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DTMD

Guaranteed Minimum fully funded in FY?

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Hello,

I've taken a new position and have a situation presented to me that I require some expert advice.  Apparently there is a new ID/IQ about to be awarded.  The RFP language states that the guaranteed minimum will be met with the issuance of TO 1 (will be a simultaneous award).  I understand I we could incrementally fund  - but the guaranteed minimum requirement muddies the water for me.  My question is this:  Does this TO 1 have to be fully funded at time of award or can we incrementally fund?  (Contract type will be hybrid, funds RDT&E, Award FY16 last quarter,

I'm a little confused as some things I've read indicate it must be fully funded with the current FY funds since it is to meet the guaranteed minimum.   (GAO Rebook on Obligation rules that the  guaranteed minimum has to be fully funded on the IDIQ or the simultaneously  awarded TO. Reference GAO 06-382SP Volume 2, 3rd Edition, Chapter 7, page 7-21, paragraph 2.)

I'm told that FAR clause 52.232-19, Availability of Funds for the Next Fiscal Year and DFARS 252.232-7007 Limitation of Government's Obligation will be included in the contract award.

Obviously being able to incrementally fund would be most beneficial - can anyone help me find here to educate myself further on the issue or provide any clarification?

 

Thanks so much!

 

v/r

T

 

 

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An obligation is an obligation, no matter whether it's an entire contract or a task order providing the guaranteed minimum under an IDIQ contract.

If you can incrementally fund a new contract, which is an obligation, why can't you incrementally fund a task order that buys the guaranteed minimum, which is an obligation?

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I'm a little confused as some things I've read indicate it must be fully funded with the current FY funds since it is to meet the guaranteed minimum.

I do not believe that the Red Book says that an IDIQ minimum must be "fully funded." Please quote the precise passage that says "fully funded," and make sure you're reading the current edition of the Red Book from the GAO website. Volume II of the current edition of the Red Book uses the term "fully funded" only twice, and neither time in connection with IDIQ minimums.

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DTMD, don't get recording of an obligation and providing a fund cite on a contract confused.  When an IDIQ contract is issued, the minimum must be recorded as an obligation.  However, a fund cite does not have to be provided until a TO is issued.  In your case, the entire minimum would be recorded as an obligation when the contract is awarded.  At the same time, you would allot a portion of that obligation to the contract as the first increment of funding for TO 1 if the TO is awarded simultaneously with the contract.  This would be done through a fund cite identified in the TO.

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Retread:

I think that's bad advice. Different agencies have different policies and procedures with regard to the matter of funds obligation and recording. How do you know that what you wrote is universally true or true for DTMD? What official reference can you provide?

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This is what I read:

"What does all this signify from the perspective of obligating appropriations? As we noted at the outset, the obligational impact of a variable quantity contract depends on exactly what the government has bound itself to do. A fairly simple generalization can be deduced from the decisions: In a variable quantity contract (requirements or indefinite quantity), any required minimum purchase must be obligated when the contract is executed; subsequent obligations occur as work orders or delivery orders are placed, and are chargeable to the fiscal year in which the order is placed. B-302358, Dec. 27, 2004."

Am I to understand that the obligation does not have to be the full amount, but can in fact be an incremental funded amount?  That would be wonderful... however can someone point me to some guidance I can have in my back pocket and for future reference?

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I don't think you'll find guidance specific to IDIQ contracts. Some obligations must be funded fully (such as FFP supply contracts) and some may be funded incrementally (such as FFP or CPFF R&D contracts). See your own agency's policy.

If a particular task order may be funded incrementally, then the fact that the order is fulfilling the government's obligation to buy a minimum should not make any difference.

Rather than you asking us for proof that it's okay to incrementally fund such an order, show us something that says it's not okay. What's bothering you is your own lack of certainty, not any rule that you have read. If you want something definite, go talk to your finance office. I can tell you this: after 42 years in the contracting business I have never seen or heard anything that leads me to believe that you cannot incrementally fund a task order that fulfills the government's obligation to buy an IDIQ minimum. Whether you actually buy the minimum under that task order depends on what happens under the order.

