The Bona Fide Needs Rule

B. 5.  Services Rendered Beyond the Fiscal Year

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Services procured by contract are generally viewed as chargeable to the appropriation current at the time the services are rendered.16 38 Comp. Gen. 316 (1958). However, a need may arise in one fiscal year for services that, by their nature, cannot be separated for performance in separate fiscal years. The Comptroller General has held that the question of whether to charge the appropriation current on the date the contract is made, or to charge funds current at the time the services are rendered, depends upon whether the services are “severable” or “entire”:

“The fact that the contract covers a part of two fiscal years does not necessarily mean that payments thereunder are for splitting between the two fiscal years involved upon the basis of services actually performed during each fiscal year. In fact, the general rule is that the fiscal year appropriation current at the time the contract is made is chargeable with payments under the contract, although performance thereunder may extend into the ensuing fiscal year.”

23 Comp. Gen. 370, 371 (1943). A contract that is viewed as “entire” is chargeable to the fiscal year in which it was made, notwithstanding that performance may have extended into the following fiscal year. The determining factor for whether services are severable or entire is whether they represent a single undertaking. Thus, in 23 Comp. Gen. 370, a contract for the cultivation and protection of a tract of rubber-bearing plants, payable on completion of the services, was chargeable against fiscal year funds for the year in which the contract was made. Because the services necessarily covered the entire growing period, which extended into the following fiscal year, the Comptroller General characterized them as a single undertaking, which “although extending over a part of two fiscal years, nevertheless was determinable both as to the services needed and the price to be paid therefor at the time the contract was entered into.” Id. at 371.

The rationale of 23 Comp. Gen. 370 was applied in 59 Comp. Gen. 386 (1980) (requisition for printing accompanied by manuscript sufficient for Government Printing Office to proceed with job). See, e.g., B-317139, June 1, 2009 (contract for the design, development, and deployment of a financial intelligence data retrieval system); 65 Comp. Gen. 741 (1986) (contract for study and final report on psychological problems among Vietnam veterans); B-257977, Nov. 15, 1995 (contract for 2-year intern training program since interns are required to complete entire training program to be eligible for noncompetitive Presidential Management Intern appointment). See also B-305484, June 2, 2006 (appointment of an arbitrator to hear a case is in the nature of a nonseverable service and the National Mediation Board should record an obligation of the current appropriation based on the estimated cost of paying the arbitrator to submit an award); 73 Comp. Gen. 77 (1994) (subsequent modifications to Fish and Wildlife Service research work orders should be charged to the fiscal year current when the work orders were issued since the purpose of the research is to provide a final research report and the services under the contract are nonseverable). The last two decisions are noteworthy because they pointed out that limitation of funds clauses or subject to availability clauses do not affect the application of the bona fide needs rule and the severable test. B-305484; 73 Comp. Gen. at 80

However, where the services are continuing and recurring in nature, the contract is severable. Service contracts that are “severable” may not cross fiscal year lines unless authorized by statute. 71 Comp. Gen. 428 (1992); 58 Comp. Gen. 321, 324 (1979); B-192518, Aug. 9, 1979; B-133001, Mar. 9, 1979; B-187881, Oct. 3, 1977. See also B-287619, July 5, 2001 (TRICARE contractors provide on-going services such as enrolling beneficiaries, adjudicating claims, etc., that are severable into components that independently provide value). Most federal agencies have authority to enter into a 1-year severable service contract, beginning at any time during the fiscal year and extending into the next fiscal year, and to obligate the total amount of the contract to the appropriation current at the time the agency entered into the contract.17 10 U.S.C. § 2410a (defense agencies); 41 U.S.C. § 253l (civilian agencies); 41 U.S.C. § 253l-1 (Comptroller General); 41 U.S.C. § 253l-2 (Library of Congress); 41 U.S.C. § 253l-3 (Chief Administrative Officer of the House of Representatives); 41 U.S.C. § 253l-4 (Congressional Budget Office). See also B-259274, May 22, 1996. Otherwise, the services must be charged to the fiscal year(s) in which they are rendered. 65 Comp. Gen. at 743; 33 Comp. Gen. 90 (1953) (trucking services); 10 Comp. Dec. 284 (1903) (contract for services of various categories of skilled laborers in such quantities and at such times as may be deemed necessary is severable). As stated in 33 Comp. Gen. at 92:

