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Office of Acquisition and Logistics (OAL)

Acquisition Policy Flash! 12-19 Revised


Appropriate Use of Incremental Funding

Purpose:  The purpose of this Acquisition Flash is to provide guidance to the VA acquisition workforce of the appropriate use of incremental funding.  The previous AcqFlash issued on June 25, 2012 had incorrect information.  This serves as a correction to change the statement in paragraph 2, to clarify non-severable contract must be funded in full using the appropriation available at the time of award, i.e., it cannot be incrementally funded.  It is only severable contracts that may be incrementally funded, i.e. funded using the appropriation available at the time of the service which may be over two fiscal years.

Dated:  September 25, 2012

VAAR Section Impacted:  N/A

Effective Date:  Immediately

Background:  An incrementally funded contract is one in which the total work effort is to be performed over multiple time periods with funds allotted to cover discernible phases or increments of performance. The Federal Acquisition Streamlining Act (FASA) of 1994 provides the legal authority for Contracting Officers to enter into a contract for the procurement of severable services for a period that beings in one fiscal year and ends in the next fiscal year provided the contract performance period does not exceed one year. Severable services are characterized as continuing and recurring in nature, i.e. lawn maintenance, janitorial services, security services, etc. They are considered severable if they can be separated into components that independently provide value to meet the Departments' needs.

The Federal Acquisition Regulation (FAR) does not provide authority to incrementally fund firm fixed price contracts with the exception of those agencies which have requested and received statutory authority to do so. The Comptroller General has held that multi-year contracts that cannot be separated for performance by fiscal year may not be funded on an incremental basis without statutory authority.  (See B-241415, 71 Comp. Gen. 428.) The Department of Veterans Affairs has not requested this authority.

FAR guidance on incremental funding is limited to Subpart 32.7, Contract Funding, and to the clauses that subpart prescribes for use in cost-reimbursement contracts.  A general reference to the topic appears in FAR 32.703-1(b):  “If the contract is incrementally funded, funds are obligated to cover the amount allotted and any corresponding increment of fee.”  FAR 32.705-2(b) directs the Contracting Officer to insert the clause at FAR 52.232-22, Limitation of Funds, in solicitations and contracts “if an incrementally funded cost-reimbursement contract is contemplated.”  The clause describes how to manage the funding of cost-reimbursement contracts and establishes the rights and responsibilities of the parties while the contract remains partially funded.

VA has the authority to enter into severable service contracts and to fund these contracts for up to 1 year with current annual appropriations, even if the contract crosses fiscal years.  VA may split the obligation between fiscal years in the contract, provided the contract does not exceed 12 months.  The “bona-fide-need rule” states that the need for the requirement must exist in the year the appropriation is available for obligation in order to use those years’ appropriated funds.  Section 32.703-3(b) was implemented to assist the contracting activities in awarding end-of-the-fiscal-year funding actions.

Non-severable services, by definition, cannot feasibly be separated into components, but will be performed as a single task to meet the needs of the Department.  Consequently, a contract for non-severable services cannot be incrementally funded.  Examples are consulting studies, software development efforts, construction services, or architect-engineer services.

The 1 year contract period limitation does not apply to VA contracts funded by multiple year or no-year appropriations.  Contracting Officers should seek the advice of the finance officer regarding the proper fiscal year funds used to pay for severable services.

Action Required:  Contracting offices shall not award firm fixed price contracts without fully funding the award.

Questions or concerns should be addressed to Sylvester Rainey in the Office of Acquisition and Logistics (003A), Procurement Policy and Warrant Management Service (003A2A), at (202) 461-6918, e-mail: