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Year end spending -- contractor responsibilities


Guest Vern Edwards

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Guest Vern Edwards

I was asked to make the following inquiry:

What if any responsibility does a contractor or prospective contractor have when the government proposes an action that would violate the Bona Fide Needs rule? See Principles for Federal Appropriations Law 3d, Vol. I, Ch. 5.

For example, what if anything should a contractor do if the government wants to add work to a contract at the end of fiscal year 2012, using FY2012 money, and the contractor thinks that the work that will be a bona fide need of FY2013?

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Another question - - If the work (say services to develop/build a website) is determined by the government to meet bona fide need, an order/contract is issued and accepted by the contractor, what "contractor" effort (if any) must take place prior to the end of the FY? Lets assume this is a 9-15-12 award date.

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Vern, here's my thoughts: I don't know of any responsiblities placed on the contractor to police the potentially improper funding actions made by the Gov't, but out of pure self-interest; the contractor should raise the concerns in writing and hold onto that correspondence. If the action is later discovered to be anti-deficient, then the contractor may be left holding a big burning bag of poo. Presumably the agency would suspend or even terminate the action. If the contractor was lucky, the agency may be able to obtain the proper funds after a couple months of internal investigations.

To illustrate: When I first started doing post-award construction a few years ago, one of the first projects I "inherited" was later determined to be anti-deficient because it had not been properly programmed (you can read about it on last year's GAO ADA reports # 11-22). Sad part is, I didn't even know there was a problem until the someone started asking questions. The contract was suspended for 18 months until it was resolved. During that period he had to continue maintaining the site without receiving a single payment. We nearly ruined his business.

I think most of us are not so arrogant (or blatantly corrupt) that we wouldn't mind addressing a contractor's concerns and would do the right thing if we found out the contractor was correct.

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Guest Vern Edwards
If the work (say services to develop/build a website) is determined by the government to meet bona fide need... what "contractor" effort (if any) must take place prior to the end of the FY? Lets assume this is a 9-15-12 award date.

See Principles of Federal Appropriations Law 3d, Ch. 5, Sec. B.5. What you have described is a nonseverable service. If the need legitimately arose in FY2012 and the obligation was properly made in FY2012, then performance can both begin and end in FY2013.

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Like Velhammer, I am not sure the vendor has any responsibility to inform you about a Bona Fide need, if they even understand/know about this rule. I feel many do not know how that works or if they do, they assume that we have already determined the need. If they know of the rule and they think that it would be an actual Bona Fide need in the following FY, they should probably mention it because it could screw them up if there is an issue.

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See Principles of Federal Appropriations Law 3d, Ch. 5, Sec. B.5. What you have described a nonseverable service. If the need legitimately arose in FY2012 and the obligation was properly made in FY2012, then performance can both begin and end in FR2013.

Thank you - for the reference
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Guest Vern Edwards

Yes, but it is the contractor who might suffer if the Government does not make a valid determination, since an improperly funded contract may not be enforceable. I say that the contractor has a responsibility to itself to inquire if it thinks it has a good reason to question the agency's determination, and a decent contracting officer will respect the contractor's concerns.

As for knowing or not knowing how the bona fide needs rule works, I doubt that most contracting officers know.

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I suspect that the contractor would not know what funds are being used for the contract until the contract is issued since this information is not generally provided pre-award. As Vern and Velhammer have pointed out, if the funding is not appropriate, the contractor could be left holding the bag for amounts it spent performing the improper contract. Although the fiscal laws do not impose a duty on the contractor to question the government's use of its funds, self interest would indicate the contractor should bring the issue up with the contracting officer clearly stating the basis for the contractor's concerns.

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Guest Vern Edwards

I hate to show my ignorance - but I didn't know the government could walk away from a contract because it didn't fund it properly.

What would have told me that?

General familiarity with acquisition law, perhaps obtained by reading Formation of Government Contracts 4th (2012) by Cibinic and Nash, chapters 1 and 2.

