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Funding for options


duke38

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I have a question in reference to funding a option. I recieved the following email from my program office yesterday "since the PoP for the contract ends on 12/21/2013, when is the earliest that we could exercise the next Option Year (12/22/2013 – 12/21/2014)?? If we could issue the extension in September, then that would allow us to obligate the remaining funds while they are still available to us…" The jest of the question is can we exercise the option and obligate the funding in this fiscal year while we have funding as opposed to waiting until next fiscal to do so once this years funding has expired. Initially i thought no way because the performance has to also start in this fiscal year also. I did some research on forward funding and severable services but cannot seem to come across a definative answer. Has someone else had this problem and if so how did you overcome it. Any assistance in this matter would be greatly appreciated.

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I do not have a reference to point to, but I believe your initial thought was correct. I believe funding with FY13 funds for performance that does not begin until December would be improper (and perhaps against fiscal law).

I was hoping someone else went thru the same thing and found a way around it by doing something like changing the PoP to 30 September. If anyone has any references or remedies I would greatly appreciate it. Thanks

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No. You must use FY 14 funds.

See page 5-17 of the Redbook that discusses your circumstance and a misguided effort to correct the incorrect obligation of funds:

Quote

An interesting situation involving a contract with renewable options arose in B-308026, Sept. 14, 2006. The National Labor Relations Board (NLRB) entered into a contract with Electronic Data Systems for the acquisition of ongoing operational and technical support for its automated Case Activity Tracking System. The contract’s initial performance period was October 1, 2001, 2015. On September 30, 2005, NLRB exercised option four, specifying a performance period of October 1, 2005, through September 30, 2006, and charged the obligation to its fiscal year 2005 appropriation. In a June 2006 report, the NLRB Inspector General concluded that NLRB had improperly obligated its fiscal year 2005 appropriation because obligating the fiscal year 2005 appropriation for the performance of severable services that would occur entirely in fiscal year 2006 was a violation of the bona fide needs rule. The Inspector General said that NLRB should charge the obligation against its fiscal year 2006 appropriation. NLRB proposed to remedy its improper obligation by modifying the contract to have the performance period of the contract run from September 30, 2005, through September 29, 2006, instead of October 1, 2005, through September 30, 2006. NLRB explained that it had intended a performance period commencing September 30, 2005, but due to an inadvertent ministerial error this was not reflected in the contract. GAO agreed with the Inspector General. GAO said that, given the terms of the contract, NLRB had incurred an obligation against its fiscal year 2006 appropriation and that NLRB should adjust its accounts accordingly. NLRB could not remedy its improper obligation by adjusting its contract’s performance period instead of its accounts.

“It is one thing for an agency to take full advantage of available appropriations, maximizing the effectiveness of federal funds entrusted to its use; it is quite another thing, however, for an agency to alter executed contracts in order to reach expired funds— funds that Congress appropriated for agency programs and activities of the previous fiscal year. That is what NLRB proposes to do. Were NLRB to adjust the fourth option’s performance period, its sole reason for doing so would be to reach fiscal year 2005 appropriations because, in September 2005, that is what NLRB had intended to do. However, NLRB’s fiscal year 2005 appropriation has expired.

. . . Instead of adjusting its obligations to reflect what actually occurred, NLRB would revise what actually occurred so that it can finance option four with fiscal year 2005 funds. . . . The account adjustment authority of [31 U.S.C. § 1553(a)] is not a palliative for errors of this sort.”

Unquote

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Another way of looking at it - - current year needs with current year funds. It appears the option is for current needs in FY 14 so you would need FY 14 funds. Additionally, check to see what the Option Clause(s) say as well. Not sure how you could justify exercising the option in September without FY 14 funds.

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GAO decision B-309530 http://www.gao.gov/decisions/appro/309530.pdf says there are circumstances in which you may obligate a current year's funds for services that will be received entirely in the following fiscal year.

