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HELP: UNILATERAL DEOBLIGATION OF UNBILLED FUNDS - GOVT CUSTOMER WONT LET US HAVE THEM BACK


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Hi Everyone,
I am hoping someone can offer advice/input on a recent action by the Government against my company (contract is T&M direct award under our GSA PSS Schedule).  We received a unilateral deobligation of unused funds from two of the 3 expired contract periods on our ACTIVE contract.
We are in option period 4 currently (1/31/21 - 1/30/22) and this is to be the last year of the contract, however they are most likely going to provide a 6-12 month extension.  The customer is deobligating unbilled dollars from the Base Period (1/31/17 - 1/30/18) and Option Period 2 (1/31/19 - 1/30/20).
The problem is that we need to bill against those funds.  We have unbilled travel and ODCs that due to a very poorly performed accounting system transition, and current reconciliation that is still on-going, those invoices were not generated nor submitted.  We still need roughly $170k that the government is taking back and not willing to allow us to bill against.

Any guidance, advice, support or life-raft is appreciated!!

Best,

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If the GSA PSS contract is a commercial item contract some may argue that a unilateral modification is not permissible if it effects your substantive rights under the contract.  A deobligation of funds may do that if there is no intent to replace the funds.  If I were a contractor I would seek a guarantee that funds will be available for legitimate billable contract costs in light of an attempted unilateral mod.  

My comment sort of lines up with ji20874 however I believe I am advocating a proactive approach to assure that the government intention is to pay again with "if" the charges are legitimate costs.  

 

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8 hours ago, C Culham said:

If the GSA PSS contract is a commercial item contract some may argue that a unilateral modification is not permissible if it effects your substantive rights under the contract.  

Carl, knowing the GSA process well, it really doesn’t matter what some may argue.  The terms of the GSA contract control.

I know lots of agencies now are deobligating excess funds in the 4th quarter to reprogram for other purposes so money doesn’t lapse.  That may be the case here.

ji20874 offer sound advice.  I would also call the CO and explain the situation.  The program office likely wasn’t aware additional charges apply.  But invoice and there’s plenty of time to add funding back on the order. 

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FY 17 funds might be approaching the limit for expending payments…? 

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16 hours ago, formerfed said:

Carl, knowing the GSA process well, it really doesn’t matter what some may argue.  The terms of the GSA contract control.

GSA PSS Schedule Contract holds 552.212-4 and provides changes to terms and conditions must be bilateral.  If the funding withdrawal on an order under the contract is with intention to be forever and no funding will ever be put back on the order a substantive right of the contactor would be done unilateral and it cannot be so per 552.212-4.

16 hours ago, formerfed said:

may

I am simply recommending the OP find out.  I would never guess as a contractor why I got a unilateral mod, I would find out.

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On 7/10/2021 at 7:44 AM, C Culham said:

If the GSA PSS contract is a commercial item contract some may argue that a unilateral modification is not permissible if it effects your substantive rights under the contract.  A deobligation of funds may do that if there is no intent to replace the funds.  If I were a contractor I would seek a guarantee that funds will be available for legitimate billable contract costs in light of an attempted unilateral mod.  

My comment sort of lines up with ji20874 however I believe I am advocating a proactive approach to assure that the government intention is to pay again with "if" the charges are legitimate costs.  

Government contract funding terminology is confusing, especially the terms obligate and deobligate.

If a contract is entered into in accordance with law and regulation, including Congressional authorization and appropriation of funds, then the government, acting through the contracting officer, has incurred a legally enforceable contractual obligation. What we call "obligating funds on a contract" is the act of recording the obligation against the appropriation in accordance with 31 USC 1501. However, funds have been obligated whether or not the obligation has been recorded. That's how you get a violation of the Antideficiency Act.

"Deobligating" however, is tricky.

According to the OP: "We received a unilateral deobligation of unused funds from two of the 3 expired contract periods on our ACTIVE contract."

