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Fiscal Law - Antecedent Liability

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This was posted by "Nell" on the Blogs. I am posting it here.

"Under the Bona Fide Needs Rule discussion, B.7. Contract Modifications and Amendments Affecting Price, WIFCON states that "in order to avoid over-obligating the original appropriation, the contracting officer must estimate the expected net additional obligations to insure that available appropriations are not committed to other purposes." WIFCON then references Comp. Gen. 609, 612 (1982) for cost-reimbursement contracts and B-192036, Sept 11, 1978. I find the same information in the GAO Red Book. However, as I read the '78 decision, I cannot find where the contracting officer (CO) is specifically identified as the individual responsible for estimating antecedent liability (AL) funding. The decision states that "there should be an administrative reservation of sufficient funds to cover the excess of the estimated increases over decreases resulting from variations...". And, the decision concludes by stating that "the contracting agency is responsible for instituting administrative controls...". Clearly, the contracting agency encompasses all those supporting a contractual requirement but does not in and of itself apply solely to the contracting officer.

Is there some other regulatory or legal basis for requiring the contracting officer to estimate AL? In my 25+ years of contracting experience, the responsibility for estimating antecedent liability or management reserve has always been a program manager (PM) function. In most situations, contracting officers do not sit on Change Control Boards. Often, until a funded PR for a change arrives on the CO's desk, the CO does not know about it. And, frankly, if I were a PM, I would not want the CO estimating the amount of my budget that is going to be spent on changes.

In the agency where I work, the Financial Manual has been revised to state that the CO must provide an estimate for all future ECP changes. The COs do not make technical decisions on the program and they do not control the budget, but somehow they are being made responsible for estimating changes. I concur that the CO decides whether changes are in or out-of-scope. However, most PMs and Fiscal folks with appropriations law training understand the principle and are able to make planning and budgeting decisions in this regard. It may be that the Red Book used the CO nominally only intending that the reservation of funds be performed by the agency. Unfortunately, the specific naming of the CO as the individual responsible has had the consequence I described above."

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Neil: The Bona Fide Needs Rule appearing on Wifcon.com is the same information from GAO's Red Book and its annual updates. As such, it is a handy way to see what GAO says--not Wifcon.com. Which reminds me, I need to check this year's updates.

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This was posted by "Nell" on the Blogs. I am posting it here.

"Under the Bona Fide Needs Rule discussion, B.7. Contract Modifications and Amendments Affecting Price, WIFCON states that "in order to avoid over-obligating the original appropriation, the contracting officer must estimate the expected net additional obligations to insure that available appropriations are not committed to other purposes." WIFCON then references Comp. Gen. 609, 612 (1982) for cost-reimbursement contracts and B-192036, Sept 11, 1978. I find the same information in the GAO Red Book. However, as I read the '78 decision, I cannot find where the contracting officer (CO) is specifically identified as the individual responsible for estimating antecedent liability (AL) funding. The decision states that "there should be an administrative reservation of sufficient funds to cover the excess of the estimated increases over decreases resulting from variations...". And, the decision concludes by stating that "the contracting agency is responsible for instituting administrative controls...". Clearly, the contracting agency encompasses all those supporting a contractual requirement but does not in and of itself apply solely to the contracting officer.

Is there some other regulatory or legal basis for requiring the contracting officer to estimate AL? In my 25+ years of contracting experience, the responsibility for estimating antecedent liability or management reserve has always been a program manager (PM) function. In most situations, contracting officers do not sit on Change Control Boards. Often, until a funded PR for a change arrives on the CO's desk, the CO does not know about it. And, frankly, if I were a PM, I would not want the CO estimating the amount of my budget that is going to be spent on changes.

In the agency where I work, the Financial Manual has been revised to state that the CO must provide an estimate for all future ECP changes. The COs do not make technical decisions on the program and they do not control the budget, but somehow they are being made responsible for estimating changes. I concur that the CO decides whether changes are in or out-of-scope. However, most PMs and Fiscal folks with appropriations law training understand the principle and are able to make planning and budgeting decisions in this regard. It may be that the Red Book used the CO nominally only intending that the reservation of funds be performed by the agency. Unfortunately, the specific naming of the CO as the individual responsible has had the consequence I described above."

32.702 -- Policy.

No officer or employee of the Government may create or authorize an obligation in excess of the funds available, or in advance of appropriations (Anti-Deficiency Act, 31 U.S.C. 1341), unless otherwise authorized by law. Before executing any contract, the contracting officer shall --

(a) Obtain written assurance from responsible fiscal authority that adequate funds are available or

(B) Expressly condition the contract upon availability of funds in accordance with 32.703-2.

1.602 -- Contracting Officers.

1.602-1 -- Authority.

