Overview
FAR Subpart 32.7 establishes the regulatory framework for the funding of federal contracts, ensuring that all procurement actions comply with the Anti-Deficiency Act (ADA). It outlines the requirements for obligating funds, procedures for contracts crossing fiscal years, and the mandatory clauses used to limit government liability and manage cost-reimbursement thresholds.
Key Rules
- Anti-Deficiency Act Compliance: No government official may authorize an obligation exceeding available funds or in advance of appropriations unless authorized by law.
- Funding Methods:
- Fully Funded: Funds cover the total price (Fixed-Price) or estimated cost and fee (Cost-Reimbursement).
- Incrementally Funded: Funds cover only the specific amount allotted and the corresponding fee.
- Fiscal Year Limitations: Generally, contracts funded by annual appropriations cannot cross fiscal years. Exceptions include statutory authorizations for severable services (not to exceed one year) and end products that cannot be subdivided (e.g., expert/consultant reports).
- Availability of Funds: Contracting Officers (COs) can initiate actions before funds are available only for operations/maintenance and continuing services, provided the "Availability of Funds" clause is included.
- Unauthorized Obligations (EULAs/TOS): Any indemnification clause in a supplier’s license agreement (common in software) that would violate the Anti-Deficiency Act is rendered unenforceable by FAR 52.232-39.
- Work Stoppage: Under Limitation of Cost/Funds clauses, contractors are generally entitled to stop work once the funding limit is reached; any work performed beyond that limit is at the contractor's own risk.
Responsibilities
- Contracting Officer (CO):
- Must obtain written assurance from fiscal authorities that funds are available before execution.
- Must provide formal written notice to the contractor when additional funds are allotted or if the contract will not be further funded.
- Ensures funds are available for any directed actions, such as change orders or repairs, even if a formal increase to the contract hasn't been processed yet.
- Must insert appropriate funding clauses based on contract type (e.g., 52.232-20 for fully funded cost contracts).
- Fiscal Authority: Responsible for providing the CO with written assurance of adequate funding availability.
- Government Personnel (Program Managers/CORs): Strictly prohibited from encouraging a contractor to continue work in the absence of funds. Doing so may result in civil or criminal penalties under the Anti-Deficiency Act.
- Contractors: Required to notify the government when they approach the estimated cost or the limit of allotted funds (as specified in the applicable Limitation of Cost/Funds clauses).
Practical Implications
- Bridge Contracts and Year-End Actions: This subpart allows agencies to begin the solicitation process for "New Year" requirements before the budget is passed (using FAR 52.232-18), which is critical for maintaining continuity in utilities and rentals during a Continuing Resolution (CR).
- Software Procurement Risks: The rules regarding "Unauthorized Obligations" act as a "poison pill" against standard commercial EULAs. Even if a government employee "clicks to accept" a license with an open-ended indemnification clause, that clause is legally void, protecting the agency from unforeseen financial liability.
- Proactive Budget Management: The requirement for the CO to give notice (allotting more funds vs. terminating) means that contractors must maintain rigorous accounting. If a contractor continues working after hitting a funding ceiling without a written notice from the CO, they will likely lose a claim for reimbursement, as the Government is not legally bound to pay for unfunded work.
- Severable vs. Non-Severable Services: Agencies frequently use the authority in 32.703-3(b) to award 12-month service contracts in the middle of a fiscal year (e.g., June to June) using current-year funds, providing flexibility for program managers to avoid the "September 30th rush."