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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.

parkerr,

You are making things up. There is no such rule. If an agency issues an order against an IDIQ contract in a fiscal year subsequent to the year in which it awarded that IDIQ contract, it must use funds that are current at the time the order is issued. Period. Whether or not the agency met the minimum in the fiscal year in which the IDIQ contract was awarded is totally irrelevant. From Principles of Federal Appropriations Law, Volume II, Chapter 7, p. 7-21:

In a variable quantity contract (requirements or indefinite-quantity), 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.

Imagine if what you wrote were really true. What would stop agencies from awarding IDIQ contracts with high minimums at the end of a fiscal year as a way to park unused funds that they would then be able to use in subsequent fiscal years? Everyone would be doing it.

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Don.

I'm not making anything up; I'm just trying to understand the GAO's recommendation in B-308969, because they recommended that the agency do exactly what I described - charge FY03 funds for what looks to me like a requirement of FY04. Go to this site:

http://www.gao.gov/special.pubs/appforum20...ontract_law.pdf

Look at the table on obligational rules, and in particular, at the part about IDIQs and see what you think GAO is saying about this.

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parker,

You are confusing the requirement to record an obligation and placing orders. The government incurs an obligation for the guaranteed minimum at time of award. That must be recorded. If you don't have an immediate need for placing an order, you just record the obligation.

GAO said Interior did it wrong. They incurred a $1 million obligation in FY 03 and placed an order for only $45K. They were deficient by $955K for FY 03. Even though they placed more orders in FY 04, that doesn't negate they failed to meet an FY 03 obligation. Furthermoe even if they "parked" $1 million in FY 03, they can't use the balance to buy needs of FY 04.

I'm not making anything up; I'm just trying to understand the GAO's recommendation in B-308969, because they recommended that the agency do exactly what I described - charge FY03 funds for what looks to me like a requirement of FY04

No, GAO said charge FY 03 funds to fulfill the FY 03 obligation!

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formerfed,

They may have incurred a $1M obligation in FY03, but according to the terms of the contract, they did not have to satisfy it by the end of FY03. They had three years. They were certainly deficient in recording the required obligation at time of contract award. Assuming that they had complied with the recording requirement, having only ordered $45K in FY03, what should have happened at the end of FY03?

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formerfed,

They may have incurred a $1M obligation in FY03, but according to the terms of the contract, they did not have to satisfy it by the end of FY03. They had three years. They were certainly deficient in recording the required obligation at time of contract award. Assuming that they had complied with the recording requirement, having only ordered $45K in FY03, what should have happened at the end of FY03?

I understand that. What GAO is saying is Interior violated the Anti-Deficieny Act because they only obligated $45K against a $1 million obligation. They should have obligated another $955K at the end of FY 03. Actually they should have obligated a full $1 million at time of award.

Here's from the decision

Accordingly, on February 11, 2003, SWB incurred a legal liability of $1 million and should have obligated $1 million on that date. SWB, however, did not obligate any funds at the time of contract award. As indicated above, SWB obligated only $45,000 in fiscal year 2003 against fiscal year 2003 appropriations when it should have obligated the full amount of the minimum, $1 million. All funds obligated under the contract after the $45,000 for the first task order were obligated against fiscal 2004 appropriations. Consequently, SWB obligated $955,000 against fiscal year 2004 appropriations that it should have obligated against fiscal year 2003 appropriations. SWB 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 indicated above, DOD obligated and transferred the funds that SWB used for the task orders upon SWB?s acceptance of DOD?s MIPRs. Accordingly, DOD also obligated $955,000 against fiscal year 2004 appropriations that should have been obligated against fiscal year 2003 appropriations

Once they met the minimum by the orders placed in FY 04, they should de-obligate the $1 million of FY 03 funding because the obligation for ordering the minimum was fulfilled

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Don.

I'm not making anything up; I'm just trying to understand the GAO's recommendation in B-308969, because they recommended that the agency do exactly what I described - charge FY03 funds for what looks to me like a requirement of FY04. Go to this site:

http://www.gao.gov/special.pubs/appforum20...ontract_law.pdf

Look at the table on obligational rules, and in particular, at the part about IDIQs and see what you think GAO is saying about this.

parkerr,

This is what the table says for recording obligations on IDIQ contracts:

Record minimum contract amount. Amounts over the minimum are obligated as task or delivery orders are placed against the original contract. Thus, current year funds are used when placing orders above the guaranteed minimum.