(a) Contracting officers have authority to enter into, administer, or terminate contracts and make related determinations and findings. Contracting officers may bind the Government only to the extent of the authority delegated to them. Contracting officers shall receive from the appointing authority (see 1.603-1) clear instructions in writing regarding the limits of their authority. Information on the limits of the contracting officers? authority shall be readily available to the public and agency personnel.

(B) No contract shall be entered into unless the contracting officer ensures that all requirements of law, executive orders, regulations, and all other applicable procedures, including clearances and approvals, have been met.

1.602-2 -- Responsibilities.

Contracting officers are responsible for ensuring performance of all necessary actions for effective contracting, ensuring compliance with the terms of the contract, and safeguarding the interests of the United States in its contractual relationships. In order to perform these responsibilities, contracting officers should be allowed wide latitude to exercise business judgment. Contracting officers shall --

(a) Ensure that the requirements of 1.602-1(B) have been met, and that sufficient funds are available for obligation;

(B) Ensure that contractors receive impartial, fair, and equitable treatment; and

? Request and consider the advice of specialists in audit, law, engineering, information security, transportation, and other fields, as appropriate.

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Maybe I have forgotten, but I cannot recall having, much less making, an estimate of antecedent liability when I awarded a contract. The very nature of antecedent liability is such that I do not know how you make such an estimate except in terms of gross percentages. In any case, it seems that the development of such an estimate would have to be done by the requiring activity, not the CO.

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I think the orginal poster is confusing estimating or forecasting the impact of potential changes or cost increases with actual liabilities. Only Contracting Officers should incur contractual obligations such as what the cited GAO decisions and Red Book talks about - operation of contract clauses and contract modifications.

Things like Change Control Boards might determine monetary estimates for the impact of future changes but they don't create liabilities. Now when the Contracting Officer is ready to make that contractual change, he/she better have a good idea of the financial impact especially if the contractor has not provided a proposal first.

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It's actually a two-fold situation involving antecedent liability and I attempted to tie the two elements together. First, we are currently working on an Anti-Deficiency Act (ADA) violation where the wrong year funds were used to fund changes because of failure to recognize antecedent liability. Since the funds have expired, we have to report the violation to Congress and the President. In order to do this, we must identify who is responsible for the antecedent liability violation. While it is true that no contract shall be entered into unless the contracting officer ensures that all requirements of law and so forth have been met. It is also true that contracting officers rely on lawyers, PMs and fiscal folks to do their due diligence within their own respective fields. To the best of my knowledge, the FAR does not stipulate that the contracting officer is responsible for the accuracy of the accounting data. The FAR does state that the contracting officer must ensure that sufficient funds are available for obligation. Fiscal law is not a required class for contracting folks and antecedent liability is not something understood by many of them. There is a drive here to make the contracting officer responsible for the accuracy of the line of accounting and therefore this ADA violation. So, I was curious if anyone had dealt with this in the past and had any recommendations in terms of who is responsible for the accuracy of the accounting data. I am of the opinion that all the key stakeholders: legal, fiscal, PM and the contracting officer who had knowledge of/approved these changes share responsibility for the violation in this situation.

The second part of this question deals with estimating antecedent liability funding. The Red Book concludes that the contracting officer must estimate the expected net additional obligations to ensure that available appropriations are not committed to other purposes. Based on that cite in the Red Book, our Financial Manual has been revised to state that the contracting officer must provide an estimate for all future ECP changes. I do not believe this is realistic or appropriate. Again, in my mind changes are driven by the PM based on technical and funding considerations. Some contracting officers here have refused to provide these antecedent liability estimates. I was wondering how other agencies have dealt with estimating antecedent liability for major programs. In my mind, it's a task that needs to be performed by the PM but unfortunately the folks here point to the Red Book as their authority for making the contracting officer responsible.

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Ahhhh. Now it all comes out. Funding of in-scope changes is Contracting 102. What has happened should not have happened. As I tell my students, it is the person who signs the document who obligates the Government. He or she can blame the lawyers, the finance people, the PMs, and the lack of training all he or she wants, but it is the person who signs the document who is responsible. Funny how so many want that little piece of paper declaring them to be a contracting officer, but don't want to shoulder the responsibility that comes with it.

The FAR does state that the contracting officer must ensure that sufficient funds are available for obligation. Fiscal law is not a required class for contracting folks and antecedent liability is not something understood by many of them.

Wow. I never took a class in fiscal law and I pride myself on knowing it pretty well. What I don't know I look up. As "Will Hunting" said to the Harvard snob: "You wasted $150,000 on an education you coulda got for $1.50 in late fees at the public library."

Nell, I'm sorry. I know I shouldn't laugh, but I just can't help it. Don't worry. Nothing really bad is going to happen. To the best of my knowledge no one has ever been punished for an ADA violation. At least, not yet.

