Excess Ceiling Available and Options

Why not a contract with a min and a $94 million max.? Each year you exercise an option to extend to period of performance.

Why bother with options? You don't need them with an IDIQ contract. Simply award an IDIQ contract with a five year ordering period. Stipulate that the government will order the minimum quantity during the first 12 month period and may order up to the maximum quantity over the course of the entire five year period. Then set prices for each fiscal year or for 12-month pricing periods within the five year ordering period.

As for your question: "Can we use the excess ceiling in the option year," the answer depends on how you wrote the contract. If you wrote it so that there is a maximum for each option year, then the answer is no. If you don't order the maximum in the basic period or any option year, you cannot carry the balance over into the next option year. Each option year stands on its own. Carrying over the balance into the next option year would violate the rule at FAR 17.207(f) that you must exercise an option in accordance with its terms. Since you have set a maximum for each of your options, carrying over the balance from one year to the next would increase the maximum of a following year, and thus would increase the scope of the option. Doing that would leave you vulnerable to a protest.

And by the way, the proper terminology is maximum quantity, not "ceiling.

Agree with the longer-than-one-year ordering period. Folks make them annual options out of habit thus requiring a new contract modification and set of CLINs each fiscal year. (Note: I said CLINs, not SLINs. You will always need more SLINs to differentitate between funding lines within and in different fiscal years.)

As to the other original comments, it is a good idea to avoid subdividing units/pricing at the SLIN level on services efforts. This allows more flexibility in contract administration (i.e. again, few contract modifications).

Yes, follow what the contract states with regards to transferring unused quantity from one CLIN to another. If not in the contract, folks often do a bilateral modification to allow the Govt. to do so without requiring a bilateral modification each time. Yes, you need to be mindful of the protest risk (i.e. out of scope of original competition).

One last note: If you are transferring unused quantity from one CLIN to another, be sure you are not transferring any award fee pool that was eligible to be earned but was not earned. This would result in award fee "rollover". You should transfer only the award fee pool portion that is associated with the unexpended work. Of course, if the contract already has language covering award fee rollover, then follow the contract accordingly. I am not saying award fee rollover is good or bad, but, given the current anti-rollover Govt. leadership sentiment, just making sure one doesn't inadvertently rollover award fee for which the contractor expended effort but didn't earn the full amount.

t is a good idea to avoid subdividing units/pricing at the SLIN level on services efforts. This allows more flexibility in contract administration (i.e. again, few contract modifications).

I disagree. Five years is too long a period to lock a contractor into prices.

One last note: If you are transferring unused quantity from one CLIN to another, be sure you are not transferring any award fee pool that was eligible to be earned but was not earned. This would result in award fee "rollover". You should transfer only the award fee pool portion that is associated with the unexpended work. Of course, if the contract already has language covering award fee rollover, then follow the contract accordingly. I am not saying award fee rollover is good or bad, but, given the current anti-rollover Govt. leadership sentiment, just making sure one doesn't inadvertently rollover award fee for which the contractor expended effort but didn't earn the full amount.

What you have described is not rollover. If the unearned award fee was attached to unpurchased quantities, attaching the unearned balance to other quantities is not "rollover." I don't know what you would call it. Rollover is when the contractor's performance isn't good enough to earn all of the available fee and the government gives it another chance to earn the unearned portion.

I disagree. Five years is too long a period to lock a contractor into prices.

I didn't advocate or oppose locking in prices over five years. The pricing remains at the CLIN level. The question dealt with further subdividing hours & cost/prices down to the SLIN level. It was a contract administration question, not a pricing question.

What you have described is not rollover. If the unearned award fee was attached to unpurchased quantities, attaching the unearned balance to other quantities is not "rollover." I don't know what you would call it. Rollover is when the contractor's performance isn't good enough to earn all of the available fee and the government gives it another chance to earn the unearned portion.

I did describe rollover appropriately. The 2nd sentence of the quote could have been interpreted two ways (as your reply has shown). Failure to avoid transferring only the unearned AF attached to unpurchased quantities (i.e transferring unearned fee for purchased quantities) results in rollover.

I did describe rollover appropriately. The 2nd sentence of the quote could have been interpreted two ways (as your reply has shown). Failure to avoid transferring only the unearned AF attached to unpurchased quantities (i.e transferring unearned fee for purchased quantities) results in rollover.

Since the award fee is earned through performance, I don't see how we couldn't include it if we 'rollover' the capacity. As to the idea of having a single, five-year ordering period, would that not require special multi-year authority? Also, how would we actually price out and evaluate the offers, since we usually include the base and options. Can't we use the options and simply allow for ordering during any option period up to the total award amount?

Since the award fee is earned through performance, I don't see how we couldn't include it if we 'rollover' the capacity. As to the idea of having a single, five-year ordering period, would that not require special multi-year authority? Also, how would we actually price out and evaluate the offers, since we usually include the base and options. Can't we use the options and simply allow for ordering during any option period up to the total award amount?

"Rollover" is a term used to describe the carryover of award fee (AF) the contractor FAILED to earn (key is FAILED to earn) to a later award fee period/event in the contract.

For example, if the contractor was eligible to earn $100 (i.e. AF pool is $100) during the 1st AF period but only earned $90, the remaining $10 would be considered "rollover" if it was added to a subsequent potential award fee pool.

