32.704 Limitation of cost or funds
Source: FAR 32.704 on acquisition.gov
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.
(a)
(1) When a contract contains the clause at 52.232-20, Limitation of Cost; or 52.232-22, Limitation of Funds, the contracting officer, upon learning that the contractor is approaching the estimated cost of the contract or the limit of the funds allotted, shall promptly obtain funding and programming information pertinent to the contract’s continuation and notify the contractor in writing that-
(i) Additional funds have been allotted, or the estimated cost has been increased, in a specified amount;
(ii) The contract is not to be further funded and that the contractor should submit a proposal for an adjustment of fee, if any, based on the percentage of work completed in relation to the total work called for under the contract;
(iii) The contract is to be terminated; or
(A) The Government is considering whether to allot additional funds or increase the estimated cost-
(B) The contractor is entitled by the contract terms to stop work when the funding or cost limit is reached; and
(C) Any work beyond the funding or cost limit will be at the contractor’s risk.
(2) Upon learning that a partially funded contract containing any of the clauses referenced in paragraph (a)(1) of this section will receive no further funds, the contracting officer shall promptly give the contractor written notice of the decision not to provide funds.
(b) Under a cost-reimbursement contract, the contracting officer may issue a change order, a direction to replace or repair defective items or work, or a termination notice without immediately increasing the funds available. Since a contractor is not obligated to incur costs in excess of the estimated cost in the contract, the contracting officer shall ensure availability of funds for directed actions. The contracting officer may direct that any increase in the estimated cost or amount allotted to a contract be used for the sole purpose of funding termination or other specified expenses.
(c) Government personnel encouraging a contractor to continue work in the absence of funds will incur a violation of Revised Statutes section 3679 (http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title31-section1341&num=0&edition=prelim" target="_blank">31 U.S.C. 1341) that may subject the violator to civil or criminal penalties.