The term contract authority refers to the authority Congress provides to agencies of the Federal Government to enter into obligations, but is distinct from other forms of budget authority because it does not also provide the spending resources required to meet those obligations. Hence it is a purchase may be made with actual payment in the form of outlays, to be made later, usually through an appropriation which liquidates the obligation.
Contract authority is often associated with transportation programs, in particular with the Highway Trust Fund. This often causes confusion since these programs have an unusual form of scorekeeping for this contract authority. In the case of those programs the budget authority is scored as “direct spending” but the outlays are formally considered to be “discretionary”. This is an anomalous scoring process unique to Transportation programs in the form of highway, mass transit, and certain other kinds of spending.
When new contract authority is provided, under section 401 of the Congressional Budget Act of 1974, it must be subject to appropriations or else it will be subject to a point of order against its consideration. This means that it has to specifically allow the Congressional Appropriations Committees to determine the amount of spending authority provided for the program established in a form similar to an “authorization of appropriations”.
Budget authority that permits an agency to incur obligations in advance of appropriations, including collections sufficient to liquidate the obligation or receipts. Contract authority is unfunded, and a subsequent appropriation or offsetting collection is needed to liquidate the obligations. The Food and Forage Act (41 U.S.C. § 11) and the Price Anderson Act (42 U.S.C. § 2210) are examples of such authority. (See also Backdoor Authority/Backdoor Spending.)
[This is excerpted from the entry “Budget Authority” from page 21 of the GAO Glossary.]
Sec. 401. Budget-Related Legislation Not Subject to Appropriations
(a) Controls on Certain Budget-Related Legislation Not Subject To Appropriations.—It shall not be in order in either the House of Representatives or the Senate to consider any bill or joint resolution (in the House of Representatives only, as reported), amendment, motion, or conference report that provides—
(1) new authority to enter into contracts under which the United States is obligated to make outlays;
(2) new authority to incur indebtedness (other than indebtedness incurred under chapter 31 of title 31 of the United States Code) for the repayment of which the United States is liable; or
(3) new credit authority;
unless that bill, joint resolution, amendment, motion, or conference report also provides that the new authority is to be effective for any fiscal year only to the extent or in the amounts provided in advance in appropriation Acts.
* * * * * * *