Extend Services, renamed Option to Extend, and 52.217-9, Option to Extend the Term of Contract, to allow for the Government and contractor to mutually agree to toll or delay the option exercise time period, such as 30 days after the resumption of Government operations, in the event the period to exercise the option ends during a lapse in appropriations.

The addition of this paragraph would allow for a more expedient return to operations and allow for reduced transaction costs as a result of a Government shutdown.

6. Removal of Best Interest Determination Requirement Under Economy Act Interagency Acquisitions.

Section 875 of the John S. McCain NDAA for FY 2019 (Pub. L. 115-232), entitled “Promotion of the Use of Government-Wide and Other Interagency Contracts”, removed the requirement to include in the FAR a determination that “an interagency acquisition is the best procurement alternative.” The proposed rule would remove this requirement from the FAR.

7. Changes to Management and Operating Contracts.

The proposed rule would remove language regarding competition and reviews of contractor performance for Management and Operating contracts. Removal of this non-statutory language would reduce confusion and emphasizes the use of competition in accordance with the Competition in Contracting Act of 1984.

8. Incorporation of FAR Case 2023-003, Prohibition on the Use of Reverse Auctions for Complex, Specialized, or Substantial Design and Construction Services (89 FR 70157).

The proposed rule would amend the FAR to implement section 2 of the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28). Section 2 of the Construction Consensus Procurement Improvement Act of 2021 amended section 402 of Title IV of Division U of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) entitled the Construction Consensus Procurement Improvement Act of 2020 to require rulemaking to promulgate a definition of “complex, specialized, or substantial design and construction services”, which includes site planning and design; architectural and engineering services (as defined in 40 U.S.C. 1102); interior design; performance of substantial construction work for facility, infrastructure, and environmental restoration projects; and construction or substantial alteration of public buildings or public works. The statute prohibits the use of reverse auctions for such services having a value that exceeds the simplified acquisition threshold (SAT). This change is reflected in new definitions, a revised applicability section, and in clauses 52.217-10, 52.217-11, and 52.217-12.

The proposed rule would establish a new definition in FAR subpart 17.8 for “complex, specialized, or substantial design and construction services” that reflects the statutory definition to support its use at FAR subpart 17.8 and in FAR part 36. In addition, the definition of “reverse auction” in FAR 2.101 would be revised to better reflect the statutory definition provided in the Construction Consensus Procurement Improvement Act of 2021 (see FAR case 2026-001, Revolutionary FAR Overhaul Parts 1, 2, 4, 33, 39, 40 and 53).

While the statute does not prohibit the use of reverse auctions for the subject services at or below the SAT, a reverse auction may only be used if market research indicates it is appropriate (see FAR 17.702-1(a)) and not prohibited by regulation or statute (see FAR 17.702-2, and FAR part 36).

The FAR identifies two types of procurements for which reverse auctions may not be used, regardless of dollar value:

a. Procurements for the design and construction of a public building, facility or work using the two-phase design-build selection procedures authorized by 10 U.S.C. 3241 and 41 U.S.C. 3309, as implemented at FAR part 36, may not be conducted using a reverse auction.

b. Procurements for architectural and engineering services subject to 40 U.S.C. chapter 11, commonly known as the Brooks Architect Engineer Act, may not be awarded using reverse auctions because reverse auctions do not comply with the qualifications-based selection processes required by statute and implemented at FAR part 36.

D. FAR Part 35

The proposed rule would revise FAR part 35 to eliminate excessive acquisition regulations to stop the inefficient use of American taxpayer dollars through the removal of obsolete and non-statutory content not essential to sound procurement, and to simplify, clarify, and streamline the policies and procedures pertaining to research and development contracting. Several areas within existing FAR part 35 were extraneous or were addressed in multiple locations across the existing FAR, and therefore are proposed for removal. The following substantive changes are proposed to FAR part 35.

1. Clarity on Scope of Research and Development.

The proposed rule would include clarifying language on the purpose of research and development previously included in the FAR and information on the delivery of initial or additional items created as a result of such research and development.

2. Clarity on Use of Grants, Cooperative Agreements, and Other Transaction Authorities.

The proposed rule would include clarifying language on the types of agreements that may be issued in response to the selection of a proposal resulting from a research and development solicitation or Broad Agency Announcement. While the use of grants, cooperative agreements, and other transaction authority are not regulated by the FAR, a variety of solicitation types that may lead to such an agreement are regulated by the FAR (

e.g.,

Broad Agency Announcements). Therefore, for the ease of decision of award medium for the contracting officer overseeing such a solicitation, the description of such agreements would be appropriate in the FAR.

3. Removing Preference for “Well-Established” Entities and Ambiguity with Publicizing Requirements in Part 5.

The proposed rule would remove language regarding providing solicitations to “only a reasonable number of responsible sources” and the requirement for agencies to “continually search for and develop information on sources competent to perform R&D work.” The preference for “well-established” entities conflicts with the full and open competition requirements of FAR part 6 and the solicitation

publicizing requirements in FAR parts 5 and 35. Continually searching for potential R&D sources is in an agency's best interest, and further incentivized via agency small business goals. Therefore, inclusion in the FAR is unnecessary.

4. Clarified applicability of FAR part 15.

The proposed rule would clarify that the general research and development evaluation procedures provided in FAR part 35 may be used alone, or in conjunction with the Broad Agency Announcement evaluation procedures at 35.102 or part 15 evaluation procedures. This clarification would allow contracting officers maximum flexibility depending on the type and complexity of research and development desired.

For example, if a Government requirement exists related to developing a specific system or hardware for a major system, FAR part 15 solicitation and evaluation procedures may be appropriate to use in tandem with FAR part 35. If a requirement is for basic and applied research directed toward advancing the state-of-the-art, and varying technical/scientific approaches are reasonably expected to where no apples-to-apples comparison is possible, the Broad Agency Announcement technique provided in 35.102 may be appropriate to use on its own for flexibility in evaluation and agreement type.

E. FAR Part 52

Discussion and analysis for provisions and clauses updated in this rule.

Provisions and clauses associated with a particular FAR part are discussed within the relevant FAR part's analysis (

e.g.,

proposed changes to FAR clause 52.216-7 are addressed at Discussion and Analysis section II.B.9).

Potential future provision and clause renumbering.

As a result of the RFO, the FAR Council is considering establishing a new subpart in part 52 and relocating and renumbering all provisions and clauses under this new subpart. This means, if FAR subpart 52.4 was used, all provisions and clauses would begin with 52.4 instead of 52.2. The FAR Council welcomes comments on the potential impact of such a change on contractors, Government personnel, and other stakeholders.

III. Applicability to Contracts and Subcontracts Valued at or Below the Simplified Acquisition Threshold and for Commercial Products and Commercial Services

The following sections address the applicability of provisions and clauses prescribed in FAR parts 16, 17, and 35 to solicitations and contracts valued at or below the simplified acquisition threshold (SAT) and those for the acquisition of commercial products, commercially available off-the-shelf (COTS) items, and commercial services. Prescriptions for provisions and clauses in these parts have been updated to reflect applicability to commercial acquisitions.

This rule proposes to add the following new alternate clauses and provisions. These alternate clauses and provisions would hold the same applicability to solicitations and contracts valued at or below the simplified acquisition threshold (SAT) and those for the acquisition of commercial products, commercially available off-the-shelf (COTS) items, and commercial services, as the basic clauses and provisions.

Provision or clause

No.

Name

Prescription

reference

Provision

52.216-1, Alt. I

Type of Contract, Alternate I

16.105.

Clause

52.216-22, Alt. I

Indefinite Quantity, Alternate I

16.605(e)(1).

Clause

52.216-22, Alt. II

Indefinite Quantity, Alternate II

16.605(e)(2).

A. Contracts and Subcontracts Valued at or Below the Simplified Acquisition Threshold

This proposed rule, if finalized, does not alter the prescriptions of provisions and clauses included in this proposed rule to change their applicability to contracts and subcontracts valued at or below the SAT.

B. Contracts and Subcontracts for Commercial Products, Commercially Available Off-the-Shelf Items, and Commercial Services

41 U.S.C. 1906 governs the applicability of laws to contracts for the acquisition of commercial products and commercial services and gives the FAR Council the authority to determine to apply a law to contracts or subcontracts for the acquisition of commercial products and commercial services. 41 U.S.C. 1907 exempts contracts for commercially available off-the-shelf (COTS) items from certain provisions of law unless the Administrator for Federal Procurement Policy determines that doing so would not be in the best interest of the Federal Government.

Section 839 of the John S. McCain NDAA for FY 2019 (Pub. L. 115-232) required the FAR Council and the Administrator of Federal Procurement Policy to review prior determinations under 41 U.S.C. 1906 and 41 U.S.C. 1907, as well as the applicability of provisions and clauses to contracts and subcontracts for commercial products, COTS items, and commercial services that do not implement statute or Executive order, and propose amendments to the FAR to eliminate or exempt such requirements from commercial acquisitions, unless there are specific reasons to retain particular requirements.

In accordance with section 839 of the NDAA for FY 2019 and their authorities under 41 U.S.C. 1906 and 1907, the FAR Council reviewed the applicability of the provisions and clauses associated with the FAR parts covered by this proposed rule.

The following table reflects the FAR Council and Administrator of Federal Procurement Policy's proposed determination regarding the applicability of the provisions and clauses to solicitations and contracts for commercial products, COTS items, and/or commercial services. In making proposed applicability determinations, the FAR Council considered factors such as whether the provision or clause advances national security or economic security, contributes to the resilience of contractors and subcontractors in the federal marketplace, or advances uniformity and clarity in the performance of basic functions that are essential to sound procurement.

Accordingly, this proposed rule, if finalized, would revise provision and clause prescriptions to clearly reflect applicability to commercial acquisitions as outlined in the table. An “X” in the following table indicates the provision or clause would apply to that category of commercial acquisition, as prescribed:

Provision/clause No.

