FAR Case 2026-003. Change -

FROM:

FAR 12.104

(e) Use of any contract type other than those authorized by this subpart to acquire commercial products or commercial services is prohibited.

TO:

FAR 12.104

(d) Prohibition on use of cost-reimbursement contracts. Do not use any cost-reimbursement contract type to procure commercial products or commercial services. However, line items for incidental expenses, such as travel, may be included in the contract if they provide for reimbursement based on actual costs and include a not-to-exceed amount.

(e) Executive Order 14402 justification. Follow the procedures in 16.104 [requiring Agency Head approval starting at $10M] when using other than a firm-fixed-price or fixed-price with economic price adjustment contract type.

FAR Case 2026-006. Change -

FROM:

[FAR Part 16 is silent on fixed-price units]

TO:

16.202-2 Application.

(a) General. A firm-fixed-price contract is suitable for acquiring supplies or services on the basis of clearly defined functional or detailed specifications (see part 11) when the contracting officer can establish fair and reasonable prices at the outset.

(b) Consumption basis. Contracting officers may acquire consumption-based solutions where supplies and services are capable of being metered and billed based on actual usage as fixed-price units.

16.202-3 Required content.

When acquiring on a consumption basis, the contract must include the following:

(a) Predetermined pricing at fixed-price units. The contractor may offer volume discounts or other equitable adjustments to the unit price(s) without changing the contract type.

(b) A guaranteed minimum, a ceiling, and fiscal controls limiting the agency's obligation to the obligated funding identified in the contract (see part 32).

(c) A requirement for the contractor to notify the contracting officer when the Government has used 75 percent and 90 percent of the funded amount, respectively, of the contract.

16 hours ago, Voyager said:

16.202-2 Application.

(a) General. A firm-fixed-price contract is suitable for acquiring supplies or services on the basis of clearly defined functional or detailed specifications (see part 11) when the contracting officer can establish fair and reasonable prices at the outset.

(b) Consumption basis. Contracting officers may acquire consumption-based solutions where supplies and services are capable of being metered and billed based on actual usage as fixed-price units.

16.202-3 Required content.

When acquiring on a consumption basis, the contract must include the following:

(a) Predetermined pricing at fixed-price units. The contractor may offer volume discounts or other equitable adjustments to the unit price(s) without changing the contract type.

(b) A guaranteed minimum, a ceiling, and fiscal controls limiting the agency's obligation to the obligated funding identified in the contract (see part 32).

(c) A requirement for the contractor to notify the contracting officer when the Government has used 75 percent and 90 percent of the funded amount, respectively, of the contract.

Now that they've put this common practice into writing, I wonder how the drafters would square it with RFO 16.501-2(b)(1), which states:

Indefinite-delivery contracts may provide for any appropriate cost or pricing arrangement under part 16. Cost or pricing arrangements that provide for an estimated quantity of supplies or services (e.g., estimated number of labor hours) must comply with the appropriate procedures of this subpart.

The new guidance on consumption contracts appears to permit agencies to establish an IDIQ-like instrument for estimated quantities without the need for task orders or fair opportunity procedures.

@FrankJon I viewed consumption based in practice most commonly by establishing an IDIQ contact. I’m also thinking a single contract is most likely rather than multiple. Initial funding might be on the actual award document and subsequent adjustments (adding or removal of funding) is done by contract modifications. There wouldn’t necessarily be task orders and fair opportunity wouldn’t apply. This is the way most people utilized IDIQ contracts before the widespread adoption of multiple award IDIQ contract vehicles where contracts are broad in scope and task orders issued for performance of discreet.

The fixed-price unit contract type appears to be ready-made compliant with both EO 14271 (commercial preference) and EO 14402 (fixed-price preference).

I may be just confused here, as this sort of pricing isn't my forte. I get that codifying consumption pricing in the FAR solves a few long-standing problems. However, doesn't the definition of consumption pricing overlap in a legally problematic way with labor hour (a service billed based on actual usage in the fixed-price unit of $/hr.)? If I'm right (and I definitely am not sure I am) this definition needs some work now, or defining more precisely afterwards will consume many labor hours of legal consulting services.

9 hours ago, General.Zhukov said:

I may be just confused here, as this sort of pricing isn't my forte. I get that codifying consumption pricing in the FAR solves a few long-standing problems. However, doesn't the definition of consumption pricing overlap in a legally problematic way with labor hour (a service billed based on actual usage in the fixed-price unit of $/hr.)? If I'm right (and I definitely am not sure I am) this definition needs some work now, or defining more precisely afterwards will consume many labor hours of legal consulting services.

