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summerlady51

Extension of POP on a Severable Service Contract

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Joel

Of course I saw what Vern wrote, I quoted it and made specific reference to the part where he says it is possible to incrementally fund a contract.

Of course I read DFARS 232.703-1, all of it, before I referred to it.

Let me ask you, in context, what did Vern's first sentence mean? Did he just describe the thought process without implying that the thought process was correct? If so, I misread what he said, though I still think it is a poor way of expressing that opinion.

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mm6ch asked for the reasoning behind the AFI 65-601. I gave it to him, in clear, accurate terms, and referred him/her to the Redbook for further reading. I'm happy with my answer. The key language in my post was this: "The GAO requires that agencies record the full amount of an obligation when the obligation is made."

Your only point is that some FFP contracts are incrementally funded and that in such cases the government obligates itself to pay only part of the contract price, and so must record an obligation for only that much, not the total price. mm6ch seemed to understand that, so I didn't feel the need to explain it to him. If you wanted to make that point clearer than you thought I had, all you needed to say was: Vern, you don't have to obligate the total amount of the contract if the contract is incrementally funded. In which case I would have said, You're right. Thanks.

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In reading VOL II of the Redbook, Chapters 6 and 7, as well as a GOOGLE search for incrementally funded contracts, it appears that non-severable contracts for services must be fully funded but that severable contracts for services may be incrementally funded. I also found policy preferences to fully fund severable services when the funds are available at the beginning of the period of performance in the contracts.

However, I dont profess to be qualified in this area so won't cite the specific sources. Plus, I couldnt copy the verbiage from the pdf pages. I looked in Redbook, HHS Acquisition Policy Memorandum (http://www.hhs.gov/asfr/ogapa/acquisition/funding-of-contracts-exceeding-one-year-06282010.pdf ) and NASA documents (http://www.nasa.gov/pdf/706737main_Acquisition_Funding_w_o_citations_101512_posting_no_NFS_chgs%5B1%5D.pdf) for example.

At any rate, I did not see a prohibition on incrementally funded several services contracts in VOL II, Chapters 6, 7 or 8. Not to say it isnt there...

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Incremental funding is a funny topic. The GAO Redbook does not define incremental funding. The GAO glossary of budget terms defines incremental funding as follows:

The provision or recording of budgetary resources for a program or project based on obligations estimated to be incurred within a fiscal year when such budgetary resources are provided for only part of the estimated cost of the acquisition.

FAR does not really define it, but says:


If the contract is incrementally funded, funds are obligated to cover the amount allotted and any corresponding increment of fee.

However, FAR does not set any rules for incremental funding of contracts.

Although OMB pubs say when a program can be incrementally funded, they do not say when a contract can be incrementally funded. The rule in DFARS 232.703-1 has been there only since 2005 or 2006. Before that, the only fixed-price contracts that could be incrementally funded by DOD were for R&D. I know of no statute that says when a contract can be incrementally funded.

Incremental funding within a fiscal year appears to be rare.

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Vern, one of those references I provided cited FAR 32.701-3 for prohibition on incremental funding of a non-severable contract for services, but my 2011 hard copy FAR said it is "reserved". I think that the date on the document was 2012. I have to go to a meeting, so don't have time to provide more detail now.

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Incremental funding within fiscal year is far from rare in my agency. While severable services can be ended if funds run out, many of the more high value, complicated, overseas service contracts have huge demobilization costs that are rarely funded or obligated in the incremental funding. This leaves contracting vulnerable to the Anti-deficiency Act.

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B-317636 April 21, 2009, pg 14 of 26 - Severable services, which are recurring in nature, are bona fide needs at the time the service is completed, and obligations for severable services should be charged to appropriations current at that time (B-287619, July 5, 2001, at 6). Really?? Am I missing something here?

So if the AFI is more restrictive than DFARS 232.703-1 in what instance, if any, would an Air Force program ever be able to incrementally fund a firm fixed price O&M effort?

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The current edition of Air Force Instruction 65-601, Budget Guidance and Procedures, is dated 16 August 2012, so it's not very old. It is a financial management publication, It bears the legend, "Compliance with this publication is mandatory." It says, "In cases of conflict with other Air Force instructions or policy directives, the funding propriety rules stated here take precedence." It appears to require full funding of severable service contracts that cross fiscal years.

The current DFARS 232.703-1, which permits incremental funding of severable service contracts that cross fiscal years, can be traced back to a final rule dated April 12, 2006, 71 Fed. Reg. 18671. The explanatory statements accompanying the rule state:

This rule amends the DFARS to allow incrementally funded fixed-price contracts in certain limited, and clearly defined, situations. The objective of the rule is to encourage the full funding of contracts, while recognizing that there are specific situations where full funding is not possible, and allowing incremental funding to be used in those situations... The rule applies to all entities with incrementally funded fixed-priced DoD contracts. DoD believes that the rule has little or no economic impact on such entities, since the rule places little cost risk on the contractor. This is especially true of the final rule, which includes revisions that clarify that a contractor is not authorized to continue performance of a contract beyond the amount incrementally funded. The final rule maintains the clear preference for fully funded fixed-priced contracts; and requires the use of a standard clause in clearly defined and limited circumstances permitting DoD to award, and the contractor to begin work under, a contract prior to the availability of full funding. The rule requires that full funding be placed on the contract as soon as funds are available; clearly states that the contractor is not authorized to perform work beyond the available funds allotted to the contract; and provides specific protections to the contractor until full funding is made available.

