32.704
Limitation of cost or funds
Contractors must stop work when funding or cost limits are reached unless officially notified otherwise, and government personnel must not authorize or encourage work beyond these limits.
Overview
FAR 32.704 outlines the procedures and responsibilities for managing contracts that include Limitation of Cost (52.232-20) or Limitation of Funds (52.232-22) clauses. It details the actions contracting officers must take when a contractor approaches the funding or cost limits, including timely notification and decisions regarding additional funding, contract termination, or work stoppage. The section also clarifies that contractors are not obligated to continue work beyond the funded amount and that government personnel must not encourage work without available funds, as this could result in statutory violations and penalties.
Key Rules
- Notification Requirements
- Contracting officers must promptly notify contractors in writing when funding or cost limits are approached, specifying whether additional funds will be provided, the contract will be terminated, or work should stop.
- Contractor Obligations
- Contractors are not required to continue work beyond the funded or estimated cost limits and do so at their own risk if they proceed without additional funding.
- Change Orders and Terminations
- Contracting officers may issue change orders or termination notices without immediately increasing funds but must ensure funds are available for such actions.
- Prohibition on Unauthorized Work
- Government personnel must not encourage contractors to continue work without funds, as this may violate federal law and result in penalties.
Responsibilities
- Contracting Officers: Must monitor contract funding, provide timely written notifications, ensure funds are available for directed actions, and avoid unauthorized commitments.
- Contractors: Must monitor their incurred costs and cease work when funding or cost limits are reached unless notified otherwise.
- Agencies: Must enforce compliance and prevent violations of funding statutes.
Practical Implications
- This section exists to prevent unauthorized government obligations and ensure fiscal responsibility.
- It impacts daily contract management by requiring close monitoring of costs and timely communication between contracting officers and contractors.
- Common pitfalls include failure to notify contractors, unauthorized encouragement to continue work, and incurring costs beyond available funds.