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Virgil Sollozzo

Funding amount at contract award

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Long time lurker, first time poster.

Scenario: Your Navy contract shop is going to award a cost-plus-fixed-fee contract for severable services on February 1, 2019. The period of performance will be April 1, 2019 through March 31, 2019. The contract will contain the clause at FAR 52.232-22, Limitation of Funds and be funded with O&M,N appropriations. How much money must the KO obligate at contract award on February 1st?

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I don’t know what the the minimum amount is but apparently you could obligate the entire amount, using the award fiscal year funds.

https://www.gao.gov/decisions/appro/317636.pdf

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Obligate the total estimated costs including fixed fee (see DoD Financial Management Regulation 7000.14-R, Volume 3, Chapter 8, paragraph 080403).

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58 minutes ago, Virgil Sollozzo said:

The contract will contain the clause at FAR 52.232-22, Limitation of Funds

Although the contract contains this clause will it be incrementally funded (having options does not mean that the contract is to be incrementally funded)?  If it is to be incrementally funded, I don't see why you need to obligate any specific amount.  However, it should be enough to cover a long enough period so you can get a reasonable idea as to whether you want to continue with the effort.

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Will the contract be funded entirely by the current fiscal year appropriations? See discussion of severable services extending beyond the awarded fiscal year in Chapter 3, pages 8-11 through 8-12, for instance. The law (references  in my earlier post above above and in Chapter 3) permits but does not require that the contract be fully funded by the current year funds.

I'm no expert but am not sure that policyguys reference is the only answer, particularly if incremental funding is authorized. 

EDIT: While I was skimming through the FIRMR, I did read one sentence that said that you must record the total obligation regardless of whether you have all of the funding for the contract. So, obviously that can’t equate to the amount obligated on the contract, itself.

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Great replies, thank you.

The contract will not be funded entirely with current fiscal year appropriations.

I'm comfortable with that concept, though I'm not convinced that it's the only option here. The DoD FMR appears to me to offer requirements for the "recording" of obligations, which is different from the act of incurring an obligation (incurring a liability). For example, FMR Vol. 3, Ch. 8, paragraph 080304 states, "The office that generates an obligating document, in the form of a contract, order, or modification, must provide official evidence of the obligating documents...to the office responsible for recording the obligation."

DoD components must also record obligations in situations that don't involve contract actions, such as described in paragraph 081305: "As a general rule, the amount of the liability expected to result from pending litigation must be recorded as an obligation in cases where the government definitely is liable for the payment of the money from available appropriations...".

In short, I'm not sure the FMR answers the question.

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You may wish to consider obtaining a monthly or GFY quarterly estimate from the contractor for funds required to continue timely performance under the contract until completion. You may then fund per the estimated amount until further notice from the Contractor. The FAR clause you cited does not require any specific amount. Are there any Navy or DOD requirements that you fund a specific amount i.e., all amounts for a GFY? I would say the minimum time is a 120 days of funding. That would give the contractor time to notify the government when only 60 days of funding is estimated to be left, and give the government 30 days to com up with more funding past 120 days. However, that is a real short leash that would probably raise some red flags about the program's long term viability. Not clear to me how you are using the term "obligated." At times it appears you are meaning an internal amount and at times it looks like you might mean the amount funded on the contract.
   

Edited by Neil Roberts
add lst sentence

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Virgil,

So the plan is to do incremental funding?  There is no minimum, but the Government should obligate enough to pay for a reasonable period of time plus termination liability — so if the work will cost about $100K per month, and termination liability is $300K, the Government will need to obligate $600K to get three months of contractor performance.  And the Government will need to be ready to obligate more money in three months.  Because the Limitation of Funds clause requires the contractor to hold termination liability within allotted (obligated) funds, obligating $300K will get no performance at all.

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15 hours ago, Neil Roberts said:

Not clear to me how you are using the term "obligated." At times it appears you are meaning an internal amount and at times it looks like you might mean the amount funded on the contract.

I've spent much time trying to unwind the use of the term "obligate" in the FMR. I suppose KO's don't "obligate" funding, but incur the obligation. At any rate, perhaps for this discussion it's easier to call the KO's action "putting the funds on contract."

12 hours ago, ji20874 said:

So the plan is to do incremental funding?  There is no minimum, but the Government should obligate enough to pay for a reasonable period of time plus termination liability

Yes, the plan is to do incremental funding. I, too, believe that there is no regulatory minimum, though I'm having trouble supporting my position. I have been advised that the funding obligation requirements in the FMR, which policyguy first cited above, are also the KO's requirements for the amount of funds to "put on the contract" at contract award. The Limitation of Funds clause permits incremental funding, however, and there's no regulatory minimum in sight.

So the KO is ready to make this award, months in advance of the performance start date. I know he can put on contract the entire estimated cost. Can he put on half of the estimated cost? Can he put on $100? Can he put on $0?

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@Virgil Sollozzo,

Have you read Chapter 7 of the GAO Redbook? That should answer your questions.

Why don't you and McCluskey meet me at Louis's Italian American Restaurant in The Bronx? We can discuss further.

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Chapter seven doesn’t answer the specific question.   For example, see Page 3-17 from the Redbook.

