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Excess Ceiling Available and Options

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The advantage of being able to not exercise the option is "killing the turkey", so they won't keep coming around trying to drum up business. Then it's "Goodby, good luck elsewhere and good riddance."

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Remember this: Once the government has purchased the minimum quantity, the issuance of each additional order is the exercise of an option. And it is an option that is automatically renewable throughout the life of the ordering period.

It is needlessly redundant to have an option to extend the right to exercise options.

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VA Junior CO:

Your first mistake was assuming that a period is defined as one year. Where did you find that definition? You can have an IDIQ period of five years, or even ten years.

Your second mistake is assuming that because none of the "experienced" COs has heard of something or done it makes in wrong or risky. Ignorance is not a benchmark for correctness.

There is nothing new or radical in what I'm telling you. If there were anything wrong in it, Carl Culham, here_to_help, Joel Hoffman, formerfed, Don Mansfield, and/or others would have been all over me by now. That's one of the great things about Wifcon.

To all: This is a demonstration of something that I have been saying for years. Part of the workforce "shortage" is due to the fact that COs do not know how to do things simply. VA Junior CO and his/her colleagues are spending time sending option notifications and exercising options when they need not do so. That is inefficiency. Inefficiency amplifies workforce shortages.

Is there a salient difference between what we are talking about in regards to period and option years and Multi-year contracts?

If this is the same thing, then the VAAR is the limiter for VA acquisitions in this instance. FAR states HCA as approving authority for Multi-Year contracts where the VAAR has the Secretary of the VA as the approving authority ,who in turn allows an HCA to auhtorize only contracts that do not require a legal or technical review (typically ~500,000)

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Is there a salient difference between what we are talking about in regards to period and option years and Multi-year contracts?

Yes. What Vern is describing is not a multiyear contract--it's a multiple year contract.

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Vern,

You missed my question about this statement you made:

You order the minimum during the first year with the funds of that year.

Why must the Government order the minimum during the first year of an IDIQ contract?

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Vern,

You missed my question about this statement you made:

Why must the Government order the minimum during the first year of an IDIQ contract?

The Bona Fide Needs rule. You obligate the value of the minimum at the time of contract award with the funds then currently available. (That's what the GAO says.) The Bona Fide Needs rule says you cannot obligate current-year funds for the needs of future years. Thus, you cannot order any part of the minimum, which is funded with appropriations available in the year of the award, to satisfy the need of a later year, and you cannot order the current year's need in future years, unless you can show that the order is for the bona fide need of the year of contract award, which might be hard to do.

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Is there a salient difference between what we are talking about in regards to period and option years and Multi-year contracts?

VA Junior CO:

See FAR 17.103 for the difference between "multi-year" and "multiple-year" contracts. A multi-year contract buys more than one year's need at the time of award in advance of fund availability. Multi-year contracts require special approval. A multi-year contract buys only the current year's need at the time of award, but enables the agency to buy future year needs when they arise and when funds become available by exercising an option or issuing an order under an IDIQ contract.

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Guest carl r culham

VA Junior CO - Since one of Vern's posts referenced my name I thought I might as well chime in noting that Don and Joel have too. Two thoughts to help confirm Vern?s posts and assist for the future.

Good reading on the operation of an IDIQ from the fiscal side can be found in GAO's Principles of Federal Appropriation Law (Redbook) in Volume II Chapter 7 Page 7-20. The Redbook is found here http://www.gao.gov/special.pubs/redbook1.html

Also recommend a read of the Bona Fide Needs Rule which is discussed in the Redbook as well but the best reference is found on WIFCON here - http://www.wifcon.com/bonafidecontents.htm

I also recommend a read of the following linked GAO decision which also references the Redbook. While not exactly on point it does touch on many of the things discussed in responses to your questions. I keep the decision around as reference for use on discussions about IDIQ's. http://www.gao.gov/decisions/appro/302358.htm

PS - Vern - If you know of decisions that update the referenced one I hope you note for both VA Junior CO and me.

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The Bona Fide Needs rule. You obligate the value of the minimum at the time of contract award with the funds then currently available. (That's what the GAO says.) The Bona Fide Needs rule says you cannot obligate current-year funds for the needs of future years. Thus, you cannot order any part of the minimum, which is funded with appropriations available in the year of the award, to satisfy the need of a later year, and you cannot order the current year's need in future years, unless you can show that the order is for the bona fide need of the year of contract award, which might be hard to do.

Vern,

Let's say an agency awards a five-year IDIQ contract with a contract minimum of $50,000. At the time of contract award, they anticpate being able to meet the contract minimum. In the first year, they issue orders totaling $20,000. After the first year, they don't issue another order for the life of the contract.

Did the agency violate the Bona Fide needs rule?

