FAR 32.703—Contract funding requirements.

General.

FAR 32.703-1 explains the basic funding rule for government contracts: how much money must be obligated when a contract is fully funded versus incrementally funded. It covers the relationship between the type of contract and the amount of funds that must be set aside at award, including fixed-price contracts, cost-reimbursement contracts, target price arrangements, estimated cost, fee, and incremental funding with corresponding fee increments. The section exists to ensure the government obligates enough funds to support the contractual commitment and to make clear what portion of the contract is covered when only part of the total amount is funded. In practice, this is a core fiscal-control rule that affects award documentation, funding clauses, contract administration, and the risk of exceeding available funds. It also helps contracting officers and contractors understand whether the entire contract value is funded up front or only a specific allotment, which directly affects performance planning, billing, and the need for additional funding actions.

Contracts conditioned upon availability of funds.

FAR 32.703-2 explains when the Government may move forward with contract actions before funds are actually available, and what safeguards must be built into those contracts. It covers three related topics: fiscal year contracts that are chargeable to the next fiscal year, one-year indefinite-quantity or requirements contracts funded by annual appropriations that may extend beyond the fiscal year, and the rule that the Government may not accept supplies or services until the contracting officer confirms that funds are available. The section exists to let agencies plan and award certain recurring or continuing needs without violating fiscal law, while still protecting against unauthorized commitments and premature acceptance. In practice, it tells contracting officers when they may proceed with a contract action in advance of funding, what clauses must be included, what kinds of requirements qualify, and when performance may be accepted. For contractors, it signals that award or performance may be contingent on future funding and that payment/acceptance risk is controlled by specific contract language and notice requirements.

Contracts crossing fiscal years.

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.