“The need for current services, such as those covered by the contract here under consideration, arises only from day to day, or month to month, and the Government cannot, in the absence of specific legislative authorization, be obligated for such services by any contract running beyond the fiscal year.”

See also 35 Comp. Gen. 319 (1955), amplified by B-125444, Feb. 16, 1956 (gardening and window cleaning services).

In addition to the recurring nature of the services, another factor identified in some of the decisions is whether the contracted-for services are viewed as personal or nonpersonal. Personal services are presumptively severable by their nature and are properly chargeable to the fiscal year in which the services are rendered. B-174226, Mar. 13, 1972 (performance on an evaluation team). Legal services have been viewed as either personal or nonpersonal, depending on the nature of the work to be done. B-122596, Feb. 18, 1955; B-122228, Dec. 23, 1954.

The distinction appears to have derived from the distinction inherent in 5 U.S.C. § 3109, which authorizes agencies to procure services of experts or consultants by employment (personal) or contract (nonpersonal). B-174226, supra. In the context of applying the bona fide needs rule, however, the distinction is not particularly useful since it is still necessary to look at the nature of the services involved in the particular case. In other words, characterizing services as personal or nonpersonal does not provide you with an automatic answer. In fact, some of the more recent cases have merely considered the nature of the work without characterizing it as personal or nonpersonal, which would have added nothing to the analysis. E.g., 50 Comp. Gen. 589 (1971) (fees of attorneys contracted for under Criminal Justice Act chargeable to appropriations current at time of appointment); B-224702, Aug. 5, 1987 (contract for legal support services held severable since it consisted primarily of clerical tasks and required no final report or end product).

A 1981 decision applied the above principles to agreements made by the Small Business Administration (SBA) with private organizations to provide technical and management assistance to businesses eligible for assistance under the Small Business Act. The typical agreement covered one calendar year and crossed fiscal year lines. Under the agreement, payment was to be made only for completed tasks and SBA was under no obligation to place any orders, or to place all orders with any given contractor. The question was whether the “contract” was chargeable to the fiscal year in which it was executed. The Comptroller General found that the services involved were clearly severable and that the agreement was not really a contract since it lacked mutuality of obligation. Accordingly, SBA created a contract obligation only when it placed a definite order, and could charge each fiscal year only with obligations incurred during that fiscal year. 60 Comp. Gen. 219 (1981). The principles were reiterated in 61 Comp. Gen. 184 (1981).

In another 1981 case, GAO considered the District of Columbia’s recording of obligations for social security disability medical examinations. A person seeking to establish eligibility for disability benefits is given an appointment for a medical examination and a purchase order is issued at that time. However, for a number of reasons beyond the District’s control, the examination may not take place until the following fiscal year (for  example, a person makes an application at end of fiscal year or does not show up for initial appointment). Nevertheless, the need for the examination arises when the applicant presents his or her claim for disability benefits. The decision concluded that the obligation occurs when the purchase order is issued and is chargeable to that fiscal year. 60 Comp. Gen. 452 (1981).

