Use-It-or-Lose-It Spending

Use-it-or-lose-it spending describes the incentive structure in federal agency budgeting in which annual appropriations that are not obligated before fiscal year end (September 30) expire and revert to the Treasury, creating pressure for agencies to spend remaining funds quickly, driving elevated contract award activity in Q4 (July-September).

What is Use-It-or-Lose-It Spending?

Most federal appropriations are "one-year money", the legal authority to obligate funds expires at the end of the fiscal year for which they were appropriated. An agency's FY2025 operations and maintenance appropriation must be obligated for contracts signed on or before September 30, 2025. Funds not obligated by midnight September 30 lapse and return to the Treasury.

This creates a powerful institutional incentive that drives the use-it-or-lose-it phenomenon. Program managers who don't obligate their remaining funds lose those funds from their program, and often face implicit or explicit signals that budget requests will be adjusted downward in future years if the program "can't spend what it's given." The rational response is to find ways to obligate remaining funds before the fiscal year closes, even if the procurement is not perfectly timed from a programmatic standpoint.

The resulting behavior is well-documented in federal spending data. Studies of FPDS-NG data consistently show spending spikes in the final days of the fiscal year, particularly the last day (September 30) and the final week of September, with awards sometimes being 6 to 10 times the daily average for other periods.

For contractors, use-it-or-lose-it spending creates predictable fourth-quarter opportunity concentration. Agencies soliciting and awarding contracts between July and September account for a disproportionate share of annual contract activity. Contractors with ready proposals, established agency relationships, and broad contract vehicles (IDIQ contracts, GWACs, agency-specific IDIQs) are positioned to capture fourth-quarter spending at above-average rates.

Why Use-It-or-Lose-It Spending matters for government contractors

Understanding this budget dynamic allows contractors to align proposal readiness, personnel availability, and contract vehicle access with the peak award period, maximizing win volume during the government's highest-activity quarter.

Example

A professional services firm maintains a roster of pre-cleared personnel and standing proposal templates for its five highest-priority customers. From July through September (Q4), the firm processes 40% more proposals than in any other quarter. The BD team monitors contracting officer email inboxes and SAM.gov daily for Q4 releases, and the COO maintains a contingency staffing reserve of cleared contractors who can be brought on quickly when new Q4 task orders are won. Over three years, Q4 revenue consistently represents 35-40% of the firm's annual revenue despite being only one of four quarters.

Frequently Asked Questions

Is use-it-or-lose-it spending wasteful?

The research on this question is mixed. Critics argue that fiscal year-end spending pressures produce suboptimal procurement decisions, awarding contracts to meet deadlines rather than for optimal programmatic reasons. Defenders argue that spending pressures are overstated and that program managers are responsible stewards who would not obligate funds on unnecessary items. Academic research using FPDS-NG data suggests fiscal year-end contracts on average show lower quality and higher prices than contracts awarded earlier in the year, supporting the waste hypothesis.

Are all federal funds subject to use-it-or-lose-it expiration?

No. Only appropriations with annual availability (one-year money) face September 30 expiration. Two-year procurement funds remain available for obligation for two fiscal years. No-year funds (often used for some research programs) have no expiration. However, one-year operations and maintenance funding, which funds the largest share of federal service contracts, is fully subject to the use-it-or-lose-it dynamic.

Can agencies carry unobligated funds into the next fiscal year?

Generally no, for one-year money. Some special authorities allow limited carryover in specific circumstances. However, obligated funds that remain unspent (outlayed) after fiscal year end can continue to be paid as invoices are submitted, the obligation must occur before September 30, but the payment (outlay) can occur in subsequent years.

How can contractors prepare for Q4 opportunities?

Preparation steps include: maintaining current SAM.gov registration, having active BPAs or task order vehicles in place, maintaining current capability statements and cleared staffing rosters, monitoring agency forecasts and prior-year Q4 spending patterns, and building agency relationships earlier in the year so that when program managers look for contractors in September they already know your capabilities.