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I received a brand name requirement for vouchers for professional services.  Each voucher is good for a set number of hours.  No statement of work was included in the requirements package.  The market research estimates submitted by the program office have language to the following effect:

"...[Vouchers] to be applied towards future work.  Must be scoped by [the contractor] and completed within one-year.  Not subject to acceptance."

I inquired as to what the contractor meant by the last statement; the program office responded that because we are purchasing vouchers for future work on our network applications, it was within the contractor's discretion to determine for what specific work the Government may redeem the vouchers.  "Not subject to acceptance," means that the Government's attempt to use or redeem a voucher for performance of brand name professional services may be rejected by the contractor if they determine that the requested work in not within the scope of the vouchers.

I requested a copy of the terms and conditions for these vouchers, but to date have only received a "license agreement" for the associated applications we are leasing on a term basis.  The T&Cs I received mention nothing of vouchers.  I sent this matter over to our legal department for a determination of legal sufficiency and/or for them to identify legal risks.  Part of the response I received is as follows:

"I am not seeing where the contractor is determining the specific scope of the effort after the award."

Such a response may be due to the fact that I cannot ascertain that the contractor has provided us with any formal terms and conditions for these vouchers.  There are a whole host of other questions and concerns that arise from this requirement and the commercial item as it is being offered.  Foremost, I disagree with our legal department when they say that the contractor is not attempting to determine the specific scope of the effort after purchase.  Moreover, I am reluctant to sign any award for which the Government does not provide a requirements statement.  By all indications, we are seeking to purchase services.

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33 minutes ago, Guardian said:

I received a brand name requirement for vouchers for professional services. 

I don't understand that. You have been asked to buy "vouchers"? Please explain. You are buying a thing called a voucher for professional services? What is a voucher for professional services? Is it like an option to order services in the future?

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Are the vouchers being offered as commercial items (or commercial services) under FAR Part 12?  If YES, could you do some market research to learn what other buyers and sellers in your market segment are doing?

But yes, please explain.

 

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Just now, Vern Edwards said:

I don't understand that. You have been asked to buy "vouchers"? Please explain. What is a voucher for professional services?

Vern, that makes two of us.  I do not understand very well either.  The requisition package is thin and I am not getting adequate responses to my questions to the program office and vendor.  I looked at a previous order another CO signed for these vouchers last year and there is little to nothing in the award or file describing what they are.  To make matters worse, the quatities were not even stated correctly. 

Insofar as I can glean, we buy these vouchers, the unit of measure for which is "EA (each)."  Individual vouchers "entitle" the Government to 50 hours of future work from an IT consultant certified by the applications developer.  The applications on which they would be working were purchased through another contract.  Otherwise, nobody had described to me what the work is.  The COR tells me the vouchers expire after one year and are redeemable for work on proprietary applications as needs arise over the next twelve months.  I used the anology of a "gift card" to our legal department, but was scolded by the attorney and told that comparison was "not helpful."  He went on to say that my anology made no sense to him.  I discussed it with another attorney at DoD, who is a friend and mentor to me.  He said that my anology made perfect sense and could not understand why our agency attorney would respond that way.  My mentor said that most of what procurement attorneys do day-to-day is read GAO cases and other legal precedents and draw analogies.

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18 minutes ago, ji20874 said:

Are the vouchers being offered as commercial items (or commercial services) under FAR Part 12?  If YES, could you do some market research to learn what other buyers and sellers in your market segment are doing?

But yes, please explain.

 

Yes, they are commercial items.

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From the source provided by Carl:

Quote

VMware Professional Services Vouchers for Public Sector Customers provide a cost-effective and flexible way to purchase VMware Professional Services, Training and Certification. Vouchers allow customers to obligate funds for VMware Professional Services and VMware Education Services. This helps to manage costs and reduces the need to obligate additional funds later. [Emphasis added.]

Vouchers can be used towards any available VMware Professional Services (including packaged consulting, custom consulting, and Technical Account Manager services) and VMware Education Services (including training services).

Professional Services Vouchers for Public Sector cannot be used to purchase passes for VMware Explore.

Vouchers can be purchased directly from VMware, VMware authorized distribution and reseller partners.

VMware will invoice for vouchers upon delivery of the associated VMware Professional Services or VMware Education Services. Vouchers expire one year from the PO date. VMware will have no obligation to deliver any services in exchange for expired vouchers, and VMware will have no right to invoice for expired vouchers.