You have to follow a chain of reasoning:

1. A CO has only the authority delegated to him or her. The delegation of authority to a CO expressly states that the CO must comply with law, regulation, etc. See Standard Form 1402 (FAR 53.301-1402) and FAR 1.602-1. A CO has no authority to disregard the law.

2. Obligating the government without funds is a violation of 31 U.S.C. 1341, which provides for imprisonment for violations. COs have no authority to enter into a contract in advance of or in the absence of funds. See 31 U.S.C. 1341 and FAR 32.702.

3. Appropriated funds must be used for the bona fide needs of the year(s) for which the funds were appropriated. See Principles of Federal Appropriations Law 3d, p. 5-11 - 5-12:

The bona fide needs rule is one of the fundamental principles of appropriations law: A fiscal year appropriation may be obligated only to meet a legitimate, or bona fide, need arising in, or in some cases arising prior to but continuing to exist in, the fiscal year for which the appropriation was made. Citations to this principle are numerous...

The bona fide needs rule has a statutory basis.

Thus, a CO who tries to use funds in violation of the bona fide needs rule is exceeding his or her authority, because the funds are not available to cover government obligation. Moreover, if the CO has obligated the government without funds he or she will have violated the Antideficiency Act, 31 U.S.C. 1341, which is punishable by imprisonment.

4. It is a general principle of acquisition law that the government is not bound by the unauthorized acts of its agents. See, e.g., AEY, Inc., v. U.S., 99 Fed. Cl. 300 (2011):

It is axiomatic that “ ‘the United States is neither bound nor estopped by acts of its officers or agents in entering into an arrangement or agreement to do or cause to be done what the law does not sanction or permit.’ ”... This principle has been invoked frequently in the realm of government contracts, and the Federal Circuit has emphasized that where a contracting officer has not been provided authorization to depart from regulatory requirements, “any deviation from regulatory requirements is a violation of the regulations and beyond the authority of the contracting officer.” Johnson Mgmt. Grp., CFC, 308 F.3d at 1258 n. 2. In this respect, “[t]he government ‘is not bound by its agents acting beyond their authority and contrary to regulation.’ ”... (“[T]he United States will not be estopped to deny the acts of its agents who have acted beyond the scope of their actual authority.)

As Retread points out, a contractor ordinarily will not know what funds are being used. However, an incumbent contractor whose contract is being modified or a contractor under a task order contract might know or suspect as a result of discussions with government personnel. Moreover, while it's not realistic, one can argue that any firm doing business with the government ought to inquire in every case. Inquiring will protect the contractor only if the contractor decides not to sign the contract. If the CO does not have authority the government won't be bound whether the contractor asked or not. The leading decision on this is probably Harbert/Lummus Agrifuels Projects v. U.S., 142 F.3d 1429 (Fed. Cir. 1998):

It is well established that the government is not bound by the acts of its agents beyond the scope of their actual authority... Contractors dealing with the United States must inform themselves of a representative's authority and the limits of that authority... Moreover, “anyone entering into an agreement with the Government takes the risk of accurately ascertaining the authority of the agents who purport to act for the Government, and this risk remains with the contractor even when the Government agents themselves may have been unaware of the limitations on their authority.” The burden was on Harbert/Lummus to prove that the CO had the authority to enter into the oral, unilateral contract... The fact that Harbert/Lummus may have believed that the CO had authority is irrelevant; Harbert/Lummus must prove that the CO had actual authority... For the reasons set forth below, we hold that the CO did not have authority to enter into an oral contract to continue to guarantee funding of the project until its completion.

That decision was appealed to the Supreme Court, which refused to entertain it.

August, your response in Post #7 was not wrong, but it was not fully responsive to the question that I asked and not especially thoughtful. The government is a dangerous customer, and the contractor has a responsibility its owners. As Retread points out, if a contractor has reason to suspect that the funding is wrong, it ought to ask out of self interest. Such an inquiry is not an intrusion. COs should understand and respond forthrightly, explaining the law if necessary. What the contractor does with the response or lack thereof is a business decision and a risk.

