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gittist

T4C for failing to invoice?

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Here is an excerpt from section 080510 of the FMR on obligation of funds for purchase orders:

A purchase order requiring acceptance by the vendor in order to form a binding contractual agreement shall be recorded as an obligation in the amount specified in the order at the time of acceptance. Evidence of this acceptance shall be retained in the files. If written acceptance is not required or provided, then commencement of performance constitutes acceptance by the vendor, and the amount of the order shall be recorded as an obligation.

As this indicates, an obligation against a purchase order does not occur until the purchase order is accepted. This is consistent with 31 U.S.C. 1501 which states in part that:

An amount shall be recorded as an obligation of the United States Government only when supported by documentary evidence of—

(1)a binding agreement between an agency and another person (including an agency) that is—
(A)
in writing, in a way and form, and for a purpose authorized by law;
Thus, the issuance of a purchase order is not a contract that requires recording of an obligation until the purchase order is accepted. The question I have inartfully been asking is whether the agency issued a purchase order that was accepted to form a contract. If no contract has been formed, no obligation should have been recorded. Failure to deliver by the delivery date which should have been specified in the PO, without more, such as a communication from the contractor requesting an extension, would be an indicator that acceptance has not occurred.

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Retread:

So, pursuant to the FMR, a purchase order that does not require the contractor's signature indicating acceptance should not include a find citation and an amount when issued, but must be modified to add a fund cite and amount after the contractor has commenced performance? Or it must include those, but the P.O. should not be distributed pursuant to FAR Part 4 until the contractor has commenced performance? Or it should be distributed, but not recorded by the accounting and finance office until notified by the CO that the contractor has accepted? And so a P.O. that does not require the contractor's signature indicating acceptance must include a clause that requires the contractor to notify the CO after it has commenced performance, so the CO can document that event?

I think that whoever wrote the FMR needs to consult counsel. A purchase order is a unilateral contract upon issuance. The FMR is wrong about when a purchase order becomes a mutually binding contract. We know that from the Court of Federal Claims and the boards of contract appeals, which have ruled, repeatedly, that a purchase order binds the government to an option contract upon issuance, but that it does not bind the parties to the P.O.'s performance obligations until the contractor has substantially performed. Commencement of performance binds the government, but not the contractor.

I also think that the FMR misinterprets 31 U.S.C. 1501. A P.O. is binding upon the government upon issuance, and Section 1501 says "binding," not "mutually binding." That's consistent with FAR Part 13.

Of course, DOD COs should comply with the FMR, but I wonder how many do what I described above?

Anyway, thanks for the reference.

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This might help in the discussion…..as copied from here - DoD 7000.14-R Financial Management Regulation Volume 3, Chapter 8 * September 2009

080510. Purchase Orders

A. A purchase order may create an obligation when issued in the amount stated. This occurs when the purchase order represents acceptance of a binding written offer of a vendor to sell specific goods or furnish specific services at a specific price, or the purchase order was prepared and issued in accordance with small purchase or other simplified acquisition procedures.

B. A purchase order requiring acceptance by the vendor in order to form a binding contractual agreement shall be recorded as an obligation in the amount specified in the order at the time of acceptance. Evidence of this acceptance shall be retained in the files. If written acceptance is not required or provided, then commencement of performance constitutes acceptance by the vendor, and the amount of the order shall be recorded as an obligation. Formation of the binding contractual agreement should occur during the period of availability of the appropriation cited on the purchase order. If contract formation occurs after expiration of the period of availability of funds cited on the purchase order, the obligation must be recorded against current funds, and the purchase order contract modified accordingly.

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Thanks.

My comments in Post # 28 stand. If the P.O. requires acceptance, and there is no obligation until acceptance, then it seems that either the order must be modified to add a funds citation and amount of obligation after the acceptance takes place or some procedure must be established to hold off on recording an obligation until the acceptance has been established and documented. That makes no sense to me, since the government is obligated to the contractor upon issuance to fulfill its duties if the contractor choses to exercise its option to accept, unless the government cancels the order first. Even then, according to FAR Part 13, the government may be liable for termination costs. It seems to me that the obligation occurs upon issuance.

I think it's clear that the DOD FMR is wrong on the law of contracts. But DOD is certainly within its rights to set policy about recording an obligation. I cannot remember that while working for DOD we even thought about such things. My recollection is that we issued a P.O.with a funds cite and an amount and distributed the document upon issuance. I frankly don't remember (if I ever knew) what the accounting and finance office did.

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The following is from the 2014 Fiscal Law Deskbook published by the U.S. Army's Judge Advocate General's Legal Center and School, Contract Fiscal Law Department. It is from Chapter 3, pages 3-4 to 3-5. I have highlighted the language that seems to me to be relavant to this discussion:

F. Obligation.

1. Definition: A definite act that creates a legal liability on the part of the government for the payment of goods and services ordered or received, or a legal duty on the part of the United States that could mature into a legal liability by virtue of actions on the part of the other party beyond the control of the United States. Payment may be made immediately or in the future. An agency incurs an obligation, for example, when it places an order, signs a contract, awards a grant, purchases a service, or takes other actions that require the government to make payments to the public or from one government account to another. GAO Glossary, at 70.

