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More Funding Questions


Heretalearn

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I have a fixed-price service contract that is funded through 09/30/11, the current option expiration.

I don't believe the funding status will be impacted at all by failure of the legislature to pass either appropriations or a CR after March 4, other than inability to get a voucher processed during any government "shutdown" period - but please correct me if I'm in error. Is my position the same if there's a failure to raise the debt ceiling (i.e., my funding is my funding is my funding), or are all bets off in that circumstance?

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Well, even though your contract is fully funded, the contracing officer can always choose to terminate for the Government's convenience if the Government no longer needs your contract's services -- if so, the contracting officer might deobligate some money from your contract, leaving only enough to pay anticipated settlement costs.

A Government shutdown might also affect your ability to perform your contract, if you work in a Government facility.

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Well, even though your contract is fully funded, the contracing officer can always choose to terminate for the Government's convenience if the Government no longer needs your contract's services -- if so, the contracting officer might deobligate some money from your contract, leaving only enough to pay anticipated settlement costs.

A Government shutdown might also affect your ability to perform your contract, if you work in a Government facility.

Thank you. (For this particular contract we wish the Government would terminate for convenience, but it seems unlikely even given budget constraints. I was rather hoping a shutdown might present an "out".)

I hadn't considered that a shutdown might affect our ability to perform - all of our Government work is at Government facilities. I think I'd better think this through and contact our COs, COTRs and PMs and make sure everyone's on the same page.

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You can propose a no-cost termination for convenience.

Thanks, we've done this, and suggested a more efficient and cost-effective way for the service to be performed by another incumbent contractor. The price (our price) is below the SAT, so we're hoping the confluence of budget cuts, relative administrative ease and our proposal will carry the day. On the other hand, we're not talking about a lot of budget money, the services are funded through September, and keeping the status quo means no administrative complication. So we'll see.

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My option, which commenced 10/01/10, was exercised on 10/01/10 without funding and subject to availability of FY11 funds IAW 52.232-18.

On 10/18/10 the CO obligated funds for the contract/fiscal year (10/01/10-09/30/11), and incorporated a price increase for an SCA wage adjustment - presumably from its P.L. 111-242 CR apportionment or allocation, which expired after 12/03/10. We continued to perform services during the funding gap.

From reading materials provided by Mr. Edwards under a different topic ("Government Shutdown"), I understand that, "...the entirety of (CR) funding applies only until the CR's end date..." [Government Contract Funding Under Continuing Resolutions, Schweiter & Fenster, IIA, citing, inter alia, 31 USC 1512(a)].

1. Have I described an "illegal" option exercise - and, if so, could the improper exercise be useful in extricating my company from the contract given that we continued rendering services during the funding gap?

2. Is the use of a CR appropriation which expired after 12/03/10 to fund a price increase and services after that date, a violation of the Anti-Deficiency Act - and, if so, could this violation be useful in extricating my company from the contract?

3. If it appears we have reasonable grounds to attempt to get ourselves off the hook on this contract, we'll refer it to an experienced federal contract attorney. In your judgement should we take any interim action, particularly if, in your opinion, my company is technically working without legal funding?

As always, thank you for your observations.

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My option, which commenced 10/01/10, was exercised on 10/01/10 without funding and subject to availability of FY11 funds IAW 52.232-18.

On 10/18/10 the CO obligated funds for the contract/fiscal year (10/01/10-09/30/11), and incorporated a price increase for an SCA wage adjustment - presumably from its P.L. 111-242 CR apportionment or allocation, which expired after 12/03/10. We continued to perform services during the funding gap.

From reading materials provided by Mr. Edwards under a different topic ("Government Shutdown"), I understand that, "...the entirety of (CR) funding applies only until the CR's end date..." [Government Contract Funding Under Continuing Resolutions, Schweiter & Fenster, IIA, citing, inter alia, 31 USC 1512(a)].

1. Have I described an "illegal" option exercise - and, if so, could the improper exercise be useful in extricating my company from the contract given that we continued rendering services during the funding gap?

2. Is the use of a CR appropriation which expired after 12/03/10 to fund a price increase and services after that date, a violation of the Anti-Deficiency Act - and, if so, could this violation be useful in extricating my company from the contract?

3. If it appears we have reasonable grounds to attempt to get ourselves off the hook on this contract, we'll refer it to an experienced federal contract attorney. In your judgement should we take any interim action, particularly if, in your opinion, my company is technically working without legal funding?

As always, thank you for your observations.