Let's say the CLIN price was $9000 cost and $900 award fee and the unit price was $90/hr. cost & $9/hr. AF pool for a maximum quantity of 100 hours for the current CLIN. If the contractor was tasked and delivered 80 hours at $7200 and earned only $700 of the $720 AF pool for those 80 hours, the remaining $20 is what the contractor FAILED to earn. $120 is what the unused award fee pool associated with unexpended work that could be transferred (not rolled over) to a subsequent CLIN, providing the contract language allows you to do that or there is a bilateral modification (mindful of orignal scope of competition) executed. Please note that this scenario assumes the maximum quantity is defined in terms of dollars (not hours). If it is in terms of hours, then this scenario assumes the hourly unit price is the same from one CLIN to the next. If not, then you should be transferring unused hours from one CLIN to the next CLIN but applying the price of the next CLIN. Otherwise, you are likely denying the contractor (or Govt.) the benefit of then-year pricing.

Your recent comment about evaluating offers implies you are talking about transferring unused "ceiling" in a multiple award environment. If so, you should be transferring equal amounts of unused "ceiling" per contractor to ensure an equilibrium of fair opportunity for the remainder of the contract.

Failure to avoid transferring only the unearned AF attached to unpurchased quantities (i.e transferring unearned fee for purchased quantities) results in rollover.

Huh? What are you talking about?

As to the idea of having a single, five-year ordering period, would that not require special multi-year authority?

No.

I disagree. Five years is too long a period to lock a contractor into prices.

I didn't advocate or oppose locking in prices over five years. The pricing remains at the CLIN level. The question dealt with further subdividing hours & cost/prices down to the SLIN level. It was a contract administration question, not a pricing question.

Huh? What are you talking about?

Distinguishing between: (i) award fee pool dollars that the contractor has not yet had a chance to earn; and (ii) award fee pool dollars that the contractor had a chance to earn but failed to do so (i.e. got a score < 100%).

Distinguishing between: (i) award fee pool dollars that the contractor has not yet had a chance to earn; and (ii) award fee pool dollars that the contractor had a chance to earn but failed to do so (i.e. got a score < 100%).

And if the contractor has not had a chance to earn part of an award fee pool because the government did not purchase up to the maximum, do you consider adding the balance of the maximum and the associated award fee pool dollars to the next period to be "rollover"?

And if the contractor has not had a chance to earn part of an award fee pool because the government did not purchase up to the maximum, do you consider adding the balance of the maximum and the associated award fee pool dollars to the next period to be "rollover"?

No.

Then we're in sync.

Why bother with options? You don't need them with an IDIQ contract. Simply award an IDIQ contract with a five year ordering period.

I was hoping someone else did'dnt know how this would be done, but now it appears I am the only one

FAR part 16.504(a)(4)(i) a solicitation for IDIQ must specify the period of the contarct, including the number of options and the period for which the government may extend the contract under each option.

I would very much love to award a 5 year IDIQ and not worry about options, but I cannot justify it.

Sorry to derail this thread, but the idea of this caught my attention.

I was hoping someone else did'dnt know how this would be done, but now it appears I am the only one

FAR part 16.504(a)(4)(i) a solicitation for IDIQ must specify the period of the contarct, including the number of options and the period for which the government may extend the contract under each option.

I would very much love to award a 5 year IDIQ and not worry about options, but I cannot justify it.

Sorry to derail this thread, but the idea of this caught my attention.

You haven't derailed the thread.

The reason you don't need options and can award an IDIQ contract with a five-year ordering period is that most agencies fund IDIQ contracts on each order. So if you issue a five-year IDIQ contract (without options) you can fund orders with annual appropriations without violating the bona fide needs rule. You order the minimum during the first year with the funds of that year. Then you can issue and fund orders when a bona fide need arises using the appropriate funds at any time during the five year ordering period. You don't need options because you aren't funding the entire five years at the time of award, only the minimum to be bought in the first year.

I don't know why you say you can't justify such an approach. If I were your boss you would have a hard time justifying the use of options. They would be a needless nuisance.

You order the minimum during the first year with the funds of that year.

Vern,

Assuming you mean that you must order the minimum during the first year with the funds of that year, why is that so?

You haven't derailed the thread.

The reason you don't need options and can award an IDIQ contract with a five-year ordering period is that most agencies fund IDIQ contracts on each order(Which we do). So if you issue a five-year IDIQ contract (without options)(So are you saying that the period can be for a duration of five years?[) you can fund orders with annual appropriations without violating the bona fide needs rule. You order the minimum during the first year with the funds of that year. Then you can issue and fund orders when a bona fide need arises using the appropriate funds at any time during the five year ordering period. You don't need options because you aren't funding the entire five years at the time of award, only the minimum to be bought in the first year.

I don't know why you say you can't justify such an approach. If I were your boss you would have a hard time justifying the use of options. They would be a needless nuisance.

FAR part 16.504(a)(4)(i) a solicitation for IDIQ must specify the period of the contract, including the number of options and the period for which the government may extend the contract under each option.

If I understand correctly we are defining period as being longer than one year. I have always assumed that the "period" was defined as being no more than one year.

Forgive me as I work this out as I am typing. I have discussed this with some of my experianced COs, and dont know of any VA CO's that have done this. And naturally we are fearful of things we don't understand like fire, magic etc.

I have always assumed that the "period" was defined as being no more than one year.

Why?

If the ID/IQ contract itself can be awarded for a 5 year period, could it then also have one or more options, each 5 years in duration? I have been taught that all contracts are restricted to 5 years duration without specific authority for a longer period of time. This could be an ephiphany for my office, which constantly has a problem with long term projects for software development that goes on for a decade or more.

