By Ron Vogt
on Monday, October 08, 2001 - 05:54 pm:
Am I misinterpreting something,
or is the FAR english-challenged again?
In an IDIQ contract, the government must order at least the
minimum quantity. (52.216-22: "The Government shall order at
least the quantity of supplies or services designated in the
schedule as the minimum." However, 52.216-19 states as follows:
(a) Minimum order. When the Government requires supplies or
services covered by this contract in an amount of less than
_____________ [insert dollar figure or quantity], the Government
is not obligated to purchase, nor is the Contractor obligated to
furnish, those supplies or services under the contract.
If you insert the minimum quantity in the blank, what does it
mean that "the Government is not obligated to purchase ... those
supplies or services." Does it mean that if the Government finds
it needs fewer than the minimum items, it is not obligated to
buy them? If so, what happened to the obligation to buy the
on Monday, October 08, 2001 - 06:47 pm:
I think you are confusing A) a
minimum amount to be ordered from the contract, with B) the
minimum amount that is to be on each individual order that is to
be placed against the contract.
Vern Edwards on
Monday, October 08, 2001 - 09:22 pm:
In an IDIQ contract you must include a minimum and a
maximum quantity that the Government must purchase during the
ordering period. See FAR 16.504(a)(1) and (a)(4)(ii), and
52.216-22(b). The purpose of the minimum quantity is to provide
adequate consideration to bind the parties. The maximum is a
In addition, you may establish a minimum and a maximum
order that the Government may place. The purpose of the minimum
order is to protect the contractor from uneconomically small
order quantities or unreasonably large order quantities that the
contractor cannot fulfill. See FAR 16.504(a)(3) and 52.216-19.
ZELDA ANON on Tuesday, October 09, 2001 - 09:05 am:
Now here's another question for
you. Do you have to obligate funds for the minimum on the
contract at the time of contract award, or can you fund the
minimum at a later time with a task or delivery order against
ji20874 on Tuesday,
October 09, 2001 - 10:23 am:
For Zelda's question, the answer
depends on your agency and local practices -- the FAR does not
require funding an ID/IQ to the minimum at time of award; it
only requires that the Government order the minimum DURING THE
LIFE OF THE CONTRACT -- I have worked in places that require
issuance of the first order (for the minimum) simultaneous with
issuance of the contract, but this was local practice...
Dave Barnett on Tuesday, October 09, 2001 - 10:35 am:
And I've seen where the minimum
was funded directly on the contract with the first orders placed
drawing against those obligated funds. As long as you can
properly manage and account for the funds, you should be okay.
Ron Vogt on
Tuesday, October 09, 2001 - 12:09 pm:
Thanks for the answers. If I am
now reading them right, 216-22 refers to the min and max for the
entire contract, whereas 216-19 refers to individual
purchase/delivery/task orders, correct?
If so, I think an RFP I am looking at has used 216-19 and 22
incorrectly. The minimum and maximum in the schedule are 12 and
350, and the minimum and maximum order quantities listed in
216-19 are 12 and 350 also. By doing so, hasn't the Government
obligated itself to order the contract minimum under each
Dave Barnett on Tuesday, October 09, 2001 - 12:34 pm:
Looks like it. Modification time!
ZELDA ANON on Tuesday, October 09, 2001 - 12:58 pm:
If you have an ID/IQ contract
that is a base with 4 option years, do you have to have a
minimum purchase for each option year? Or can you get away with
having a minimum for the life of the contract? If you do that,
where is (or is )there any consideration in the option years?
Dave Barnett on Tuesday, October 09, 2001 - 01:29 pm:
No, you must have a minimum for
the term of the contract, you may, but are not required to,
establish minimums per option year.
Dave Barnett on Tuesday, October 09, 2001 - 01:45 pm:
As regards consideration, the
consideration is the guaranteed minimum established for the term
of the contract, exercising an option extends the term of that
contract; option years are not contracts separate to themselves
and apart from the contract of which they are a part.
Kennedy How on
Wednesday, October 10, 2001 - 12:19 pm:
I don't necessarily see the
identical min/max in each section as a problem; it depends on
what the Government has in mind. A min qty of 12, awarded on the
first delivery order, fulfills the contract minimum. Or, there
is the possibility that 12 is the minimum economical order
The way it's presented isn't real flexible, but not necessarily
Ron Vogt on
Wednesday, October 10, 2001 - 07:04 pm:
Your point is valid - it could be
that for some contracts, the minimum for the entire contract is
also the minimum economical order quantity. For this particular
item however, I don't think that would be the case.
on Wednesday, October 24, 2001 - 07:55 am:
If the Government awards an IDIQ
contract for a base year and four options with a guaranteed
minimum in the base year, are the options binding if the
contractor is not guaranteed a minimum in the option periods?
Please consider that one of the basic elements of a contract is
"consideration". Are the options binding?
on Wednesday, October 24, 2001 - 10:47 am:
If it were binding, it would not
be an "option."
on Wednesday, October 24, 2001 - 02:35 pm:
You exercise the option, it becomes binding - where is the
consideration if you have no mins in the options?
Would this work for consideration? Dave (post of 09 October)
indicates that the mins are for the term of the contract. While
I don't think that is necessarily incorrect, I am having a
difficult time understanding how during the term of the contract
you would administer such a provision for the minimum that let's
say is a million dollars. If what Dave says is true then I could
hypothetically split the $1.0 mil over the 5 year period (if I
exercised four options) and only commit to $200k per year.
My main point being that exercise of the option makes the
requirement binding. But where is the consideration ?????? Any
thoughts/ideas on this would be helpful.
Dave Barnett on Wednesday, October 24, 2001 - 02:52 pm:
Provided you exercise the option
periods(s), I see no reason why one can't obligate your minimum
over the base and option periods. Failure to exercise the option
thus failing to meet your guaranteed minimum would put you in a
breach of contract situation.
