[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR16.603-2]

[Page 315-316]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 16--TYPES OF CONTRACTS--Table of Contents
 
   Subpart 16.6--Time-and-Materials, Labor-Hour, and Letter Contracts
 
Sec. 16.603-2  Application.

    (a) A letter contract may be used when (1) the Government's 
interests demand that the contractor be given a binding commitment so 
that work can start immediately and (2) negotiating a definitive 
contract is not possible in sufficient time to meet the requirement. 
However, a letter contract should be as complete and definite as 
feasible under the circumstances.
    (b) When a letter contract award is based on price competition, the 
contracting officer shall include an overall price ceiling in the letter 
contract.
    (c) Each letter contract shall, as required by the clause at 52.216-
25, Contract Definitization, contain a negotiated definitization 
schedule including (1) dates for submission of the contractor's price 
proposal, required cost or pricing data, and, if required, make-or-buy 
and subcontracting plans, (2) a date for the start of negotiations, and 
(3) a target date for definitization, which shall be the earliest 
practicable date for definitization. The schedule will provide for 
definitization of the contract within 180 days after the date of the 
letter contract or before completion of 40 percent of the work to be 
performed, whichever occurs first. However, the contracting officer may, 
in

[[Page 316]]

extreme cases and according to agency procedures, authorize an 
additional period. If, after exhausting all reasonable efforts, the 
contracting officer and the contractor cannot negotiate a definitive 
contract because of failure to reach agreement as to price or fee, the 
clause at 52.216-25 requires the contractor to proceed with the work and 
provides that the contracting officer may, with the approval of the head 
of the contracting activity, determine a reasonable price or fee in 
accordance with subpart 15.4 and part 31, subject to appeal as provided 
in the Disputes clause.
    (d) The maximum liability of the Government inserted in the clause 
at 52.216-24, Limitation of Government Liability, shall be the estimated 
amount necessary to cover the contractor's requirements for funds before 
definitization. However, it shall not exceed 50 percent of the estimated 
cost of the definitive contract unless approved in advance by the 
official that authorized the letter contract.
    (e) The contracting officer shall assign a priority rating to the 
letter contract if it is appropriate under 11.604.

[48 FR 42219, Sept. 19, 1983, as amended at 60 FR 48248, Sept. 18, 1995; 
62 FR 51270, Sept. 30, 1997]