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I see, you are correct.  I am uncertain - I also know those above me are as well and have to brief senior leadership.  I definitely don't doubt your expertise, so please don't take that as my intent.

I think the "muddiness" I expressed is exactly because I can't find anything that says either way solidly.

Thanks for the assistance!

 

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2 hours ago, DTMD said:

I think the "muddiness" I expressed is exactly because I can't find anything that says either way solidly.

Sure you can, you're just conflating two concepts.  The issue of "obligation" is separate from "funding" (full funding versus incrementally funding).

Obligating the Government is to bind the Government to that contract action (i.e. executing an order for the minimum purchase amount) - see definition of "obligate" (https://ahdictionary.com/word/search.html?q=obligate)

When/how the Government obligates itself is when the issue of funding comes into play - you have two situations that may arise per FAR 32.703-1: full funding or incremental funding (I say may, because as Vern pointed out, some contracts cannot be incrementally funded).  As long as you meet your agency's requirement(s) for incremental funding you may do so.

The two are often conflated/married together because the Anti-Deficiency Act  (http://www.gao.gov/legal/anti-deficiency-act/about) prohibits:

  • "making or authorizing an expenditure from, or creating or authorizing an obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund unless authorized by law. 31 U.S.C. § 1341(a)(1)(A).
  • involving the government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law. 31 U.S.C. § 1341(a)(1)(B).
  • accepting voluntary services for the United States, or employing personal services not authorized by law, except in cases of emergency involving the safety of human life or the protection of property. 31 U.S.C. § 1342.
  • making obligations or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted by agency regulations. 31 U.S.C. § 1517(a)."

See how the terms "obligation" and "funds" come up together consistently, yet also notice how they are separate (this is, in fact, how violations of the ADA occur...obligations without funds, for example).

Now reread that excerpt you provided - it says nothing about a requirement for full funding.  Maybe some other regulation applicable to your agency does, but the one you quoted, in my opinion, does not prohibit incremental funding of task orders for the minimum order under an IDIQ as long as you cover the minimum.

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Think of it this way: What we call "incremental funding" is really incremental obligation. In order to understand that, read the Limitation of Funds clause, FAR 52.232-22, paragraph (f). The incremental funding clause is really an option clause. The parties agree to pursue an undertaking up to the point at which the contractor has spent the total amount allotted. At the point, the obligations of the parties are at an end, but the government has the option of requiring the contractor to continue to perform as long as it provides additional funds.

Now, the question under an IDIQ contract is whether the contract is written to apply the clause to (1) the contract, (2) to orders issued under the contract, or (3) to both. Another question is what kind(s) of funds you have and how to apply the bona fide needs rule with respect to the minimum. Perhaps the most fundamental question is: What do you mean by "incremental funding"?

Fun stuff.

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28 minutes ago, Vern Edwards said:

Think of it this way: What we call "incremental funding" is really incremental obligation. In order to understand that, read the Limitation of Funds clause, FAR 52.232-22, paragraph (f).

Does that mean my characterization of the issue at hand is incorrect?  I've just looked at obligations and funding as two separate issues and, to your point, see FAR 52.232-22(f) as conditioning the extent of each parties' obligation, but I understand how functionally it creates incremental options as you discuss.

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DTMD, since you referenced a DFARS clause, I will assume that you work for a DoD component.  If that is the case, look at the Financial Management Manual, Vol. 3 Ch 8 para. 080604 which says in part "the amount of any required minimum order specified in the contract, however, must be recorded as an obligation upon execution of the contract."  Based on this, and the portion of the Redbook that you quoted, the full amount of the minimum must be recorded as an obligation when the contract is awarded.  The minimum amount is an obligation of the government that must be recorded when the obligation is incurred (contract awarded).  That means you must have sufficient funds in the appropriation used to fund the contract to cover the minimum amount when the contract is awarded.  If not, you may incur an Anti-Deficiency Act violation.

The FMR does not contain any discussion of incremental funding or incrementally funded contracts. 

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Matthew:

Obligation is the act of making a contractually binding promise to pay for something with appropriated funds.

