www.crs.gov | 7-5700
November 17, 2017
End-Year DOD Contract Spending
Background Information
The Department of Defense (DOD) obligates approximately
$300 billion annually on defense acquisitions. These funds,
drawn primarily from more than 100 distinct DOD
appropriations accounts, can be divided into six major
categories (or six ‘colors of money’): Operation and
Maintenance (O&M); Research, Development, Test, and
Evaluation (RDT&E); Procurement; Shipbuilding and
Conversion; Military Construction (MilCon); and Military
Personnel (MilPers). Funds from these accounts generally
must be obligated within specific time periods (see Figure
1). When an obligation period ends, unobligated funds
generally expire. DOD has a further five years to liquidate
(spend) or reprogram already obligated funds.
Figure 1. Appropriation Lifespan ("color of money”)
Source: Defense Procurement Acquisition Policy
Notes: Dark colors represent current funds (available for new
obligations, obligation adjustments, expenditures, and outlays). Light
colors represent expired funds (unavailable for new obligations).
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.
Concerned over DOD’s use of these accounts, Congress put
restrictions on the use of funds from these accounts in 1989
(P.L. 101-189). The following year Congress abolished
both accounts (P.L. 101-510), cancelling balances five
years after budget authorities expire—regardless of whether
obligated or unobligated. Sections 1551-1557 of P.L. 101-
510 imposed a framework for DOD’s management of
appropriations accounts over multiple fiscal years.
Obligations Increase in September
In FY2016 DOD contract obligations were approximately
$298 billion (an average of $25 billion every month).
However, obligations increased substantially in the last
month of the fiscal year (September), surpassing $43 billion
(14% of annual obligations). As Figure 2 and Figure 3
indicate, over the last five years, obligations in September
have been roughly double those in other months.
Figure 2. DOD Action Obligations, FY2012-FY2016
Monthly percentage of fiscal year total
Source: FPDS.gov (Defense Commissary Agency data excluded).
Figure 3. Mean Average Monthly Obligations
FY2007-FY2016 (in FY2017 dollars)
Source: FPDS.gov (Defense Commissary Agency data excluded).
September obligation trends over the last five fiscal years
indicate that weekly obligations increase substantially at the
end of a fiscal year (see Figure 4). In FY2016, weekly
obligations averaged $5.7 billion, compared to $19.8 billion
in the last week of September. This compared to $26 billion
for the entire month of August and $21 billion for July.
