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  • Question

    Since billings are based on hours expended under this FFP/LOE contract, would the accounting system of the company have to be approved by DCAA to verify that the companies time recording system is accurate?


    Answer

    A Firm Fixed Price/Level Of Effort (FFP/LOE) contract is different than a Time and Materials (T&M) contract.  A typical FFP/LOE contract (or line item) will only be paid upon delivery of the stated effort.  FAR 16.207-3(d) limits the use of this contract type to efforts of $150,000 or less, unless approved by the chief of the contracting office.  This low dollar value typically makes it inappropriate for invoice payments.  The "level of effort" for this type of contract is not based on a level of hours, but on the effort needed to produce a deliverable, typically a report or study.  If the effort is for something that requires you to track hours or other discrete costs, another contract type would be more appropriate.
     
    Therefore, a FFP/LOE contract type will typically not be a candidate for contract financing.  If you decide to provide payment instructions for invoicing, you might consider breaking the effort into monthly portions and associating a price commensurate with each period's effort.  For example, if it is a 12 month effort, with approximately equal effort through each of the 12 months, divide the total price by 12 and insert a payment clause in Section G to outline the invoicing instructions.  Setting up an invoicing arrangement will not require the contractor to have an approved accounting system.

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