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FAR and DFARS › FAR Part 32: Contract Financing › Subpart 32.7

FAR 32.704 Limitation of cost or funds.

The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.

In plain English

This section tells the contracting officer what to do when a cost-reimbursement contract is running out of estimated cost or allotted funds. The officer must promptly notify the contractor in writing about whether more funds are coming, the contract will not be further funded, the contract will be terminated, or the Government is still deciding. It matters because the contractor needs that written notice to know whether to keep working or stop, since work beyond the limit is at the contractor's risk.

Applies to: Contracts containing the Limitation of Cost (52.232-20) or Limitation of Funds (52.232-22) clause

What it requires

  • The contracting officer must promptly obtain funding and programming information and notify the contractor in writing when the contractor is approaching the estimated cost or allotted funds limit.
  • The contracting officer must promptly give written notice when a partially funded contract will receive no further funds.
  • The contracting officer must ensure funds are available for directed actions such as change orders, directions to replace or repair, or termination notices.

Key terms: estimated cost · limit of the funds allotted · Limitation of Cost · Limitation of Funds · cost-reimbursement contract

Written by AI from this section's text. A guide, not legal advice: the text below rules.

The text

(a)(1) When a contract contains the clause at 52.232-20, Limitation of Cost; or 52.232-22, Limitation of Funds, the contracting officer, upon learning that the contractor is approaching the estimated cost of the contract or the limit of the funds allotted, shall promptly obtain funding and programming information pertinent to the contract's continuation and notify the contractor in writing that—

(i) Additional funds have been allotted, or the estimated cost has been increased, in a specified amount;

(ii) The contract is not to be further funded and that the contractor should submit a proposal for an adjustment of fee, if any, based on the percentage of work completed in relation to the total work called for under the contract;

(iii) The contract is to be terminated; or

(iv)(A) The Government is considering whether to allot additional funds or increase the estimated cost, (B) the contractor is entitled by the contract terms to stop work when the funding or cost limit is reached, and (C) any work beyond the funding or cost limit will be at the contractor's risk.

(2) Upon learning that a partially funded contract containing any of the clauses referenced in subparagraph (1) above will receive no further funds, the contracting officer shall promptly give the contractor written notice of the decision not to provide funds.

(b) Under a cost-reimbursement contract, the contracting officer may issue a change order, a direction to replace or repair defective items or work, or a termination notice without immediately increasing the funds available. Since a contractor is not obligated to incur costs in excess of the estimated cost in the contract, the contracting officer shall ensure availability of funds for directed actions. The contracting officer may direct that any increase in the estimated cost or amount allotted to a contract be used for the sole purpose of funding termination or other specified expenses.

(c) Government personnel encouraging a contractor to continue work in the absence of funds will incur a violation of Revised Statutes Section 3679 (31 U.S.C. 1341) that may subject the violator to civil or criminal penalties.

Sections it refers to

Sections that refer to it

← 32.703-3 Contracts crossing fiscal years. · 32.705 Unenforceability of unauthorized obligations. →

Rule changes for FAR Part 32

Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.

FAR 32.704 Limitation of cost or funds · SpendQuery