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Hey everyone,

I've been receiving conflicting advice on the funding of the fee on award fee orders. So these are my quesitons:

1. When is it most proper to obligate the fee?

2. Is there any statutory or regulation that prescribes a particular obligation time?

Thanks,

Mike

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Don't have the answer but do have some history.

Our company was awarded a large CPAF contract whose amount upon award included estimated cost and base fee but not award fee, which the contract stated would be administered separately. Nearly 7 months later, shortly after the end of the first semiannual award fee period, the contract was unilaterally modified to add all the available award fee to the contract amount, and on the same day, also modified unilaterally to allow billing of the award fee earned for the first period.

As the contractor, we did not know why the Government omitted award fee from the original contract amount, or why they decided to add it the first time they had to take a close look at administering it.

The Government had told us the contract was fully funded from the start.

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Guest Vern Edwards

Award fee is a contingent liability. You do not obligate award fee until a fee determination has been made, reported to the contractor, and the fee is awarded. For regulations, see, e.g., the DOD Financial Management Reguilation, Vol. 3. Section 080503, which is about recording obligations for cost-reimbursement and T&M contracts:

Cost-reimbursement and time-and-material contracts include: cost, cost-sharing, cost-plus-fixed-fee, cost-plus-incentive-fee, cost-plus-award-fee, time-and-material, and labor-hour contracts. When the contract is executed, an obligation shall be recorded. The amount of the obligation is the total estimated payment provided by the contract?s funded ceiling, including the fixed fee in the case of a cost-plus-fixed-fee contract, the target fee in the case of a cost-plus-incentive-fee contract, or the base fee in the case of a cost-plus-award-fee contract. The amount recorded shall be increased or decreased by amounts provided by contract amendments, or a unilateral revision of an award fee estimate made by the contracting office. Any fee awarded in excess of the target fee in a cost-plus-incentive-fee contract shall be recorded as an obligation at the time the determination to award the larger fee is provided to the contractor. The amount of the obligation established for a cost-plus-award-fee contract shall be adjusted at the time the actual fee award amount is determined and the contractor notified or, if applicable, a provisional award fee payment is determined (see DFARS 216.405-2). In any of these cases, if the contract is incrementally funded, the amount obligated shall always be the funded increments.
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Vern,

The information you just provided got me thinking. If an evaluation period ended on September 30 and the award fee was determined in the next fiscal year, the agency likely have to use funds of the prior year to pay for the award fee. That's when the obligation was incurred I think rather than when the amount was actually determined. Otherwise it could be construed as an Anti-Deficiency Act violation.

But I wonder about award term contracts. A contractor could earn a full or partial year of performance. Would that have to be funded out of a prior years appropriation or the year in which award term performance occurred?

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Guest Vern Edwards

formerfed:

It's hard to answer questions about award-term contracts, because they have no standard form. However, if we suppose that (a) the contract is a true award-term, instead of an award-option, and (B) that the government has made all awards terms (1) contingent upon availability of funds and (2) cancelable prior to execution at the government's discretion and at no cost to the government, then I would say that an award-term decision does not obligate the government and that no obligation occurs until the actual execution of the award term, which might not happen until some years have passed since the award decision. The bona fide needs rule would require that the funds obligated be the funds of the year of performance. If the contract crosses fiscal years, the funds would come from the year in which performance commenced.

Award-term contracts must be carefully written so that an award-term decision does not obligate the government until the CO signs an SF 30 to "execute" the award term and to direct the contractor to perform. Award-term decision and execution must be strictly separated.

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Award fee is a contingent liability. You do not obligate award fee until a fee determination has been made, reported to the contractor, and the fee is awarded.

Vern - Any issue with obligating the rest of the award fee pool before the determination is made? I read this to say I have to obligate the full amount of the base fee portion on a CPAF but that it doesn't prevent me from obligating anything above the base fee before the determination is made. Doing assisted acquisitions and I think we've been funding the full award fee pool so , in part, the funds don't appear to be "parked" in our system during financial audits. (can't find any written record of the reason we do it this way)

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Guest Vern Edwards

You cannot record an obligation of funds until you obligate the government. With respect to award fee, no obligation is made until an award fee determination has been made and reported to the contractor and then only in the amount of the fee determination.

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