Time-and-Materials Federal Subcontracts: Ceiling Price, Labor Categories, and Funding Risk

Federal T&M contracts use fixed rates and a ceiling

FAR 16.601 describes T&M contracts as payment for direct labor hours at fixed hourly rates plus actual materials cost and requires a ceiling price that the contractor exceeds at its own risk. The rule also recognizes labor performed by subcontractors in the hourly-rate framework.

Official source: FAR 16.601 — Time-and-Materials Contracts.

Invoice support can be detailed

FAR 52.232-7 addresses labor qualifications, timekeeping evidence, materials, subcontract costs, withholding, and other payment mechanics at the prime-Government level. A subcontractor should determine which of those concepts the prime has adopted downstream and what evidence must accompany each invoice.

Official source: FAR 52.232-7 — Payments Under T&M and Labor-Hour Contracts.

Check the subcontract's authorization controls

• Overall ceiling and any task-order, CLIN, labor-category, or travel subceilings.
• Who can authorize ceiling increases or additional hours?
• Required warning notice before funds or ceiling are exhausted.
• Whether work above the ceiling is performed at the subcontractor's risk.
• Labor-category qualification evidence and substitution rules.
• Overtime, travel, materials, indirect costs, and markups.

Do not confuse the prime's ceiling with guaranteed subcontract funding

The Government may have funded the prime for a larger amount than the prime has committed to a particular subcontractor. The subcontract should identify the amount actually authorized for the lower tier and the process for increasing it in writing.