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Formerfed, there is no problem* if FAR 52.232-18 is included and the prescription for it is met. If the award is not subject to the availability of funds, as you know it would be an obligation in advance of an appropriation, and a violation of the Anti-Deficiency Act. The government has to take some affirmative step following the availability of the funds to avoid the violation.

If you're trying to suggest that the government can avoid an obligation this year simply by saying it is next year's obligation (e.g., having a future effective date), I would take issue with that. It is, in your words, "an FY 11 obligation" only if the contract contains FAR 52.232-18 (or a clause pointing out that the government's obligation is subject to the availability of funds and the government's obligation only arises after it gives notice to the contractor following the availability of funds).

* Vern points out the motivation under the present facts is dubious.

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Jacques,

Thanks. I meant FAR 52.232-18 is included.

A friend of mine as a CO once accidently signed a contract like this in in the FY end rush. He had a big stack of actions that had been reviewed and approved and were just awaiting his signature. Most involved year end funds but this one didn't, it wasn't effective until the next year and it didn't have the 52.232-18 clause.

The agency IG discovered this and said it constituted a technical violation of the Anti Deficiency Act. The IG said the agency was required to report this in a letter to the White House and Congress citing the CO's name as the resonsible party. Fortunately for him, cooler heads prevailed and nothing more happened.

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In my agency, I would have no problem awarding an IDIQ contract today (in September of 2010, FY2010) with no task order award until October of 2010 (FY2011).

ji20874,

Some questions for you. Following your example--

1. When you award your IDIQ contract in September 2010, do you record an obligation of FY10 funds?

2. When you award your task order in October 2010, do you record an obligation of FY11 funds?

3. If the answer to 2 and 3 are both yes, then is it correct to conclude that the FY10 funds were never used to purchase anything?

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I recommend Vern's article, Obligating Funds for Services Under IDIQ Contracts That Cross Fiscal Years: What are the Rules?, 21 Nash & Cibinic Report ? 42 (August 2007). I also recommend a decision that appears to back pedal from the implications of B-308969. The newer decision is Library of Congress--Obligation of Guaranteed Minimums for Indefinite-Delivery, Indefinite-Quantity Contracts under the FEDLINK Program, B-318046, July 7, 2009. That decision, immediately after citing to B-308969, states: "A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum. See B-317636, Apr. 21, 2009; B-308969, May 31, 2007."

While a bit of a stretch, perhaps "at the time of the obligation" means "during the same period of availability as the obligation." If so, that means the government can issue delivery orders in meeting the minimum at least during the same FY as the obligation, and apply those obligated funds toward those delivery orders. If the contract involves severable services and otherwise meets 10 USC 2410a (or 41 USC 253l), presumably orders placed during the 12 months following the award of the contract could apply those funds, but this is all speculation.

The Red Book characterizes the significance of the Library of Congress decision this way: "Of course, the bona fide needs rule applies both at the time the agency enters into the contract (i.e., the agency must have a bona fide need for the guaranteed minimum in the IDIQ contract) and when the agency subsequently places task or work orders." 2010 Annual Update, at 7-2.

Another reading of "at the time of obligation" is literal. This would suggest that the need must exist at the time of the award of the contract. If that is the case, what would be the justification for not issuing task orders sufficient to cover the minimum in conjunction with the award of the contract?

While the literal reading would not close the door to using 10 USC 2410a, it would require that the delivery order issued toward meeting the minimum be issued at the time of award, even though it could include up to 12 months of severable services that cross fiscal years.

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Ignore my discussion of 10 USC 2410a. It doesn't change the period of availability; it provides an exception to the bona fide needs rule that permits paying for severable services that represent the bona fide needs of, e.g., FY01 with FY00 funds, when entering a contract that begins in one fiscal year and ends in the next. So, it's a little harder to argue that a new order placed in the next fiscal year represents the bona fide need of the prior fiscal year, solely by virtue of the fact that there is still money available to "spend down" the initial contractual obligation. There would have to be some other reason it was the bona fide need of the prior year.