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2. Obligating the government without funds is a violation of 31 U.S.C. 1341, which provides for imprisonment for violations. COs have no authority to enter into a contract in advance of or in the absence of funds. See 31 U.S.C. 1341 and FAR 32.702.

4. It is a general principle of acquisition law that the government is not bound by the unauthorized acts of its agents. See, e.g., AEY, Inc., v. U.S., 99 Fed. Cl. 300 (2011):

If an ADA violation is not binding on the government (implied by #4), then how could the ADA ever be violated (per #2)? On what basis would a violator be imprisoned (per #2) if the unfunded action was not binding on the government (per #4)?

While a CO may be punished for violating the ADA, I believe an ADA violation has no bearing on whether or not a binding government-contractor relationship was established.

To the OP’s question, the contractor does not need to worry about the administrative issue of funding unless contingent funding (e.g., 52.232-18, or something similar) is explicitly mentioned in the contract.

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Guest Vern Edwards
If an ADA violation is not binding on the government (implied by #4), then how could the ADA ever be violated (per #2)? On what basis would a violator be imprisoned (per #2) if the unfunded action was not binding on the government (per #4)?

The violation might not be discovered until after the contractor has been paid. (Duh!) Here's a link to GAO report to Congress of ADA violations in 2010 http://www.gao.gov/a...rptinfofy10.pdf.

While a CO may be punished for violating the ADA, I believe an ADA violation has no bearing on whether or not a binding government-contractor relationship was established.

Since you haven 't bothered to explain the basis for your belief, I've got nothing to say about it. But you'd better do some research before you come back here with some half-baked argument.

To the OP’s question, the contractor does not need to worry about the administrative issue of funding unless contingent funding (e.g., 52.232-18, or something similar) is explicitly mentioned in the contract.

Another unexplained belief. Well, the thought is worth it's explanation.

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The violation might not be discovered until after the contractor has been paid. (Duh!) Here's a link to GAO report to Congress of ADA violations in 2010 http://www.gao.gov/a...rptinfofy10.pdf.

Since you haven 't bothered to explain the basis for your belief, I've got nothing to say about it. But you'd better do some research before you come back here with some half-baked argument.

So the ADA can only be violated if the contractor has been paid? Talk about a half-baked response. What's that based on? The PDF link you provided only illustrates that ADAs occur. The ADA does not speak solely to making expenditures; it also speaks to authorizing expenditures and obligations.

And if you have nothing to say about something, why the comment? You trying to run us newbies off? Bully.

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Guest Vern Edwards
So the ADA can only be violated if the contractor has been paid? Talk about a half-baked response. What's that based on?

I didn't say that the ADA can be violated only if the contractor has been paid. You wanted to know how the ADA could have been violated if the result of the violation is that the government is not bound. I gave you an answer that I thought you could understand. (Duh!) The fact is that the ADA is violated whenever a CO signs a contract in advance of or without an appropriation and fails to condition the obligation upon the availability of funds. Your logic seems to be that if a CO does something that is prohibited by law, and if the government refuses to be bound because of the violation, then a violation cannot have occurred. It doesn't work that way, but thanks for the laugh.

As for the singularly bad piece of advice that you gave "OP," here is a quote from an article in the Spring 2003 issue of Public Contracts Law Journal, 32 PUBCONLJ 577, "The Persistence of Time: A Brief History and Analysis of the Berry Amendment," by Sean P. Bamford:

From the government employee's perspective, an Anti-Deficiency Act violation could be devastating both professionally and personally. A civilian employee may receive anything from a “written admonishment or reprimand ... to removal from the office.” In some cases, the party responsible for the violation might be held personally liable for the contract amount. In addition, a knowing and/or willful violation may result in criminal prosecution. If found guilty, the employee might have to pay a $5,000 fine or serve up to a two-year prison term, or possibly both.

