GAO Decision Re: Use of Minimum Guarantee on IDIQs

[Mike_wolff]

Does anyone know which issue of the Nash & Cibinic Report addressed GAO's apparent decision that the funds used to obligate the minimum guarantee remain available for use for the life of a contract, even if that contract spans over multiple fiscal years? I believe it was in 2007 or 2008, but I haven't been able to find it when going through my back issues.

For those not familiar, in the GAO Principles of Federal Appropriations Law Annual Update of the Third Edition March 2008 page 5-6, it states the following:

Page 5-43 ? Insert the following after the quoted language in the first partial paragraph:Another course of action for an agency with fiscal year money to cover possible needs beyond that fiscal year is an indefinite- delivery/indefinite-quantity (IDIQ) contract. An IDIQ contract is a form of an indefinite-quantity contract, which provides for an indefinite quantity of supplies or services, within stated limits, during a fixed period. 48 C.F.R. ? 16.504(a). Under an IDIQ contract, actual quantities and delivery dates remain undefined until the agency places a task or delivery order under the contract. When an agency executes an indefinite-quantity contract such as an IDIQ contract, the agency must record an obligation in the amount of the required minimum purchase. At the time of award, the government commits itself to purchase only a minimum amount of supplies or services and has a fixed liability for the amount to which it committed itself. See 48 C.F.R. ?? 16.501-2((3) and 16.504(a)(1). The agency has no liability beyond its minimum commitment unless and until it places additional orders. An agency is required to record an obligation at the time it incurs a legal liability. 65 Comp. Gen. 4, 6 (1985); B-242974.6, Nov. 26, 1991. Therefore, for an IDIQ contract, an agency must record an obligation for the minimum amount at the time of contract execution. In B-302358, Dec. 27, 2004, GAO determined that the Bureau of Customs and Border Protection?s (Customs) Automated Commercial Environment contract was an IDIQ contract. As such, Customs incurred a legal liability of $25 million for its minimum contractual commitment at the time of contract award. However, Customs failed to record its $25 million obligation until 5 months after contract award. GAO determined that to be consistent with the recording statute, 31 U.S.C. ? 1501(a)(1), Customs should have recorded an obligation for the contract minimum of $25 million against a currently available appropriation for the authorized purpose at the time the IDIQ contract was awarded.

Additionally, in B-308969 (http://www.gao.gov/decisions/appro/308969.htm), it states on page 7 of the .pdf version of that decision that if the agency had properly "obligated the entire minimum [guarantee] at contract award, it would have completely satisfied the government's initial liability under the contract. No further obligation would remain under the contract that would require an appropriation in a future fiscal year to fund it unless and until the government placed orders exceeding the $1 million minimum."

This info appears to support the position that funds used to fund the minimum guarantee remain available for the life of the contract.

[Guest Vern Edwards]

Does anyone know which issue of the Nash & Cibinic Report addressed GAO's apparent decision that the funds used to obligate the minimum guarantee remain available for use for the life of a contract, even if that contract spans over multiple fiscal years? I believe it was in 2007 or 2008, but I haven't been able to find it when going through my back issues.

Mike, I think that the article you're talking about is "Obligating Funds For Services Under IDIQ Contracts That Cross Fiscal Years: What Are The Rules?," 21 N&CR ? 42 (August 2007). However, it does not say what you believe it said. We believe that under the Bona Fide Needs rule, if the minimum is funded with an annual appropriation it may be used to buy only the bona fide needs of the fiscal year for which the funds were appropriated or for the first 12-month period of the contract. It cannot be used to buy the needs of later fiscal years or subsequent 12-month periods. You cannot use those funds to issue an order for the needs of a later fiscal year or subsequent 12-month period.

[Mike_wolff]

Mike, I think that the article you're talking about is "Obligating Funds For Services Under IDIQ Contracts That Cross Fiscal Years: What Are The Rules?," 21 N&CR ? 42 (August 2007). However, it does not say what you believe it said. We believe that under the Bona Fide Needs rule, if the minimum is funded with an annual appropriation it may be used to buy only the bona fide needs of the fiscal year for which the funds were appropriated or for the first 12-month period of the contract. It cannot be used to buy the needs of later fiscal years or subsequent 12-month periods. You cannot use those funds to issue an order for the needs of a later fiscal year or subsequent 12-month period.

Thanks Vern! I found it quickly with that info. The part I recalled was the sentence that said, "The GAO decision appears to indicate that the NBC could properly have issued orders against 2003 funds at any time during the three-year period. But that seems to us to be inconsistent with the bona fide needs rule...."

I agree the decision appears inconsistent with the bona fide need rule, but GAO is the office charged with enforcing that rule, correct? If they are saying the funds from the minimum remain available for use at any time during the three-year period, it would seem that GAO must not believe this violates the bona fide need rule, otherwise the funds wouldn't be legally available.

As you stated in the final section of your article, "we have no clear statement of how the bona fide needs rule applies to IDIQ contracts that have ordering periods that cross fiscal years." Maybe I can convince someone to request a GAO opinion on this specific issue.

Thanks again for your assistance.

Mike