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Separately, what impact, if any, does the peculiar implementation of the statute have? FAR 32.703-3(B) provides:

The head of an executive agency except NASA, may enter into a contract, exercise an option, or place an order under a contract for severable services for a period that begins in one fiscal year and ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed does not exceed one year (10 U.S.C. 2410a and 41 U.S.C. 2531). Funds made available for a fiscal year may be obligated for the total amount of an action entered into under this authority.

In parsing out contract and order, does the FAR impose an additional hurdle beyond the decisions and the statutes? Even under our contract minimum scenario, does the ORDER have to begin in the initial FY? Alternatively, is the basic the "contract" for purposes the minimum order? For IDIQ contracts I have always assumed that one assesses whether an effort is severable or entire at the order level. Wouldn't any IDIQ contract, when viewed at the level of the basic, be severable?

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Guest Vern Edwards

While many may find this thread interesting, I find it silly. Not one new piece of knowledge has come out of it. An agency did a crummy job of acquisition planning and now wants to award an IDIQ contract for a "critical" need of the next fiscal year before that year and the funds for that year arrive. Why? To start the protest clock. And the CO cannot figure out what to do. Kindergarten contracting. Honestly, it's ridiculous. That CO is probably getting paid a GS-12 or GS-13 salary.

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Guest Vern Edwards
Jacques,

Thanks. I meant FAR 52.232-18 is included.

A friend of mine as a CO once accidently signed a contract like this in in the FY end rush. He had a big stack of actions that had been reviewed and approved and were just awaiting his signature. Most involved year end funds but this one didn't, it wasn't effective until the next year and it didn't have the 52.232-18 clause.

The agency IG discovered this and said it constituted a technical violation of the Anti Deficiency Act. The IG said the agency was required to report this in a letter to the White House and Congress citing the CO's name as the resonsible party. Fortunately for him, cooler heads prevailed and nothing more happened.

How do you "accidentally" sign a contract? Maybe the same way that a doctor accidentally amputates the wrong limb. The "cooler heads" should have taken disciplinary action. That CO was nothing more than a signature factory, an empty suit. It's that very sort of thing we must fight if the "profession" is ever going to get any kind of respect.

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Guest Vern Edwards

Jacques:

I am responding to your post, post #29 of this thread, in which you wrote about the opinion provided by the GAO to the Library of Congress about obligating the minumum under an IDIQ contract. Specifically, I'm responding to the following parts of that post:

I also recommend a decision that appears to back pedal from the implications of B-308969. The newer decision is Library of Congress--Obligation of Guaranteed Minimums for Indefinite-Delivery, Indefinite-Quantity Contracts under the FEDLINK Program, B-318046, July 7, 2009. That decision, immediately after citing to B-308969, states: "A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum. See B-317636, Apr. 21, 2009; B-308969, May 31, 2007."

While a bit of a stretch, perhaps "at the time of the obligation" means "during the same period of availability as the obligation." If so, that means the government can issue delivery orders in meeting the minimum at least during the same FY as the obligation, and apply those obligated funds toward those delivery orders. If the contract involves severable services and otherwise meets 10 USC 2410a (or 41 USC 253l), presumably orders placed during the 12 months following the award of the contract could apply those funds, but this is all speculation.

The Red Book characterizes the significance of the Library of Congress decision this way: "Of course, the bona fide needs rule applies both at the time the agency enters into the contract (i.e., the agency must have a bona fide need for the guaranteed minimum in the IDIQ contract) and when the agency subsequently places task or work orders." 2010 Annual Update, at 7-2.

Another reading of "at the time of obligation" is literal. This would suggest that the need must exist at the time of the award of the contract. If that is the case, what would be the justification for not issuing task orders sufficient to cover the minimum in conjunction with the award of the contract?

While the literal reading would not close the door to using 10 USC 2410a, it would require that the delivery order issued toward meeting the minimum be issued at the time of award, even though it could include up to 12 months of severable services that cross fiscal years.

