Color of Money

Color of money is the informal term for the appropriation type that funds a federal contract, reflecting the different legal constraints, expense categories, and expiration periods that govern each type of congressional appropriation.

What is Color of Money?

Different types of Congressional appropriations - Operations and Maintenance (O&M), Procurement, Research Development Test and Evaluation (RDT&E), Military Construction (MILCON), and others - have different rules about what they may fund and when they expire. The "color" is a metaphor for these distinctions.

The major appropriation types and their characteristics:

Operations and Maintenance (O&M) / Operations and Maintenance, Army (OMA), Navy (OMN), Air Force (OMAF):

• Funds operating expenses: salaries, supplies, minor repairs, services, and equipment valued below the investment threshold (currently items with unit cost below $250,000 and aggregate cost below $1 million).
• One-year money: Available for obligation only in the fiscal year appropriated. After September 30, unobligated O&M is expired.
• Cannot fund new systems, major equipment, or construction.

Procurement (PROC) / Research, Development, Test and Evaluation (RDT&E):

• Procurement funds capital equipment acquisitions above the investment threshold and weapons systems.
• Three-year (Procurement) or two-year (RDT&E) money: Available for multiple fiscal years.
• Procurement funds cannot be used for operating expenses; RDT&E funds cannot fund procurement-stage production.

Military Construction (MILCON):

• Funds construction of new facilities and major renovations.
• Five-year money: Available for up to five fiscal years.
• Cannot be used for repair and maintenance (O&M funds cover routine maintenance).

Violating color of money rules means using an appropriation for a purpose it was not intended for. This violates the Purpose Statute (31 U.S.C. § 1301) and may constitute an Anti-Deficiency Act violation. A contracting officer who uses O&M funds to buy capital equipment, or uses Procurement funds for salary expenses, has misused the appropriation.

Why Color of Money matters for government contractors

Contractors need to understand color of money to structure contract line items correctly, manage contract modifications that cross years, and advise program offices on appropriate funding sources. A modification that adds software development scope (RDT&E color) to a contract funded with O&M funds may require a separate line item funded with the correct appropriation type - a common challenge in IT contracts that mix operations with development work.

Example

A contractor holds a contract for IT system maintenance (properly funded with O&M) and is asked to add a new software module (development work, properly funded with RDT&E). The contractor alerts the contracting officer that the modification should be separately funded with RDT&E dollars, not charged to the O&M CLIN. The program office obtains RDT&E funding, and the contract is modified with a new line item funded with the correct appropriation type. If the contractor had simply accepted the O&M-funded modification without flagging the color problem, the government would have an improper obligation.

Frequently Asked Questions

What happens when a contractor delivers after the appropriation's period of availability expires?

The period of availability refers to when funds can be obligated (when the contract can be signed), not when delivery must occur. A contract can be awarded in FY2025 using FY2025 O&M funds and have deliveries extending through FY2026. What matters is that the funds were obligated before they expired. However, modifications that increase the obligation after funds expire require new valid appropriations.

Can different types of appropriations fund different CLINs on the same contract?

Yes. A contract may have Contract Line Items (CLINs) funded by different appropriation types. For example, a systems engineering contract might have CLIN 0001 funded by RDT&E for design work, CLIN 0002 funded by Procurement for prototypes, and CLIN 0003 funded by O&M for program management support. The contractor tracks funding by CLIN to ensure invoices draw on the correct appropriation.

What is the investment threshold that determines O&M vs. Procurement funding?

The current investment threshold is $250,000 unit cost and $1,000,000 total program cost. Items below this threshold are funded with O&M; above it, Procurement funds are required. This threshold affects how agencies classify IT equipment, vehicles, and other capital items for budget purposes.

How does color of money affect contract modifications?

A modification that adds scope requiring a different appropriation type (e.g., adding RDT&E work to an O&M contract) must either establish a new CLIN with separate funding or issue a separate contract. Commingling appropriations on a single CLIN to avoid funding complexity is a color-of-money violation even if the total amounts are within bounds.