DFARS Part 216: Types of Contracts

In plain English

DFARS Part 216 implements and supplements the FAR on selecting and using different contract types for DoD acquisitions. It covers policies, limitations, and clauses for fixed-price, cost-reimbursement, incentive, award-fee, indefinite-delivery, time-and-materials, letter contracts, and basic ordering agreements. Understanding these rules helps contractors anticipate the contract type and terms they may see in solicitations and awards.

Key rules

• Cost-reimbursement line items are prohibited for production of major defense acquisition programs unless a specific exception applies. (216.102)
• Contracting officers must follow DoD guidance on using incentive and other contract types when selecting the most appropriate type. (216.104)
• Economic price adjustment clauses for standard supplies, semistandard supplies, and labor/materials are generally used only when the total contract price exceeds the simplified acquisition threshold and delivery will not be completed within 6 months after award. (216.203-4)
• Cost-plus-fixed-fee, cost-plus-award-fee, and cost-plus-incentive-fee contracts cannot be used for military construction or military family housing projects. (216.301-3, 216.306)
• For cost-plus-award-fee contracts, at least 40 percent of the award fee pool must be available for the final evaluation period unless a lower percentage is justified. (216.405-2)
• Award-fee plans must include evaluation of contractor actions that jeopardized the health or safety of Government personnel through gross negligence or reckless disregard. (216.405-2-70)
• For time-and-materials or labor-hour contracts exceeding $1 million, the determination and findings must be approved by the senior contracting official, and this authority cannot be delegated. (216.601)
• Orders under a basic ordering agreement may be placed only during a period not exceeding 5 years. (216.703)

Who does what

In practice

• When bidding, check the contract type and any associated clauses to understand payment terms, incentives, and potential adjustments.
• For cost-reimbursement or incentive contracts, be aware of limitations such as prohibitions on military construction and the need for objective criteria.
• If you are awarded a time-and-materials or labor-hour contract over $1 million, expect higher-level approval before award.
• For indefinite-delivery contracts, note that orders may be placed for a limited period (e.g., 5 years for basic ordering agreements).

Common pitfalls

• Assuming cost-reimbursement contracts can be used for any DoD work; they are prohibited for production of major defense acquisition programs and for military construction.
• Overlooking that economic price adjustment clauses are generally not used for short-term contracts (under 6 months) or below the simplified acquisition threshold.
• Failing to include required award-fee evaluation criteria for health/safety or private security functions, which could lead to fee reduction or denial.
• Forgetting that time-and-materials contracts over $1 million require non-delegable approval by the senior contracting official.

Written by AI from this part's codified text (2026-10-04); cited sections are checked against the part. A guide, not legal advice: the regulation text, the solicitation and your contract rule.