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Updated November 17, 2017
End-Year DOD Contract Spending
Background Information
510 imposed a framework for DOD’s management of
The Department of Defense (DOD) obligates approximately
appropriations accounts over multiple fiscal years.
$300 billion annually on defense acquisitions. These funds,
drawn primarily from more than 100 distinct DOD
Obligations Increase in September
appropriations accounts, can be divided into six major
In FY2016 DOD contract obligations were approximately
categories (or six ‘colors of money’): Operation and
$298 billion (an average of $25 billion every month).
Maintenance (O&M); Research, Development, Test, and
However, obligations increased substantially in the last
Evaluation (RDT&E); Procurement; Shipbuilding and
month of the fiscal year (September), surpassing $43 billion
Conversion; Military Construction (MilCon); and Military
(14% of annual obligations). As Figure 2 and Figure 3
Personnel (MilPers). Funds from these accounts generally
indicate, over the last five years, obligations in September
must be obligated within specific time periods (see Figure
have been roughly double those in other months.
1). When an obligation period ends, unobligated funds
generally expire. DOD has a further five years to liquidate
Figure 2. DOD Action Obligations, FY2012-FY2016
(spend) or reprogram already obligated funds.
Monthly percentage of fiscal year total
Figure 1. Appropriation Lifespan ("color of money”)
Source: Defense Procurement Acquisition Policy
Notes: Dark colors represent current funds (available for new
Source: FPDS.gov (Defense Commissary Agency data excluded).
obligations, obligation adjustments, expenditures, and outlays). Light
Figure 3. Mean Average Monthly Obligations
colors represent expired funds (unavailable for new obligations).
FY2007-FY2016 (in FY2017 dol ars)
Why the Current System Was Created
In 1956, Congress established M accounts and merged
surplus authority accounts. M accounts were agency
managed accounts (by appropriation category) into which
unused obligated balances were transferred. Funds in these
accounts had no expiration date and could be used to pay
for prior valid obligations. Merged surplus authority
accounts were Treasury accounts maintained by the agency
where unobligated and deobligated funds were merged.
Funds in these accounts had no expiration date and could be
transferred into M accounts to pay for prior incurred
obligations. The balances in these accounts grew over the
years. According to the Government Accountability Office
(GAO), in 1989 DOD had approximately $18 billion in M
accounts and $25 billion in merged surplus accounts.
Source: FPDS.gov (Defense Commissary Agency data excluded).
Concerned over DOD’s use of these accounts, Congress put
September obligation trends over the last five fiscal years
restrictions on the use of funds from these accounts in 1989
indicate that weekly obligations increase substantially at the
(P.L. 101-189). The following year Congress abolished
end of a fiscal year (see Figure 4). In FY2016, weekly
both accounts (P.L. 101-510), cancelling balances five
obligations averaged $5.7 billion, compared to $19.8 billion
years after budget authorities expire—regardless of whether
in the last week of September. This compared to $26 billion
obligated or unobligated. Sections 1551-1557 of P.L. 101-
for the entire month of August and $21 billion for July.
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End-Year DOD Contract Spending
Figure 4. September FY2016 DOD Action Obligations
spending. The memo acknowledged “the threat that funding
will be taken away or that future budgets can be reduced
unless funds are obligated on schedule is a strong and
perverse motivator. We risk creating incentives to enter into
quick but poor business deals or to expend funds primarily
to avoid reductions in future budget years.” The memo
sought to alter these negative incentives, stating “managers
who release unobligated funds to higher priorities will not
automatically be penalized in their next year’s budget with
a lower allocation and may be candidates for additional
funding to offset prior year reductions.”
Efforts to Curb End-of-Year Spending
In 1979, the Senate Subcommittee on Oversight of
Source: FPDS.gov (Defense Commissary Agency data excluded).
