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Availability of Funds


Heretalearn

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My company is in the final option of a GSA Multiple Award Schedule fixed price service task order, which option was exercised subject to definitization of a 52-222-43 price adjustment proposal for wage increases. The task order as written contains FAR 52.232-18 Availability of Funds "Applicable to Options". The final option was exercised "Subject to Availability of FY 11 funds and is subject to the provision under FAR 52.232-19 Availability of funds for the next Fiscal Year".

We have occasionally worked "at risk" - rendered unfunded services - for a few days at a time - while an agency processes their Purchase Requisition for funding allocations based on last minute Continuing Resolutions. Doing so is somewhat hair-raising, but is assumed as a calculated risk, our understanding of the risk being that if funds are not ultimately made available to the KO, we have donated the unfunded services. Our service is an essential service and our experience is that KOs try to move mountains to avoid ANY period of unfunded services, and PRs for our contracts have historically been processed and the contracts modified within days of passage of a CR.

We have been providing unfunded services under the subject task order for a month. (This has become a chronic situation during this option period; the KO has encouraged us to render invoices for unfunded services, and then resubmit them after they're returned for lack of funding; the incremental funding has been being obligated after the initial invoice rejection). The KO and specialist avoid my status calls for the most part and when I catch them, merely tell me they don't have funding from the CR yet. (The last CR was signed in early December.) I've been told that for present my price adjustment proposal is not being entertained. I've read that the Republican Congressional leadership has been considering retroactive budget cuts.

I'm afraid this is way too much context for my questions, which are: Have I misunderstood our position in terms of financial risk? If it comes to it, MAY I cease rendering services? How would such a thing be implemented in terms of notifying the government? If I do cease rendering services, will I ever get another government contract?

I would appreciate any insight and guidance.

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My company is in the final option of a GSA Multiple Award Schedule fixed price service task order, which option was exercised subject to definitization of a 52-222-43 price adjustment proposal for wage increases. The task order as written contains FAR 52.232-18 Availability of Funds "Applicable to Options". The final option was exercised "Subject to Availability of FY 11 funds and is subject to the provision under FAR 52.232-19 Availability of funds for the next Fiscal Year".

We have occasionally worked "at risk" - rendered unfunded services - for a few days at a time - while an agency processes their Purchase Requisition for funding allocations based on last minute Continuing Resolutions. Doing so is somewhat hair-raising, but is assumed as a calculated risk, our understanding of the risk being that if funds are not ultimately made available to the KO, we have donated the unfunded services. Our service is an essential service and our experience is that KOs try to move mountains to avoid ANY period of unfunded services, and PRs for our contracts have historically been processed and the contracts modified within days of passage of a CR.

We have been providing unfunded services under the subject task order for a month. (This has become a chronic situation during this option period; the KO has encouraged us to render invoices for unfunded services, and then resubmit them after they're returned for lack of funding; the incremental funding has been being obligated after the initial invoice rejection). The KO and specialist avoid my status calls for the most part and when I catch them, merely tell me they don't have funding from the CR yet. (The last CR was signed in early December.) I've been told that for present my price adjustment proposal is not being entertained. I've read that the Republican Congressional leadership has been considering retroactive budget cuts.

I'm afraid this is way too much context for my questions, which are: Have I misunderstood our position in terms of financial risk? If it comes to it, MAY I cease rendering services? How would such a thing be implemented in terms of notifying the government? If I do cease rendering services, will I ever get another government contract?

I would appreciate any insight and guidance.

In making a decision on what you may want to do, I suggest you read 31 U.S.C. 1341 and 1342. Although those statutes impose limitations on government officials, they might give you some ideas of what you should be doing in these circumstances.

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Guest Vern Edwards
My company is in the final option of a GSA Multiple Award Schedule fixed price service task order, which option was exercised subject to definitization of a 52-222-43 price adjustment proposal for wage increases. The task order as written contains FAR 52.232-18 Availability of Funds "Applicable to Options". The final option was exercised "Subject to Availability of FY 11 funds and is subject to the provision under FAR 52.232-19 Availability of funds for the next Fiscal Year".

***

We have been providing unfunded services under the subject task order for a month... The KO and specialist avoid my status calls for the most part... .

***

[1] Have I misunderstood our position in terms of financial risk?

[2] If it comes to it, MAY I cease rendering services?

[3] How would such a thing be implemented in terms of notifying the government?

[4] If I do cease rendering services, will I ever get another government contract?

I would appreciate any insight and guidance.

