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charles

If KO violates the ADA what happens to money paid to Contractor?

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HYPO Facts:

KTR awarded project for 100k to build building. KO obligates award but funding doc has only 70K. KTR is paid 50K in progress payments. Later it is determined KO has violated the ADA.

What amount of money is the KTR entitled to keep? Will the government have a claim to reimburse the KTR only on the basis of quantum meruit or will the contract be treated as a T4C?

Please discuss.

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HYPO Facts:

KTR awarded project for 100k to build building. KO obligates award but funding doc has only 70K. KTR is paid 50K in progress payments. Later it is determined KO has violated the ADA.

What amount of money is the KTR entitled to keep? Will the government have a claim to reimburse the KTR only on the basis of quantum meruit or will the contract be treated as a T4C?

Please discuss.

ADA = Anti Deficiency Act? I assume that, but first thought of Americans with Disabilities Act, especially since you are talking about construction of a building.

I do not, however, know the answer for either.

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Guest Vern Edwards

I can think of at least three possibilities:

(1) The $100,000 award is legal, despite the CO's violation of the law, and the government is obligated to you for the entire value of the contract unless it terminates for convenience.

(2) The $100,000 award was illegal, because of the CO's violation of the law; the government must pay you for what you have done up to the funds available, but cannot pay for the balance and will have to terminate the contract for convenience if it has sufficient funds.

(3) The $100,000 award was illegal, because of the CO's violation of the law, the contract is void ab initio, and the government can pay you nothing at all, in which case you can try to recover the quantum meruit.

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I don't know the answer, but I would be inclined to choose Vern's possibility #3. My reasoning is as follows:

The Government can only be bound by contracting officers acting within the scope of their authority. A CO who violates the law is acting outside the scope of his/her authority. As such, the Government cannot be bound by a contract that the CO entered into by violating the law. In this case, I believe that the CO has entered into an unauthorized commitment.

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Not being a lawyer I'm not sure if this case is on point, but didn't SCOTUS rule on a similar issue in 2005 -- in the Cherokee Nation case?

Argued November 9, 2004 ? Decided March 1, 2005

Question: 1. Whether the federal government can repudiate, without liability, express contractual commitments for which it has received valuable consideration, either by spending down discretionary agency appropriations otherwise available to pay its contracts, or simply by changing the law and the contracts retroactively. 2. Whether government contract payment rights that are contingent on "the availability of appropriations" vest when an agency receives a lump-sum appropriation that is legally available to pay the contracts ? as is the law of the Federal Circuit under Blackhawk Heating ? or is the government's liability calculated only at the end of the year after the agency has spent its appropriations on other activities, as the Tenth Circuit ruled below. Held: The Government is legally bound to pay the ?contract support costs? at issue.

Hope this helps.

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here_2_help,

That's a good point. However, the Cherokee cases involved "contract authority" to obligate appropriations, not "budget authority." I don't know if the result would necessarily be the same when dealing with budget authority (which I assume is charles's case).

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Wouldn't it be a bit presumptious of us to assume that the contractor (Ktr) would know whether the contracting officer (KO) violated the ADA or not? I have never had a Ktr ask a KO if he/she was in compliance with ADA, or for that matter, if a KO was within his/her authority to obligate funds. I agree that an unauthorized commitment (UAC) appears to have been made by the KO and that the determination needs to be made whether to ratify or not. For this specific instance, I would recommend a stop work order until the UAC issue is determined. The Ktr still retains his right to be paid for the work completed to the date of the stop work order.

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Unless there was an option clause for the balance, which I assume there wasn't, then the CO did violate the Anti-Deficiency Act and it's not a legal procurement. However, such cases have later been ratified to satisfy all parties. The Government may still have a need for the building as well. The cheapest and easiest thing to do is first determine the the cost awarded is fair and reasonable, then go for a ratification. The contractor will otherwise probably file a claim and fight the Government in court, costing more time and money then ratification would. Even negotiating a D4C could be more costly then the original $100K.

Slim Chance: Is there a way to cut down costs if not completed to reduce it to the $70K funded? I am assuming since they billed for $50,000 it's about half done. Or did I miss something?