In summary -

NLRB's position "NLRB placed its renewal orders in September in order to ensure that they continued uninterrupted on October 1, 2006, the first day of FY 2007. Despite the fact that the subscriptions would be provided entirely in FY 2007, the bona fide need arose in FY 2006, and NLRB’s FY 2006 appropriation was available to pay for these FY 2007 subscriptions"

GAO's decision " While Web site database subscription renewals can be effectuated quickly, we do not believe that the agency should run the risk of the subscription lapsing by waiting until October 1 to renew the subscription that is to begin that same day. Thus, for the five subscriptions that were due to expire on September 30, we have no difficulty concluding that NLRB had a bona fide need for the subscription renewals in FY 2006 and could obligate its 2006 appropriation for that purpose."

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GAO decision B-309530 http://www.gao.gov/decisions/appro/309530.pdf says there are circumstances in which you may obligate a current year's funds for services that will be received entirely in the following fiscal year.

In summary -

NLRB's position "NLRB placed its renewal orders in September in order to ensure that they continued uninterrupted on October 1, 2006, the first day of FY 2007. Despite the fact that the subscriptions would be provided entirely in FY 2007, the bona fide need arose in FY 2006, and NLRB’s FY 2006 appropriation was available to pay for these FY 2007 subscriptions"

GAO's decision " While Web site database subscription renewals can be effectuated quickly, we do not believe that the agency should run the risk of the subscription lapsing by waiting until October 1 to renew the subscription that is to begin that same day. Thus, for the five subscriptions that were due to expire on September 30, we have no difficulty concluding that NLRB had a bona fide need for the subscription renewals in FY 2006 and could obligate its 2006 appropriation for that purpose."

For subscriptions, the GAO is simply applying the bona fide need rule. If one was buying supplies or services legitimately needed now for which delivery or performance occurs in FY 14, one would use FY 13 monies. If Duke is not buying services for which the bona fide need arises in FY 2013, he better not obligate this year's money.

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Agree that an obligation in September (or sooner) would seem excessive for a December need. On the other hand, if the option period began in mid-October then exercising it in September may be appropriate, to include using FY13 funds. Of course that would depend upon the number of days establshed in the first blank ___ in 52.217-9(a).

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  • 2 years later...

I stumbled upon this thread while looking for something else and it caught my attention, so I wanted to provide some information that differs from the advice provided by those who responded originally.

I believe that the OP's question was: "The jest of the question is can we exercise the option and obligate the funding in this fiscal year while we have funding as opposed to waiting until next fiscal to do so once this years funding has expired.", and I believe that the answer is yes, but to do so, the OP would have needed to modify the period of performance of the then current period of performance before it ended and before it exercised the option in question.

Napolik cited GAO's decision B-308026, Sept. 14, 2006 regarding NLRB's use of FY'05 funds to exercise and fund an option for which performance began in FY'06. In that decision, the NLRB's Inspector General correctly concluded that NLRB had improperly obligated its fiscal year 2005 appropriation because obligating the fiscal year 2005 appropriation for the performance of severable services that would occur entirely in fiscal year 2006 was a violation of the bona fide needs rule.

Although the NLRB had already exercised the option (the action that creates the recordable obligation), recorded the obligation, and performance had begun, the NLRB suggested it could correct its ministerial error by modifying the [exercised] period of performance to reach the expired funds; i.e., modify the [exercised] option so that it began - at least on paper - on September 30, 2005. Essentially, the NLRB thought it could travel back in time to change the date on which it had incurred a recordable obligation.

In its decision, the GAO opined that “it is quite another thing, however, for an agency to alter executed (emphasis added to “executed”) contracts in order to reach expired funds— funds that Congress appropriated for agency programs and activities of the previous fiscal year. That is what NLRB proposes to do. Were NLRB to adjust the fourth option’s performance period, its sole reason for doing so would be to reach fiscal year 2005 appropriations because, in September 2005, that is what NLRB had intended to do. However, NLRB’s fiscal year 2005 appropriation has expired.”

Although very educational and informative, I do not think that the NLRB decision would have applied to the OP’s question because the OP’s situation was fundamentally different from the NLRB’s obligational circumstances. Unlike with NLRB, in the OP’s scenario, the agency had not yet exercised (executed) the following option year. Since the agency had not yet exercised the following option, there wasn’t a recordable obligation to record. That point is fundamental. In NLRB, the agency was attempting to make the correction after the fact.