Picture a multiyear IDIQ, the guaranteed minimum is met with the
first order placed, the contract remains binding for its entire
term. Or vice versa, the government doesn't meet its guaranteed
minimum until year 3 of the multiyear contract, the government
has still fulfilled its contractual obligation.
SINEQ on Thursday, October 25, 2001 - 02:20 pm:
DAVE IS RIGHT
on Thursday, October 25, 2001 - 04:39 pm:
The guaranteed minimum must be
ordered during the base contract period - the government is
required by the contract terms to purchase the minimum quantity.
An option is exactly that - optional, no obligation, until the
government elects to award the option. One can't "guarantee"
something which is optional. The contractor has the right to
expect the minimum guaranteed order during the base period.
SINEQ on Friday, October 26, 2001 - 08:24 am:
I don't believe that is true. The
minimum ,if its ordered at all,must be ordered within the term
of the contract...the entire term. Base period is irrelevant.
joel hoffman on Friday, October 26, 2001 - 09:13 am:
Actually, it may depend upon your
organization. My organization's FAR Supplement requires a
minimum for the base period as well as each option period. The
option periods are about half the minimum for the base period.
happy sails! joel hoffman
Dave Barnett on Friday, October 26, 2001 - 09:21 am:
SINEQ IS RIGHT. I discussed this
scenario with a few of my fellow contracting officers and they
agreed with me. Also, where in the FAR does it say the minimum
must be ordered in the base period? Part 16, Subpart 17.2? One
of the reasons for an IDIQ is for the government to maintain
inventories over a period of time. Also, options are used
because not every ongoing requirement of the government is
approved for multiyear contracting. We know we need janitorial
support for our building every year but we don't receive
multiyear authorization, so we use options.
By the by, nothing is 100% guaranteed. What if Congress does an
about face right after award of an IDIQ and cuts off all
funding, there goes that so-called guaranteed minimum. That's
why when choosing the contract type, one assesses the risk and
uses business judgement.
anonymous8 on Friday, October 26, 2001 - 09:33 am:
Don't you obligate the minimum upon award, either in the
contract or in a contemporaneous task order?
Dave Barnett on Friday, October 26, 2001 - 10:22 am:
Not necessarily, you may obligate
funds via the issuance of individual delivery/task orders. For
example, I have an IDIQ for engineering services with a minimum
of $500,000. I may issue a series of orders that total $500,000
over the course of time, but no single order would meet the
And like Joel stated earlier, various contracting offices have
their own policies. I like to embrace maximum flexibility, this
encourages innovation (it also creates more risk).
joel hoffman on Friday, October 26, 2001 - 03:47 pm:
This is from an Air Force Fiscal
Law, web-based tutorial at
In an indefinite-delivery/indefinite-quantity (IDIQ) contract,
the government is obligated to purchase a guaranteed minimum
quantity. With an IDIQ contract, the government may have more
than one contractor for the same or similar goods or services.
How much do we obligate for an IDIQ contract? We obligate the
amount of the guaranteed minimum quantity stated in the contract
at contract award, and for each additional order above the
minimum quantity, we obligate current funds at the time we issue
each DO or TO."
The Corps of Engineer's EFARS at 16.504 also state the same
policy. I don't know whether Dave is right or wrong, whether
this is optional. happy sails! joel
joel hoffman on Friday, October 26, 2001 - 03:50 pm:
Sorry, it is an Army Fiscal Law
on Monday, October 29, 2001 - 07:29 am:
I am an ex-Army (and ex-Corps)Contract Specialist/Contracting
Officer and not until I moved to a civilian agency (through DOD
cutbacks) did I see IDIQ contracts without minimums in the
option periods. That's why I raised the question.
Vern Edwards on
Monday, October 29, 2001 - 09:35 am:
A question for SINEQ and Dave
Barnett, who say that the minimum does not have to be ordered
during the base period, but may be ordered during one or more
The indefinite quantity clause at FAR 52.216-22 says that the
government shall order at least the stated minimum quantity and
the ordering clause at FAR 52.216-18 provides for insertion of
ordering period beginning and ending dates. Presumably, at the
time of contract award the ordering dates will encompass only
the base period, not the option periods. Upon exercise of the
option the CO modifies the ending date. Since an option is just
that, an option, which the government does not have to exercise,
what promise do you make to the contractor about the minimum?
What do you say in the contract to permit ordering of the
minimum during the option periods?
Do you include the option periods in the ordering clause even
before you exercise the options? Do you modify the ordering
clause? Do you write a special provision? If you do either of
the last two, would either of those solutions be FAR deviations
Also, Dave, the U.S. General Accounting Office requires agencies
to obligate funds for the minimum quantity at the time of
contract award. See Principles of Federal Appropriations Law,
2d ed., Chapter 7, Section B, Criteria for Recording
Obligations, Subsection 1, paragraph e., pp. 7-16 through 7-19.
["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."]
How do you deal with that requirement?
SINEQ on Tuesday, October 30, 2001 - 03:30 pm:
VERN I PROMISE I WILL DEFEND MY
COMMENTS SOON. I HAVE ALL MY RESEARCH I JUST LACK TIME TO
Vern Edwards on
Tuesday, October 30, 2001 - 05:30 pm:
Okay. But you don't have to defend your comments (not yet,
anyway), just explain them. I just want to know how you do it.
Do you include the option period(s) in the date range in the
Ordering clause, even before exercising the option(s)? Do you
modify the clause in some way? Do you insert some kind of
special provision into the contract?
And how do you deal with the GAO's stance on obligating the
money to cover the minimum at the time of contract award? Do you
obligate the money, but issue orders against the obligation
during the option periods? Do you know of an exception to the
GAO's position? Do you just ignore the GAO?
on Tuesday, January 29, 2002 - 04:18 pm:
I was glad to see this discussion
on minimum guarentee (mg) on IDIQs because it has been bothering
me for a long time. I was trained at the Navy that the mg had to
be placed on contract at time of award (or task order).
