The Bona Fide Needs Rule

B. 9.  Specific Statutes Providing for Multiyear and Other Contracting Authorities

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As we noted at the beginning of our discussion of the bona fide needs rule, a fixed-term appropriation is available only “to complete contracts properly made within that period of availability.” See 31 U.S.C. § 1502(a). For multiyear contracts, “properly made” means that the bona fide needs rule is satisfied if an agency has statutory authority to obligate its fiscal year funds for a contract that crosses fiscal years or is for multiple years. While these statutes are sometimes referred to as exceptions to the bona fide needs statute, it is clear that by using the phrase “contracts properly made,” the bona fide needs statute anticipates that Congress may authorize agencies to obligate funds across fiscal years, either generally or for a particular agency or program. In so doing, Congress defines the bona fide need in the particular statute.
a. Severable Services Contracts

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(As of 3/12/15)





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There are several general authorities to contract across a fiscal year or to enter into multiyear contracts. For example, 41 U.S.C. § 3902 authorizes the heads of executive agencies to enter into procurement contracts for severable services for periods beginning in one fiscal year and ending in the next fiscal year as long as the contracts do not exceed one year. It permits agencies to obligate the total amount of the contract to appropriations of the first fiscal year. Without specific statutory authority such as this, such action would violate the bona fide needs rule (see section B.5 of this chapter). Section 3902, in effect, redefines for an agency that elects to contract under authority of section 3902 its bona fide need for the severable services for which it is contracting. Related statutes extend this authority to various legislative branch entities.29 Similarly, 10 U.S.C. § 2410a authorizes the military departments to use current fiscal year appropriations to finance severable service contracts into the next fiscal year for a total period not to exceed one year. GAO states in B-259274, May 22, 1996, that “[t]he purpose of 10 U.S.C. § 2410a is to overcome the bona fide needs rule,” which is another way of saying that Congress has provided the military departments with authority to properly enter into a contract not to exceed one year that crosses fiscal years. The statute specifically authorizes the departments to obligate “[f]unds made available for a fiscal year . . . for the total amount of a contract entered into” under section 2410a(a). Cf. B-317636, Apr. 21, 2009 (an agency using multiple year or no-year appropriations rather than fiscal year appropriations to fund a severable services contract does not need to refer to 41 U.S.C. § 3902 or 10 U.S.C. § 2410a to achieve this same flexibility).

In B-259274, May 22, 1996, the Air Force took full advantage of this authority to maximize efficient use of fiscal year appropriations. The Air Force had intended to award a 12-month severable services contract for vehicle maintenance beginning on September 1, 1994 (fiscal year 1994), and running until August 31, 1995 (fiscal year 1995). Using 10 U.S.C. § 2410a, the Air Force had planned to obligate the contract against its fiscal year 1994 appropriation, until it learned that it did not have sufficient unobligated amounts to cover the contract. To avoid Antideficiency Act problems, but taking advantage of section 2410a, the Air Force entered into a 4-month contract, beginning September 1, 1994, and running until December 31, 1994, and included an option to renew the contract at that time. The option, as in the Leiter decision we discussed in section B.8, could be exercised only by the Air Force, not the contractor, by affirmative written notification to the contractor. GAO concluded that the Air Force’s obligation was only for 4 months, and under authority of section 2410a, it constituted a bona fide need of fiscal year 1994 and was properly chargeable to fiscal year 1994. Also, GAO found no Antideficiency Act violation. GAO said that with the option to renew for 8 months, the Air Force had incurred “a naked contractual obligation that carries with it no financial exposure to the government.”

b. 5-year Contract Authority

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(1) 10 U.S.C. §§ 2306b, 2306c

