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HHS Reference Tool for Contract Funding, Formation and Appropriations Law Compliance



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Case Studies

Frequently Asked Questions


Case Study - Use of Incremental Funding For Severable, Fixed-Price Requirements


A Project Officer (PO) at the Health Resources and Services Administration (HRSA) has a requirement for on-site technical assistance to be provided to grantees under one of HRSA’s grant programs and wants to use a fixed-price task order under a HRSA-awarded indefinite-delivery/indefinite-quantity contract (ID/IQ). The PO wants to fund the requirement for 3 years, but has funds available for only part of the first year of the effort. The first year would run from January 1, 2011 through December 31, 2011.


Based on the HHS policy preference specified in HHSAR 332.702-70(b) for use of options, the Contracting Officer (CO) should work with the PO to structure this task order (TO) with a base period (not to exceed 1 year) and two 1-year options.

Because the PO does not have full funding available for the base period, the base period can be incrementally funded as long as the appropriate FAR and HHSAR clauses are included in the contract and the TO. Note, however, that the flexibilities afforded by FAR 32.703(b) to cross fiscal years and fully fund from the appropriation current at the time of the award/option exercise are not available when using incremental funding.

Each increment of funding must come from the then-current appropriation. For example, if the first increment covers January 1, 2011 through June 30, 2011 (6 months), it would be funded from FY 11 funds; if the second increment was planned for 3 months only—July 1, 2011 through September 30, 2011, it too must use FY 11 funds. However, the remaining 3-month increment (October 1, 2011 through December 31, 2011) begins in FY 2012, so it would have to be funded from FY 12 funds. Alternatively, the first and second increments could be combined to cover the period January 1, 2011 through September 30, 2011, FAR 32.703-3(b) to use FY 11 funds to cover the entire increment. The severable services will begin in the prior fiscal year and extend into the subsequent fiscal year for a total period less than 1 year.

Another possible approach would be to establish a base period of 6 months (from January 1, 2011 through June 30, 2012); have two 12-month option years that run from July 1 through June 30; and have a final 6-month option period.

Even though incremental funding is permitted in the manner explained above, full funding of the option periods is encouraged in order to maximize the flexibilities afforded by FAR 32.703-3(b) to cross fiscal years when using an annual appropriation. The use of options also will avoid termination costs that may be incurred if subsequent incremental funding is not available, and the TO must be terminated for convenience.


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