Only U.S. public sector entities (see definitions below for U.S. Federal Customer and U.S. State & Local Customer) may procure vouchers using Federal SKUs [Stock Keeping Unit].

It appears to me that such a voucher is some kind of option. There is no mention of any kind of advance payment to secure the right to order. Would the "purchase" of such a voucher establish a contract? Would it constitute a valid obligation of appropriated funds? (See the GAO Red Book, Vol.2, Ch. 7.) How would it obligate the government? See the well-known GAO definition of obligation:

Quote

A legal duty on the part of the United States which constitutes a legal liability or which could mature into a legal liability by virtue of actions on the part of the other party beyond the control of the United States . . .

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Guardian, Since you agree these vouchers are commercial items, what has your market research told you about what other buyers and sellers in your market segment are doing for T&Cs?  You want to do the same thing they're doing, right?

Are you purchasing a fixed number of vouchers, with each voucher redeemable by the Government within a certain period for 50 hours of IT support?

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The vouchers wouldn't be commercial items. The professional services they would be used to buy would be the commercial items. The vouchers are just a buying mechanism. As described by Carl's source, it seems that the vouchers are just offers to sell. I don't think they would be obligations, or contracts as defined by either the FAR or the Restatement of Contracts, Second. But maybe I'm missing something.

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1 hour ago, Vern Edwards said:

From the source provided by Carl:

It appears to me that such a voucher is some kind of option. There is no mention of any kind of advance payment to secure the right to order. Would the "purchase" of such a voucher establish a contract? Would it constitute a valid obligation of appropriated funds? (See the GAO Red Book, Vol.2, Ch. 7.) How would it obligate the government? See the well-known GAO definition of obligation:

Vern, to the contrary, the quote that I received indicates that "services are billed up front and in full."  This is why I was equating them to "gift cards."  We pay for them when we buy them, but I suspect they are subject to particular exclusions.  Moreover, these vouchers expire "within one year."  I presume the vendor means within one year of purchase, but the language is ambiguous.

Yes, as we have offer, acceptance and consideration, the purchase of these vouchers would establish a contract.  

Our agency uses non-congressionally appropriated funds.  All I have gotten back from our attorney on that is that the bona fide need rule does not apply to us.  But, yes I would sign off on behalf of our agency, thereby obligating funds.  

It would obligate the Government in a less than favorable manner insofar as I can judge.  Ambiguity of course tends to go in favor of the interpreter.  If the Government describes neither a general nor specific scope for these services, and no one has sent me the seller's terms and conditions, then I would think it is equivalent to the Government obligating funds, paying invoices before performance and acceptance and hoping for the best.

1 hour ago, ji20874 said:

Guardian, Since you agree these vouchers are commercial items, what has your market research told you about what other buyers and sellers in your market segment are doing for T&Cs?  You want to do the same thing they're doing, right?

Are you purchasing a fixed number of vouchers, with each voucher redeemable by the Government within a certain period for 50 hours of IT support?

I appreciate the information Carl sent concerning VMware vouchers, but those are not an equivalent comparison.  Firstly, VM vouchers are bought in specific dollar amounts redeemable or exchangeable at the list prices for services in the manufacturer's catelog.  These voucher are defined in hours; I have no labor categories with minimum qualifications to compare them, nor do I have a general or specific scope for the services other than "consulting services for [manufacturer's] items."  JI, essentially yes to your question, only the reseller has language within their quote stating that it is strictly up to the manufacturer whether they choose to accept the voucher for redemption.

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53 minutes ago, Guardian said:

Vern, to the contrary, the quote that I received indicates that "services are billed up front and in full."  This is why I was equating them to "gift cards."  We pay for them when we buy them, but I suspect they are subject to particular exclusions.  Moreover, these vouchers expire "within one year."  I presume the vendor means within one year of purchase, but the language is ambiguous.

Yes, as we have offer, acceptance and consideration, the purchase of these vouchers would establish a contract.  

Our agency uses non-congressionally appropriated funds.  All I have gotten back from our attorney on that is that the bona fide need rule does not apply to us.  But, yes I would sign off on behalf of our agency, thereby obligating funds.  

It would obligate the Government in a less than favorable manner insofar as I can judge.  Ambiguity of course tends to go in favor of the interpreter.  If the Government describes neither a general nor specific scope for these services, and no one has sent me the seller's terms and conditions, then I would think it is equivalent to the Government obligating funds, paying invoices before performance and acceptance and hoping for the best.