Since the first law of contract formation (which happens at
award!) is consideration and the intent of the mg is to bind the
parties, I never could see how the Contracting Officer would not
be Anti-Deficient if funds were not on contract or task at time
I certainly agree that a Contracting Officer should not deferr
the mg to an option, otherwise it would obligate the Gov. to
excercise the option to meet that binding obligation.
Where can I get a copy of the Principles of Accounting Law
Linda Koone on Tuesday, January 29, 2002 - 04:27 pm:
Like many things you may be
looking for, it's right here at WIFCON.
Go to the Guidance link, Appropriations Law.
Smokey on Wednesday, January 30, 2002 - 04:28 pm:
Okay..I am going to throw this
out for comment:
Mulitiple awarded ID/IQ efforts..How can I obligate the minimum
at the same time as contract award? Fair opportunity to compete
First task will satisfy one of the 3's minimum, but certainly
not all of them.
Vern's comment: "U.S. General Accounting Office requires
agencies to obligate funds for the minimum quantity at the time
of contract award." Why would the FAR not also require this???
Additionally, a requirements contract does not guarantee a
minimum. Kind of hard to obligate the minimum is this case.
Eric Ottinger on
Wednesday, January 30, 2002 - 04:40 pm:
We go around on this every so often. I know what GAO said. But
this was back in the 80's and ID/IQ's were very different
animals in those days. They were fixed price and strictly
I doubt GAO or anyone else has actually enforced this rule any
time recently. It should be revisited.
Vern Edwards on Wednesday, January 30, 2002 - 11:23 pm:
Q. "How can I obligate the minimum at the same time as contract
award? Fair opportunity to compete and all..."
A. There is a lot of confusion over the concept of "obligate" in
government contracting. An obligation is made when a CO enters
into a legally binding agreement, i.e., a contract. What many
1102s call "obligating" is actually the act of recording
the obligation by citing the applicable accounting data on the
contract document and sending a copy to the agency's finance
office. What the GAO requires is that agencies record an
obligation at the time that it is made. At the time of award of
an IDIQ contract the CO obligates the government in the amount
of the minimum quantity. In order to obligate the minimum amount
at the time of award, but before issuance of the first delivery
or task order, you write down the appropriate fund citation and
amount on each contract award document (e.g., SF33, blocks 20
and 21) and distribute a copy the the cognizant finance office.
Later, when you issue the first delivery or task order, you
refer to the amount of the minimum recorded on the original
award document and you record the obligation of any additional
amounts that you need to cover the total amount of the order.
Some agencies require COs to issue an order to cover the minimum
simultaneous with contract award. That is not necessary.
Q. "Vern's comment: 'U.S. General Accounting Office requires
agencies to obligate funds for the minimum quantity at the time
of contract award.' Why would the FAR not also require this???"
A. I don't know why the FAR does not expressly require agencies
to record the obligation of the minimum quantity at the time of
Your comment: "Additionally, a requirements contract does not
guarantee a minimum. Kind of hard to obligate the minimum is
this case." That's right, there is no requirement for a minimum
quantity on a requirements contract, so why would you want to
obligate a minimum? I don't get your comment. Under an IDIQ
contract, the minimum is the consideration that binds the
parties. Under a requirements contract the promise to buy
exclusively from the contractor if there is any need is the
consideration that binds the parties.
AL on Thursday, January 31, 2002 - 07:37 am:
As for why the FAR does not
expressly require or discuss the need to obligate the minimum on
an IDIQ at the time of contract award, I think it's because the
FAR is a set of regulations related to acquisition, while the
requirement to obligate funds is a fiscal law question. While
the two fields (acquisition and fiscal law) have many times and
reasons to interact, they are not the same thing. Obligation is
a fiscal law issue, not acquisition.
on Thursday, January 31, 2002 - 07:41 am:
The FAR makes provisions for exceptions to the "fair opportunity
to compete" for multiple award contractors. One such exception
is to meet the minimum on the contract you don't have to
compete. Look at FAR part 16.505 for the four/five exceptions -
to meet the "minimums", sole source, logical follow-on to an
already competed order, etc.
As far as the second issue is concerned, some contracting
offices require the funding for the minimum guarantee to be
obligated up fronton the contract, others require a commitment
of funds be provided and use those funds when the first order is
placed. Some office award the contract and place the first order
John Ford on Thursday, January 31, 2002 - 11:20 am:
Let me resurrect an old argument
that Vern and I had on this issue. What needs to be observed is
that Vern's reliance on the GAO is in the Red Book. However, the
Red Book does not cite a single decision that is on point. It
would be much better if the GAO had issued a decision on this
issue which would help to clarify it. However, it has not,
therfore it is still an open issue on which reasonable people
As for DoD, the Financial Management Regulation appears to
require obligation of the minimum at the time of contract award.
However, that is not always a simple task, particularly when
there are separate CLINs in the contract that can be funded by
separate appropriations such as R&D and procurement and there is
no statement as to whether the minimum applies to the R&D CLIN
or the procurement CLIN. Another problem is how do you
appropriately obligate this years funds for a need that may not
arise until next fiscal year? This can occur when a multiple
award IDIQ contract is issued. An award is made to one
contractor that satisfies this years needs for the supplies or
services. When the next order is issued, it is to satisfy a need
that has arisen in the next fiscal year. If the funds obligated
for the minimum for the second contractor that got the second
award were O&M funds, you have a definite fiscal and possible
anti-deficiency problem. I agree with Eric on this that this
area needs to be rethought.
Smokey on Thursday, January 31, 2002 - 12:17 pm:
Thanks for all your input...
