In the perfect world of government contracting, every requirement would come with a “check in the mail” for the full amount on day one. But as any Contracting Officer (CO) or Program Manager knows, the fiscal reality of the Department of Defense (DoD) rarely aligns with the perfect world. We often deal with Continuing Resolutions (CRs), quarterly allocations, and budget constraints that make funding a contract in its entirety impossible at the time of award.
This is where incremental funding comes into play. However, you cannot simply incrementally fund a contract because it is convenient. There are strict statutory rules—driven by the Antideficiency Act—that dictate when we can obligate the government.
Here is the breakdown of when incremental funding is allowed, the specific clauses involved, and the difference between civilian and DoD regulations.
What is Incremental Funding?
Incremental funding is the partial funding of a contract or an exercised option, with the anticipation that the remaining funds will be provided later. It allows the contractor to begin work without the government obligating the full value of the contract upfront.
The General Rule: Full Funding Policy
Before understanding the exceptions, you must respect the rule. Under FAR 32.703-1, the government’s general policy is full funding. This means that for most contracts, specifically those for end-items (like buying a widget or a weapon system), funds usually must be available to cover the entire cost at the time of award.
When is Incremental Funding Allowed?
The rules for incremental funding depend heavily on the contract type and the nature of the work (Severable vs. Non-Severable).
1. Cost-Reimbursement Contracts
This is the most common scenario. Under FAR 32.704, cost-reimbursement contracts may be incrementally funded if:
- Funds are not available for the full contract obligation; and
- The contract includes the appropriate limitation of funds clause.
In this scenario, the contractor operates under the Limitation of Funds (LOF) clause (FAR 52.232-22). The contractor notifies the CO when they are approaching the end of the allotted funds (usually 75%), and the government is not obligated to reimburse the contractor beyond the funds currently obligated.
2. Fixed-Price Contracts (The “LOGO” Scenario)
This is where new Contracting Officers often get tripped up. Generally, you cannot incrementally fund a fixed-price contract. However, for the Department of Defense (including the Air Force), DFARS 232.703-1 provides specific exceptions.
A fixed-price contract may be incrementally funded only if:
- The contract is funded with Research, Development, Test, and Evaluation (RDT&E) funds; OR
- The contract is for severable services.
Veteran Note: “Severable services” means a service that provides value as it is performed (e.g., custodial services or IT help desk). If you stop the contract halfway through, the government still received value for the months worked. You generally cannot incrementally fund “non-severable” efforts (like building a hangar) on a fixed-price basis because half a hangar has no value.
The Critical Clauses: LOF vs. LOGO
Using the correct clause is mandatory to protect the government from an Antideficiency Act violation. If you get this wrong, you risk obligating the government for money it doesn’t have.
| Contract Type | Clause Name | Regulation |
| Cost-Reimbursement | Limitation of Funds | FAR 52.232-22 |
| Fixed-Price (DoD) | Limitation of Government’s Obligation (LOGO) | DFARS 252.232-7007 |
Summary for COs and PMs
If you are a Program Manager asking your Contracting Officer to incrementally fund a requirement, ensure you meet the criteria:
- If it is a Cost contract, you are generally safe to incrementally fund.
- If it is a Fixed-Price contract, it must be for Severable Services or R&D.
- Always check your agency supplements (AFFARS/DAFFARS) for specific approval thresholds, as some agencies require higher-level approval to use the LOGO clause.
Disclaimer: This guide is for educational purposes and reflects regulations as of the date of publication. Always consult the current FAR/DFARS and your legal counsel for official guidance.