FAR 52.232-22—Limitation of Funds.
Plain-English Summary
FAR 52.232-22, Limitation of Funds, governs how funding is administered on incrementally funded cost-reimbursement and cost-sharing contracts. It explains the relationship between the estimated cost in the Schedule, the amount currently allotted by the Government, and the contractor’s obligation to manage performance within the funds available. The clause covers incremental funding, contractor notice requirements when costs are approaching the funded amount, advance notice before the end of the funded period, the contractor’s right to request termination if more funds are not added, the Government’s non-liability for costs above the allotted amount absent proper funding action, the effect of later funding increases on previously incurred costs, the limited effect of change orders, and the Government’s continuing right to terminate. In practice, this clause is the core control mechanism that prevents a contractor from unintentionally overrunning available funds and gives the contracting officer a structured process for adding funds or ending performance. It is especially important on research, development, and other incrementally funded efforts where the full estimated cost is not obligated at award. The clause also makes clear that only the contracting officer can increase the funded amount and that informal communications do not bind the Government.
Key Rules
Estimated cost and best efforts
The parties estimate the contract will not cost more than the stated estimated cost, or the Government’s share in a cost-sharing contract. The contractor must use best efforts to complete the work within that estimate, including both Government and contractor shares where applicable.
Incremental funding only
The Schedule identifies the amount currently allotted and the period that amount is expected to cover. The Government contemplates adding funds incrementally until the full estimated cost is reached, exclusive of fee.
75 percent notice trigger
The contractor must notify the contracting officer in writing when it expects next-60-day costs, plus all prior costs, to exceed 75 percent of the amount currently allotted, or the applicable combined amount in a cost-sharing contract. The notice must state how much additional funding is needed to continue performance for the scheduled period.
Sixty-day advance notice
At least 60 days before the end of the funded period, the contractor must tell the contracting officer what additional funds, if any, will be needed to continue timely performance and when those funds will be required. This gives the Government time to act before funding runs out.
Right to request termination
If additional funds are not allotted by the end of the funded period or another agreed date, the contractor may request termination on that date. If the contractor believes available funds will last longer, it may propose a later termination date, which the contracting officer may accept.
No obligation beyond allotted funds
Unless another contract provision expressly states an exception to this clause, the Government is not required to reimburse costs above the amount allotted, and the contractor is not required to keep performing or incurring costs beyond the funded amount until the contracting officer issues written notice increasing the allotment.
Funding increases adjust estimated cost
When the Government increases the amount allotted, the estimated cost is increased to match the new funded amount, and in cost-sharing contracts the increase is allocated according to the contract’s funding formula.
Only contracting officer can bind funding
No notice, statement, or representation from anyone other than the contracting officer can change the amount allotted. Informal assurances do not create funding authority or reimbursement rights.
Later funding can cover earlier costs
When funds are later added, costs incurred before the increase may become allowable to the same extent as if they had been incurred after the increase, unless the contracting officer limits the increase to termination or other specified expenses.
Change orders do not increase funds automatically
A change order does not authorize the contractor to exceed the funded amount unless it expressly states that the amount allotted is increased.
Termination rights remain intact
Nothing in the clause limits the Government’s right to terminate the contract. If termination occurs, the parties must negotiate an equitable adjustment or settlement under the applicable termination clause.
Responsibilities
Contracting Officer
Maintain the funded amount in the Schedule, issue written notices when allotments are increased, and ensure only authorized funding communications are made. Respond to contractor funding notices, decide whether to add funds or allow termination, and administer any termination or settlement actions under the contract’s termination clause.
Contractor
Use best efforts to perform within the estimated cost and current allotment, monitor burn rate, and provide timely written notice when costs are approaching the funded threshold or when additional funds will be needed before the end of the funded period. Stop work or stop incurring costs beyond the allotted amount unless and until the contracting officer increases funding in writing, or request termination if funds are not added.
Government/Agency
Provide funds incrementally as contemplated by the contract, ensure the Schedule accurately states the current allotment and funded period, and coordinate internal funding actions so the contracting officer can issue timely written increases when appropriate.
Practical Implications
Contractors must actively track funding burn rate; waiting until funds are nearly exhausted can create performance interruptions and reimbursement risk.
The 75 percent and 60-day notices are not optional paperwork—they are early warning requirements that protect both sides and help avoid unauthorized overruns.
Only a written notice from the contracting officer increases the funded amount; emails, verbal assurances, or program office statements are not enough.
Change orders can change work scope, but they do not automatically add money unless they expressly increase the allotment.
If funding is not added on time, the contractor may have to stop work or request termination, so project managers, finance staff, and contracting personnel must coordinate closely to avoid a funding lapse.
