48 C.F.R. § 32.704

32.704 Limitation of cost or funds.

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(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

(iv)(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 subparagraph (1) above 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 (31 U.S.C. 1341) that may subject the violator to civil or criminal penalties.

[48 FR 42328, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986; 72 FR 27384, May 15, 2007]

Notes of Decisions

Cited in 3 cases, 1998–2015 · leading case: American Safety Council, Inc. v. United States

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American Safety Council, Inc. v. United States (2015) uscfc “also 48 C.F.R. § 32.704 (recognizing that an agency may impose a ceiling on rates using a limitation of cost or limitation of funds clause).”

Scan-Tech Security, L.P. v. United States (2000) uscfc “48 C.F.R. § 32.704 ; Cibinic & Nash, supra, at 947.”

PCL Construction Services, Inc. v. United States (1998) uscfc “48 C.F.R. § 32.704 (c) (1990). The FAR admonition has two prongs: (1) encouraging a contractor to continue working, and (2) in the absence of funds.”

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