Title

Commercial products

Commercial services

COTS items

52.216-1

Type of Contract

X

X

X

52.216-1 Alt I

Type of Contract

X

X

X

52.216-2

Economic Price Adjustment-Standard Supplies

X

X

X

52.216-3

Economic Price Adjustment-Semistandard Supplies

X

X

X

52.216-4

Economic Price Adjustment-Labor and Material

X

X

X

52.216-5

Price Redetermination-Prospective

52.216-6

Price Redetermination-Retroactive

52.216-7

Allowable Cost and Payment

52.216-7 Alt I

Allowable Cost and Payment

52.216-7 Alt II

Allowable Cost and Payment

52.216-7 Alt III

Allowable Cost and Payment

52.216-7 Alt IV

Allowable Cost and Payment

52.216-8

Fixed Fee

52.216-9

Fixed Fee-Construction

52.216-10

Incentive Fee

52.216-11

Cost Contract-No Fee

52.216-11 Alt I

Cost Contract-No Fee

52.216-12

Cost-Sharing Contract-No Fee

52.216-12 Alt I

Cost-Sharing Contract-No Fee

52.216-15

Predetermined Indirect Cost Rates

52.216-16

Incentive Price Revision-Firm Target

52.216-16 Alt I

Incentive Price Revision-Firm Target

52.216-17

Incentive Price Revision-Successive Targets

52.216-17 Alt I

Incentive Price Revision-Successive Targets

52.216-18

Ordering

X

X

X

52.216-19

Order Limitations

X

X

X

52.216-20

Definite Quantity

X

X

X

52.216-21

Requirements

X

X

X

52.216-21 Alt I

Requirements

X

X

X

52.216-21 Alt II

Requirements

X

X

X

52.216-21 Alt III

Requirements

X

X

X

52.216-21 Alt IV

Requirements

X

X

X

52.216-22

Indefinite Quantity

X

X

X

52.216-22 Alt I

Indefinite Quantity

X

X

X

52.216-22 Alt II

Indefinite Quantity

X

X

X

52.216-23

Execution and Commencement of Work

X

X

X

52.216-24

Limitation of Government Liability

X

X

X

52.216-25

Contract Definitization

X

X

X

52.216-25 Alt. I

Contract Definitization

X

X

X

52.216-26

Payments of Allowable Costs Before Definitization

52.216-27

Single or Multiple Awards

X

X

X

52.216-28

Multiple Awards for Advisory and Assistance Services

X

52.216-29

Time-and-Materials/Labor-Hour Proposal Requirements—Other Than Commercial Acquisition With Adequate Price Competition

52.216-30

Time-and-Materials/Labor-Hour Proposal Requirements—Other Than Commercial Acquisition Without Adequate Price Competition

52.216-31

Time-and-Materials/Labor-Hour Proposal Requirements—Commercial Acquisition

X

X

X

52.216-32

Task-Order and Delivery-Order Ombudsman

X

X

X

52.216-32 Alt. I

Task-Order and Delivery-Order Ombudsman

X

X

X

52.217-2

Cancellation Under Multiyear Contracts

X

X

X

52.217-3

Evaluation Exclusive of Options

X

X

X

52.217-4

Evaluation of Options Exercised at Time of Contract Award

X

X

X

52.217-5

Evaluation of Options

X

X

X

52.217-6

Option for Increased Quantity

X

X

X

52.217-7

Option for Increased Quantity-Separately Priced Line Item

X

X

X

52.217-8

Option to Extend

X

X

X

52.217-9

Option to Extend the Term of the Contract

X

X

X

52.217-10

Reverse Auction

X

X

X

52.217-11

Reverse Auction—Orders

X

X

X

52.217-12

Reverse Auction Services

X

The FAR Council also reviewed subcontract flow down requirements in clauses associated with the FAR parts covered by this proposed rule. None of the clauses and provisions prescribed in FAR parts 16, 17, or 35 contain subcontract flow down requirements.

IV. Expected Impact of the Rule

A. Overview

The intended impact of the RFO, as stated in E.O. 14275, is to restore the Government's ability to “deliver on a timely basis the best value product or service to the customer, while maintaining the public's trust and fulfilling public policy objectives.” Each of the RFO rulemakings is designed to contribute to this impact by emphasizing mission first, by aligning acquisition activities directly to achieving the agency's overarching objectives and serving the public

interest and elevating the importance of fiscal responsibility. The proposed RFO rules focus on three goals in particular: (1) timely acquisition and delivery, (2) lower cost and accountability in all spending, and (3) increased competition.

Timeliness.

Timely acquisition and delivery are essential for mission success. To this end, RFO rules propose to eliminate mandates that unnecessarily interfere with agency discretion to determine the best way to procure products and services. The proposed RFO rules highlight more clearly streamlined and simplified authorities that allow buyers to use their time more efficiently and are expected to reduce time between solicitation and award. The proposed RFO rules are expected to make it easier for contracting officers to leverage commercial practices that are familiar to the marketplace. This is expected to make it easier for sellers to engage and respond to Government solicitations more rapidly.

Lower cost.

E.O. 14271, Ensuring Commercial, Cost-Effective Solutions in Federal Contracts (April 15, 2025), directs the Government to utilize, to the maximum extent practicable, the commercial marketplace and the innovations of private enterprise to provide better, more cost-effective services to taxpayers, as envisioned by the Federal Acquisition Streamlining Act. The procurement of custom products and services where a suitable or superior commercial solution would have fulfilled the Government's needs has resulted in avoidable waste to the detriment of American taxpayers.

To address these concerns, consistent with associated responsibilities in section 839 of the John S. McCain NDAA for FY 2019 (Pub. L. 115-232), the FAR Council reviewed prescriptions for provisions and clauses to ensure all prescriptions are clear regarding their applicability to acquisitions for commercial products and services. Currently, many prescriptions do not specify applicability to commercial acquisitions and leave the applicability determination to contracting officer interpretation. By specifically stating when a provision or clause can be applied to commercial acquisitions, proposed RFO rules should decrease the likelihood of inclusion of provisions and clauses in commercial acquisitions that are not required by law and drive greater consistency in the terms and conditions used in these contracts. In turn, these changes should increase the participation of commercial sellers, who are unwilling or unable to manage the cost of complying with noncommercial requirements, and also improve taxpayer access to affordable commercial solutions.

Some RFO rules propose to delete requirements placed on commercial or noncommercial sellers that are not related to performance of the contract, drive up cost without attendant performance benefits, and may misdirect efforts away from innovation, investment and economic growth. Greater emphasis on timeliness should reduce bidders' carrying costs, enabling them to pass those savings on to customers through lower prices.

Increased competition.

Since enactment of the Competition in Contracting Act of 1984 (Title VII of Pub. L. 98-369), competition has been the cornerstone of the Federal acquisition system. The benefits of competition are well established: competition saves money for the taxpayer, improves contractor performance, curbs fraud, and promotes accountability for results. Competition also drives contractor resilience and positions the U.S. market to develop a strategic advantage for the nation.

According to data in the SAM Contract Award Management, roughly 45 percent of contract dollars were awarded in FY 2025 either without competition or with competition that received only one offer. Of equal concern, the Federal marketplace has seen a significant decline over the past 20 years in the number of businesses—especially small businesses—participating in the Federal supplier base. Studies suggest that high compliance costs lead to the misallocation of resources away from more profitable activities and discourage innovation, investment, and economic growth (Council of Economic Advisers, Executive Office of the President. June 2025. The Economic Benefits of Current Deregulatory Policies.

https://www.whitehouse.gov/wp-content/uploads/2025/03/The-Economic-Benefits-of-Current-Deregulatory-Efforts.pdf

). This may shelter incumbent contractors and stifle competition, reducing startup activity and job formation.

The RFO rules seek to increase participation in agency competitions and the resilience of the Federal supplier base, which includes commercial entities, small businesses, manufacturers, and nontraditional suppliers. The RFO will achieve this outcome by removing regulatory mandates that are not rooted in statute or essential to sound procurement, promoting greater reliance on practices that reduce transaction costs, and improving the quality of communications with offerors and potential offerors. Access to a broader range of solutions in a more dynamic marketplace will drive better return for each taxpayer dollar spent and increase taxpayer confidence in the Federal acquisition system.

B. Impact of Rule

The Government has conducted a regulatory impact analysis (RIA) for the RFO rulemaking inclusive of this proposed rule for FAR parts 16, 17, and 35. The RIA includes a discussion of the anticipated effects of the rulemakings as follows:

1. FAR Part 16.

This proposed rule would implement revisions to FAR part 16, Types of Contracts, that are expected to have a significant positive impact on both industry and the Government. These changes are intended to benefit and reduce burden on both Government and contractors.

1.1 Shift from Restrictive to Permissive Framework in Contract Type Selection.

The proposed rule would shift the guiding principles on contract type selection from a restrictive to a permissive framework, consistent with 10 U.S.C. 3321 and 41 U.S.C. 3901. This change would allow agencies to more easily utilize contract types not explicitly mentioned in the FAR and allow for better congruence with commercial practices if the contract type promotes the best interest of the Government and is not expressly prohibited by statute.

This change would reduce Government burden by reducing the number of deviations and associated reviews sought. This change would reduce the burden on contractors by allowing the Government to utilize the same contract types used in the private sector.

1.2 Firm-Fixed Price Contracts on a Consumption Basis.

The proposed rule would include new paragraph 16.202-2(b), Consumption basis, and new section 16.202-3, Required content. The inclusion of this paragraph and section would clarify that the use of fixed-price units on a consumption basis is a type of firm-fixed-price contract type. The proposed rule would revise the FAR in conformance with section 1825 of the NDAA for FY 2026 (Pub. L. 119-60), which required the Department of Defense to implement procurement policies relevant to consumption-based solutions, to ensure consistent application across the Government.

The inclusion of consumption-based solutions supports agencies when using this common commercial practice for procuring a variety of supplies and services, including but not limited to cloud computing capacity. This change would reduce Government burden by reducing the number of deviations and associated reviews sought, and seeks to reduce the burden on contractors by allowing for the use of the same contract types used in the private sector.

1.3 On-ramps and Off-ramps under Multiple-Award Contracts.

The proposed rule includes policies and procedures related to “on-ramping” (adding new contractors) and “off-ramping” (removing contractors) from a multiple-award contract to maintain a current, competitive, and innovative pool of vendors. New Alternates I and II to provision 52.216-22, Indefinite Quantity, are included to provide for off-ramps with various cancellation policies.

This change is expected to benefit the Government through ensuring continued competition throughout the life of a multiple-award contract and through cost savings in reducing the payment of minimums for awardees who choose not to engage in order competitions under the multiple-award contract. This is expected to benefit contractors in allowing for the ability to propose to enter existing indefinite delivery vehicles, and to choose to exit multiple-award contracts to avoid administrative expenses without the use of termination procedures or costly negotiations.

1.4 Inclusion of Blanket Purchase Agreements (BPAs) under Multiple-Award Contracts.

The proposed rule includes the policies and procedures to issue and use BPAs under multiple-award contracts, similar to those permitted under the Federal Supply Schedules. BPAs are anticipated to facilitate strategic demand management, especially for IT, professional services, and recurring operational support. BPAs would allow for concentrated competition amongst vendors with relevant capabilities and aligned pricing models, resulting in higher-quality proposals and better mission outcomes. Agencies may create small business BPAs to support sustained participation of small business vendors.

This change is expected to benefit the Government in encouraging use of existing multi-award contracts by reducing transaction costs for repetitive buys through the use of pre-priced supplies or services, allowing agencies to move faster without sacrificing competition. This rule would reduce administrative burden for contractors and Government, by removing the need for repetitive order solicitations, duplicative evaluations, and duplicative documentation.

Because prices for out-years or additional items can be set competitively in the initial issuance of a BPA, this rule is expected to benefit contractors in increased utilization of existing multi-award contracts and reduced proposal costs for new orders and sole-source modifications. Vendors under BPAs know to expect recurring opportunities, allowing agencies to recognize cost savings through ceiling rates and volume-based or tiered pricing.