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No.

Right. My point is this: just because an agency fails to order the contract minimum in the first year of an IDIQ contract, that does not mean that they have violated the Bona Fide Needs rule. Another example would be if an agency failed to order the contract minimum in the first year of an IDIQ contract, but met the minimum in subsequent years by issuing orders and obligating current year funds (i.e., funds available at the time the order was issued). Again, no Bona Fide Needs rule violation.

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Right. My point is this: just because an agency fails to order the contract minimum in the first year of an IDIQ contract, that does not mean that they have violated the Bona Fide Needs rule. Another example would be if an agency failed to order the contract minimum in the first year of an IDIQ contract, but met the minimum in subsequent years by issuing orders and obligating current year funds (i.e., funds available at the time the order was issued). Again, no Bona Fide Needs rule violation.

I'm afraid that your post is going to confuse VA Junior CO and perhaps others.

When an agency awards an IDIQ contract, the contract must stipulate a minimum quantity. Such stipulation creates an obligation of appropriated funds, and the agency must have funds to cover it and record an obligation at the time of award. The GAO disucsses that in the Red Book, Vol. II, Ch. 7. The agency can use the funds that cover the minimum only to buy the bona fide needs of the fiscal year in which the contract was awarded (or, in the case of services, the bona fide needs of the first 12 months of the contract). See the Red Book, Vol. I, Ch. 5.

In order to address your $50,000/$20,000 scenario, suppose that an agency awards an IDIQ contract with a five year ordering period and a $50,000 minimum. At the time of contract award, what does the contract say about when the agency will buy the minimum? There are three possibilities: (1) that it will buy the minimum during the first year or 12-month period, (2) that it will buy the minimum over the course of the five-year ordering period, or (3) that it does not say, one way or the other.

There is no problem with (1), but if the contract says that then the agency must do that or breach the contract, unless it terminates the contract for convenience.

The contract cannot say (2), because that would be inconsistent with the Bona Fide Needs rule, since the funds obligated to cover the minimum can be used to buy only the bona fide needs of the first year or 12-month period of the contract. They cannot be used to buy the needs of years two through five. If the agency obligated $50,000 to cover the minimum intending to buy less than that during the first year and to buy the rest during years two through five, then it would have engaged in a deception. The GAO frowns upon that kind of thing.

In the case of (3), the government will have made no promise to the contractor about when it will buy the minimum and could fulfill its contractual obligation over the course of the five years. Still, the funds obligated to cover the minimum can be used to buy only the bona fide needs of the first year or 12-month period. Thus, if the agency sets a minimum of $50,000 and buys only $20,000 in the first year, it must deobligate the remaining $30,000 and purchase the balance with the funds of other years. If it deobligates the funds too late to use them to make other buys before the end of the fiscal year, it will lose the funds. If the agency buys only $10,000 in the second year, it will have to repeat that procedure in order to buy the remaining $20,000. What sense would that make?

You cannot violate the Bona Fide Needs rule by not buying anything. But obligating funds to cover a minimum with no intention of buying the entire minimum during the first year or 12-month period is either stupid or unethical and couild lead to criticism from an IG or the GAO. Who needs that?

You asked why an agency must buy the minimum during the first year. While I understand your point, I still maintain, for the reasons stated above, that a CO must buy the minimum during the first year of the ordering period. Or at least plan to do so. It cannot say that it plans to buy the minimum over the course of a two or more years.

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Vern,

I don't disagree with what you wrote in your last post. I just disagreed that an agency's failure to order the contract minimum in the first year results in a violation of the Bona Fide Needs rule, per se. I think you agree with me on that point.

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Guest carl r culham

Vern - In your last post would all conclusions still be the same if the agency had "No Year Funds" that obligated the minimum and/or if the contract 5 year ordering period started on January 1 rather than October 1?

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Vern - In your last post would all conclusions still be the same if the agency had "No Year Funds" that obligated the minimum and/or if the contract 5 year ordering period started on January 1 rather than October 1?

If the agency funds the minimum with no-year funds, then it need not buy the minimum in the first year.

I'm not sure that I understand the question about January 1. If the purchase is for supplies, and if the agency is using annual funds, then it would have to buy the minimum not later than the September 30 following the beginning of the ordering period. But if the purchase is for services, the agency would have 12 months in which to order the minimum, in accordance with FAR 37.106.

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The Govt. does not need to fully fund the minimum if the contract and fiscal law allows for incremental funding beyond the 1st year (e.g., R&D funding). However, the Govt. still needs to comply with fiscal law so that the funding is reasonably pro-rated across the fiscal years in which the effort is being performed. For example, if 50% of the effort would be completed in the 1st year and 50% in the 2nd year, one should not provide only 20% of the funds in the 1st year and 80% of the funds in the 2nd year as you would be using later-year funding to pay for prior year effort.

