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ID/IQ Bonafide Need Rule and Contractual Minimums

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I awarded a ID/IQ contract to three contractors in February '15. We have awarded task orders to two of the three contractors to satisfy the minimum, however, based on the forecast, it is possible that the third contractor might not have the minimum satisfied in the current fiscal year (15/16).

To determine our next steps, there have been multiple discussions between contracting officers, legal and branch chiefs. I am a new contracting officer and this is the first task order contract I have administered. I suggested using the fair opportunity exception at FAR 16.505 (b ) (2)(i)(D) to sole source a TO in order to satisfy the minimum.

My team leader reviewed my stance and responded as follows:

"Seems to me your options are limited. Because the awards were made in FY 15 the Bonafide Need rule requires that the funds available at the time of award FY 15/16 being retained under each contract (whether on the contract or task order). The issue at hand is one of the Agency getting use out of its obligated funds and should be distinguished from a case of needing to satisfy our minimum commitment to the contractor (which does not arise until the ordering period expiries.

1. Satisfying our Appropriation Rule on Bonafide Need

We need to maintain 15/16 funding under each contract, whether under the contract itself of under an issued TO that may extend beyond the funds availability for obligation, but will be supportive of the BN at the time of issuance.

TO with performance periods stretching beyond the availability of FY 15/16 funds while this appropriation is available would preserve the BN supporting the underlying contract.

If we issue a TO using 16/17 funds, we would meet our contractual obligation to the contract holder, but we would still have to keep the funds obligated at award (15/16 funds) on the contracts and to do so otherwise would result in a violation of the BNR, as we would have failed to support the BN for what the contract was procuring. "

Legal went further to state:

A sole source task order under the exception to FAR 16.505 (b )(2)(i)(D) cannot be issued. The contract POP is 5 years. Therefore, approximately 4 years remain of the POP, while approximately 7 months remain prior to the end of the fiscal year. Consequently, there is enough time for the contract holder in question to receive additional competitive task order awards sufficient to liquidate the balance of the minimum amount obligated to the contract at the time of the award. Neither the FAR guidance nor any of the clauses included in the contract provide for an exception to the "fair opportunity to compete" for task orders that would facilitate the reduction of the outstanding minimum balance and avoid the expiration of the FY funds placed on the contract at the time of award. Furthermore, failure to issue a task order to the contractor in question under which 15/16 funds can be used, does not mean the money is "lost" per se, What it does mean is that , if the Agency does not issue any task orders to the contract holder in question between now and the end of the ordering period, those FY 15/16 funds will still be available to liquidate whatever portion of the minimum is due and owing to the contract holder in question. As to how that amount is calculated, I direct your attention to the CAFC case White v. Delta Construction International, Inc., 285 F.3d 1040. What that means is: The contractor in question would only be due payment of an amount that reflected the delta between the costs it would have incurred had the minimum amount been satisfied in total, given indirect costs and profit.

So. I have two questions:

1. How does White V. Delta overrule the Government from fulfilling its obligation under 52.216-22?

2. Why would the use of the fair opportunity exception at FAR 16.505( b ) (2) (i)(D) to sole source a TO in order to satisfy the minimum not apply? I would think the potential to violate the BNR would be even more of a reason to sole source.

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Does the parent IDIQ contract require that the Government order the minimum during "the current fiscal year (15/16)"? YES NO

Forget Bona Fide Need Rule and all that for now. What does the contract say?

I'm not sure you have a problem. If you don't order the minimum within the required time, the contractor's remedy is provided for in the Disputes clause. You do not need to do anything. Indeed, with the advice you are getting, you should probably do nothing and wait for a claim. If it comes, and the contractor proves damages but you're unable to agree on amount, BCA or other case law will help provide precedent for the amount of the contractor's recovery.

If you have a valid need and want to issue an order for the minimum, you can. There is nothing in FAR 16.505( b )( 2 ) that requires you to wait until the contract is almost complete -- did your attorney cite a case for that argument? If there is such a case, I'd like to read it.

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So, you recorded an obligation for the minimum in Feb. 2015, but you never ordered any work, correct? Now you want to know if you can order work to satisfy the minimum. You won't be obligating any funds when you issue and order for the minimum, correct?

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So. I have two questions:

1. How does White V. Delta overrule the Government from fulfilling its obligation under 52.216-22?

2. Why would the use of the fair opportunity exception at FAR 16.505( b ) (2) (i)(D) to sole source a TO in order to satisfy the minimum not apply? I would think the potential to violate the BNR would be even more of a reason to sole source.

bkl14:

1. Your question about White v. Delta reflects a misreading of the decision. Whte v. Delta did not "overrule" the government's obligation to buy the minimum. In White v. Delta the agency did not order the entire minimum. The contractor claimed the difference between the minimum and the amount actually ordered. The CO denied the claim, saying that failure to order the minimum does not automatically entitle the contractor to payment of the minimum amount. On appeal from the CO's final decision, the ASBCA ruled in favor of the contractor. The Federal Circuit reversed, saying that in the case of such a breach the contractor is not automatically entitled to payment of the minimum amount, but only to compensatory damages for breach.

