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Appropriation Law Questions


HeyGuy

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I have been in contracting for 8 years now (that also includes many mandatory appropriation law courses) and still don't have black and white (and not grey) answers to the questions I am about to ask. I appreciate any insight on these matters.

1) Contract period begins in FY14 and ends in FY15. Obviously the bona fide need begins in 14 and you fund it (here we have cost contracts that we fund incrementally) with FY14 money. But when the clock ticks to October 1, 2014 (FY15) are we still allowed to use old FY14 funding to continue incrementally funding a severable service that had a bona fide need beginning in the prior fiscal year?

2) This is very close to the same question above. If you send a change order to a contractor in FY14 and don't definitize it until FY15 can you provide any additional amount needed in FY15 for the same reasons above?

3) IF the answers to 1 and 2 are NO... We go through a never-ending process of truing up our contracts (cost contracts) so we are regularly going back to prior contract periods and fiscal years. On occassion we are given prior year funding (FY funding that aligns to that specific year) to pay out differences. The reason being the "bona fide need" for this work fell within that FY. So if we are able to do this in response to ICP's or audits, why are we not allowed to incrementally fund or definitize a change order with prior year funding like noted in questions 1 and 2? And I guess I would love confirmation that this is appropriate (obtaining prior year funding for these "true-ups" and whatnot).

4) Can someone, anyone tell me what happens to funding after 5 years. I have heard a million different answers. I have heard and actually believe that it expires. But where does it go? I have heard it is returned to the treasury and re-used. I have heard it goes "into the fire", so essentially wasted. I have heard a lot of different things from the bottom levels of my organization to the top.

Thank you in advance!

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Sure, you may use old FY14 funding to continue incrementally funding a severable service during FY15 that had a bona fide need beginning in FY14, if your funds are still available for obligation in FY15. For example, if you are in DoD, you might have (if I remember right) O&M funds (1 year availability), R&D funds (2 year availability), Procurement funds (3 year availability), or Military Construction funds (5 year availability). Some agencies have no-year funds (available until expended). We sometimes call this color of money. What color of money do you have?

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Thanks for your response. I am civilian. Occassionally we will get no-year funding (does not state a FY) or 2-year funding (so here it would state FY14 AND 15), and in those cases I understand they can stretch and be ogligated in the next year. But most of the time (99%) we are dealing with one-year O&M funds. So I guess my real question isn't what type of funding can be used, it's can we obligate old FY14 funding (with a one-year FY14 appropriation) come October 1, 2014 (FY15)? And if the answer is no, why is it acceptable at my agency in true-up situations to then give "prior year funding" to the CO, which again is tied to the specific FY you are dealing with (within 5 years obviously).

Thanks again.

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Well, the period available for obligation applies to new obligations, but later adjustments can be made (such as for your "true-up" examples, I suppose). I recommend reading the document at http://www.keesler.af.mil/shared/media/document/AFD-070212-044.pdf. Here is an extract...

Air Force appropriations are normally one-year or multiple-year appropriations and are available for incurring new obligations during their period of availability. The National Defense Authorization Act for Fiscal Year 1991 (Public Law 101-510, November 5, 1990) made major changes to the appropriation life cycle. At the end of the period of availability, 30 September of the particular year, the appropriation expires, and it is no longer available for new obligations. Upon expiration, the obligated and unobligated balances in the appropriation retain their fiscal-year identity in an "expired account" status for an additional five years. During this five-year period, the expired account is available for liquidating the obligations and for making legitimate obligation adjustments, i.e., to record previously unrecorded obligations and to make within-scope upward adjustments to previously recorded obligations. At the end of the fifth expired year, the appropriation account is "closed". Any remaining unexpended balance (unliquidated obligations plus unobligated balance) is canceled and returned to the general fund of the Treasury, and is thereafter no longer available for obligation or disbursement for any purpose. Once the account has been closed, if payment of either a canceled obligation or a future within-scope upward adjustment becomes necessary, it must be charged to an appropriation currently available for the same general purpose at the time the payment is made.

