FAR 32.7—Subpart 32.7

Scope of subpart.

FAR 32.700 is a short scope provision that tells readers what Subpart 32.7 covers and, just as importantly, what it does not. It says the subpart addresses two main topics: the basic requirements for contract funding and the procedures for using the Limitation of Cost and Limitation of Funds clauses. It also points readers to agency fiscal regulations for the more detailed funding rules that govern how money is obligated, recorded, and managed within a particular agency. In practice, this section is a roadmap: it signals that the FAR provides the core contracting framework, while agency fiscal rules supply the detailed financial administration requirements. For contracting officers, contractors, and finance personnel, the section matters because it frames where to look for funding authority, funding limits, and the procedural steps that control cost-reimbursement and incrementally funded contracts.

[Reserved]

Policy.

FAR 32.702 states the core fiscal law rule for federal contracting: no Government officer or employee may create or authorize an obligation that exceeds available funds or is made before appropriations exist, unless another law specifically allows it. The section ties the Anti-Deficiency Act, 31 U.S.C. 1341, directly to contract formation and makes clear that contracting officers must not execute a contract until they have either written confirmation from the responsible fiscal authority that funds are available or have expressly made the contract contingent on the availability of funds under FAR 32.703-2. In practice, this section is about preventing unauthorized commitments, avoiding violations of fiscal law, and ensuring the Government does not promise payment without legal funding authority. It applies at the point of award and is a gatekeeping requirement for contract execution. For contractors, it signals that a contract may be invalid or delayed if funding is not yet available, and that any promise of payment must be supported by proper fiscal documentation or a valid funding contingency.

Contract funding requirements.

Limitation of cost or funds.

FAR 32.704 explains what happens when a cost-reimbursement contract is running up against its funding or cost ceiling and the contract includes either the Limitation of Cost clause at 52.232-20 or the Limitation of Funds clause at 52.232-22. It tells the contracting officer what to do when the contractor is approaching the estimated cost or the amount of funds allotted, including promptly gathering funding and programming information and giving written notice of one of several outcomes: additional funds or a higher estimated cost will be provided, the contract will not be further funded and the contractor should seek a fee adjustment if applicable, or the contract will be terminated. It also addresses the special case of a partially funded contract that will receive no more funds, requiring prompt written notice of that decision. In addition, it clarifies that under a cost-reimbursement contract the contracting officer may issue certain directives—such as a change order, a direction to replace or repair defective items or work, or a termination notice—without immediately increasing available funds, but must still ensure funds are available for the directed action. Finally, it warns that government personnel who encourage continued work without available funds risk violating the Anti-Deficiency Act (31 U.S.C. 1341), with possible civil or criminal penalties. In practice, this section is about preventing unauthorized commitments, managing funding ceilings, and making sure both the Government and contractor understand when work must stop, continue, or be redirected.

Unenforceability of Unauthorized Obligations.

FAR 32.705 addresses the problem of unauthorized obligations created by supplier license agreements, especially in information technology acquisitions but also in any purchase of supplies or services. It explains that many commercial licenses, including End User License Agreements (EULAs), Terms of Service (TOS), and similar online or software-related agreements, may contain indemnification or other terms that conflict with Federal law. The section exists to prevent the Government from being bound by provisions it cannot lawfully accept, particularly terms that could violate the Anti-Deficiency Act if a contracting official or other Government representative agrees to them. In practice, this means agencies and contractors must carefully review license terms before acceptance, because a seemingly routine click-through or boilerplate agreement can create legal risk if it includes unauthorized commitments. The section is important because it protects appropriated funds, limits the Government’s exposure to unlawful indemnities, and reinforces that only authorized officials may bind the United States. It also signals that commercial convenience does not override statutory limits on Federal contracting authority.

Contract clauses.