Crossing Fiscal Years: The Why and How

If you monitor contract awards and look at their periods of performance, you will sometimes see contracts that cross fiscal years. From what we know about appropriations law, funds should be used for the year in which they are appropriated, so how could Fiscal Year (FY) 2026 funds be used later in FY 2027? We’ll talk about some exceptions below. 

Exceptions for Every Rule:

FAR 32.703-3 gives some very specific exceptions to this rule:

1. The Department of Defense/War can purchase fuel supplies using the authority at 41 USC 6302
2. All agencies can purchase metered utilities (such as gas and electricity) per 31 USC 1308. Telephone service is included as a utility for this particular exception.
3. One-year contracts awarded by Departments of Labor, Health and Human Services, and Education, so long as the obligation is made in the year the funds themselves are appropriated, per 42 USC 3515
4. The product or service is non-severable, so long as that product or service could not be broken into severable sections that would conform to fiscal years
5. Agencies (except NASA) can award a contract for severable services across fiscal years as long as the performance/delivery period does not exceed one year and the total obligation is made the year the funds are appropriated

The Big Exceptions – Non-Severability and Bona Fide Need, a Summary:

Severability simply means that the Government derives benefit each time a service is performed or a product delivered. For example, when a landscape contractor mows the installation parade field, the Government gets a freshly mowed parade field. This is a simple example, but I do enjoy using landscaping contracts as examples whenever possible. A service like this wouldn’t meet the criteria for exception. 

Non-severable contracts involve a deliverable that would have no benefit if it was incomplete, like a prototype, or a medical study. In short, if this contract was terminated, the Government would get a result that would be of no use or benefit. You may also see this referred to as a “unified outcome”. 

The “bona fide need” rule as a safeguard against unnecessary stockpiling. This simply means that the Government can’t order things they don’t need in a given fiscal year. There are some justifications associated with this rule when the Government places an order that may cross fiscal years:

1. The product requires lead time, such as a manufactured product that is made to order or in high demand
2. The Government needs to order in advance to maintain certain stockage levels of a supply item
3. Project Orders (Defense/War agency asking another Defense/War agency to perform work) in which certain preparations must be made that would cross those fiscal years

The “bona fide need” rule is just one part of the proof of test for obligations, the second being the Anti-Deficiency Act and the last the Purpose Statute.