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Good day,

We have a discussion on my workplace of whether or not we can exercise an option early only to obligates the funds. We have done it several times and now we are questionning whether or not this is a violation of the Anti-Deficiency Act.

Scenario:

Contracts is for R&D, Cost Reimbursable. Exercise of Option was to obligate funds but not to change the period of performance. We specify that work shall commence as stated in the period of performance not at the effective date of modification that exercised the option. Funds are FY11 with expiration date of 30 Sep 2012.

Are we violating the bona fide rule and the anti-deficiency act?

I do not believe we have violated the anti-deficiency act or bona fide rule as funds were appropriated in February 2011 (per MIPR), the intend to exercise the option was deemed necesary and in the best interest of the program.

Your advise is appreciated.

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Assuming that you will be using FY12 funds, then I see no violation of either the Anti-Deficiency Act or the bona fide needs rule. You are not obligating funds that have not been appropriated and you are using FY12 funds for a bona fide need of FY12.

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I didn't read your first post carefully, but my answer is still the same. The FY11 funds have been appropriated (by Congress) and, since they are R&D, are still available for obligation in FY12. No Anti-Deficiency violation because you're not making an obligation in advance or in absence of an appropriation. You have a bona fide need in FY12 that you are fulfilling with funds available for obligation in FY12. No bona fide needs problem.

What do you think you may be doing wrong?

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Funds were appropriated per MIPR and obligated (incrementally) in the modification (per my understanding of appropriation and obligation).

SMM, just to help you out, your funds were appropriated by Congress in the FY11 Defense Appropriation Bill. The MIPR simply transferred funds from one DoD agency to yours, presumably because your agency already had a contract in place that would satisfy there need. The MIPR doesn't appropriate.

DoN is correct, you have a bona fide need of FY12, with two year money appropriated in FY11, so there is no violation of the bona fide needs rule. Why do you think you have a violation of the ADA?

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I really did not think I was doing anything wrong until a team leader said that we were violating the Anti-Deficiency Act...I documented the bona fide need, follow the 17.2, had FY11 funds and place in the CLIN for the option and did not change the PoP. I asked in WIFCON for clarification and correct guidance so I can pass down to my co-workers. Team leader is fairly new in Contracts (3 years) and so I am (5 years). I think we can get easily confused with terminologies and sometimes we follow without looking at the policies and regs. Thanks WIFCON! Have a great day!

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The only issue I can see is the question of severability of services. The option crosses two fiscal year boundaries. As a general rule, contracts or options for severable services, including R&D contracts, cannot exceed 12 months in duration. If the services are severable, you would have to shorten the period of the option. Because you are buying R&D, it is unlikely that the services are severable. However, you should verify this.

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In this case I believe it is non-severable and PoP starts in August same FY as appropriation.

1. Services are considered severable if they can be separated into components that independently provide value to meet an agency’s needs.

2. Non-Severable Service. Services that represent a single undertaking that cannot be feasibly subdivided. If the services produce a single or unified outcome, product, or report, the services are considered non-severable. Requires the contractor to complete and deliver a specified end product.

DoD Financial Management Regulation Volume 11A, Chapter 3

030404. Appropriation Policy

4. Because research and development test & evaluation (RDT&E) requirements are iterative in nature, RDT&E programs, projects and activities are not subject to full funding policies. For example, DFARS 232.703-1 permits DoD organizations to incrementally fund a fixed-price contract if the contract is funded with research and development appropriations. Similarly, DoD budgetary policy Volume 2A Chapter 1, Paragraph 010214 provides that RDT&E budget estimates are prepared on an incrementally funded basis and only those funds required for work in a given fiscal year shall be included in the RDT&E request for that fiscal year. These policies apply equally to budgeting and obligating for requirements that in execution involve placement of Economy Act.

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