Once a contract has been entered into, the only way for the government to contractually deobligate itself would be to liquidate all of its contractual obligations or properly terminate the contract. A unilateral "mod" that simply removes funds from the contract without altering the contract's other terms would not affect the government's contractual obligations. If it is obligated to pay, then it is still obligated to pay, funds or no funds.

I think ji20874 was right: The OP's company should invoice for the amounts due, assuming that the amounts are, in fact, still due and the contract did not establish a billing deadline that has already passed. To hell with the government's intentions. What matters is the government's contractual obligations. If it is still contractually obligated to pay, then all the deobligation mod did was create a possible Antideficiency Act violation. See the GAO Red Book, Volume 2, Ch. 7, Part E, Deobligation:

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The definition of the term “deobligation” is an agency's cancellation or downward adjustment of previously incurred obligations. Deobligated funds may be reobligated within the period of availability of the appropriation. For example, annual appropriations may be reobligated in the fiscal year for which the funds were appropriated, while multiyear or no-year appropriated funds may be reobligated in the same or subsequent fiscal years. Deobligations occur for a variety of reasons...

For the most part, there are no special rules relating to deobligation. Rather, the treatment of deobligations follows logically from the principles previously discussed in this and preceding chapters. Thus funds deobligated within the original period of obligational availability are once again available for new obligations just as if they had never been obligated in the first place. Naturally, any new obligations are subject to the purpose, time, and amount restrictions governing the source appropriation. Funds deobligated after the expiration of the original period of obligational availability are not available for new obligations. B-286929, Apr. 25, 2001; 64 Comp. Gen. 410 (1985); 52 Comp. Gen. 179 (1972). They may be retained as unobligated balances in the expired account until the account is closed, however, and are available for adjustments in accordance with 31 U.S.C. § 1553(a).

A proper and unliquidated obligation should not be deobligated unless there is some valid reason for doing so. Absent a valid reason, it is improper to deobligate funds solely to “free them up” for new obligations. To do so risks violating the Antideficiency Act. For example, where a government check issued in payment of some valid obligation cannot be promptly negotiated (if, for example, it is returned as undeliverable), it is improper to deobligate the funds and use them for new obligations. 15 Comp. Gen. 489 (1935); A-44024, Sept. 21, 1942. (The two cited decisions deal with provisions of law which have since changed, but the thrust of the decisions remains the same.) The Antideficiency Act violation would occur if the payee of the original check subsequently shows up and demands payment but the funds are no longer available because they have been reobligated and the account contains insufficient funds. This does not preclude an agency from exercising flexibility in the use of its appropriations so long as the agency does not risk an Antideficiency Act violation. B-272191, Nov. 4, 1997. Under some programs, an agency provides funds to an intermediary which in turn distributes the funds to members of a class of beneficiaries. The agency records the obligation when it provides, or legally commits itself to provide, the funds to the intermediary. It is undesirable for many reasons to permit the intermediary to hold the funds indefinitely prior to reallocation.

Unless the program legislation provides otherwise, the agency may establish a reasonable cutoff date at which time unused funds in the hands of the intermediary are “recaptured” by the agency and deobligated. GAO recommended such a course of action in 50 Comp. Gen. 857 (1971). If recapture occurs during the period of availability, the funds may be reobligated for program purposes; if it occurs after the period of availability has ended, the funds expire absent some contrary direction in the governing legislation. Id.; Dabney v. Reagan, No. 82 Civ. 2231-CSH (S.D.N.Y. Mar. 21, 1985).

[Footnotes omitted.]

I agree with Culham that the OP's company should ask the contracting officer what's up. There may be some misunderstanding that could easily be resolved.

I wonder why the company has not invoiced for two-year old expenditures.

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4 hours ago, Vern Edwards said:

I wonder why the company has not invoiced for two-year old expenditures.

The OP said it’s the companies accounting system fault 

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We have unbilled travel and ODCs that due to a very poorly performed accounting system transition, and current reconciliation that is still on-going, those invoices were not generated nor submitted

Unfortunately this stuff happens frequently.  It’s most due to CFOs wanting to clear the books of unused money and also makes them look bad for annual audits.  The right think to do is having the CO check with the contractor.  