I don't think DFARS 232.703-3 conflicts with AFI 65-601 or vice versa. AFI 65-601 clearly addresses situations in which contracts are fully funded, and reflects the GAO's stance in the Redbook. The DFARS rule permits incremental funding in the situation addressed by Leslie in Post #7, where a contract for severable services crosses fiscal years and part of it is funded with appropriations for the first fiscal year and the other part is funded with appropriations for the second fiscal year. Keep in mind that FAR 32.703-3 contemplates a severable services contract crossing fiscal years that is fully funded with appropriations for the first year. It implements a statute that exempts such contracts from the bona fide needs rule.

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I am looking for some guidance or a resource. My agency, HHS, currently has a policy (Agency supplement to the FAR)of permitting incremental funding on cost reimbursement and fixed price contracts under certain conditions. Let me provide a scenario and it is my intent to capture if correctly. I am making an assumption that a Continuing Resolution (CR) will be put in place in FY2014. HHS is funded by annual appropriations. Also, assume that the services are severable for this scenario and that funds would cross the fiscal years (2014 into 2015.)

On October 1, 2013, the Agency is appropriated under a CR. During such CR, the Agency allots a percentage of the appropriations to budget officials and funds certifying officials. It is determined that such percentage will not permit full funding of options on all contracts. Most of the severable service contracts will be fully funded for a period not to exceed 12 months. But, in the situation where a contract option cannot be fully funded due to a CR, I have a few questions:

Assume the following: Option Year is 12 months, severable services and it crosses fiscal years (2014 into 2015)

1. Is the partial funding, due to a CR, now considered incremental funding? The contract does not cite any incremental funding clauses, only option clauses.

2. If not considered as such, is it appropriate for the Contracting Officer to "shorten" the option period to match the funding available? Note: this funding approach was not solicited, evaluated, negotiated or awarded under such terms.

3. If it is considered an increment and the Agency is fully appropriated, can a Contracting Officer fund the remaining 12 months? or only through the end of the fiscal year of the appropriations?

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Assume the following: Option Year is 12 months, severable services and it crosses fiscal years (2014 into 2015)

1. Is the partial funding, due to a CR, now considered incremental funding? The contract does not cite any incremental funding clauses, only option clauses.

2. If not considered as such, is it appropriate for the Contracting Officer to "shorten" the option period to match the funding available? Note: this funding approach was not solicited, evaluated, negotiated or awarded under such terms.

3. If it is considered an increment and the Agency is fully appropriated, can a Contracting Officer fund the remaining 12 months? or only through the end of the fiscal year of the appropriations?

I am in DoD. I looked at the HHS regulation and found its definition of incremental funding confusing, but perhaps that is because I have a DoD orientation and prefer the DoD definition (DFARS 232.001, "the partial funding of a contract or an exercised option, with additional funds anticipated to be provided at a later time"). In any event, I offer the following thoughts:

1. Incremental funding is not based on whether the funds are from the Department's regular annual Appropriations Act or from a Continuing Resolution. Incremental funding is based on funding less than the full amount of the contract. Your proposal would clearly be incremental funding under the DoD definition, and it looks like it would be incremental funding under the HHS regulations.

2. Unless the contract provides for incremental funding, you cannot unilaterally exercise an option with incremental funding. I am not aware of any reason why you cannot incrementally fund the option bilaterally (i.e., with the contractor's agreement).

3. I do not know why you would want to shorten the option period. You will probably have full funding available when the agency is fully funded. If you shorten the option period for this option you are messing around with all future options (how do you cover the period that was deleted, when do you exercise the remaining options, etc.).

4. I think from reading the HHS regulation you can fully fund the 12 months, but you should rely on advice from within your agency (or someone more knowledgeable than I).

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I'm sorry it has taken me so long to get back...I didn't realize ya'll were waiting on me. Rather than just give you the white paper, I'll give you the CompGen Decisions that are pertinent.

B-211464. First, concerning the period of performance, we point out that there is a significant difference between those situations where a contractor is given additional time to perform a contractual obligation, and those where time is used in a contract to define the extent of an obligation. B-191078, May 17, 1978, 78-1 CPD P P377 (distinguishing between one-time and ongoing requirements). Requirements or indefinite quantities contracts generally concern on-going needs. Extension of the performance period under those kinds of contracts involves new requirements that should be competed.