VA Junior CO:

FAR part 16.504(a)(4)(i) a solicitation for IDIQ must specify the period of the contract, including the number of options and the period for which the government may extend the contract under each option.

If I understand correctly we are defining period as being longer than one year. I have always assumed that the "period" was defined as being no more than one year.

Forgive me as I work this out as I am typing. I have discussed this with some of my experianced COs, and dont know of any VA CO's that have done this. And naturally we are fearful of things we don't understand like fire, magic etc.

Your first mistake was assuming that a period is defined as one year. Where did you find that definition? You can have an IDIQ period of five years, or even ten years.

Your second mistake is assuming that because none of the "experienced" COs has heard of something or done it makes in wrong or risky. Ignorance is not a benchmark for correctness.

There is nothing new or radical in what I'm telling you. If there were anything wrong in it, Carl Culham, here_to_help, Joel Hoffman, formerfed, Don Mansfield, and/or others would have been all over me by now. That's one of the great things about Wifcon.

To all: This is a demonstration of something that I have been saying for years. Part of the workforce "shortage" is due to the fact that COs do not know how to do things simply. VA Junior CO and his/her colleagues are spending time sending option notifications and exercising options when they need not do so. That is inefficiency. Inefficiency amplifies workforce shortages.

dwgerard:

If the ID/IQ contract itself can be awarded for a 5 year period, could it then also have one or more options, each 5 years in duration? I have been taught that all contracts are restricted to 5 years duration without specific authority for a longer period of time. This could be an ephiphany for my office, which constantly has a problem with long term projects for software development that goes on for a decade or more.

An IDIQ contract with an ordering period of five years can include options to extend the ordering period for an additional five years. The five year limit you might be thinking of is the one mentioned in FAR 22.1002-1, associated with the Service Contract Act. However, the Department of Labor has interpreted that law such that each option is considered a new contract for purposes of the Act. See 29 CFR ? 4.145(a).

Sometimes I think that "I have been taught" is the worst phrase in our business.

I agree with the "I have been taught" comment, but sometimes breaking out of that fog of misinformation is by simple chance. An example is this thread, which is one reason I have recommended this website to everyone I have ever worked with in contracting.

If the ID/IQ contract itself can be awarded for a 5 year period, could it then also have one or more options, each 5 years in duration? I have been taught that all contracts are restricted to 5 years duration without specific authority for a longer period of time. This could be an ephiphany for my office, which constantly has a problem with long term projects for software development that goes on for a decade or more.

If you are in DoD, see DFARS 217.204:

217.204 Contracts.

(e)(i) Notwithstanding FAR 17.204(e), the ordering period of a task order or delivery order contract (including a contract for information technology) awarded by DoD pursuant to 10 U.S.C. 2304a?

(A) May be for any period up to 5 years;

( B ) May be subsequently extended for one or more successive periods in accordance with an option provided in the contract or a modification of the contract; and

( C ) Shall not exceed 10 years unless the head of the agency determines in writing that exceptional circumstances require a longer ordering period.

I can remember having the IDIQ w/options debate at a contracting office that I used to work at. My relatively inexperienced PCO, who liked to try new things, started to structure his IDIQ contracts with five-year ordering periods instead of the traditional one base year plus four one-year options (he probably got the idea from reading something Vern wrote on Wifcon or said in a training class). Despite the obvious advantages of this approach, none of the other "experienced" PCOs could bring themselves to do it. They really didn't have a good argument for using IDIQs with options, other than that was what they had been taught, that is what they had been doing for years, and that is what they felt comfortable doing.

Whenever I teach special contracting methods, I always challenge my students to come up with a good reason to award an IDIQ with options. I get a lot of "that's just the way my office has always done it."

The best argument that I've heard, which is a practical one, came from an attorney where I used to work. He said that having an IDIQ contract is like having a special sales license. This license allows contractors greater access to get on base and hassle the technical folks in an attempt to drum up business. If you have a contractor that turns out to be a turkey, you could take away their license by not exercising their option. However, if their contract had a five-year ordering period, you could not take away that license as easily.

Best argument I've heard, but not persuasive.

Not at all persuasive. The contractor may have a license, but the CO doesn't have to give it any business.

The advantage of being able to not exercise the option is "killing the turkey", so they won't keep coming around trying to drum up business. Then it's "Goodby, good luck elsewhere and good riddance."

Remember this: Once the government has purchased the minimum quantity, the issuance of each additional order is the exercise of an option. And it is an option that is automatically renewable throughout the life of the ordering period.

It is needlessly redundant to have an option to extend the right to exercise options.

VA Junior CO:

Your first mistake was assuming that a period is defined as one year. Where did you find that definition? You can have an IDIQ period of five years, or even ten years.

Your second mistake is assuming that because none of the "experienced" COs has heard of something or done it makes in wrong or risky. Ignorance is not a benchmark for correctness.

There is nothing new or radical in what I'm telling you. If there were anything wrong in it, Carl Culham, here_to_help, Joel Hoffman, formerfed, Don Mansfield, and/or others would have been all over me by now. That's one of the great things about Wifcon.

To all: This is a demonstration of something that I have been saying for years. Part of the workforce "shortage" is due to the fact that COs do not know how to do things simply. VA Junior CO and his/her colleagues are spending time sending option notifications and exercising options when they need not do so. That is inefficiency. Inefficiency amplifies workforce shortages.

