Overview
FAR 32.704 prescribes the mandatory procedures a Contracting Officer (CO) must follow when a contract approaches its estimated cost or funding limit. It ensures that the government maintains fiscal control while providing the contractor with formal notice regarding whether work should continue, stop, or be terminated.
Key Rules
- Mandatory Notification: Upon learning that a contractor is approaching cost or funding limits (under clauses 52.232-20 or 52.232-22), the CO must provide written notice specifying if additional funds are allotted, if the contract is being terminated, or if the government is still considering its options.
- Contractor's Right to Stop Work: If the government is still considering funding, the CO must inform the contractor that they are entitled to stop work at the funding limit and that any work performed beyond that limit is at the contractor's own risk.
- Directives and Change Orders: Under cost-reimbursement contracts, the CO may issue change orders or repair directions without immediate funding, but they cannot legally obligate the contractor to incur costs exceeding the current limit.
- Anti-Deficiency Act Compliance: Government personnel are strictly prohibited from encouraging a contractor to continue work in the absence of funds; doing so violates 31 U.S.C. 1341 and can lead to civil or criminal penalties.
- Fee Adjustments: If a contract will not receive further funding, the CO must notify the contractor to submit a proposal for a fee adjustment based on the percentage of work completed.
Practical Implications
- Contractors must maintain rigorous cost-tracking systems to provide timely "75% (or 80%) notification" letters, as performing work beyond the funded limit without a written CO increase creates an unrecoverable financial loss.
- For Government personnel, this section serves as a critical legal safeguard, emphasizing that verbal "promises" of future funding are not legally binding and can result in personal liability under the Anti-Deficiency Act.