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B-237148. Generally, an extension of a requirements contract beyond the period of performance creates additional requirements that are outside the scope of the original contract. B-211464, June 7, 1984. As we noted in the cited decision, there is a significant difference between those situations where a contractor is given additional time to perform a contractual obligation, and those where time is used in a contract to define the extent of an obligation. The latter type of contract extension is on its face a new procurement. B-211464, June 7, 1984.

Here, Unisys and BIA entered into a requirements contract. As such, the original period of performance defined the extent of the obligation. Extension of the contract beyond that period was thus outside the scope of the original contract and on its face a new procurement.

Such a new procurement must be made in accordance with the Competition in Contracting Act of 1984 (CICA). [*3] 41 U.S.C. § 253 (1988). Under CICA, agencies must "obtain full and open competition through the use of competitive procedures" to procure goods or services. 41 U.S.C. § 253(a)(1). Therefore, an agency may only enter into a contract extension, which on its face is a new procurement, if the agency either procures the services competitively or separately justifies it as a noncompetitive procurement. See 65 Comp. Gen. 25 (1985). BIA did neither. As such, the contracting officer was without authority under CICA to contract with Unisys to extend the contract and no binding contract extension came into effect. See B-224702, Aug. 5, 1987.

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B-402576.

In determining whether a modification triggers the competition requirements under CICA, we look to whether there is a material difference between the modified contract and the contract that was originally awarded. Engineering & Prof'l Servs., supra, at 4; AT&T Commc'ns, Inc. v. Wiltel, Inc., 1 F.3d 1201, 1205 (Fed. Cir. 1993). Evidence of a material difference between the modification and the original contract is found by examining changes in the type of work, costs, and performance period between the contract as awarded and as modified. Overseas Lease Group, Inc., B-402111, Jan. 19, 2010, 2010 CPD P 34 at 3;

So what we've found here in our review is that folks weren't understandng that an extension of a POP for a non-severable service and extension for a severable service were two different matters. The first wasn't a problem but the second (especially after the funds were no longer available for obligation) essentially had the effect of deobligation of the unexpended balance and no legal right to re-obligate those funds which were left over. Yes, they were trying to extend the POP because they hadn't used all of the funds.

We also addressed use of multiple year funds on a severable service contract because apparently there was a widely held misunderstanding on that one. Even the experts wanted to fight with me about using multiple year funding on a severable services contract after the period of availability has expired. See B-371636. This was a bitter pill for some but Navy Comptroller confirmed that I had read it correctly.

That's all I have for now on the subject.

.

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Vern,

I finally have a copy of the "white paper" I mentioned. It is in fact a memorandum authored by one of our attorneys. It is labeled as confidential attorney/client work product so I don't think I can post it. However, I'm comfortable paraphrasing from it to get you the information.

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I find myself in need of the expertise of the Contracting folks.

I have a request for research and citations concerning no cost extensions of the Period of Performance on a non-severable contract. I know that a no cost extension is allowable on a non-severable contract provided both parties agree that extra time is required to complete the project.

I need to find "official" "legal" language to support these actions for our Budget Officer.

Thanks in advance,

Summerlady51

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Is your budget officer questioning the legality of a modification to extend the period of performance date? Some things are self-evident, and are hard to prove. For example, you might assert you have a legal right to wear shoes without socks -- but can you provide official legal language to support your right? Maybe he or she wants you to terminate the contract? Or to allow continued performance while you forbear terminating?

Sometimes, you need to be careful what you ask for -- you might not like the answer. FAR 50.103-2( a ) allows you to modify a contract without consideration, but I don't think that's the answer you want.

Anyway, you might try FAR 43.103( a )( 3 ) or FAR 49.402-4( a ).

It might be easier just to negotiate a price reduction of ten dollars. The requirement is that consideration floow both ways, not that the consideration be equal in value.

You write that both parties agree that more time is needed, but you don't say why -- if there is any Govenrment culpability that might form the basis of a claim, you might use FAR 33.204 and 33.210 as your authority for a no-cost modification wherein the Government grants additional time and the contractor waives any and all claims under the contract for matters arising up to that point in time -- that's consideration flowing both ways.

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She's just "that kind of person". I agree that some things aren't law or regulations but are a logical extension of things that are in the laws and regulations. I've been dealing with this same issue with the same person for years. As a Financial Policy person I find it totally logical that a project could go sideways and need an extension. That doesn't even seem foreign to me. She doesn't want to terminate the contracts that have this kind of issue but she wants something in the regs that says it is okay to do this. I've pulled some information and written it up but wanted to check with the experts also.

Thanks.

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Summerlady:

"No cost extension" is unclear. Do you mean at no cost to the government or at no cost to the contractor? By :no cost" do you really mean without consideration?

Does the contractor need more time to complete the project. If so, why? If the contractor cannot keep its original promise, why should the government agree to give it more time without getting something in return? If you did give it more time without consideration, would the extension be legal, i.e., contractually binding?

Did the government delay the contractor? Did each do something that comes down to a tradeoff, resulting in a net $0.?

It would be a shame if your budget officer knew more contract law than the contracting people. So please explain what's going on.

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