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5 hours ago, C Culham said:

GSA PSS Schedule Contract holds 552.212-4 and provides changes to terms and conditions must be bilateral.  If the funding withdrawal on an order under the contract is with intention to be forever and no funding will ever be put back on the order a substantive right of the contactor would be done unilateral and it cannot be so per 552.212-4

Carl, you are quoting a contract clause that pertains to the contractor and GSA.  The issue here is a task order.  The GSA contract doesn’t say anything like that applies to orders.  I know GSA contracts well

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1 hour ago, formerfed said:

Carl, you are quoting a contract clause that pertains to the contractor and GSA.  The issue here is a task order.  The GSA contract doesn’t say anything like that applies to orders.  I know GSA contracts well

So please explain your thoughts and application of 52.216-18 a clause that resides in  PSS Scedule Contracts.  Specifically tell me your interpretation of paragraph (b).

 

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The 552.212-4 clause says “Changes. Changes in the terms and conditions of this contract may be made only by written agreement of the parties.”  That just addresses contract changes.  Those are revisions made to the Contractor/GSA PSS contract

FAR 52.216-18(b) on Ordering says “All delivery orders or task orders are subject to the terms and conditions of this contract. In the event of conflict between a delivery order or task order and this contract, the contract shall control.”  That simply covers  agency orders for supplies and/or services under the contract.  The clause means agencies can’t order something that’s not part of the contract.  

I know several GSA people are on here.  Hopefully one will explain this citing prior opinions.

Im not saying an ordering agency can unilaterally take funding away from a order without the contractors concurrence.  But 552.212-4 isn’t the basis.

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@C Culham@formerfed Your discussion of FAR 552.212-4 and 52.216-18 is pointless without more information.

A "modification" that deobligates funds but changes nothing else in the contract is not a change to the terms and conditions of the contract. It is just a permissible administrative change—see FAR 43.101—in this case, a government accounting transaction. It does not change the substantive rights and obligations of the parties.

The exception would be an incrementally funded contract containing the Limitation of Cost clause, FAR 52.232-22, or a similar clause, which limits the parties' obligations to the "total amount actually allotted." 

If the mod deobligates funds that the government will need to liquidate its contractual obligations to the contractor, then it would be administratively improper and might give rise to an Antideficiency Act violation, but it would not be a breach of contract.

It would be a different matter if the modification also seeks to change the contract price or estimated cost or some other contract term. In that case it seems clear that the government cannot do so unilaterally except as otherwise provided in the contract.

That's why I asked what the OP's deobligation mod says.

Bottom line: The OP has not provided enough information.

I think ji20874 has given the OP good advice.

 

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1 hour ago, Vern Edwards said:

our discussion of FAR 552.212-4 and 52.216-18 is pointless without more information.

I would agree as the intent of the government is not known at least based on information shared by the OP.

However I do disagree that our discussion is pointless with regard to specific statements made by @formerfed that is clarified as.....

1 hour ago, formerfed said:

FAR 52.216-18(b) on Ordering says “All delivery orders or task orders are subject to the terms and conditions of this contract. In the event of conflict between a delivery order or task order and this contract, the contract shall control.”  That simply covers  agency orders for supplies and/or services under the contract.  The clause means agencies can’t order something that’s not part of the contract.

I read all statements combined to suggest that 552.212-4 does not apply to task orders issued under the contract and I believe that such a suggestion is inconsistent with 52.216-18 and how it has be interpreted.   Without getting to details of case law etc. it makes no sense and is exactly why task orders are issued with no terms and conditions such as 552.212-4 in a task order as the terms of the parent FSS contract extend to the task order.  Remember such things as  payments, labor laws, T4c, T4C and many more contained in the parent FSS that are not included in a task order yet apply as the parent FSS contract extends all to the task order.

