A contracting authority is an entity authorized to commit funds to a project before they are available. Government agencies and private sector individuals can have this power, but controversy can arise over the extent of authority. It’s important to confirm the limits of authority before entering into agreements.
A contracting authority is a person or agency authorized to commit funds to a project before those funds are made available. With this power, people can enter into contracts and launch projects with the confidence that the funds are arriving. Once the contract has been signed, it is a formal obligation and the funds must be produced within the time period stipulated in the contract.
Government agencies are the most common entities allowed to act with contractual authority. These agencies must be able to conduct business before funds have been allocated and distributed in order to address pressing issues or fulfill mandates and are supported by the government, guaranteeing the funds. They can use past commitments as a guideline for determining how much money is available, and in addition to committing funds before budgets are passed, they can also exceed pledged funding commitments if necessary.
As budgets are developed and approved, agencies submit funding requests with detailed breakdowns of how the funding is being used. Agencies may indicate that they have used their contractual authority to commit to funding and funds will be needed to cover those obligations. They also try to forecast spending needs so that adequate funds are allocated as the budget passes.
In the private sector, someone with contracting authority is authorized to negotiate and sign a contract on behalf of a person or parent company. As with a government agency preparing a contract, civilians with contract authority cannot personally produce the funds at the time of contract negotiation, but because they act with legal authority, the contract will be funded. If there is controversy, it most commonly surrounds the extent of the authority. A company may argue, for example, that it has given someone limited contract authority and is rejecting the negotiated contract because it doesn’t meet their needs, is too expensive, or has other problems.
When negotiating and entering into agreements with people who have contractual authority, it may be advisable to obtain information about the limits of that authority to confirm that the contract will be valid. It should not be assumed that because someone claims to have bargaining authority that he really does. In the case of civilians entering into agreements on behalf of employers or clients, documentation to demonstrate that authority should be produced should be produced.
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