1. If the government does not notify you that funds have been made available for the contract option by its start date, then there is no contract. If you work without a contract you might not get paid. The CO or COTR could go to jail and be fired if they ask you to keep working in the absence of funds.

2. In the absence of a contract, you have no contractual obligation to the government and may stop working.

3. Send the CO and COTR an email notifying them that you are not obligated to continue to perform and that you will stop performing as of a specified date. Tell them that you are continuing only long enough to give them time to prepare for the cessation of the services. Tell them that during this period you are not bound by the terms of the expired contract. End the email with a polite goodbye. (I bet they'll return your calls when they get that email.)

4. Almost certainly not with that agency. However, they would have no grounds to trash your past performance due to your work stoppage.

Of course, you're going to keep working, so this is a pointless exercise.

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1. If the government does not notify you that funds have been made available for the contract option by its start date, then there is no contract. If you work without a contract you might not get paid. The CO or COTR could go to jail and be fired if they ask you to keep working in the absence of funds.

2. In the absence of a contract, you have no contractual obligation to the government and may stop working.

3. Send the CO and COTR an email notifying them that you are not obligated to continue to perform and that you will stop performing as of a specified date. Tell them that you are continuing only long enough to give them time to prepare for the cessation of the services. Tell them that during this period you are not bound by the terms of the expired contract. End the email with a polite goodbye. (I bet they'll return your calls when they get that email.)

4. Almost certainly not with that agency. However, they would have no grounds to trash your past performance due to your work stoppage.

Of course, you're going to keep working, so this is a pointless exercise.

I apologize. Once again, I'm afraid I haven't made myself perfectly clear. For what it's worth, the CO exercised the final option in August with 1 month of incremental funding, and has been incrementally funding it a month or more in arrears since then.

1. Does having that belated information change your advice?

2. 31 U.S.C. 1341 and 1342 set forth what the CO may not authorize or accept, but they're not much practical use to a contractor. Presumably the contract hasn't expired, but I should send the email described in your Paragraph 3 above, sans the bit about not being bound by the terms of the contract during the remaining performance. Is that right?

Although I obviously won't make the final decision regarding cessation, I believe the company will follow this guidance, and I'm in the process of drafting an email.

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Guest Vern Edwards

I didn't give advice. I only answered your questions.

What the contracting officer is doing in knowingly allowing you to provide services in the absence of funds and then funding those services after the fact is probably illegal. You cannot be sure that you will be paid, although it seems likely that you will. If that's acceptable to you, then let it be. You don't seem to have a choice, unless you are willing to walk away from the business.

Doing business with the government is like doing business with the Mafia. They expect you to do favors for them, but they will turn on you at the drop of a hat.

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I didn't give advice. I only answered your questions.

What the contracting officer is doing in knowingly allowing you to provide services in the absence of funds and then funding those services after the fact is probably illegal. You cannot be sure that you will be paid, although it seems likely that you will. If that's acceptable to you, then let it be. You don't seem to have a choice, unless you are willing to walk away from the business.

Doing business with the government is like doing business with the Mafia. They expect you to do favors for them, but they will turn on you at the drop of a hat.

Careless use of the word "advice". Anyway, I have a better handle on the ramifications of walking away from the business and how to best handle doing so, thank you.

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Guest Vern Edwards

Think about it. You might be entitled to a price increase. When you priced the contract you expected to enter into an option for one year, not month to month. Perhaps you planned on some economies of scale that you won't enjoy under the month to month scheme.

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Think about it. You might be entitled to a price increase. When you priced the contract you expected to enter into an option for one year, not month to month. Perhaps you planned on some economies of scale that you won't enjoy under the month to month scheme.

We also had to fund our service contracts that way at the begining of the year. When I exercised the option, I stated in the mod:

"In accordance with contract clause FAR 52.232-19 AVAILABILITY OF FUNDS FOR THE NEXT FISCAL YEAR (APR 1984), funds are not presently available for performance under this contract beyond 30 Sept. 2010. 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. When available, funds for the Firm Fixed-Price portion of the contract will be obligated on separate Task Order."

Then funds had to be put in place by the first of every month. On the funding task order I stated:

"In accordance with FAR 52.232-18, AVAILABILITY OF FUNDS (APR 1984), and as authorized by the enactment of the FY 2011 DOD Appropriations Act, funds in the amount of $8,220,360.38 are hereby obligated for performance on the Firm-Fixed-Price Work in the third option year, CLINs 3001, 3002 & 3003. Funds are presently available for performance under the contract for the period of 10/01/2010 through 10/31/2010."