The OP posted his/her question on June 13, 2013, so presumably, the agency had not yet exercised the option that began on December 21, 2013. Under these circumstances, the agency could have modified its existing period of performance by shortening it by approximately three months so that it ended near the end of September, such as September 20, 2013, and then realign the POPs on the unexercised options so that they begin on September 21, 2013. This would have allowed the agency to obligate FY’05 funds for the following option and it would not be considered an attempt to “reach expired funds”, because the funds would not have been expired at that time. In fact, the Air Force did this very same thing in the Matter of Funding of Maintenance Contract Extending Beyond Fiscal Year File: B-259274, May 22, 1996.

In that decision, the Air Force had awarded a contract in 1990 for fiscal year 1991, with four 1-year option periods. During the third option year of the fixed price contract for vehicle maintenance services, Kelly Air Force Base modified the contract period so that it ended one month early on August 31, 1994, instead of September 30, 1994. The Air Force then exercised the fourth option to extend performance from September 1, 1994 to August 31, 1995 in order to use its FY’94 appropriation. Although this was not the crux of the case, the GAO did not object to the Air Force's financing of its fourth option period, beginning September 1, 1994.

Hope this helps.

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I think there is a salient factual difference between the circumstances involving the USAF set out in GAO decision B-259274 and those set out by duke 38 in his first post. The difference is found in the timing of the adjustment of the option periods. It leads me to conclude that it would not have been practical – if the action was legal – for duke 38 to have adjusted the option performance period.

Duke 38’s June 13 post made it clear that his current contract period would lapse on 21 December 2013. His agency already exercised an option and obligated FY 13 monies covering the period to 21 December 2013. To advance the commencement of the next option period to 30 September 13 from 22 December 13, the agency would need to terminate the already exercised FY 13 option for the period from 30 September 13 to 21 December 13 and deobligate the associated FY 13 funds. After the termination and deobligation of FY 13 funds, I guess duke 38 could have created a new option period effective 30 September 2013 and running a length of time equivalent to the amount of remaining FY 13 funds his program office wanted to obligate.

So, it seems that duke would have had to deobligate FY 13 funds in order to obligate more FY 13 funds.

The facts of the GAO decision B-259274 involving the USAF are different. The AF changed the period of performance for the fourth option year during the third option year. The USAF did not terminate a portion of the performance period of the third option and deobligate monies to accommodate the creation of the period of performance for the fourth option period. The third option year elapsed on 31 August; the fourth option year began on 1 September.

Assuming the GAO would accept a partial termination of FY 13 performance and deobligation of related FY 13 funding along with the adjustment of the final performance period and the reobligation of FY 13 funds, I suspect the duke 38’s customer and finance people would scratch their heads rather vigorously about such actions.

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The Background section of the cited GAO decision is pretty specific on the matter (see emboldened):

“Background

According to the Air Force, in an effort to minimize the surge in workload at the end of the fiscal year, it has staggered contract periods for certain support service contracts, including this one, so that the contracts do not all expire simultaneously. The Air Force awarded the vehicle maintenance contract here, a fixed price contract with K&M Maintenance Services, Inc., in 1990 for fiscal year 1991, with four 1-year option periods. During the third option year, the Air Force modified the contract period, cutting it short by 1 month for that year, so that the contract would expire on August 31 instead of September 30.The Air Force correspondingly changed the fourth option period to run from September 1, 1994 to August 31, 1995. At the time of exercise of the fourth 1-year option, the Air Force only had fiscal year 1994 budget authority available to finance the first 4 months of the new contract (September through December 1994).”

I interpreted this as the AF modifying both periods of performance; the then current option year 3 (in progress at the time), and the soon to be exercised option year 4. Whether GAO considered the AF's actions to be a modification or partial termination strikes me as irrelevant because that issue was not the basis for the case, and ultimately, GAO did not object to the Air Force's financing of its fourth option period, beginning September 1, 1994. My reasoning may be faulty, but I reasoned that if GAO did not object to the Air Force's financing of its fourth option period, then it did not object to the method by which the Air Force accomplished the action.

I was only attempting to point out that from an appropriations standpoint, the circumstances of the K&M Maintenance Services case are more similar to the OP's circumstances than those of the NLRB case. As a CO, if faced with the OP's circumstances, I would rely on the K&M Maintenance Services case for decision making purposes, and not on the NLRB case.

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