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summerlady51

Extension of POP on a Severable Service Contract

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Thought I'd bring up something that wasn't widely known in our agency until recently. If your readers already know this, good on 'em. If not, it can cause disasterous consequences.

I received a request to extend the period of performance because we had money left on a sustainment contract. The funding had expired for obligation on 30 Sep 2012 and the request was in April of 2013.

In researching whether or not this was allowable, I ran into our attorney and asked him if there was any objection from his corner. WOW! Apparently on a severable services contract where funds have expired for obligation purposes, this IS a problem. Changing the POP, according to a white paper forwarded to me, has the same effect as deobligating the remaining funds and reobligating them...which, of course, is not allowable because the money has expired for obligation purposes.

Imagine if they had been allowed to proceed! If you've caught the other problem with this...you are very quick on the uptake. You bet...they had a severable service contract funded across fiscal years and AFTER the period of availability had expired on the money. Still working on it..........

Summerlady

Financial Policy Analyst

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A couple of thoughts. I presume that the contract is funded with annual appropriations and that it is subject to FAR. This much I know:

1. Extending the period of performance because funds remain unobligated under the original appropriation is a new procurement requiring either full and open competition or a J&A for other than full and open competition.

2. The funds used for any such time extension must have been appropriated for the period covered by the time extension.

You have said this:

Changing [i.e., extending] the POP, according to a white paper forwarded to me, has the same effect as deobligating the remaining funds and reobligating them...which, of course, is not allowable because the money has expired for obligation purposes.

Here is how I understand what you wrote:

1. Suppose that you have an annually-funded contract for 12 months of severable services that crosses fiscal years, from 1 June 2013 through 31 May 2014. The funds obligated to cover those 12 months are FY 2013 funds.

2. Suppose further that in March 2014, with two months (April and May) remaining on the contract, you decide that you want to extend the contract by two months, from 1 June 2014 through 31 July 2014.

3. You say that according to your unidentified "white paper," modifying the contract to add two months would deobligate the 2013 funds that cover April and May 2014 of the original 12 months, and that you would have to use FY 2014 funds to cover them as well as the two months that you want to add: 1 June 2014 through 31 July 2014.

Do I understand what you wrote correctly? If so, what is the title of that white paper of yours, and who is the author?

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I read the situation a little differently. I thought "money left on a sustainment contract" meant that some obligated funds had not been expended, and there was a desire to use that money to fund two more months of performance. I did not think the question was about expired funds to be obligated for an additional two months of performance.

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My interpretation of what summerlady51 is trying to say is that if you have a contact, say a CPFF type contract funded with annual appropriations, and the contractor doesn’t have a need for all the funds obligated on the contract to meet the requirements in the contract you cannot use the “unused/money left on the contract” to fund the period of performance extension. This makes sense to me since you would have a bona fide need of the next FY at the time you extend the PoP.

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It sounds like people are confusing "obligation" with "availability" and "liquidation". Funds placed on a contract award are "obligated". Obligated funds on a contract that are paid to a contractor for specified performance (i.e., the purpose of the contract) are "liquidated". Obligated funds on a contract that have not been paid to a contractor for specified performance (i.e., unused, not yet invoiced, will not be invoiced, etc.) are "unliquidated". Under appropriations law, funds will generally expire for obligation at the end of the fiscal year concluding their period of availability for obligation (O&M = 1 yr; Procurement = 3 yrs; MILCON = 5 yrs; etc.). Unliquidated funds remaining on a contract after the conclusion of the funds' period of availability for obligation does not change their status from being "obligated" for a particular purpose. Funds that will not be liquidated for the purpose against which they were obligated (bona fide need of the original fiscal period of availability) cannot be reobligated for a new purpose arising after the fiscal period of availability.

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I will wait for summerlady to confirm or correct my interpretation of her comments. If she meant that funds already obligated on the contract had not been expended and that the tech people wanted to extend the period of performance so that they could be expended, then my comments on funding a new procurement with money appropriated for the period of the extension still apply, and I still want to see that white paper.

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We have a delivery order funded with two lines of accounting (one FY12 and the other FY13). We would like to extend the FY13 ACRN to 30 September 2013 or further if possible to bridge the gap for FY14 appropriations to be allocated from the AF for execution. We were denied because PL was in fact applied on the task order. I don't see why that would prevent the extension of the ACRN AB. I have received extensions before on OPN task orders with multiple lines of accounting where the one with life on its apprn was still active. I am familiar with the 10 USC Code 2410a but I can't find a resource to support the request being rejected.

