32.706-2
Clauses for limitation of cost or funds
Always include the appropriate limitation of cost or funds clause in cost-reimbursement contracts to ensure compliance with funding restrictions and avoid unauthorized expenditures.
Overview
FAR 32.706-2 mandates the inclusion of specific limitation of cost or funds clauses in cost-reimbursement contracts. Contracting officers must use the Limitation of Cost clause (FAR 52.232-20) for fully funded cost-reimbursement contracts, regardless of whether a fee is involved. For incrementally funded cost-reimbursement contracts, the Limitation of Funds clause (FAR 52.232-22) is required. These clauses are essential for controlling government financial liability and ensuring contractors do not exceed authorized funding levels.
Key Rules
- Limitation of Cost Clause (52.232-20)
- Required in all fully funded cost-reimbursement contracts, with or without a fee.
- Limitation of Funds Clause (52.232-22)
- Required in all incrementally funded cost-reimbursement contracts.
Responsibilities
- Contracting Officers: Must ensure the correct clause is included in solicitations and contracts based on the funding method.
- Contractors: Must comply with the limitations set forth in the applicable clause, including not exceeding authorized funding.
- Agencies: Must oversee contract funding and ensure compliance with funding limitations.
Practical Implications
- These requirements exist to prevent contractors from incurring costs beyond what the government has authorized, protecting both parties from unauthorized financial commitments.
- Failure to include the correct clause can result in funding disputes or unauthorized obligations.
- Contractors should closely monitor funding status and communicate with the contracting officer if approaching funding limits.