Vern, great explanation on the act of obligation. As far as my
comment on the requirements minimum, I was simply stating it was
not possible abide by the GAO reg. I agree with you...the
promise to buy exclusively is the consideration.
Anon 07:41, I know about the exceptions you stated..however, the
problem remains. I can pick one of the 3 to get the first task,
but the other 2 would still not have the minimum covered at time
John..I was a DOD CO and your comments are most certainly valid.
1-year money can be a serious problem with these types of
instruments and you need to be very careful.
Eric Ottinger on
Thursday, January 31, 2002 - 01:24 pm:
Ask A Professor Bites Back
(Note: The above website works if you copy it to your browser or
copy it to a Microsoft Word document.)
The AF “obligated” funds in just the manner that Vern
Per Professor Boggs, “What the Air Force did in the situation
you describe was to "administratively reserve" funds to cover a
Professor Boggs also provides some highly authoritative comments
to the effect that there is no “all-inclusive and universally
applicable definition of 'obligation.'”
Vern Edwards on Thursday, January 31, 2002 - 03:16 pm:
I don't understand Prof. Bogg's analysis. Here is what the GAO
says in Vol. II of Principles of Federal Appropriations Law
"Thus, in very general and simplified terms, an 'obligation' is
some action that creates a liability or definite commitment on
the part of the government to make a disbursement at some later
time." Page 7-4.
"For appropriations law purposes, the term 'obligation' includes
both matured and unmatured commitments. A matured commitment is
a legal liability that is currently payable. An unmatured
commitment is a liability which is not yet payable but for which
a definite commitment nevertheless exists. For example, a
contractual liability to pay for goods which have been delivered
and accepted has 'matured.' The liability for monthly rental
payments under a lease is largely unmatured although the legal
liability covers the entire rental period. Both types of
liabilities are 'obligations.' The fact that an unmatured
liability may be subject to a right of cancellation does not
negate the obligation. A-97205, February 3, 1944, at 9-10. An 'unmatured
liability' as described in this paragraph is different from a
'contingent liability' as discussed later in this chapter." Page
"The obligation takes place when the definite commitment is
made, even though the actual payment may not take place until
the following fiscal year. 56 Comp. Gen. 351 (1977); 23 Comp.
Gen. 862 (1944)." Page 7-4.
"It is important to emphasize the relationship between the
existence of an obligation and the act of recording. Recording
evidences the obligation but does not create it. If a given
transaction is not sufficient to constitute a valid obligation,
recording it will not make it one... . Conversely, failing to
record a valid obligation in no way diminishes its validity or
affects the fiscal year to which it is properly chargeable."
Pages 7-6 to 7-7.
"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. Thus, in a variable quantity contract with no guaranteed
minimum--or any analogous situation in which there is no
liability unless and until an order is placed--there would be no
recordable obligation at the time of award." Page 7-17. Italics
In the scenario to which Prof. Boggs responds, the questioner
says, "The [IDIQ] contract was authorized to include a basic two
year ordering period and three one year options. The minimum
award amount of the contract was set at $3M."
Based on what I've read and quoted above from the GAO's Redbook,
that's an obligation that had to be recorded at the time of
contract award. The questioner says, "At the time of award, the
Air Force obligated $2.5M of FY 94 3080 and .5M of FY 95 3080
funds against the basic contract. The funds were obligated
against the basic contract to be used during the basic award
period to buy products and services." In other words, the Air
Force recorded the obligation at the time of award, as the GAO
has said that it must.
The questioner points out that the Air Force was delayed in
placing orders because of a protest and asks, "Given that the
Air Force obligated the $3M specified above against the basic
IDIQ contract for the purpose of procuring needed LAN
products/services and the intent of the parties was to use these
funds to procure products/services during the basic award
period, is it a violation of the AntiDeficiency Act to now issue
an order for products/services from this contract with these
funds? The minimum has been met. We are still in the basic award
period of the contract."
The question is obscure, since if the $3 million minimum had
been met, i.e., ordered, then there should not be any of the
money left to spend. But in responding, Prof. Boggs tells the
questioner, "On [sic] 'obligation' is an act that creates a
legal liability for the Government to pay for products or
services. For an obligation to be in existence, the Government
must 'owe' appropriated funds. Your case does not describe a
situation wherein the Government 'owes' appropriated funds for
any products or services. Rather, your scenario describes, at
most, a 'contingent liability.' A contingent liability is one
that becomes a legal liability upon the happening of a certain
event -- in your case, the failure of the Government to purchase
the minimum amount ($3M) under the contract. Since the
minimum was ordered under the contract, the contingency did not
occur, and consequently the 'contingent liability' never became
a legal liability such that an obligation could lawfully be
recorded." Italics added.
The Prof's answer makes no sense to me. First, I don't
understand how the promise to buy a minimum quantity under an
IDIQ contract is a contingent liability rather than an
obligation. (If that's what he's saying, which is how it appears
to me.) Here's how the GAO defines contingent liability in Vol.
II of its Redbook, page 7-49: "An existing condition, situation,
or set of circumstances involving uncertainty as to a possible
loss to an agency that will ultimately be resolved when one or
more future events occur or fail to occur."
If anything, the promise to buy a minimum amount at some point
during the term of an IDIQ contract is an unmatured commitment.
It is not a contingent liability and I have never before heard
of it referred to as such. The GAO certainly doesn't seem to
think of it that way, based on the Redbook quotation that I
provided above. Also, see the discussion under the heading of
"contingent or indefinite liabilities" in Formation of
Government Contracts, 3d ed., by Cibinic and Nash, pages
56-59, and the first paragraph of the discussion of
indefinite-quantity contracts in the same book on page 1238.
I want to thank you, Eric, for pointing out yet another nutty
answer from Ask A Professor. I always find them amusing. But
what did you mean by "Ask A Professor Bites Back"?
