If Contract/Award indicates that an order is LOE and indicates an estimate of hours, is the contractor required to stop working when LOE is reached; is the contractor entitled to payment for additional effort provided, assuming invoiced amount does not exceed funded value?
The Limitation of Cost clause at FAR 52.232-20 is a means by which the Government monitors (and controls if necessary) the level of effort on a CPFF-Term contract. While the clause is written in terms of "cost," it can also be applied in the context of hours (which translate into cost). The fact that a contractor uses a lower-priced employee cannot be used to get around the basic concept of the clause.
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Look at it this way—unless the contract is modified to reflect the use of a lower-priced employee, the Government cannot be sure it is getting the performance or value on the contract it expected when a higher-priced employee (and presumably higher-skilled) was proposed. The contractor was responsible for informing the Government of its intentions to use the lower-priced employee but apparently did not. Thus, it is completely reasonable for the Government contracting officer to use the number of hours as a measure when considering application of the Limitation of Cost clause.