Is there a salient difference between what we are talking about in regards to period and option years and Multi-year contracts?

If this is the same thing, then the VAAR is the limiter for VA acquisitions in this instance. FAR states HCA as approving authority for Multi-Year contracts where the VAAR has the Secretary of the VA as the approving authority ,who in turn allows an HCA to auhtorize only contracts that do not require a legal or technical review (typically ~500,000)

Is there a salient difference between what we are talking about in regards to period and option years and Multi-year contracts?

Yes. What Vern is describing is not a multiyear contract--it's a multiple year contract.

Vern,

You missed my question about this statement you made:

You order the minimum during the first year with the funds of that year.

Why must the Government order the minimum during the first year of an IDIQ contract?

Vern,

You missed my question about this statement you made:

Why must the Government order the minimum during the first year of an IDIQ contract?

The Bona Fide Needs rule. You obligate the value of the minimum at the time of contract award with the funds then currently available. (That's what the GAO says.) The Bona Fide Needs rule says you cannot obligate current-year funds for the needs of future years. Thus, you cannot order any part of the minimum, which is funded with appropriations available in the year of the award, to satisfy the need of a later year, and you cannot order the current year's need in future years, unless you can show that the order is for the bona fide need of the year of contract award, which might be hard to do.

Is there a salient difference between what we are talking about in regards to period and option years and Multi-year contracts?

VA Junior CO:

See FAR 17.103 for the difference between "multi-year" and "multiple-year" contracts. A multi-year contract buys more than one year's need at the time of award in advance of fund availability. Multi-year contracts require special approval. A multi-year contract buys only the current year's need at the time of award, but enables the agency to buy future year needs when they arise and when funds become available by exercising an option or issuing an order under an IDIQ contract.

VA Junior CO - Since one of Vern's posts referenced my name I thought I might as well chime in noting that Don and Joel have too. Two thoughts to help confirm Vern?s posts and assist for the future.

Good reading on the operation of an IDIQ from the fiscal side can be found in GAO's Principles of Federal Appropriation Law (Redbook) in Volume II Chapter 7 Page 7-20. The Redbook is found here http://www.gao.gov/special.pubs/redbook1.html

Also recommend a read of the Bona Fide Needs Rule which is discussed in the Redbook as well but the best reference is found on WIFCON here - /legacy/reg/b85d2ee8afc2a1f7.html

I also recommend a read of the following linked GAO decision which also references the Redbook. While not exactly on point it does touch on many of the things discussed in responses to your questions. I keep the decision around as reference for use on discussions about IDIQ's. http://www.gao.gov/decisions/appro/302358.htm

PS - Vern - If you know of decisions that update the referenced one I hope you note for both VA Junior CO and me.

The Bona Fide Needs rule. You obligate the value of the minimum at the time of contract award with the funds then currently available. (That's what the GAO says.) The Bona Fide Needs rule says you cannot obligate current-year funds for the needs of future years. Thus, you cannot order any part of the minimum, which is funded with appropriations available in the year of the award, to satisfy the need of a later year, and you cannot order the current year's need in future years, unless you can show that the order is for the bona fide need of the year of contract award, which might be hard to do.

Vern,

Let's say an agency awards a five-year IDIQ contract with a contract minimum of $50,000. At the time of contract award, they anticpate being able to meet the contract minimum. In the first year, they issue orders totaling $20,000. After the first year, they don't issue another order for the life of the contract.

Did the agency violate the Bona Fide needs rule?

No.

No.

Right. My point is this: just because an agency fails to order the contract minimum in the first year of an IDIQ contract, that does not mean that they have violated the Bona Fide Needs rule. Another example would be if an agency failed to order the contract minimum in the first year of an IDIQ contract, but met the minimum in subsequent years by issuing orders and obligating current year funds (i.e., funds available at the time the order was issued). Again, no Bona Fide Needs rule violation.

Right. My point is this: just because an agency fails to order the contract minimum in the first year of an IDIQ contract, that does not mean that they have violated the Bona Fide Needs rule. Another example would be if an agency failed to order the contract minimum in the first year of an IDIQ contract, but met the minimum in subsequent years by issuing orders and obligating current year funds (i.e., funds available at the time the order was issued). Again, no Bona Fide Needs rule violation.

I'm afraid that your post is going to confuse VA Junior CO and perhaps others.

When an agency awards an IDIQ contract, the contract must stipulate a minimum quantity. Such stipulation creates an obligation of appropriated funds, and the agency must have funds to cover it and record an obligation at the time of award. The GAO disucsses that in the Red Book, Vol. II, Ch. 7. The agency can use the funds that cover the minimum only to buy the bona fide needs of the fiscal year in which the contract was awarded (or, in the case of services, the bona fide needs of the first 12 months of the contract). See the Red Book, Vol. I, Ch. 5.

In order to address your $50,000/$20,000 scenario, suppose that an agency awards an IDIQ contract with a five year ordering period and a $50,000 minimum. At the time of contract award, what does the contract say about when the agency will buy the minimum? There are three possibilities: (1) that it will buy the minimum during the first year or 12-month period, (2) that it will buy the minimum over the course of the five-year ordering period, or (3) that it does not say, one way or the other.

There is no problem with (1), but if the contract says that then the agency must do that or breach the contract, unless it terminates the contract for convenience.