1.5 Significant Reorganization of Ordering Procedures for Task-Order Contracts and Delivery-Order Contracts.

The rule would reorganize the postaward ordering placement into two sections: 16.606, which is applicable to all task-order contracts and delivery-order contracts, regardless of the number of awardees, and 16.607, which is applicable to multiple-award contracts only. Section 16.607 would provide tailored procedures based on dollar thresholds—including micro-purchase rules and fair-opportunity requirements—and reinforces the contracting officer's discretion in order placement procedures. By encouraging innovation and customized acquisition strategies, these improvements would strengthen competition and allow more tailored ordering solutions.

These changes are expected to benefit both the Government and contractors with clear requirements, shorter order solicitations, streamlined comparisons instead of traditional Part 15-adjacent source selections, and the potential to reduce proposal costs through the use of task and delivery order solicitations that only require information needed to make an informed selection decision.

1.6 Inclusion of FAR Case 2020-005, Explanations to Unsuccessful Offerors on Certain Orders Under Task-Order Contracts and Delivery-Order Contracts (88 FR 53855).

To align with section 874 of the FY2020 NDAA, the rule would require agencies to send brief written explanations upon request to contractors who competed but did not win task or delivery orders valued between the SAT and $7.5 million. This change would bolster transparency, giving industry insight into evaluation results and helping them refine future proposals and ensuring consistency and fairness in feedback delivery.

1.7 Streamlining of 52.216-7, Allowable Cost and Payment.

The proposed rule would remove a number of required items for an adequate indirect cost proposal in clause 52.216-7, Allowable Cost and Payment, paragraph (d)(2)(iii). The removal of these items would reduce the amount of information required from contractors for an incurred cost audit submission, and would therefore provide a reduction in the time required for contract closeout and impact settlement agreements. Less information required from the contractors would reduce the time the Government requires to analyze this information.

2. Part 17.

This proposed rule would implement revisions to FAR Part 17, Special Contracting Methods, that are expected to have a positive impact and reduce burden on both industry and the Government.

2.1 Removal of the General Five-Year Limitation on Contract Duration.

The proposed rule would replace the non-statutory five-year limitation on contract duration for all contracts previously included at 17.204(e) with a requirement to “follow any statutory or regulatory limits on contract duration.” This removal would allow agencies to more easily align contract structure with mission realities, allowing for contracts to be re-competed when performance demands versus an arbitrary calendar. For those actions not restricted by statute or regulation, duration would be a business judgement based on what best supports mission outcomes, competition, and value.

For the Government, contract durations based on mission needs instead of an arbitrary, unrelated timeline would result in more realistic acquisition strategies, fewer workaround structures, and better mission continuity. Competition is still a motivator for positive performance, either for future solicitations or for orders under multiple-award contracts or blanket purchase agreements.

This change would allow for contractors to spread startup costs over longer periods, capture lifecycle savings, and avoid paying repeatedly for “year one” inefficiencies, providing for an overall lower total cost of projects. Framing contract duration based on mission needs instead of an arbitrary five-year limitation would reduce the burden of too-frequent competition, including the acquisition resources, proposal costs, and performance risk associated, allowing teams to focus on mission delivery. Realistic contract durations based on mission needs would allow contractors to invest in workforce development, process

improvement, and price more rationally to create value over the long term. By reducing the competition cycle, this change would help to alleviate contractor workforce attrition and the associated knowledge and morale loss.

2.2 Modernize Option for Increased Quantity Clauses to Apply to Both Services and Supplies.

The proposed rule would provide contracting officers with a corresponding policy to allow the use of FAR clause 52.217-6, Option for Increased Quantity, and 52.217-7, Option for Increased Quantity—Separately Priced Line Item, when procuring additional quantities of supplies or services during a contract's performance period. These clauses were previously only applicable to supplies.

The use of these clauses for services would enable the initial competition to reflect the anticipated reality of the mission instead of having to react to it. The inclusion of such a clause during initial competition of the contract would allow for the prices included for such surge requirements to be determined on the basis of competition, rather than negotiated as a sole-source modification during contract administration.

This rule is expected to benefit the Government and contractors in allowing for competitively priced volume-based or tiered pricing for additional services, resulting in lower total cost and administrative burden.

This rule would reduce acquisition time and costs associated with seeking a deviation or drafting of acquisition-unique clauses for such an effort, which has been a common practice across the Government. The cost and lead time associated with exercising an option for increased quantity is significantly lower than that of issuing a sole-source modification or engaging in a competition for a new award of the same items. This rule therefore eliminates redundant solicitations, reduces the review cycle, and allows for more meaningful competition reflective of the anticipated future need.

For contractors, this rule is expected to provide visibility into potential future requirements and a clear ceiling for additional work, allowing for better planning and more accurate forecasting. These elements would result in lower bid and proposal costs because neither a new competition nor a sole-source modification would be required.

2.3 Modernize Option to Extend Services to Apply to Services and Supplies.

The proposed rule would allow for the use of clause 52.217-8, Option to Extend Services, renamed Option to Extend, in task-order contracts and delivery-order contracts for requirements other than services. This clause allows for the Government to continue to utilize an existing contract for up to six months at the current rate. Applicability of this clause was previously limited to only service contracts.

This change would allow the Government to plan for necessary extensions to existing contracts at the same price due to complex transitions, slipped awards, delayed appropriations, and protests. The use of this clause would prevent the loss of leverage and unfavorable terms often experienced in last-minute negotiations for critical needs.

This change would allow for reduced acquisition time and costs associated with negotiating a sole-source modification or engaging in a competition for a new award for the same items. This change therefore is expected to eliminate redundant solicitations and reduce the review cycle, allowing the Government and the contractor to focus on the mission and not expensive and time-intensive proposals and negotiations.

2.4 Addition of Language on Handling of Expiring Contracts During a Lapse in Appropriations.

The proposed rule would include a new paragraph in clauses 52.217-8, Option to Extend Services, renamed Option to Extend, and 52.217-9, Option to Extend the Term of Contract, to allow for the Government and contractor to toll or delay the option exercise time period up to 30 days after the resumption of Government operations in the event the period to exercise the option ends during a lapse in appropriations.

The addition of this paragraph would allow for a more expedient return to operations and allow for reduced transaction costs as a result of a Government shutdown for both the Government and contractors. This change would allow for reduced acquisition time and costs associated with negotiating a sole-source contract or engaging in a competition for a new award due to contracts with actionable option periods ending during a lapse in appropriations.

For the Government, this change would reduce the risk of lapses of critical supplies or services and prevent the loss of leverage and unfavorable terms often experienced in last-minute negotiations for critical needs. This change is expected to reduce future urgent solicitations and the associated review cycle, allowing the Government and the contractor to focus on the mission and not expensive and time-intensive proposals and negotiations.

2.5 Changes to Management and Operating Contracts.

The proposed rule would remove language regarding competition and reviews of contractor performance for Management and Operating contracts. Removal of this non-statutory language would reduce confusion and emphasize the use of competition in accordance with the Competition in Contract Act of 1984. This is expected to benefit the Government, as competition is the main driver of price reasonableness. This is expected to benefit potential contractors, as well—providing space to compete long-held sole-source contracts.

2.6 Incorporation of FAR Case 2023-0003, Prohibition on the Use of Reverse Auctions for Complex, Specialized, or Substantial Design and Construction Services (89 FR 70157).

The proposed rule would amend the FAR to implement section 2 of the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28). This proposed change is not expected to have a significant impact on the public or the Government because the rulemaking does not supersede current statutory direction on the use of FAR part 36 procedures for construction. Contracting officers would still be required to conduct market research to determine the most appropriate contracting method for the particular procurement. Requirements for sealed bidding, design-build construction, and architect-engineering services would remain unchanged.

Offerors participating in competitive procurements that are valued at or below the SAT would still be provided advance notices and solicitations in accordance with FAR 36.211 and for actions anticipated to be awarded to a small business, 15 U.S.C. 644(w). Use of a reverse auction as the method of obtaining pricing would not impact these requirements.

3. Part 35 Research and Development.

This proposed rule would implement revisions to FAR part 35, Research and Development Contracting, that are not expected to have a significant impact on contractors, subcontractors, or the Government. The proposed changes to FAR part 35 are primarily removal of superfluous information and clarification of existing policies.

V. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is

necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is a significant regulatory action and, therefore, was subject to review under Section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.

VI. Executive Order 14192

This rule is subject to E.O. 14192, Unleashing Prosperity Through Deregulation. This proposed rule, if finalized as proposed, is anticipated to be an E.O. 14192 deregulatory action. See discussion in the “Expected Impact of the Rule” section of this preamble.

VII. Regulatory Flexibility Act

This proposed rule, if finalized, may have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601-612. However, an Initial Regulatory Flexibility Analysis (IRFA) is as follows:

1. Reasons for the action.

Executive Order (E.O.) 14275, Restoring Common Sense to Federal Procurement, directs the elimination of excessive acquisition regulations to stop the inefficient use of American taxpayer dollars. The E.O. directs the first comprehensive end-to-end overhaul of the FAR in its 40-year history. The E.O. establishes the policy that the FAR should “contain only provisions that are required by statute or that are otherwise necessary to support simplicity and usability, strengthen the efficacy of the procurement system, or protect economic or national security interests.” In response to E.O. 14275, the Office of Management and Budget issued memorandum M-25-26, Overhauling the Federal Acquisition Regulation. The Memo directed the FAR Council to complete a “revolutionary overhaul” of the FAR. Therefore, the FAR Council is issuing twelve proposed rules that collectively, if finalized, will streamline the FAR in its entirety.

2. Objectives of, and legal basis for, the rule.

The revolutionary FAR overhaul (RFO) rewrite represents a paradigm shift in Federal acquisition. It emphasizes streamlining, clarity, and accessibility, while ensuring that the regulation focuses only on statutory mandates and foundational procurement principles. The RFO is designed to simplify compliance for contracting professionals, improve acquisition speed and agility, and reinforce mission outcomes over process formalities.

The basis for the RFO is E.O. 14275. The authority for promulgation of the FAR is 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.

3. Description of and an estimate of the number of small entities to which the rule will apply.

All small entities who want to contract with the Federal Government will have to familiarize themselves with the reorganized, streamlined, and revised FAR, including the content of this rulemaking. As of January 2026, there are 401,196 entities registered in the System for Award Management (SAM) that were small for at least one North American Industry Classification System (NAICS) code they had selected.

Proposed revisions to FAR parts 16, 17, and 35, and associated changes in FAR part 52, apply broadly to all Federal offerors and contractors, including small businesses across all sectors.

This proposed rule may have a positive impact on small entities by simplifying and streamlining acquisition regulations. Because these changes do not impose new reporting, recordkeeping, or compliance obligations on contractors, including small entities, and do not require changes to internal systems, ethics programs, or business practices, they are not expected to result in additional costs. Accordingly, the proposed revisions to FAR parts 16, 17, and 35 and associated changes in FAR part 52 do not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act.

4. Description of projected reporting, recordkeeping, and other compliance requirements of the rule.

This proposed rule does not create any new reporting, recordkeeping, or other compliance requirements. Instead, this proposed rule, if finalized, would reduce the following existing reporting requirements.

a. Clause 52.216-7, Allowable Cost and Payment, (d)(2)(iii) would be edited to reduce the required data to be submitted to support an adequate indirect cost rate proposal. For more information about the changes to reporting requirements, see section VIII of this notice.

b. Clause 52.216-15, Predetermined Indirect Cost Rates. This clause repeats the requirement in the clause at FAR 52.216-7, paragraph (d), for the contractor to submit an adequate final indirect cost rate proposal, and therefore the same expected reduction in reporting requirements.