The key point is that the conditions of the minimum must be clearly stated in IDIQ contracts (as always) and even more explicit when the initial ordering period is longer than 1 year. An auditor looking in from the outside may wonder if spreading the minimum over a longer-than-one-year ordering period is simply a multi-year contract by another name. Clear contract language that complies with fiscal law and expressing your minimum in terms of a quantity unit of supply/service vice a dollar amount can easily avoid this appearance of "multi-year" abuse. A simpler solution is simply plan to limit, buy, & fund your miminum in the first year (which is what Vern reminded all of us about earlier in this thread). It should be a rare circumstance that you would want to, and fiscal law will allow you to, have a minimum ordered piecemeal across a longer-than-12-month period. It does make for an interesting academic discussion though.

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The Govt. does not need to fully fund the minimum if the contract and fiscal law allows for incremental funding beyond the 1st year (e.g., R&D funding). However, the Govt. still needs to comply with fiscal law so that the funding is reasonably pro-rated across the fiscal years in which the effort is being performed. For example, if 50% of the effort would be completed in the 1st year and 50% in the 2nd year, one should not provide only 20% of the funds in the 1st year and 80% of the funds in the 2nd year as you would be using later-year funding to pay for prior year effort.

Please prove the things that you said above. Cite authority, e.g., the GAO Red Book or the DOD Financial Management Regulation.

Do you know of an example of an incrementally funded minimum quantity on an IDIQ contract? In order to incrementally fund a minimum, do you have to order the minimum simultaneously with contract award? If not, how do you place in the schedule the information required by paragraphs (a) and (B) of the Limitation of Funds clause? Can you incrementally fund an IDIQ contract, or do you have to incrementally fund orders placed thereunder?

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Incentivize Me:

I want to be explicit about my interest in your statement. It strikes me as odd to say that a CO can incrementally fund a contract minimum. As I think we all know, an IDIQ contract must stipulate a minimum purchase quantity or dollar amount. The GAO considers the stipulation of a contract minimum to be an obligation of funds at the time of award, so an agency must record an obligation at the time of award and have enough money on hand to purchase the minimum or risk a violation of the Anti-Deficiency Act. This is discussed in the Red Book, Vol. II, Ch. 7.

You said: "The Govt. does not need to fully fund the minimum if the contract and fiscal law allows for incremental funding beyond the 1st year (e.g., R&D funding)."

I find that interesting, and wonder if it is true. I would expect an agency awarding an IDIQ contract for R&D to express the minimum as a dollar amount, not a quantity. I would not expect that minimum to reflect the estimated cost of any particular task. I would expect tasks and estimated costs to be specified in task orders.

Let's suppose that an agency awards an R&D task order contract and stipulates a minimum of $1,000,000, with tasks to be specified and ordered after award. Given that the minimum does not reflect the value of a particular task, how do you incrementally fund it? How do you incrementally fund a mere dollar amount? The Limitation of Funds clause clearly contemplates the funding of a particular task to completion or level of effort, for which an estimated cost has been established, which will be funded in increments. The clause expressly refers to the "estimated cost." The clause states that the contractor has promised to make its best efforts "to perform the work specified in the Schedule... within the estimated cost." How does any of that apply to a mere dollar amount that is not attached to any particular work? Are you saying that the minimum dollar amount is an estimated cost? If so, an estimated cost of doing what, specifically?

I believe that you can incrementally fund a task order, but I was surprised by your firm assertion that an agency can incrementally fund a contract minimum that does not reflect the estimated cost of any particular work. So I eagerly await your citation of a source or sources in support of the proposition that an agency can incrementally fund a dollar amount that does not reflect the estimated cost of specific work--that, or a more complete deductive argument.

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VA Junior CO - Since one of Vern's posts referenced my name I thought I might as well chime in noting that Don and Joel have too. Two thoughts to help confirm Vern?s posts and assist for the future.

I also recommend a read of the following linked GAO decision which also references the Redbook. While not exactly on point it does touch on many of the things discussed in responses to your questions. I keep the decision around as reference for use on discussions about IDIQ's. http://www.gao.gov/decisions/appro/302358.htm

Thank you very much for this, this discussion is exactly what I needed to see to really understand how an IDIQ can be a multiple year contract. While it might be plainly clear to veteran contract officers, there is nothing in FAR part 16 that infers that an IDIQ can have a multiple year period.

Point in fact, the definition in FAR 17.103 for multi-year contracting makes the following statement.

The key distinguishing difference between multiyear

contracts and multiple year contracts is that multi-year

contracts, defined in the statutes cited at 17.101, buy more

than 1 year?s requirement (of a product or service) without

establishing and having to exercise an option for each program

year after the first.

