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Excess Ceiling Available and Options

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I have also believed that a service contract could not exceed one year period. Maybe I was wrong.

37.106 -- Funding and Term of Service Contracts.

(a) When contracts for services are funded by annual appropriations, the term of contracts so funded shall not extend beyond the end of the fiscal year of the appropriation except when authorized by law (see paragraph (:) of this section for certain service contracts, 32.703-2 for contracts conditioned upon availability of funds, and 32.703-3 for contracts crossing fiscal years).

(B) The head of an executive agency, except NASA, 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 (10 U.S.C. 2410a and 41 U.S.C. 2531).. Funds made available for a fiscal year may be obligated for the total amount of an action entered into under this authority.

© Agencies with statutory multiyear authority shall consider the use of this authority to encourage and promote economical business operations when acquiring services.

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

Yes but there's no period of performance associated with it.

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Formerfed/Brian/Rodolfo,

Thanks for your thoughts.

I believe that Formerfed's contention "I say that DFARS 237.106(2) applies to orders in your case, but not the contract. Saying that it applies to an IDIQ contract, which doesn't involve the obligation of funds, doesn't make sense" is incorrect because it is based on the erroneous assumption that an IDIQ doesn't involve the obligation of funds.

I support this belief via the following statement from the General Accounting Office (B-318046, July 7, 2009): "In the case of an IDIQ contract, the agency must record an obligation in the amount of the guaranteed minimum at the time the contract is executed because, at that point, the government has a fixed liability for the minimum amount to which it committed itself. B-308969, May 31, 2007; B-302358, Dec. 27, 2004."

I think that my problem is that I am proposing to use annual appropriations (or "an appropriation limited to obligation for a definite period" which "may be obligated only to meet a legitimate or bona fide need arising during the period of availability of the appropriation" (B-289801, Dec. 30, 2002)) to meet a liability which exists over a 5 year period.

Despite the likelihood that my funds will be expended within the period of the availability of the appropriation (i.e. within the first few weeks of the contract or, better yet, the same fiscal year as the annual appropriation), the fact that they might not be is the source of my dilemma.

Working thru this, the 1-year base period w/ one 4-year option approach is starting to make sense.

Thoughts?

Thanks again for everyone's help,

NavyKGuy

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NavyKGuy:

You are wrong.

The purpose of the DFARS 237.106(2) is to ensure compliance with the Bona Fide Needs rule. The Bona Fide Needs rule is explained in Principles of Federal Appropriations Law, Vol. 1, 3d ed., Ch. 5.

Although stated in DFARS 237.106(2) in terms of "contract," the rule applies to an instrument of obligation. No contract for severable services that is funded with an annual appropriation may extend for more than 12 months, because to do so would violate the Bona Fide Needs rule.

Under an IDIQ task order contract, the instrument of obligation is an order, which is the purchase of work. Even when the obligation for the minimum is recorded on the contract itself, any obligation must ultimately be associated with a task order, including the obligation to cover the minimum. If a task order is for severable services, and if it is funded with an annual appropriation, then the period of performance may not exceed 12 months in length.

DFARS 237.106(2) does not limit the ordering period [see FAR 52.216-18(a)] or the effective period [see FAR 52.216-22(d)] of an IDIQ contract. It limits only the performance period of orders for severable services issued under the contract. However, in order to comply with the Bona Fide Needs rule, the amount obligated at the time of award must be used to fund an order which begins within the fiscal year for which the funds were appropriated, and if the order is for severable services it may not exceed 12 months in length. You need not award a contract for one year with four one-year options.

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Formerfed/Brian/Rodolfo,

Thanks for your thoughts.

I believe that Formerfed's contention "I say that DFARS 237.106(2) applies to orders in your case, but not the contract. Saying that it applies to an IDIQ contract, which doesn't involve the obligation of funds, doesn't make sense" is incorrect because it is based on the erroneous assumption that an IDIQ doesn't involve the obligation of funds.

I support this belief via the following statement from the General Accounting Office (B-318046, July 7, 2009): "In the case of an IDIQ contract, the agency must record an obligation in the amount of the guaranteed minimum at the time the contract is executed because, at that point, the government has a fixed liability for the minimum amount to which it committed itself. B-308969, May 31, 2007; B-302358, Dec. 27, 2004."

I think that my problem is that I am proposing to use annual appropriations (or "an appropriation limited to obligation for a definite period" which "may be obligated only to meet a legitimate or bona fide need arising during the period of availability of the appropriation" (B-289801, Dec. 30, 2002)) to meet a liability which exists over a 5 year period.

Despite the likelihood that my funds will be expended within the period of the availability of the appropriation (i.e. within the first few weeks of the contract or, better yet, the same fiscal year as the annual appropriation), the fact that they might not be is the source of my dilemma.

