Note: The Trump Administration has held back significant portions of end of year funds to return to the treasury impacting the amount of end of year funding in Government FY 25.
End of Year US DoD Funds Availability – End of Year Sweep
The delay of the Department of Defense (DoD) appropriation budget until April 1 has a significant impact on the end-of-year sweep process , particularly for accounts such as Operation and Maintenance (O&M), Procurement, and Research, Development, Test, and Evaluation (RDT&E). Here's a detailed breakdown of these impacts, with definitions included for key terms:
Impact on the Sweep Process
1. Shortened Execution Window:
2. Increased Pressure on Contracting Offices:
- With the budget being signed late in the fiscal year, the time to obligate funds effectively shrinks.
- The sweep process is compressed, making it more challenging to execute all remaining funds before the fiscal year ends.
- o Contracts requiring substantial lead times or complex negotiations may be deprioritized or skipped entirely.
- A condensed timeline places immense strain on contracting officers to process actions quickly.
- This rush may increase the risk of errors, noncompliance, or missed opportunities to obligate funds effectively.
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Comptroller's Holdback During Continuing Resolutions (CRs)
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1. Partial Budget Authority:
2. Delayed Start for Key Programs:
- During a Continuing Resolution, agencies are only provided incremental funding, typically based on the prior year’s budget levels.
- The comptroller holds back a portion of funds to avoid over-obligating in case the final appropriation differs significantly from the CR amount.
- New starts (programs, projects, or contracts not previously funded) are prohibited under a CR.
- Agencies often cannot commit funds to multi-year contracts or procurements, delaying critical projects until after the final budget is signed.
Apportionment of Funds
1. Timeline for Apportionment :
2. Gaps Created:
- Once the budget is signed, the Office of Management and Budget (OMB) begins the apportionment process, which divides funds into quarterly or other periodic allotments to ensure proper oversight.
- This process typically takes 3–4 months, delaying the availability of funds for obligation.
- For an April 1 appropriation, full access to funds might not occur until July or later, leaving only the fourth quarter for execution.
- Critical funding gaps arise during the apportionment period, affecting programs reliant on immediate funding.
- Contracting offices often prioritize short-term needs and defer larger, strategic obligations until funds are fully apportioned.
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Cascading Effects on Fiscal Year Execution
1. Spending Surge in Q4:
2. Impact on Readiness:
3. Missed Opportunities in RDT&E:
- The delay concentrates most obligations into the fourth quarter, exacerbating the typical end-of-year spending surge.
- This intensifies competition for contracting resources and increases the risk of less strategic spending to avoid lapses.
- Operational units reliant on O&M funds face delays in procuring consumables, repairing equipment, and maintaining readiness.
- Procurement delays may defer the acquisition of critical weapons systems or supplies.
- Delayed funding slows innovation and testing timelines, impacting long-term capability development.
The delayed passage of the FY 2024 Department of Defense (DoD) budget around April 1, 2024, and the anticipated similar timing for the FY 2025 budget on or about April 1, 2025 significantly impact both Operation and Maintenance (O&M) and Research, Development, Test, and Evaluation (RDT&E) accounts. These delays compress the fiscal year timeline, particularly affecting obligations during the fourth quarter (Q4).
Impact on O&M Accounts
The O&M accounts, which fund essential day-to-day operations, training, maintenance, and readiness, experience heightened pressure during the Q4 end-of-year sweep. For FY 2024, it is estimated that an additional $5 billion in O&M obligations occurred in Q4, beyond the typical end-of-year spending. This pattern is expected to repeat in FY 2025 due to the late budget passage. The surge in available funds in Q4, combined with the compressed timeline, creates challenges for contracting offices to process obligations efficiently while adhering to fiscal law and operational.
Impact on RDT&E Accounts
The RDT&E accounts, which are critical for advancing future capabilities, are disproportionately affected by delayed appropriations and apportionments. These delays restrict the timeline available for initiating and executing new development efforts from the normal 24 months to 15 months or less. For the FY 2024 funds, an estimated $11–15 billion in additional RDT&E obligations are expected to occur, above the normal end-of-year sweep during Q4 of FY 2025.
Broader Implications
1. Operational and Strategic Readiness: For O&M accounts, compressed spending timelines can lead to rushed procurement of consumables, maintenance actions, and training requirements, potentially impacting efficiency and readiness.
2. Innovation Bottlenecks: For RDT&E accounts, late appropriations delay critical development and testing cycles, narrowing opportunities for strategic advancements and potentially increasing project costs due to condensed timelines.
3. Contracting Office Strain: The significant increase in obligations during Q4 heightens demand on contracting resources, increasing risks of errors, audit issues, and inefficient fund utilization.
4. Future Budget Perceptions: The high volume of end-of-year obligations, coupled with increased Q4 spending, may skew perceptions of actual funding needs, influencing future budget decisions.