Official Regulatory Text
As prescribed in 32.706-2 (b) , insert the following clause. The 60-day period may be varied from 30 to 90 days and the 75 percent from 75 to 85 percent. "Task Order" or other appropriate designation may be substituted for "Schedule" wherever that word appears in the clause: Limitation of Funds (Apr 1984) (a) The parties estimate that performance of this contract will not cost the Government more than (1) the estimated cost specified in the Schedule or, (2)if this is a cost-sharing contract, the Government’s share of the estimated cost specified in the Schedule. The Contractor agrees to use its best efforts to perform the work specified in the Schedule and all obligations under this contract within the estimated cost, which, if this is a cost-sharing contract, includes both the Government’s and the Contractor’s share of the cost. (b) The Schedule specifies the amount presently available for payment by the Government and allotted to this contract, the items covered, the Government’s share of the cost if this is a cost-sharing contract, and the period of performance it is estimated the allotted amount will cover. The parties contemplate that the Government will allot additional funds incrementally to the contract up to the full estimated cost to the Government specified in the Schedule, exclusive of any fee. The Contractor agrees to perform, or have performed, work on the contract up to the point at which the total amount paid and payable by the Government under the contract approximates but does not exceed the total amount actually allotted by the Government to the contract. (c) The Contractor shall notify the Contracting Officer in writing whenever it has reason to believe that the costs it expects to incur under this contract in the next 60 days, when added to all costs previously incurred, will exceed 75 percent of (1) the total amount so far allotted to the contract by the Government or, (2)if this is a cost-sharing contract, the amount then allotted to the contract by the Government plus the Contractor’s corresponding share. The notice shall state the estimated amount of additional funds required to continue performance for the period specified in the Schedule. (d) Sixty days before the end of the period specified in the Schedule, the Contractor shall notify the Contracting Officer in writing of the estimated amount of additional funds, if any, required to continue timely performance under the contract or for any further period specified in the Schedule or otherwise agreed upon, and when the funds will be required. (e) If, after notification, additional funds are not allotted by the end of the period specified in the Schedule or another agreed-upon date, upon the Contractor’s written request the Contracting Officer will terminate this contract on that date in accordance with the provisions of the Termination clause of this contract. If the Contractor estimates that the funds available will allow it to continue to discharge its obligations beyond that date, it may specify a later date in its request, and the Contracting Officer may terminate this contract on that later date. (f) Except as required by other provisions of this contract, specifically citing and stated to be an exception to this clause- (1) The Government is not obligated to reimburse the Contractor for costs incurred in excess of the total amount allotted by the Government to this contract; and (2) The Contractor is not obligated to continue performance under this contract (including actions under the Termination clause of this contract) or otherwise incur costs in excess of- (i) The amount then allotted to the contract by the Government or; (ii) If this is a cost-sharing contract, the amount then allotted by the Government to the contract plus the Contractor’s corresponding share, until the Contracting Officer notifies the Contractor in writing that the amount allotted by the Government has been increased and specifies an increased amount, which shall then constitute the total amount allotted by the Government to this contract. (g) The estimated cost shall be increased to the extent that (1) the amount allotted by the Government or, (2)if this is a cost-sharing contract, the amount then allotted by the Government to the contract plus the Contractor’s corresponding share, exceeds the estimated cost specified in the Schedule. If this is a cost-sharing contract, the increase shall be allocated in accordance with the formula specified in the Schedule. (h) No notice, communication, or representation in any form other than that specified in paragraph (f)(2) of this clause, or from any person other than the Contracting Officer, shall affect the amount allotted by the Government to this contract. In the absence of the specified notice, the Government is not obligated to reimburse the Contractor for any costs in excess of the total amount allotted by the Government to this contract, whether incurred during the course of the contract or as a result of termination. (i) When and to the extent that the amount allotted by the Government to the contract is increased, any costs the Contractor incurs before the increase that are in excess of- (1) The amount previously allotted by the Government or; (2) If this is a cost-sharing contract, the amount previously allotted by the Government to the contract plus the Contractor’s corresponding share, shall be allowable to the same extent as if incurred afterward, unless the Contracting Officer issues a termination or other notice and directs that the increase is solely to cover termination or other specified expenses. (j) Change orders shall not be considered an authorization to exceed the amount allotted by the Government specified in the Schedule, unless they contain a statement increasing the amount allotted. (k) Nothing in this clause shall affect the right of the Government to terminate this contract. If this contract is terminated, the Government and the Contractor shall negotiate an equitable distribution of all property produced or purchased under the contract, based upon the share of costs incurred by each. (l) If the Government does not allot sufficient funds to allow completion of the work, the Contractor is entitled to a percentage of the fee specified in the Schedule equalling the percentage of completion of the work contemplated by this contract. (End of clause)