The emphasized language seems to fit purchase orders.

The following is from Chapter 5, pages 5-18 to 5-19, "Obligating Appropriated Funds," Section V, "Amounts to Obligate," Subsection B.6., "Purchase Orders":

a. A purchase order creates an obligation if the purchase order represents acceptance of a binding written offer of a vendor to sell specific goods or furnish specific services at a specific price, or the purchase order was prepared and issued in accordance with small purchase or other simplified acquisition procedures. DOD FMR, vol. 3, ch. 8, para. 080510A.

b. A purchase order requiring acceptance by the vendor before a firm agreement is reached must be recorded as an obligation in the amount specified in the order at the time of acceptance. If written acceptance is not received, delivery under the purchase order is evidence of acceptance to the extent that delivery is accomplished during the period of availability of the appropriation or funding cited on the purchase order. If delivery is accepted subsequent to the period of availability, a new or current funding citation must be provided on an amended purchase order. DOD FMR, vol. 3, ch. 8, para. 080510B.

Note that paragraph b. does not repeat the FMR's statement that acceptance occurs upon commencement of performance.

Further reading in the publication suggests that the P.O. is backed by an administrative commitment of funds until obligation occurs. What procedure the comptroller office uses to convert the commitment to a recorded obligation is unclear to me. Neither is it clear to me how this works in light of FAR 13.302's discussion of cancellation and termination.

Interesting.

What we know from the board and COFC decisions is that the purchase order becomes irrevocable once the contractor begins to perform and the purchase order expires if the contractor has not delivered by the stipulated date delivery date. Acceptance by the contractor takes place upon substantial completion.

Edited by Vern Edwards

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It seems the FMR and the FAR are in conflict as to when acceptance of the P.O. takes place:

The FMR states: "If written acceptance is not required or provided, then commencement of performance constitutes acceptance by the vendor, and the amount of the order shall be recorded as an obligation."

The FAR states: "When appropriate, the contracting officer may ask the supplier to indicate acceptance of an order by notification to the Government, preferably in writing, as defined at 2.101. In other circumstances, the supplier may indicate acceptance by furnishing the supplies or services ordered or by proceeding with the work to the point where substantial performance has occurred."

Commencement of performance is not the same as furnishing the supplies/services or proceeding until substantial performance has occurred. Commencement of performance may make the Government liable if a unilateral purchase order is cancelled, but I know of no basis in the law for the proposition that commencement of performance constitutes acceptance.

So, what Vern said in different words.

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In our electronic writing system which is integrated with our finance system, the unilateral purchase orders are obligated immediately when the CO hits the submit button in Momentum Acquisitions to award it.

Please don't make my head hurt with all this talk of it not really being obligated until delivered.

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So, it appears from the many responses in this thread to my original questions (below) is that no one is aware of any authority that is on point?

Does anyone know of any REDBOOK, case law, or other authority that addresses:

1. The contractor's duty to submit invoices (timely?), or

2. The extent of the Government's duty to pursue invoices?

I do appreciate all of the responses however waiting 6 years is not an option because we are under pressure to get these off the books.

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I think that your Finance office is wise not to record a deobligation of funds. Creating an obligation and recording an obligation are two different things. From what you described, the obligation created by the contract has not been reduced in any way.The "recording statute" (31 USCA § 1501) requires that the amount of funds recorded as obligated must be the same as the amount of the obligation that was created. Reducing the amount recorded as an obligation does not mean that you have reduced the amount of the obligation created by the contract. However, it may mean that you have under-recorded the Government's actual obligation.

For more on this subject, see the discussion beginning on p. 7-6 of the GAO Redbook (Criteria for Recording Obligations (31 USCA § 1501)),

I respectfully disagree. If terminating (partial or fully) doesn't reduce the amount of the obligation, what does?

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Why would a Termination trigger a deobligation if you don't know how much has been delivered and if there is no termination settlement proposal or termination settlement ?

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Does anyone know of any REDBOOK, case law, or other authority that addresses:

1. The contractor's duty to submit invoices (timely?), or

2. The extent of the Government's duty to pursue invoices?

There is nothing in the Redbook about failure or refusal to invoice. (The term "invoice" appears in 18 places.) I don't know of any rule (statute, regulation case law, policy) that says the Government has to "pursue" invoices. I don't know of any contract clause that requires a contractor to submit an invoice or the government to demand an invoice. As far as I have been able to determine, failure to seek or demand payment is not a breach of contract.

What do you do when a contractor won't bill you? You've been given some suggestions, and you seem to have come to the end of your rope here. You apparently know what you want to do. So why don't you just go off and do it, or do whatever else you can get the others in your organization to agree to?

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I respectfully disagree. If terminating (partial or fully) doesn't reduce the amount of the obligation, what does?