5. Relevant Federal rules which may duplicate, overlap, or conflict with the rule.

The proposed rule, if finalized, would not duplicate, overlap, or conflict with other Federal rules.

6. Description of any significant alternatives to the rule which accomplish the stated objectives of applicable statutes, and which minimize any significant economic impact of the rule on small entities.

The FAR Council has not, at this stage, identified any significant alternatives that would minimize the impact of the rule on small entities while also implementing the requirements of E.O. 14275. The FAR Council will consider any significant alternatives identified by commenters for the final rule.

The Regulatory Secretariat Division has submitted a copy of the IRFA to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the IRFA may be obtained from the Regulatory Secretariat Division. The FAR Council invites comments from small business concerns and other interested parties on the expected impact of this proposed rule on small entities.

The FAR Council will also consider comments from small entities concerning the existing regulations in subparts affected by the rule in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite “5 U.S.C. 610 (FAR Case 2026-006)” in correspondence.

VIII. Paperwork Reduction Act

This rule includes information collections under the Paperwork Reduction Act (44 U.S.C. 3501-3521). Following are the specific collections associated with each FAR part in this rule as previously approved by OMB followed by how each collection would be affected by the proposed rule. If a FAR part is not listed below, then there are no information collections associated with the part.

A. FAR Part 16

1. OMB Control No. 9000-0067, Certain Federal Acquisition Regulation Part 16 Contract Pricing Requirements—FAR Sections Affected: 52.216-2, 52.216-3, 52.216-4, 52.216-5, 52.216-6, 52.216-16, and 52.216-17.

The changes under this proposed rule, if finalized, would not affect the information collection or the paperwork burden previously approved by OMB. The collection would remain unchanged.

2. OMB Control No. 9000-0069, Indirect Cost Rate Proposals, Payments to Small Business Subcontractors, and Bankruptcy Notifications—FAR Sections Affected: 52.216-7, 52.216-15, 52.242-4, 52.242-5 and 52.242-13.

The changes under this proposed rule, if finalized, would revise this information collection and the paperwork burden previously approved by OMB.

a. Clause 52.216-7, Allowable Cost and Payment, (d)(2)(iii) has been edited to reduce the required data to be submitted to support an adequate indirect cost rate proposal.

Paragraph (j), Subcontract Information, is now limited to only those subcontracts with a value exceeding the threshold for requiring certified cost or pricing data as prescribed in FAR 15.403-3.

The detailed information previously required by paragraph (k) for time-and-materials and labor-hour contracts such as labor rates, labor hours, and other detailed costs elements was removed and relocates only the summary level information to paragraph (h).

Paragraph (l), which required submission of reconciliation of total payroll per IRS form 941 to total labor costs distribution, is removed in its entirety.

The information previously required by paragraph (o) for contracts physically completed in this fiscal year has been relocated to paragraph (h) and is limited to level-of-effort information, contract ceiling amount, and an indication of whether the contract is ready to close. Contract fee computations are no longer required.

The proposed changes are expected to decrease the overall burden related to the preparation and submission of incurred costs proposals and streamline the initial determination adequacy. Contractors will spend less time preparing the submission and estimate 10 percent based on the statements from Industry in their response to OIRA's Request for Information (RFI) for burden reduction suggestion. In addition, contractors and Government will spend less time reviewing and discussing information that provide little value to the initial adequacy determination. These changes will promote efficiency in the setting of final indirect cost rates.

b. Clause 52.216-15, Predetermined Indirect Cost Rates, repeats the requirement in the clause at FAR 52.216-7, paragraph (d), for the contractor to submit an adequate final indirect cost rate proposal, however it does not impose any additional reporting requirements.

c. The revised annual burden is estimated as follows:

Respondents/Recordkeepers:

6,265.

Total Annual Responses:

6,265.

Total Burden Hours:

1,353,807.

B. Comments Regarding Paperwork Burden

The FAR Council will publish a separate first notice in accordance with the Paperwork Reduction Act seeking comments on the changes to the collections of information affected by this proposed rule.

IX. Severability

If any portion (

e.g.,

section, clause, sentence) of this rule is held to be invalid or unenforceable facially, or as applied to any entity or circumstance, it shall be severable from the remainder of this rule, and shall not affect the remainder thereof, or its application to entities not similarly situated or to other dissimilar circumstances. The various portions of this rule are independent and serve distinct purposes. Even if one aspect were rendered invalid, the other benefits of the rule would still be applicable.

List of Subjects in 48 CFR Parts 16, 17, 35, and 52

Government procurement.

William F. Clark,

Director, Office of Government-wide Acquisition Policy, Office of Acquisition Policy, Office of Government-wide Policy.

Therefore, OFPP, DoD, GSA, and NASA propose amending 48 CFR parts 16, 17, 35, and 52 as set forth below:

1. Revise parts 16, 17, and 35 to read as follows:

PART 16—TYPES OF CONTRACTS

Sec.

16.000

Scope of part.

16.001

Definitions.

Subpart 16.1—Selecting Contract Types

16.101

Policies.

16.102

Negotiating contract type.

16.103

Documenting contract type.

16.104

Executive Order 14402 justification for covered contracts and orders.

16.105

Solicitation provision.

Subpart 16.2—Fixed-Price Contracts

16.201

General.

16.202

Firm-fixed-price contracts.

16.202-1

Description.

16.202-2

Application.

16.202-3

Required content.

16.203

Fixed-price contracts with economic price adjustment.

16.203-1

Description.

16.203-2

Application.

16.203-3

Limitations.

16.203-4

Contract clauses.

16.204

Fixed-price contracts with prospective price redetermination.

16.204-1

Description.

16.204-2

Application.

16.204-3

Limitations.

16.204-4

Contract clause.

16.205

Fixed-ceiling-price contracts with retroactive price redetermination.

16.205-1

Description.

16.205-2

Application.

16.205-3

Limitations.

16.205-4

Contract clause.

16.206

Firm-fixed-price, level-of-effort term contracts.

16.206-1

Description.

16.206-2

Application.

16.206-3

Limitations.

Subpart 16.3—Cost-Reimbursement Contracts

16.301

General.

16.301-1

Description.

16.301-2

Application.

16.301-3

Limitations.

16.302

Cost contracts.

16.303

Cost-sharing contracts.

16.304

Cost-plus-fixed-fee contracts.

16.304-1

Description.

16.304-2

Limitations.

16.304-3

Completion and term forms.

16.305

Contract clauses.

Subpart 16.4—Incentive Contracts

16.401

General.

16.401-1

Description.

16.401-2

Limitations.

16.401-3

Collection and analysis of fee data.

16.401-4

Incentive strategy best practices.

16.402

Award-fee.

16.402-1

Application.

16.402-2

Limitations.

16.402-3

Fixed-price contracts with award fees.

16.402-4

Cost-plus-award-fee contracts.

16.403

Application of predetermined, formula-type incentives.

16.403-1

Cost incentives.

16.403-2

Performance incentives.

16.403-3

Delivery incentives.

16.403-4

Structuring multiple-incentive contracts.

16.404

Fixed-price cost incentive contracts.

16.404-1

Fixed-price cost incentive (firm target) contracts.

16.404-2

Fixed-price cost incentive (successive targets) contracts.

16.405

Cost-plus-incentive-fee contracts.

16.406

Contract clauses.

Subpart 16.5—Time-and-Materials and Labor-Hour Contracts

16.500

Scope.

16.501

Time-and-materials contracts.

16.501-1

Description.

16.501-2

Application.

16.501-3

Limitations.

16.501-4

Solicitation provisions.

16.501-5

Postaward requirements.

16.502

Labor-hour contracts.

Subpart 16.6—Indefinite-Delivery Contracts

16.600

Scope.

16.601

General.

16.601-1

Definitions.

16.601-2

Policies.

16.602

Definite-quantity contracts.

16.602-1

Description.

16.602-2

Application.

16.603

Requirements contracts.

16.603-1

Description.

16.603-2

Application.

16.603-3

Limitations.

16.603-4

Required content.

16.604

Indefinite-quantity contracts.

16.604-1

Description.

16.604-2

Application.

16.604-3

Multiple award preference.

16.604-4

On-ramps and off-ramps.

16.604-5

Required content.

16.605

Solicitation provisions and contract clauses.

16.606

Postaward procedures for placement of task and delivery orders.

16.607

Additional ordering procedures for multiple-award contracts.

16.607-1

Placement of orders valued at or below the micro-purchase threshold.

16.607-2

Fair opportunity procedures.

16.607-3

Orders exceeding the micro-purchase threshold but not more than the SAT.

16.607-4

Orders exceeding the SAT but not more than $7.5 million.

16.607-5

Orders exceeding $7.5 million.

16.607-6

Exceptions to fair opportunity.

16.607-7

Items peculiar to one manufacturer.

16.608

Protests of orders.

Subpart 16.7—Letter Contracts

16.701

Description.

16.702

Application.

16.703

Limitations.

16.704

Contract clauses.

Subpart 16.8—Agreements

16.801

Scope.

16.802

Basic agreements.

16.802-1

Description.

16.802-2

Application.

16.802-3

Limitations.

16.803

Basic ordering agreements.

16.803-1

Description.

16.803-2

Application.

16.803-3

Limitations.

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.

16.000

Scope of part.

This part prescribes policies and procedures for selecting contract type(s) appropriate to the circumstances of the acquisition. Except for limited instructions regarding the placement of task and delivery orders, the entirety of this part applies to the pre-solicitation phase and is meant to guide acquisition planning.

16.001

Definitions.

As used in this part—

Award-Fee Board

means the team of individuals identified in the award-fee plan who have been designated to assist the Fee-Determining Official in making award-fee determinations.

Consumption-based solution

means a model under which a service is provided to the Government and may utilize any combination of software, hardware or equipment, data, and labor or services that provides a capability that is metered and billed based on actual usage at fixed-price units.

Established price

means a price that—

(1) Is an established catalog or market price for a commercial product or commercial service 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

means the designated agency official(s) who reviews the recommendations of the Award-Fee Board in determining the amount of award fee to be earned by the contractor for each evaluation period.

Rollover of unearned award fee

means the process of transferring unearned award fee, which the contractor had an opportunity to earn, from one evaluation period to a subsequent evaluation period, thus allowing the contractor an additional opportunity to earn that previously unearned award fee.

Subpart 16.1—Selecting Contract Types

16.101

Policies.

(a) Unless expressly prohibited by statute or this regulation, contract types that promote the best interests of the Government, but are not described in this regulation, are permitted for use in accordance with agency procedures (see 10 U.S.C. 3321(a) and 41 U.S.C. 3901). Ensure selection of contract type is consistent with the Guiding Principles for the System in 1.102.

(b) Do not use a cost-plus-a-percentage-of-cost system of contracting (see 10 U.S.C. 3322(a) and 41 U.S.C. 3905(a)).