No, they're not the same. Under a consumption-based or fixed-unit-price contract, each unit is a completed task or delivery with a defined outcome (e.g., investigations conducted, garments laundered, credit reports provided, etc.). Under a LH contract, each hour represents the contractor's best effort to achieve the defined outcome. We pay for that effort, not necessarily for results.

4 hours ago, FrankJon said:

We pay for that effort, not necessarily for results.

Is the following analogy true?

LH : FUP :: FFPLOE : FFP

Labor-Hour is to Fixed-Unit Price as Firm-Fixed Price Level of Effort is to Firm-Fixed Price

On 9/23/2026 at 12:30 PM, Voyager said:

FAR Case 2026-003. Change -

@Voyager I don't understand your post. What is your point? What kind of procurements do you think consumption-based solutions are for?

4 hours ago, FrankJon said:

No, they're not the same. Under a consumption-based or fixed-unit-price contract, each unit is a completed task or delivery with a defined outcome (e.g., investigations conducted, garments laundered, credit reports provided, etc.). Under a LH contract, each hour represents the contractor's best effort to achieve the defined outcome. We pay for that effort, not necessarily for results.

@FrankJon Do you think consumption-based solutions are the same as fixed-unit price contracts for things like laundry services?

1 hour ago, Vern Edwards said:

@FrankJon Do you think consumption-based solutions are the same as fixed-unit price contracts for things like laundry services?

@Vern Edwards I did think that....until you posed this question. The definition in the F.R. states:

Consumption-based solution means a model under which a service is provided to the Government and may utilize any combination of software, hardware or equipment, data, and labor or services that provides a capability that is metered and billed based on actual usage at fixed-price units.

I suppose it wouldn't be accurate to state that laundry services "provide a capability" to the Government, as, say, cloud storage or mobile data do.

Is this the distinction you're referring to? Would it be accurate then to state that consumption contracts are one particular category of fixed-unit-price contract?

Sorry Vern if I interrupted your questioning. I started to post this and just noticed your comments.

10 USC 6305 states in part:

(d) Consumption-based Solution Defined.-In this section, the term "consumption-based solution" means a model under which a service is provided to the Department of Defense and may utilize any combination of software, hardware or equipment, data, and labor or services that provides a capability that is metered and billed based on actual usage at fixed-price units.

……

Consumption-based solutions", that-

(1) is any combination of hardware, equipment, software, labor, or services that together provides a seamless capability;

(2) has the ability to be metered and billed based on actual usage;

(3) has predetermined pricing at fixed-price units;

(4) requires the awardee to notify the Department of Defense contracting officer when consumption under the contract reaches 75 percent and 90 percent of the funded amount, respectively, of the contract;

A good example for its use is pricing cloud computing service

Edit: my internet service provider is lazy today. I send something and it doesn’t post for a long time afterwards.

Consumption-based pricing solutions are typically used to purchase IT cloud subscription services. Such an arrangement is also referred to as pay-as-you go. You pay a rate for actual usage of the service. Congress researched and debated their use for a couple of years before approving the method. The RFO people provide lousy coverage of it in the proposed RFO Part 12.

For background, see https://www.gao.gov/assets/890/887836.pdf

Firm-fixed unit-price contracts are different. They are used for work like dredging and excavating. The contract establishes a price for a job based on firm-fixed unit prices and estimated quantities, and usually includes a provision for unit price adjustments based on actual quantities that vary significantly from estimates. See APPEALS OF -- LRV ENVIRONMENTAL, INC., 15-1 BCA P 36042 (A.S.B.C.A.), ASBCA No. 58727, 2015 WL 4557459. They have been around forever.

11 hours ago, Vern Edwards said:

Firm-fixed unit-price contracts are different.

@Vern Edwards Are you saying here that consumption-based pricing is not one kind of FFUP contract?

57 minutes ago, FrankJon said:

@Vern Edwards Are you saying here that consumption-based pricing is not one kind of FFUP contract?

Yes, and we must look at it as a new type. It is a type of fixed-price contract, but it is not the same as the traditional a fixed-unit price contract.

The implementation in the RFO is pathetic, and will cause confusion and problems.

Vern,

Why look at them as a new type?Don't utility service contracts use consumption-based pricing?

@Don Mansfield I haven't bought utility services for more than 40 years.

I'm calling it a new contract type because I think it is. Especially since Congress felt the need to authorize it.

The RFO introduction of it is awful.