As a general matter, the relevant date to ascertain whether training is a bona fide need of a particular fiscal year is the date that the training is delivered. B-321296, July 13, 2011. Thus, the cost of training ordinarily is properly charged to the appropriation available in the fiscal year in which the training is delivered. However, in some limited circumstances, training may be a bona fide need of the fiscal year prior to the fiscal year in which the training is delivered. 70 Comp. Gen 296 (1991). For example, the prior year’s appropriation may be used for training occurring in the subsequent fiscal year, where the training provider requires the agency to register during the expiring fiscal year, the training date offered is the only one available, and the time between the registration and the training is not excessive. Id. In 70 Comp. Gen 296, training that began the first day of fiscal year 1990 was held chargeable to 1989 appropriations where the training had been identified as a need for 1989. Compare B-321296 (where training was delivered in January 2011 and registration not required until October 15, 2010, such training was a bona fide need of fiscal year 2011 even though the need for training was identified in fiscal year 2010). Training also tends to be nonseverable. Thus, where a training obligation is incurred in one fiscal year, the entire cost is chargeable to that year, regardless of the fact that training may extend into the following year. B-233243, Aug. 3, 1989; B-213141-O.M., Mar. 29, 1984.

After a confusing start, we have determined that the type of contract does not affect the severable versus nonseverable distinction. For example, “level-of-effort” contracts may be severable or nonseverable. A level-of-effort contract is a type of cost-reimbursement contract in which the scope of work is defined in general terms, with the contractor being obligated to provide a specified level of effort (e.g., a specified number of person-hours) for a stated time period. Federal Acquisition Regulation, 48 C.F.R. § 16.306(d)(2). The bona fide needs determination is based not on the contract type but on the nature of the work being performed and is, in the first instance, the responsibility of the contracting agency. B-235678, July 30, 1990. A 1985 case, 65 Comp. Gen. 154, had implied that all level-ofeffort contracts were severable by definition (id. at 156), and to that extent was modified by B-235678. See also B-277165, Jan. 10, 2000 (cost-plus-fixed-fee contracts are presumptively severable unless the actual nature of the work warrants a different conclusion).

The Comptroller General has noted that to some degree an agency can control whether services are severable or nonseverable by selecting the type of contract and crafting the statement of work. B-277165, supra (“one might reasonably conclude that the initial agency determination whether the contract is for funding purposes severable or nonseverable takes place roughly contemporaneously with agency selection of contract type”).

As a final thought, there is a fairly simple test that is often helpful in determining whether a given service is severable or nonseverable. Suppose that a service contract is to be performed half in one fiscal year and half in the next. Suppose further that the contract is terminated at the end of the first fiscal year and is not renewed. What do you have? In the case of a window-cleaning contract, you have half of your windows clean, a benefit that is not diminished by the fact that the other half is still dirty. What you paid for the first half has not been wasted. These services are clearly severable. Now consider a contract to conduct a study and prepare a final report, as in 65 Comp. Gen. 741 (1986). If this contract is terminated halfway through, you essentially have nothing. The partial results of an incomplete study, while perhaps beneficial in some ethereal sense, do not do you very much good when what you needed was the complete study and report. Or suppose the contract is to repair a broken frammis.18 If the repairs are not completed, certainly some work has been done but you still don’t have an operational frammis. The latter two examples are nonseverable.

Footnotes 16 This section does not discuss services rendered by an employee. Services provided by employees are chargeable to the fiscal year in which the services are rendered, regardless of whether the services are severable or nonseverable. E.g., 38 Comp. Gen. 316 (1958) (salaries of government employees).  (BACK)

17 For a discussion of contracts for more than 1 year, see later sections in this chapter on multiyear contracts (B.8) and specific statutes providing for multiyear and other contracting authorities (B.9).  (BACK)

18 According to “Harvey the Pooka,” the word “frammis” denotes “something that, in reality, one hasn’t a clue what it does or what it is for … but one wants to give others the impression that he does.” The word was coined by The Three Stooges, and, to some, it is a more literate form of the word “widget.” (e-mail to “Newsgroups: it.cultura.linguistica.inglese” dated January 28, 2003, found at http://groups.google.com/groups?q=frammis+word&hl=en&lr =&ie=UTF8&selm=TXrZ9.54710%24YG2.1568240%40twister1.libero.it&rnum=1).  (BACK)


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