Time Limits when Drawing down from minimum on ID/IQ contract

[diverdave]

I awarded an ID/IQ contract in FY12 and funded the minimum at the contract level with FY12/13 multiple year funds, no initial Task Order was issued. The program is now dealing with severe budget cuts and the first task order might not be issued until FY14. The services are fixed price, non-severable R&D.

My question involves the timing for using the minimum funds obligated to the contract for task orders. Those 12/13 funds were obligated to the contract to satisfy the legal liability at time of award, but no task order was issued. If I issue a task order in FY14, can I still use those 12/13 funds to fund that task order? My thought is that the funds have been obligated and when I issue the task order, finance will then allocate the funds to the order therefore no deob/reob will occur. Its simply a matter of finance moving the funds to an order under which the contract can invoice. Or, is it that the funds will expire at the end of FY13 and will become unavailable for use on a task order at that time?

I found this informative older thread but it doesn't exactly address my question, it mostly speaks to funding the minimum at time of award:

http://www.wifcon.com/arc/a107.htm

Thanks

[Don Mansfield]

diverdave,

I think that you would be in violation of the Bona Fide Needs rule if you did what you described. You would effectively be using prior year funds to satisfy a need of FY14. You may find the following thread more informative:

http://www.wifcon.com/discussion/index.php?/topic/1224-idq-minimum-guarantee/

[Guest Vern Edwards]

My question involves the timing for using the minimum funds obligated to the contract for task orders. Those 12/13 funds were obligated to the contract to satisfy the legal liability at time of award, but no task order was issued. If I issue a task order in FY14, can I still use those 12/13 funds to fund that task order?

The issue that confronts you is the Bona Fide Needs rule. See GAO's Redbook (Principles of Federal Appropriations Law, 3d ed.), Vol. I, Ch. 5. What matters is whether the order will be for a bona fide need of the period for which the funds were appropriated. My guess is that you will not be able to issue an order in FY2014 using funds appropriated for FYs 2012 and 2013. But it is not always as simple as that.

[diverdave]

So I take it that obligating the funds at the contract level is not sufficient to satisfy the Requirement of Specificity (i.e. the requirment must be for specific goods or services). Meaning that even though the funds were obligated to a contract that contains a SOW for services, the Task Order provides the ordering mechanism for the specific services and therefore one must use current year funds for that task order?

Assuming what I stated above is correct, the next question from the program office is going to be "can I swap out the 12/13 funds currently on the contract for 13/14 funds?" I believe the answer would be no, because the year that the legal liability occured is FY12 and 13/14 funds would not seem to be appropriate. Is the bottom line that the program either needs to issue a task order using the 12/13 funds by EOFY13 or they lose them?

What I am having difficulty understanding is if the Government obligates 12/13 funds to satisfy the minimum and never issues a task order allowing the contractor to invoice against those funds, how is that satisfying the minimum? Lets say we never issue a task order, would we then just have to allow the contractor to issue an invoice against those 12/13 funds before they are cancelled?

[Guest Vern Edwards]

Diverdave, these questions are getting weird. I have no idea what the "Requirement for Specificity" has to do with your funding questions.

As for your last question, if you don't understand your contract, how would we? If you never buy the minimum and don't terminate the contract before the period for buying the minimum expires, you'll have to pay them something, maybe the amount of the minimum.

As for your second question, you should be able to deobligate the FY12/13 funds and obligate FY14 funds to buy a bona fide need of FY 14, but depending on what the contract says, that might not fulfill the government's obligation to buy the minimum. If you don't reobligate the FY12/13 funds before the end of this fiscal year you'll lost them.

[HCuffage]

You did not specify, whether your contract was a multiple year or multi-year contract. Assuming it is a multiple year contract with options for additional years and considering that options are not guaranteed, even if the contract did not state so the reasonable presumption wouldl be that any promised minimum guarantee would be ordered in the base year of the contract. In my opinion would be you have to pay the obligated minimum funding even though no task order was issued. The government breached its contract by not ordering the minimum guranatee and at minimum (no pun intended) the contractor should be put in the same position he would have been in if the government had not breached the contract. Assuming your agency exercised any options under the contract in a timely manner and otherwise in accordance with the contract terms and conditions, you can place the FY 2014 order, but must use 2014 funds on that order based on the bona fide needs rule as others have pointed out. .

How did the government let this happen you ask? It is called failure to manage. The program manager should have identified some R&D effort, even if only calling for a report after a specified level of effort, that the agency could have gotten value from for its funds. It's not like he would have had to beat the bushes to scare up the funding - it was already there.

[diverdave]

Thanks for the input, I think I have the answer to my question, particularly from Don's "IDQ Minimum Guarantee" thread above. The remaining Qs I have will have to be answered by our attorneys, I think they are a little too specific for this forum or maybe I just can't phrase them clearly enough.

HCuffage,

The IDIQ contract has a 5 year ordering period, there are no option periods.

[Guest Vern Edwards]

In my opinion would be you have to pay the obligated minimum funding even though no task order was issued. The government breached its contract by not ordering the minimum guranatee and at minimum (no pun intended) the contractor should be put in the same position he would have been in if the government had not breached the contract. The government breached its contract by not ordering the minimum guranatee and at minimum (no pun intended) the contractor should be put in the same position he would have been in if the government had not breached the contract.

Wrong. It is incorrect to say that if the Government fails to order the minimum the solution is to pay the minimum anyway. The minimum is not necessarily a valid measure of the contractor's damages. I know that a lot of COs and agency lawyers think that is the thing to do, but that's because they don't keep up with the case law.