I find your statements to be very confusing and I'm not sure what you are saying. I do not read the GAO's Library of Congress opinion to depart in any way from its earlier opinions about recording obligations for IDIQ minimums. Here is the GAO's statement from Library of Congress in its entirety:

From an appropriations standpoint, an agency must record an obligation against its appropriation at the time that it incurs a legal liability, such as when the agency signs a contract committing the government to purchase a specified amount of goods or services. B-116795, June 18, 1954. See also B-300480.2, June 6, 2003, at 3 n.1. In the case of an IDIQ contract, the agency must record an obligation in the amount of the guaranteed minimum at the time the contract is executed because, at that point, the government has a fixed liability for the minimum amount to which it committed itself. B-308969, May 31, 2007; B-302358, Dec. 27, 2004. A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum. See B-317636, Apr. 21, 2009; B-308969, May 31, 2007.

When a CO signs a contract, as defined in FAR 2.101, he or she obligates the agency to an expenditure of appropriated funds. He or she must have those funds in order to avoid a violation of the Anti-deficiency Act, and must record the obligation at the time of signing. When a CO signs an IDIQ contract he or she buys the minimum, whether or not he or she specifies it or directs delivery of it at that time. Thus, he or she must have funds to cover the buy, and must record the obligation.The minimum must be a bona fide need of the year for which the funds were appropriated.

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Vern,

I know this thread is yielding diminishing marginal returns, so I'll try to be brief.

I agree that B-308969 & B-318046 are consistent on recording obligations.

I was thinking out loud about the bona fide needs implications of B-308969. I've concluded that to the extent B-308969 opened the door to the potential to "park funds" using the minimum obligation, the CG backed away from (at least some of) those implications with B-318046.

What remains unclear to me is how far it backed away, specially in light of 10 USC 2410a.

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Vern,

I know this thread is yielding diminishing marginal returns, so I'll try to be brief.

I agree that B-308969 & B-318046 are consistent on recording obligations.

I was thinking out loud about the bona fide needs implications of B-308969. I've concluded that to the extent B-308969 opened the door to the potential to "park funds" using the minimum obligation, the CG backed away from (at least some of) those implications with B-318046.

What remains unclear to me is how far it backed away, specially in light of 10 USC 2410a.

Jacques,

I'm confused, too. Are you trying to say that, based on these decisions, an agency may obligate a large amount of FY10 funds under an IDIQ as a minimum in FY10 and use those funds to issue orders in FY11?

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Don, that seemed to be the implication in B-308969 (which ignored bona fide needs), but not in B-318046. If B-308969 were decided today, I don't know how the CG could come to the conclusion it did (suggesting that the agency would have avoided any issue had it simply obligated the full amount of the $1M minimum) consistent with its statement in B-318046 that, "A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum."

The lingering question in my mind is, is there any flexibility in the language, "at the time the obligation is incurred." If there is NONE, when would you ever award the contract without simultaneously issuing orders sufficient to cover the minimum?

I don't pretend to know the answer to these questions, but let me ask you: Relying on any statute, regulation, or decision other than B-318046, do you think it would violate any fiscal law to award an IDIQ contract in FY10, record the full minimum, and, in the same FY10, issue an order paid with funds already recorded? Why or why not?

If that is acceptable, and the contract involves "severable services," what would prevent the government from paying for severable services that are properly the bona fide needs of FY11 if the contract vehicle was awarded in FY10 and was limited to 12 months, even though it crosses fiscal years? (Of course, this forces the initial ordering period on the basic IDIQ contract to be for 12 months, which is otherwise ridiculous.)

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I don't pretend to know the answer to these questions, but let me ask you: Do you think it would violate any fiscal law to award an IDIQ contract in FY10, record the full minimum, and, in the same FY10, issue an order paid with funds already recorded? Why or why not?