Rose McWms on Thursday, January 31, 2002 - 04:35 pm:
Do obligations only include
unmatured and matured commitments? How about incentives? It is
the practice at my office to obligate the full incentive amount
at contract award - however incentives are neither matured nor
unmatured commitments, since they are not liabilites for which
DEFINITE commitment nevertheless exists.
Vern Edwards on Thursday, January 31, 2002 - 04:47 pm:
Here is what Cibinic and Nash say about contracts with
incentives in their discussion of contingent or indefinite
"In the case of a contract with an incentive clause, the target
or billing price should be recorded as an obligation; the agency
would be required, however,to safeguard against the possibility
of violating the Anti-Deficiency Act by administratively
reserving sufficient funds to cover at least the excess of
estimated increases over decreases."
Formation of Government Contracts, 3d ed., p. 57. This
appears to be the solution advocated by GAO in its Redbook
discussion of Contingent Liabilities in Vol. II, pp. 7-48 to
joel hoffman on Thursday, January 31, 2002 - 05:21 pm:
I believe the reason that many
offices obligate the funds, rather than administratively reserve
the funds, is to protect them from being redirected to other
programs. More than once, some of our unobligated, but
"reserved" funds have been yanked, for various reasons. My PM's
and KO's want to be protected, as much as possible. happy sails!
amused and sometimes not on Thursday, January 31, 2002 -
This may not be proper technical
language. It seems to have some basis in reality.
Unobligated funds are appropriated funds (shall we say "just
sitting in the hopper") tagged with some sort of intended use
(procurement, maintenance, research) that is often also tagged
with a specific program (this torpedo, that health program and
such). The funds are also tagged with a date (Congressional
"pull date" in grocery store parlance) upon which the funds go
bad and vanish. This is a part of the interesting "government
money" game in which money has colors other than green and plays
Cinderella at midnight on a certain date. Poof, the coach,
horses and all turn into rotten pumpkin and small rodents.
Obligated funds are funds where some action (exactly what is
sometimes not too precise) has created a promise to deliver them
before they go "poof" to an external organization for goods,
services or some other recognizable form of benefit. Obligated
money is thus converted into ordinary green dollars. Most
amazingly, under the wand of obligation it loses its magic
Cinderella spell and can live on as a productive member of the
Often agencies go about doing business as usual until they
realize the "money hopper" contains an unusual proportion of
nearly spoiled money where they scramble madly to find a means
of obligating these nearly stale funds. This sometimes leads to
the most amusing frantic displays of desperately seeking
someone, anyone who can take this stuff and convert it to non
spellbound "obligated money."
The ability to keep the hopper clear of nearly spoiled funds is
a serious matter in the performance appraisal of certain
executives. Ability to keep hopper spoilage low appears to have
much more emphasis than eventual effective use of the funds. In
fact, total wastage after the magical conversion to green and
lasting money is less a blot than having them "expire." This
can, sometimes does, lead to interesting philosophical
discussions on the relative merit of virtually squandered
purified funds vice the allowance of hopper spoilage where in
theory they vanish and perhaps (no one seems to really know at
ordinary working levels) reduce the deficit.
All attempts at a lighter tone aside, the system has its
positive and negative side. It does keep a political (in
the best sense of being "will of the people) handle on the
money. The Executive cannot easily simply take money intended
for something intended by the representatives of the electorate
and apply it to its sole purpose. On the negative side it leads
to some weird and interesting contortions -- including sometimes
the sight of pickups rushing down to the GSA or other store
(scale that way upward for some figurative pickups "getting on
contract" to save bigger bundles of nearly "poofed" funds) on
the waning days of the year to load up on something, anything .
Eric Ottinger on
Friday, February 01, 2002 - 08:45 am:
I think Professor Boggs is saying that until funding is actually
used for an order, it isn’t really obligated.
In the case described, other funds were used for the first
order. The funds “obligated” on the contract just sat there
Open ended “tasking” and “ordering” vehicles are sometimes used
to bank funds which would otherwise expire or be swept up to be
used somewhere else. There is good reason to question whether
such funds have actually been “obligated.”
As I’ve said before, I don’t believe that any one professor is
any nuttier than any other professor.
I think you hit some good points.
I am taking a somewhat different tack. The minimum order
requirement doesn’t take precedence over the government’s right
to terminate, and I doubt it takes precedence over the
“Limitation of Funding” clause. Hence, the government’s actual
liability is likely to be quite a bit less than the “minimum.”
Under FASA, orders under FASA ID/IQs are government contracts
just like other government contracts. A FFP order is the same
contractually as a FFP contract. A CPFF order is the same as a
I think the FASA ID/IQs are a new and different animal. I
question whether the old rules automatically apply.
Thanks. Stop by often.
Vern Edwards on Friday, February 01, 2002 - 12:28 pm:
If Prof. Boggs meant that the obligation of funds to cover an
IDIQ minimum doesn't count unless it is made in a delivery or
task order, he didn't say so. I think that proposition would
have been hard to support.
There is no doubt that an agency's authorized promise to buy a
minimum quantity under an IDIQ contract is binding, that it
therefore constitutes an obligation, and that the obligation
must be recorded at the time of contract award. I demonstrated
those points in my previous message by reference to GAO's
Redbook and Cibinic and Nash. To the best of my knowledge the
GAO has not said that there is no obligation to buy the minimum
until issuance of a delivery or task order. Such a proposition
would be inconsistent with the FAR clause at 52.216-22, GAO's
own analysis of appropriations law (as set forth in its Redbook,
Vol. II, Ch. 7), and one of the main ideas behind an
"indefinite-delivery" contract, which is to allow the Government
to defer ordering of supplies or services until they are
actually needed. See FAR 16.501-2(b).