This is what you said:

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.

Nothing in the table suggests that you can use funds obligated to cover the contract minimum on an IDIQ to place orders in future fiscal years. That is something that you incorrectly concluded from the statement in the table. Your conclusion ignores the Bona Fide Needs rule.

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In light of the above, [interior] and DOD may have violated the Antideficiency Act by failing to obligate funds for the PERSEREC contract correctly. [interior] should have obligated the entire amount of the contract?s guaranteed minimum at the time of contract award against fiscal year 2003 appropriations. Likewise, DOD should have obligated the guaranteed minimum against its fiscal year 2003 appropriations. Then, once [interior] had issued task orders sufficient to exhaust the minimum, it should have charged the funds needed to cover the amounts remaining for Task Order 0002 to fiscal year 2004 appropriations. Likewise, once DOD had obligated the minimum, DOD should have obligated fiscal year 2004 appropriations for the remaining amount.
(Emphasis supplied).

Gosh folks, maybe I'm thick today, but somebody explain to me how the language above does not plainly mean that the GAO was sanctioning the use of FY03 funds to cover at least part of an obligation created by a task order issued in FY04?

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Guest Vern Edwards
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?

parkerr:

You read the forum rules? I'm glad, but I don't need a lecture from you about the forum rules or when it's time to discuss something. I have forgotten more posts than you have made. Besides, I'm discussing it with you, am I not? I discuss things here all the time, even when the people I'm discussing them with are dim bulbs. When I said this is an academic discussion I meant that I was not suggesting that anyone should do what I described. So, again, spare me. First you came out with that "wrath of Vern" bull, now you're reading me the rules. If you are going to approach me like that, don't bother addressing me again, because you won't get a response. I'm more than happy to discuss and debate with anybody, but I won't take any bull from someone seeking my input.

Here is the situation in the case you cited as described by the GAO:

The agency awarded a contract on 2/11/2003 with a minimum of $1 million. The contract expressly provided that the $1 million was to be fulfilled over three years. It thus appears that they did not anticipate a need for $1 million in 2003. They had a problem: they did not anticipate a bona fide need for the million in 2003, yet they made an obligation for $1 million. They could not use 2003 funds to buy the needs of future years, and they could not enter into an obligation for future year buys in advance of appropriations. So they did not record any obligation at the time of award, although they had undertaken an obligation to buy $1 million. At that point they had committted a recording violation and possible violation of the Anti-deficiency Act. They had not violated the bona fide needs rule however, because they did not use 2003 funds to buy the needs of future years.

The agency then issued an order in FY2003 for $45,000 using 2003 funds. No violation of the bona fide needs rule.

The agency then issued orders in Fy2004 for the needs of 2004 using 2004 funds. No violation of the bona fide needs rule.

Now here is what the decision was about, quoting GAO:

The request for this decision stems from a finding in the Interior Office of Inspector General report cited above. The IG reported finding a potential Antideficiency Act violation relating to contract NBCCHD030003. The report concluded that by agreeing to pay a minimum of $1 million over a 3-year period at a time before Congress had appropriated funds for all 3 years, Interior violated the Antideficiency Act, 31 U.S.C. sect. 1341(a)(1)(B), because it obligated funds in advance of appropriations. Interior included an ?Availability of Funds for the Next Fiscal Year? clause in the contract, as set forth in section 52.232-19 of the Federal Acquisition Regulation. That clause provides:

?Funds are not presently available for performance under this contract beyond ___________. The Government?s obligation for performance of this contract beyond that date is contingent upon the availability of appropriated funds from which payment for contract purposes can be made. No legal liability on the part of the Government for any payment may arise for performance under this contract beyond __________, until funds are made available to the Contracting Officer for performance and until the Contractor receives notice of availability, to be confirmed in writing by the Contracting Officer.?

41 C.F.R. sect. 52.232-19.

SWB did not fill in the blank spaces specifying in the clause the last date that appropriations would be available for contract performance and the date after which no government liability would arise until additional funds were made available. The IG?s position is that without specifying those dates, the Availability of Funds clause does not protect the government from obligations beyond the fiscal year in which the contract was executed, when funds were available for the contract.

