In November 2023, Treasury issued the Obligation Interim Final Rule (IFR) to address recipients’ questions and comments regarding the definition of obligation. The Obligation IFR revises the definition of “obligation” in Treasury’s implementing regulations for the SLFRF program and provides related guidance to give additional flexibility and clarity to recipients to support their use of SLFRF funds. Treasury created a 2-page “Quick Reference Guide” that informally summarizes the 17-page Obligation IFR.
From Treasury SLFRF FAQs 13.17:
"As stated in the final rule, obligation means “an order placed for property and services and entering into contracts, subawards, and similar transactions that require payment.” See 31 CFR 35.3.
As contemplated by this definition, Treasury recognizes that recipients may obligate funds through means other than contracts or subawards, for example in the case of payroll costs. In these circumstances, recipients must follow state or local law and their own established practices and policies regarding when they are considered to have incurred an obligation and how those obligations are documented. For example, a recipient may have incurred an obligation even though the recipient and its employee may not have entered into an employment contract. "
(Also see Treasury’s State and Local Fiscal Recovery Funds: Obligation Interim Final Rule (IFR) presentation for more details, examples and explanation.)