This guide explains DFARS Part 216: Types of Contracts. Read the relevant coverage with the FAR, applicable supplements and deviations, and the actual solicitation or contract.
The contract type changes the business risk. Identify the actual pricing arrangement, incentive terms, and ordering conditions before your team treats every defense award as the same kind of commitment.
Watch the DFARS Part 216 lesson
DFARS Part 216: Identify the arrangement you must manage
Part 216 supplements the FAR rules for selecting and using contract types. Its coverage includes fixed-price, cost-reimbursement, incentive, indefinite-delivery, and time-and-materials arrangements. Start with the actual contract and line items. For business planning, separate the pricing basis from the work description instead of assuming that one label explains the entire award.
Read the incentive and ordering conditions
Section 216.401 requires award-fee plans to be incorporated into award-fee contracts. Section 216.505 supplements ordering procedures, including relevant supplier-risk considerations and limits on lowest-price technically acceptable selection. Read the applicable plan and ordering documents. Do not treat a potential fee as earned revenue or an opportunity to compete for an order as an issued commitment.
Understand the time-and-materials basis
Section 216.601 establishes defense limitations, approval rules, and required content for time-and-materials or labor-hour determinations and findings. The rationale must explain why no other contract type is suitable and address market research, uncertainty, and ways to minimize this method. The approval route has conditions and exceptions. A contractor’s preferred billing model does not establish the Government’s authority.
A hypothetical example
Consider a fictional avionics support company reviewing a defense opportunity. Sales describes it as a service contract. Finance assumes that all work will use hourly billing, while operations plans around an anticipated order and management includes the maximum possible incentive in its forecast.
Contracts separates the vehicle, the contemplated order, and the pricing basis of each line item. Finance identifies the records needed for the actual billing arrangement. The program manager reads the incentive criteria and confirms which work is authorized before assigning staff or promising delivery.
The team now has a clearer view of performance risk and the evidence supporting its assumptions. This example does not select a contract type, determine allowable costs, authorize an order, or establish that a fee has been earned. It demonstrates why the commercial forecast must follow the actual acquisition structure.
Avoid the shortcut
Do not let a familiar acronym replace a review of the actual terms. Keep the pricing arrangement, authorized work, incentive conditions, and supporting records connected. If the team cannot explain what triggers payment or a potential fee, resolve that question before using the assumption in a delivery or revenue forecast.
Try this exercise
Compare two hypothetical line items with different pricing arrangements. Identify what the company must deliver, which records support payment, and what uncertainty remains. Then challenge one forecast assumption that depends on a future order, an unverified billing method, or a potential incentive.
This worksheet is a GovSuccess preparation practice, not a prescribed Government form or a determination of compliance.
- Contract and line-item arrangement
- Authorized work and ordering document
- Pricing basis and business risk
- Incentive plan and measurable criteria
- Required performance and billing evidence
- Applicable approvals and open questions
- Responsible owner and review date
- Documented conclusion and forecast assumptions
Official source and applicability
DFARS Part 216 — official text. The source page displays DFARS Change 5/7/2026, effective May 7, 2026. Check later changes and the requirements applicable to your acquisition. Route material interpretation questions for qualified review.
Build your readiness baseline
Explore GovAssessment for a structured business-readiness baseline based on your answers. It does not certify compliance, approve a contract action, or guarantee an award.
General education, not legal advice. Browse the DFARS series.
