The Bona Fide Needs Rule

B. 2.  Future Years’  Needs

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An appropriation may not be used for the needs of some time period subsequent to the expiration of its period of availability. With respect to annual appropriations, a more common statement of the rule is that an appropriation for a given fiscal year is not available for the needs of a future fiscal year.9 Determining the year to which a need relates is not always easy. Some illustrative cases are listed below:
  • The balance of an appropriation for salaries remaining unexpended at the end of one fiscal year could not be used to pay salaries for services rendered in the following fiscal year. 18 Op. Att’y Gen. 412 (1886).
  • The Department of Housing and Urban Development recorded certain obligations for public housing subsidies on an estimated basis. At the end of the fiscal year, obligations were found to be in excess of actual needs. It was held improper to send excess funds to the state agency’s operating reserve to offset the subsidy for the following year, since this amounted to using the funds for the needs of a subsequent year. The proper course of action was to deobligate the excess. 64 Comp. Gen. 410 (1985).
  • Rent on property leased by the National Park Service from the National Park Foundation could be paid in advance, but the lease could not cross fiscal year lines. The proposal was for the lease to run from May 1 through April 30 and for the full annual rent to be paid in advance on May 1. However, appropriations available as of May 1 could not be used for the period from October 1 through April 30 since rent for these months constituted a need of the following fiscal year. B-207215, Mar. 1, 1983.

Any discussion of obligating for future years’ needs inevitably leads to the question of year-end spending. Federal agencies as a fiscal year draws to a close are often likened to sharks on a feeding frenzy, furiously thrashing about to gobble up every appropriated dollar in sight before the ability to obligate those dollars is lost. The Comptroller of the Treasury stated the legal principle very simply in an early decision:

“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 appropriation. This would be a plain violation of the law.”

8 Comp. Dec. 346, 348 (1901).

Thus, where an obligation is made toward the end of a fiscal year and it is clear from the facts and circumstances that the need relates to the following fiscal year, the bona fide needs rule has been violated. The obligation is not a proper charge against the earlier appropriation, but must be charged against the following year’s funds. This was the result, for example, in 1 Comp. Gen. 115 (1921), in which an order for gasoline had been placed 3 days before the end of fiscal year 1921, with the gasoline to be delivered in monthly installments in fiscal year 1922. The Comptroller General stated:

“It is not difficult to understand how the need for an article of equipment, such as a typewriter, might arise during the fiscal year 1921 and its purchase be delayed until the latter part of June [the end of the fiscal year in 1921], but as to supplies that are consumed as used, such as gasoline, it can not be held that they were purchased to supply a need of the fiscal year 1921 when the contract is made late in the month of June and expressly precludes the possibility of delivery before July 1, 1921.”

Id. at 118 (explanatory information provided). See also 4 Comp. Dec. 553 (1898) (cement ordered late in one fiscal year to be delivered several months into the following fiscal year).10

An interesting situation involving a contract with renewable options arose in B-308026, Sept. 14, 2006. The National Labor Relations Board (NLRB) entered into a contract with Electronic Data Systems for the acquisition of ongoing operational and technical support for its automated Case Activity Tracking System. The contract’s initial performance period was October 1, 2001, through September 30, 2002, with options through September 30, 2015. On September 30, 2005, NLRB exercised option four, specifying a performance period of October 1, 2005, through September 30, 2006, and charged the obligation to its fiscal year 2005 appropriation. In a June 2006 report, the NLRB Inspector General concluded that NLRB had improperly obligated its fiscal year 2005 appropriation because obligating the fiscal year 2005 appropriation for the performance of severable services that would occur entirely in fiscal year 2006 was a violation of the bona fide needs rule. The Inspector General said that NLRB should charge the obligation against its fiscal year 2006 appropriation. NLRB proposed to remedy its improper obligation by modifying the contract to have the performance period of the contract run from September 30, 2005, through September 29, 2006, instead of October 1, 2005, through September 30, 2006. NLRB explained that it had intended a performance period commencing September 30, 2005, but due to an inadvertent ministerial error this was not reflected in the contract. GAO agreed with the Inspector General. GAO said that, given the terms of the contract, NLRB had incurred an obligation against its fiscal year 2006 appropriation and that NLRB should adjust its accounts accordingly. NLRB could not remedy its improper obligation by adjusting its contract’s performance period instead of its accounts.

“It is one thing for an agency to take full advantage of available appropriations, maximizing the effectiveness of federal funds entrusted to its use; it is quite another thing, however, for an agency to alter executed contracts in order to reach expired funds—funds that Congress appropriated for agency programs and activities of the previous fiscal year. That is what NLRB proposes to do. Were NLRB to adjust the fourth option’s performance period, its sole reason for doing so would be to reach fiscal year 2005 appropriations because, in September 2005, that is what NLRB had intended to do. However, NLRB’s fiscal year 2005 appropriation has expired.

“. . . Instead of adjusting its obligations to reflect what actually occurred, NLRB would revise what actually occurred so that it can finance option four with fiscal year 2005 funds. . . . The account adjustment authority of [31 U.S.C. § 1553(a)] is not a palliative for errors of this sort.”

B-308026, Sept. 14, 2006, at 5–6 (footnote omitted).  