No. Let's say an agency awards an IDIQ contract in January 2010 with a guaranteed minimum of $100K. It has a liability under the contract of $100K and must record an obligation of $100K in FY10 funds (let's assume annual appropriations). In February 2010, the agency will issue the first order for $50K under the IDIQ contract. The issuance of this order will reduce their liability under the IDIQ contract to $50K, so the agency must record a deobligation of $50K. This $50K that has been deobligated can be used to fund the February 2010 order.

If that is acceptable, and the contract involves "severable services," what would prevent you from doing the same thing within 12 months of the award of the basic, even if it crosses fiscal years?

The bona fide needs rule. Each new order under an IDIQ is a new obligation and must be funded with a current appropriation. Following the example above, let's say the agency wants to issue it's second order in October 2010 for $50K. The issuance of this order will reduce their liability under the IDIQ contract to $0, so the agency must record a deobligation of $50K. This $50K that has been deobligated is from a FY10 appropriation, so it cannot be used to fund the October 2010 (FY11) order.

This is why I posed the questions that I did in response to the following statement by ji20874:

In my agency, I would have no problem awarding an IDIQ contract today (in September of 2010, FY2010) with no task order award until October of 2010 (FY2011).

If he/she were dealing with annual appropriations, then the funds obligated to cover the minimum would never be used to buy anything. I doubt that the folks providing the funds would have "no problem" with this practice.

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Don, is your answer the same if need fulfilled with the Feb 10 order did not exist at the time of the award of the basic?

Effectively, at time of award of the basic, are we saying we have a current bona fide need for at least the minimum order quantity, or are we saying that we anticipate a need for at least the minimum order quantity during the ordering period? I think B-308969 assumed the later, and B-318046 assumed the former. In other words, B-318046 seems to require the bona fide need to exist at time of award (or, at least the most restrictive reading of the decision does).

If the first, why wouldn't the bona fide need have to exist at the time the basic was awarded? If the second, why wouldn't 10 USC 2410a permit a 12 month ordering period?

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Don, is your answer the same if need fulfilled with the Feb 10 order did not exist at the time of the award of the basic?

Yes.

Effectively, at time of award of the basic, are we saying we have a current bona fide need for at least the minimum order quantity, or are we saying that we anticipate a need for at least the minimum order quantity during the ordering period? I think B-308969 assumed the later, and B-318046 assumed the former. In other words, B-318046 seems to require the bona fide need to exist at time of award (or, at least the most restrictive reading of the decision does).

We are saying that we have a bona fide need of the current fiscal year for at least the minimum at contract award. In setting the minimum, we should ensure that we are reasonably certain to order the minimum during the current fiscal year.

If the second, why wouldn't 10 USC 2410a permit a 12 month ordering period?

Like I explained before, each order is a new obligation. If that obligation occurs in a fiscal year subsequent to the fiscal year in which the IDIQ contract was awarded, then it cannot be funded with the same funds that were obligated upon award of the basic IDIQ contract.

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Don,

Thanks for your help. If I'm understanding you properly, there would never be a time the CG would find a fiscal law violation requiring corrective action based SOLELY on the agency's failure to have a bona fide need at the time it awarded the basic contract.

Assume an IDIQ contract with a basic 5 year ordering period and annual funds.

Scenario #1: Assume I don't actually have a bona fide need at time of award of the contract minimum. However, just as I predicted, during the same year as the obligation, new bona fide needs are identified that meet my contract minimum. According to my reading of Library of Congress, I've "violated" the bona fide needs rule. Under Scenario #1, what is the Comptroller General going to do? Presumably nothing, because I ended up having bona fide needs that met my contract minimum.

Scenario #2a: Assume I don't actually have a bona fide need at time of award of the contract minimum, but I obligate the minimum. The year is quickly coming to a close, so my options appear to be: (1) Terminate and pay the contract minimum from the funds already obligated; or (2) Keep the funds on contract, and when a delivery order is issued, use then-current funds for the DO. Under Scenario #2, what is the Comptroller General going to do? Presumably nothing. Are they going to say it was an invalid obligation at time of award? Even if they did, no corrective action is required.