In addition to the severable services contracting authority, Congress has provided executive, legislative, and judicial entities substantial authority for multiyear contracting for goods and services using annual funds. The military departments are authorized by 10 U.S.C. §§ 2306b and 2306c to enter into multiyear contracts for goods and services, respectively, for periods of not more than 5 years if certain administrative determinations are made. Section 2306b applies not only to routine supplies, but also to the military departments acquisition of weapon systems and items and services associated with such systems. Section 2306c, enacted in response to the Wake Island decision (see 67 Comp. Gen. 190, 193 (1988)), applies to such services as installation maintenance and support, maintenance or modification of aircraft and other complex military equipment, specialized training, and base services. Sections 2306b and 2306c permit the military departments to obligate the entire amount of the 5-year contract to the fiscal year appropriation current at the time of contract award, even though the goods or services procured for the final 4 years of the contract do not constitute needs of that fiscal year. Alternatively, sections 2306b and 2306c permit the military departments to obligate the amount for each of the 5 years against appropriations enacted for each of those years. If funds are not made available for continuation in a subsequent fiscal year, cancellation or termination costs may be paid from appropriations originally available for the contract, appropriations currently available for the same general purpose, or appropriations made specifically for those payments. 10 U.S.C. §§ 2306b(f) and 2306c(e). The authority contained in sections 2306b and 2306c is also available to the Coast Guard and the National Aeronautics and Space Administration. 10 U.S.C. § 2303.

A multiyear contract entered into under authority of 10 U.S.C. §§ 2306b or 2306c is binding on both parties for the full term of the contract unless terminated as provided in the statute. See Beta Systems, Inc. v. United States, 838 F.2d 1179, 1183 n.2 (Fed. Cir. 1988); Beta Systems, Division of Velcon Filters, Inc.v. United States, 16 Cl. Ct. 219, 228 (1989).

A contract under sections 2306b or 2306c must relate to the bona fide needs of the contract period as opposed to the need only of the first fiscal year of the contract period. The statute does not authorize the advance procurement of materials not needed during the 5-year term of the contract. See 64 Comp. Gen. 163 (1984); B-215825-O.M., Nov. 7, 1984. See also 35 Comp. Gen. 220 (1955).

(2) 41 U.S.C. § 3903

The Federal Acquisition Streamlining Act of 1994 (FASA) and related statutes extended multiyear contracting authority with annual funds to nonmilitary departments.30 FASA authorizes an executive agency to enter into a multiyear contract for the acquisition of property, which includes leases of real property, or services for more than one, but not more than five years, if the agency makes certain administrative determinations. 41 U.S.C. § 3903; B-322455, Aug. 16, 2013; B-316860, Apr. 29, 2009. Related laws extend this authority to various legislative branch agencies.31 Through FASA and the related laws, Congress has relaxed the constraints of the bona fide needs rule by giving agencies the flexibility to structure contracts to fund the obligations up front, incrementally, or by using the standard bona fide needs rule approach. B-277165, Jan. 10, 2000. To the extent an agency elects to obligate a five-year contract incrementally, it must also obligate termination costs. Cf. B-302358, Dec. 27, 2004 (since the contract at issue was an indefinite-delivery, indefinite-quantity contract, it was not subject to the requirements of FASA and the agency did not need to obligate estimated termination costs at the time of contract award).

FASA authorizes agencies to enter into a multiyear contract for the acquisition of both nonseverable and severable services. B-322455. Suppose an agency wants to contract for an annual report, which we previously established was a nonseverable service.31a FASA allows an agency to enter into a multiyear contract for both a report this year and a report for the next four years. The agency can either: (1) obligate funds upfront to cover the costs of all five reports or (2) obligate funds for the first fiscal year, plus estimated termination costs. 41 U.S.C. § 3903(b)(1). Now suppose an agency wants to contract for window washing services, which are severable services.31b FASA permits an agency to enter into a multiyear contract for up to five years worth of window washing services. Similarly, the agency can either obligate funds upfront or obligate funds on a fiscal-year basis, plus estimated termination costs. Id.