”Absent an exception, the default rule for severable services is to fund them with Current Year funds from date of award to 30 Sept and Next Year funds from 1 Oct until the end of contract.”

It also discusses the statutory exception to the bonFide needs rule which allows funding the severable services for work in the next FY with the initial FY funding. 

 

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Why not ask the finance office these questions? I would hope that you would have one.

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I read the GAO Redbook. Te salut, Don. It clears up my understanding of an obligation, but it doesn't answer the questions.

1 hour ago, joel hoffman said:

Why not ask the finance office these questions? I would hope that you would have one. 

That's for a different thread.

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12 hours ago, Virgil Sollozzo said:

I read the GAO Redbook. Te salut, Don. It clears up my understanding of an obligation, but it doesn't answer the questions.

Did you read Chapter three? Page 3-17?  Ahhh - you really want to know how much funding has to be put on the contract initially, months before performance begins, right? And you  either don’t have a finance office or a lawyer or you don’t want to ask them, correct?  Ahh- perhap they are the ones you are debating. 

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Virgil,

You’re looking for some answer needlessly.  There’s no statute or regulation requiring a minimum (barring maybe something at the agency level).   From a practical standpoint, two issues come up.  One is getting contract performance so the programs mission is met in a cost effective and responsive manner.  Neil Roberts gave some good advice is his comment that 120 days is a minimum duration. 

 

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23 hours ago, Virgil Sollozzo said:

I've spent much time trying to unwind the use of the term "obligate" in the FMR. I suppose KO's don't "obligate" funding, but incur the obligation. At any rate, perhaps for this discussion it's easier to call the KO's action "putting the funds on contract."

Yes, the plan is to do incremental funding. I, too, believe that there is no regulatory minimum, though I'm having trouble supporting my position. I have been advised that the funding obligation requirements in the FMR, which policyguy first cited above, are also the KO's requirements for the amount of funds to "put on the contract" at contract award. The Limitation of Funds clause permits incremental funding, however, and there's no regulatory minimum in sight.

So the KO is ready to make this award, months in advance of the performance start date. I know he can put on contract the entire estimated cost. Can he put on half of the estimated cost? Can he put on $100? Can he put on $0?

So, I assume that you have read FAR 32.7 as well as  DFARS 232.7, which discusses contract funding requirements (“funding the contract”), including incrementally funded fixed price contracts, contracts crossing fiscal years, etc.

If all funding for the current fiscal year requirements is available, see 232.702, Policy:

”Fixed-price contracts [shall] be fully funded except as permitted by 232.703-1.”

See also:  232.703-1 General, especially 232.703-1 (2):

”(2) An incrementally funded fixed-price contract  [shall] be fully funded as soon as funds are available”. 

If all funds for the current FY efforts are not available, comply with the requirements for incrementally funded contracts in 32.7 and 232.7.

You must also consider necessary funding to cover termination costs if additional funding idoesnt become available. 

I didn’t look at Navy supplements or regs.

Of course, the FAR and DFARS also discuss how to address the portion of the work to be funded and performed during the next FY. 

Cost remibursement contracts are also covered.

If this doesn’t lead you to answer, I have no idea what you are asking. 

It seems clear enough to me to be able to deduce what is necessary for funding (“putting funds on”) a DoD contract. 

Edited by joel hoffman

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On ‎3‎/‎28‎/‎2019 at 7:33 AM, Virgil Sollozzo said:

So the KO is ready to make this award, months in advance of the performance start date. I know he can put on contract the entire estimated cost. Can he put on half of the estimated cost? Can he put on $100? Can he put on $0?

First, there's a difference between creating an obligation and recording an obligation. The amount recorded doesn't change the amount created and vice-versa. The Recording Statute requires that agencies record of obligations reflect the amount of obligations created.

So, if the contract creates an obligation for half the estimated cost or $100, then that's the amount that should be recorded. If the contract doesn't create any obligation at the time of award (like in a requirements contract), then no obligation should be recorded.

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Oops!  On the road for now but I missed or overlooked that this is a CPFF services contract.  Will read some more in 32.7 and 232.7 and edit or add more info. 

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On ‎3‎/‎28‎/‎2019 at 8:53 PM, formerfed said:

There’s no statute or regulation requiring a minimum (barring maybe something at the agency level).

I think this is the answer.

On ‎3‎/‎29‎/‎2019 at 9:43 AM, Don Mansfield said:

First, there's a difference between creating an obligation and recording an obligation. The amount recorded doesn't change the amount created and vice-versa. The Recording Statute requires that agencies record of obligations reflect the amount of obligations created.

So, if the contract creates an obligation for half the estimated cost or $100, then that's the amount that should be recorded. If the contract doesn't create any obligation at the time of award (like in a requirements contract), then no obligation should be recorded.

Does Limitation of Funds create a contingency (like Availability of Funds might in other circumstances) that limits the Government's liability to the amount of incremental funds placed on the contract?

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14 minutes ago, Virgil Sollozzo said:

Does Limitation of Funds create a contingency (like Availability of Funds might in other circumstances) that limits the Government's liability to the amount of incremental funds placed on the contract?

The Limitation of Funds clause limits the Government's liability to the amount "allotted by the Government to the contract".

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