The Inspector General asks whether in awarding Contract NBCCHD030003, Interior and/or DOD violated the Antideficiency Act by agreeing to pay a minimum of $1 million over a 3-year period before Congress had appropriated funds for all 3 years.

Here is what the GAO concluded:

Although we conclude that SWB and DOD are at risk of violating the Antideficiency Act, it is not for the reason that the IG suggests. As described in the background section above, the IG concluded that by agreeing to pay a minimum of $1 million over a 3-year period[6] at a time before Congress had appropriated funds for all 3 years, SWB obligated funds in advance of appropriations and violated the Antideficiency Act, 31 U.S.C. sect. 1341(a)(1)(B). However, the contract, if obligated properly as described above, does not result in the agency?s making obligations in advance of appropriations. If, as it should have, SWB had obligated the entire minimum 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.

It appears that GAO said that the agency could have used FY2003 funds to buy the needs of FY2004 and future years. I hope that's not what they meant, because if they did they departed from their bona fide needs rule case law. I wrote at length about B-308969 in the August 2007 edition of The Nash & Cibinic Report: "Obligating Funds for Services Under IDIQ Contracts That Cross Fiscal Years: What Are The Rules?" 21 N&CR ? 42 (August 2007). Here are some of the things that I said:

The Government Accountability Office, in a decision requested by the Department of the Interior Inspector General, Interagency Agreements--Obligation of Funds Under An Indefinite Delivery, Indefinite Quantity Contract, Comp. Gen. Dec. B-308969, 2007 WL 1695125 (May 31, 2007), has shed some light on the rules for obligating funds against IDIQ contracts for services that cross fiscal years. Unfortunately, the decision does not clarify all issues and may cause some confusion.

***

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, which says that agencies may obligate funds only for a bona fide need of the year for which the funds were appropriated. See the GAO Redbook at 5-11 through 5-50. The Redbook at 5-11, states:

Over a century ago, the Comptroller of the Treasury stated, ?An appropriation should not be used for the purchase of an article not necessary for the use of a fiscal year in which ordered merely in order to use up such an appropriation.? 8 Comp. Dec. 346, 348 (1901). The bona fide needs rule is one of the fundamental principles of appropriations law: A fiscal year appropriation may be obligated only to meet a legitimate, or bona fide, need arising in, or in some cases arising prior to but continuing to exist in, the fiscal year for which the appropriation was made.

If the NBC contract had actually been for three years, we wonder how an order issued for services in the second or third year of the contract could be a bona fide need of the first year... Presumably, a purchase of services in the second or third year of the contract would be a bona fide need of that year and should be charged to that year's appropriation. So we wonder whether the GAO misspoke or if we do not understand the bona fide needs rule.

I then concluded, in part, as follows:

There are some summary points to be made about this case. First, the rules about Government contract funding as presented in the Redbook are very complex and are based largely on GAO decisions interpreting some statutes, mainly in Title 31 of the U.S. Code. The Redbook is a massive compilation of decisional law, and, while informative and useful, it can leave the reader uncertain about how a rule applies in a given situation. And if the GAO has not rendered an opinion about a matter, the Redbook probably does not say much about it. Thus, we have no clear statement of how the bona fide needs rule applies to IDIQ contracts that have ordering periods that cross fiscal years.

Second, since we lack a clear statement of how the bona fide needs rule applies to IDIQ contracts that cross fiscal years, agencies are probably all over the map in how they are interpreting and applying the rule. The lack of clear guidance leaves a lot of room for ?creative? contract financing.

Jacques raised the Library of Congress decision, in which the GAO said:

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.

He interpreted that to mean that the agency must have the need in actuality at the time of award. I disagreed and said that the need could exist either in actuality or in anticipation. I have twice explained how an agency could handle a situation without violating the bona fide needs rule and without terminating the contract when an anticipated need did not arise in actuality. I won't explain it again.

To me, the bona fide needs rule is simple in concept: you cannot use the funds of one year to pay for the needs of another. In my opinion, any attempt to make it say anything else is wrong.

You either get it or you don't.

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I attended a GAO fiscal law training and asked the instructors about obligations on multiple award IDIQ service contracts. We awarded five IDIQ contracts and issued two task orders in the first year (meeting the contractual minimum for these two companies). We also obligated the contractual minimum for the remaining three contractors. The plan was to compete the service requirements amongst these five companies throughout the period of performance.

