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IDIQ with End Item Deliverable and Incremental Funding

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I really need some help. The convention typically used when purchasing an end item with Procurement funds is that the end item is fully funding at the time the contract is awarded. Now I find out that at least two, possibly more, contracts have been awarded using Procurement funds but they were funded incrementally. They are cost plus fixed fee contracts. I'm not that experienced with contracting but I'm fairly experienced with appropriation law. Is there some clause or concept in the contracting world that allows purchase of an end item - say an airplane - but allows it to be built with incremental funding? The Period of Performance covers more than 1 year. And the funds appear to make it onto the contractual vehicle before the end of the first year of the appropriation life. There is a termination clause that gives the government an out but we would end up with expenditures with no final product. So Contractually we might be just fine but we would certainly be in violation of the spirit of the Congressional intent.

Is there a way that this works contractually? If so, what DFARS/FAR reference supports it?

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I would first recommend you check DoD 7000.14-R Financial Management Regulation Volume 2A, Chapter 1, paragraph 010202 that provides exceptions to full funding of procurement programs. The most recent edition I could find was from October 2008 that made changes in this area and may be of help to you. Not sure if there is a more recent edition but again I would check the DOD FMR first.

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The issue is not contractual, and the approach to funding acquisitions of capital assets is not for contracting offices to decide. It is a matter of budgeting and appropriations policy. The topic is not covered in acquisition regulations.

For background, see GAO, Incremental Funding of Capital Asset Acquisitions, Feb. 26, 2001. http://www.gao.gov/products/GAO-01-432R

See also, CRS, Defense Procurement: Full Funding Policy -- Background, Issues, and Options for Congress, June 15, 2007. http://www.fas.org/sgp/crs/natsec/RL31404.pdf

When using 3010 funds, the policy is usually full funding. See DOD 7000.14-R, V. 2, para. 010202, which includes a discussion of exceptions.

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Thanks Vern, they are apparently using something called a local clause and I'm concerned. What they are doing might be okay with RDT&E funds but not with OPN. I've read most of what you recommended but I'm going to go read the rest. It's one of those things you find by accident and someone says "we've always done it that way" when you ask. If you are the responsible financial policy person, that phrase is like nails on a chalkboard. Should I let you know what I find for future inquiries?

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No need to let me know.

The big risks are that funds are not obligated within the available obligation period or that there is a violation of the bona fide needs rule.

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DOD 7000.14-R, Vol. 2, para. 010202, says, in pertinent part:

"*010202. Full Funding of Procurement Programs

A. General. A budgeting rule that requires the total estimated cost of a,
military useable end item, be funded in the fiscal year in which the item is procured. Under the
full funding policy, the entire procurement cost of a weapon or piece of military equipment is to
be funded in the year in which the item is budgeted. An end item budgeted in a fiscal year
cannot depend upon a future years funding to complete the procurement. Regulations governing
the full funding policy are found in Office of Management and Budget (OMB) Circular A-11 and
DoD Directive 7000.14-R

1. The full funding policy is intended to prevent the use of
incremental funding, under which the cost of a weapon system is divided into two or more
annual portions or increments. Thus, full funding provides disciplined approach for program
managers to execute their programs within cost and available funding.

2. There are two general exceptions to the full funding policy: one
permits the use of Advance Procurement (AP) funding for components or parts of an item that
have long production lead times; the other permits advance procurement funding for economic
order quantity (EOQ) procurement, which normally occurs in programs that have been approved
for multiyear procurements (MYP). Advance Procurement funding is used routinely and

extensively in the procurement of components for major end items due to manufacturing and
production lead times. The use of MYP has to be approved by the Congress on a program-by-

program basis. Congressional approval permits DoD to use a single contract to procure multiple

copies of a given item that are scheduled to be procured across a series of years. MYP
arrangements are governed by 10 USC 2306( B). EOQ procurement involves procuring multiple

copies of a key component of a weapon covered by an MYP at the start of the MYP period in
order to achieve significantly reduced costs on that component.

B. Policy for Full Funding. The total estimated cost of a complete, military
useable end item or construction project must be fully funded in the year it is procured. There
are 2 basic policies concerning full funding.

1. To provide funds in the budget for the total estimated cost of a
complete, military usable end item to document the dimensions and cost of a program.

2. Exceptions to this policy are advance procurement for long lead-

time items and advance economic order quantity (EOQ) procurement. EOQ may be used only
in connection with multiyear procurements. Both efforts must be identified in an Exhibit P-10,
Advance Procurement, for the Budget Estimate Submission and the President’s Budget request.


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Thanks to all. I believe that I'm wading in an area where I know the appropriations law and I know the contracts law, but when nothing violates law but it does violate policy, you have folks thumbing their nose at it just because it doesn't violate law. I've been around 30+ years and ususally these folks have to see a disaster before they are believers. So I'll go on record as "financial policy" that I object to them basically thumbing their nose at Congress. All of the GAO Reports on this say that to do so is a really, really stupid idea. Having witnessed "the disaster" more than once in my career, I know it won't take long after the fact before they behave. I just don't accept "we've always done it that way" gracefully. Usually that phrase means you don't know why you "do it that way".

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