FAR 32.703-3—Contracts crossing fiscal years.
Plain-English Summary
FAR 32.703-3 explains when a contract may lawfully cross a fiscal year and how annual appropriations affect that decision. It covers two main topics: the general rule that contracts funded with annual appropriations normally may not span fiscal years, and the exceptions that allow cross-year performance when authorized by statute or when the work produces an end product that cannot feasibly be divided by fiscal year. It also addresses a specific authority for severable services, allowing an executive agency (other than NASA) to award, exercise an option, or place an order for a severable-services period that begins in one fiscal year and ends in the next, as long as the period does not exceed one year. In practice, this section is about matching the contract period, the type of work, and the availability of funds to the correct fiscal law authority so the government does not obligate appropriations improperly. It is especially important for service contracts, consulting work, and any acquisition planned near the end of a fiscal year or intended to run across fiscal-year boundaries.
Key Rules
Annual funds usually stay within year
A contract funded by annual appropriations generally may not cross fiscal years. The default rule is that the period of performance must fit within the fiscal year of the funds unless a specific legal exception applies.
Cross-year authority must exist
A contract may cross fiscal years only when a statute authorizes it or when the work is for an end product that cannot feasibly be divided for separate performance in each fiscal year. The section cites examples of statutory authority, but the key point is that the contracting officer must identify a valid legal basis before allowing cross-year performance.
Nondivisible end products are an exception
If the contract calls for a single end product that cannot reasonably be split into separate yearly performance segments, the contract may span fiscal years. This exception is often relevant to expert or consultant services where the work is inherently continuous or indivisible.
Severable services may run up to one year
An executive agency head, except NASA, may enter into a contract, exercise an option, or place an order for severable services that begins in one fiscal year and ends in the next, provided the period does not exceed one year. This authority is limited to severable services and is tied to specific statutory provisions.
Full obligation allowed for authorized severable services
When the severable-services authority applies, funds available for a fiscal year may be obligated for the total amount of the action. That means the agency can fund the entire one-year severable-services period with the fiscal-year funds available at the time of the action.
Responsibilities
Contracting Officer
Determine whether the contemplated contract period crosses fiscal years and verify that a valid statutory exception applies before award, option exercise, or order placement. The contracting officer must ensure the contract type, period of performance, and funding structure comply with the annual-appropriation rule and any severable-services authority.
Agency Head
For severable services, the head of an executive agency may authorize the agency to enter into a contract, exercise an option, or place an order for a period beginning in one fiscal year and ending in the next, as long as the period does not exceed one year. The agency head must act within the limits of the cited statutory authority and the NASA exception.
Program Office / Requiring Activity
Define the requirement in a way that reflects whether the work is severable or nonseverable and whether it can be divided by fiscal year. The requiring activity must help ensure the acquisition strategy matches the nature of the work and the available funding.
Budget / Finance Officials
Confirm the availability and proper fiscal-year use of funds and support obligation of the correct amount under the applicable authority. They must help prevent improper use of annual appropriations across fiscal years.
Contractor
Perform only within the period of performance established under the contract, option, or order and understand that funding and performance limits may be tied to fiscal-year authority. The contractor should not assume a cross-year period is permissible unless it is expressly authorized in the contract.
Practical Implications
This rule is a common fiscal-law checkpoint for service contracts, especially at year-end, because the wrong period of performance can create an improper obligation or an invalid contract structure.
The biggest pitfall is treating all services the same: severable services and nonseverable end products are handled differently, and the contract file should clearly support which category applies.
Another common mistake is assuming that any contract can simply be extended into the next fiscal year if funds are available; annual appropriations do not automatically permit cross-year performance.
For severable services, the one-year limit is critical. If the period exceeds one year, the authority in this section does not apply, even if the services are otherwise severable.
Contracting officers should document the legal basis for any cross-year action, including the statutory authority or the rationale for nondivisible end products, to reduce protest, audit, and Anti-Deficiency Act risk.
Official Regulatory Text
(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.