Speaking the Language of Government Contracts

March 1, 2017
by Christi Gilbert

Do you know the difference between “Contract Value”, “Authorized Value”, and “Funded Value”? It can mean different things to different people depending on their function. Program Managers for example may assume that the “Authorized Value” is the amount of money they can spend on their tasks. To the Finance/Accounting people, the amount available to be spent is the “Funded Value”. To Business Development, the “Contract Value” is the amount they want their bonus based on for the win.

Not all contracts, not all companies, not all functional areas use the same language so it’s very important to make sure when communicating that you are very clear on what you mean by these terms. You might, for example, have an IDIQ with a Maximum Contract Value (sometimes called “Ceiling”) of $1,000,000 and a Minimum Contract Value of $3,000. Does that mean you will be paid $1,000,000? No, it doesn’t even mean you will be paid if you spend $3,000! Until you have a task order with funding, you aren’t going to be paid anything. At contract inception, you may receive a task order for $3,000 but if it isn’t funded, it isn’t authorization to spend. If at the end of the IDIQ, you have not been awarded any task orders, the government will fund the $3,000 and at that point you are entitled to be paid the Minimum Contract Value.

If you are awarded a contract or task order with a Statement of Work (SOW) or Performance Work Statement (PWS), it may have an “Authorized Value” and if Cost Reimbursable, it may have a separate amount for Cost and Fee. But again, without Funding, it is not a promise of payment. Contracts and task orders can be incrementally funded and it’s the funded value which is the amount you can spend on the work that is authorized with an expectation of payment upon acceptance of a valid invoice. If you spend more than that, you are working at risk with the possibility of never being reimbursed beyond the funded value.

Clarifying this terminology should be part of your kick-off meeting when you gather your program functions together to establish your processes and procedures for managing the contract. It’s important when dealing with subcontractors to be sure you are clear about the meaning of these contract terms as well. Their internal use of these terms may be different than yours.

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