You didn't say that the termination would reduce the amount of the work the contractor was required to perform. Will it? You said you wanted to terminate because they didn't send you an invoice for the work.

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Gittist, the only requirements that I know of in the FAR that require a contractor to submit an invoice within a certain time period are in 52.216-7 for cost reimbursement contracts and 52.232-7 for T&M contracts.

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Retread:

Under those clauses, a contractor has to submit an invoice only if it wants to get paid. Failure to submit an invoice would not be a breach of contract.

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Vern, that is true, but under 52.216-7, if the contractor does not submit a timely completion voucher, the contracting officer can issue a final decision establishing the amount due to the contractor. Once that decision is issued, at most the contractor has one year within which to challenge it.

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Vern, that is true, but under 52.216-7, if the contractor does not submit a timely completion voucher, the contracting officer can issue a final decision establishing the amount due to the contractor. Once that decision is issued, at most the contractor has one year within which to challenge it.

With respect to the instant situation, gittist indicated in the 23 December post number #4 that the contractor(s) might not be able to document what has been provided and it is pretty apparent that the government can't or didn't document everything that it received. I would think that a KO would have a very difficult time issuing a factually or even good faith based final decision without trying to work out a settlement - or get agreement to closeout the contract - or wait out the 6 year claims limit (which is apparently untenable to the organization). I remember years ago notifying a contractor or two that if we didn't hear from them within some stated period, we would administratively close out the contracts. Then we did it.

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Retread:

FAR 52.216-7(d)(6) provides as follows:


(6)(i) If the Contractor fails to submit a completion invoice or voucher within the time specified in paragraph (d)(5) of this clause, the Contracting Officer may—

(A) Determine the amounts due to the Contractor under the contract; and

Record this determination in a unilateral modification to the contract

(ii) This determination constitutes the final decision of the Contracting Officer in accordance with the Disputes clause.

Do you believe that the unilateral modification would constitute a government claim?

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The section of 52.216-7 Vern quoted in #42 concerns submission of final invoices after settlement of indirect cost rates ("billing rates"). It acknowledges that final billing rates will likely be agreed-upon/determined literally years after physical completion of the contract. Once those final billing rates are agreed-upon or determined, the contractor has 120 days to submit the contract's final invoice. That's all it says.

It does not address routine submission of vouchers for interim payments.

H2H

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Vern, I believe the modification establishing the amount due the contractor for failure to submit a completion invoice would be a government claim against the contractor just as a default termination is a government claim. It certainly is not a decision on a claim by the contractor. Because the modification constitutes a final decision under the Disputes clause, hopefully, the contracting officer would include all the requisite information for a decision in the modification, particularly the contractor's appeal rights. In any event, the time to appeal from the final decision, whether it is a decision on a government claim or contractor claim, would be either 90 days for an appeal to the appropriate contract appeals board or one year for filing suit in the COFC.

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Thanks, Retread. I agree. I think it would be a nonmonetary claim based on the Allowable Cost and Payment clause paragraph (d)(5) requirement to submit a final invoice within 120 days. The contractor's failure to comply would violate the terms of the clause. The government would be claiming "other relief" under the definition of claim in FAR 2.101 and making the unilateral determination and final decision on that basis.

Although the issue has not been litigated based on the Allowable Cost and Payment clause, as far as I can determine, a recent ASBCA decision is illustrative of the idea: Dynport Vaccine Co., LLC, ASBCA 59298, Jan. 15, 2015. The decision raises many questions, but a similar decision was affirmed by the Federal Circuit: General Electric Co. v. U.S., 987b F. 2d 747 (1993). See also General Electric Co., ASBCA 36005, 91-2 BCA 23958. Quite controversial at the time. Prof. Nash discussed the decisions recently in the March 2015 issue of The Nash & Cibinic Report.

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Maybe too simple, but why not pursue this matter through the lens of contract closeout?  Finalize a Release of Claims and/or Refunds, Rebates, and Credits and follow-up with a deobligation modification (if applicable). 

The signed Release form will alleviate any concerns of future claims/invoices. 

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It's poorly written. It means:

1. A purchase order is an offer of an offer. It says that if the recipient accepts the purchase order offer, then it will get a second offer to pay if the contract chooses to perform. If the recipient accepts the purchase order offer, it will then have a unilateral contract under which the Government offers to pay if the contractor chooses to perform. If the contractor accepts the purchase order offer, the Government is bound to hold its pay for performance offer open, but the recipient is not bound to perform. The Government generally may withdraw the purchase order offer at any time prior to the recipient's acceptance.

2. Commencement of performance by the recipient will constitute acceptance of the Government's purchase order offer, at which point the recipient will have a contract option to perform in return for payment. From that point on, the Government can no longer withdraw that offer to pay for performance until its term expires, but the recipient can now choose to complete performance or not. Completion of performance will be the exercise of the option to perform in return for payment. 

3. Substantial performance by the recipient is considered tantamount to completion of performance and will thus constitute exercise of the option to perform in return for payment. From that point on the recipient is now a contractor and subject to T for D.

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