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jks195

Bonafide Need Rule in relation to multi year appropriations

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Hello,

First time poster, so please be gentle.

We have a customer that wants to buy software with a 1 yr maintence agreement and then an additional year of maintenance for the software. This maintenance is treated as a supply, we have FY 13-2 yr money and this will go on contract in FY13. Does the bonafide need rule prohibit the purchase of the FY14 requirement (i.e. the 2nd year of maintenance), or is it allowed because the money's period of availability extends into FY14?

I have been researching this for a bit and most discusions and Comp. Gen. decisions are in relation to violations due to expiring or 1yr money used to fund out year requirements, but have not been able to find anything exactly on point with multi year appropriations funding out year requirents during the fundings period of availability.

Thanks.

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Since this topic has been open for several days I thought I would chime in to reinvigorate the discussion.

GAO-04-261SP Appropriations Law—Vol. I Page 5-11 states, "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."

This definition (to me) implies that one cannot obligate funds to fulfill an FY14 requirement because the need is not arising in or prior to the fiscal year for which the appropriation was made.

However, GAO-04-261SP Appropriations Law—Vol. I Page 5-14 states, “The bona fide needs rule applies to multiple year as well as fiscal year appropriations. In other words, an agency may use a multiple year appropriation for needs arising at any time during the period of availability.”

This statement (to me) implies that one could obligate funds to fulfill an FY14 requirement at anytime during the appropriations availability. Hence one can buy a second year requirement in its first year of availability and not violate the bona fide needs rule.

Please help shed some light on this topic.

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This definition (to me) implies that one cannot obligate funds to fulfill an FY14 requirement because the need is not arising in or prior to the fiscal year for which the appropriation was made.

I don't understand that.

Hence one can buy a second year requirement in its first year of availability and not violate the bona fide needs rule.

Huh? Try again.

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I agree with amthomf's interpretation. It took me some time to realize this a while back, but the issue is with the term "period of availability".

As amthom referenced, the bona fide needs rule applies to multiple year as well as fiscal year appropriations; 55 Comp. Gen. 768, 773–74 (1976); B-235678, July 30, 1990. See also 64 Comp. Gen. 163, 166 (1984). In other words, an agency may use a multiple year appropriation for needs arising at any time during its period of availability.

It seems that the rules are silent on when obligation must occur, so long as it occurs within the fund's period of availability. I emboldened the term period of availability because it is essential to understanding the rule. When determining the appropriate use of funds, they should be looked at in terms of their period of availability, not simply the fiscal year(s) they're available for. There are different periods of availability; 1 fiscal year (annual appropriations), 2 or more fiscal years (multiple year appropriation) and no-year appropriations.

In other words, funds can be used at any time during their period of availability and for as long as the period of availability makes the funds available for use, with the exception that for an annual appropriation, the period of performance can extend beyond the period of availability so long as the period of performance does not exceed a 12-month period. This exception is by statute and does not apply to multiple-year appropriations.

These rules do not apply to the use of no-year funds because the bona fide needs rule does not apply to those types of funds. In conclusion, yes, JKS195 can use an FY13 multiple-year appropriation to purchase in FY13 a supply or a service that won't be used until FY14 because FY14 is within the appropriation's period of availability. This is consistent with the bona fide needs rule as it applies to multiple-year appropriations.

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A little off topic but I think the concept is related. The following is from a GAO report on serverable services, B-317636, dated April 21, 2009.

Severable services are considered a bona fide need of the appropriation current at the time rendered. Consequently, an agency using a multiple year appropriation would not violate the bona fide needs rule if it enters into a severable services contract for more than 1 year as long as the period of contract performance does not exceed the period of availability of the multiple year appropriation.

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The following excerpt from the FMR supports the position that one could not award an FY 14 requirement in FY 13 when using two year money.

DoD Financial Management Regulation 7000.14-R (FMR),

Volume 3: Budget Execution – Availability and Use of Budgetary Resources

Chapter 8 – Standards for Recording and Reviewing Commitments and Obligations (Sep 2009)

0803 Obligations

080303. When recording obligations under this section, utilize the principles specified below:

B. Performance Under Contracts or Orders. Contracts entered into or orders placed for goods, supplies, or services shall be executed only with bona fide intent that the contractor (or other performing activity) shall commence work and perform the contract without unnecessary delay.

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I see your point. I was think more of a situation were you would award an FY 14 requirement today (19 Apr 13) with no support as to why you would need to award it so far in advance of the bona fide need of the requirement.

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If you know you are going to need something in FY14, and if you have funds available for obligation for that purpose, why do you need "support" as to why you need to do it so far in advance?

