FAR 37.106—Funding and term of service contracts.
Plain-English Summary
FAR 37.106 addresses how the government funds service contracts and how long those contracts may run. It covers three related topics: the general rule for service contracts funded with annual appropriations, the special authority to award or extend certain severable service contracts across fiscal years for up to one year, and the requirement that agencies with statutory multiyear authority consider using that authority to support economical business operations when buying services. In practice, this section is about matching the contract term to the availability of appropriated funds and the legal authority behind the acquisition strategy. It helps contracting officers avoid violating fiscal law by obligating funds beyond their period of availability, while also giving agencies flexibility to buy ongoing services efficiently when the law permits. The section is especially important for service acquisitions that span the end of a fiscal year, involve options or orders, or may benefit from longer-term funding structures.
Key Rules
Annual funds limit contract term
When a service contract is funded with annual appropriations, the contract term generally cannot extend beyond the end of the fiscal year of the appropriation. The only exceptions are when another law authorizes a longer period, including the special rules for severable services and contracts conditioned on availability of funds or crossing fiscal years.
Severable services may cross fiscal years
The head of an executive agency, except NASA, may award, exercise an option, or place an order for severable services that begins in one fiscal year and ends in the next, as long as the period does not exceed one year. This authority allows the agency to obligate the full amount of the action using funds available for the fiscal year in which the action is taken.
Authority applies to award, options, and orders
The one-year severable-services authority is not limited to initial awards. It also covers exercising an option or placing an order under an existing contract, provided the resulting period of performance meets the one-year limit and the services are severable.
NASA is excluded from this authority
The special severable-services authority in paragraph (b) does not apply to NASA. NASA must rely on other applicable statutory authority or funding rules when structuring service contracts across fiscal years.
Multiyear authority should be considered
Agencies that have statutory multiyear authority are directed to consider using it when acquiring services. The purpose is to encourage economical business operations, such as improved pricing, reduced administrative burden, or better continuity of service.
Responsibilities
Contracting Officer
Ensure the contract term is consistent with the availability of appropriated funds and the applicable fiscal law authority. For severable services, verify that the action qualifies, does not exceed one year, and is properly funded with the fiscal-year funds available when the award, option, or order is made.
Head of Executive Agency
Approve use of the special authority for severable services across fiscal years, except for NASA. The agency head must ensure the authority is used only within the statutory limits and in a way that supports lawful and efficient service acquisition.
Agency Acquisition/Program Officials
Plan service requirements and funding strategies so the period of performance aligns with fiscal-year funding rules. They should identify whether services are severable, whether multiyear authority is available, and whether a cross-fiscal-year approach would improve economy and continuity.
Contractor
Perform in accordance with the contract period of performance and any option or order terms established by the government. Contractors should understand that funding and term limits may affect when work can begin, continue, or be extended.
Agency with Statutory Multiyear Authority
Consider using multiyear authority when acquiring services if it would promote economical business operations. The agency should evaluate whether a longer-term structure offers savings, stability, or other operational benefits consistent with the statute.
Practical Implications
This section is a fiscal-law guardrail: if the wrong funds are used for the wrong term, the agency can create an unauthorized obligation. Contracting officers should always confirm whether the service is severable and whether the funding source supports the intended period of performance.
A common pitfall is assuming any service can be funded across fiscal years. The special one-year authority applies only to severable services and only within the statutory limits; nonseverable services and other arrangements may require different treatment.
Options and orders need the same scrutiny as initial awards. It is easy to overlook that exercising an option or placing an order can itself be the fiscal action that must fit within the one-year severable-services rule.
Agencies with multiyear authority should not treat it as automatic. They should document why a multiyear approach is or is not being used, especially when it could improve pricing, continuity, or administrative efficiency.
For contractors, the practical effect is that performance timing may be tied closely to the government’s fiscal-year funding structure. Delays in award, option exercise, or order placement can affect start dates, continuity of work, and the scope of funded performance.
Official Regulatory Text
(a) When contracts for services are funded by annual appropriations, the term of contracts so funded shall not extend beyond the end of the fiscal year of the appropriation except when authorized by law (see paragraph (b) of this section for certain service contracts, 32.703-2 for contracts conditioned upon availability of funds, and 32.703-3 for contracts crossing fiscal years). (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. (c) Agencies with statutory multiyear authority shall consider the use of this authority to encourage and promote economical business operations when acquiring services.