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Guest Vern Edwards

HeyGuy:

Before you show anything to anybody, wait a minute. You asked:

Contract period begins in FY14 and ends in FY15. Obviously the bona fide need begins in 14 and you fund it (here we have cost contracts that we fund incrementally) with FY14 money. But when the clock ticks to October 1, 2014 (FY15) are we still allowed to use old FY14 funding to continue incrementally funding a severable service that had a bona fide need beginning in the prior fiscal year?

Emphasis added.

I think that the answer to that question is no. I assume that you have annual (one-year) funds.

Incremental funding such as you discuss is really incremental obligation. (FAR 52.232-22, the Limitation of Funds clause, is, in effect, an option clause.)

Now, suppose that you award a one-year (12 month) contract for segregable services on June 1, 2014, with performance through May 31, 2015. You can obligate FY14 funds to cover the entire 12 months. No problem. And it's true that if you obligate FY14 funds to cover the entire year, June 1, 2014 through May 31, 2015, you can then use FY14 funds to cover within-scope mods and cost overruns during that year.

But suppose that instead of obligating FY14 funds to cover the entire year, you incrementally fund the contract and obligate only enough to fund the work through October 31, 2014, planning to fund the rest of the contract in October to cover performance through May 31, 2015. The FY14 funds are no longer available for obligation after September 30, 2014, and I do not believe that you can obligate expired FY14 funds to cover the period November 1, 2014 through May 31, 2015. I think that you have to use FY15 funds at that point. And I believe that in such a case you can use FY14 funds to cover within-scope mods issued during the period covered by FY14 funds and cost overruns of that period, but that you have to use FY15 funds to cover mods issued and cost overruns that occur during November 1, 2014 through May 31, 2015.

41 U.S.C. § 3902 (formerly 41 U.S.C. 253l) allows you to use the funds of one fiscal year to cover 12 months of severable services beginning in that fiscal year and ending in the subsequent year. It does not allow you to use the funds of the first fiscal year to cover new obligations incurred in the subsequent fiscal year. When you incrementally fund a contract, each funding increment is a new obligation. I do not believe it is a "previously unrecorded" obligation or a "within scope adjustment" to a previously recorded obligation when the acquisition is for severable services.

I think those principles cover all your questions.

I'm not certain that I'm right. I could be wrong. But you'd better check with someone before you do anything or spread the "explanation" that you've been given. If you discover that I'm wrong, please let me know.

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I agree with Vern -- I have never thought of an incremental funding action as an adjustment to a previously recorded obligation -- I see it as a new obligation. What you are calling "true-ups" are probably real adjustments to previously recorded obligations. All of this is based only on what I read here -- I really don't know the reason for your "true-ups" but supposing them to be adjustments to previously recorded obligations makes sense to me...

The explanation I gave did not suggest any possibility of using FY2014 one-year funds to incrementally fund a contract during FY2015. In my first posting, in my own words, I wrote

Sure, you may use old FY14 funding to continue incrementally funding a severable service during FY15 that had a bona fide need beginning in FY14, if your funds are still available for obligation in FY15. (emphasis in original)

In my second posting, I quoted from the Keesler document,

At the end of the period of availability, 30 September of the particular year, the appropriation expires, and it is no longer available for new obligations.

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Guest Vern Edwards

We don't know what he meant by "true ups." In my 40 years in acquisition I have never heard of that term used in connection with CPFF contracts. HeyGuy might mean overrun funding.

Practitioners shouldn't use local jargon when talking to practitioners outside their immediate organization.

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See footnote 3 of GAO decision B-317139. Emphasis added.

