A contract authority is a person or agency who is authorized to commit funds to a project before those funds are made available. With this power, people can enter into contracts and get projects started with the assurance that the funds are on their way. Once the contract is signed, it is a formal obligation and the funds must be produced within the time period set out in the contract.
Government agencies are the most common entities to be allowed to act with contract authority. These agencies need to be able to conduct business before funds have been appropriated and distributed in order to address pressing issues or to comply with mandates and they are backed by the government, guaranteeing the funds. They can use past appropriations as a guideline for determining how much money will be made available, and in addition to committing funds before budgets are passed, they can also exceed pledged funding commitments if it becomes necessary.
When budgets are being developed and passed, agencies submit requests for funding with detailed breakdowns of how the funding will be used. Agencies can indicate that they have used their contract authority to commit to funding and that monies will be needed to cover these obligations. They also attempt to predict spending needs so that adequate funds will be appropriated when the budget is passed.
In the private sector, someone with contract 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 the contract is negotiated, but because they are acting with legal authority, the contract will be funded. If there is a dispute, it most commonly surrounds the scope of the authority. A company may argue, for example, that it gave someone limited contract authority and that it rejects the negotiated contract because it does not meet their needs, is too costly, or has other problems.
When negotiating and entering into agreements with people who have contract authority, it can be advisable to get information about the limits on that authority to confirm that the contract will be valid. It should not be assumed that because someone claims to have contract authority, he or she really does. In the case of civilians making agreements on behalf of employers or clients, documentation to prove that authority should be produced.