If the contractor knew, or should have known, of the funding limitation or violation, the “contract is a nullity.” When a contract is a nullity, it is void and therefore unenforceable.

I hope you can work out the logic of that and that you won't think that there is no violation if the contract is a nullity.

And if you have nothing to say about something, why the comment? You trying to run us newbies off? Bully.

To show you what I thought of your remarks. Why else? And why would I run you off? :lol:Keep coming back, please.

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Guest Vern Edwards
If an ADA violation is not binding on the government... , then how could the ADA ever be violated... ?

That's so wonderful I'm giving it a name: Jwomack's Paradox.

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Vern,

It wasn’t my logic nor way of thinking. I was merely trying to follow your (and apparently the Court’s) logic chain that, as you have acknowledged, is paradoxical –

a. CO violates the ADA by obligating funds that didn’t exist.

b. Government is not bound by the unauthorized obligation and determines the contract void ab initio (Note 1).

c. The contract is void, meaning the contract never existed as far as the Government is concerned.

d. Since the contract never existed, then there was no obligation.

e. Since there was no obligation, the CO cannot be found guilty of obligating funds that didn’t exist.

(Note 1) DC Court of Appeals, Williams v. District of Columbia, No. 03-CV-1271

“In light of the principles now codified at 31 U.S.C. § 1341, the Supreme Court of the United States and other federal courts have explicitly and repeatedly held that all contracts for future payments of money, in advance of or in excess of existing appropriations, are void ab initio.  Hercules Inc. v. United States, 516 U.S. 417, 427, 116 S.Ct. 981, 134 L.Ed.2d 47 (1996);  Goodyear Tire & Rubber Co. v. United States, 276 U.S. 287, 66 Ct.Cl. 764, 48 S.Ct. 306, 72 L.Ed. 575 (1928);  Leiter v. United States, 271 U.S. 204, 46 S.Ct. 477, 70 L.Ed. 906 (1926);  see, e.g., E.I. du Pont de Nemours & Co. v. United States, 365 F.3d 1367, 1374 (Fed.Cir.2004);  RCS Enters. v. United States, 57 Fed.Cl. 590, 594 (2003).”

As much as it pains me to, in light of (Note 1) above, I must concede that my "I believe an ADA violation has no bearing on whether or not a binding government-contractor relationship was established" may have actually been a half-baked assessment.

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For jwomack, if an ADA violation occurs, what is the consideration running from the government to support a contract?

The Government’s concession that the ADA violation was, in fact, attributable to a Government action. Of course this contradicts the Court’s perspective as cited in (Note 1) of post 19, above.

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Guest Vern Edwards

a. CO violates the ADA by obligating funds that didn’t exist.

b. Government is not bound by the unauthorized obligation and determines the contract void ab initio (Note 1).

c. The contract is void, meaning the contract never existed as far as the Government is concerned.

d. Since the contract never existed, then there was no obligation.

e. Since there was no obligation, the CO cannot be found guilty of obligating funds that didn’t exist.

Despite my pulling your chain, there is indeed a paradox. The paradox is created by the concepts of void contract and void ab initio. Many legal writers have pointed out that void contract is a contradiction in terms. And no less an authority than Justice Scalia has said that there is no such thing as a contract that is void ab initio. Many argue that the more proper term is voidable, which means that one party can repudiate the contract. See the brief discussion of void contract in Garner, A Dictionary of Modern Legal Usage 2d p. 920.

There is a similar paradox in the FAR. See FAR 1.602-3. How can there be any such thing as an "unauthorized commitment"? More generally, how can there be an "unconstitutional statute"?

In any case, it is clear that a contracting officer will have violated the Anti-deficiency Actsigns if he or she signs a contract without funds. The GAO discusses the ADA at length in Principles of Federal Appropriations Law 3d, Vol. II, Ch. 6. It apparently is the act of signing a contract when you're not supposed to that creates the violation, regardless of the whether the act actually binds the government.