For fixed-price contracts, the usual rule is that if the modification is within the contract’s statement of work, the agency should charge the cost of the modification to the appropriation to which the agency had charged the contract since it is a part of the bona fide need established at time of contract award. 59 Comp. Gen. 518, 521 (1980). Modifications outside of the contract’s statement of work (and, thus, outside of the scope of the contract) are considered to meet a new bona fide need, and the agency should charge obligations for such modifications to appropriations current at the time of modification. B-257617, Apr. 18, 1995. For cost-reimbursement contracts, because the agency, at time of contract award, cannot necessarily anticipate the need for and amount of increases in the contract ceiling, a modification that increases the ceiling is considered a bona fide need at the time of the modification. 61 Comp. Gen. at 612.

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Thank you for all of the helpful feedback. I was in fact referring to cost overrun situations as "true-ups", I apologize for the confusion. BUT there have been some instances here where we will fund a cost-overrun with prior year "expired" funding. Vern, are you saying that is incorrect? Also, I fully understand that an increase to the contract ceiling/value would require us to apply current year funds (jwomack's response above); however, what I think I'm hearing from Vern is that any "incremental funding" applied on a severable service contract that slips into the next fiscal year must be "incrementally funded" with a funding source that matches the year in which the modification for incremental funding is being issued?

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Guest Vern Edwards

HeyGuy:

See the GAO Red Book, Vol. 1, Ch. 5, Sec. 7, "Contract Modifications and Amendments Affecting Price." It says that funding overruns under cost-reimbursement contracts is a discretionary action that should be done with current appropriations, not prior year appropriations, except when the government is contractually obligated to fund the overrun.

As noted above, there is an important exception or qualification to the antecedent liability rule. In cost reimbursement contracts, discretionary cost increases (i.e., increases that are not enforceable by the contractor), which exceed funding ceilings established by the contract, may be charged to funds currently available when the discretionary increase is granted by the contracting officer. 61 Comp. Gen. 609 (1982). It would be unreasonable, the decision pointed out, to require the contracting officer to reserve funds in anticipation of increases beyond the contract’s ceiling. Id. at 612. Changes that do not exceed the stipulated ceiling continue to be chargeable to funds available when the contract was originally made (id. at 611), as do amounts for final overhead in excess of the ceiling where the contractor has an enforceable right to those amounts (id. at 612). Since prior decisions such as 59 Comp. Gen. 518 had not drawn the below-ceiling/above-ceiling distinction, 61 Comp. Gen. 609 modified them to that extent. A more recent case applying 61 Comp. Gen. 609 is 65 Comp. Gen. 741 (1986).
Emphasis added. Note that the Red Book says "may", not "must". I'm not certain what that means or what the rule is for severable service contracts. I'm researching it. I will try to get back to you tomorrow (August 14).
Vern
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Vern/HeyGuy,

The GAO states in Volume 1, Chapter 5, Section 5 the difference between severable vs. non-severable tasks and how they may be funded, with specificity towards crossing fiscal years. It expands on 2410a authority a bit.

Most federal agencies have authority to enter into a 1-year severable service contract, beginning at any time during the fiscal year and extending into the next fiscal year, and to obligate the total amount of the contract to the appropriation current at the time the agency entered into the contract.17 10 U.S.C. § 2410a (defense agencies); 41 U.S.C. § 253l (civilian agencies); 41 U.S.C. § 253l-1 (Comptroller General); 41 U.S.C. § 253l-2 (Library of Congress); 41 U.S.C. § 253l-3 (Chief Administrative Officer of the House of Representatives); 41 U.S.C. § 253l-4 (Congressional Budget Office). See also B-259274, May 22, 1996. Otherwise, the services must be charged to the fiscal year(s) in which they are rendered.

If you combine this with the fact that it is not an antecedent liability, then it would appear that the cost overrun should be paid with the current fiscal year appropriation.

I want to throw this out there: HeyGuy, when you are asking about the incremental funding, is the incremental funding for the overrun or just adding additional funding? I just want to be sure you aren't asking two separate questions.

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