What happened in the AAP scenario was that the Air Force awarded
the contract and recorded an obligation of funds to buy the
minimum amount ($3M), but then didn't use that money to buy the
minimum or anything else before the appropriation expired. The
minimum was purchased through orders placed by other agencies
and paid for with their funds, at which point there was an
overrecording of the obligation. (See the Redbook, Vol. II, page
7-5.) Since the minimum was purchased with other funds, the
status of the Air Force's money came into question once its
appropriation had expired.
The Air Force tried to argue that the overrecording was a valid
obligation. No good. The Air Force's unused money should have
been de-recorded (or "deobligated") in time to obligate it for
other purposes before the appropriation expired.
You have read Prof. Bogg's tortured analysis as a blanket
condemnation of what I suggested, which is to record the
obligation of the money to cover the minimum on the basic
contract and to place the order for the minimum at a later time
within the contract period. But your interpretation of Bogg's
answer won't fly, since the key factor in his "contingent
liability" theory is the fact that the minimum was actually
purchased with other funds. He says:
"Your case does not describe a situation wherein the Government
'owes' appropriated funds for any products or services. Rather,
your scenario describes, at most, a 'contingent liability.' A
contingent liability is one that becomes a legal liability upon
the happening of a certain event--in your case, the failure of
the Government to purchase the minimum amount ($3M) under the
contract. Since the minimum was ordered under the contract
[with other funds], the contingency did not occur, and
consequently the 'contingent liability' never became a legal
liability such that an obligation could lawfully be recorded."
He then goes on to say, "It follows then, that the potential
legal liability never matured, and therefore, no obligation came
He erred in saying that there was never a legal liability and
that no obligation came into existence. The Air Force's
obligation to buy the minimum was real and not a mere contingent
liability, and the original recording of the obligation was
valid. But the obligation became excess when other funds were
obligated and spent for the same purpose, and the excess should
have been deobligated and then reobligated before the funds
The problem was not the original method of recording the
obligation; the problem was the Air Force's failure to
deobligate the excess funds in a timely manner. The method that
I proposed is a valid way to record an obligation to buy a
minimum and may be used unless prohibited by an agency's
internal rules. Your analysis leads to the goofy requirement
that we have seen some offices impose on their people to issue
an order to buy the minimum simultaneous with contract award.
Vern Edwards on Friday, February 01, 2002 - 02:17 pm:
Somehow, I missed your Jan. 31 post. I don't remember our
previous argument, but I'll make a couple of comments in
1. Yes, I rely on the Redbook. What else is there to rely on?
The GAO is the government's accountant and its general counsel
says, in the Redbook, that agencies have to record the
obligation of the minimum at the time of contract award. That's
what Eric would call "authoritative." (By the way, I didn't say
I like the GAO's position or even agree with it; I just
acknowledge that it's the GAO's position.) When I was an Air
Force CO I argued that agencies don't have to obligate any funds
under an IDIQ contract until they issue orders, but now I
acknowledge GAO's position because it appears that GAO gets to
make the rules in this regard.
Would a decision make things clearer? No, the GAO's position, as
stated in the Redbook, is clear. But I admit that a decision
would either confirm the GAO's current position or change it. Is
the issue open, as you say? Well, I guess so, in an academic
sort of way. In that sense it would still be an open issue even
if GAO issued a decision, if an agency wanted to contest it. It
would be an open issue until the Supreme Court rendered a
decision. I suppose it's possible that if forced to issue a
decision the GAO would reach a conclusion that's different than
the one in the Redbook. What do you think are the chances of
Eric questions whether the old rules still apply. Well, there
are a couple of ways to to find out: write GAO and ask for an
advisory opinion or just do it your way and see what happens.
All I'm doing is describing the "rules" as I understand them
from GAO's published guidance.
2. I agree that the GAO's position that agencies must record the
obligation of the minimum at the time of contract award poses
many practical problems and that it ought to be revisited.
(Again, I don't like the GAO's position, I just acknowledge it
to be what it is.) I wish that OFPP would work something out
with GAO that would give agencies more flexibility. But OFPP
does not seem inclined to do so or to issue guidance of its own
and the executive agencies seem to have fallen into line with
the GAP Redbook.
I have described one solution that I think would make things a
little easier, but Eric doesn't like it. What do I gotta do?
anon2n on Monday, February 04, 2002 - 11:20 am:
I have a variation to add to this
discussion. IDIQ (multiple award) RDT&E CPFF contract, X years
basic + additional years options. The absolute minimum amount
specified in the contract has been met during the basic period
via TOs. The Options each have a specified minimum applicable to
them of "R" dollars. Many of the TOs are completion type and
cross the option date (ie they start during the basic and
complete date is after the option period).
Here's the question. In exercising the option, if one had a
modification to an existing TO (increased quantity) - could one
meet the requirement for the R dollars using this modification
(which would be made during the option period). Is it necessary
to use funding which is from the base period years or the option
period years (given it's RDT&E, the same funding might be
useable for both, as RDT&E is valid for more than one year).
In other words, is one required to issue a NEW TO for the R
dollar minimum with NEW dollars (if the option year is FY02,
FY02 $) or can one meet the requirement via the modification to
the existing TO (new work, in scope)using FY01 or FY02$ (I am
stipulating that the contractor is amenable to the mod being
counted, it is only Gov rules that might cause a problem)
Vern Edwards on Monday, February 04, 2002 - 11:39 am:
The standard FAR clause (52.216-22) does not prescribe how
you'll buy the minimum quantity (e.g., on one task order or
two). So, I don't see any reason why you cannot fulfill your
contractual obligation to buy the minimum quantity applicable to
an option period by modifying a task order that was issued in a
My answer does not take into account any funding issues, such as
the mingling of different appropriations in a single task order.