The contract cannot say (2), because that would be inconsistent with the Bona Fide Needs rule, since the funds obligated to cover the minimum can be used to buy only the bona fide needs of the first year or 12-month period of the contract. They cannot be used to buy the needs of years two through five. If the agency obligated $50,000 to cover the minimum intending to buy less than that during the first year and to buy the rest during years two through five, then it would have engaged in a deception. The GAO frowns upon that kind of thing.

In the case of (3), the government will have made no promise to the contractor about when it will buy the minimum and could fulfill its contractual obligation over the course of the five years. Still, the funds obligated to cover the minimum can be used to buy only the bona fide needs of the first year or 12-month period. Thus, if the agency sets a minimum of $50,000 and buys only $20,000 in the first year, it must deobligate the remaining $30,000 and purchase the balance with the funds of other years. If it deobligates the funds too late to use them to make other buys before the end of the fiscal year, it will lose the funds. If the agency buys only $10,000 in the second year, it will have to repeat that procedure in order to buy the remaining $20,000. What sense would that make?

You cannot violate the Bona Fide Needs rule by not buying anything. But obligating funds to cover a minimum with no intention of buying the entire minimum during the first year or 12-month period is either stupid or unethical and couild lead to criticism from an IG or the GAO. Who needs that?

You asked why an agency must buy the minimum during the first year. While I understand your point, I still maintain, for the reasons stated above, that a CO must buy the minimum during the first year of the ordering period. Or at least plan to do so. It cannot say that it plans to buy the minimum over the course of a two or more years.

Vern,

I don't disagree with what you wrote in your last post. I just disagreed that an agency's failure to order the contract minimum in the first year results in a violation of the Bona Fide Needs rule, per se. I think you agree with me on that point.

Vern - In your last post would all conclusions still be the same if the agency had "No Year Funds" that obligated the minimum and/or if the contract 5 year ordering period started on January 1 rather than October 1?

Vern - In your last post would all conclusions still be the same if the agency had "No Year Funds" that obligated the minimum and/or if the contract 5 year ordering period started on January 1 rather than October 1?

If the agency funds the minimum with no-year funds, then it need not buy the minimum in the first year.

I'm not sure that I understand the question about January 1. If the purchase is for supplies, and if the agency is using annual funds, then it would have to buy the minimum not later than the September 30 following the beginning of the ordering period. But if the purchase is for services, the agency would have 12 months in which to order the minimum, in accordance with FAR 37.106.

The Govt. does not need to fully fund the minimum if the contract and fiscal law allows for incremental funding beyond the 1st year (e.g., R&D funding). However, the Govt. still needs to comply with fiscal law so that the funding is reasonably pro-rated across the fiscal years in which the effort is being performed. For example, if 50% of the effort would be completed in the 1st year and 50% in the 2nd year, one should not provide only 20% of the funds in the 1st year and 80% of the funds in the 2nd year as you would be using later-year funding to pay for prior year effort.

The key point is that the conditions of the minimum must be clearly stated in IDIQ contracts (as always) and even more explicit when the initial ordering period is longer than 1 year. An auditor looking in from the outside may wonder if spreading the minimum over a longer-than-one-year ordering period is simply a multi-year contract by another name. Clear contract language that complies with fiscal law and expressing your minimum in terms of a quantity unit of supply/service vice a dollar amount can easily avoid this appearance of "multi-year" abuse. A simpler solution is simply plan to limit, buy, & fund your miminum in the first year (which is what Vern reminded all of us about earlier in this thread). It should be a rare circumstance that you would want to, and fiscal law will allow you to, have a minimum ordered piecemeal across a longer-than-12-month period. It does make for an interesting academic discussion though.

The Govt. does not need to fully fund the minimum if the contract and fiscal law allows for incremental funding beyond the 1st year (e.g., R&D funding). However, the Govt. still needs to comply with fiscal law so that the funding is reasonably pro-rated across the fiscal years in which the effort is being performed. For example, if 50% of the effort would be completed in the 1st year and 50% in the 2nd year, one should not provide only 20% of the funds in the 1st year and 80% of the funds in the 2nd year as you would be using later-year funding to pay for prior year effort.

Please prove the things that you said above. Cite authority, e.g., the GAO Red Book or the DOD Financial Management Regulation.

Do you know of an example of an incrementally funded minimum quantity on an IDIQ contract? In order to incrementally fund a minimum, do you have to order the minimum simultaneously with contract award? If not, how do you place in the schedule the information required by paragraphs (a) and ( of the Limitation of Funds clause? Can you incrementally fund an IDIQ contract, or do you have to incrementally fund orders placed thereunder?

Incentivize Me:

I want to be explicit about my interest in your statement. It strikes me as odd to say that a CO can incrementally fund a contract minimum. As I think we all know, an IDIQ contract must stipulate a minimum purchase quantity or dollar amount. The GAO considers the stipulation of a contract minimum to be an obligation of funds at the time of award, so an agency must record an obligation at the time of award and have enough money on hand to purchase the minimum or risk a violation of the Anti-Deficiency Act. This is discussed in the Red Book, Vol. II, Ch. 7.

You said: "The Govt. does not need to fully fund the minimum if the contract and fiscal law allows for incremental funding beyond the 1st year (e.g., R&D funding)."

I find that interesting, and wonder if it is true. I would expect an agency awarding an IDIQ contract for R&D to express the minimum as a dollar amount, not a quantity. I would not expect that minimum to reflect the estimated cost of any particular task. I would expect tasks and estimated costs to be specified in task orders.

