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NavyKGuy

O&M Funding, End of Fiscal Year + "Substantial Performance"

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At this time of year, I am regularly reminded by contracting officers and 1102s that there needs to be "substantial performance" in the correct fiscal year of my Operations and Maintenance, Navy (O&M,N) funded service contracts that cross fiscal years.

By this I mean that I'm sitting in an office on the morning of 30 September trying to get approval signatures on an FY09 O&M,N funded service contract with a start date of 30 September 2009 and performance through 29 September 2010 and am being asked "Will there be substantial performance on this before tomorrow?" (As if the answer is going to be "no").

From where precisely does this question/test of "substantial performance" originate, what concrete examples of "passing" or "failing" exist and why do all 1102s apply it with such certainty?

I'm familiar with the GAO Red Book's discussion of services rendered beyond the fiscal year (pg 5-23) and the distinctions there concern services which are either severable or entire and personal or non-personal.

The "substantial performance" of the services in one fiscal year or the other doesn't seem to enter into the Red Book's discussion, but it certainly has a place of concern in the average 1102 mind I've encountered.

I'm curious as to how/why it got into that typical 1102's head and why it's not in mine?

NavyKGuy

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I've never heard the phrase "substantial performance" used in the context of funding actions crossing fiscal year. I may be wrong but I don't see that being a barrier to fund a contract like you describe. I see a lot of contracts at a lot of agencies and that never is an issue.

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I have never heard of "substantial performance" in the 5 organizations I have worked with over the last 10 years, so I don't believe it is a valid regulation as stated.

As far as contract actions awarded at the end of the year using 1 year or O&M funding, the policies I have seen allow for performance within the FY that the funds are associated with OR 1 year from the date of award if the requirement crosses fiscal years. The second is allowable providing that the award is recorded within same FY that the funding is associated with. The requirement for that is for the Head of the Executive Agency to establish a policy allowing for a severable contract funded and awarded in one FY to cross over into the next FY. Here is the FAR clause dealing with that:

32.703-3 Contracts crossing fiscal years.

(a) A contract that is funded by annual appropriations may not cross fiscal years, except in accordance with statutory authorization (e.g., 41 U.S.C. 11a, 31 U.S.C. 1308, 42 U.S.C. 2459a, 42 U.S.C. 3515, and paragraph (B) of this subsection), or when the contract calls for an end product that cannot feasibly be subdivided for separate performance in each fiscal year (e.g., contracts for expert or consultant services).

(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. 253l). Funds made available for a fiscal year may be obligated for the total amount of an action entered into under this authority.

Based on the FAR clause above, DoD has established that policy in the DFARS clause below:

DFARS 232.703-3 Contracts crossing fiscal years.

(B) 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 1 year (10 U.S.C. 2410a).

If the regulations strictly prohibited crossing FY's with O&M or 1 year funding, then there could never be any contract with a 1 year period of performance unless it was awarded on Oct 1 of any particular FY. Such a rule would be a "shoot ourselves in the foot" type of regulation, one that would hamper the acquisition process for no good reason. Not that our fearless leaders would not put such a rule in place, but generally such a thing does not happen.

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As my agency's K/Fiscal attorney, I see lots of bona fide need questions this time of year. Never heard of "substantial performance" with respect to funding severable service contracts. As long as the contract is one for severable services, the performance period starts in the current FY, and current funds are actually obligated, you can fund the entire period of performance (as long as it doesn't exceed 12 months) with OM, even though it might cross fiscal years.

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Gang,

Got that you've never heard of "substantial" performance, but it happened to me again today. Room full of people, contract starts on 30 September 2009 using Fiscal Year 2009 Operations and Maintenance, Navy (O&M,N) funds and I was asked by an attorney "are we sure that we will receive some "benefit" from these services before the end of the year? Will there be "substantial" performance?"

I'd ask her for the citations supporting her questions, but this attorney is more of a talker to the effect that all questions are answered with "there are GAO cases on this" than an "I'll give you a written opinion with specific case law" kind of a lawyer.

This thinking is coming from somewhere...I just don't know where.

Any thoughts?

NavyKGuy

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Guest Vern Edwards
Gang,

Got that you've never heard of "substantial" performance, but it happened to me again today. Room full of people, contract starts on 30 September 2009 using Fiscal Year 2009 Operations and Maintenance, Navy (O&M,N) funds and I was asked by an attorney "are we sure that we will receive some "benefit" from these services before the end of the year? Will there be "substantial" performance?"

I'd ask her for the citations supporting her questions, but this attorney is more of a talker to the effect that all questions are answered with "there are GAO cases on this" than an "I'll give you a written opinion with specific case law" kind of a lawyer.

This thinking is coming from somewhere...I just don't know where.

Any thoughts?

NavyKGuy

She's probably alluding to the Bona Fide Needs Rule, which is explained in the GAO's Principles of Federal Appropriations Law, Vol. I, 3d ed., Ch. 5. As applicable to your case, the GAO states it as follows:

An appropriation may not be used for the needs of some time period subsequent to the expiration of its period of availability. With respect to annual appropriations, a more common statement of the rule is that an appropriation for a given fiscal year is not available for the needs of a future fiscal year. Determining the year to which a need relates is not always easy.

She's undoubted worried that since the funds are for FY 2009 O&M, but will be spent entirely during FY 2010, the service might not actually be for a bona fide need of 2009.

Thus, where an obligation is made toward the end of a fiscal year and it is clear from the facts and circumstances that the need relates to the following fiscal year, the bona fide needs rule has been violated... Thus, a year-end obligation perhaps raises the possibility that the agency is trying to “dump” its remaining funds and warrants a further look, but the timing of the obligation does not, in and of itself, establish anything improper. 38 Comp. Gen. 628, 630 (1959); 6 Comp. Dec. 815, 818 (1900).

She may not have answered you immediately because she wants to do some research. See what she says in her legal opinion. I am not aware of any GAO fiscal law decisions about "substantial performance." The term does not appear in Principles of Federal Appropriations Law. A need for O&M might legitimately arise in one fiscal year and be satisfied in the subsequent year. I suspect that the issue will go away.

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Guest carl r culham

I did some limited research and would suggest that the lawyer may be on to something.

"Substantial performance" is term that has been used by GAO in approximately 11 or so decisions. While the decisions are not related to specifically appropriation matters the decisions when read together could suggest that GAO feels that a contract's performance could be defined as "substantial". Likewise using the basics of a Google search for the term "substantial performance" it is concluded that there is common law application of use of the term.

I would agree that pushing the lawyer on how the term applies is appropriate but would add that if it were me I would do further indepth research before I discounted the lawyers use of the term in your particular instance.

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Guest Vern Edwards

Actually, the term "substantial performance" appears in 71 GAO decisions, but as far as I have been able to determine, none of the decisions bear on appropriations law. The most frequent use of "substantial performance" is in connection with a bid protest in which the GAO sustained the protest but made no recommendation to the agency because the contract had been "substantially performed" by the time the GAO had made its decision.

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The rule with regard to end of FY contract awards in all agencies where I have ever worked is actual performance has to start in the current fiscal year. The way it was always explained to me is the contractor had to incur some expense in the current fiscal year. So this could be one billable hour of work, making (and paying for) travel arrangments, etc. It wasn't enough to simply have the period of performance start, but an expense also had to be incurred. I have never heard the term "substantial performance" mentioned in regards to this matter.

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The Red Book discusses a couple of cases that are relevant (p. 5-26):

In another 1981 case, GAO considered the District of Columbia?s recording of obligations for social security disability medical examinations. A person seeking to establish eligibility for disability benefits is given an appointment for a medical examination and a purchase order is issued at that time. However, for a number of reasons beyond the District?s control, the examination may not take place until the following fiscal year (for example, a person makes an application at end of fiscal year or does not show up for initial appointment). Nevertheless, the need for the examination arises when the applicant presents his or her claim for disability benefits. The decision concluded that the obligation occurs when the purchase order is issued and is chargeable to that fiscal year. 60 Comp. Gen. 452 (1981).

Training tends to be nonseverable. Thus, where a training obligation is incurred in one fiscal year, the entire cost is chargeable to that year, regardless of the fact that performance may extend into the following year. B-233243, Aug. 3, 1989; B-213141-O.M., Mar. 29, 1984. In 70 Comp. Gen. 296 (1991), training that began on the first day of fiscal year 1990 was held chargeable to 1989 appropriations where the training had been identified as a need for 1989, scheduling was beyond the agency?s control, and the time between procurement and performance was not excessive. If some particular training were severable (it is not entirely clear when this might be the case), the contract could not cross fiscal year lines and payment would have to be apportioned between the fiscal years in which the training is actually conducted. See 34 Comp. Gen. 432 (1955).

No mention of there having to be any performance in the fiscal year in which the funds were obligated.

The key issue is the bona fide need, not when performance takes place. Consider the first case with the medical appointments. Let's say the last appointment is made at the close of business on 30 September 2009. The Government issues a purchase order to the contractor using FY09 funds. The contractor receives the order on the morning of 1 October 2009 and subsequently begins performance. In this case, there has been no violation of fiscal law by the Government. They have obligated FY09 funds for a bona fide need of FY09 before the funds expired.

I think this we have a classic case of myth-information with this "substantial performance" business.

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