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The Bona Fide Needs Rule

B. 4.  Delivery of Materials Beyond the Fiscal Year

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Page 5-23

When the government purchases goods or materials in one fiscal year and delivery occurs in whole or in part in a subsequent fiscal year, the question is whether the contract meets a bona fide need of the fiscal year in which it was made. This was the central legal issue in our discussion of year-end spending in section B.2 of this chapter, but the issue exists regardless of when in the fiscal year the contract is made. In this section we will explore those contracts where the agency intends to meet the needs of the fiscal year in which it entered into the contract. We will discuss multiyear contracts, where an agency intends to meet its needs for more than one fiscal year, in sections B.8 and B.9.

An agency may not obligate funds when it is apparent from the outset that there will be no requirement until the following fiscal year. For example, it was found that annual appropriations obligated to fund an agreement between the General Services Administration (GSA) and the Federal Power Commission (FPC), whereby GSA agreed to renovate space in a federal building incident to relocation of FPC personnel, were not available since the relocation was not required to, and would not, take place by the end of the fiscal year, and because the space in question would not be made “tenantable” until the following fiscal year. B-95136-O.M., Aug. 11, 1972.

If deliveries are scheduled only for a subsequent fiscal year, or if contract timing effectively precludes delivery until the following fiscal year, one could question whether the contract was made in the earlier fiscal year only to obligate funds from an expiring appropriation and that the goods or materials were not intended to meet a bona fide need of that year. See 38 Comp. Gen. 628, 630 (1959); 35 Comp. Gen. 692 (1956); 33 Comp. Gen. 57, 60–61 (1953); 21 Comp. Gen. 1159 (1941); 1 Comp. Gen. 115 (1921); 27 Comp. Dec. 640 (1921).

However, the timing of delivery, while obviously a relevant factor, is not conclusive. There are perfectly legitimate situations in which an obligation may be incurred in one fiscal year with delivery to occur in a subsequent year. Thus, where materials cannot be obtained in the same fiscal year in which they are needed and contracted for, provisions for delivery in the subsequent fiscal year do not violate the bona fide needs rule as long as the time intervening between contracting and delivery is not excessive and the procurement is not for standard commercial items readily available from other sources. 38 Comp. Gen. at 630.

Similarly, an agency may contract in one fiscal year for delivery in a subsequent year if the material contracted for will not be obtainable on the open market at the time needed for use, provided the intervening period is necessary for production or fabrication of the material. 37 Comp. Gen. 155, 159 (1957).

If an obligation is proper when made, unforeseen delays that cause delivery or performance to extend into the following fiscal year will not invalidate the obligation. In one case, for example, although work under a construction contract was performed during the fiscal year following its execution, the Comptroller General approved payment to the contractor under the original obligation since the agency had awarded the contract as expeditiously as possible and had made provision for the work to begin within the current fiscal year, but experienced a delay in obtaining certain materials the government had agreed to provide. 1 Comp. Gen. 708 (1922). See also 23 Comp. Gen. 82 (1943); 20 Comp. Gen. 436 (1941).

An order or contract for the replacement of stock is viewed as meeting a bona fide need of the year in which the contract is made as long as it is intended to replace stock used in that year, even though the replacement items will not be used until the following year. See 44 Comp. Gen. 695 (1965). “Stock” in this context refers to “readily available common-use standard items.” Id. at 697. See also 73 Comp. Gen. 259 (1994); 32 Comp. Gen. 436 (1953). Generally, scheduling delivery for the following year would seem irrelevant. There are limits, however. GAO has questioned the propriety, from the bona fide needs perspective, of purchases of materials carried in stock for more than a year prior to issuance for use. B-134277, Dec. 18, 1957.

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