Non-appropriation: Overview, definition, and example
What is non-appropriation?
Non-appropriation refers to a clause in a contract that allows one or both parties to avoid financial responsibility or performance obligations if funds are not made available or appropriated by a governing body. It is commonly used in agreements where one party is reliant on public funding, such as government contracts or municipal agreements. If the necessary funds are not approved or allocated, the contract can be terminated or suspended without penalty.
For example, a government agency might enter into a contract with a private company to provide services, but the contract includes a non-appropriation clause allowing the agency to cancel the agreement if the government fails to approve the required budget for the service.
Why is non-appropriation important?
Non-appropriation is important because it provides financial flexibility and protection for parties dependent on external funding. Without this clause, a party could be held responsible for payments or obligations they cannot fulfill due to lack of funds. It also provides a safeguard for businesses entering into contracts with governmental or public entities, ensuring that they are not exposed to financial risk if the relevant budget is not approved.
Understanding non-appropriation through an example
Imagine a city government signs a contract with a construction company to build a new public library, but the contract includes a non-appropriation clause. If the city council fails to allocate the necessary funds for the project, the construction company cannot hold the city liable for failing to pay, and the agreement may be canceled without legal consequences.
In another example, a private business contracts with a state agency to provide software solutions, but the agreement includes a non-appropriation clause. If the state legislature does not approve the funds for the software project, the contract can be terminated, and the business will not be required to continue its performance or service delivery.
An example of a non-appropriation clause
Here’s how a non-appropriation clause might appear in a contract:
“The Parties agree that in the event that sufficient funds are not appropriated or made available by the governing body for the continued performance of this Agreement, either Party may terminate the Agreement without penalty.”
Conclusion
Non-appropriation clauses are essential for contracts involving parties dependent on external funding or budget approvals, especially in public sector contracts. They protect both parties from the risks associated with the failure to secure necessary funds, providing flexibility and clarity in case funding is not allocated. Including a non-appropriation clause ensures that neither party is unfairly burdened by financial obligations they cannot meet.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.