Have you thought of the possibility that your firm might have to pay back the Government any improperly paid, expired funds? I don't know whether that could happen...

For some naive reason, I always assumed that someone in the government (F&A) knows the status of funds when they are obligated or made available for obligation or someone at the Finance and Accounting Offices would check prior to actual payment of invoices. Most funds expire at some point for obligation or payment purposes. In our organization, I believe that we have internal controls to hopefully prevent obligating expired funds.

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My option, which commenced 10/01/10, was exercised on 10/01/10 without funding and subject to availability of FY11 funds IAW 52.232-18.

On 10/18/10 the CO obligated funds for the contract/fiscal year (10/01/10-09/30/11), and incorporated a price increase for an SCA wage adjustment - presumably from its P.L. 111-242 CR apportionment or allocation, which expired after 12/03/10. We continued to perform services during the funding gap.

I do not understand the facts. Did the contracting officer obligate funds covering the entire option period, or only for the period through 3 December. Please advise.

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Have you thought of the possibility that your firm might have to pay back the Government any improperly paid, expired funds? I don't know whether that could happen...

For some naive reason, I always assumed that someone in the government (F&A) knows the status of funds when they are obligated or made available for obligation or someone at the Finance and Accounting Offices would check prior to actual payment of invoices. Most funds expire at some point for obligation or payment purposes. In our organization, I believe that we have internal controls to hopefully prevent obligating expired funds.

This is the remaining contract of a failed business line, and we're more concerned about the potential for future default than we are about losing some money. I've considered that we could be required to refund revenue paid from improperly obligated funds, and I believe we'd be willing to do so. I'd rather not have to explain to my company the irony of having to pay back revenue and still being obligated for future performance.

Right now I'm trying to read my way through finding out whether the funds were appropriated funds and whether they came from an expired CR. Then I'm going to try to answer the questions, "so what".

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The CO obligated funds covering the entire option period.

Then, there is no funding gap. You are obligated to perform the contract through 9/30/11. Having said that, be aware that your contracting officer may give you direction concerning performance should the Gov't shut down at 12:01 AM Saturday morning. The direction could be to suspend performance, reduce performance or continue as if nothing happened. See the separate thread on the impacts of a shut down initiated by Vern Edwards last week.

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Guest Vern Edwards

This thread started with a single question:

Is my position the same if there's a failure to raise the debt ceiling (i.e., my funding is my funding is my funding), or are all bets off in that circumstance?

Was that question answered or even addressed since it was asked?

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It was Mr. Edwards' "Government Shutdown" topic resources, and some of his observations under the "Availability of Funds" thread that triggered my questions about the propriety of the option exercise and the validity of funding obligations, and their impact, if any, on a contractor's obligations.

The "funding gap" I mentioned in Post #7 referred to the unfunded period between the option exercise (October 1) and the time funding was obligated retroactively (October 18). As I understand it, if the government doesn't notify one that funds have been made available for the contract option by its start date, then there is no contract, and the contractor is not obligated to continue to perform. My first question was meant to elecit thoughts on whether trying to use the "expired contract" premise as a reason to exit the contract now, given that we worked after October 1, would be feasible. Seemed unlikely (kind of like trying to unring a bell) but you never know.

The article cited in Post #7 states that, ["The problems with CRs - as to both the contracting process and agency operations - begin with the language which funds continuing operations at the rate of expenditure of the preceding fiscal year. Right on the face of this language, and even without further limitations and caveats, it can be seen that the use of the term "rate" will substantially limit expenditures which might otherwise have increased with the availability of the new funds. Moreover, because the entirely of a CR funding applies only until the CR's end date (in the case of the current CR, March 4, 2011), the funds would be automatically insufficient to enable any contract funtion that is predicated on more than the months actually covered by the 'rate' and the months."] I take this to mean, in part, that CRs that expire December 3 can't fund services from December 4 through September 30. Possibly you disagree with the article's conclusion or my interpretation of it. The sense I have from most of the responses it that once the period is funded, the provenance of the funding is moot. Is that right?

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It was Mr. Edwards' "Government Shutdown" topic resources, and some of his observations under the "Availability of Funds" thread that triggered my questions about the propriety of the option exercise and the validity of funding obligations, and their impact, if any, on a contractor's obligations.

