Severable Services and Annual Appropriations

[Blitz]

Here is the scenario, contract for severable services funded with annual appropriations as follows:

Base Period: POP 12/01/2013 to 08/31/2013 (9 Months funded with FY-13)

Option Period: POP 09/01/2013 to 09/01/2014 (12 Months funded with FY-13)

Question: There is a notion in my current organization that this is an acceptable practice since we are dealing with two separate periods of performance. The argument being that it is not a violation of FAR 37.106(bravo) since each specific CLIN does not exceed one year. Specifically the language in the FAR appears to differentiate between awards and option periods as separate actions when applying the 12-month limitation. The language is 37.106(bravo) states:

The head of an executive agency, except NASA, may enter into a contract, exercise an option, or place an order under a contract for severable services for a period that begins in one fiscal year and ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed does not exceed one year (10 U.S.C. 2410a and 41 U.S.C. 253l). Funds made available for a fiscal year may be obligated for the total amount of an action entered into under this authority.

I am having a hard time wrapping my head around this rationale. How could we use FY-13 funds to fund a contract for severable services using annual appropriations for a total POP of 21 months? Am I missing something here? I’ll be interested to hear your thoughts on the subject and your interpretation of FAR 37.106(bravo).

[Guest Vern Edwards]

I understand your organization's reading of the regulation, but I think that your organization's interpretation is wrong. I do not believe that you can use an annual appropriation to buy more than a total of 12 months of severable services, regardless of how the contract is structured. However, I have not found anything that expressly supports my assertion in no uncertain terms, so it's just that -- an assertion. I haven't looked very hard though.

I would ask GAO for an opinion before doing what your organization is doing. I think your organization is asking for trouble.

[Retreadfed]

I agree with Vern. 10 U.S.C. 2510a states that the agencies ideintified there "may enter into a contract for a purpose described in paragraph (2) for a period that begins in one fiscal year and ends in the next fiscal year if (without regard to any option to extend the period of the contract) the contract period does not exceed one year. " Paragraph (2) mentions contracts for severable services. To me, this would preclude the practice you are describing.

[CardinalChange]

I am put in mind of the case "Funding of Maintenance Contract Extending Beyond Fiscal Year," B-259274, May 22, 1996, where the Air Force used FY94 annual appropriations to fund a total of 15 months of severable services (11 months in one option period and 4 months in the next option period. The GAO had no problem with this. Each option period is a separate contract, neither of which was longer than 12 months in duration, which is the limitation contained in 10 USC 2410a.

[napolik]

I think you can do this. The Air Force used the same fiscal year’s funds to cover 15 months of maintenance services under the same contract.

Take a look at B-259274 Date: May 22, 1996: http://www.gao.gov/assets/330/325944.pdf.

“Section 2410a of title 10, U.S. Code, provides that funds appropriated to Department of Defense for a fiscal year are available for payments under maintenance contracts for 12 months beginning at any time during the fiscal year. Kelly Air Force Base may award two vehicle maintenance contracts charging fiscal year 1994 money for each contract so long as each contract is properly awarded in fiscal year 1994 and each contract does not exceed 12 months in duration.”

XXX

“During the third option year of a fixed price contract for vehicle maintenance services, Kelly Air Force Base modified the contract period so that the contract would expire on August 31, 1994. Kelly Air Force Base exercised a fourth option to extend performance from September 1, 1994 to August 31, 1995. Because fiscal year 1994 budget authority was only available to finance performance through the first 4 months, that is, until December 31, 1995, the Air Force modified the contract to provide that after that date, the government's obligation under the contract was contingent upon the contracting officer notifying the contractor in writing that funds were available for continued performance and that the contractor continue work.

A certifying officer at the Kelly Air Force Base asks whether the use of fiscal year 1994 budget authority to finance both the initial 11 months of orders covered by the third option period and the 4 months of orders covered by the fourth option period violates 10 U.S.C. Sec. 2410a and the bona fide needs rule.”

XXX

We agree with the Air Force's reading of the statute. In our opinion, the phrase "for 12 months" modifies "contracts" and not "payments." Fiscal year appropriations have long been available to make payments for more than 12 months to liquidate valid obligations. We know of no reason for Congress to enact legislation to limit payments on valid obligations only to 12 months. If Congress had intended such a significant departure from settled law, we think it would have more clearly so indicated.”