Let's suppose that an agency awards an R&D task order contract and stipulates a minimum of $1,000,000, with tasks to be specified and ordered after award. Given that the minimum does not reflect the value of a particular task, how do you incrementally fund it? How do you incrementally fund a mere dollar amount? The Limitation of Funds clause clearly contemplates the funding of a particular task to completion or level of effort, for which an estimated cost has been established, which will be funded in increments. The clause expressly refers to the "estimated cost." The clause states that the contractor has promised to make its best efforts "to perform the work specified in the Schedule... within the estimated cost." How does any of that apply to a mere dollar amount that is not attached to any particular work? Are you saying that the minimum dollar amount is an estimated cost? If so, an estimated cost of doing what, specifically?

I believe that you can incrementally fund a task order, but I was surprised by your firm assertion that an agency can incrementally fund a contract minimum that does not reflect the estimated cost of any particular work. So I eagerly await your citation of a source or sources in support of the proposition that an agency can incrementally fund a dollar amount that does not reflect the estimated cost of specific work--that, or a more complete deductive argument.

VA Junior CO - Since one of Vern's posts referenced my name I thought I might as well chime in noting that Don and Joel have too. Two thoughts to help confirm Vern?s posts and assist for the future.

I also recommend a read of the following linked GAO decision which also references the Redbook. While not exactly on point it does touch on many of the things discussed in responses to your questions. I keep the decision around as reference for use on discussions about IDIQ's. http://www.gao.gov/decisions/appro/302358.htm

Thank you very much for this, this discussion is exactly what I needed to see to really understand how an IDIQ can be a multiple year contract. While it might be plainly clear to veteran contract officers, there is nothing in FAR part 16 that infers that an IDIQ can have a multiple year period.

Point in fact, the definition in FAR 17.103 for multi-year contracting makes the following statement.

The key distinguishing difference between multiyear

contracts and multiple year contracts is that multi-year

contracts, defined in the statutes cited at 17.101, buy more

than 1 year?s requirement (of a product or service) without

establishing and having to exercise an option for each program

year after the first.

Doesnt the above statement say. a multiple year contact requires the use of options?

It has'nt been until seeing input from GAO or Cibinic & Nash that multiple year contracting takes on a different definition.

B-302358, Bureau of Customs and Border Protection--Automated Commercial Environment Contract, December 27, 2004

[12] Using a no-year appropriation, Customs entered into a multiple year contract, covering a period of five years. As discussed above, Customs did not incur a 5-year financial obligation, however. At the time of award, Customs incurred an obligation only for the25 million of supplies and services that it had agreed to purchase; during the 5-year contract period, Customs would incur additional obligations whenever it might place an order for additional supplies or services, and would charge the new obligations to appropriations available at that time.

At some point after fiscal closeout I am going to investigate what a no-year appropriation is.

VA Junior CO:

Trying to discuss this with you is like trying to discuss particle physics with someone who never heard of atoms.

The length of a contract is limited by (a) the nature of the requirement, ( funding, and ? laws and regulations like the Service Contract Act and FAR 16.505?(1). The definition in FAR 17.103 that you quoted does not say that you have to have options. It merely describes the difference between two kinds of contracts. If you know that you'll have a continuing need for five years, the only reason to use options for years two through five is that you do not have funds for those years at the time of award. When you use an IDIQ contract you don't have to worry about that, because after you buy the minimum you make obligations when you issue orders, as funds become available. In other words, you don't buy more than one year's requirement when you award an IDIQ contract. You buy only the minimum, which, as I discussed above, you must buy with the funds available in the year of award.

There is nothing in FAR that prohibits an IDIQ contract from having a five year ordering period. Why do you think they put a statement in FAR 16.505?(1) limiting the ordering period for advisory and assistance services to five years, if you can't have an IDIQ contract with an ordering period of more than one year?

Go away. Read. Study. Think. Come back in a couple of years.

And by the way, the reason that there is nothing in FAR that "infers" anything about the period of multiple year contracts is that FAR is not a rational animal and thus cannot make inferences. Check your dictionary.

I apprecitate the time taken to explain this, even when it tries ones patience.

I'd like to add to this thread with the following scenario...

Background:

1. I work for the Navy so the DFARS and Navy policy and regulation apply.

2. I want to award an indefinite delivery, indefinite quantity contract for severable services with a 5 year effective period.

3. The contract schedule specifies a minimum of $10,000.00 and a maximum of $50 million over the 5 year effective period.

4. My minimum is funded/obligated at the time of award using annual operations & maintenance, navy (O&M,N) appropriations.

5. Given that my $50 million estimate is based on prior years' usage ($10 million more/less per year for the past five years), it is reasonable to expect that the $10,000.00 minimum will be ordered well within the first year of the effective period (the first few weeks, most likely).

It should also be noted that the contract anticipates the placement of several task orders (with individual values ranging between $5K and $100K), all funded with annual appropriations with none of the orders having a performance period in excess of 1 month.

I'm being advised that I cannot have a five year effective period for this contract because DFARS 237.106(2) states "the contracting officer may enter into a contract, exercise an option, or place an order under a contract for severable services for a period that begins in one fiscal year and ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed DOES NOT EXCEED ONE YEAR" (emphasis mine).

Apparently, my five year effective period runs afoul of the "does not exceed one year" portion of the DFARS even though I will, in all likelihood, meet the minimum well before one year of the contract goes by.