GAO stated that the minimum had to be obligated at time of award (so we wouldn?t be Anti Deficient) to each company and a task order had to be issued before those funds expired to each of the companies in order to meet the Bona Fide Needs rule. If we were using annual funds the task order had to be issued within a year. Basically they said since we didn?t issue a task order to three companies there wasn?t a Bona Fide need in the fiscal year charged.

I changed the scenario to no year funds and that gave me the entire period of performance to issue task orders. However, if one or more of the contractors never received a task order they considered that specific IDIQ contract award a violation of the bona fide needs rule.

They gave a couple of ways to get around this as long as it was properly reflected in the ordering instructions (e.g., rotate vendors until minimum awarded to all and then compete future task orders).

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Guest Vern Edwards
GAO stated that the minimum had to be obligated at time of award (so we wouldn?t be Anti Deficient) to each company and a task order had to be issued before those funds expired to each of the companies in order to meet the Bona Fide Needs rule. If we were using annual funds the task order had to be issued within a year. Basically they said since we didn?t issue a task order to three companies there wasn?t a Bona Fide need in the fiscal year charged.

Listen, everybody: the whole idea behind an "indefinite" delivery "indefinite" quantity contract is that you want a contract in place in the event that you might need something at some point in time in the future. When awarding an IDIQ contract you have to promise to buy a minimum quantity in order to have consideration that binds the parties. Prudence dictates that you don't commit to a minimum unless you at least anticipate a need. However, it has happened on more than one occasion that an agency has awarded an IDIQ contract only to find that it did not need to buy anything, much less the minimum. For a discussion of this, see Cibinic and Nash, Formation of Government Contracts, 3d ed., pp. 1252 - 1253, and Administration of Government Contracts, 4th ed.. pp. 1120 - 1121. The GAO has acknowledged that the government has the right to terminate an IDIQ contract for convenience before it buys the minimum. See Southwest Laboratory of Oklahoma, Inc., B-251778, 93-1 CPD ? 368:

A stated minimum quantity in an indefinite quantity contract operates to commit the government to ordering a predetermined minimum amount of goods or services where the government's need for any greater quantity is uncertain. FAR ? 16.504(B). As such, the minimum quantity forms the consideration for such a contract instrument, and without a minimum quantity there is no binding contract. See Willard, Sutherland & Co. v. United States, 262 U.S. 489 1923). However, because of the unique requirement that the government act in the interest of the society it serves, it retains a special power to terminate its contract obligations when such action serves the public interest. See United Steam-Engine Co., 91 U.S. 321 (1876); Torncello v. United States, 681 F.2d 756 (Cl.Ct. 1982). In our view, this power rests like a mantle over all the other contractual provisions in any government contract and can be summoned during the period of contract performance at any time events require such action.

I know of no decision by the GAO holding (1) that there must be an actual need at the time of contract award in order to avoid a violation of the bona fide needs rule, or (2) that failure to order the minimum by the end of the year in which funds were obligated to buy the minimum violates the bona fide needs rule. The bona fide needs rule says one thing and one thing only: You cannot use the funds of one year in order to buy the needs of a different year. You cannot violate the bona fide needs rule, which limits the uses to which funds can be put, by not buying anything.

You don't have to issue a task order before the funds expire in order to comply with the bona fide needs rule. If the GAO instructor told you that, he or she was wrong. If you award an indefinite-delivery indefinite-quantity contract with a minimum based on an anticipated need and the need does not emerge in actuality, then you cannot fulfill your obligation to the contractor, but you have not violated the bona fide needs rule. The only way to violate the bona fide needs rule is to use the funds of one year to buy the needs of a different year.

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I know of no decision by the GAO holding (1) that there must be an actual need at the time of contract award in order to avoid a violation of the bona fide needs rule...

Perhaps this 9/19/11 decision B-321640 brings a new spin:

An agency must consider both the Federal Acquisition Regulation (FAR) and appropriations law principles when determining its guaranteed minimum quantity.”

And

While it is true that task orders must be funded with appropriations available at the time of the issuance of the task order, it is also true that a bona fide need must exist for the amounts obligated as the guaranteed minimum.

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