"Funding" a contract means that (1) a CO has made an obligation, (2) the CO has funds, and (3) the CO has commenced the process of recording an obligation by citing the long-line funds account on a contract document and distributing a copy of that document to the finance office.

A CO might make an obligation without funds available, but in so doing will violate the ADA. If the CO improperly cites funds that are not available, the CO will also violate the recording statute.

A CO might make an obligation with funds available, but without properly recording it. Such an act will not violate the ADA, but will violate the recording statute.

A CO might record an obligation when, in fact, there is no obligation. That, too, would violate the recording statute.

When a CO "incrementally funds" a contract, the clause at FAR 52.232-22 makes it clear that he or she is actually incrementally obligating the government. Because the obligation is incremental, it follows that the funding is incremental as well, since you cannot fund a nonexistent obligation. But we tie the obligation to the level of the contractor's expenditure. We are obligated as long as there is money to pay. Reciprocity.

If effect, we say: Do X. We have this much money. Work toward X until the money runs out. When it runs out, we're done, unless we exercise our option to continue to provide money for the further pursuit of X.

Make sense?

 

 

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1 minute ago, Vern Edwards said:

Make sense?

Yes, we're on the same page.  Thanks!

As for DTMD's question, I think a scenario would help explain the funding requirements as I see them:

If the minimum order specified in the contract is $120,000 and the plan is to place an order for $120,000 and incrementally fund $10,000 per month, that would not meet the requirements previously posted; however, if the plan is place a minimum order for $240,000 and incrementally fund by at least funding $120,000 when the order is placed, then incremental funding may be permissible (I say may because I don't know your agency's procedures, the type of contract, or funds at hand).

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15 hours ago, Retreadfed said:

The FMR does not contain any discussion of incremental funding or incrementally funded contracts. 

Uh, Retread, take a look at FMR (DOD 7000.14-R) Volume 2A. Do a pdf search for "incremental" and you'll find, for example, a definition of incremental funding (p. 1-14). a discussion of incremental funding of RDT&E (beginning on p. 1-48), and a brief discussion of the relationship between full funding and incremental funding policy (p. 1-25). Volume 2B includes a discussion of incremental funding of construction projects.

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Vern, there is a definition of "incremental funding" in the FMR.  However, the discussion on p. 1-48 deals with budget formulation for RDT&E effort.  There, the  FMR states  "[t]his Chapter specifies the principles to be followed, and establishes the criteria and definitions to be used, in the preparation of the annual Research, Development, Test and Evaluation (RDT&E) budget estimates on an incrementally funded basis."  In this context, incremental funding is used to refer to obtaining appropriations on an incremental basis.   It does not provide substantive guidance on incrementally funding contracts or task orders.  Similarly, the discussion in Vol 2B concerns budget formulation for construction funds, not contracting.  Finally,  the discussion of the relationship between full funding and incremental funding beginning on p. 1-25 of Vol 2A again indicates that the FMR is using "incremental funding" in the context of budgeting when it describes "full funding" as "a budgeting rule."  It goes on to state that an item is "fully funded only when funds are budgeted, programmed and available to cover the total estimated cost of the item."    It provides no guidance on whether a contract can be incrementally funded when an item is fully funded within the applicable budget and appropriation.  After having read your references, I still do not see a discussion in the FMR on incrementally funding contracts or task orders.

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Retread:

A definition of incremental funding is an essential matter, as is a discussion of incremental programming, since it is when a program is incrementally funded that the contract for that program must be incrementally funded. Any CO who does not understand the programmatic underpinnings of incremental funding doesn't know enough.

Besides, what else is there to talk about but contract mechanics--notifications, allowability, funding mods, and such.

Think what you like--your statement was misleading.

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Vern, incrementally funding of contracts is a topic where people are all over the ballpark in regard to what it is.  I would like your view of the following scenario.  DARPA awards a cost reimbursement R&D contract for research on ultra light aircraft.  The contract has a base period and two option periods with each period having a discrete estimated cost.  If exercised, each option will be fully funded when the option is exercised.  In this case, is the contract an incrementally funded contract and which clause, the Limitation of Cost, the Limitation of Funds or both would apply to the contract?