(c) Prime contracts (including letter contracts) other than firm-fixed-price contracts must, by an appropriate clause, prohibit cost-plus-a-percentage-of-cost subcontracts (see clauses prescribed in part 44 for cost-reimbursement contracts and part 16 for fixed-price contracts).

16.102

Negotiating contract type.

(a)(1) Selecting the contract type is generally a matter for negotiation and requires the exercise of sound judgment. Consider contract terms, risks (

e.g.,

technical, performance, delivery), and pricing.

(2) Contracting officers may instruct offerors in the solicitation to propose an alternative contract type within their response to the solicitation.

(b) Fixed-price contract types are the default and preferred contract types. If a fixed-price contract type is not appropriate for an entire contract, consider whether a portion of the contract can be established on a fixed-price basis.

(c) Use a firm-fixed-price contract (see section 16.202) 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, consider other contract types and negotiate a contract type (or combination of types) that will appropriately tie profit to contractor performance.

(d) In the course of an acquisition program, a series of contracts, or a single long-term contract, changing circumstances may necessitate different contract types than those used initially. Contracting officers should avoid extended use of a cost-reimbursement or time-and-materials contract after experience provides a basis for firmer pricing.

16.103

Documenting contract type.

(a) Except as identified in paragraph (b) of this section, document and explain in the acquisition plan, or in the contract file if a written acquisition plan is not required by agency procedures—

(1) Why the contract type selected must be used to meet the agency's needs. For other than fixed-price contracts, discuss—

(i) An analysis of why the use of other than a fixed-price contract (

e.g.,

cost reimbursement, time-and-materials, labor hour, innovative contract type) is appropriate;

(ii) Rationale that details specific facts and circumstances (

e.g.,

lack of incentive to control costs, complexity of the requirements, uncertain work duration, contractor's technical capability and financial responsibility, or adequacy of the contractor's accounting system), and associated reasoning essential to support the contract type selection;

(2) The Government's risks and the burden to manage the contract type selected. As applicable, discuss—

(i) How the Government identified the risks (

e.g.,

pre-award survey, or past performance information);

(ii) The nature of the risks (

e.g.,

inadequate contractor's accounting system, weaknesses in contractor's internal control, non-compliance with Cost Accounting Standards, or lack of or inadequate earned value management system); and

(iii) How the Government will manage and mitigate the risks;

(3) An assessment of whether Government resources are adequate to properly plan for, award, and administer the contract type selected (

e.g.,

resources needed and the additional risks to the Government if adequate resources are not provided);

(4) Why a level-of-effort, price redetermination, or fee provision was included; and

(5) For other than a fixed-price contract, a discussion of planned actions to minimize the use of other than fixed-price contracts on future acquisitions for the same requirement and to transition to fixed-price contracts to the maximum extent practicable.

(b) Documentation of contract type is not required for the following:

(1) Fixed-price acquisitions made under simplified acquisition procedures.

(2) Contracts on a firm-fixed-price basis (see section 16.202) other than those for major systems or research and development.

16.104

Executive Order 14402 justification for covered contracts and orders.

(a)

Definition.

As used in this section,

covered contract or order

means a contract or order that is—

(1) Other than fixed-price;

(2) Firm-fixed-price, level-of-effort term; or

(3) A hybrid contract that includes one or more elements described in paragraphs (1) and (2).

(b)

Policy.

This section implements Executive Order 14402, Promoting Efficiency, Accountability, and Performance in Federal Contracting, April 30, 2026. The head of the agency must approve a written justification described in paragraph (d) of this section prior to using a covered contract or order.

(c)

Application.

(1)

Thresholds.

Unless an exception in paragraph (e) of this section applies, a justification is required for covered contracts and orders valued at or above—

(i) $100 million, for DoD;

(ii) $35 million, for NASA;

(iii) $25 million, for Department of Homeland Security; or

(iv) $10 million, for all other Federal agencies.

(2)

Hybrid contracts or orders.

A hybrid contract or order is a covered contract or order when the value of the other than fixed-price or firm-fixed-price, level-of-effort term portion meets or exceeds the thresholds.

(3)

Single-award indefinite-delivery contracts.

A single-award indefinite-delivery contract (IDC) is a covered contract if the estimated total value of the known and forecasted covered orders meets or exceeds the thresholds. Use the contract ceiling price if the contract only allows for covered orders.

(4)

Blanket purchase agreements.

The head of the agency decides whether the justification requirement applies when the blanket purchase agreement (BPA) is awarded, or when each order under the BPA is placed.

(5)

Duration of a justification.

An approved justification is valid for the duration of the contract or order.

(d)

Procedures.

(1) Submit to the head of the agency the required justification for approval that includes—

(i) The information in section 16.103; and

(ii) Any determination and findings required for the contract type (see 12.104(b)(1), 16.401-2, 16.501-3).

(2) The head of the agency may only delegate the justification approval to the chief acquisition officer of the agency or another non-career official in the Senior Executive Service within the agency.

(e)

Exceptions.

The justification requirement does not apply to—

(1) Multiple-award contracts. However, the justification requirement does apply to task orders, delivery orders, and BPAs under those contracts;

(2) Contracts in support of a response to an emergency, major disaster, or contingency operation;

(3) Research and development contracts or orders (see part 35); or

(4) Pre-production development for a major system acquisition (see part 34).

16.105

Solicitation provision.

The contracting officer may complete and insert the provision at 52.216-1, Type of Contract, in a solicitation, including those for commercial products and commercial services. When the solicitation provides the opportunity for an offeror to propose an alternative contract type, use the provision with its Alternate I.

Subpart 16.2—Fixed-Price Contracts

16.201

General.

(a) Fixed-price types of contracts provide for a firm price or, in certain cases, an adjustable price. Fixed-price contracts with adjustable prices 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 may only be adjusted through contract clauses that provide for equitable adjustment or other revision of the contract price under stated circumstances.

(b) Use firm-fixed-price or fixed-price with economic price adjustment contracts when acquiring commercial products and commercial services, except as provided in 12.104.

(c) Time-and-materials contracts and labor-hour contracts are not fixed-price contracts.

16.202

Firm-fixed-price contracts.

16.202-1

Description.

(a)

General.

A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor's experience in performing the contract.

(b)

Incentives.

The contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.402) and performance or delivery incentives (see 16.403-2 and 16.403-3) 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.

16.202-2

Application.

(a)

General.

A firm-fixed-price contract is suitable for acquiring supplies or services on the basis of clearly defined functional or detailed specifications (see part 11) when the contracting officer can establish fair and reasonable prices at the outset.

(b)

Consumption basis.

Contracting officers may acquire consumption-based solutions where supplies and services are capable of being metered and billed based on actual usage as fixed-price units.

16.202-3

Required content.

When acquiring on a consumption basis, the contract must include the following:

(a) Predetermined pricing at fixed-price units. The contractor may offer volume discounts or other equitable adjustments to the unit price(s) without changing the contract type.

(b) A guaranteed minimum, a ceiling, and fiscal controls limiting the agency's obligation to the obligated funding identified in the contract (see part 32).

(c) A requirement for the contractor to notify the contracting officer when the Government has used 75 percent and 90 percent of the funded amount, respectively, of the contract.

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 when specific events occur. Economic price adjustments are of three general types:

(1) Adjustments based on established prices. These price adjustments are based on increases or decreases from an agreed-upon level in published or established prices of specific items or the contract end items.

(2) Adjustments based on actual costs of labor or material. These price adjustments are based on increases or decreases in specified costs of labor or material that the contractor actually experiences during contract performance.

(3) Adjustments based on cost indexes of labor or material. These price adjustments are based on increases or decreases in labor or material cost standards or indexes that are specifically identified in the contract.

(b) The contracting officer may use a fixed-price contract with economic price adjustment in conjunction with an award-fee incentive (see 16.402) and performance or delivery incentives (see 16.403 and 16.404). This combination is appropriate 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.

16.203-2

Application.

(a) A fixed-price contract with economic price adjustment may be used when—

(1) There is serious doubt concerning the stability of market or labor conditions that will exist during an extended period of contract performance; and

(2) Contingencies that would otherwise be included in the contract price may 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 part 14.

(b) When establishing the base level from which adjustments will be made, do not include contingency allowances in both the base price and the adjustment requested by the contractor under the economic price adjustment clause.

(c) In contracts that do not require submission of certified cost or pricing data, obtain adequate data to establish the base level from which adjustment will be made and require verification of data submitted if necessary.

16.203-3

Limitations.

A fixed-price contract with economic price adjustment may be used only if the contracting officer determines that it is necessary 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.

(1) Insert the clause at 52.216-2, Economic Price Adjustment-Standard Supplies, or an agency-prescribed clause, in solicitations and contracts, including those for commercial products or commercial services, when contracting by negotiation and all of the following conditions apply:

(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) 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.

(1) Insert the clause at 52.216-3, Economic Price Adjustment-Semistandard Supplies, or an agency-prescribed clause in solicitations and contracts, including those for commercial products or commercial services, when contracting by negotiation and all of the following conditions apply:

(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) 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.

(3) If the supplies are standard, except for preservation, packaging, and packing requirements, the clause prescribed in 16.203-4(a) must be used rather than this clause.

(4) 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.

(1) Insert a clause that is substantially the same as the clause at 52.216-4, Economic Price Adjustment-Labor and Material, or an agency-prescribed clause in solicitations and contracts, including those for commercial products and commercial services, when contracting by negotiation and all of the following conditions apply:

(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) 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.

(3) When negotiating adjustments under the clause—

(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(l) or profit); and

(iii) Consider only those fringe benefits specified in the contract Schedule.

(4) 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.

The contracting officer should consider using an economic price adjustment clause based on cost indexes of labor or material in solicitations and contracts, including those for commercial products or commercial services, under the circumstances described in paragraphs(d)(1) and (d)(2) of this section.

(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 must be prepared and approved using agency procedures.

16.204

Fixed-price contracts with prospective price redetermination.

16.204-1

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.

16.204-2

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.

16.204-3

Limitations.

This contract type may only be used when—

(a) Negotiations have established that using a firm-fixed-price or fixed-price cost incentive contract is not appropriate for the acquisition;

(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.

16.204-4

Contract clause.

Insert the clause at 52.216-5, Price Redetermination-Prospective, in solicitations and contracts, other than those for commercial products or commercial services, when contracting by negotiation, a fixed-price contract is contemplated, and the conditions specified in 16.204-2 and 16.204-3 apply.

16.205

Fixed-ceiling-price contracts with retroactive price redetermination.

16.205-1

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.

16.205-2

Application.

A fixed-ceiling-price contract with retroactive price redetermination is appropriate 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 must 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.

16.205-3

Limitations.

This contract type may only be used when—

(a) The contract is for research and development and the estimated cost is at or below the simplified acquisition threshold (SAT);

(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.

16.205-4

Contract clause.

Insert the clause at 52.216-6, Price Redetermination-Retroactive, in solicitations and contracts, other than those for commercial products or commercial services, when a fixed-price contract is contemplated and the conditions in 16.205-2 and 16.205-3 apply.

16.206

Firm-fixed-price, level-of-effort term contracts.