The best I'm being offered is a one year base with one 4 year option...and once the minimum is actually ordered, I can deobligate the original funds and also exercise the option.

To me, this smacks of an unnecessary work-around, but the rules seem clear.

Unfortunately, my admittedly limited research skills (a quick search of the GAO website and WIFCON) hasn't revealed any ready answer to this problem so I'd appreciate any assit.

Tx,

NavyKGuy

I say that DFARS 237.106(2) applies to orders in your case, but not the contract. Saying that applies to an IDIQ contract, which doesn't involve the obligation of funds, doesn't make sense.

... an IDIQ contract, which doesn't involve the obligation of funds ...

It's my understanding, and experience, that the minimum is obligated at award of an IDIQ.

This is easy to see when a Sample Delivery Order is used to Solicit bids, and then is awarded at the same time as the overall IDIQ, in the form of an actual Deliver Order.

But even when no deliveries are ordered at the time the IDIQ "framework" is awarded, that minimum amount is still obligated. Customers may not like to commit, then obligate, funds against a "possible" future need. But without consideration, a contract cannot be formed. If they don't want to commit funds, they can commit to placing all orders against that contract, a different form of consideration, for a slightly different type of contract. Or, with no consideration, it can simply be a FAR 16.7 Agreement in anticipation of a subsequent contract, perhaps in the form of calls/ orders.

.

I have also believed that a service contract could not exceed one year period. Maybe I was wrong.

37.106 -- Funding and Term of Service Contracts.

(a) When contracts for services are funded by annual appropriations, the term of contracts so funded shall not extend beyond the end of the fiscal year of the appropriation except when authorized by law (see paragraph ( of this section for certain service contracts, 32.703-2 for contracts conditioned upon availability of funds, and 32.703-3 for contracts crossing fiscal years).

( The head of an executive agency, except NASA, may enter into a contract, exercise an option, or place an order under a contract for severable services for a period that begins in one fiscal year and ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed does not exceed one year (10 U.S.C. 2410a and 41 U.S.C. 2531).. Funds made available for a fiscal year may be obligated for the total amount of an action entered into under this authority.

© Agencies with statutory multiyear authority shall consider the use of this authority to encourage and promote economical business operations when acquiring services.

It's my understanding, and experience, that the minimum is obligated at award of an IDIQ.

Yes but there's no period of performance associated with it.

Formerfed/Brian/Rodolfo,

Thanks for your thoughts.

I believe that Formerfed's contention "I say that DFARS 237.106(2) applies to orders in your case, but not the contract. Saying that it applies to an IDIQ contract, which doesn't involve the obligation of funds, doesn't make sense" is incorrect because it is based on the erroneous assumption that an IDIQ doesn't involve the obligation of funds.

I support this belief via the following statement from the General Accounting Office (B-318046, July 7, 2009): "In the case of an IDIQ contract, the agency must record an obligation in the amount of the guaranteed minimum at the time the contract is executed because, at that point, the government has a fixed liability for the minimum amount to which it committed itself. B-308969, May 31, 2007; B-302358, Dec. 27, 2004."

I think that my problem is that I am proposing to use annual appropriations (or "an appropriation limited to obligation for a definite period" which "may be obligated only to meet a legitimate or bona fide need arising during the period of availability of the appropriation" (B-289801, Dec. 30, 2002)) to meet a liability which exists over a 5 year period.

Despite the likelihood that my funds will be expended within the period of the availability of the appropriation (i.e. within the first few weeks of the contract or, better yet, the same fiscal year as the annual appropriation), the fact that they might not be is the source of my dilemma.

Working thru this, the 1-year base period w/ one 4-year option approach is starting to make sense.

Thoughts?

Thanks again for everyone's help,

NavyKGuy

NavyKGuy:

You are wrong.

The purpose of the DFARS 237.106(2) is to ensure compliance with the Bona Fide Needs rule. The Bona Fide Needs rule is explained in Principles of Federal Appropriations Law, Vol. 1, 3d ed., Ch. 5.

Although stated in DFARS 237.106(2) in terms of "contract," the rule applies to an instrument of obligation. No contract for severable services that is funded with an annual appropriation may extend for more than 12 months, because to do so would violate the Bona Fide Needs rule.

Under an IDIQ task order contract, the instrument of obligation is an order, which is the purchase of work. Even when the obligation for the minimum is recorded on the contract itself, any obligation must ultimately be associated with a task order, including the obligation to cover the minimum. If a task order is for severable services, and if it is funded with an annual appropriation, then the period of performance may not exceed 12 months in length.

DFARS 237.106(2) does not limit the ordering period [see FAR 52.216-18(a)] or the effective period [see FAR 52.216-22(d)] of an IDIQ contract. It limits only the performance period of orders for severable services issued under the contract. However, in order to comply with the Bona Fide Needs rule, the amount obligated at the time of award must be used to fund an order which begins within the fiscal year for which the funds were appropriated, and if the order is for severable services it may not exceed 12 months in length. You need not award a contract for one year with four one-year options.

Formerfed/Brian/Rodolfo,

Thanks for your thoughts.

I believe that Formerfed's contention "I say that DFARS 237.106(2) applies to orders in your case, but not the contract. Saying that it applies to an IDIQ contract, which doesn't involve the obligation of funds, doesn't make sense" is incorrect because it is based on the erroneous assumption that an IDIQ doesn't involve the obligation of funds.

