Labor Hour (LH) Contracts

Labor Hour contracts pay only for labor at fixed hourly rates.

Contract Structure:

• Fixed hourly rates by labor category


• No separate material reimbursement


• Ceiling price limits total payment


• Payment based on actual hours worked

Key Differences from T&M:
| Feature | T&M | Labor Hour |
|---------|-----|------------|
| Labor | Fixed hourly rates | Fixed hourly rates |
| Materials | Cost reimbursement | Not reimbursed |
| Use Case | Labor + materials | Labor only |

Labor Rate Composition:
Since materials are not separately reimbursed, LH rates may need to include:

• Direct labor cost


• Fringe benefits


• Overhead


• G&A expense


• Any anticipated material/supply costs


• Profit

Government-Furnished Property:
LH contracts often specify government-furnished:

• Equipment and tools


• Facilities and workspace


• Materials and supplies


• IT systems and access

This reduces contractor costs and justifies the LH structure.

LH rates must cover all costs since there is no separate material reimbursement.

Rate Development:
Build rates to cover:

Base labor cost

Fringe benefits (insurance, taxes, PTO)

Overhead (facilities, equipment, supervision)

G&A expense (corporate functions)

Incidental supplies and materials

Profit margin

Sample Rate Calculation:
Mid-Level Analyst:

• Base rate: $35/hour


• Fringe (28%): $9.80/hour


• Overhead (35%): $15.68/hour


• G&A (12%): $7.26/hour


• Materials allowance: $2/hour


• Subtotal: $69.74/hour


• Profit (10%): $6.97/hour


• Loaded rate: $77/hour

Competitive Considerations:

• Research market rates for comparable positions


• Review GSA Schedule rates for benchmarks


• Consider geographic rate variations


• Factor in any specialized skills or clearances

Multi-Year Rate Structures:

• Include annual escalation provisions


• Economic price adjustment clauses


• Ceiling rates with actual rates as bid


• Option year rate ceilings

Successful LH contract management requires attention to hours, ceiling, and quality.

Hour Tracking:

• Maintain detailed timekeeping records


• Track hours by employee, date, and task


• Categorize hours by labor category


• Document overtime and premium time

Ceiling Management:

• Monitor consumption against ceiling price


• Project remaining hours based on burn rate


• Notify government before reaching ceiling


• Request ceiling increase if needed

Quality Assurance:

• Ensure personnel meet qualifications


• Monitor work quality and customer satisfaction


• Address performance issues promptly


• Maintain required certifications/clearances

Invoice Documentation:
Include in LH invoices:

• Hours worked by labor category


• Employee names (if required)


• Work period covered


• Cumulative hours and dollars vs. ceiling


• Progress summary

Government Interaction:

• Regular communication with COR


• Status reporting as required


• Issue escalation when appropriate


• Support for audit and oversight activities

LH proposals emphasize labor qualifications, rates, and management approach.

Evaluation Focus Areas:

Technical Approach:

• Understanding of requirements


• Labor category definitions


• Work processes and quality control


• Flexibility and responsiveness

Personnel:

• Key personnel qualifications


• Recruiting and retention approach


• Backup and surge capability


• Training and development

Past Performance:

• Similar LH/T&M contract experience


• Customer satisfaction ratings


• Staff retention and quality

Pricing:

• Competitive labor rates


• Rate reasonableness


• Rate breakdown transparency


• Escalation approach

Proposal Strategies:

• Demonstrate ability to staff quickly with qualified personnel


• Show proven performance on similar contracts


• Emphasize flexibility to scale up/down with workload


• Price competitively while ensuring profitability


• Address how you will manage to ceiling

Common Evaluation Criteria:

• Best value tradeoff (quality vs. price)


• LPTA where technical is pass/fail


• Combination approaches