XXX

“As a general rule, a severable service contract crossing fiscal years and financed exclusively from annual appropriations in the year of award requires specific statutory authority. 71 Comp.Gen. at 430. Section 2410a provides the requisite statutory authorization for DOD vehicle maintenance contracts. By making current year budget authority available for such contracts for a 12-month period "beginning at any time during a fiscal year," section 2410a clearly exempts DOD from the bona fide needs rule as it ordinarily applies to severable service contracts. It permits DOD to obligate budget authority covering the entire, annual contract at the time it enters into the contract, similar to nonseverable service contracts, rather than budget authority available at the time the services are rendered. The fact that fiscal year funds may be used to make payments for more than 12 months of services is a consequence of the law that, in the words of the Air Force Staff Judge Advocate, has "no legal significance."

[Guest Vern Edwards]

The decision does say that. It's a surprise. It appears I was wrong.

[Blitz]

I am very surprised as well. Thanks everyone for their input!

[Retreadfed]

Note that this decision dealt with a previous version of 10 U.S.C. 2410a. It does not address the current version.

[napolik]

Note that this decision dealt with a previous version of 10 U.S.C. 2410a. It does not address the current version.

In looking in the GAO Redbook, Volume I, page 5-25, B-259274 is still cited in its interpretation of 10 U.S.C. 2410a.

[Retreadfed]

napolik, find the language of the statute at issue in the GAO decision and compare it to the current language then decide for yourself if the Redbook is current. I don't know the answer, but can only point out that the statute has changed since the decision was issued.

[Guest Vern Edwards]

Here's how it read at the time of the GAO decision:

(a) Funds appropriated to the Department of Defense for a fiscal year shall be available for payments under contracts for any of the following purposes for 12 months beginning at any time during the fiscal year:

(1) The maintenance of tools, equipment, and facilities.

(2) The lease of real or personal property, including the maintenance of such property when contracted for as part of the lease agreement.

(3) Depot maintenance.

(4) The operation of equipment.

( The Secretary of Transportation with respect to the Coast Guard when it is not operating as a service in the Navy, may enter into a contract for procurement of severable services for a period that begins in one fiscal year and ends in the next fiscal year if (without regard to any option to extend the period of the contract) the contract period does not exceed one year. Funds made available for a fiscal year may be obligated for the total amount of a contract entered into under the authority of this subsection.

Here's how it reads now:

(a) Authority.--(1) The Secretary of Defense, the Secretary of a military department, or the Secretary of Homeland Security with respect to the Coast Guard when it is not operating as a service in the Navy, may enter into a contract for a purpose described in paragraph (2) for a period that begins in one fiscal year and ends in the next fiscal year if (without regard to any option to extend the period of the contract) the contract period does not exceed one year.

(2) The purpose of a contract described in this paragraph is as follows:

(A) The procurement of severable services.

( The lease of real or personal property, including the maintenance of such property when contracted for as part of the lease agreement.

( Obligation of funds.--Funds made available for a fiscal year may be obligated for the total amount of a contract entered into under the authority of subsection (a).

[Retreadfed]

For clarity, the GAO decision dealt with para. (a) of the old statute. Obviously, para. (a) of both versions of 2410a are substantially different.

[napolik]

For clarity, the GAO decision dealt with para. (a) of the old statute. Obviously, para. (a) of both versions of 2410a are substantially different.

I read both versions of 2410a before I responded. I also re-read these passages from the B-259274 decision:

“We agree with the Air Force's reading of the statute. In our opinion, the phrase "for 12 months" modifies "contracts" and not "payments." Fiscal year appropriations have long been available to make payments for more than 12 months to liquidate valid obligations. We know of no reason for Congress to enact legislation to limit payments on valid obligations only to 12 months. If Congress had intended such a significant departure from settled law, we think it would have more clearly so indicated.”

XXX

“Section 2410a provides the requisite statutory authorization for DOD vehicle maintenance contracts. By making current year budget authority available for such contracts for a 12-month period "beginning at any time during a fiscal year," section 2410a clearly exempts DOD from the bona fide needs rule as it ordinarily applies to severable service contracts. It permits DOD to obligate budget authority covering the entire, annual contract at the time it enters into the contract, similar to nonseverable service contracts, rather than budget authority available at the time the services are rendered. The fact that fiscal year funds may be used to make payments for more than 12 months of services is a consequence of the law that, in the words of the Air Force Staff Judge Advocate, has "no legal significance."

I do not believe that Congress intended “to make a significant departure from settled law” in its later version of 2410a (i.e. prevent payments for more than 12 months of services). If Congress wished to bar payments for more than 12 months of services, I suspect, to use GAO’s words, “… it would have more clearly so indicated.”