Government launched an investigation into the subject,
culminating in a bipartisan committee report entitled Hurry-
Why Obligations Increase in September
Up Spending. The report analyzed prior congressional and
A 1998 GAO report defined “wasteful year-end spending”
DOD efforts to rein in such spending, including
as when “agencies rush to use funds at the end of the fiscal
appropriating no-year or multi-year funding mechanisms
year...often an attempt to spend funds that would otherwise
(such as M accounts), and limiting the percentage of funds
expire, meaning they would no longer be available for new
that could be obligated in the last two months of a fiscal
obligations after the fiscal year ends.” Later reports had
year (routinely enacted for DOD since 1953). Despite these
similar findings, including a 2013 study by the National
efforts, the report found that “the amount of waste that can
Bureau of Economic Research that found federal IT
be attributed to year-end spending is immense.”
information technology contracts with end-of-year
obligations to generally be “lower quality” acquisitions.
DOD appropriations generally include a provision known
as the “20 percent rule,” requiring that no more than 20
Numerous factors can contribute to increased end-of-year
percent of one-year appropriations be obligated in the final
spending. Many analysts consider it a best practice to
two months of the fiscal year (P.L. 114-113, sec. 8004).
reserve some funds for unforeseen events or cost increases.
(Some have argued that such a limitation simply encourages
Another factor could be DOD reprogramming requests,
rushed spending right before the cap takes effect.) In 2010,
many of which are submitted to Congress late in the fiscal
GAO reported that DOD implemented programs to
year. For example, in June 2016, DOD submitted an
“monitor obligations throughout the year” to track whether
omnibus request to reprogram $1.2 billion in the FY2016
the 20 percent rule was followed.
budget. The process of submitting the request, Congress
reviewing and respond to the request, and DOD
Despite these efforts to reduce possible wasteful end-of-
reprogramming funds (including placing such funds on
year spending, spikes continue. In part to address this issue,
contracts), can push the obligation date into late September.
a bill was introduced in both the House and the Senate
Continuing Resolutions may similarly contribute to end of
aimed at giving bonuses to federal employees who identify
year spending increases (see CRS Report R44636, FY2017
wasteful spending (Bonuses for Cost-Cutters Act of 2017,
Defense Spending Under an Interim Continuing Resolution
H.R. 378; S. 1830). Other proposed options include
(CR): In Brief, by Lynn M. Williams and Sean I. Mills).
allowing some funds to roll over into the next year or
reexamine budget and obligation processes within DOD.
Some analysts believe these factors do not explain the full
extent of end-of-year spending, arguing that funds are often
Some of options were discussed at the September 2017
obligated at year-end to protect future budgets, often
hearing of the Senate Subcommittee on Federal Spending
resulting in the purchase of goods and services that are not
and Emergency Management, Prudent Planning or
needed. As then-Senator William Cohen stated in 1980
Wasteful Spending? Another Look at End of Year Spending.
One witness suggested a pilot program granting select
Federal program managers and budget personnel
agencies limited “authority to roll over up to 5%” of
are faced with a Catch-22 situation. They’re
appropriation into the next year. Such authority could, for
supposed to spend the public’s money as carefully
example, be limited to certain O&M accounts and/or only
as possible, but if they plan effectively ... spend less,
roll over funds for the first three months of the next year.
and manage to return tax dollars to the Treasury,
they face the prospect of having their budgets
Congress has, in limited cases, approved roll-over authority.
slashed for the next year. There is simply no
In the FY2017 Consolidated Appropriations Act (P.L. 115-
incentive for prudent management, no regard for the
31), the Defense Health Program received O&M
savings of tax dollars. The system is commonsense
appropriations “of which not to exceed one percent shall
turned upside down.
remain available for obligation until September 30, 2018.”
In 2012, then-DOD Comptroller Robert Hale and Under
Moshe Schwartz, Specialist in Defense Acquisition
Secretary of Defense (AT&L) Frank Kendall co-authored a
IF10365
memo aimed at addressing the “problem” of end-of-year
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End-Year DOD Contract Spending
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