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To illustrate: When I first started doing post-award construction a few years ago, one of the first projects I "inherited" was later determined to be anti-deficient because it had not been properly programmed... The contract was suspended for 18 months until it was resolved. During that period he had to continue maintaining the site without receiving a single payment. We nearly ruined his business.

[Emphasis added.]

If an anti-deficient contract is void on initiation, how would something like this happen? If the contract is void, why did he have to do anything? Or do you mean he had to continue maintaining the site if he wanted to preserve or salvage something?

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Heretalearn:

I don't think there is really an agreement that an anti-deficient contract is void on initiation (See Vern's post #21). Regardless, bearing in mind that I didn't have the benefit of this insightful thread, we did not terminate or otherwise indicate that the contract was void; we issued a suspension of work. The contractor had performed early-start/fast-track work; so we had a building that was partially demolished. Among other costs, he had to maintain the fencing, his Storm Water Pollution Prevention Plan, and safely secure hazmat on site while we pursued the reprogramming route. Having him walk off the site didn't appear to be the best option, but then again we didn't realize it would take 18 months to resolve.

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Guest Vern Edwards

Let me suggest that everyone stop writing, go to the bookshelf, pull down a copy of Formation of Government Contracts 4th, open it to Chapter 1, Section II. Subsection A.1., page 39, which is entitled, "Need for Congressional Appropriation." There you will find the following quote from the U.S. Constitution, Article 1, Section 9, Clause 7:

[N]o money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."

You will then find a quote of 31 U.S.C. 1341(a)(1), which is part of the Anti-Deficiency Act, and which says:

(a) (1) An officer or employee of the United States Government or the District of Columbia government may not -- (A) make or authorize an an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation; or (B) involve either government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law.

Now suppose that a CO signs a contract believing he has funds when in fact he doesn't. There is no way to pay the contractor, because there is no money. No disbursing official is going to approve payment. Now suppose that the contractor wants the government to abide by the contract, but the finance office won't pay because there are no funds available. The contractor decides to sue for breach of contract. The question is: Can the contractor obtain a court order for the government to perform its obligations under the contract notwithstanding the lack of funds?

Now read Formation, Ch. 1, Sec. II, Subsection C.2, p. 73, entitled, "Contract Avoidance." There you will find a lengthy discussion of the circumstance in which the government can avoid the contract. The discussion begins with this:

The most drastic consequence of a contract made in violation of a statute or a regulation with the force and effect of law is that the government has the right to avoid the contract. Such contracts have been variously described as "void ab initio... Government avoidance is limited to clear-cut violations of statutes or regulations....

As has already been discussed, there have been a number of court decisions, including decisions of the Supreme Court, which have found that contracts made in the total absence of appropriations are unenforceable. See e.g., Hooe v. U.S., 218 U.S. 322, 334 (1910):

Granting that the plaintiffs have not been paid for [the use of a building] such sum as they are justly entitled to have received, we are still confronted with the facts heretofore referred to, that Congress had appropriated, each year of the commission's occupancy, a specific sum in full for rent of buildings for the use of that body; that it has in effect prohibited the use of the public money in excess of that sum for rent of buildings for that purpose; and that plaintiffs have already received the entire sums appropriated by Congress for rent. The conclusion necessarily follows that the government cannot, in this case, be made liable to suit, either under an express or implied contract, to pay for the use of plaintiffs' property any amount in excess of the sums appropriated by Congress for that purpose.

The literature on this is voluminous and the issues and resolutions can be very complex. It's probably not a simple matter of void ab initio in every case. Much will depend on specific facts and circumstances.

Let's not be amateur lawyers (another paradox). Going back to the original inquiry, the obvious conclusion to me is that a contractor should inquire if it has reason to doubt the validity of contract funding. The response to the inquiry might lead a firm to walk away from the contract, although that is probably unlikely in real life. Better that than doing work for which it can't get paid.

Shame on you if you don't own or have access to a copy of Formation of Government Contracts 4th.

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