A Limitation of Cost (LOC) notice and a Limitation of Funds (LOF) notice are the written notifications a contractor must send a federal contracting officer when spending on a cost-reimbursement contract is approaching the ceiling the contract allows. Both notices exist because of two standard Federal Acquisition Regulation (FAR) clauses — FAR 52.232-20, Limitation of Cost, and FAR 52.232-22, Limitation of Funds — and both are triggered by the same default rule: notify the government in writing once projected costs will reach 75 percent of the amount currently obligated to the contract. Universities and other institutions that hold federally funded cost-reimbursement contracts (as opposed to grants) are bound by whichever of the two clauses their contract incorporates, and missing the notice deadline has a direct financial consequence: the government is not obligated to pay costs incurred above the ceiling without it.
Last verified: 16 August 2026, against the current FAR text at acquisition.gov/far/52.232-20 and acquisition.gov/far/52.232-22 (FAC 2026-01).
LOC vs. LOF at a glance
| Limitation of Cost (LOC) — FAR 52.232-20 | Limitation of Funds (LOF) — FAR 52.232-22 | |
|---|---|---|
| Applies to | Cost-reimbursement contracts that are fully funded at award (the full estimated cost is obligated up front) | Cost-reimbursement contracts that are incrementally funded (funds are allotted in installments as the fiscal year and appropriations allow) |
| Prescribed at | FAR 32.706-2(a) | FAR 32.706-2(b) |
| What the ceiling measures | The total estimated cost stated in the contract Schedule | The amount currently allotted to the contract, which is normally less than the full estimated cost |
| Standard notice trigger | Costs expected in the next 60 days, added to costs already incurred, will exceed 75% of the estimated cost | Costs expected in the next 60 days, added to costs already incurred, will exceed 75% of the amount so far allotted |
| Government’s default obligation past the ceiling | Not obligated to reimburse costs above the estimated cost in the Schedule | Not obligated to reimburse costs above the amount allotted, and the contractor is not obligated to continue performance beyond that point |
| Clause text | Limitation of Cost (Apr 1984) | Limitation of Funds (Apr 1984) |
Both clauses are variable-fill: the FAR text itself notes the 60-day look-ahead period may be set anywhere from 30 to 90 days, and the 75 percent threshold may be set anywhere from 75 to 85 percent, at the contracting officer’s discretion when the clause is inserted. Always read the actual clause fill-in in your contract’s Schedule or Section I — the 60-day/75-percent figures below are the FAR defaults, not a guarantee of what your specific contract says.
What triggers the notice
Under both clauses, the contractor (not the government) carries the notification duty. The trigger is forward-looking, not retrospective: notice is required as soon as the contractor “has reason to believe” — not once the threshold is actually crossed — that projected costs over the next 60 days, added to costs already incurred, will exceed 75 percent of the relevant ceiling (the total estimated cost under the LOC clause, or the amount currently allotted under the LOF clause). A second, independent trigger applies to LOC contracts specifically: notice is also required if the total cost of performance will be “either greater or substantially less” than previously estimated, even if the 75 percent threshold itself isn’t in play.
What the notice must contain
Neither clause prescribes a specific form, but both specify substance the notice must cover:
- A statement that the 75 percent (or contract-specific) threshold will be, or is expected to be, reached, referencing the relevant 60-day period.
- A revised estimate of the total cost of performing the contract (required by both clauses).
- Under the LOF clause specifically, the estimated amount of additional funds required to continue performance for a further specified period, since the government’s incremental allotments — not the full estimated cost — are what’s at risk of running out.
- Enough supporting detail (burn rate, remaining scope, cost drivers) for the contracting officer to make a funding or scope decision — the clauses set the minimum content, not a ceiling on what’s useful to include.
Illustrative LOC/LOF notice template
The letter below is an illustrative template built directly from the notice-content requirements in FAR 52.232-20(b)-(c) and FAR 52.232-22(c)-(d). It is not a reproduction of any specific institution’s actual filed notice — adapt the bracketed fields to your contract and route it through your institution’s authorized negotiator/signatory before it goes to a contracting officer.
