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



Regulations and

Case Studies

Frequently Asked Questions


HHS Reference Tool Content

I.Basic Appropriations Law Concepts
 A.Anti-Deficiency Act
 B.Bona FideNeeds Rule
 C.Appropriation Types
 D.Continuing Resolution
II.Decision Factors
 A.No-Year Appropriation
 B.Bona FideNeeds Rule
 C.Acquiring Severable Services
  1.Annual Appropriation
   a.Contract period not more than one year
   b.Contract period more than one year
    -Incremental Funding
  2.Multiple-Year Appropriation
   a.Contract period will not extend beyond multiple-year appropriation's period of availability
   b.Contract period will extend beyond multiple-year appropriation's period of availability
    -Incremental Funding
 D.Acquiring Non-severable Services
  1. Funded in Full
    a.Entire Contract/Single Requirement
    b.Fully Funded Initial Requirement (Followed by Options)
  2.Multi-year Contracting
  3.Options After Initial Requirement
    a.Severable Services
    -Annual Appropriation
    -Multiple-Year Appropriation
    b.Non-severable Services
    -Fully Funded
    -Multi-Year Contract
 E.Acquiring both severable and non-severable services
  1.Single Definitive Contract
  2.Indefinite-Delivery/Indefinite-Quantity Contract
III.Case Studies
IV.Frequently Asked Questions

Annual Appropriation — Incremental Funding

Will all future increments cover a period of one year or less?


Yes      No


Help Notes

Incremental funding, as addressed in FAR Subpart 32.7 and HHSAR Subpart 332.7, is a method of funding contracts for severable services that obligates funds and sets specific spending limits that are less than the total estimated cost/price of the entire contract, with the understanding that additional funds are expected to be obligated at a later date. At contract award, the full contract period is specified, but the amount obligated provides only the initial increment of funding. Funds are subsequently obligated in periodic installments as work progresses, consistent with the terms of the contract and in observance of the maximum 12-months of performance that may be authorized when the funding source is an annual appropriation.

The HHSAR limits the use of incremental funding to contracts for severable services. Its use in contracts for non-severable services is prohibited [see HHSAR 332.702-70(e)]. In addition to its common application to cost-reimbursement contracts, HHSAR 332.702-72 authorizes the use of incremental funding in fixed-price, time and materials or labor-hour contracts, provided the contract base period and any option period:

  • Is for severable services;
  • Does not exceed one year; and
  • Is funded using the appropriation in effect on the date the funds are obligated.


  • Regardless of contract type, HHSAR 332.702-70(b) establishes a policy preference for the use of options rather than incremental funding when structuring contracts for severable services that will cover more than 1 year. This policy preference recognizes that the use of options limits the Department’s liability, i.e., ending a contract by not exercising an option would not incur termination costs. Also, the use of options poses less risk in terms of ensuring compliance with applicable appropriations law principles.
  • HHSAR 332.705 prescribes the use of contract clauses (based on the contract type in use) to help ensure that contract formation complies with applicable appropriations law principles.


Relevant Case Study