Hmmm. So you work for a nonappropriated fund instrumentality. I'm not sure what rules apply. I was going to say that the vouchers you describe seem to involve advance payments, which are generally prohibited. But the prohibition might not apply to a NAFI.

It sounds a little dubious. But I know next to nothing about what you have described.

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4 hours ago, Vern Edwards said:

The vouchers wouldn't be commercial items. The professional services they would be used to buy would be the commercial items. The vouchers are just a buying mechanism.

Vern, I spoke to counsel for their legal department this afternoon; she confirmed that these vouchers are not considered commercial items per se, as there is not an associated EULA or standard terms and conditions.  Typically, the developer (contractor) works with individual agencies to devise language on a case by case basis that apply to the redemption of the vouchers, predicated on the agency's unique requirements.  I agree that the ingredients in the cake are commercial items, but the cake itself is not.  You are the first to make this observation and still some are telling me that these vouchers are commercial items.

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@Guardian You’re looking at this wrong.  The question is whether the services you’re buying are commercial items?  Is so, does market research confirm that advances payments of this type are consistent with FAR 32.202-2?  Vouchers are not commercial items but the services might be.  Vouchers are just a request for advance payment.

I don’t know about this but many agencies have concluded that advance payments of this type are okay for training services.

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13 hours ago, formerfed said:

@Guardian You’re looking at this wrong.  The question is whether the services you’re buying are commercial items?  Is so, does market research confirm that advances payments of this type are consistent with FAR 32.202-2?  Vouchers are not commercial items but the services might be.  Vouchers are just a request for advance payment.

I don’t know about this but many agencies have concluded that advance payments of this type are okay for training services.

@formerfed Perhaps I am, which I why I brought these questions to WIFCon.  I can tell you that we purchase certain subscriptions for our libraries, e.g., Bloomberg, Wall Street Journal, etc.  We pay for these upfront.  Also, most if not all of the software "maintenance" we renew on a yearly basis is paid for upfront, much like a magazine subscription.  We refer to it as software maintenance, but it includes continued subscription to the term licenses for certain software, as well as access to technical support, which is a service of sorts, but packaged and represented as a product that may be paid for in advance.  Also, my market research led me to the Government's regular practice of buying training vouchers (as you so aptly pointed out), for which we pay in advance.  Certainly, I have enough precendent related to our buying within the commercial marketplace to document the file and justify a decision to pay for the vouchers upfront.  Again, the most appropriate anology I could think of is going to Costco and buying a $100 gift card for future theatre visits at the "discounted" price of $80.  Ordinarily you drive to the cinema, walk up to the window, pay for your ticket and go in to watch the movie.  Under the gift card model, you buy based on an expectation that you will visit the movies in the future.

I am convinced that the keys to success are curiousity and good mentorship.  Many of you on this forum are mentors to me and may not even know it.  You are mentoring me even when I do not reply.  I spoke to my uncle this weekend who is a biblical scholar to some degree.  He gave me this verse from Matthew: "I tell you the truth, unless you change and become like little children, you will never enter the kingdom of heaven.  Therefore, whoever humbles himself like [a] child is the greatest in the kingdom of heaven."

Another favorite of mine has been attributed to Josh Billings and Mark Twain in several variations.  It was used in the 2015 film "The Big Short," displayed as follows before the the opening scene:

"It ain't what you don't know that gets you into trouble.  It's what you know for sure that just ain't so."

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Intriguing...

18 hours ago, Guardian said:

Our agency uses non-congressionally appropriated funds. 

"The Federal Acquisition Regulations System is established for the codification and publication of uniform policies and procedures for acquisition by all executive agencies."

"Acquisition means the acquiring by contract with appropriated funds..."
 

Just wondering about the hang up as to why the FAR definition of commercial item applies?

15 hours ago, Guardian said:

she confirmed that these vouchers are not considered commercial items

Yet there is an intent to make it apply?  As noted by others but based on the thread so far....

21 hours ago, Guardian said:

a brand name requirement

21 hours ago, Guardian said:

associated applications we are leasing on a term basis.

 

20 hours ago, Guardian said:

from an IT consultant certified by the applications developer.  The applications on which they would be working were purchased through another contract. 

Another angle.....

"Commercial service means—

           (1)Installation services, maintenance services, repair services, training services, and other services if–

                (i)Such services are procured for support of a commercial product as defined in this section, regardless of whether such services are provided by the same source or at the same time as the commercial product; and

                (ii)The source of such services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the Federal Government;..."