As for estimates of antecedent liability, I never did one and I wouldn't want to have to come up with one. But if forced to do so I'd come up with a generous percentage, send a copy to all involved, demand an administrative commitment, and wait for the fun to start. They'll come out of the woodwork screaming that I had estimated too highly, in which case I'd tell them to come up with their own estimate under a cover letter bearing their signature, and I'd adjust my request accordingly and put the estimate in the contract file.

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The second part of this question deals with estimating antecedent liability funding. The Red Book concludes that the contracting officer must estimate the expected net additional obligations to ensure that available appropriations are not committed to other purposes. Based on that cite in the Red Book, our Financial Manual has been revised to state that the contracting officer must provide an estimate for all future ECP changes. I do not believe this is realistic or appropriate. Again, in my mind changes are driven by the PM based on technical and funding considerations. Some contracting officers here have refused to provide these antecedent liability estimates. I was wondering how other agencies have dealt with estimating antecedent liability for major programs. In my mind, it's a task that needs to be performed by the PM but unfortunately the folks here point to the Red Book as their authority for making the contracting officer responsible.

You are in a tough situation. In my experience, some project managers always set aside some percentage of contract funds to cover surprises. In other cases (e.g. ship repair), I actually obligated monies on the contract to cover growth work or things less foreseeable (e.g. Gov't delay).

In the first case, I never asked the PMs how many $$ they stashed away. In the second, I generally used a % based upon experience.

Can you not ask PMs to stash away a % to cover the antecedent liability? I cannot suggest a % as I do not have any empirical basis to make one. But, your money folks might know.

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In other cases (e.g. ship repair), I actually obligated monies on the contract to cover growth work or things less foreseeable (e.g. Gov't delay).

I generally used a % based upon experience.

Well, at least you didn't get caught. See Report D-2009-025.

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It just goes to show--if you're gonna break the rules, break 'em big time.

Interesting DODIG report.

Over the course of 17 years, I underwent 6 PMRs. Since ship repair was such a large and important part of the business, our orders under MARAVs received special scrutiny. There were no comments on the improper funding of contingent liabilities. Perhaps the PMR teams did not recognize the obligations as improper because they had an empirical basis - all ship repairs had growth due to the inherent nature of the work. They were not wild guesses or efforts to dump monies. The estimates certainly were not developed like this method taken from an example in the report:

Quote

Growth Pools

Contracting officers at the three maintenance activities inappropriately obligated approximately $63.5 million on 341 MSMO contract modifications and 13 IDIQ orders for growth pools. The obligation of growth pools violates 31 U.S.C. 1501, DoD FMR, volume 3, chapter 8, and the JFMM because the maintenance activities did not identify the specific work at the time of the obligation. Maintenance activities obligated funds without a sufficient description of the specific products or services needed to support the growth pool amounts. For example, a Business Clearance Memorandum supporting one contract modification stated:

Funding put against this WI [work item] becomes a contract obligated pool reservation for undefinitized growth work that is encountered during the availability5. . . The ACO [Administrative Contracting Officer] backed into this dollar amount after definitization of all other TYCOM [Type Commander] funded WIs. The ACO determined amount for this growth pool reservation is $401,594.

Unquote

In any event, I escaped with no indictments, arrests or convictions.

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Thank you very much for the comments, information and IG report. Yes, it's true we didn't get caught, but we did have to put ourselves on report. The subject contract is for ship construction and it's safe to say that antecedent liability hasn't been budgeted for here in the past 25 years. The ADA violation has resulted in the kneejerk reaction to start requiring contracting officers to provide an estimate of all future ECPs. Although fortunately a 10% reservation may be used in lieu of a contracting officer estimate.

We had a legal opinion for one of the actions which stated that the DO appeared to be fully funded with the appropriate accounting data. And, fiscal folks certified the funds. Nevertheless, I now understand that the buck stops with the contracting officer.

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As for estimates of antecedent liability, I never did one and I wouldn't want to have to come up with one.

Hi Vern. I know from conversations I've had with you that you had done construction at some point in your storied career, so you probably have done it but just forgot. For construction contracts funded with O&M, this issue comes up quite a bit. I frequently have to look at whether a change was a result of a design deficiency (which has antecedent liability) or some other factor such as a customer request and requires the use of current year funds.

Going back to the author of the original post, I've learned the hard way that my PM usually doesn't have a clue about this matter and is usually more focused on the outcome than the process. But if things go south I'm the one left holding the bag. Learn the big picture. Talk to your financial folks, ask them to teach you. I've never had a fiscal law class either, but I've learned a lot by asking and unfortunately by making mistakes. This is an area that is too important to put blind faith in others.

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