Electronic Guide to Federal Procurement ADR

The Federal Government Funding Cycle

NOTE: The following material regarding funding has been taken almost verbatim from text developed by the Air Force Materiel Command (AFMC).

In 1990, Congress enacted Public Law 101-510, a statute that substantially restructured the life cycle availability of appropriations. There are now three distinct phases in terms of availability of appropriations: (1)"Current," which means the funds are available for obligation; (2) "Expired," which means they are not available for obligation, only liquidation of previously incurred obligations or certain adjustments to these obligations; and (3) "Canceled," which means the funds are not available, and cease to exist for any purpose. A brief description of the three phases of the new life cycle of funds follows.

· Current - Phase 1. This stage is primarily for obligating or placing funds on contract for a specific purpose. Phase 1 lasts three years for procurement funds, two years for R&D funds, and one year for O&M type funds.

· Expired - Phase 2. This phase is for the expenditure (or payment) of funds against the obligations created in Phase 1. There is some flexibility to adjust previously made obligations. These adjustments are generally limited to price adjustments or within-scope contract changes. This includes such things as cost overruns, payment of claims, cost escalation, increases due to rate adjustments, and contract closeout costs. Funding in this phase remains available for 5 years from the year the appropriation expires, regardless of the appropriation type. No obligations for new requirements can be incurred against expired funds during this phase. As a result of this change in law, there has also developed a high level of interest and oversight concerning the use of expired account funds. This resulted in a detailed and at times lengthy review process that government personnel must take place prior to receiving permission to use these accounts.

· Canceled - Phase 3. After the Phase 1 (obligation) and Phase 2 (expenditure) periods have passed, funds are no longer available for use for any purpose and are canceled. Under Public Law 101-510, any use of canceled funds is prohibited and results in a violation of the Antideficiency Act. This includes incurring any new obligation or payment against a previous obligation. The law now requires payments beyond Phase 2 to revert to currently available appropriations. These payments are also subject to a one-percent limitation after which Congressional approval is required.