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1 hour ago, Retreadfed said:

Vern, incrementally funding of contracts is a topic where people are all over the ballpark in regard to what it is.  I would like your view of the following scenario.  DARPA awards a cost reimbursement R&D contract for research on ultra light aircraft.  The contract has a base period and two option periods with each period having a discrete estimated cost.  If exercised, each option will be fully funded when the option is exercised.  In this case, is the contract an incrementally funded contract and which clause, the Limitation of Cost, the Limitation of Funds or both would apply to the contract?

If an agency is governed by FAR, then people should not be all over the ballpark about whether a contract is fully or incrementally funded.

FAR 32.703-1:

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(a) If the contract is fully funded, funds are obligated to cover the price or target price of a fixed-price contract or the estimated cost and any fee of a cost-reimbursement contract.

(b) If the contract is incrementally funded, funds are obligated to cover the amount allotted and any corresponding increment of fee.

Since DARPA is part of DOD, see also DFARS 232.001:

Quote

Incremental funding means the partial funding of a contract or an exercised option, with additional funds anticipated to be provided at a later time.

I cannot answer your question, because while you have told me that the option periods would be fully funded, you have not told me how the base period has been funded. Are the estimated cost and fee fully or partially funded?

It could be that DARPA's program/project is incrementally funded. An incrementally funded program might encompass several efforts and contracts, and some of the contracts might be incrementally funded while others are fully funded. If DARPA's ultra light program is incrementally funded, the contract in question might be for a particular facet of ultra light research and fully funded through the use of a "base period" (more likely an initial phase) and option "periods" (phases). If the initial phase is fully funded, then since the options are fully funded, the contract is fully funded, and should not contain either FAR 52.232-20 or 52.232-22.

If a program is fully funded, then, ordinarily, there should be no need for any of the program contracts to be incrementally funded.

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The base or initial period would be fully funded.

You would be surprised how many government contracting officers take the position that if a contract contains options, the contract is incrementally funded and that the Limitation of Funds clause applies to such contracts if they are cost reimbursement contracts.  This holds true even if each performance period in the contract is fully funded.

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Retread:

Well, we shouldn't be surprised based on what you and I know about how poorly basic concepts are understood.

We are in a very complicated business, in which too many people are employed who have not been given decent training. Wifcon Forum is a virtual laboratory for the study of ignorance of fundamentals among contracting people.

My heart goes out to the newcomers, but I can no longer do anything about it. All I can do at this point is tell them: Study. Study. Study. Don't be ignorant. Ignorance is a mortal illness that can be cured.

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On 8/16/2016 at 4:05 PM, Vern Edwards said:

If an agency is governed by FAR, then people should not be all over the ballpark about whether a contract is fully or incrementally funded.

FAR 32.703-1:

Since DARPA is part of DOD, see also DFARS 232.001:

I cannot answer your question, because while you have told me that the option periods would be fully funded, you have not told me how the base period has been funded. Are the estimated cost and fee fully or partially funded?

It could be that DARPA's program/project is incrementally funded. An incrementally funded program might encompass several efforts and contracts, and some of the contracts might be incrementally funded while others are fully funded. If DARPA's ultra light program is incrementally funded, the contract in question might be for a particular facet of ultra light research and fully funded through the use of a "base period" (more likely an initial phase) and option "periods" (phases). If the initial phase is fully funded, then since the options are fully funded, the contract is fully funded, and should not contain either FAR 52.232-20 or 52.232-22.

If a program is fully funded, then, ordinarily, there should be no need for any of the program contracts to be incrementally funded.

Vern,

 

How can you say that a fully funded cost-reimbursement contract should not contain FAR 52.232-20?

FAR 32.706-2(a) says to "insert the clause at 52.233-20, Limitation of Cost, in solicitations and contracts if a fully funded cost-reimbursement contract is contemplated."

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Navy:

I have no idea why I included 52.232-20 in my statement. That's clearly wrong. That clause goes into every fully funded cost-reimbursement contract.

Thanks for catching that.

Vern

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