16.206-1

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 towards a deliverable that can be described in general terms; and

(b) The Government to pay the contractor a fixed dollar amount for the effort.

16.206-2

Application.

A firm-fixed-price, level-of-effort term contract is suitable for investigation or study in a specific research and development area. The deliverable 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.

16.206-3

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 deliverable cannot be achieved by expending less than the stipulated effort; and

(d) The agency head approves a justification if required by 16.104.

Subpart 16.3—Cost-Reimbursement Contracts

16.301

General.

16.301-1

Description.

Cost-reimbursement contracts allow for the reimbursement of allowable incurred costs. These contracts establish an estimate of total cost for the purpose of obligating funds and establishing a ceiling value that the contractor may not exceed (except at its own risk) without the approval of the contracting officer.

16.301-2

Application.

Use cost-reimbursement contracts only when—

(a) The requirements cannot be sufficiently defined to allow for a fixed-price type contract; or

(b) Uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy to use any type of fixed-price contract.

16.301-3

Limitations.

(a) A cost-reimbursement contract may be used only when—

(1) A written acquisition plan has been approved at least one level above the contracting officer (see 7.102(d));

(2) The agency head approves a justification if required by 16.104;

(3) The contractor's accounting system can adequately segregate, accumulate and allocate costs specifically attributed to the contract or order during contract performance; and

(4) Before award of the contract or order, sufficient Government resources are available to award and manage a contract other than firm-fixed-priced (see part 7). This includes designating a contracting officer's representative to monitor contractor performance and cost controls (see part 1).

(b) The use of cost-reimbursement contracts is not allowed for the purchase of commercial products and commercial services (see part 12).

16.302

Cost contracts.

A cost contract is a cost-reimbursement contract that does not include fee.

16.303

Cost-sharing contracts.

A cost-sharing contract is a cost-reimbursement contract that does not include fee, and the Government

reimburses only a portion of the allowable costs. State in the contract the agreed upon portion or percentage of allowable costs that will be reimbursed.

16.304

Cost-plus-fixed-fee contracts.

16.304-1

Description.

A cost-plus-fixed-fee contract is a cost-reimbursement contract that includes payment of an agreed upon fixed-fee. The fixed fee does not change with actual cost but may be adjusted as a result of changes in the work to be performed under the contract.

16.304-2

Limitations.

A cost-plus-fixed-fee contract must not be awarded unless the contracting officer complies with all limitations listed at 15.404-9 and 16.301-3.

16.304-3

Completion and term forms.

A cost-plus-fixed-fee contract may take one of two basic forms-completion or term.

(a) 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, if the work costs more than estimated, the Government may increase allowable costs to complete the work without increasing the fee.

(b) The term form describes the scope of work in general terms and requires the contractor to work at a specified level of effort for a specific time period. The term form may not be used unless required by the contract to provide a specific level of effort within a definite time period. Under this form, if the performance is considered satisfactory by the Government, the fixed fee is payable at the end of the agreed upon period. Renewal for further periods of performance is a new acquisition that involves new cost and fee arrangements.

16.305

Contract clauses.

(a) Insert the clause at 52.216-7, Allowable Cost and Payment, in solicitations and contracts, other than those for commercial products or commercial services, when a cost-reimbursement contract, including cost-type incentive contracts described in subpart 16.4, or a time-and-materials contract is anticipated. 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, Payments under Time-and-Materials and Labor-Hour Contracts, 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. The clause at 52.216-7 does not apply to labor-hour contracts.

(1) Use the clause with its Alternate I for the acquisition of construction.

(2) Use the clause with its Alternate II if the contract is with an educational institution.

(3) Use the clause with its Alternate III if the contract is with a State or local government.

(4) Use the clause with its Alternate IV 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.

(b) Insert the clause at 52.216-8, Fixed Fee, in solicitations and contracts, other than those for commercial products or commercial services, when a cost-plus-fixed-fee contract (other than a construction contract) is anticipated.

(c) Insert the clause at 52.216-9, Fixed Fee-Construction, in solicitations and contracts, other than those for commercial products or commercial services, when a cost-plus-fixed-fee construction contract is anticipated.

(d) Insert the clause at 52.216-10, Incentive Fee, in solicitations and contracts, other than those for commercial products or commercial services, when a cost-plus-incentive-fee contract is anticipated.

(e)(1) Insert the clause at 52.216-11, Cost Contract-No Fee, in solicitations and contracts, other than those for commercial products or commercial services, when a cost-reimbursement contract that provides no fee and is not a cost-sharing contract is anticipated. This clause may be modified by substituting $10,000 in lieu of $100,000 as the maximum reserve in paragraph (b) if the contractor is a nonprofit organization.

(2) Use the clause with its Alternate I if a cost-reimbursement research and development contract with an educational institution or a nonprofit organization that provides no profit and is not a cost-sharing contract is anticipated, and if the contracting officer determines that withholding of a portion of allowable costs is not required.

(f)(1) Insert the clause at 52.216-12, Cost-Sharing Contract-No Fee, in solicitations and contracts, other than those for commercial products or commercial services, when a cost-sharing contract is anticipated. The contracting officer may modify the clause by substituting $10,000 in lieu of $100,000 as the maximum reserve in paragraph (b) if the contract is with a nonprofit organization.

(2) Use the clause with its Alternate I if a cost-sharing research and development contract with an educational institution or a nonprofit organization is anticipated, and if the contracting officer determines that withholding of a portion of allowable costs is not required.

(g) Insert the clause at 52.216-15, Predetermined Indirect Cost Rates, in solicitations and contracts, other than those for commercial products or commercial services, when a cost-reimbursement research and development contract with an educational institution (see part 42) is anticipated and predetermined indirect cost rates are to be used.

Subpart 16.4—Incentive Contracts

16.401

General.

16.401-1

Description.

(a) Incentive contracts are designed to obtain specific acquisition objectives by—

(1) Establishing realistic and achievable 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) Fixed-price and cost-reimbursement contracts may include incentives when appropriate.

(c) The two types of incentives are award-fee (16.402) and predetermined, formula-type incentives based on objective criteria including performance, delivery, cost, or multiple criteria (16.403, 16.404, and 16.405).

(1) Use objective criteria to the maximum extent practicable to measure contract performance.

(2) When predetermined, formula-type incentives on technical performance or delivery are included, profit or fee increases are only earned when performance exceeds the targets. Decreases apply when contractors fail to meet these targets. These incentive increases or decreases relate only to performance targets, not minimum performance requirements.

(3) Consider use of a multiple-incentive contract containing both objective incentives and subjective award-fee criteria when objective criteria exist but it is in the best interest of the Government to also incentivize subjective elements of performance.

(d) No incentive contract may provide for other incentives without also providing a cost incentive or constraint.

16.401-2

Limitations.

(a) A determination and findings, signed by the head of the contracting activity, must 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. The determination for award-fee contracts must address all of the suitability items in 16.402-1.

(b)(1) For cost-reimbursement incentive contracts, the agency head must approve a justification if required by 16.104.

(2) For fixed-price incentive contracts based solely on factors other than cost, a justification is not required.

16.401-3

Collection and analysis of fee data.

Each agency must collect relevant data on incentive and award fees paid to contractors and include performance measures to evaluate such data on a regular basis to determine effectiveness of incentive and award fees as a tool for improving contractor performance and achieving desired program outcomes. This information should be considered as part of the acquisition planning process (see part 7) in determining the appropriate type of contract to be used for future acquisitions.

16.401-4

Incentive strategy best practices.

Each agency head must provide processes for sharing proven incentive strategies for the acquisition of different types of products and services among contracting and program management officials.

16.402

Award-fee.

16.402-1

Application.

An award-fee contract is suitable for use when—

(a) The work to be performed is too complex or uncertain to set predetermined objective incentive targets applicable to cost, schedule, and technical performance;

(b) The likelihood of meeting acquisition objectives will be increased 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 circumstances under which work was achieved; and

(c) 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 16.401-2.

16.402-2

Limitations.

(a)

Justification for other than fixed-price.

For award-fee contracts, except for fixed-price award-fee contracts based solely on factors other than cost, the agency head must approve a justification, if required by 16.104.

(b)

Award-fee plan.

Do not award an award-fee contract unless an award-fee plan is completed in accordance with the requirements in paragraph (d) of this section.

(c)

Award-fee amount.

The amount of award fee earned must be in line with the contractor's overall cost, schedule, and technical performance as measured against contract requirements in accordance with the criteria stated in the award-fee plan. Award fee must not be earned if the contractor's overall cost, schedule, and technical performance in the aggregate is below satisfactory. The basis for all award-fee determinations must be documented in the contract file to include, at a minimum, a determination that overall cost, schedule, and technical performance in the aggregate is or is not at a satisfactory level. This determination and the approach for determining the award fee are unilateral decisions made solely at the discretion of the Government.

(d)

Award-fee plan.

All contracts providing for award fees must be supported by an award-fee plan that sets up the process for evaluating award fee and an Award-Fee Board for completing the award-fee evaluation. Award-fee plans must—

(1) Be approved by the Fee-Determining Official unless otherwise authorized by agency procedures;

(2) Identify the award-fee evaluation criteria and how they are connected to acquisition objectives which must 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;

(3) Describe how the contractor's performance will be evaluated against the award-fee evaluation criteria;

(4) Use the adjectival rating and associated description as well as the award-fee pool earned percentages shown in Table 16-1. Contracting officers may supplement the adjectival rating description. The approach 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 evaluated 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 evaluated 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 evaluated 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 evaluated 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 evaluated against the criteria in the award-fee plan for the award-fee evaluation period.

(5) Earning any award fee when a contractor's overall cost, schedule, and technical performance in the aggregate is below satisfactory is not allowed;

(6) 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.,

six months, nine months, twelve months, or at specific milestones); and

(7) Define the total award-fee pool amount and how this amount is allocated to each evaluation period.

(e)

Rollover of unearned award fee.

The use of rollover of unearned award fee is prohibited.

16.402-3

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 must establish a fixed-price (including normal profit) for the work, which will be paid for satisfactory contract performance. Any award fee earned will be paid in addition to that fixed-price. See 16.402-1 and 16.402-2 for the requirements on using this contract type.

16.402-4

Cost-plus-award-fee contracts.

(a) A cost-plus-award-fee contract is a cost-reimbursement contract that provides 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 fee that the contractor may earn in whole or in part to provide motivation for excellence in the areas of cost, schedule, and technical performance.

(b) See 16.301, 16.402-1, and 16.402-2 for the requirements relative to utilizing this contract type.

16.403

Application of predetermined, formula-type incentives.

16.403-1

Cost incentives.

(a) Cost incentives take the form of a profit or fee adjustment formula and are intended to motivate the contractor to effectively manage costs.

(b) Except for award-fee contracts (see 16.402), cost 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) If actual costs equal the target cost, the contractor will earn the target profit or fee;

(2) If actual costs exceed the target cost, the contractor's earned profit or fee will be lower than the target profit or fee; and

(3) If actual costs are less than the target cost, the contractor's earned profit or fee will be higher than the target profit or fee.

(c) See 16.404 for fixed-price cost incentive contracts and 16.405 for cost-reimbursable cost incentive contracts.

