Labor Hour(LH)
A contract type where the government pays for labor hours expended at negotiated hourly rates, with materials and other costs billed separately.
Overview
A Labor Hour (LH) contract is a variation of a time-and-materials (T&M) arrangement. The government pays a fixed hourly rate for each labor category plus actual cost for materials and other direct costs. Unlike a T&M contract with a ceiling, LH contracts may have different structures for labor vs. materials; the defining feature is payment based on hours worked.
Why It Matters in GovCon
LH contracts are used when the government cannot accurately predict the level of effort required — such as maintenance, help desk support, or undefined research. They offer flexibility but require careful timekeeping and documentation. Contractors must track labor by category and ensure billing aligns with negotiated rates.
Key Details
- Hourly Rates: Labor categories (e.g., Sr. Engineer, Program Manager) have fixed negotiated rates.
- Materials/ODCs: Pass-through or mark-up; typically billed at cost or with a small fee.
- Ceiling: Many LH contracts include a ceiling value to cap government exposure.
- Audit Risk: Improper labor charging is a common audit finding; robust timekeeping systems are essential.
Related Terms
- Time and Materials (T&M)
- Level of Effort (LOE)
- Cost-Plus-Fixed-Fee (CPFF)
- Labor Category
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