2. I do not understand your legal office's rationale for saying that a sole source order cannot be issued pursuant to FAR 16.505(2)(i)(D). I'm not saying that they're wrong, only that I don't follow their reasoning. Whoever wrote the paragraph in your post that begins "A sole source task order..." does not write very clear English. And the explanation in that paragraph of the holding in White v. Delta is bizarre. Is that paragraph a quote, or did you paraphrase? If it's a quote, are you sure it was written by a lawyer? If so, are you sure that "lawyer" went to law school?

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Thank you everyone for your responses.

JJ: I'm not sure what your are asking, but we have 2yr money, so in order to use the money obligated at contract award, it would need to be done in the FY 15/16.

Don: Yes, we obligated 15/16 funds that will expire 9/30/16 and have ordered work for only two of the three contractors. The practice in our agency is when the first task order is awarded, we allocate from from the obligated amount at the contract level to the task order. This satisfies the minimum However, the forecast is grim and I'm concerned the minimum will not be satisfied for the third contractor before the money expires. Since we are a civilian agency, money is hard to come by, so to avoid losing the 15/16 funds obligated at award for the minimum, I suggested awarding a sole source task order to Contractor 3 to satisfy the minimum.

Vern: Funny thing, both of the people reviewing my approach are attorneys. Legal's stated that I can't justify issuing a sole source to satisfy the minimum in the first year of contract performance to avoid the expiration of the 15/16 funds. Legal's position is the contract has an ordering period of 5 years to satisfy the minimum for all three contractors, therefore, issuing a sole source task order to satisfy the minimum after 1 year of service is not justified. Legal went on further to state that it is not the Government's obligation satisfy the minimum and cited the White v. Delta case was used to support their position.

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bkl14:

You wrote:

Legal's position is the contract has an ordering period of 5 years to satisfy the minimum for all three contractors, therefore, issuing a sole source task order to satisfy the minimum after 1 year of service is not justified. Legal went on further to state that it is not the Government's obligation satisfy the minimum and cited the White v. Delta case was used to support their position.

With respect to the first sentence and the assertion that you have five years to buy the minimum, tell your lawyers to read U.S. Small Business Administration--Indefinite-Delivery Indefinite-Quantity Contract Guaranteed Minimum, B-321640, 2011 CPD ¶ 184, 2011 WL 4376308, September 19, 2011. According to the GAO, when awarding an IDIQ contract you must record an obligation of funds to cover the minimum quantity at the time of award. Thus, funds must be available to obligate. According to GAO's bona fide needs rule, the minimum must be a bona fide need of the period for which the funds were appropriated. That being the case, you cannot order the minimum, or a portion of it, at any time during a five-year ordering period using funds that were appropriated for earlier years and obligated to cover the minimum at the time of contract award. To do so would violate the bona fide needs rule. Having said that, it may be that your two-year money is really multiple year or no-year funds on which the agency put an internal administrative two-year limit. If so, your legal might be right about you having five years.

With respect to the second sentence, is it possible that you have misunderstood legal's position? White v. Delta does not stand for the proposition that the government is not obligated to buy the minimum. FAR 52.216-22 states: "The Government shall order at least the quantity of supplies or services designated in the Schedule as the 'minimum'." That is clear and unambiguous. White v. Delta stands for the proposition that the government's failure to buy the minimum is a breach of contract and the government is liable for breach damages, but not for automatic payment of the dollar value of the minimum.

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bkl14,

Your legal counsel wrote:

"A sole source task order under the exception to FAR 16.505 (b )(2)(i)(D) cannot be issued. The contract POP is 5 years. Therefore, approximately 4 years remain of the POP, while approximately 7 months remain prior to the end of the fiscal year. Consequently, there is enough time for the contract holder in question to receive additional competitive task order awards sufficient to liquidate the balance of the minimum amount obligated to the contract at the time of the award. Neither the FAR guidance nor any of the clauses included in the contract provide for an exception to the "fair opportunity to compete" for task orders that would facilitate the reduction of the outstanding minimum balance and avoid the expiration of the FY funds placed on the contract at the time of award."

The bolded sentence is correct regarding the FAR guidance. However, they've interpreted the absence of direction in your specific situation as a prohibition. That interpretation runs counter to FAR 1.102-4(e):

The FAR outlines procurement policies and procedures that are used by members of the Acquisition Team. If a policy or procedure, or a particular strategy or practice, is in the best interest of the Government and is not specifically addressed in the FAR, nor prohibited by law (statute or case law), Executive order or other regulation, Government members of the Team should not assume it is prohibited. Rather, absence of direction should be interpreted as permitting the Team to innovate and use sound business judgment that is otherwise consistent with law and within the limits of their authority. Contracting officers should take the lead in encouraging business process innovations and ensuring that business decisions are sound.

From the standpoint of FAR compliance, I don't see a problem with your proposed approach.

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