The "funding gap" I mentioned in Post #7 referred to the unfunded period between the option exercise (October 1) and the time funding was obligated retroactively (October 18). As I understand it, if the government doesn't notify one that funds have been made available for the contract option by its start date, then there is no contract, and the contractor is not obligated to continue to perform. My first question was meant to elecit thoughts on whether trying to use the "expired contract" premise as a reason to exit the contract now, given that we worked after October 1, would be feasible. Seemed unlikely (kind of like trying to unring a bell) but you never know.

The article cited in Post #7 states that, ["The problems with CRs - as to both the contracting process and agency operations - begin with the language which funds continuing operations at the rate of expenditure of the preceding fiscal year. Right on the face of this language, and even without further limitations and caveats, it can be seen that the use of the term "rate" will substantially limit expenditures which might otherwise have increased with the availability of the new funds. Moreover, because the entirely of a CR funding applies only until the CR's end date (in the case of the current CR, March 4, 2011), the funds would be automatically insufficient to enable any contract funtion that is predicated on more than the months actually covered by the 'rate' and the months."] I take this to mean, in part, that CRs that expire December 3 can't fund services from December 4 through September 30. Possibly you disagree with the article's conclusion or my interpretation of it. The sense I have from most of the responses it that once the period is funded, the provenance of the funding is moot. Is that right?

Look at 31 U.S.C. 1342 and see if it might have any application to your situation.

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Guest Vern Edwards

I'm addressing the opening question in this thread, not all the stuff that has come up since. See the Congressional Research Service report: Reaching the Debt Limit: Background and Potential Effects on Government Operations, dated February 11, 2011, available here: http://www.fas.org/sgp/crs/misc/R41633.pdf. The following is from page 8:

Potential Impacts on Government Operations

If the debt limit is reached and not increased, federal spending would be affected. Under normal circumstances, Treasury has sufficient financial resources to liquidate all obligations arising from discretionary and mandatory (direct) spending, the latter of which includes interest payments on the debt. If a lapse in raising the debt limit should prevent Treasury from being able to liquidate all obligations on time, it is not clear whether the distinction between different types of spending would be significant or whether the need to establish priorities would disproportionately impact one type of spending or another. It is also not clear whether the distinctions among different types of obligations, such as contract, grant, benefit, and interest payments, would prove to be significant. [Footnote omitted.]

And see this from page 9:

Distinction Between a Debt Limit Crisis and a Government Shutdown

In 1995, the Congressional Budget Office (CBO) contrasted this sort of scenario, under which the debt limit is reached and not raised, with a substantially different situation, in which the government must shut down due to lack of appropriations.

Failing to raise the debt ceiling would not bring the government to a screeching halt the way that not passing appropriations bills would. Employees would not be sent home, and checks would continue to be issued. If the Treasury was low on cash, however, there could be delays in honoring checks and disruptions in the normal flow of government services.

Alternatively stated, in a situation when the debt limit is reached and Treasury exhausts its financing alternatives, aside from ongoing cash flow, an agency may continue to obligate funds. However, Treasury may not be able to liquidate all obligations that result in federal outlays due to a shortage of cash. In contrast to this, if Congress and the President do not enact interim or full- year appropriations for an agency, the agency does not have budget authority available for obligation. If this occurs, the agency must shut down non-excepted activities, with immediate effects on government services. [Footnote omitted.]

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Guest Vern Edwards

Keep in mind that an appropriation is simply a form of budget authority. As stated in the Redbook on page 2-5:

Appropriations do not represent cash actually set aside in the Treasury. They represent legal authority granted by Congress to incur obligations and to make disbursements for the purposes, during the time periods, and up to the amount limitations specified in the appropriation acts.

When a CO obligates appropriated "funds," all he or she is really doing is allocating budget authority for a specific purpose and creating a legal obligation to pay if the terms of the contract are met. He or she isn't setting aside money that necessarily exists in the government's coffers, and nothing is "spent" at that time..

The debt ceiling represents the most that the government can borrow to pay its bills. If a CO has obligated a certain amount, and if the contractor performs as required, then the government owes the contractor money. But if Congress refuses to raise the debt ceiling, then the government may not have any money to spend and may not be able to borrow enough money to pay all of its bills when they come due.

A different question is: Is an obligation legal under the terms of a continuing resolution? That is yet another complicated question, and every continuing resolution that I have looked at has been a very complicated document. The best answers that I know of are in the Redbook, Vol. II, Ch. 8, and they might not be helpful in specific situations.

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There goes the evening. (Just kidding - keeping G&A low for midsize contractors and a cavalier attitued toward regulation in some quarters means not many resources for quality training programs. So the insights, alternate perspectives, challenges and recommended reading from members are challenging and invaluable.)

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