AA: 57 2 3400 302 7874 142141 0 10000 56992 23765F 667100 ESP:7C F67100 - AMOUNT: $917,000.00 indicates FY12 Air Force Operation & Maintenance funding was used to award the first increment of funding on task order 2. Since the period of performance is 12 months I expect that PL-105 severability for 12 months was implemented on this task order. Interestingly enough it appears that the next increment on this task order was funded with FY13 Operation & Maintenance appropriation. The line of accounting and separate ACRN AB is 57 3 3400

Please advise and preferable point me in the right direction to reference material that may support my request or justify their rejection.

Thank you very much-

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You have a task order for 12 months of severable services that crosses fiscal years. Performance began in FY12 and continues in FY13.

The contract is incrementally funded (3400 money). The first increment is funded with FY12 money. The second increment is funded with FY13 money.

There will be a gap between the end of the order and 30 September. You want to use FY13 funds to cover the gap and perhaps beyond if FY14 funds are delayed. You think you can do it pursuant to FAR 32.703-3, but you have been told that you cannot.

You want to know the rationale for rejecting your idea and whether there is a work-around.

Is that the situation?

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Yes-

The only alternate option I think of is to deobligate the FY13 ACRN and re-obligate on a new delivery order with severability for 12 months, but I imagine that would be rejected too. It's a large sum of funding and I would hate to see it go unspent and most importantly a gap in service to our customer. Do you know of a resource that may be able to help me.

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Some points about your terminology:

1. You would not fund an ACRN or deobligate an ACRN. An ACRN is just a reference number used to associate a funds account with a contract (order) line item (CLIN). See PGI 204.7107. You would fund or reduce funding on a CLIN, not an ACRN.

2. Also, the phrase "severability of 12 months" does not make sense. Services are either severable or nonseverable (entire). A task order is either for severable services or nonseverable services. When using annual appropriations, a contract or order for severable services may not exceed one year (12 months) in duration. See FAR 32.703-3( b ).

3. Also, you're buying services, so you don't have a "delivery order," you have a task order. See the definitions of those terms in FAR 2.101. See also FAR 16.501-1.

As to your question:

I'm not sure what the problem is, but it might be that extending the period of performance would result in a period of performance of more than one year in duration, which is impermissible when buying severable services, unless you use options for extensions. See above. If that's what's wrong, you would have to issue a new order for the extension or establish a new CLIN. However, that would be an out-of-scope change that would probably trigger a requirement for new competition.

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Thanks for the clarification. This is a sole source SBIR III contract. The agency we are doing business with uses the term "severable for 12 months" for task orders that are obligated with annual appropriations which cross fiscal years. So the first "CLIN" was funded with FY12 annual appropriation and "severable for 12 months" IAW 10 U.S.C. 2410a. Could they deobligate CLIN AB that was funded with the FY13 funds and issue a new task order?

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Leslie, what is the current period of performance for the FY13 funded CLIN?

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Joel, The initial award for FY12 CLIN ACRN AA (as stated on the task order award) has a period of performance of 28 August 2012 expiring 27 August 2013 with severable and 10 U.S. Code 2410 (a) noted on the award. We received a mod effective 6 March 2013 with the FY13 SUBCLIN ACRN AB that does not specify a different expiration date. As you know, the FY13 annual appropriation expires 30 September 2013 and I don't understand why we can't extend AB. Thank you!

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Thanks for the clarification. This is a sole source SBIR III contract. The agency we are doing business with uses the term "severable for 12 months" for task orders that are obligated with annual appropriations which cross fiscal years. So the first "CLIN" was funded with FY12 annual appropriation and "severable for 12 months" IAW 10 U.S.C. 2410a. Could they deobligate CLIN AB that was funded with the FY13 funds and issue a new task order?

How are the CLINs numbered? Does the order have two CLINs: 0001 and 0002? Or is there a CLIN 0001 with two SUBCLINs, 0001AA and 0001AB?

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Vern,

000101 ACRN AA

000102 ACRN AB

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Leslie:

Okay, it appears that what you have is an order with a single CLIN (line item), 0001, which is for a total of 12 months of severable services.