In White v. Delta Construction International, 285 F. 3d 1040 (Fed. Cir. 2002), the Federal Circuit held that the proper basis for damages for the government's breach by failing to order the minimum is not the total amount it would have received without the breach, but the loss the contractor suffered as a result of the breach.

In this appeal the government challenges the theory upon which the Armed Services Board of Contract Appeals (“Board”) determined the damages resulting from the government's breach of a contractual provision obligating the government to provide a contractor with work of a specified minimum dollar amount. The Board awarded the contractor the difference between the dollar amount of work the government actually ordered and the total minimum dollar amount the contract obligated the government to order. We conclude that this was an impermissible basis for calculating damages, because it would put the contractor in a more favorable position than it would have been in if the government had performed rather than breached its contractual commitment. The proper basis for damages in this case is the loss the contractor suffered as a result of the government's breach, not the total amount it would have received without the breach. Accordingly, we vacate the decision of the Board and remand.

* * *

If the government had provided Delta with the $200,000 of work it had contractually guaranteed to provide, Delta would have been required to perform that work. To so perform, Delta would have incurred the additional costs of doing the additional work. Those costs would include (1) the lumber used to replace the rotten lumber it removed, (2) the labor used to do that work, (3) the transportation costs incurred and (4) Delta's overhead expenses allocable to the work. The Board's award, however, gives Delta the entire amount of the additional work the government would have provided—$113,676.93—without any reduction to reflect the additional costs Delta would have incurred in doing the work. The Board thus gave Delta more to compensate it for the breach “than would have accrued if the contract had been performed.”

That ruling is more than 10 years old and it's Contract Law 101, besides. Every CO awarding IDIQ contracts should know it by heart. If you don't order the minimum, or some part of it, make the contractor prove its damages. Better yet, terminate for convenience before the end of the ordering period.

[Guest Vern Edwards]

P.S. I blame the CO for the fact that the government did not order the minimum, not the program manager. It's the CO's contract, not the program manager's. The CO should have inquired and if it looked like the agency wasn't going to order the minimum the CO should have terminated the contract for convenience in order to avoid having to pay damages.

[HCuffage]

Vern,

I omitted the rationale that led to my conclusion. I noted that it was a breach of contract and I am aware of the case law. As you said it is over 10 years old and my experiece is that many agencies have evolved to a practice of small minimum guarantees, usually a meager amount of $1,000 or two. It has been a long time since I have seen a contract with a minimum guarantee of $200,000 as in the case you cited. I have even seen agencies guarantee a minimum of $500.00. I also believe in making the contractor prove its damages. But most contractors would be hard pressed to scare up less than a couple of thousand dollars, or more starkly $500, in a breach impact claim, or even in termination costs. I recognize there may be some situations where a contractor may have virtually no cost impact, but those would be rare in my estimation. So, being a betting man, my assumption here was that the contract in question, being awarded in 2012, was was of the more recent ilk when it comes to the amount of the minimum guarantee and any breach claim would equal or exceed the minimum guarantee. More to the point, many contractors would simply submit an invoice for the minimum guarantee and, if so in this case, I think the agency may be getting a bargain by paying a thousand or so, or even less. They may even spend much more than that drawing the process out by asking for a more specific claim with documentatio and then having to analyze and respond to such a claim. To pay the requested amount in that situation may be the better business decision. In the end, it may well be cheaper to pay the requested minimum at that low end of the spectrum. I do know it is also true that often a contractor will not even request the minimum guarantee. Enough said - I take your point that it should not be an automatic conclusion and it wasn't so for me.

My other assumption was that it was a multiple years contract with a base and options and diverdave corrected that by stating it was a 5-year ordering period. That said, the reality here is that the funds are multi-year and good through FY 2013. That being the case, the agency has about 6 more months to scare up a minimum requirement and place an order making use of the existing funds and this whole discussion becomes academic. I hope that is what they do.

I will say that I don't agree with your position of blaming the CO, at least exclusively - joint blame is appropriate. I agree with you that the CO should have inquired. But while you call it the "Contracting Officer's contract," it is the Program Manager's tool for program execution. The PM is the requirements person responsible for identifying the need for the contract in the first place and it was the PM's responsibility to ensure minimum guarantee funds for the contract were made available by the Controller to the Contracting Officer to make the award. Utlimately, it is the PM's responsibility to make decisions about obligating program dollars.

Both the CO and PM should have been monitoring the situation but I place greater expectation on the PM to be aware of the program status and alert the CO if there is going to be a problem ordering the minimum guarantee. And if the CO makes the PM aware that there could be termination costs, the PM then can assess whether it is more beneficial to identify a scope of work that can satisfy the minimum and be of value to the taxpayers. And hopefully the PM rightly decides to terminate if he believes either there is no or negligible value to the taxpayer to be had in ordering any work which would cost more than any expected breach or termination costs.

[Guest Vern Edwards]

I understand what you're saying now about the minimum. It is important for people to know that contractors are not automatically entitled to the minimum dollars if the government does not buy the minimum quantity. That having been said, your practical approach makes sense. I don't know how many agencies have gone to very small minimums. I have always seen small ones, and I still see large ones, so I don't know.

As for the CO's responsibility for the failure to order the minimum, contract management is what COs are supposed to do. He or she is responsible for keeping track, finding out what's going on, and taking appropriate action if the minimum will not be ordered. The PM of a large program has other and broader responsibilities. So I'm sticking with my position.