Now @formerfedsuggests there are opinions (case law?) that suggests otherwise and I am intrigued by the suggestion as it is a view I have never heard nor seen.

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10 hours ago, formerfed said:

Carl,

I’ll wait for someone at GSA to respond. 

Well some will say that the following is not authoritative on the matter of GSA FSS Schedule Contract clauses not extending to an order place under the GSA FSS contract but I really doubt that GSA would allow misguided information to reside on a webpage they manage.   

"1. Here is how to find clauses  already in the Schedule contracts. That's important because you want to ensure your order doesn't conflict with the Schedule contract terms. (You also don't need to put clauses in your order that are already in the Schedule contract.)" Ref.  https://interact.gsa.gov/wiki/adding-provisionsclauses-rfqs

 

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Carl,

You're taking this way off topic.  Those GSA blog comments have nothing to do with this.  Of course agencies can add clauses to their orders that don’t conflict with the Schedule.

My comment had to do with whether clause 552.212-4 applied to orders.  I admit I got off track thinking of a couple past situations where Schedule clauses referred to “GSA” and “contractor” and agencies tried wrongly to say those clauses pertained to their individual orders substituting themselves for GSA.  I was wrong with that. 

As Vern mentioned, we don’t know what the agency modification said in the OPs case.  Certainly an administrative action can be unilateral.  But In other situations where an agency’s action infringes altering contractual rights, the modification needs to be bilateral reflecting mutual agreement.  

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34 minutes ago, formerfed said:

My comment had to do with whether clause 552.212-4 applied to orders.  I admit I got off track thinking of a couple past situations where Schedule clauses referred to “GSA” and “contractor” and agencies tried wrongly to say those clauses pertained to their individual orders substituting themselves for GSA.  I was wrong with that. 

THAT is how to gracefully acknowledge that you were wrong about something. I will remember it and try to emulate it.

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18 hours ago, formerfed said:

Carl, you are quoting a contract clause that pertains to the contractor and GSA.  The issue here is a task order.  The GSA contract doesn’t say anything like that applies to orders.  I know GSA contracts well

 

13 hours ago, formerfed said:

arl,

I’ll wait for someone at GSA to respond. 

 

17 minutes ago, formerfed said:

Carl,

You're taking this way off topic.

As you can see it was not me that started the thread down the trail of a GSA FSS Schedule contract not applying to an order under the the GSA FSS Contract.

18 minutes ago, formerfed said:

Of course agencies can add clauses to their orders that don’t conflict with the Schedule

You well know that the intent of me providing the reference was not adding clauses but whether the GSA FSS Contract clauses apply to an order.   Ergo my emphasis on one paragraph of the reference that being paragraph No. 1.  

 

20 minutes ago, formerfed said:

My comment had to do with whether clause 552.212-4 applied to orders.  I admit I got off track thinking of a couple past situations where Schedule clauses referred to “GSA” and “contractor” and agencies tried wrongly to say those clauses pertained to their individual orders substituting themselves for GSA.  I was wrong with that. 

Exactly and thank you for clarifying but I ask with all sincerity please do not cast my comments in the light that I was the one to take the thread off track.

 

21 minutes ago, formerfed said:

Certainly an administrative action can be unilateral.

I agree and specific to the FAR an administrative change is defined.   Reference FAR 43.101.   My point from the beginning that many place a comment like the following in the category  of "administrative change".   Actually it depends.  Edwards has added great context to the depends but a modification to a contract  that de-obligates funds without context of what the de-obligation means might in fact affect the substantive rights of the parties, in this case the contractor.  My acknowledged agreement that we do not know and it seems that the OP does not know or would not be concerned.

 

On 7/8/2021 at 11:34 AM, Kimberly McCliggott said:

We received a unilateral deobligation of unused funds from two of the 3 expired contract periods on our ACTIVE contract.

 

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25 minutes ago, C Culham said:

[A] modification to a contract  that de-obligates funds without context of what the de-obligation means might in fact affect the substantive rights of the parties, in this case the contractor. 

How might the lack of context affect the substantive rights of the parties?

