Contracting Cone

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FAR Based Strategies

Ordering under the Federal Supply Schedule
Acquisition of Commercial Products and Commercial Services
Simplified Procedures for Noncommercial Acquisitions
Contracting by Negotiation
Indefinite-Delivery Contracts
Letter Contracts
Agreements
Small Business
Broad Agency Announcement
Commercial Solutions Opening

Statutory Strategies

SBIR/STTR Programs
Other Transactions
Procurement for Experiments
R&D Agreements
Cooperative R&D Agreement
Partnership Intermediary Agreement
Technology Investment Agreement
Contract Type Matrix

Letter Contracts
FAR 16.603

A letter contract is a written preliminary contractual instrument that authorizes the contractor to begin immediately manufacturing supplies or performing services before all terms and conditions of the definitive contract have been negotiated. Letter contracts are sometimes associated with undefinitized contract actions, or UCAs, but the FAR citation for letter contracts remains FAR 16.603.

A letter contract may be used when the Government’s interests demand that the contractor be given a binding commitment so work can start immediately, and negotiating a definitive contract is not possible in sufficient time to meet the requirement. The letter contract should be as complete and definite as feasible under the circumstances.

Each letter contract must include a negotiated definitization schedule, including dates for the contractor’s proposal, any required certified cost or pricing data or data other than certified cost or pricing data, the start of negotiations, and a target date for definitization. The schedule must provide for definitization within 180 days after the date of the letter contract or before completion of 40 percent of the work, whichever occurs first, unless an additional period is authorized in extreme cases under agency procedures.

 

Common Applications

  • Urgent supplies or services when work must begin immediately and a definitive contract cannot be negotiated in time.
  • Supplies, products, or services supporting contingency, humanitarian, peacekeeping, or other urgent mission requirements.
  • Situations where the Government needs a binding commitment quickly but still intends to negotiate a definitive contract.

 

 

Pros

Cons
Allows the Government to meet urgent mission needs quickly. Undefined terms, incomplete pricing, and limited cost control increase risk to the Government.
Provides immediate authority for the contractor to begin work. Requires close oversight, timely proposal submission, and disciplined definitization management.
Can be useful when delay would harm the Government’s interests. Initial proposals may be incomplete or inadequate, prolonging negotiations and increasing schedule risk.
Provides a temporary contractual bridge until a definitive contract can be negotiated. Elevated approvals, reporting, and oversight may increase the burden on the program office and contracting activity.

Restrictions

  • May be used only after the head of the contracting activity or designee determines in writing that no other contract is suitable.
  • May not commit the Government to a definitive contract in excess of funds available when the letter contract is executed.
  • May not be entered into without competition when competition is required by FAR Part 6.
  • May not be amended to satisfy a new requirement unless that requirement is inseparable from the existing letter contract.
  • Must include a negotiated definitization schedule.
  • Must be definitized within 180 days after the date of the letter contract or before completion of 40 percent of the work, whichever occurs first, unless an additional period is authorized in extreme cases under agency procedures.
  • When based on price competition, the contracting officer must include an overall price ceiling in the letter contract.
  • The Government’s maximum liability before definitization must not exceed 50 percent of the estimated cost of the definitive contract unless approved in advance by the official who authorized the letter contract.

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