HHS Reference Tool for Contract Funding, Formation and Appropriations Law Compliance
Multiple-year Appropriation — Incremental Funding
Will each future funding increment cover a period that does not extend beyond the then-current multiple-year 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 entire 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 the appropriation source being used.
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.
NOTE: 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.