Subpart 32.7 - Contract Funding

Parent topic: Part 32 - Contract Financing

32.700 Scope of subpart.

This subpart (a) describes basic requirements for contract funding and (b) prescribes procedures for

using limitation of cost or limitation of funds clauses. Detailed acquisition funding requirements are

contained in agency fiscal regulations.

32.701 [Reserved]

32.702 Policy.

No officer or employee of the Government may create or authorize an obligation in excess of the

funds available, or in advance of appropriations (Anti-Deficiency Act,31 U.S.C.1341), unless

otherwise authorized by law. Before executing any contract, the contracting officer shall-

(a) Obtain written assurance from responsible fiscal authority that adequate funds are available or

(b) Expressly condition the contract upon availability of funds in accordance with 32.703-2.

32.703 Contract funding requirements.

32.703-1 General.

(a) If the contract is fully funded, funds are obligated to cover the price or target price of a fixedprice contract or the estimated cost and any fee of a cost-reimbursement contract.

(b) If the contract is incrementally funded, funds are obligated to cover the amount allotted and any

corresponding increment of fee.

32.703-2 Contracts conditioned upon availability of funds.

(a) Fiscal year contracts. The contracting officer may initiate a contract action properly chargeable

to funds of the new fiscal year before these funds are available, provided that the contract includes

the clause at 52.232-18, Availability of Funds (see 32.706-1(a)). This authority may be used only for

operation and maintenance and continuing services (e.g., rentals, utilities, and supply items not

financed by stock funds)-

(1) Necessary for normal operations; and

(2) For which Congress previously had consistently appropriated funds, unless specific statutory
authority exists permitting applicability to other requirements.

(b) Indefinite-quantity or requirements contracts. A one-year indefinite-quantity or requirements

contract for services that is funded by annual appropriations may extend beyond the fiscal year in

which it begins; provided, that-

(1) Any specified minimum quantities are certain to be ordered in the initial fiscal year (see 37.106)

and

(2) The contract includes the clause at 52.232-19, Availability of Funds for the Next Fiscal Year (see

32.706-1(b)).

(c) Acceptance of supplies or services. The Government shall not accept supplies or services under a

contract conditioned upon the availability of funds until the contracting officer has given the

contractor notice, to be confirmed in writing, that funds are available.

32.703-3 Contracts crossing fiscal years.

(a) A contract that is funded by annual appropriations may not cross fiscal years, except in

accordance with statutory authorization (e.g., 41 U.S.C.6302, 31 U.S.C.1308, 42 U.S.C.2459a, 42

U.S.C.3515, and paragraph (b) of this subsection), or when the contract calls for an end product that

cannot feasibly be subdivided for separate performance in each fiscal year (e.g., contracts for expert

or consultant services).

(b) The head of an executive agency, except NASA, may enter into a contract, exercise an option, or

place an order under a contract for severable services for a period that begins in one fiscal year and

ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed

does not exceed oneyear (10 U.S.C. 3133 and 41 U.S.C.3902). Funds made available for a fiscal year

may be obligated for the total amount of an action entered into under this authority.

32.704 Limitation of cost or funds.

(a)

(1) When a contract contains the clause at 52.232-20, Limitation of Cost; or 52.232-22, Limitation of

Funds, the contracting officer, upon learning that the contractor is approaching the estimated cost

of the contract or the limit of the funds allotted, shall promptly obtain funding and programming

information pertinent to the contract’s continuation and notify the contractor in writing that-

(i) Additional funds have been allotted, or the estimated cost has been increased, in a specified

amount;

(ii) The contract is not to be further funded and that the contractor should submit a proposal for an

adjustment of fee, if any, based on the percentage of work completed in relation to the total work

called for under the contract;

(iii) The contract is to be terminated; or
(A) The Government is considering whether to allot additional funds or increase the estimated cost-

(B) The contractor is entitled by the contract terms to stop work when the funding or cost limit is

reached; and

(C) Any work beyond the funding or cost limit will be at the contractor’s risk.

(2) Upon learning that a partially funded contract containing any of the clauses referenced in

paragraph (a)(1) of this section will receive no further funds, the contracting officer shall promptly

give the contractor written notice of the decision not to provide funds.

(b) Under a cost-reimbursement contract, the contracting officer may issue a change order, a

direction to replace or repair defective items or work, or a termination notice without immediately

increasing the funds available. Since a contractor is not obligated to incur costs in excess of the

estimated cost in the contract, the contracting officer shall ensure availability of funds for directed

actions. The contracting officer may direct that any increase in the estimated cost or amount allotted

to a contract be used for the sole purpose of funding termination or other specified expenses.

(c) Government personnel encouraging a contractor to continue work in the absence of funds will

incur a violation of Revised Statutes section 3679 (31 U.S.C.1341) that may subject the violator to

civil or criminal penalties.

32.705 Unenforceability of Unauthorized Obligations.

Many supplies or services are acquired subject to supplier license agreements. These are

particularly common in information technology acquisitions, but they may apply to any supply or

service. For example, computer software and services delivered through the internet (web services)

are often subject to license agreements, referred to as End User License Agreements (EULA), Terms

of Service (TOS), or other similar legal instruments or agreements. Many of these agreements

contain indemnification clauses that are inconsistent with Federal law and unenforceable, but which

could create a violation of the Anti-Deficiency Act (31 U.S.C. 1341) if agreed to by the Government.

32.706 Contract clauses.

32.706-1 Clauses for contracting in advance of funds.

(a) Insert the clause at 52.232-18, Availability of Funds, in solicitations and contracts if the contract

will be chargeable to funds of the new fiscal year and the contract action will be initiated before the

funds are available.

(b) The contracting officer shall insert the clause at 52.232-19, Availability of Funds for the Next

Fiscal Year, in solicitations and contracts if a one-year indefinite-quantity or requirements contract

for services is contemplated and the contract-

(1) Is funded by annual appropriations; and

(2) Is to extend beyond the initial fiscal year (see 32.703-2(b)).
32.706-2 Clauses for limitation of cost or funds.

(a) The contracting officer shall insert the clause at 52.232-20, Limitation of Cost, in solicitations

and contracts if a fully funded cost-reimbursement contract is contemplated, whether or not the

contract provides for payment of a fee.

(b) The contracting officer shall insert the clause at 52.232-22, Limitation of Funds, in solicitations

and contracts if an incrementally funded cost-reimbursement contract is contemplated.

32.706-3 Clause for unenforceability of unauthorized obligations.

The contracting officer shall insert the clause at 52.232-39, Unenforceability of Unauthorized

Obligations in all solicitations and contracts.