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HYPO Facts:

KTR awarded project for 100k to build building. KO obligates award but funding doc has only 70K. KTR is paid 50K in progress payments. Later it is determined KO has violated the ADA.

What amount of money is the KTR entitled to keep? Will the government have a claim to reimburse the KTR only on the basis of quantum meruit or will the contract be treated as a T4C?

Please discuss.

OK, I'm very new and this question really has me confused. As I read it, the hypo situation is that a contract was awarded to a contractor to build a building for 100K.

Before awarding the contract, hasn't the contracting officer certified funds available from his/her Resource Manager? If the fiscal authority certified funds were available for 100K - isn't the resource manager the one responsible for any potential ADA violation. Is it likely that a contracting officer would award a contract w/o ensuring funds were available? That seems a very basic thing to do first.

So, for me the confusing part is - doesn't FAR 1.602-3(c )(6) say that to ratify an unauthorized commitment, "Funds are available and were available at the time the unauthorized commitment was made". Doesn't this seem to imply that you can not ratify an ADA violation, since by definition, to be an ADA violation there must NOT have been appropriate funds available at the time of obligation?

Is this really an unauthorized commitment in terms of ratification? FAR 1.6023 definitions says "Unauthorized commitment,? as used in this subsection, means an agreement that is not binding solely because the Government representative who made it lacked the authority to enter into that agreement on behalf of the Government" Am I reading this too narrowly? To me it seems that the contracting officer would have had authority to enter into the agreement so it seems to not be an unauthorized commitment in terms of ratification, but an ADA issue that might need a completely different solution. For the DoD, the solution would seem to be listed in the corrective actions section in DoD FMR Vol. 15 Ch.5.

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To me it seems that the contracting officer would have had authority to enter into the agreement so it seems to not be an unauthorized commitment in terms of ratification, but an ADA issue that might need a completely different solution.

You think that a contracting officer has the authority create an obligation that exceeds the amount of funding available?

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You think that a contracting officer has the authority create an obligation that exceeds the amount of funding available?

Not exactly. I think the contracting officer would have had the funds certified as available by their resource manager, so that if it turned out the funds were not available, the resource manager would be responsible and you would (in DoD) follow corrective action for the ADA violation, not a ratification? Like I said though - the area causes me great confusion...I just can't see any Contracting Officer not ensuring funds were available before even starting work on the contract. Maybe this is common?

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Not exactly. I think the contracting officer would have had the funds certified as available by their resource manager, so that if it turned out the funds were not available, the resource manager would be responsible and you would (in DoD) follow corrective action for the ADA violation, not a ratification? Like I said though - the area causes me great confusion...I just can't see any Contracting Officer not ensuring funds were available before even starting work on the contract. Maybe this is common?

Actually this happens much more than it should. Many CO's are overworked and don't have time to carefully check everything. The use of automated systems that should keep this from happening often makes things worse by assuming they preclude such occurences.

You said "I just can't see any Contracting Officer not ensuring funds were available before even starting work on the contract." COs often start on contracts in advance of receiving funding such as when long lead times are involved.

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I know I'm veering off the discussion here, but I thought this might be the best place to ask my question. Is there any prohibition on Contracting Officers participating in the certification of funds, which they will later obligate with a contract award or contract mod?

In my office, Contracting sits in the same office as our customer, and we are constantly asked to direct the customer on how to enter requisitions into the new system our agency is required to use. Contracting Officers aren't given the ability to enter requistions in the system, but those who have the ability haven't learned how to use the system well, and ask us to sit with them and tell them what to enter. Any questions regarding how to enter a requisition, and even what accounting codes to use for particular projects, or why funds aren't available are coming to us.

I believe that Contracting Officers should not be involved in certifying funds, but I can't find a regulation or case to support this position. I see it as a lack of risk control. If the Contracting Officer is controlling the requisitions and the contract awards, isn't there a risk that funds can be used inappropriately?

Any thoughts?

Thanks.

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Guest Vern Edwards

Filling out a requisition is not the same as certifying fund availability. Just because a CO fills out a requisition it doesn't mean that he or she has certified fund availability.