2. Innovation Bottlenecks: For RDT&E accounts, late appropriations delay critical development and testing cycles, narrowing opportunities for strategic advancements and potentially increasing project costs due to condensed timelines.
3. Contracting Office Strain: The significant increase in obligations during Q4 heightens demand on contracting resources, increasing risks of errors, audit issues, and inefficient fund utilization.
4. Future Budget Perceptions: The high volume of end-of-year obligations, coupled with increased Q4 spending, may skew perceptions of actual funding needs, influencing future budget decisions.
To mitigate these impacts, careful pre-positioning of contracts, strategic prioritization of unfunded requirements (UFRs), and enhanced coordination with contracting offices will be essential. These measures can help optimize the use of the additional funds while maintaining compliance and operational readiness.
In summary, a delayed appropriation budget exacerbates the challenges of end-of-year spending, compressing timelines, and creating inefficiencies in fund utilization. With appropriations as the legal authorization for funding, apportionment as the periodic distribution mechanism, and the sweep as the process of utilizing expiring funds, these processes heavily influence the timing and execution of DoD financial activities.
With an estimated $16-20 billion in expiring funds at the end of this FY, compressed timelines and increased spending during the fourth quarter, driven by delayed appropriations like those in FY 2024 and anticipated for FY 2025, present significant opportunities for firms prepared to capitalize on the end-of-year sweep. Companies with pre-positioned contracts, such as Indefinite Delivery Indefinite Quantity (IDIQ) agreements or task orders under established procurement vehicles like the DLA SOE-TLS program, can rapidly fulfill emerging needs. Firms with the agility to deliver high-priority solutions quickly, especially in O&M and RDT&E categories, are well-positioned to secure a share of the additional billions of dollars obligated during this period. By aligning capabilities with anticipated end-of-year priorities, maintaining strong relationships with contracting offices, and ensuring compliance with fiscal regulations, prepared firms can turn these condensed spending surges into strategic growth opportunities.
In summary, a delayed appropriation budget exacerbates the challenges of end-of-year spending, compressing timelines, and creating inefficiencies in fund utilization. With appropriations as the legal authorization for funding, apportionment as the periodic distribution mechanism, and the sweep as the process of utilizing expiring funds, these processes heavily influence the timing and execution of DoD financial activities.
With an estimated $16-20 billion in expiring funds at the end of this FY, compressed timelines and increased spending during the fourth quarter, driven by delayed appropriations like those in FY 2024 and anticipated for FY 2025, present significant opportunities for firms prepared to capitalize on the end-of-year sweep. Companies with pre-positioned contracts, such as Indefinite Delivery Indefinite Quantity (IDIQ) agreements or task orders under established procurement vehicles like the DLA SOE-TLS program, can rapidly fulfill emerging needs. Firms with the agility to deliver high-priority solutions quickly, especially in O&M and RDT&E categories, are well-positioned to secure a share of the additional billions of dollars obligated during this period. By aligning capabilities with anticipated end-of-year priorities, maintaining strong relationships with contracting offices, and ensuring compliance with fiscal regulations, prepared firms can turn these condensed spending surges into strategic growth opportunities.
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Appropriations: The legal authority provided by Congress to federal agencies, allowing them to incur obligations and make payments for specified purposes.
Sweep: The end-of-year sweep refers to the process where government agencies identify and obligate remaining, expiring funds before the close of the fiscal year. This ensures that allocated funds are used for their intended purposes and do not lapse, which could lead to reduced future budgets. The sweep typically intensifies in the fourth quarter, particularly in September, to meet fiscal year-end deadlines.
Continuing Resolution: A temporary funding measure passed by Congress to allow federal agencies to continue operating when the formal appropriations process has not been completed by the start of the fiscal year (October 1). A CR typically extends funding at levels based on the previous fiscal year’s appropriations and restricts agencies from starting new programs or projects that were not funded in the prior year.
Apportionment: Apportionment is the distribution of appropriated funds by OMB to federal agencies in increments or periods, preventing overspending and ensuring that funds are used in accordance with their intended purpose
Sweep: The end-of-year sweep refers to the process where government agencies identify and obligate remaining, expiring funds before the close of the fiscal year. This ensures that allocated funds are used for their intended purposes and do not lapse, which could lead to reduced future budgets. The sweep typically intensifies in the fourth quarter, particularly in September, to meet fiscal year-end deadlines.
Continuing Resolution: A temporary funding measure passed by Congress to allow federal agencies to continue operating when the formal appropriations process has not been completed by the start of the fiscal year (October 1). A CR typically extends funding at levels based on the previous fiscal year’s appropriations and restricts agencies from starting new programs or projects that were not funded in the prior year.
Apportionment: Apportionment is the distribution of appropriated funds by OMB to federal agencies in increments or periods, preventing overspending and ensuring that funds are used in accordance with their intended purpose
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