[Institution letterhead]
[Date]
[Contracting Officer name]
[Contracting agency]
Re: Contract No. [contract number] — Notice under FAR 52.232-20/52.232-22
Dear [Contracting Officer name]:
In accordance with the Limitation of [Cost/Funds] clause (FAR 52.232-[20/22]) of the above-referenced contract, [Institution] is providing notice that costs expected to be incurred in the next [60] days, when added to costs previously incurred, are expected to exceed [75]% of the [estimated cost specified in the Schedule / amount currently allotted to this contract].
As of [date], total costs incurred are approximately $[amount], against [an estimated total cost / an allotted amount] of $[amount]. Based on current burn rate and remaining scope of work, [Institution] estimates the total cost of completing the statement of work at approximately $[revised estimate].
[Include only if sending an LOF notice:] To continue performance without interruption through [target date], [Institution] estimates that an additional $[amount] in funding will be required.
Please contact [name, title, phone, email] to discuss next steps, including any additional funding, revised scope, or contract modification needed to avoid a lapse in authorized performance.
Sincerely,
[Name, title, institution]
What happens if the notice isn’t sent
Both clauses give the contractor a strong incentive to notify early: absent the required notice, the government has no default obligation to reimburse costs incurred above the ceiling (the estimated cost under LOC, or the amount allotted under LOF), and under the LOF clause the contractor is correspondingly not obligated to continue work past that point. In practice, sponsored-programs and contracts offices treat the 75 percent trigger as an internal financial-monitoring checkpoint, not just a compliance formality — a department that only notices the ceiling after crossing it has already lost the lead time the clause exists to create, and finance staff overseeing cost-reimbursement contracts should track burn rate against the ceiling well before the 75 percent point, not at it.
LOC/LOF notices vs. grant expanded-authority and no-cost-extension processes
These two FAR clauses apply specifically to federal contracts, not grants or cooperative agreements. If your award is a grant governed by 2 CFR 200 (the Uniform Guidance) rather than a FAR-based procurement contract, the LOC/LOF mechanism doesn’t apply — the comparable levers are the federal awarding agency’s rebudgeting and no-cost-extension rules instead. Confirming which funding instrument you actually hold is the first step; see Federal Contracts vs. Grants for University Research for how the two are distinguished, and Types of Federal Contracts Universities Encounter for where cost-reimbursement contracts sit among the FAR contract types institutions typically hold. Background on the underlying contract type these clauses attach to is in the dictionary entry for cost-reimbursable contract.
Frequently asked questions
Is the 75 percent threshold always exactly 75 percent?
Not necessarily. FAR 52.232-20 and 52.232-22 are both prescribed as variable-fill clauses: the contracting officer may set the threshold anywhere from 75 to 85 percent and the look-ahead window anywhere from 30 to 90 days when the clause is inserted into a specific contract (FAR 32.706-2). Check the clause as it actually appears in your contract’s Section I rather than assuming the 75%/60-day defaults apply.
Who has to send the notice — the contractor or the government?
The contractor. Both clauses place the notification duty on the contractor, triggered by when it “has reason to believe” the threshold will be met, which is a forward-looking standard, not one that waits for the threshold to actually be crossed.
Does sending the notice guarantee additional funding?
No. The notice starts a conversation with the contracting officer about a funding or scope decision; it does not by itself obligate the government to provide additional funds or increase the estimated cost. That requires an affirmative contract modification.
What’s the difference between “estimated cost” and “amount allotted”?
Estimated cost (used in the LOC clause) is the total cost the contract is expected to require, all at once. Amount allotted (used in the LOF clause) is the portion of that total the government has currently obligated to the contract in an incrementally funded arrangement — per FAR 32.703-1, a fully funded contract obligates the full estimated cost at once, while an incrementally funded contract obligates it in installments, with each installment tracked against the LOF ceiling until the next allotment arrives.