Line item 0001 has two informational SUBCLINs (subline items), 000101 and 000102. They are components of CLIN 0001. See DFARS 204.7104(a). I presume that each SUBCLIN identifies the funding for a segment of the total period of performance. The segments are separately funded, the first, 000101 is funded with FY12 money and the second, 000102 is funded with FY13 funds. That is why you have two ACRNs, to identify the funds that will be used to pay for each of the segments.

Since line item 0001 totals 12 months of performance of severable services crossing fiscal years, FAR 32.703-3( b ) prohibits adding more time to it. You cannot extend the period covered by item 0001. If you want to extend the period of performance you must either (1) add another line item or (2) issue a new order. Either way, you'll have to get new competition or justify a sole source procurement. You cannot add any funds to that item to cover a time extension. You don't need to deobligate any funds. That wouldn't solve your problem.

Do you understand?

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I do understand and I'm disappointed in myself for not seeing that to begin with. Thank you so much!

Leslie

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Leslie, seeing that you work for the Air Force you may find the following useful for future efforts. AFI 65-601 Vol 1, 4.61, Service Contracts Crossing Fiscal Years - The total cost of the services to be provided over the 12- month period must be reflected in the contract and that amount must be obligated when the contract is signed.

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What is the thought process for the statement in bold below? I've never understood why the full amount must be obligated at time of contract award. What's the rationale? With budgets being doled out is such a piecemeal fashion nowadays, to me it seems incrementally funding a CLIN/Contract would be reasonable. Thanks,

"AFI 65-601 Vol 1, 4.61. Service Contracts Crossing Fiscal Years. The FY 98 National Defense Authorization Act
(NDAA) (P.L. 105-85) (Codified in 10 U.S.C. 2410A) allows ―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. The total cost of the services to be provided over the 12- month period must be
reflected in the contract and that amount must be obligated when the contract is signed. The FY
2004 NDAA (P.L. 108-136), Section 1005 further amended 10 U.S.C. 2410A. In addition
to authorizing severable service contracts for a 12-month period crossing fiscal years, it
now authorizes 12-month contracts crossing fiscal years for leasing of ―real or personal property,
including maintenance of such property when contracted for as part of the lease agreement."

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The thought process is that appropriations law requires it.

An obligation is a commitment to pay with appropriated funds. See the GAO Redbook, Vol. II, Ch. 7, Sec. A. When the government enters into a firm-fixed-price contract for one year of services, it has obligated itself to pay for the contract price for the entire year. The GAO requires that agencies record the full amount of an obligation when the obligation is made. See the GAO Redbook, Vol. II, Ch. 7, Sec. B.

When AFI 65-601 says that an "amount must be obligated when the contract is signed," it means that amount is obligated when the contract is signed and the obligation must be recorded. If you work for DOD, recording the obligation begins when the CO inserts a fund citation in the contract, assigns an associated ACRN to a CLIN, and distributes a copy of the contract to the finance office.

While it is possible to incrementally fund an FFP contract, policy generally prohibits it, with certain exceptions. That's because incremental funding creates budget management problems.

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With budgets being doled out is such a piecemeal fashion nowadays, to me it seems incrementally funding a CLIN/Contract would be reasonable.

As a policy matter, I am not sure I agree. In today's budgetary climate, incrementally funding a contract, with the expectation that it will be fully funded later, runs the significant risk that the funds will not be provided and you will ultimately have to terminate the contract for convenience. The risk is exacerbated when this is done with several contracts. For example, assume you have piecemeal funding of $1M. You have four requirements, each needing $500K. If you award each contract but only obligate $250K apiece, you are obligating within the amount available, but what happens when the expected funding does not materialize. You are up the creek, heading to the waterfall without the necessary means of propulsion and guidance.

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The thought process is that appropriations law requires it.

An obligation is a commitment to pay with appropriated funds. See the GAO Redbook, Vol. II, Ch. 7, Sec. A. When the government enters into a firm-fixed-price contract for one year of services, it has obligated itself to pay for the contract price for the entire year. The GAO requires that agencies record the full amount of an obligation when the obligation is made. See the GAO Redbook, Vol. II, Ch. 7, Sec. B.