But as I said, I made sure I issued the task order to have funds in place by the first of the month.

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Guest Vern Edwards

An option must be exercised in accordance with its terms. Did the terms of the option provide for it to be exercised 12 times, month-by-month, or once for a period of 12 months?

I don't have any clear ideas about this. I'm just thinking my way through it.

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An option must be exercised in accordance with its terms. Did the terms of the option provide for it to be exercised 12 times, month-by-month, or once for a period of 12 months?

I don't have any clear ideas about this. I'm just thinking my way through it.

The option was exercised for 12 months per the options clause, but funded 1 month at a time until all necessary funds were available for the entire year.

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Guest Vern Edwards

Did the contract expressly provide for month-to-month obligation?

This is what I'm wondering: What if a contractor did not want to continue under a contract option because it would lose money at the option price. (Rare, but it happens.) Would the contractor be off the hook due to the month-to-month funding? Could it argue persuasively that month-to-month funding is not consistent with the terms of the option, because the option contemplates obligation of funds up front to cover the entire option period? Does the availability of funds clause permit month-to-month funding of a 12 month option? Are the option months severable for funding purposes under the availability of funds clause?

Just wondering. I don't know of any case law.

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Guest Vern Edwards

The CRA language has nothing to do with contract interpretation. If I were the contractor, I would argue that not expressly permitted means not permitted. Period.

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Guest Vern Edwards

What language in the availability of funds clause permits month-by-month funding of a 12-month option? Are the option months severable, so that you could exercise each them one at a time? If not, then how does the availability of funds clause allow the government to effectively do just that?

What I'm wondering is if, in light of Congress's now perennial inability to fully fund the government at the start of the fiscal year, smart COs should pul additional language in the contract to permit them to obligate funds for options on a monthly basis.

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The language; "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."

Per the contract the contractor is paid a fixed equal amount each month. The unit of issue is month and quantity is 12. So yes they perform, and we accept services one month at a time.

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Guest Vern Edwards

I understand your argument based on the language of the availability of funds clause, but I wonder.

This may never come up, because most contractors want the work. But I can't help but think that some day some contractor is going to argue that month-to-month funding is a breach of the terms of the option. I think that if I was still a CO I would write a clause in anticipation that Congress won't be able to get its act together 12 months in advance and that I'd have to obligate the government on a month by month basis -- a continuing resolution clause. Why wait for the argument to come up?

I did a half-baked search for case law, but found nothing.

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I try not to write clauses. FAR, DFARS, NMCAS, and NFAS approved clauses should cover what we need to cover. But, you're right in that some contractor could make that arguement especially if there's a lapse in funding when funds are not put in place until after the fact. The contractor is performing at their own risk. This is not good. But as you say, they want the work and know uncle sam has deep pockets. So it's a risk the're apparently willing to take.

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some day some contractor is going to argue that month-to-month funding is a breach of the terms of the option
.

That is an interesting situation. CR's normally don't provide the kinds of restrictions being discussed here. In fact, many agencies insist on fully funding fixed price contracts for the entire period during a CR. So the question is why can a CO partially fund or provide less than the full amount without the contract expressly allowing it?

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There was nothing else I could do. They actually put the following language on the funding documents:

"These funds are issued in anticipation of the enactment of the FY11 DOD Appropriation Act or passage of

an FY11 Continuing Resolution Authority (CRA), and are subject to the provisions of whichever act

becomes applicable. Obligate after 01 Oct 2010."

"It is expected that most activities of the Department of the Navy will begin FY 2011 under a Joint

Resolution extending funding authority, pending enactment of FY 2011 DOD Appropriations. Subject to and

consistent with the appropriate availability or limitation of the funds clause contained in the contract

associated with this document, the initial allocation made here provides FY2011 funding authority for

the Continuing Resolution (CR) period, in the amount of $ 63,465.42 effective 01 October 2010. The

anticipated annual commitment authority in the amount of $ 761,585.01 is authorized; obligational

authority will be adjusted upon enactment of (any) additional CRA to reflect the new CRA apportionment

or the FY2011 DOD Appropriations Act."

They only funded 1/12th of the anticipated annual commitment authority for some of the customers?

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Guest Vern Edwards

I would love it if some contractor contested the exercise of an option under the conditions we've been discussing and won. The fiscal year used to run from 1 July to 30 June, but Congress changed it in 1976 to 1 October to 30 September because they could never agree by 30 June and thought the change would buy them more time. Hah!

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