John Ford on Monday, February 04, 2002 - 12:11 pm:
Anon2n: I agree with Vern. What
matters is how your contract is written and whether the
Government has fulfilled its obligations under the contract.
Assuming the standard FAR provisions are applicable, the
Government could meet its obligation by doing what you have
described. There is no requirement for the Government to issue a
new TO to meet its minimum for the option period.
Responding to Vern's comments on my post, as an authoritative
source, the Red Book is subordinate to decisions of the courts
and Comp Gen. It is also subordinate to statute. My problem with
what the Red Book says on this subject is that it is not
supported by either case law or statute. None of the decisions
in the Red Book that are discussed prior to the conclusory
statement regarding the need to obligate funds at the time an
indefinite quantity contract is awarded are on point. It is
interesting to note that the Red Book cites no decision or
statute for that proposition. Based upon this state of affairs,
I am not willing to give this statement from the Red Book much
probative weight. That is why I said it would be better if there
were a decision addressing a specific set of facts that could
provide some guidance on how to address what has become a tricky
Vern Edwards on Monday, February 04, 2002 - 01:00 pm:
Okay, you don't think the Redbook has much probative value. But
what is your position?
Do you maintain that the award of an IDIQ contract with a
promise to buy a minimum is not an obligation as that
term is used in Federal appropriations law? Do you think that
there is no obligation until the agency has issued an
order for the minimum? If so, what are your criteria for
Alternatively, do you think that such an award is an obligation
but that there is no legal requirement to record it until the
agency has issued the order to buy the minimum?
Or, is your position something else entirely.
Eric Ottinger on
Sunday, February 10, 2002 - 06:30 pm:
After reading through the
relevant sections in the Red Book, two points jump out at me.
First, the fundamental rules are clearly stated in Section 1501.
The Red Book doesn’t set forth a rule for ID/IQ’s, it merely
applies Section 1501 to the ID/IQ contract type as it was
described in the FAR before FASA. Second, it would be very
difficult to obtain a substantially more flexible interpretation
of the rules for FASA ID/IQ’s without first modifying the
I don’t believe there is any stand-alone rule regarding ID/IQ’s
in the Red Book. The rule regarding the indefinite-quantity
contract type is a logical deduction based on other more
fundamental rules, applied to the “indefinite-quantity contract,
under CURRENT [i.e. 1992, pre-FASA] regulations.” The Red Book
says this explicitly. “A fairly simple generalization can be
DEDUCED from the decisions:” (See page 7-17.)
Pre-FASA, the FAR required that the ID/IQ be used for “specific
supplies and services.” [This rule was often ignored. As a
result, the Director of Defense Procurement and OSD General
Counsel wrote memoranda complaining about the evil of ID/IQ’s
used for “generic” rather than specific supplies and services.]
FASA legitimized broad scope ID/IQ contracts. There is no
specificity requirement for FASA ID/IQ’s as there was for pre-FASA
This is important because the 1992 Red Book was written before
FASA, and GAO regards specificity as a very important test for
an obligation. Under Section 1501,
“(a) A amount shall be recorded as an obligation of the United
States Government only when supported by documentary evidence of
(1) a binding agreement between an agency and another person
(including an agency) that is –
(A) in writing, in a way and form, and for a purpose authorized
by law; and
(B) executed before the end of the period of availability for
obligation of the appropriation or fund used for SPECIFIC goods
to be delivered, real property to be bought or leased, or work
or services to be provided; …”
Per the Red Book, “Subsection (a)(1) actually imposes several
DIFFERENT requirements (1) a binding agreement: (2) in writing;
(3) for a purpose authorized bylaw; (4) executed before the
expiration of the period of OBLIGATIONAL availability; and (5) a
contract calling for SPECIFIC [bold and underlined] goods, real
property, work, or services.” (See page 7-8.)
“The statute requires documentary evidence of a binding
agreement for SPECIFIC goods or services. An agreement that
fails this test is not a valid obligation.” (See page 7-14.)
In the AAP scenario, the AF obligated $3,000,000 for an odd lot
of LAN products to be specified later. This was perfectly
legitimate under a FASA ID/IQ, although it would have been
dubious under a pre-FASA ID/IQ. Unfortunately, the AF was unable
to specify a first delivery order because the AF was tied up in
a protest for two and a half years. (Bummer!) If the AF had
placed an order as soon as the protest was resolved in August of
1997 the AF could have salvaged the $500,000 of FY 95 funds by
immediately issuing a delivery order. But the AF did nothing
with the funds until 1999 [!], when they put the inquiry in to
I don’t know what is “on point,” because most of these cases are
so old that I can’t reference them without access to a law
library. However, this Red Book summary of B-196109 seems clear
enough. “Similarly, a purchase order which lacks a description
of the products to be provided is not sufficient to create a
recordable obligation. B-196109, October 23, 1979. In the cited
decision, a purchase order for ‘regulatory, warning, and guide
signs based on information supplied’ on requisitions to be
issued did not validly obligate FY 1978 funds where the
requisitions were not sent to the supplier until after the close
of FY 1978.” (See page 7-14.) To me this sounds very similar to
the AF “obligating” funds for unspecified LAN supplies on the
ID/IQ contract and then not issuing an order with specific
deliverables until years later.
Based on the specificity rule, I have to agree with Professor
Boggs. The AF did not overobligate the $3,000,000. Unless that
$3,000,000 was tied to specific deliverables, the money was
As far as I can tell, the rule in the Red Book regarding
overobligations is simply a corollary of the specificity rule.
As long as the funds are obligated for specified supplies or
services, there is really no opportunity to underobligate or
“The OVERRECORDING and the UNDERRECORDING of obligations are
equally improper. OVERRECORDING (recording as obligations ITEMS
which are not) is usually done to prevent appropriations from
expiring at the end of a FISCAL year.”
