Myth-Information: Obligating the Minimum in IDIQ Contracts
If the preconceived notions that our students are bringing to the classroom is any indication, there's a good deal of myth-information being spread regarding indefinite-delivery indefinite-quantity (IDIQ) contracts. The one belief that I want to focus on today deals with obligating the contract minimum upon award of an IDIQ contract.
You don't have to obligate the minimum when you award an IDIQ contract. You can wait until you issue an order to make obligations.
This belief usually stems from a fundamental misunderstanding of the difference between creating and obligation and recording an obligation. The difference is explained in Chapter 7 of the GAO Redbook (p. 7-8):
It is important to emphasize the relationship between the existence of an obligation and the act of recording.Recording evidences the obligation but does not create it. If a given transaction is not sufficient to constitute a valid
obligation, recording it will not make it one. E.g., B-197274, Feb. 16, 1982 (?reservation and notification? letter held not
to constitute an obligation, act of recording notwithstanding, where letter did not impose legal liability on government
and subsequent formation of contract was within agency?s control). Conversely, failing to record a valid obligation
in no way diminishes its validity or affects the fiscal year to which it is properly chargeable. E.g., B-226782, Oct. 20,
1987 (letter of intent, executed in fiscal year 1985 and found to constitute a contract, obligated fiscal year 1985 funds,
notwithstanding agency?s failure to treat it as an obligation). See also 63 Comp. Gen. 525 (1984); 38 Comp. Gen. 81,
82?83 (1958).
[bold added].
When a contracting officer awards an IDIQ contract, she has obligated the Government to purchase the contract minimum. She has created an obligation. When that same contracting officer cites a long line of accounting (containing the appropriation citation) and a dollar amount on the award document, she has recorded an obligation (when she distributes the award document to her accounting office, they will record the obligation in the agency's books).
Let's say that the contracting officer awards the IDIQ contract, but does not record the amount of the Government's obligation on the award document. What has happened? An obligation has been created, but has not been recorded. Is there a problem with that? (Yes, go back and read the bolded sentence in the citation that I provided above). The problem is that the contracting officer has caused her agency to violate the ?recording statute,? 31 USCA ? 1501, which sets forth the criteria for recording an obligation as follows:
(a) An amount shall be recorded as an obligation of the United States Government only when supportedby documentary evidence of?
(1) a binding agreement between an agency and another person (including an agency) that is?
(A) in writing, in a way and form, and for a purpose authorized by law; and
(B.) executed before the end of the period of availability for obligation of the appropriation or fund used
for specific goods to be delivered, real property to be bought or leased, or work or service to be provided?..
In the second example I provided, there exists a binding document that meets the criteria of (1)(A) and (B.) (the IDIQ contract), but no obligation would have been recorded. The agency would have underrecorded its obligations. That's bad. Chapter 7 of the GAO Redbook (p. 7-6) states the following regarding under- and overrecording of obligations:
The overrecording and the underrecording of obligations are equally improper. Both practices make it impossibleto determine the precise status of the appropriation and can lead to other adverse consequences. Overrecording
(recording as obligations items that are not) is usually done to inflate obligated balances and reduce unobligated balances
of appropriations expiring at the end of a fiscal year. Underrecording (failing to record legitimate obligations)
may result in violating the Antideficiency Act. 31 U.S.C. ? 1341.
I always urge my students to take a course in Federal Appropriations Law at some time in their career--the sooner the better. Unlike Federal Acquisition Law, where the acquisition team is permitted to "assume if a specific strategy, practice, policy or procedure is in the best interests of the Government and is not addressed in the FAR, nor prohibited by law (statute or case law), Executive order or other regulation, that the strategy, practice, policy or procedure is a permissible exercise of authority", there is very little flexibility when it comes to applying the rules Federal Appropriations Law.
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