Thank you for your question. This is an interesting one! Ultimately your path forward is going to be up to the Contracting Officer on your program, but I would strongly urge that you also consult with both your program’s legal and financial managers as you decide how to proceed. Although there are some contractual ramifications to your situation and the way that you to decide to proceed, there are just as many (if not more) financial considerations that should be taken into account.

Some of the immediate concerns that I have, cannot be resolved with the limited information provided. However, some things to think about are: 

• Please make sure you are paying attention to the funds that you have (year, type, etc.) as that may be enough to eliminate one or more of the options you outlined. That information is also critical to figuring to whether the $1M will go back to the treasury or still be available for use by your program (Option #1).  
• Although creativity and innovation is often applauded, be sure that whichever action you take is within scope and not violating anything else, like CICA, as you try to find a way to smartly make use of this ~ $1M “windfall” you have found yourself with (Option #2).
• Also, be careful of actions that might look like you are “parking”, or essentially trying hold money (sounds a little like Option #3)

Ultimately, your question does ask about the “legal means to use the monies”? As a former contracting officer, my first stop would be at the office of my financial manager, because I, like you, would want to have them in my corner from a legal, financial perspective as we figured out what we might be able to do contractually. One will not succeed without the other here. Best of luck!