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There has been a few instances in our office where we verified that funding was properly allocated for a contract at the time of award and later found that someone in the finance office moved that funding to satisfy some other requirement. When that happened, we in contracting jumped on that office like it was an empty soda can, and the funding has always been restored pronto.

It that was the case in this instance, it would be incumbent upon the Contracting Officer to properly document the facts as they present themselves. I cannot see how the KO would be responsible for that mistake, and the discipline should be directed at the finance office and anyone else who was responsible for the mistake.

If that was not the case, and the Contracting Officer DID NOT positively indentify that the funding was properly allocated and obligated upon the award of the contract, then that KO should be disciplined appropriately.

In my case, I make sure that a screen shot of the financial status of the funding is in my contract files showing that the funding is properly allocated. Then I document the obligation process since it is completed by a different division within my organization. Those documents should prevent an ADA violation unless someone improperly instructs the contactor to perform extra or different work, or the finance office improperly changes the funding associated with the contract.

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One of the very good aspects of the Corps of Engineers' Financial Management System CEFMS software is a separation of functions. Folks other than the KO creating the obligation have to certify (I don't know the correct fiscal accounting term) that the funds are committed and available for obligation. The KO or other ordering officer, as applicable to the action, records the obligation in CEFMS at the time of signing the obligation instrument (generally a modification or contract).

I remember the old days in our agency where we didn't have real time funds status and occasionally the funds had been pulled or some other problem was found.

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I know I'm veering off the discussion here, but I thought this might be the best place to ask my question. Is there any prohibition on Contracting Officers participating in the certification of funds, which they will later obligate with a contract award or contract mod?

In my office, Contracting sits in the same office as our customer, and we are constantly asked to direct the customer on how to enter requisitions into the new system our agency is required to use. Contracting Officers aren't given the ability to enter requistions in the system, but those who have the ability haven't learned how to use the system well, and ask us to sit with them and tell them what to enter. Any questions regarding how to enter a requisition, and even what accounting codes to use for particular projects, or why funds aren't available are coming to us.

I believe that Contracting Officers should not be involved in certifying funds, but I can't find a regulation or case to support this position. I see it as a lack of risk control. If the Contracting Officer is controlling the requisitions and the contract awards, isn't there a risk that funds can be used inappropriately?

Any thoughts?

Thanks.

I know in the DoD, the DoD Financial Management Regulation, Ch. 10, governs contract payments. http://www.defenselink.mil/comptroller/fmr/10/index.html

Then each agency also has its own FMR. I don't know if this will help you at all.

As an attorney, I always checked to make sure there was either a finance officer's certification that funds were available or the clause awarding subject to the availability of funds. I expected that to come from either a finance or resource manager. I also always checked my fund cites on the contract as a whole and each CLIN. This legal review should be part of the checks and balances to ensure funds are used appropriately.

Also, while the situation you describe might result in funds being used inappropriately at the time of contract award, as in the original scenario, that impropriety may not last the life of the contract. Again, in DoD, while the CO may have the warrant, DFAS has the checkbook, and they won't pay without proper FM documentation. Even then, I am frequently frustrated by the effort it takes to get DFAS to pay even obviously proper claims.

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Guest Vern Edwards
As an attorney, I always checked to make sure there was either a finance officer's certification that funds were available or the clause awarding subject to the availability of funds. I expected that to come from either a finance or resource manager. I also always checked my fund cites on the contract as a whole and each CLIN. This legal review should be part of the checks and balances to ensure funds are used appropriately.

K Law Atty, one of my pet peeves is "legal review" as it is often done today. In my opinion, checking to see that funds availability has been certified or that fund cites are correct is not the function of a lawyer. The same goes for checking to see that the contract includes all required clauses. Those are the functions of a clerk. We don't need lawyers for that. Nobody does. As a businessman, I have a lawyer, and he costs a lot. I'll be damned if I would pay him his hourly rate to do clerical work. That kind of focus simple bogs down legal offices and makes legal review a bottleneck.

Lawyers have an important role to play in contracting, but just as the role of the contracting officer has been diminished through the incompetence of the contracting workforce, so is the role of the lawyer diminished to the extent that he or she is forced to make up for contracting officer incompetence by doing quality checks. I'm sorry to hear that you did such work. I hope it wasn't by choice.

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