In B-322455, GAO stressed that FASA requires agencies to establish a bona fide need for some services at the time of the contract, despite the fact that additional services will be rendered in future fiscal years. B-322455, at 5–9. Generally, an agency will violate the bona fide needs rule if it enters into a multiyear contract in one fiscal year for services that do not begin until the next fiscal year. Similarly, an agency would violate the bona fide needs rule if it modified a contract in one fiscal year to acquire services to be rendered in a future fiscal year.31c

The enactment of FASA satisfied the GAO recommendation for the enactment of legislation to authorize all federal agencies to engage in limited multiyear procurement. See U.S. General Accounting Office, Federal Agencies Should Be Given General Multiyear Contracting Authority For Supplies and Services, PSAD-78-54 (Washington, D.C.: Jan. 10, 1978). See also B-214545, Aug. 7, 1985 (comments on proposed legislation).

c. Examples of Agency- Specific Multiyear Contracting Authorities

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An example of a specific authority is 41 U.S.C. § 11a, which authorizes the Secretary of the Army “to incur obligations for fuel in sufficient quantities to meet the requirements for one year without regard to the current fiscal year,” and to pay from appropriations either for the fiscal year in which the obligation is incurred or for the ensuing fiscal year. See 28 Comp. Gen. 614 (1949) (construing the term “fuel” in that statute to include gasoline and other petroleum fuel products).

Another example is 31 U.S.C. § 1308, which permits charges for telephone and other utility services for a time period beginning in one fiscal year and ending in another to be charged against appropriations current at the end of the covered time period. In addition, 42 U.S.C. § 2459a authorizes the National Aeronautics and Space Administration to enter into contracts for certain “services provided during the fiscal year following the fiscal year in which funds are appropriated.”

A further example of statutory authority for multiyear contracting is 40 U.S.C. § 481(a)(3), which authorizes contracts for public utility services for periods not exceeding 10 years. The purpose of the statute is to enable the government to take advantage of discounts offered under long-term contracts. 62 Comp. Gen. 569, 572 (1983); 35 Comp. Gen. 220, 222–3 (1955). For purposes of applying this statute, the nature of the product or service and not the nature of the provider is the governing factor. 70 Comp. Gen. 44, 49 (1990). Thus, the statute applies to obtaining utility services from other than a “traditional” form of public utility. 62 Comp. Gen. 569. When entering into a contract under 40 U.S.C. § 481(a)(3), the contracting agency needs to have sufficient budget authority only to obligate the first years costs. 62 Comp. Gen. at 572; 44 Comp. Gen. 683, 687–88 (1965).

Other examples of specific multiyear authority are 40 U.S.C. § 490(h), which authorizes the General Services Administration (GSA) to enter into leases for periods of up to 20 years; 40 U.S.C. § 757(c), which authorizes GSA to use the Information Technology Fund for contracts up to 5 years for information technology hardware, software, or services; and 10 U.S.C. § 2828(d), under which the military departments may lease family housing united in foreign countries for periods up to 10 years, to be paid from annual appropriations.





(As of 3/12/15)

29 For example, the Comptroller General (41 U.S.C. § 253l-1), Library of Congress (41 U.S.C. § 253l-2), Chief Administrative Officer of the House of Representatives (41 U.S.C. § 253l-3), and Congressional Budget Office (41 U.S.C. § 253l-4).  (BACK)

30 Pub. L. No. 103-355, § 1072, 108 Stat. 3243, 3270 (Oct. 13, 1994).  (BACK)

31 For example, the General Accounting Office (41 U.S.C. § 253l-1), Library of Congress (41 U.S.C. § 253l-2), Chief Administrative Office of the House of Representatives (41 U.S.C. § 253l-3, and Congressional Budget Office (41 U.S.C. § 253l-4).  (BACK)

31a Despite the fact that a contractor will develop and draft the report throughout the fiscal year, the agency does not receive the full benefit of the report until it is delivered.  (Back)

31b These services are severable because the agency receives the full benefit of the service every time the contractor cleans the windows.  (Back)

31c In addition to the bona fide needs rule, the agency would violate the Antideficiency Act, which prohibits the obligation or expenditure of funds in advance of available appropriations. 31 U.S.C. § 1341(a)(1)(B). We discuss the Antideficiency Act in Chapter 6.  (Back)


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