Contracting authority and the five-year limit

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1. Grants, loans and other terms

Section 635 of the Foreign Assistance Act of 1961, codified at 22 U.S.C. 2395, sets out the general authorities used to deliver assistance under the Act (22 U.S.C. 2395). Unless the Act provides otherwise, assistance may be given as a grant or on terms best suited to the Act’s purposes (22 U.S.C. 2395(a)). Those terms may include cash, credit or other repayment, including repayment in foreign currencies or by transferring commodities to the government. The Act tells the President to emphasize loans rather than grants wherever possible.

2. Who the President may deal with

The President may make loans, advances and grants to, make and perform agreements and contracts with, or enter other transactions with a wide range of parties (22 U.S.C. 2395(b)). They include any individual, corporation or other body of persons, any friendly government or government agency, inside or outside the United States, and international organizations. Every such transaction must further the Act’s purposes and stay within its limits.

Congress also states its sense that the President should use, to the maximum extent practicable, the services and facilities of voluntary, nonprofit organizations registered with and approved by the Agency for International Development (22 U.S.C. 2395(c)). The President may accept and use money, funds, property and services given by gift, devise, bequest, grant or otherwise for the Act’s purposes (22 U.S.C. 2395(d)).

3. The five-year limit on commitments

A contract or agreement that commits funds for a long period has a ceiling on its term (22 U.S.C. 2395(h)). The rule covers commitments of funds made available under part I of subchapter I, except development loans, under subpart II of part II of subchapter I, and under subchapter II. Subject to any later action by Congress, such a contract or agreement may extend for no more than five years.

4. Contracting ahead of appropriations

The Act’s authorizations of appropriations are read as allowing contract authority (22 U.S.C. 2365). Any appropriation act may grant authority to enter contracts, within the amounts authorized, that create obligations in advance of appropriations. Unless the Act provides otherwise, funds are available to carry out the Act as authorized and appropriated to the President each fiscal year (22 U.S.C. 2366). How appropriated assistance funds are accounted for is covered in accounting for administrative funds.

5. Powers that come with lending

In making loans under the Act, five further provisions apply (22 U.S.C. 2395(g)). The President may issue letters of credit and letters of commitment (22 U.S.C. 2395(g)(1)). The President may collect or compromise obligations and rights held, and refer them to the Attorney General for suit or collection (22 U.S.C. 2395(g)(2)). The President may acquire and dispose of property, including instruments evidencing debt or ownership, and guarantee payment against them (22 U.S.C. 2395(g)(3)). Equity securities may not be bought directly, though they may be acquired by other means, such as conversion rights or enforcing liens to satisfy an existing debt.

The President may decide the character of, and need for, obligations and expenditures of loan funds, subject to the law on government corporations (22 U.S.C. 2395(g)(4)). An integral set of accounts must be kept and audited by the Government Accountability Office under the principles for commercial corporate transactions (22 U.S.C. 2395(g)(5)).

6. Claims, foreign obligations and universities

Claims from investment guaranty operations may be settled, and disputes arbitrated with the parties’ consent, on terms the President directs (22 U.S.C. 2395(i)). Payments under such settlements or arbitration awards are final and conclusive, notwithstanding any other law. Section 955 of title 18 does not stop any person from acting for, or taking part in, any operation or transaction under the Act, or from acquiring any obligation issued in connection with one (22 U.S.C. 2395(j)).

Cost-type contracts and grants with universities, colleges and other educational institutions under subchapter I may pay reimbursable indirect costs on predetermined fixed-percentage rates (22 U.S.C. 2395(k)). The rates apply to the total reimbursable direct costs, or an element of them. The administering agency may also use subchapter I funds for program and management oversight of activities in countries where it has no field mission or office (22 U.S.C. 2395(l)).

7. Insurance and entry for participants

Two provisions support foreign people taking part in programs. Any federal agency may pay for health and accident insurance for foreign participants in its programs of technical information and assistance while they are away from home to take part (22 U.S.C. 2395(e)(1)). An agency may also pay for such insurance for its own foreign employees while they are away from their place of work abroad for training or other official duties (22 U.S.C. 2395(e)(2)).

Foreign participants in programs of technical information and assistance under the Act may be admitted to the United States if they otherwise qualify as nonimmigrants (22 U.S.C. 2395(f)). They are admitted for the time and on the conditions set in regulations issued by the Secretary of State and the Attorney General.

8. A working capital fund

The section also sets up a working capital fund for the Agency for International Development, available without fiscal year limit (22 U.S.C. 2395(m)(1)). It pays for personal and nonpersonal services, equipment and supplies for International Cooperative Administrative Support Services, and covers rebates from government credit card use. Its capital is the fair and reasonable value, as the Administrator determines, of related supplies, equipment and other assets, credit card rebates and any appropriations for capital, minus related liabilities (22 U.S.C. 2395(m)(2)).

The fund is reimbursed, or credited with advance payments, at rates that recover the full cost of operation, including annual leave and depreciation (22 U.S.C. 2395(m)(3)). At the close of each fiscal year, amounts the Administrator determines to be beyond the fund’s needs go to the Treasury’s miscellaneous receipts (22 U.S.C. 2395(m)(4)). The fund may also be charged with the current value of supplies and equipment returned to it, with the proceeds credited to current appropriations (22 U.S.C. 2395(m)(5)). General delegations and waivers under the Act are covered in delegation, debarment and waiver powers.

Key terms

Contract authority	Authority to create obligations before the money is appropriated.
Five-year limit	The cap on the term of contracts and agreements committing assistance funds.
Letter of commitment	A lending instrument the President may issue when making loans under the Act.
Indirect cost rate	A predetermined percentage used to pay university overhead on cost-type contracts.
Working capital fund	A fund that recovers its costs through charges and returns any excess to the Treasury.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

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