FAR 32.705—Unenforceability of Unauthorized Obligations.
Plain-English Summary
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.
Key Rules
License agreements are common
Supplies and services may be subject to supplier license agreements, and this is especially common in IT acquisitions. The rule applies broadly, however, and can cover any supply or service, not just software.
EULAs and TOS are included
The section specifically identifies End User License Agreements, Terms of Service, and similar legal instruments or agreements. These forms often accompany software, cloud services, and web-based offerings.
Indemnification clauses are risky
Many of these agreements contain indemnification provisions that are inconsistent with Federal law. If the Government agrees to such terms, the clause may be unenforceable and may create legal exposure.
Anti-Deficiency Act concerns
Unauthorized indemnification or similar commitments can violate the Anti-Deficiency Act if accepted on behalf of the Government. This makes review of license terms a fiscal law issue, not just a contract administration issue.
Unauthorized obligations are unenforceable
Terms that exceed Government authority are not binding simply because they appear in a vendor’s standard form. The Government cannot be bound by provisions that conflict with law or exceed the authority of the person accepting them.
Responsibilities
Contracting Officer
Review supplier license terms before acceptance, ensure the Government does not agree to unlawful indemnification or other unauthorized obligations, and reject or negotiate terms that conflict with Federal law.
Program/Technical Personnel
Identify when a product or service is subject to a license agreement, including click-through or online terms, and route those terms to the contracting office for review before use or acceptance.
Contractor/Supplier
Disclose applicable license terms clearly and avoid assuming the Government can accept standard commercial clauses that are inconsistent with Federal law. Provide revised terms when necessary to support lawful procurement.
Agency
Establish internal controls and review processes to prevent unauthorized acceptance of license terms and to ensure compliance with fiscal law and contracting authority limits.
Practical Implications
Do not treat software licenses or online terms as routine paperwork; they can contain unlawful indemnities or other prohibited commitments.
A simple click-through acceptance by a user or technical employee can create serious legal problems if it purports to bind the Government.
Contracting staff should screen for indemnification, limitation-of-liability, automatic renewal, venue, and other terms that may conflict with Federal requirements.
Contractors should expect the Government to reject or modify standard commercial terms that cannot be accepted under Federal law.
Agencies should train personnel to escalate any license agreement before use, especially for cloud services, web services, and downloadable software.
Official Regulatory Text
Many supplies or services are acquired subject to supplier license agreements. These are particularly common in information technology acquisitions, but they may apply to any supply or service. For example, computer software and services delivered through the internet (web services) are often subject to license agreements, referred to as End User License Agreements (EULA), Terms of Service (TOS), or other similar legal instruments or agreements. Many of these agreements contain indemnification clauses that are inconsistent with Federal law and unenforceable, but which could create a violation of the Anti-Deficiency Act ( 31 U.S.C. 1341 ) if agreed to by the Government.