16.403-2

Performance incentives.

(a) Performance incentives may be considered in connection with specific, objectively measurable product characteristics (

e.g.,

a missile range, an aircraft speed, an engine thrust, or a vehicle maneuverability) or other specific areas of the contractor's performance. Incentives should be linked to the contractor's profit or fee based on how their actual performance compares to the set targets.

(b) To the maximum extent practicable, positive and negative performance incentives for objectively measured tasks should be considered when the quality of performance is critical, and incentives are likely to motivate the contractor.

16.403-3

Delivery incentives.

(a) Delivery incentives should be considered when improvement from a required delivery schedule is important to the Government.

(b) Delivery incentive contracts should include how the reward-penalty structure is affected by Government-caused delays or other delays beyond the control, and without the fault or negligence, of the contractor or subcontractor.

16.403-4

Structuring multiple-incentive contracts.

A properly structured multiple-incentive arrangement should—

(a) Motivate the contractor to work towards outstanding results in all incentive areas; and

(b) Encourage trade-offs between incentive areas to align with the Government's goals. Due to the connection of cost, technical performance, and delivery goals, a contract that focuses on only one of the goals may jeopardize control over the others. All multiple-incentive contracts must include a cost incentive (or constraint) that prevents rewarding a contractor for greater technical performance or delivery results when the cost of those results outweighs their value to the Government.

16.404

Fixed-price cost incentive contracts.

(a)

Description.

A fixed-price cost incentive contract is a fixed-price contract that uses an established formula to adjust profit upward or downward and establishes the final contract price based on actual costs. Two forms of fixed-price cost incentive contracts based on cost incentives, firm target and successive targets, are further described in 16.404-1 and 16.404-2.

(b)

Application.

A fixed-price cost incentive contract is appropriate when—

(1) A firm-fixed-price contract is not suitable;

(2) The contractor's acceptance of a degree of cost responsibility will provide a positive profit incentive to control costs and increase performance; and

(3) If the contract also includes technical, performance or delivery incentives, the technical/performance/delivery incentives should provide opportunities for the incentives to improve the contractor's management of the work.

(c)

Billing prices.

In fixed-price cost incentive contracts, interim billing prices are established for payment. Billing prices may be adjusted, within the ceiling limit, when requested by either party to the contract, when it becomes apparent that final price will be substantially different from the target price.

16.404-1

Fixed-price cost incentive (firm target) contracts.

(a)

Description.

A fixed-price cost incentive (firm target) contract specifies a target cost, a target profit, a price ceiling (but not a profit ceiling or floor), and a formula for profit adjustments. When the final cost is less than the target cost, application of the formula results in a final profit greater than the target profit; conversely, when final cost is more than target cost, application of the formula results in a final profit less than the target profit, or even a net loss. If the final negotiated cost exceeds the price ceiling, the contractor absorbs the difference as a loss.

(b)

Limitations.

This contract type may be used only when—

(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.

(c)

Contract schedule.

Specify in the contract schedule the target cost, target

profit, and price ceiling for each item subject to incentive price revision.

16.404-2

Fixed-price cost incentive (successive targets) contracts.

(a)

Description.

A fixed-price cost incentive (successive targets) contract specifies the following elements, all of which are negotiated at the outset:

(1) An initial target cost.

(2) An initial target profit.

(3) An initial profit adjustment formula to calculate the firm target profit, including a ceiling and floor for the firm target profit.

(4) The production point at which the firm target cost and firm target profit will be negotiated.

(5) A ceiling price.

(b)

Limitations.

This contract type may be used only when—

(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 expected to be available early on in contract performance.

(c)

Contract schedule.

Specify in the contract schedule the initial target cost, initial target profit, and initial target price for each item subject to incentive price revision.

16.405

Cost-plus-incentive-fee contracts.

The cost-plus-incentive-fee contract is a cost-reimbursement contract that adjusts the initially negotiated fee based on a formula comparing total allowable costs to total target costs. This contract type includes a target cost, target fee, minimum and maximum fees, and a fee adjustment formula. After contract performance, the contractor's fee is determined using the specified fee formula. The formula provides for fee greater than the target fee when total allowable costs are less than target costs, and fee less than the target fee when total allowable costs exceed target costs, creating an incentive for effective contract management. When total allowable costs fall outside the range of the fee formula, the contractor receives total allowable costs plus either the minimum or maximum fee.

16.406

Contract clauses.

(a) Insert the clause at 52.216-16, Incentive Price Revision-Firm Target, in solicitations and contracts, other than those for commercial products or commercial services, when a fixed-price cost incentive (firm target) contract is contemplated. Use the clause with its

Alternate I

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.

(b) Insert the clause at 52.216-17, Incentive Price Revision-Successive Targets, in solicitations and contracts, other than those for commercial products or commercial services, when a fixed-price cost incentive (successive targets) contract is contemplated. Use the clause with its

Alternate I

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.

(c) Insert the clause at 52.216-10, Incentive Fee, in solicitations and contracts, other than those for commercial products or commercial services, when a cost-plus-incentive-fee contract is contemplated.

(d) Insert an appropriate award-fee clause in solicitations and contracts, including those for commercial products or commercial services, 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.

Subpart 16.5—Time-and-Materials and Labor-Hour Contracts

16.500

Scope.

Time-and-materials contracts and labor-hour contracts are not fixed-price contracts.

16.501

Time-and-materials contracts.

Definitions for the purposes of Time-and-Materials Contracts.

Direct materials

means those materials that enter directly into the end product, or that are used or consumed directly in connection with the furnishing of the end product or service.

Hourly rate

means the rate(s) prescribed in the contract for payment for labor that meets the labor category qualifications of a labor category specified in the contract that are—

(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.,

incidental services for which there is not a labor category specified in the contract, travel, computer usage charges, etc.); and

(4) Applicable indirect costs.

16.501-1

Description.

A time-and-materials contract provides for acquiring supplies or services on the basis of—

(a) Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; and

(b) Actual cost for materials (except as provided for in part 31).

16.501-2

Application.

A time-and-materials contract may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence.

(a)

Government surveillance.

A time-and-materials contract provides no positive profit incentive to the contractor for cost control or labor efficiency. Therefore, appropriate Government surveillance of contractor performance is required to give reasonable assurance that efficient methods and effective cost controls are being used.

(b)

Fixed hourly rates.

(1) The contract must specify separate fixed hourly rates that include wages, overhead, general and administrative expenses, and profit for each category of labor.

(2) For acquisitions of other than commercial products or commercial services awarded without adequate price competition (see part 15), the contract must specify separate fixed hourly rates that include wages, overhead, general and administrative expenses, and profit for each category of labor to be performed by—

(i) The contractor;

(ii) Each subcontractor; and

(iii) Each division, subsidiary, or affiliate of the contractor under a common control.

(3) For contract actions that are not awarded using competitive procedures, unless exempt under paragraph (b)(4) of this section, the fixed hourly rates for services transferred between divisions, subsidiaries, or affiliates of the contractor under a common control—

(i) Must not include profit for the transferring organization; but

(ii) May include profit for the prime contractor.

(4) 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—

(i) 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

(ii) The contracting officer has determined the price to be reasonable.

(c)

Material handling costs.

When included as part of material costs, material handling costs must include only costs clearly excluded from the labor-hour rate. Material handling costs may include all appropriate indirect costs allocated to direct materials in accordance with the contractor's usual accounting procedures consistent with part 31.

16.501-3

Limitations.

A time-and-materials contract or order may be used only if—

(a) The contracting officer prepares a determination and findings that no other contract type is suitable. The determination and findings must be—

(1) Signed by the contracting officer prior to the execution of the base period or any option periods of the contracts; and

(2) 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;

(b) The agency head approves a justification if required by 16.104; and

(c) The contract or order includes a ceiling price that the contractor exceeds at its own risk. See part 12 for further limitations on use of time-and-materials or labor-hour contracts for acquisition of commercial products and commercial services.

16.501-4

Solicitation provisions.

(a) Insert the provision at 52.216-29, Time-and-Materials/Labor-Hour Proposal Requirements—Other Than Commercial Acquisition With Adequate Price Competition, in solicitations, other than those for commercial products or commercial services, when the use of a time-and-materials or labor-hour type of contract is contemplated, and the price is expected to be based on adequate price competition. If authorized by agency procedures, the contracting officer may amend the provision to make mandatory one of the three approaches in paragraph (c) of the provision; or to require the identification of all subcontractors, divisions, subsidiaries, or affiliates included in a blended labor rate; or both.

(b) Insert the provision at 52.216-30, Time-and-Materials/Labor-Hour Proposal Requirements—Other Than Commercial Acquisition Without Adequate Price Competition, in solicitations, other than those for commercial products or commercial services, when the use of a time-and-materials or labor-hour type of contract is contemplated if the price is not expected to be based on adequate price competition.

(c) Insert the provision at 52.216-31, Time-and-Materials/Labor-Hour Proposal Requirements—Commercial Acquisition, in solicitations for commercial products or commercial services when a time-and-materials or labor-hour contract is contemplated.

16.501-5

Postaward requirements.

Prior to an increase in the ceiling price of a time-and-materials or labor-hour contract or order—

(a) Conduct an analysis of pricing and other relevant factors to determine if the action is in the best interest of the Government;

(b) Document the decision in the contract or order file; and

(c) When making a change that modifies the general scope of—

(1) A contract, follow the procedures at part 6, 12.102, or 13.101;

(2) An order issued under the Federal Supply Schedules, follow the procedures at subpart 8.4; or

(3) An order issued under multiple-award task-order contracts and delivery-order contracts, follow the procedures at 16.607-6.

16.502

Labor-hour contracts.

Description.

A labor-hour contract is a variation of the time-and-materials contract, differing only in that materials are not supplied by the contractor. See part 12, 16.501-2, and 16.501-3 for application and limitations for time-and-materials contracts that also apply to labor-hour contracts.

Subpart 16.6—Indefinite-Delivery Contracts

16.600

Scope.

(a) This subpart prescribes policies and procedures for making awards of indefinite-delivery contracts and subsequent orders 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) See part 19 for procedures to set aside part or parts of multiple-award contracts for small businesses and to reserve one or more awards for small business on multiple-award contracts.

(d) The statutory multiple-award preference (see 10 U.S.C. 3403 and 41 U.S.C. 4103) implemented by this subpart does not apply to architect-engineer contracts subject to the procedures in part 36. 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 part 36.

(e) This subpart does not limit the authority of the General Services Administration (GSA) to enter into schedule, multiple-award, or task-order contracts or delivery-order contracts under any other provision of law. Therefore, GSA regulations and the coverage for the Federal Supply Schedule program take precedence over this subpart.

16.601

General.

16.601-1

Definitions.

As used in this subpart—

Delivery-order contract

means a contract for supplies that does not procure or specify a firm quantity of supplies (other than a minimum or maximum quantity) and that provides for the issuance of orders for the delivery of supplies during the period of the contract.

Task-order contract

means a contract for services that does not procure or specify a firm quantity of services (other than a minimum or maximum quantity) and that provides for the issuance of orders for the performance of tasks during the period of the contract.

