Eighteen Months on Twelve Months of Money
An agency has a validated requirement for janitorial services at three leased buildings. The program office holds $720,000 in FY 2025 operations and maintenance funds that expire on 30 September 2025 and wants a single award covering 1 October 2025 through 31 March 2027 - 18 months at $40,000 per month. The work is routine, recurring cleaning that is performed and paid for monthly; the buildings stay occupied year-round, and the government could stop the service at any month boundary without losing work already performed. The contracting officer is weighing a 12-month base period with three 12-month options against simply obligating the full $720,000 on one 18-month line item before the funds lapse. A program analyst recalls being told that service contracts cannot cross fiscal years. Award must occur by 20 September 2025.
1. May the contracting officer obligate FY 2025 funds for the entire 18-month period on a single line item? State the governing principle, apply it to these facts, and describe a compliant structure.
Read the worked answer
No. Two distinct rules drive the answer.
- Bona fide need rule (31 U.S.C. 1502; FAR 32.702). An appropriation may be obligated only for a need arising in the period of availability. Obligating FY 2025 money for the needs of FY 2026 and FY 2027 is an advance obligation, and using expiring funds merely to avoid lapse is also a purpose violation (31 U.S.C. 1301(a)).
- Severable services (FAR 37.106(a)). A severable-services contract may cross fiscal years, but the period funded by a single year's appropriation may not exceed 12 months.
The facts describe the classic severable service: each month of cleaning is discrete, independently useful, and terminable at a month boundary without loss of performed work. An 18-month obligation from FY 2025 funds therefore over-obligates by six months.
The compliant structure is a 12-month base period (1 Oct 2025 - 30 Sep 2026) funded with FY 2025 dollars, plus priced options for later years exercised with funds current at the time of exercise. The analyst's statement is only half right: severable services may cross the fiscal-year boundary, but not for more than 12 months at a time. Document the severability analysis in the file.
2. The program office proposes exercising the first option period in September 2025, three months before it begins, charging FY 2025 funds in order to lock in the price. What must the contracting officer verify, and what is the risk?
Read the worked answer
Option exercise is governed by FAR 17.207: funds must be available, the requirement must continue, exercise must be the most advantageous method (price, terms, and the fact that the option was evaluated in the original competition), and options may not be used to avoid competition or to add scope.
The trap here is the interaction between the option rules and the bona fide need rule. The obligation occurs when funds are obligated, not when performance begins. If the need for October 2026 cleaning does not arise until FY 2026, obligating FY 2025 funds in September 2025 for that period is an advance obligation. The narrow exceptions (nonseverable services, lead-time items, stock replenishment) do not fit monthly janitorial work.
The contracting officer should refuse the early exercise on expiring funds and instead:
- synchronize the option periods to the funding cycle;
- exercise with FY 2026 funds once available and before the base period expires;
- if a funding gap is anticipated, consider a short extension under the Option to Extend Services clause if the contract includes it, priced and documented; and
- record in the file that the exercise decision was made on price and requirement, not to rescue expiring balances.
3. Suppose the requirement instead were a one-time building-condition assessment requiring 14 months of effort with no separately useful interim deliverable. Would the analysis change? Explain.
Read the worked answer
Yes. The severable-services 12-month rule does not apply to nonseverable services.
A nonseverable service is a single undertaking whose value to the government is realized only at completion. If the assessment cannot be meaningfully stopped and restarted at a fiscal-year boundary and delivers no interim useful product, the bona fide need for the whole effort arises in the year the requirement exists, and the full amount may be obligated from that year's appropriation even though performance extends into the next fiscal year.
The contracting officer should:
- document the nonseverability determination with facts (single deliverable, no interim acceptance, restart costs, interdependence of phases), not just a conclusion;
- avoid a term that is severable in substance but labeled nonseverable; and
- recognize that a long period of performance funded up front concentrates risk if the requirement is later cancelled, so a termination-for-convenience exposure analysis belongs in the file.
The colleague's blanket statement is the error in both scenarios - the correct question is always whether the work is severable, then which funding limit applies.