I really do wonder what the questions are as they relate to your original post.   And I wonder about application of the FAR even though catch phrases related specifically to the FAR abound.   But let me pose this.

If you were personally the owner of the application, and you personally needed the services of the future what would make you comfortable in buying the vouchers?   As it seems anything that would make you comfortable can be "devised" in the agreement then would doing the same for the Federal government be prudent?

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28 minutes ago, C Culham said:

"The Federal Acquisition Regulations System is established for the codification and publication of uniform policies and procedures for acquisition by all executive agencies."

"Acquisition means the acquiring by contract with appropriated funds..."

Just wondering about the hang up as to why the FAR definition of commercial item applies?

@C Culham I found the following definition for "Non-appropriated Funds":

"Non-Appropriated Funds refer to revenue earned by government departments, organizations or agencies by means other than taxation. For instance, the State Department charges for passports and then uses the earnings for other purposes. These funds are known as non-appropriated. Many government entities earn revenue and use those non-appropriated funds to pay for employee salaries and other expenses that are not explicitly authorized in Congress’s Budget. There is more leeway regarding how Non-Appropriated funds can be used."

By this definitition our funds are non-appropriated, as they are agency-generated by the fees paid to it, rather than from taxation.

31 minutes ago, C Culham said:

Yet there is an intent to make it apply?  As noted by others but based on the thread so far....

I think so.  From discussions from our bureau chief, our agency has been "following" the FAR on its own accord for about two decades.  My solicitation and award for these vouchers incorporate FAR part 12 provisions and clauses, and concepts.

35 minutes ago, C Culham said:

Another angle.....

"Commercial service means—

           (1)Installation services, maintenance services, repair services, training services, and other services if–

                (i)Such services are procured for support of a commercial product as defined in this section, regardless of whether such services are provided by the same source or at the same time as the commercial product; and

                (ii)The source of such services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the Federal Government;..."

I really do wonder what the questions are as they relate to your original post.   And I wonder about application of the FAR even though catch phrases related specifically to the FAR abound.   But let me pose this.

If you were personally the owner of the application, and you personally needed the services of the future what would make you comfortable in buying the vouchers?   As it seems anything that would make you comfortable can be "devised" in the agreement then would doing the same for the Federal government be prudent?

Again, I think so.  When making purchase on behalf of the Government, I try to begin firstly by reducing the scenario to that of something I might otherwise be seeking to buy for myself and my family.  I start by applying common sense, and "prudent" decision making, i.e., beginning with the simple and moving outwardly toward the complex, as necessary.  For example, I own a property in another city, which I rent.  I pay an HVAC company a fixed amount in full at the beginning of each year for what they term, a "maintenance policy."  I usually call them in the spring and fall to schedule their technician to come out to check the A/C compressor and furnace, respectively.  More often then not, they give each component a clean bill of health, and I schedule with them again the following season.  However, if any of the system's components outside the "major components," e.g., compressor motor, are in need of repair, then they fix them upon request under the specific terms of the policy.  If the heart of the unit (major component) dies, then I decide whether it is more sensible to purchase an entirely new unit, or have them replace that major part, which the "maintenance policy" does not cover.  The policy includes other terms and conditions, which entitle me to some discount off their list price for parts and labor, that is, if a major repair of an excluded item needs to be made.
 

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See FAR 1.104. The FAR does not apply to nonappropriated fund instrumentalities (NAFIs). It applies only to acquisitions as defined in FAR Part 2, which are funded by appropriations.

A GAO report, Federally Created Entities: An Overview of Key Attributes, GA)-10-97, said this about NAFIs:

Quote

There exist a large but unknown number of nonappropriated fund instrumentalities of the U.S. government (NAFIs). In general, NAFIs are entities that can be established under authority or sanction of an existing federally created entity (generally including executive departments and other executive branch entities). For example, the Department of Defense operates military post exchanges to benefit military personnel and their dependents by selling commercial goods and services to them. The actual number of NAFIs is not known because federally created entities generally are not required to report publicly on their NAFIs, there is no official or commonly understood definition of a NAFI, and no source exists to identify each NAFI that may exist. For purposes of this report, we recognize NAFIs as a single entity. While they may be established with or without an initial advance of federal funds, NAFIs are operated without receiving direct appropriations and are generally financed by the proceeds from their organization’s operations. NAFIs are often established to further performance of governmental functions (e.g., operate an activity for the benefit of U.S. government personnel or their dependents, such as military morale, welfare, and recreation NAFIs that operate gyms, lodging facilities, and other services for military personnel and their dependents). Other examples of NAFIs include the Graduate School, U.S. Department of Agriculture; Marine Corps Exchanges; Navy Resale and Services Support Office; and the U.S. Merchant Marine Academy Ships Service Store. Generally, while funded primarily with self-generated operational revenues, the assets of NAFIs are considered to be U.S. government property for most purposes. Also, NAFIs are under the complete control of the federally created entity that established them, and usually are operated by U.S. government personnel.