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23 hours ago, Vern Edwards said:

A unilateral "mod" that simply removes funds from the contract without altering the contract's other terms would not affect the government's contractual obligations.

Here is a "try" on my part borrowing from your post.   

The agency refuses to pay the invoice on the basis that there is no money as somebody made them de-obligate it, regardless of the ability of the contractor to prove that they are appropriate costs of the T&M order.  While you have provided a great example of the "government" being liable for the monies, if in fact legit costs, who does the contractor then turn to.   CBCA or GSA noting that it is well settled in case law that contract is with the government and not a particular agency.   In the end after scratching and clawing to get their money through whatever venue will finally agree to paying appropriate costs it is my view that the "substantive rights" of the contractor to be paid timely have been violated.   

Change the paying office, change appropriation data, but taking away money with no explanation implies a substantive right has been removed.    The OP has expressed a concern and rightly so until they are satisfied that their substantive rights have not been violated.

While I appreciate your information about obligation I really do wonder that if it is right minded thinking for a person holding  a government contract and that receives a unilateral modification to remove all of its monies that they should simply sit back say no problem I know I will get the money that I can prove was a cost to the contract sometime.   The need for case law seems to suggest otherwise.

 

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47 minutes ago, C Culham said:

The agency refuses to pay the invoice on the basis that there is no money as somebody made them de-obligate it, regardless of the ability of the contractor to prove that they are appropriate costs of the T&M order.  While you have provided a great example of the "government" being liable for the monies, if in fact legit costs, who does the contractor then turn to. 

Who does the contractor turn to? To the contracting officer for the order. Who else? The contractor files a claim pursuant to the Disputes clause and demands a final decision. If payment is still denied by final decision, the contractor appeals, seeking the payment due, prompt payment interest, and CDA interest. If the contractor is entitled to the payment, then the contractor gets paid. The contractor has been inconvenienced, but its contractual rights have been honored.

47 minutes ago, C Culham said:

Change the paying office, change appropriation data, but taking away money with no explanation implies a substantive right has been removed. 

I suppose that a contractor might draw an inference to that effect. Whether the inference is justified is another question entirely.

47 minutes ago, C Culham said:

While I appreciate your information about obligation I really do wonder that if it is right minded thinking for a person holding  a government contract and that receives a unilateral modification to remove all of its monies that they should simply sit back say no problem I know I will get the money that I can prove was a cost to the contract sometime.   

No one said "No problem." What ji20874 said was to just go ahead and submit an invoice. Whether there will be a problem remains to be seen. I have said that you were right to suggest a call to the CO.

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On 7/8/2021 at 1:34 PM, Kimberly McCliggott said:

We still need roughly $170k that the government is taking back and not willing to allow us to bill against.

To be able to more definitively respond, the OP would have to describe what the contract or order billing requirements and time limits are for those un-billed expenses.

De-obligating the funds probably wouldn’t, by itself, justify a refusal/inability to pay otherwise allowable costs (per the above discussion), if those type appropriations are still available for payment purposes. 

The OP can invoice for them. It wasn’t clear to me if they already did and were denied based solely on the unilateral de-ob mod. 

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20 minutes ago, Vern Edwards said:

The contractor has been inconvenienced, but its contractual rights have been honored.

I see it differently.  A dispute route is taken when a contractor believes a substantive right of the contract has been breached by the government.  What results is a determination of whether it has or has not.

 

23 minutes ago, Vern Edwards said:

I suppose that a contractor might draw an inference to that effect. Whether the inference is justified is another question entirely.

Yes the "depends" of such issues.

24 minutes ago, Vern Edwards said:

No one said "No problem."

I did not say any specific individual did.  I apologize if my post reads as such.  It was intended as a general comment of what I have experienced.  Hang "administrative change" on a mod to imply no problem.  Specific to ji20874 my initial post was intended and in part stated a more proactive approach to ensure a substantive right was not being taken away.

Nothing should be taken for granted when it is unclear yet in writing.

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