Doesnt the above statement say. a multiple year contact requires the use of options?

It has'nt been until seeing input from GAO or Cibinic & Nash that multiple year contracting takes on a different definition.

B-302358, Bureau of Customs and Border Protection--Automated Commercial Environment Contract, December 27, 2004

[12] Using a no-year appropriation, Customs entered into a multiple year contract, covering a period of five years. As discussed above, Customs did not incur a 5-year financial obligation, however. At the time of award, Customs incurred an obligation only for the25 million of supplies and services that it had agreed to purchase; during the 5-year contract period, Customs would incur additional obligations whenever it might place an order for additional supplies or services, and would charge the new obligations to appropriations available at that time.

At some point after fiscal closeout I am going to investigate what a no-year appropriation is.

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VA Junior CO:

Trying to discuss this with you is like trying to discuss particle physics with someone who never heard of atoms.

The length of a contract is limited by (a) the nature of the requirement, (B) funding, and ? laws and regulations like the Service Contract Act and FAR 16.505?(1). The definition in FAR 17.103 that you quoted does not say that you have to have options. It merely describes the difference between two kinds of contracts. If you know that you'll have a continuing need for five years, the only reason to use options for years two through five is that you do not have funds for those years at the time of award. When you use an IDIQ contract you don't have to worry about that, because after you buy the minimum you make obligations when you issue orders, as funds become available. In other words, you don't buy more than one year's requirement when you award an IDIQ contract. You buy only the minimum, which, as I discussed above, you must buy with the funds available in the year of award.

There is nothing in FAR that prohibits an IDIQ contract from having a five year ordering period. Why do you think they put a statement in FAR 16.505?(1) limiting the ordering period for advisory and assistance services to five years, if you can't have an IDIQ contract with an ordering period of more than one year?

Go away. Read. Study. Think. Come back in a couple of years.

And by the way, the reason that there is nothing in FAR that "infers" anything about the period of multiple year contracts is that FAR is not a rational animal and thus cannot make inferences. Check your dictionary.

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I'd like to add to this thread with the following scenario...

Background:

1. I work for the Navy so the DFARS and Navy policy and regulation apply.

2. I want to award an indefinite delivery, indefinite quantity contract for severable services with a 5 year effective period.

3. The contract schedule specifies a minimum of $10,000.00 and a maximum of $50 million over the 5 year effective period.

4. My minimum is funded/obligated at the time of award using annual operations & maintenance, navy (O&M,N) appropriations.

5. Given that my $50 million estimate is based on prior years' usage ($10 million more/less per year for the past five years), it is reasonable to expect that the $10,000.00 minimum will be ordered well within the first year of the effective period (the first few weeks, most likely).

It should also be noted that the contract anticipates the placement of several task orders (with individual values ranging between $5K and $100K), all funded with annual appropriations with none of the orders having a performance period in excess of 1 month.

I'm being advised that I cannot have a five year effective period for this contract because DFARS 237.106(2) states "the contracting officer may enter into a contract, exercise an option, or place an order under a contract for severable services for a period that begins in one fiscal year and ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed DOES NOT EXCEED ONE YEAR" (emphasis mine).

Apparently, my five year effective period runs afoul of the "does not exceed one year" portion of the DFARS even though I will, in all likelihood, meet the minimum well before one year of the contract goes by.

The best I'm being offered is a one year base with one 4 year option...and once the minimum is actually ordered, I can deobligate the original funds and also exercise the option.

To me, this smacks of an unnecessary work-around, but the rules seem clear.

Unfortunately, my admittedly limited research skills (a quick search of the GAO website and WIFCON) hasn't revealed any ready answer to this problem so I'd appreciate any assit.

Tx,

NavyKGuy

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I say that DFARS 237.106(2) applies to orders in your case, but not the contract. Saying that applies to an IDIQ contract, which doesn't involve the obligation of funds, doesn't make sense.

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... an IDIQ contract, which doesn't involve the obligation of funds ...

It's my understanding, and experience, that the minimum is obligated at award of an IDIQ.

This is easy to see when a Sample Delivery Order is used to Solicit bids, and then is awarded at the same time as the overall IDIQ, in the form of an actual Deliver Order.

But even when no deliveries are ordered at the time the IDIQ "framework" is awarded, that minimum amount is still obligated. Customers may not like to commit, then obligate, funds against a "possible" future need. But without consideration, a contract cannot be formed. If they don't want to commit funds, they can commit to placing all orders against that contract, a different form of consideration, for a slightly different type of contract. Or, with no consideration, it can simply be a FAR 16.7 Agreement in anticipation of a subsequent contract, perhaps in the form of calls/ orders.

.

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