Footnotes omitted.

In DOD, NAFI procurements might overseen by an agency contracting office. Sometimes their procurements are conducted based on FAR principles.

A Department of Justice website says this:

Quote

A nonappropriated fund instrumentality (NAFI) is an entity to which Congress has appropriated no funds, and for which it assumes no financial obligation. See Standard Oil Co. v. Johnson, 316 U.S. 481, 485 (1942). NAFIs include military post exchanges and officers clubs. Slattery v. United States, 635 F.3d 1298, 1304 (Fed. Cir. 2011) (en banc). Although a Government entity's status as a NAFI used to be a bar to jurisdiction over contract disputes under the Tucker Act, the jurisdictional criterion no longer is how the entity is funded, but whether it was acting on behalf of the Government. Id. at 1301.

Guardian did not ask a question in the opening post. Instead, he described a situation and some concerns that he had about it. My reaction at this point is that his concerns are misplaced. If he is buying for a NAFI, and if the NAFI has not adopted the FAR as a matter of policy, then he is free to make any prudent business deal that he can in accordance with his organization's policies, and should go to it.

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The use of non-appropriated terminology here is confusing things.  A non-appropriated fund activity is different from agencies that receive user fees. In the latter case, Congress authorizes those agencies to spend money they collect.  That usually occurs through separate authorization bills.  In many cases the legislation that granted authority to spend money collected are exempt from some or all on procurement statutes - Comptroller of the Currency, FDIC, USPTO, and others fall into this category.  But those are not considered NAF activities.

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Guardian is being vague about what type of NAFI, if any is involved here. For Army, NAFI general acquisition procedures are covered by AR 215-4, Non-Appropriated Fund Contracting 25 June 2021. Plus additional policies for IT, etc.

https://armypubs.army.mil/epubs/DR_pubs/DR_a/ARN30739-AR_215-4-000-WEB-1.pdf

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Nonappropriated Funds. NAFs are monies that are not appropriated by the Congress to incur obligations and make payments out of the United States (U.S.) Treasury. NAFs come primarily from the sale of goods and services to DoD military and civilian personnel and their family members.

For DOD, see also DoD Financial Management Regulations, Volume 13, Chapter 1 Non-Appropriated Fund Accounting

https://comptroller.defense.gov/Portals/45/documents/fmr/archive/13arch/13_01_Sep08.pdf

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FAR 1.104 Applicability.

“The FAR applies to all acquisitions as defined in  part  2 of the FAR, except where expressly excluded.”

FAR Part 2 Definition of Acquisition:

2.101

“Acquisition means the acquiring by contract with appropriated funds of supplies or services (including construction) by and for the use of the Federal Government through purchase or lease, whether the supplies or services are already in existence or must be created, developed, demonstrated, and evaluated. Acquisition begins at the point when agency needs are established and includes the description of requirements to satisfy agency needs, solicitation and selection of sources, award of contracts, contract financing, contract performance, contract administration, and those technical and management functions directly related to the process of fulfilling agency needs by contract.

Edited by joel hoffman
Edited duplicate language
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1 hour ago, Vern Edwards said:

@formerfed Is it fair to say that the key point is that if you're not using appropriated funds you're not subject to the FAR?

For the most part, yes.  There are exceptions.  Federal Student Aid and US Patent and Trademarks Office are required to only adhere to certain sections of the FAR.  To be certain someone needs to look at the authorizing legislation of each fee funded agency. Also some agencies receive user fees for part of their operations but still must uniformly follow FAR like Customs and Border Protection and State

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Guardian, if your agency's specific statutory authorization is not a help, you may want to check out what the DoD Financial Management Regulation (FMR) has to say about miscellaneous advance payments. It includes the exception that you have mentioned for subscriptions to periodicals, among other things. You'll find it in Vol 10 chapter 4. at  https://comptroller.defense.gov/Portals/45/documents/fmr/current/10/10_04.pdf.

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