When AFI 65-601 says that an "amount must be obligated when the contract is signed, it means that amount is obligated when the contract is signed and the obligation must be recorded. If you work for DOD, recording the obligation begins when the CO inserts a fund citation in the contract, assigns an associated ACRN to a CLIN, and distributes a copy of the contract to the finance office.

While it is possible to incrementally fund an FFP contract, policy generally prohibits it, with certain exceptions. That's because incremental funding creates budget management problems.

Vern, I really dislike disagreeing with you and running the risk of displaying my ignorance, but here goes.

You say that "appropriations law requires it," with "it" being the requirement to obligate the full amount of the contract at the time of award. However, this seems to be directly contradicted by the DFARS provisions on incremental funding (as well as the last sentence of your post concerning policy).

DFARS 232.001 defines incremental funding as "the partial funding of a contract or an exercised option, with additional funds anticipated to be provided at a later time." DFARS 232.703-1(1) says a fixed-price contract may be incrementally funded if "(i) The contract (excluding any options) or any exercised option -- (A) is for severable services; ( B) Does not exceed one year in length; and (C ) Is incrementally funded using funds available (unexpired) as of the date the funds are obligated."

If appropriations law required obligating the full amount of the contract at award, the DFARS incremental funding authorization would violate appropriations law. It appears that the Air Force, rather than being forced to prohibit incrementally funding severable service contracts, has made a policy decision to do so.

Also, the requirement is not to record the value of the contract, the requirement is to record the obligation. Therefore, when a contract is incrementally funded, all that needs to be recorded is the amount obligated. Of course, the contract should/must include a clause, such as DFARS 252.232-7007, advising the contractor that cost incurred in excess of the amount obligated are not allowable, and advising the contractor what to do as its incurred costs approach the amount obligated.

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wvanpup:

You need to go back and read what I wrote -- the whole thing, this time. It may be necessary for you to think before you comment again.

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Vern

The original question that was posed, and to which you responded, was: "What is the thought process for the statement in bold below?" The statement in bold, from AFI 65-601, vol 1, para 4.61, was: "and that amount must be obligated when the contract is signed." The phrase "that amount" referred to the earlier part of the sentence, which was: "The total cost of the services to be provided over the 12-month period." Your response was: "The thought process is that appropriations law requires it."

To me, your statement means that appropriations law requires that the full amount of the contract must be obligated at the time of contract award. If this is what you meant, I disagree for the reasons stated in my earlier post (my references to the DFARS provisions on incremental funding, which specifically permit obligating less than the full amount of award, and your specific recognition that incremental funding of an FFP contract is possible). If this is not what you meant, if all you really meant to do was to describe the thought process of the drafter of the regulation whether or not appropriations law requires obligating the full amount of the contract, your language was as sloppy as much of what you routinely criticize.

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Vern

The original question that was posed, and to which you responded, was: "What is the thought process for the statement in bold below?" The statement in bold, from AFI 65-601, vol 1, para 4.61, was: "and that amount must be obligated when the contract is signed." The phrase "that amount" referred to the earlier part of the sentence, which was: "The total cost of the services to be provided over the 12-month period." Your response was: "The thought process is that appropriations law requires it."

To me, your statement means that appropriations law requires that the full amount of the contract must be obligated at the time of contract award. If this is what you meant, I disagree for the reasons stated in my earlier post (my references to the DFARS provisions on incremental funding, which specifically permit obligating less than the full amount of award, and your specific recognition that incremental funding of an FFP contract is possible). If this is not what you meant, if all you really meant to do was to describe the thought process of the drafter of the regulation whether or not appropriations law requires obligating the full amount of the contract, your language was as sloppy as much of what you routinely criticize.

wvanpup, did you see where Vern, also said: "While it is possible to incrementally fund an FFP contract, policy generally prohibits it, with certain exceptions. That's because incremental funding creates budget management problems."

Now read DFARS 232.703-1 (1) again, with emphasis on "...only if -". That seems to confirm that there are "certain exceptions" for DoD. Also read both (i) and (ii) under 232.703-1 (1).

Whereupon, the cited AFI appears to restrict Air Force application of the broader DFARS 232.703-1 (1) exceptions when its says "The total cost of the services to be provided over the 12- month period must be reflected in the contract and that amount must be obligated when the contract is signed."

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