Scenario #2b: It turns out I really don't need the contract minimum. If I terminate the contract, to the extent there is a balance on the contract minimum, the funds obligated at the time of the basic contract award would be used to settle up. So long as I keep sufficient original funds obligated to cover the balance remaining on the minimum, but obligate current funds at the time I issue any delivery orders, what is the CG going to do? Again, presumably nothing.

Scenario #3: Assume I don't actually have a bona fide need at time of award of the contract minimum, but I obligate the minimum. During the second year, I issue an order under the contract minimum citing last year's funds. Under Scenario #3, what is the Comptroller General going to do? Presumably, it will find two problems: (1) Point out I didn't have a bona fide need at the time you awarded the contract (true for all the above scenarios); but more importantly, (2) point out that I used the wrong year funds on the order, because the order was not the bona fide need of the year of the funds.

It doesn't seem to matter (from an enforcement perspective) whether the government has a bona fide need for guaranteed minimum at the time it awards the contract, as it appears the only time the CG would have a problem is if the government violates the bona fide needs rule later. Am I missing something?

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It doesn't seem to matter (from an enforcement perspective) whether the government has a bona fide need for guaranteed minimum at the time it awards the contract, as it appears the only time the CG would have a problem is if the government violates the bona fide needs rule later. Am I missing something?

Assuming that there aren't any decisions that take exception to an agency's actions under circumstances similar to scenarios 1, 2a, and 2b (I haven't looked), then I agree with your statement.

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Guest Vern Edwards

Again, here is what the GAO said in the Library of Congress decision about obligation funds for the minimum of an IDIQ contract:

From an appropriations standpoint, an agency must record an obligation against its appropriation at the time that it incurs a legal liability, such as when the agency signs a contract committing the government to purchase a specified amount of goods or services. B-116795, June 18, 1954. See also B-300480.2, June 6, 2003, at 3 n.1. In the case of an IDIQ contract, the agency must record an obligation in the amount of the guaranteed minimum at the time the contract is executed because, at that point, the government has a fixed liability for the minimum amount to which it committed itself. B-308969, May 31, 2007; B-302358, Dec. 27, 2004. A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum. See B-317636, Apr. 21, 2009; B-308969, May 31, 2007.

The contract is indefinite-delivery. The government orders when a need arises. Suppose that the government awards an IDIQ contract with a five year ordering period and a guaranteed minimum of $100,000 on 1 Oct 2011 with FY2011 funds. The government must anticipate a need during FY2011, but the need need not exist at the time of award. Moreover, it need not exist in total at any one point in time. The government can issue one or more orders against the 2011 funds as needs arise, as long as the orders cover bona fide needs of FY2011.

As for "what is the comptroller going to do," that's not a smart question. The answer is nothing, except report the misuse of funds to Congress. That's all it can ever do when it comes to funds violations.

What if a bona fide need never arises in FY2011? The agency can terminate the contract for convenience and pay its debt out of the FY2011 funds. Alternatively, it can deobligate the FY2011 funds and cover the obligation for the minimum with FY2012 funds. It will lose the FY2011 funds, and that's mismanagement, but that's all there is.

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Vern, before the Library of Congress opinion, I would never have questioned your statement, "The government must anticipate a need during FY2011, but the need need not exist at the time of award." But your statement flies directly in the face of the quote immediately above it: "A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum."

The only way I have to reconcile these statements is the GAO must not have meant what it plainly said. This wasn't a decision where someone (e.g., an IG) was alleging a fiscal law violation. The point of the decision was to encourage agencies to use small minimums when the circumstances warranted them. So, it isn't completely impossible that the author of the decision hadn't really thought through the implications of the statement. Another reason to believe this is because there is really no way for the issue to come before the GAO. This was the point of my scenarios.

To be clear, I think the last two sentences from your quote of the decision in Post #43 means that, at the time of the award of an ID/IQ contract, the government must have a bona fide need (not in any unusual or forward-looking or predictive sense--literally, a bona fide need just like any other) for the guaranteed minimum. If these sentences don't mean this, what do they mean?

