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

Severable Services — Modifications

A modification that extends the contract performance period without an obligation of additional funds is commonly referred to as a "no-cost extension." Under an annual appropriation, a modification to authorize a no-cost extension of a contract for severable services is permitted only if it is for the continuation of the same services and would not extend the performance period involved beyond 12 months. This limitation includes situations involving an excusable delay or Government-caused delay—neither justifies a no-cost extension that would extend the funded performance period beyond 12 months. Given the above, and the common HHS practice to structure contracts for severable services with a base period and option periods of 12 months each, the use of a no-cost extension under a contract for severable services should be a very rare occurrence. Further, a no-cost extension cannot be used to add work that is outside the scope of the original contract. Similarly, it is not appropriate to use the clause in FAR 52.217-8, Option to Extend Services, without providing new funding from a current appropriation. This practice essentially provides a no-cost extension allowing performance to continue beyond the life of the annual appropriation. Proper use of this authority requires obligation of additional funding from a then-current appropriation.

Different issues arise when the modification will be funded by a multiple-year appropriation rather than an annual appropriation. When using a multiple-year appropriation, the contract period (for severable services) cannot extend beyond the final day of the last year of the appropriation’s period of availability. This is true regardless of when (during the appropriation’s period of availability) the contract is awarded. A 2-year appropriation would have a period of availability that begins on October 1 of year 1 and ends on September 30 of year 2. Using this appropriation source, HHS awards a contract for severable services with a fully funded 18-month period of performance; the award date is December 1 (first year of the appropriation’s availability) and the completion date is May 31 (second year of the appropriation’s availability). If the Contracting Officer’s Technical Representative (COTR) requests and justifies the need for a no-cost extension, this contract could be extended only to September 30 of year 2 (the end of the 2-year appropriation’s availability for obligation), providing a 22-month total period of performance.

Continuing this example further, if the COTR (subsequent to the modification extending the contract to September 30 of year 2) requests an extension pursuant to the clause at FAR 52.217-8, Option to Extend Services, it would require new funding from a current appropriation source.

Consider another example—a contract for severable services awarded on March 1 of final year of the 2-year appropriation’s period of availability. This contract cannot have a period of performance that extends beyond September 30 of that same year. The FASA exception implemented by FAR 32.703-3(b), Contracts crossing fiscal years, only applies to annual appropriations. Thus, the obligation of a multiple-year appropriation during its final year of availability provides a fixed end to the contract’s period of performance, i.e., it cannot extend beyond September 30 of that final year. Options may be used to extend the contract into future year(s), but the funding must be provided by a then-current appropriation source.

The above information provides a general discussion of the appropriations law concepts applicable when modifying contracts for severable services. Given the variety of contract types, applicable clauses, and services, HHS contracting, program and budget/finance staff are encouraged to consult with legal counsel concerning the specifics of their requirement.

Relevant Case Study


Content last reviewed on December 4, 2014