Working thru this, the 1-year base period w/ one 4-year option approach is starting to make sense.

Thoughts?

Thanks again for everyone's help,

NavyKGuy

Maybe I am reading something into your post that is not there. However, it appears you are equating an obligation of funds with an expenditure of funds. They are not the same thing. Funds must be obligated within the period of availability. However, once properly obligated, there generally is no timeframe within which they must be expended, but you must be aware of when the appropriation, including all unexpended balances of obligated funds, will be canceled.

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.

Retread Fed,

what I was thinking is that the customer who has the requirement, and furnishes proof that funds are certified as available for this contract - a COMMITMENT - cannot then withdraw the funds and commit them for something else, like another contract, personnel costs, etc. if the contract has been awarded, because the funds are now OBLIGATED. I guess I never worried about how quickly funds were expended, unless there was money obligated to a contract that was not spent prior to the end of that contract.

.

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Why bother with options? You don't need them with an IDIQ contract. Simply award an IDIQ contract with a five year ordering period. Stipulate that the government will order the minimum quantity during the first 12 month period and may order up to the maximum quantity over the course of the entire five year period. Then set prices for each fiscal year or for 12-month pricing periods within the five year ordering period.

As for your question: "Can we use the excess ceiling in the option year," the answer depends on how you wrote the contract. If you wrote it so that there is a maximum for each option year, then the answer is no. If you don't order the maximum in the basic period or any option year, you cannot carry the balance over into the next option year. Each option year stands on its own. Carrying over the balance into the next option year would violate the rule at FAR 17.207(f) that you must exercise an option in accordance with its terms. Since you have set a maximum for each of your options, carrying over the balance from one year to the next would increase the maximum of a following year, and thus would increase the scope of the option. Doing that would leave you vulnerable to a protest.

And by the way, the proper terminology is maximum quantity, not "ceiling.

Would this apply if the service IDIQ was not actually funded and only has estimated maximum quantities expressed in dollars? Our scenario is that we have a base + 4 option years with estimated funds for each period; funds are naturally not committed/obligated until the task order is cut. The writers of the initial IDIQ did not set a minimum, only a maximum. The base year was underutilized; however, we think we may need more than what was estimated for the first option period. Are we able to add (borrow) the unused maximum amount from a previous period to a subsequent year? Would it be legal to do a mod to decrease the max quantity on the base and move it to the option period where it's needed? If not, can you "borrow" the quantity from subsequent option periods? It's unfortunately too late to discuss the problems with the way the IDIQ was written--we just need to know what we are able to do with the monster we inherited! Thanks for any light that could be shed.

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My understanding is that the contract includes a maximum quantity for each option period. You did not reach the maximum in the base year, but you think you'll exceed the maximum in the option year. You want to know if you can add the balance from the base year to the maximum for the option year. There are two issues:

1. Whether adding the balance from the base year to the option year would change the scope of the contract for the option year, making you vulnerable to protest on that basis.

2. Whether you need the contractor's agreement in order to do that.

I think that the answer to both questions is yes. I think increasing the maximum for the option year would alter the scope of the contract for the option year and make you vulnerable to protest, unless you obtain approval of a justification for other than full and open competition. I also think that you would need the contractor's agreement in order to do it. (However, I would not expect the contractor to object unless it thinks its prices are too low.)

You can try interpreting the contract such that the you can carry over the balance and get the contractor to agree. Then, if you get a protest, you could back off or fight it depending on how strong you think your position is.

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My understanding is that the contract includes a maximum quantity for each option period. You did not reach the maximum in the base year, but you think you'll exceed the maximum in the option year. You want to know if you can add the balance from the base year to the maximum for the option year. There are two issues:

1. Whether adding the balance from the base year to the option year would change the scope of the contract for the option year, making you vulnerable to protest on that basis.

2. Whether you need the contractor's agreement in order to do that.

I think that the answer to both questions is yes. I think increasing the maximum for the option year would alter the scope of the contract for the option year and make you vulnerable to protest, unless you obtain approval of a justification for other than full and open competition. I also think that you would need the contractor's agreement in order to do it. (However, I would not expect the contractor to object unless it thinks its prices are too low.)

You can try interpreting the contract such that the you can carry over the balance and get the contractor to agree. Then, if you get a protest, you could back off or fight it depending on how strong you think your position is.

[/quote

Thanks so much, Vern. This is a base operating services IDIQ (a hybrid), which has a CLIN for the FFP portion and a CLIN for the task order portion...each have 4 option periods. To be honest with you, I'm not really sure how the second CLIN was even proposed (or source selection made) on, since none of the task orders were defined in the RFP. If, hypothetically, source selection was made solely on the basis of the FFP CLIN, would that change things?

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