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Guest Vern Edwards

You have misread the Library of Congress decision. The bona fide needs rule is a use-limitation rule. Funds appropriated for a given fiscal year must be used only for the needs of that fiscal year. See the Red Book at page 5-13:

In its most elementary form?where the entire transaction (contract or purchase, delivery or other performance, and payment) takes place during the same fiscal year?the rule means simply that the appropriation is available only for the needs of the current year. A common application of the rule in this context is that an appropriation is not available for the needs of a future year.

You are interpreting Library of Congress as turning the bona fide needs rule into some kind of rule about the criteria for recording an obligation. Your interpretation turns on a single sentence in a single decision: "A valid obligation must reflect a bona fide need at the time the obligation is incurred." Note the word "reflect." In context, that word means embody or represent. An IDIQ minimum can embody or represent a need in actuality or in anticipation. Thus, the obligation of the amount of the minimum reflects a bona fide need of the fiscal year, even though the need may not exist in actuality at the moment of award. But you are interpreting that sentence to mean: A bona fide need must actually exist at the moment of award. That is not supported by the language of the decision, by any other GAO decision of which I am aware, or by the Red Book, and it is contrary to the notion of an indefinite-delivery contract.

The sole purpose of the IDIQ minimum is to furnish consideration by the making of a promise. However, there is no promise of when the minimum will be purchased. FAR 16.504(a)(2) says of the minimum: "(2) To ensure that the contract is binding, the minimum quantity must be more than a nominal quantity, but it should not exceed the amount that the Government is fairly certain to order." "Fairly certain" to order, not ready to order. See also the GAO's discussion of IDIQ contracts in its discussion about obligations in Vol. II, Ch. 7, pages 7-20 and 7-21:

An indefinite-delivery, indefinite-quantity (IDIQ) contract is a form of an indefinite-quantity contract. As with other indefinite quantity contracts, an IDIQ contract must require the government to order, and the contractor to furnish, at least a stated minimum quantity of supplies or services. FAR, 48 C.F.R. ? 16.504(a). While the agency may place orders at any time during a fixed period, actual delivery dates during that period are undefined. After award of an IDIQ contract, the government places task or delivery orders with the contractor (or contractors) as the government?s needs become definite. B-302358, Dec. 27, 2004. IDIQs have historically provided a way to expeditiously fill certain government needs. See GAO, Contract Management: Few Competing Proposals for Large DOD Information Technology Orders, NSIAD-00-56 (Washington, D.C.: Mar. 20, 2000), at 5.

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 indefinitequantity), 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.

Nowhere does GAO say that an IDIQ minimum need must exist in actuality at the moment of contract award. Such a rule would be a fundamental change in the rules about IDIQ contracts. Indeed, the Library of Congress decision was written in recognition of the fact that the need may not exist in actuality at the moment of award and there may be no usage data to support an anticipation of need. One would think that if the GAO was making new law in Library of Congress it would say so, either in a decision or in the Red Book. The 2010 Red Book update treats Library of Congress as new only in the sense that it allows agencies to use $500 in the absence of a reliable basis for anticipation.

The GAO was not making new law in the Library of Congress decision. Note that at the end of the GAO's quote it cites as precedent two prior decisions: B-317636, Apr. 21, 2009 and B-308969, May 31, 2007. Neither of those decisions stands for the proposition that the minimum need must exist in actuality at the time of award. Moreover, the Red Book does not state such a proposition. When it says that an agency must have a bona fide need when it obligates funds, the emphasis is on "bona fide." It means that the minimum need for which funds have been obligated, whenever it arises in actuality, must be a bona fide need of the fiscal year for which the funds were appropriated.

Your interpretation of the Library of Congress decision is not justified by the language of the decision itself, by the language of any decision cited therein, by the Red Book, or by the history of the bona fide need rule as I know it. Thus, I say that your interpretation is unjustified and unsound.

