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

Multiple-Year Appropriation

What method will be used to address the portion of the performance period that will extend beyond the multiple-year appropriation's period of availability?


Option(s)      Incremental Funding


NOTE: The use of options is preferred as a matter of HHS policy. See HHSAR 332.702-70(b) .

Help Notes

Option means a unilateral right in a contract by which, for a specified time, the Government may elect to purchase additional supplies or services called for by the contract within the existing term of the contract, or may elect to extend the term of the contract. This definition expands on the definition in FAR 2.101. Please also see FAR Subpart 17.2.

Use of options as a unilateral right of the Government requires their identification in the solicitation, evaluation of their terms and pricing as part of the award determination, and their inclusion in the contract award. Because most of the Department’s funding is provided through annual appropriations, base and option periods are typically defined with 1-year terms. When using a multiple-year appropriation as the funding source, however, the duration of the base period and any subsequent option period may exceed one year, but cannot extend beyond the source appropriation’s period of availability. 

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 contract, with the understanding that additional funds are expected to be obligated at a later date. When using a multiple-year appropriation, a funded increment may exceed 12 months, but it cannot extend beyond the end of the period of availability of the appropriation source. After obligation of the initial increment at contract award, funds are subsequently obligated in periodic installments as work progresses, consistent with the terms of the contract and the limits of appropriation source being used.

NOTE: HHS policy HHSAR 332.702-70(e) prohibits the use of incremental funding in contracts for non-severable services.