In 2007, GAO considered how this related to seven end-of-the-fiscal year subscription renewals. The National Labor Relations Board (NLRB) purchased seven Web site database subscriptions to support the work of its attorneys and other professionals. B-309530, Sept. 17, 2007. In September 2006, NLRB placed orders to renew each of these subscriptions with the respective vendors, stating that it needed to have the orders placed for the renewal before the existing subscriptions expired in order to ensure uninterrupted delivery. Each order placed was for a period of 1 year beginning on the day following the expiration of the existing subscription and, for each, the agency obligated its fiscal year 2006 annual appropriation. For five subscriptions, the performance period was from October 1, 2006, to September 30, 2007; for two subscriptions, the performance period was from November 1, 2006, to October 31, 2007. Id. GAO determined that NLRB did not violate the bona fide needs rule for the five Web site database subscription renewals that it needed to have in place on October 1, 2006, the first day of fiscal year 2007. Even though delivery of the renewed subscriptions would occur entirely in fiscal year 2007, NLRB reasonably determined that the renewal orders needed to be placed in fiscal year 2006 to ensure continued receipt of the subscriptions past the expiration of the existing subscriptions on September 30, 2006. Id. However, NLRB violated the bona fide needs rule when it obligated fiscal year 2006 funds to renew the two Web site database subscriptions that were not due to expire until October 31, 2006. These subscription renewals were a bona fide need of fiscal year 2007 for which fiscal year 2007 appropriations should have been used. Id.  

Yet, this is only one side of the coin. The other side is illustrated in another passage from 8 Comp. Dec. at 348:

“An appropriation is just as much available to supply the needs of the [last day] of a particular year as any other day or time in the year.”

Thus, a year-end obligation perhaps raises the possibility that the agency is trying to “dump” its remaining funds and warrants a further look, but the timing of the obligation does not, in and of itself, establish anything improper. 38 Comp. Gen. 628, 630 (1959); 6 Comp. Dec. 815, 818 (1900). See also B-322455, Aug. 16, 2013 (reiterating that an agency must have a bona fide need to support a year-end obligation, “not a mere need to use up remaining dollars before the end of the fiscal year”).

GAO has conducted several studies of year-end spending and has consistently reported that year-end spending is not inherently more or less wasteful than spending at any other time of the year. In one report, GAO suggested that year-end spending surges are really symptomatic of a larger problem—inadequate management of budget execution—and that the apportionment process could be more effectively used to provide the desired management. U.S. General Accounting Office, Federal Year-End Spending: Symptom of a Larger Problem, GAO/PAD-81-18 (Oct. 23, 1980), pp. 7–9.11

GAO also noted in its October 1980 report that there are several reasons for year-end spending, some of which are perfectly valid. For example, some programs have predictable 4th quarter surges due to cyclical or seasonal fund requirements. If, for example, you are administering a fire suppression program, you should expect a 4th quarter surge because the 4th quarter of the federal fiscal year is the major fire season in many states. GAO/PAD-81-18 at 3. In other situations, it may be desirable to delay obligations to have funds available for emergencies that may arise during the year. Id. at 4.

In evaluating a year-end obligation, it is important to determine exactly what the need is from the agency’s perspective. In one case, for example, the Small Business Administration (SBA) awarded cooperative agreements to certain Small Business Development Centers on the last day of a fiscal year. The Centers then provided management and technical assistance to small businesses, all of which would obviously be done in the following year. GAO found no bona fide needs violation because the need, from the perspective of implementing SBA’s appropriation, was merely to provide assistance to the Centers, and there was no reason this could not be done on the last day of the year. B-229873, Nov. 29, 1988. See also B-289801, Dec. 30, 2002; section B.5 of this chapter.

One device Congress has employed to control year-end spending surges is legislation limiting the amount of obligations that may be incurred in the last month or 2-month period or quarter of the fiscal year. For example, the Defense Department’s 1990 appropriation contained a provision limiting obligations during the last 2 months of the fiscal year to not more than 20 percent of the total fiscal year appropriations.12 In comments on legislative proposals of this type, GAO has pointed out that they are difficult to administer, but has supported them as temporary measures pending more fundamental improvements in budget execution management and procurement planning.13 In addition, there is the risk that limitations of this type may have the effect of simply moving the spending surges back a few months, accomplishing nothing.

Footnotes 9 The topic of obligating for needs of a future year arises in a variety of contexts and is also involved in several later sections of this chapter on delivery of materials and services beyond the fiscal year (B.4 and B.5), multiyear contracts (B.8 and B.9), and grants and cooperative agreements (B.10). (BACK)

10 “There is no authority in an appropriation made specifically for the service of a particular fiscal year to enter into contracts for supplies, etc., for the service of a subsequent fiscal year, and therefore as to that appropriation such a contract is not properly made within that year.” 4 Comp. Dec. at 556.  (BACK)

11 Other GAO reports in this area are: U.S. General Accounting Office, Year-End Spending: Reforms Underway But Better Reporting and Oversight Needed, GAO/AIMD-98-185 (Washington, D.C.: July 31, 1998); Federal Year-End Spending Patterns for Fiscal Years 1982, 1983, and 1984, GAO/AFMD-85-75 (Washington, D.C.: Nov. 4, 1985); Limitations on Fiscal Year 1981 Fourth Quarter Obligations in Certain Agencies, GAO/PAD-82-43 (Washington, D.C.: July 16, 1982); Government Agencies Need Effective Planning to Curb Unnecessary Year-End Spending, GAO/PSAD-80-67 (Washington, D.C.: July 28, 1980).  (BACK)

12 Pub. L. No. 101-165, § 9007, 103 Stat. 1112, 1130 (Nov. 21, 1989).  (BACK)

13 E.g., B-198666, May 20, 1980.  (BACK)


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