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Perhaps the bona fide need that supports the concept of an IDIQ contract where the Government is not going to immediately issue an order for the guaranteed minimum is the Government's need to have a contractor available to receive and perform orders. The guaranteed minimum is intended to cover the cost incurred by a contractor in being ready to perform. It is "insurance" for the Government and from that perspective represents a current need of the Government. The guaranteed minimum is simply the price of that "insurance."

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At the risk of incurring the wrath of Vern, I feel compelled to tease a little more out of this line of discussion. I'm not arguing about the proposition that an order for the guaranteed minimum is required to be placed at time of award of an IDIQ or that the bona fide needs rule somehow dictates the Government's determination of when to issue an order or orders for the guaranteed minimum (it does not). Maybe I'm way off base or missing something elemental, but after reviewing B-308969 and upon rereading this discussion, a recurring theme kept jumping out (and for the purposes of this discussion, I am assuming the use of annual funds):

In Post 30, Don states:

each order is a new obligation. If that obligation occurs in a fiscal year subsequent to the fiscal year in which the IDIQ contract was awarded, then it cannot be funded with the same funds that were obligated upon award of the basic IDIQ contract.

In Post 46, Vern states:

Suppose that the government awards an IDIQ contract with a five year ordering period and a guaranteed minimum of $100,000 on 1 Oct 2011 with FY2011 funds. The government must anticipate a need during FY2011, but the need need not exist at the time of award. Moreover, it need not exist in total at any one point in time. The government can issue one or more orders against the 2011 funds as needs arise, as long as the orders cover bona fide needs of FY2011.

What if a bona fide need never arises in FY2011? The agency can terminate the contract for convenience and pay its debt out of the FY2011 funds. Alternatively, it can deobligate the FY2011 funds and cover the obligation for the minimum with FY2012 funds. It will lose the FY2011 funds, and that's mismanagement, but that's all there is.

But in light of B-308969, is that really true?

In that case, the Dept of Interior set up a one-year IDIQ, period of performacne 1 July 03 to 30 June 04, with a guaranteed minimum of $1M over three years (presumably, the contract also had two 1-year option periods, although the decision does not specify this). The contract called for the contractor to provide services to design and conduct personnel security research and development tasks. Interior did not obligate any funds against the contract upon award, but instead recorded obligations (using funds received by way of interdepartmental transfers) as it placed task orders against the contract. Thus, in FY03, Interior received $175K in FY 03 funds from DOD, and recorded a $45K obligation when it issued TO 1 (presumably TO 1 had a $45K value). Shortly after the beginning of FY04, Interior received $422,454 in FY04 funds from DOD, accepted it a few days later, and a few days after that, issued TO 2 (presumably for $422,454 although that is not specified in the decision). In February 04, Interior received $291,000 of FY04 funds from DOD and issued the first amendment to TO 2, increasing its value by $291,000. In April 04, Interior received a little over $3.1M of FY04 funds from DOD and issued the second amendment to TO 2, increasing its value by the same amount. There are two more transfers that take place, but neither are relevant to this discussion.

Recap: Interior issues one TO in FY03 for $45K and obligates $45K in FY03 against it.

Interior issues one TO in FY04 (with 4 amendments) for a total of $4,847,638 and obligates $4,847,638 in FY04 against it.

Did Interior satisfy the $1M minimum? Yes.

Did Interior satisfy the $1M minimum with the correct funds? According to GAO, no.

According to the GAO, Interior should have obligated a total of $1M in FY03 funds at the time of contract award. Instead, Interior only obligated $45K of FY03, and it then

obligated $955,000 against fiscal year 2004 appropriations that it should have obligated against fiscal year 2003 appropriations. [interior] used fiscal year 2004 funds to satisfy an obligation established in fiscal year 2003. Fiscal year 2004 funds are not available to satisfy fiscal year 2003 obligations. 31 U.S.C. sect. 1502.
As a result, the GAO recommended that
ecause of its incorrect obligation of funds, [interior] must now adjust its accounts. It should deobligate $955,000 in funds obligated against fiscal year 2004 appropriations and should instead charge the obligation to fiscal year 2003 appropriations, the appropriations that were current at the time of contract award when [interior] incurred the liability for the guaranteed minimum.