The Red Book regards overobligation as a means to park funds
until they can be used in a subsequent fiscal year. The Red Book
doesn’t really contemplate any other category of overobligation.
(See page 7-5.)
Clearly, for pre-FASA type ID/IQ’s, which specify a minimum and
a maximum quantity of tires, batteries, windshield wipers, etc.,
the old deduced rule still applies.
I would suggest a simple test. If the minimum is specified as a
quantity, the minimum probably meets the specificity test and
the dollar cost of the minimum is a recordable obligation. If
the minimum is specified as a dollar amount, the ID/IQ is broad
scope rather than specific. It is improper to say that there is
a recordable obligation for a non-specific requirement. But, as
Professor Boggs recognized, an “’administrative reservation’ or
‘commitment’ of funds” is needed to cover the government’s
liability for the dollar cost of the minimum.
GAO addresses an obligation which isn’t a recordable obligation
as follows: “The contingent liability poses somewhat of a fiscal
dilemma. On the one hand, it is by definition not sufficiently
definite or certain to support the formal recording of an
obligation. Yet on the other hand, sound financial management,
as well at ANTIDEFICIENCY Act considerations, dictates that it
somehow be recognized. The middle ground between recording an
obligation and doing nothing is the ‘administrative reservation’
or ‘commitment’ of funds.”
My suggestion for a rule would be, (1) the recordable obligation
should be on the order with just one exception; (2) a funding
cite on the ID/IQ vehicle which specifies the minimum quantity
and the specific deliverables for the first order (e.g. 1,000
windshield wipers) should be considered a recordable obligation;
and (3) a funding cite on an ID/IQ, which isn’t tied to a
specific quantity of a specific deliverable, should be
considered an “administrative reservation” or “commitment.”
For a CPFF order under a FASA ID/IQ, I would consider the
recordable obligation to be the same as the limitation of funds.
I don’t think this would violate any fundamental rule in the Red
Book. I don’t see any reason why the government’s liability for
a first minimum quantity CPFF order would be any different from
the liability for similar CPFF contract.
The Red Book does mention a GSA vehicle for which there is no
binding commitment until the first order is issued. I’m not sure
how this is done, but it might be worth looking into.
I note that some agencies set the minimum at a ridiculously low
amount like $100. This is probably too low to meet the “more
than nominal” test, but the ID/IQ would nevertheless become
binding when the first “more than nominal” order was issued. At
the worst, this would give the contractor an opportunity to get
out of the ID/IQ contract at some point before this first order
was issued. In a multiple award situation, this would not do the
government any great harm.
Generally, in this thread, when we 1102 operator types have been
talking about “obligations” we have intended what the Red Book
would call “recordable obligations.” That would be a liability
in the form of a contract which meets all of the Section 1501
tests, which has a funding cite on the contract, tied to a
specific line of accounting and specific deliverables.
From the point of view of the Comp. Gen. any contract meeting
the Section 1501 requirements would be an “obligation,” even if
the contracting officer had neglected to cite any funds on the
contract. It would be improper insofar as it would invite an
anti-deficiency problem but it would still be an obligation.
If you have read this far, you should read Chapter 7 in the Red
Book. This document was evidently written under some “plain
English” imperative. It is, for the most part, written in
straightforward, understandable language. (On the other hand, it
appears that it was written at the point when professional
editors were no longer employed. For a highly authoritative
document, there are more run-together words and other weird
typos than you would normally expect.)
As always, any opinion is strictly my personal opinion. I don’t
represent my agency, my GC, my comptroller or anyone else. If
you need advice on an actual situation, you should obtain it
from your agency GC. (On the other hand, I think the Red Book is
clear and unambiguous on this topic, if you read it carefully
and without preconceptions you shouldn’t have to rely very much
Vern Edwards on Monday, February 11, 2002 - 09:29 am:
So--your position boils down to this: If the IDIQ minimum is
stated in terms of a quantity of supplies or services, then it
is an obligation that must be recorded. But if the IDIQ minimum
is stated in terms of a dollar amount, then it is not an
obligation and need not be recorded. If that is a valid
restatement of your position, then I agree with the first half
of it, but not with the second.
The GAO says, "Thus, in very general and simplified terms, an
'obligation' is some action that creates a liability or definite
commitment on the part of the government to make a disbursement
at some later time." A contract in which the government promises
to order a specific dollar amount worth of supplies or services
seems to fit that description. I don't see why stating the
promise in terms of a specific number of dollars instead of
quantities of supplies or services makes it "broad scope rather
than specific," especially when the contract describes the
various types of supplies and services that can be ordered
Obligation is act of creating a liability, not the act of
writing a fund cite on a document. Thus, your suggested rule
about "'administrative reservation' or 'commitment'" ignores
that fact that a promise to buy a minimum creates a legal
liability. (See the Court of Federal Claims decision that Bob
highlighted last week in Today's News.) Awarding a
properly-written IDIQ contract obligates the government to buy a
minimum. Issuing the order for the minimum specifies the
particular supplies or services that the contractor must deliver
or perform and the time and place of delivery or performance.
Issuing an order for supplies or services above the minimum
creates an new obligation. This interpretation is consistent
with the language of the Indefinite-Quantity clause, FAR
52.216-22, as analyzed by the Court of Federal Claims in the
decision that Bob brought to our attention.
If the IDIQ minimum represents a legal liability, which the
Court of Federal Claims thinks it does, then it is an
obligation, isn't it? And if it is an obligation, then it must
be recorded at the time that it is made, mustn't it? These are
the key questions. Thus, you have raised an important issue in
theorizing that a minimum stated in terms of dollars is too
vague to create a legal liability. I don't think it is.
Maybe Congress should revise 31 U.S.C. 1501 to state that
obligations under IDIQ contracts may be recorded only when
orders are issued. That would settle things nicely and also
address your previously expressed concerns about the improper
"banking" of funds.