16.601-2

Policies.

(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 or services or both when the exact times and 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)(1) Indefinite-delivery contracts may provide for any appropriate cost or pricing arrangement under this part. 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.

(2) In accordance with 10 U.S.C. 3206(c), for DoD, NASA, and the Coast Guard—

(i) The contracting officer may choose not to include price or cost as an evaluation factor for award when a solicitation—

(A) Has an estimated value exceeding the simplified acquisition threshold;

(B) Will result in multiple-award contracts that are for the same or similar services; and

(C) States that the Government intends to make an award to each and all qualifying offerors.

(ii) If the contracting officer chooses not to include price or cost as an evaluation factor for the contract award in accordance with paragraph (b)(2)(i) of this section, the contracting officer must consider price or cost as one of the factors in the selection decision for each order placed under the contract.

(iii) The exception in paragraph (b)(2)(i) of this section must not apply to solicitations for multiple-award contracts that provide for sole source orders pursuant to section 8(a) of the Small Business Act (15 U.S.C. 637(a)).

(c) Task-order contracts and delivery-order contracts (requirements contracts and indefinite-quantity contracts) have an ordering period in which orders may be placed. Individual task and delivery orders have a period of performance effective for that specific task or delivery order's scope of work. The effective period of a task-order contract or delivery-order contract includes the ordering period of the base contract and any period of performance of task orders beyond the end of the ordering period, provided the order was issued during the ordering period.

(1)

Limitation on ordering period.

In accordance with 10 U.S.C. 3403, for the DoD, NASA, and the Coast Guard, the head of an agency entering into a task-order contract or delivery-order contract may provide for the contract to cover any period up to five years and may extend the contract period for one or more successive periods pursuant to an option provided in the contract or a modification of the contract. The total contract period as extended may not exceed 10 years unless such head of an agency determines in writing that exceptional circumstances necessitate a longer contract period.

(2)

Limitation on ordering period for task-order contracts for advisory and assistance services.

(i) In accordance with 10 U.S.C. 3405, except as provided for in paragraphs (c)(2)(ii) and (iii) of this section, the ordering period of a task-order contract for advisory and assistance services, including all periods of extensions of the contract under options, modifications or otherwise, may not exceed 5 years.

(ii) The 5-year limitation does not apply when—

(A) A longer ordering period is specifically authorized by statute; or

(B) 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.

(iii) The contracting officer may extend the contract on a sole-source basis for a period not exceeding 6 months if the contracting officer, or other official designated by the head of the agency, determines that—

(A) 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

(B) The extension is necessary to ensure continuity of services, pending the award of, and commencement of performance under, the follow-on contract.

16.602

Definite-quantity contracts.

16.602-1

Description.

A definite-quantity contract provides for delivery of a definite (fixed) quantity of specific supplies or services for a fixed period, with deliveries or performance to be scheduled at designated locations upon order. The delivery schedule, location, or both may be flexible or set, but the total number of items or services to be delivered under the contract will not change.

16.602-2

Application.

A definite-quantity contract may be used when it can be determined in advance that—

(a) The exact quantity of supplies or services required during the contract period is known at the time of award; and

(b) The supplies or services are regularly available or will be available after a short lead time.

16.603

Requirements contracts.

16.603-1

Description.

A requirements contract provides for filling all actual purchase requirements of designated Government activities for supplies or services during a specified ordering period exclusively from one contractor, with deliveries or performance to be scheduled by placing orders with the contractor.

16.603-2

Application.

A requirements contract may be appropriate for acquiring any supplies or services when the Government anticipates recurring requirements but cannot predetermine the precise quantities of supplies or services that designated Government activities will need during a definite period.

16.603-3

Limitations.

(a) 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 16.604-3(a)(4).

(b)

Limitations on use of requirements contracts for advisory and assistance services.

(1) Except as provided in paragraph (b)(2) of this section, no solicitation for a requirements contract for advisory and assistance services exceeding three years and $20 million (including all options) may be issued unless the contracting officer or other official designated by the head of the agency determines in writing that the services required are so unique or highly specialized that it is not practicable to make multiple awards using the procedures in 16.604-3(b).

(2) The limitation in paragraph (b)(1) of this section does not apply to a contract for the acquisition of supplies or services that includes acquisition of advisory and assistance services if the head of the executive agency entering into the contract determines that, under the contract, advisory and assistance services are necessarily incidental to, and not a significant component of, the contract.

16.603-4

Required content.

(a) Requirements contracts obligate the contractor to supply all the designated Government activities' actual needs, and the designated Government activities to purchase all their requirements from that specific contractor, within stated limits of the contract. The contract must state, if feasible, the maximum limit of the contractor's obligation to deliver and the Government's obligation to order. The contract may also set minimum or maximum limits or both on the

quantities the Government may order under each individual order or over a specified period of time.

(b) The solicitation and resulting contract must state a realistic estimated total quantity. This estimated total quantity is not a representation to an offeror or contractor that the estimate is guaranteed quantity, or that conditions affecting requirements will stay the same. The contracting officer should base the estimate on the most current information available, and may calculate the estimate based on records of previous requirements and consumption, or by other means.

(c) When a requirements contract is used to acquire work (

e.g.,

repair, modification, or overhaul) on existing items of Government property, specify in the Schedule that failure of the Government to furnish such items in the amounts or quantities described in the Schedule as “estimated” or “maximum” will not entitle the contractor to any equitable adjustment in price under the Government Property clause of the contract.

16.604

Indefinite-quantity contracts.

16.604-1

Description.

(a) An indefinite-quantity contract provides for an indefinite quantity, within stated limits, of supplies or services. The Government places orders for individual requirements during the ordering period of the contract. Quantity limits may be stated as number of units or as dollar values.

(b) The contract must require the Government to order and the contractor to furnish at least a stated minimum quantity of supplies or services. 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.

(c) In addition, if ordered, the contractor is required to 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.

(d) 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.

16.604-2

Application.

The contracting officer may use an indefinite-quantity contract when the Government knows what kind of supplies or services it requires and a certain minimum amount that it expects to require, but does not know exactly how much will be needed or when during the effective period. The contracting officer should use an indefinite-quantity contract only when the Government expects to have ongoing, repeated requirements for the supplies or services.

16.604-3

Multiple award preference.

(a)(1) Except for indefinite-quantity contracts for advisory and assistance services (see paragraph (b) of this section), contracting officers must, to the maximum extent practicable, give preference to awarding multiple indefinite-quantity contracts under a single solicitation to different contractors for the same or similar supplies or services.

(2) Document the decision whether to make multiple awards in the acquisition plan or contract file. Reasons for deciding that multiple awards are not in the best interests of the Government include, but are not limited to—

(i) Only one contractor is capable of providing performance at the level of quality required because the supplies or services are unique or highly specialized;

(ii) Based on the contracting officer's knowledge of the market, more favorable terms and conditions, including pricing, will be provided if a single award is made;

(iii) The expected cost of administration of multiple contracts outweighs the expected benefits of making multiple awards;

(iv) The projected orders are so integrally related that only a single contractor can reasonably perform the work;

(v) The total estimated value of the contract is at or below the SAT.

(3) The contracting officer may determine that a class of acquisitions is not appropriate for multiple awards.

(4)(i) No task-order contract or delivery-order contract in an amount estimated to exceed $150 million (including all options) may be awarded to a single source unless the head of the agency determines in writing that—

(A) The task or delivery orders expected under the contract are so integrally related that only a single source can reasonably perform the work;

(B) The contract provides only for firm-fixed-price (see 16.202) task or delivery orders for—

(

1

) Products for which unit prices are established in the contract; or

(

2

) Services for which prices are established in the contract for the specific tasks to be performed;

(C) Only one source is qualified and capable of performing the work at a reasonable price to the Government; or

(D) It is necessary in the public interest to award the contract to a single source due to exceptional circumstances.

(ii) The head of the agency must notify Congress within 30 days after any determination under paragraph (a)(4)(i)(D) of this section.

(iii) The requirement for a determination for a single-award contract greater than $150 million—

(A) Is in addition to any applicable requirements of part 6; and

(B) Is not applicable for architect-engineer services awarded pursuant to part 36.

(b)

Preference for multiple awards for advisory and assistance services.

(1) In accordance with 10 U.S.C. 3405 and 41 U.S.C. 4105, except as provided in paragraph (b)(2) of this section, if an indefinite-quantity contract for advisory and assistance services is estimated to exceed 3 years and $20 million (including all options), the solicitation must provide for multiple awards unless—

(i) The contracting officer or other official designated by the head of the agency determines in writing—

(A) It is not practicable to award more than one contract because the services required are unique or highly specialized or the tasks are so integrally related; or

(B) After the evaluation of offers, that only one offeror is capable of providing the services required at the level of quality required; or

(ii) Only one offer is received.

(2) The requirements of paragraph (b)(1) of this section do not apply to a contract for the acquisition of supplies or services that includes acquisition of advisory and assistance services if the head of an agency entering into such contract determines in writing during acquisition planning that, under the contract, advisory and assistance services are necessarily incident to, and not a significant component of, the contract.

16.604-4

On-ramps and off-ramps.

To maintain a current, competitive, and innovative pool of vendors on a multiple-award contract, the solicitation and contract may provide for—

(a) Adding one or more new contractors (on-ramp) and increasing the maximum quantity during open seasons; and

(b) Removing a contractor (off-ramp) for underperforming, failure to actively participate in order competitions, other circumstances defined in the contract, or if requested by the contractor.

16.604-5

Required content.

An indefinite-quantity solicitation and contract must—

(a) Specify the ordering period of the contract, including the number of options and the period for which the Government may extend the contract ordering period under each option;

(b) Specify the total minimum and maximum quantity of supplies or services the Government will acquire under the contract;

(c) Specify the last date that a contractor will be required to make deliveries under orders issued during the ordering period (see 52.216-22(d));

(d) 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;

(e) State any uniform ordering procedures that the Government will use in issuing all orders, including the ordering media; otherwise, the ordering procedures are at the discretion of the ordering contracting officer;

(f) Specify the activities authorized to issue orders;

(g) 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; and

(h) When multiple awards are anticipated—

(1) Specify any fair opportunity procedures and selection criteria that must apply to all competed orders; otherwise, the procedures and selection criteria are at the discretion of the ordering contracting officer (see 16.607);

(2) Specify whether one or more blanket purchase agreements (BPAs) may be established under the contract according to 16.607-2(c)(3);

(3) Advise whether the Government reserves the right to conduct on-ramps, off-ramps, or both according to 16.604-4. Specify details of contemplated on-ramps and off-ramps. If the ordering period exceeds five years, provide for on-ramps according to 16.604-4, unless the contracting officer documents that on-ramps are not in the best interests of the Government.

16.605

Solicitation provisions and contract clauses.

(a) Insert the clause at 52.216-18, Ordering, in solicitations and contracts, including those for commercial products or commercial services, 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, including those for commercial products or commercial services, when—

(1) A definite-quantity contract, a requirements contract, or an indefinite-quantity contract is contemplated;

(2) The contracting officer desires maximum or minimum quantities that the Government may order under each task or delivery order; and

(3) When the Government

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