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Well based on your question, my interpretation of the cited FMR in post #9 is incorrect. What I am trying to think through is whether there is an issue with a program obligating funds in year one of a two year appropriation for the purpose of ensuring their funds are not pulled. What makes me believe this is what the program office is trying to do? Well, in the past they would submit a PR for an FY 14 requirement in FY 14 - perhaps they are just more efficient now (sarcasm). Maybe this is no concern of mine and it is not my call since congress appropriated the money for this purpose and there is a bona fide need for the requirement within the appropriations period of availability.

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So in this case it is a magazine subscription funded with 3600 funds. So yes they need it, in the sense they budgeted for it, but that doesn't mean the money won't get pulled since it is not a priority procurement. I am not overly concerned with this one instance, but as budget constraints increase even more, I expect to see a greater effort by program offices to obligate their funds early (as it relates to the normal process) to ensure their money is not pulled.

With that said, the question in the initial post has been answered (which happened to be the same question I had) and now it is my responsibility to make good business decisions given my specific situation. Thank you Vern for your assistance.

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Google FBO Magazine subscription, you won't necessarily find soliciations out of our office, but you will get a better understanding of how magazine subscriptions can be so expensive. Basically you have multiple magazine subscriptions in one soliciation for entire agencies. I have seen awards over SAT, so this really isn't abnormal. The phrase “Magazine subscriptions” is also a generic way of describing what is purchased out of our office (when talking with peers), it can also include periodicals, online databases, and per-review journals.

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For Severable Services ONLY.

FAR 32.703-3, Contracts crossing fiscal years,directly addresses this issue. Subparagraph (a) states the general rule that a contract for severable services funded by annual appropriations may not cross fiscal years, except in accordance with statutory authorization. Sub-paragraph ( B) implements the broad authorization provided by the Federal Acquisition Streamlining Act (FASA), 41 U.S.C. § 253l, giving agencies greater flexibility in their use of fiscal year [annual] appropriations. As a result, a contract [option or order] whose period of performance does not exceed 1 year may begin in one fiscal year and end in the next fiscal year, and the appropriation current at the time of award may be used to fund the total amount. DoD's statutory authorization exists at 10 USC 2410a. However, those are for annual funds.

Before the passage of these statutory authorizations, all funds except no year funds were limited by the bona fide needs rule and the boundaries of the period of availability of the appropriation. Legislative history indicates that the topic under discussion when 10 USC 2410a was passed related to managing the workload in contracting offices at the beginning of each fiscal year. This measure was intended to offer some relief. Since multiple year appropriations can have contract vehicles which cross over fiscal years as long as they remain within the period of availability of the appropriation, no relief was seen as required.

In B-317636, GAO was asked whether 10 USC 2410a restricts severable services contracts to 1 year even when the contract is funded with multiple or no-year funds; GAO answered that 2410a did not limit contracts using multiple or no-year funds to a performance period of 1 year. In answering this question, GAO seems to conclude that 2410a applies only to contracts funded by annual funds. In the discussion, GAO stated that 2410a is a statutory exception to the bona fide needs (BFN) rule to allow funding flexibility by "permitting an agency to obligate an appropriation that otherwise would be available only for the needs of one fiscal year to meet the needs of a second fiscal year." In addition, GAO states that "[a]n agency using multiple year or no-year appropriations does not need to refer to section 2410a... to achieve this same flexibility" because the BFN rule does not apply to no-year funds, and multiple year funds by their very terms are available for BFN needs of the agency arising during a multiple year period. Furthermore, GAO specifically states that the subsection ( B) reference to "funds made available for a fiscal year" refers to the kind of funds that may be obligated under the statute, indicating that statute's subsections "cover contracts funded by annual funds." GAO found its own interpretation that the statute applies "only to contracts funded by annual appropriations" to be consistent with the FAR provision that implements 2410a. Because GAO takes the view that 2410a applies only to annual funds, under this interpretation, we would not be able to use the authority at 2410a to enter into a 12-month severable services contract using R&D funds in their 18th month of availability. FMR Vol.11A, Ch.18, para. 180301.B provides guidance on 2410a and could be read to be in agreement with the GAO view based on references to "annual appropriations" in subparagraphs B.2, B.3 and B.4. However, it is not completely clear whether the FMR intended to preclude use of the authority with regard to multiple year funds.

Let me just say that a battle raged for a while when I brought this interpretation to the attention of our attorneys who don't like it but are now forced to support it.. The paragraph immediately above this sentence was part of an email directly from Navy Financial Management and Comptroller Office. This interpretation is already in effect at many commands in the Executive Branch and I understand that in all probability will become the "law of the land" throughout shortly based on direction.

Hope this helps.

Summerlady

Financial Policy Analyst

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