I support this belief via the following statement from the General Accounting Office (B-318046, July 7, 2009): "In the case of an IDIQ contract, the agency must record an obligation in the amount of the guaranteed minimum at the time the contract is executed because, at that point, the government has a fixed liability for the minimum amount to which it committed itself. B-308969, May 31, 2007; B-302358, Dec. 27, 2004."

I think that my problem is that I am proposing to use annual appropriations (or "an appropriation limited to obligation for a definite period" which "may be obligated only to meet a legitimate or bona fide need arising during the period of availability of the appropriation" (B-289801, Dec. 30, 2002)) to meet a liability which exists over a 5 year period.

Despite the likelihood that my funds will be expended within the period of the availability of the appropriation (i.e. within the first few weeks of the contract or, better yet, the same fiscal year as the annual appropriation), the fact that they might not be is the source of my dilemma.

Working thru this, the 1-year base period w/ one 4-year option approach is starting to make sense.

Thoughts?

Thanks again for everyone's help,

NavyKGuy

Maybe I am reading something into your post that is not there. However, it appears you are equating an obligation of funds with an expenditure of funds. They are not the same thing. Funds must be obligated within the period of availability. However, once properly obligated, there generally is no timeframe within which they must be expended, but you must be aware of when the appropriation, including all unexpended balances of obligated funds, will be canceled.

.

Retread Fed,

what I was thinking is that the customer who has the requirement, and furnishes proof that funds are certified as available for this contract - a COMMITMENT - cannot then withdraw the funds and commit them for something else, like another contract, personnel costs, etc. if the contract has been awarded, because the funds are now OBLIGATED. I guess I never worried about how quickly funds were expended, unless there was money obligated to a contract that was not spent prior to the end of that contract.

.

Why bother with options? You don't need them with an IDIQ contract. Simply award an IDIQ contract with a five year ordering period. Stipulate that the government will order the minimum quantity during the first 12 month period and may order up to the maximum quantity over the course of the entire five year period. Then set prices for each fiscal year or for 12-month pricing periods within the five year ordering period.

As for your question: "Can we use the excess ceiling in the option year," the answer depends on how you wrote the contract. If you wrote it so that there is a maximum for each option year, then the answer is no. If you don't order the maximum in the basic period or any option year, you cannot carry the balance over into the next option year. Each option year stands on its own. Carrying over the balance into the next option year would violate the rule at FAR 17.207(f) that you must exercise an option in accordance with its terms. Since you have set a maximum for each of your options, carrying over the balance from one year to the next would increase the maximum of a following year, and thus would increase the scope of the option. Doing that would leave you vulnerable to a protest.

And by the way, the proper terminology is maximum quantity, not "ceiling.

Would this apply if the service IDIQ was not actually funded and only has estimated maximum quantities expressed in dollars? Our scenario is that we have a base + 4 option years with estimated funds for each period; funds are naturally not committed/obligated until the task order is cut. The writers of the initial IDIQ did not set a minimum, only a maximum. The base year was underutilized; however, we think we may need more than what was estimated for the first option period. Are we able to add (borrow) the unused maximum amount from a previous period to a subsequent year? Would it be legal to do a mod to decrease the max quantity on the base and move it to the option period where it's needed? If not, can you "borrow" the quantity from subsequent option periods? It's unfortunately too late to discuss the problems with the way the IDIQ was written--we just need to know what we are able to do with the monster we inherited! Thanks for any light that could be shed.

My understanding is that the contract includes a maximum quantity for each option period. You did not reach the maximum in the base year, but you think you'll exceed the maximum in the option year. You want to know if you can add the balance from the base year to the maximum for the option year. There are two issues:

1. Whether adding the balance from the base year to the option year would change the scope of the contract for the option year, making you vulnerable to protest on that basis.

2. Whether you need the contractor's agreement in order to do that.

I think that the answer to both questions is yes. I think increasing the maximum for the option year would alter the scope of the contract for the option year and make you vulnerable to protest, unless you obtain approval of a justification for other than full and open competition. I also think that you would need the contractor's agreement in order to do it. (However, I would not expect the contractor to object unless it thinks its prices are too low.)

You can try interpreting the contract such that the you can carry over the balance and get the contractor to agree. Then, if you get a protest, you could back off or fight it depending on how strong you think your position is.

My understanding is that the contract includes a maximum quantity for each option period. You did not reach the maximum in the base year, but you think you'll exceed the maximum in the option year. You want to know if you can add the balance from the base year to the maximum for the option year. There are two issues:

1. Whether adding the balance from the base year to the option year would change the scope of the contract for the option year, making you vulnerable to protest on that basis.

2. Whether you need the contractor's agreement in order to do that.

I think that the answer to both questions is yes. I think increasing the maximum for the option year would alter the scope of the contract for the option year and make you vulnerable to protest, unless you obtain approval of a justification for other than full and open competition. I also think that you would need the contractor's agreement in order to do it. (However, I would not expect the contractor to object unless it thinks its prices are too low.)

You can try interpreting the contract such that the you can carry over the balance and get the contractor to agree. Then, if you get a protest, you could back off or fight it depending on how strong you think your position is.

[/quote

Thanks so much, Vern. This is a base operating services IDIQ (a hybrid), which has a CLIN for the FFP portion and a CLIN for the task order portion...each have 4 option periods. To be honest with you, I'm not really sure how the second CLIN was even proposed (or source selection made) on, since none of the task orders were defined in the RFP. If, hypothetically, source selection was made solely on the basis of the FFP CLIN, would that change things?