37.106
Funding and term of service contracts
Service contracts funded by annual appropriations generally cannot extend beyond the fiscal year, except for certain severable services contracts that may cross fiscal years if limited to one year.
Overview
FAR 37.106 addresses the funding and permissible term lengths for service contracts, particularly those funded by annual appropriations. It establishes that, unless otherwise authorized by law, service contracts funded by annual appropriations cannot extend beyond the fiscal year for which funds are appropriated. However, there is an exception for severable service contracts: agency heads (except NASA) may enter into, exercise options for, or place orders for severable services that cross fiscal years, provided the contract period does not exceed one year. Additionally, agencies with statutory authority for multiyear contracts are encouraged to use this authority to promote cost-effective operations when acquiring services.
Key Rules
- Annual Appropriations Limitation
- Service contracts funded by annual appropriations generally cannot extend beyond the fiscal year of the appropriation unless specifically authorized by law.
- Severable Services Exception
- Agency heads (excluding NASA) may contract for severable services that cross fiscal years, as long as the contract period is no longer than one year, and funds for the full period can be obligated from a single fiscal year.
- Multiyear Contract Authority
- Agencies with statutory authority for multiyear contracts should consider using it to achieve economical business operations when acquiring services.
Responsibilities
- Contracting Officers: Must ensure service contract terms comply with funding restrictions and utilize exceptions appropriately; consider multiyear authority when available.
- Contractors: Should be aware of contract term limitations and funding structures; ensure proposals and performance align with fiscal year and contract period requirements.
- Agencies: Must oversee compliance with statutory authorities and promote cost-effective contracting practices.
Practical Implications
- This section ensures service contracts are properly aligned with federal funding cycles and legal authorities, reducing the risk of Anti-Deficiency Act violations.
- Contractors must be vigilant about contract periods and funding sources to avoid performance or payment issues.
- Misunderstanding these rules can lead to improper contract extensions or funding lapses, impacting both agency operations and contractor payments.