Apparently, then, the guaranteed minimum is immediately established upon award of an IDIQ as a bona fide need of the FY of the award, and, from a funding perspective, it doesn't matter when orders are placed that might satisfy it - the minimum must be extinguished using funds current at the time of contract award, and it is not until you've satisfied the minimum that you start using funds current at the time of issuance of future orders. As a corollary, if you never get around to issuing an order (i.e., mismanagement perhaps), you satisfy the minimum guarantee with the funds you obligated at the time of contract award, even if the ordering period ends (and therefore the obligation to pay the piper arises) in a different FY.

Have I been missing something that was evident all along?

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Guest Vern Edwards

What do you care about "the wrath of Vern"? Give me a break.

I've been talking about the bona fide needs rule. The decision you cited is not a bona fide needs rule decision. The term "bona fide needs" does not appear in the decision. It is an Anti-deficiency Act decision. What the GAO said was that the agency incurred an obligation in FY2003 when it awarded the contract and should have recorded that obligation at that time, but did not. By not recording an oblgation at the time of the award the agency ran the risk of violating the Anti-deficiency Act. I agree with the GAO. When the agency issued orders to buy the minimum, they fulfilled a 2003 obligation with the funds of three different fiscal years: 2003, 2004, and 2005. But they could not use FY2004 and FY2005 funds to cover an FY2003 obligation. If there weren't enough 2003 funds to fulfill the obligation, then they might have been in trouble. That is not what I was talking about.

Now let's say that a CO awards an IDIQ contract with a five-year ordering period and promises to buy a minimum of $1 million. The CO anticipates a need to buy $1 million in the first year, but does not promise the contractor that he will do so, just that he will buy a $1 million during the life of the contract. The Anti-deficiency Act says that the CO cannot obligate the government in advance of appropriations and the bona fide needs rule says that the CO must use funds appropriated for the year in which the promise is made. So the CO records an obligation of $1 million using the first year's funds. Now what if a need for the $1 million does not arise in that first year. The obligation exists but there is nothing to order. Must the CO terminate the contract and pay off the contractor, even if he now anticipates that he will buy the $1 million in the second year? Must he award a new contract? I say no, because the CO did not promise to buy the $1 million in the first year. I say that the CO can deobligate the unused first year funds and fund what remains of the $1 million obligation with the funds of the second year. It would be bad management, due to the loss of the first year's funds, but there is no violation of the Anti-deficiency Act or the bona fide needs rule. If second year funds do not become available, the CO can terminate the contract for convenience and pay off the contractor with the first year's funds.

This is an academic exercise. I am not advocating this kind of thing. I am merely trying to explain my interpretation of the bona fide needs rule.

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Although B-308969 did not use the term ?bona fide needs,? it should have, because, even as Jacques recognized, there is a bona fide needs issue raised by how GAO dealt with the agency?s failure to record an obligation equal to the minimum guaranteed amount. They recommended that the agency adjust its accounts by deobligating the FY04 funds it obligated for an FY04 order and to correct by obligating FY03 funds for that order.

Vern, you said that

When the agency issued orders to buy the minimum, they fulfilled a 2003 obligation with the funds of three different fiscal years: 2003, 2004, and 2005. But they could not use FY2004 and FY2005 funds to cover an FY2003 obligation.
Tell me how an order placed in FY04 is an FY03 obligation (and therefore, a bona fide need of FY03). If Interior had properly obligated the $1M of FY03 funds upon contract award, would it have applied the $955,000 of FY03 it had left at the end of FY03 against TO2 placed in FY04?l

This is an academic discussion, but so what? I went back and reviewed the ?Terms of Use? for this forum, and find no prohibition against discussing academic or hypothetical issues. What better time to discuss bona fide needs and rules pertaining to obligations than Fiscal New Year?s Eve?

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