On 9/24/2026 at 5:10 AM, FrankJon said:

Now that they've put this common practice into writing, I wonder how the drafters would square it with RFO 16.501-2(b)(1), which states:

The new guidance on consumption contracts appears to permit agencies to establish an IDIQ-like instrument for estimated quantities without the need for task orders or fair opportunity procedures.

I'm not following. What do you think agencies are allowed to do now that they weren't allowed to do before?

8 hours ago, Don Mansfield said:

What do you think agencies are allowed to do now that they weren't allowed to do before?

Ask Congress. They wrote the legislation.

I have always thought that agencies could do anything the regulations did not prohibit them from doing. But Congress studied consumption-based pricing for two years before they legislatively authorized it. So, as far as I'm concerned, it's a new contract type. And I explained to you on the phone this morning why CBP is not like the fixed-unit priced contracts of old.

I have nothing more to say about this. If you don't think it's new, then don't think it's new.

19 hours ago, Don Mansfield said:

I'm not following. What do you think agencies are allowed to do now that they weren't allowed to do before?

@Don Mansfield What I said was that now the drafters have put in writing what has been a common practice, there appears to be a tension between RFO 16.202-2 and 16.501-2(b)(1) as each is currently written. The former requires the Government to estimate the quantity of supplies/services it requires by establishing minimum and maximum quantities, but doesn't provide for the use of fair opportunity or task orders as required by the latter.

This may be rational but they seem to be at odds nonetheless.

@FrankJon Your concern about fair opportunity would for the most part be resolved by the requirement to use FSS or other mandatory sources at Proposed Rule FAR Section 12.200 (I think).

My question/concern is, assume that a contracting officer includes a line for reimbursement based on actual costs of an incidental. I don't see in the published proposed rule any change to the basic version 52.212-4 to include a mechanism to require support for a claimed incidental based on actual cost similar to what is called for under Alt I for "material" nor do I see an Alt II for inclusion when incidentals based on actual cost are utilized. The rule does state "(i) Use the clause with its Alternate I in solicitations and contracts for commercial services when expecting to award a time-and-materials or labor-hour contract or when expecting that orders will include time-and-material line items." so would a T&M D&F for an incidental be required when this contracting arrangement is called for? Are incidentals based on actual cost the time-and-material line item referenced here, or is the contract type still "fixed price"

18 hours ago, uva383 said:

The rule does state "(i) Use the clause with its Alternate I in solicitations and contracts for commercial services when expecting to award a time-and-materials or labor-hour contract or when expecting that orders will include time-and-material line items." so would a T&M D&F for an incidental be required when this contracting arrangement is called for?

Thinking out loud.

I think it would depend on the agency based on a view of RFO Part 4. Part 4 implies an allowance for a combination of FFP, TM, and CR line items. Reference RFO 4.202-4. Agencies may or may not dictate how such a contract will be reported, either as a "Combination" or based on the predominate line items. It would therefore make sense to me that if the agency requires reporting as a "Combination" then in part you have a TM contract and a D&F required. But if the agency bases it on predominate contract type and say the FFP line items are predominate then I would argue that the contract is a FFP for all necessary approvals. Whether such a view would withstand upper level scrutiny who knows.

Not disagreeing or arguing with you, Carl, because you’re probably right. But with all the talk of empowering contracting officers, give them authority and ability to exercise discretion, and let them make their own decisions, I can see this is one of many issues where policy and regulation are written. Why would an agency want to make policy on this? What difference does it really make if two COs see this differently?

I know the answer - so everyone does things the same way. I can see all the subordinate regulations, policies, and procedures quickly becomes many times voluminous than the RFO at the field level.

On 10/3/2026 at 7:25 AM, C Culham said:

the agency bases it on predominate contract type and say the FFP line items are predominate then I would argue that the contract is a FFP for all necessary approvals.

Agree. This is my experience as a practitioner. An otherwise FFP contract with a relatively small 'reimbursable cost' element is considered FFP for all purposes (approvals, reporting). For my agency, this almost always means travel reimbursement as that is the commercial practice for some services we purchase at high volume.

These reimbursable needs to be a separate line item (yes, it's a line item without a deliverable, but the greater sin is mixing = FFP and <> FFP on the same line item). I think we typically add 212-4 ALT 1 clause explicitly limiting it to that line item only. We do add a lot of very detailed instructions and extra review, since it can cause problems post-award.

Note that GSA has fairly elaborate policies and procedures about closely related concepts - ODCs, Travel, and 'Order Level Materials' - on its various sources.