Exercise option SAF

A couple of questions:

1. What is the period of performance for the option?

2. Are you using annual funds?

Maybe the contracting officer is the real hero in the story?  Absent his or her action, the contract would have expired and the work would have stopped.  The pedants in the office can only have this discussion because of the contracting officer's heroism -- otherwise, they would be blaming the contracting officer for letting the contract expire.  The contracting officer had a problem, and he or she saved the day.

Here is the choice:

• (A) Do a modification and add the funds to the contract, or
• (B) Declare the option exercise invalid and tell the contractor the contract is over.

Which action did the office take?

napolik said:

A couple of questions:

1. What is the period of performance for the option?

2. Are you using annual funds?

Added POP and Type of Funds

ji20874 said:

Maybe the contracting officer is the real hero in the story?  Absent his or her action, the contract would have expired and the work would have stopped.  

Here is the choice:

• (A) Do a modification and add the funds to the contract, or
• (B) Declare the option exercise invalid and tell the contractor the contract is over.

Which action did the office take?

Funded PR was received when system issues were resolved on 15 Oct 2018. Modification to add funding was issued by the Contracting Officer the same day funding was received.

That’s good.  So everything is okay, right?

ji20874 said:

That’s good.  So everything is okay, right?

Yes it's all taken care of. The office discussion is whether this course of action taken by the Contracting Officer was permitted since the funds were chargeable to the current fiscal year vs new fiscal year. Some believe it was not permissible for this reason. I disagree and wanted to hear the perspectives of the WIFCON community. Thanks for your reply.

So, you have some people in the office who are arguing that the option exercise was invalid?  Who are arguing that the contract should have expired and the work stopped?  

The people in the contracting office should be in favor of the work continuing.  Instead, people there who were not involved are having an academic discussion trying to pin blame on the contracting officer for keeping the work going.  Are they arguing that the option exercise modification and the subsequent funding modification are invalid?  If not, they really should shut up.

Maybe the contracting officer had an understanding, or maybe even an e-mail, that funds were on the way.  That would be good.  An irregularity or hiccup in the production of a purchase request should not be an excuse for a contracting officer to stop the work as part of an academic argument.  I’m supposing the contracting officer’s intentions were honorable.  If the contractor thinks the modifications are invalid, the contractor can speak for itself.

Yes. Unfortunately this has digressed to an academic discussion in my office. The Contracting Officer had an email from the Budget Officer stating funds were available but the PR could not be routed due to system issues.

ji20874 said:

I’m supposing the contracting officer’s intentions were honorable.

The intent only matters so much. The question is if the action was proper ( FAR 17.207(c)(1)), and FAR 32.706-1) and within the contracting officer's delegated authority (FAR 1.602-1( b )).

Case law supports the use of options subject to the availability of funds depending on certain facts; case law also maintains the exercise options subject to the availability of funds is improper (invalid), in some cases, too:

Exercise of an option before funds are made available, contingent of the availability of funds, is an invalid exercise, J.E.T.S., Inc., ASBCA 26135, 82-2 BCA ¶15,986; Lear Siegler Inc., ASBCA 30224, 86-3 BCA ¶19,155. However, exercise of an option contingent on the availability of funds is proper if that is called for in the option clause of the contract, Western States Management Servs., Inc., ASBCA 37504, 92-1 BCA ¶24,663; Cessna Aircraft Co., ASBCA 43196, 93-3 BCA ¶25,912.

The KO probably deserves an attaboy or attagirl award.

However, Rachelle, please explain and expand upon what you meant by : “because the funds were chargeable to the current fiscal year vs new fiscal year.” That hasn’t been discussed  here, unless I missed it. 

A funding delay may again be a problem next October.  By “system issues”, you might be referring to delays in apportioning, allocating and processing distribution of appropriations that are not uncommon in some agencies right after the start of a fiscal year. 

Other options might be to have the parties bilaterally agree to an extension of the government’s right to exercise the next option or to bilaterally modify the option clause to  allow the government to issue the future options contingent to the availability of funds, per above ASBCA Decisions. Also, please note that in the above cited Cessna Decision, the timing was such that the funds were appropriated but not apportioned or allocated when the government exercised the option. 

See also the Appeal of the above  Cessna Aircraft ASBCA Decision at : https://caselaw.findlaw.com/us-federal-circuit/1233502.html

Was there a break in service until the funding was put on contract? Or did the Contractor continue performance beginning on October 12th? 

I suggest You ask for competent legal Counsel advice here. My advice is to explore now what can be done next October when the same problem will likely occur. 

At any rate the discussion has overlooked clarification of what funds were expended...

Jamaal,

So, are you arguing that the option exercise and subsequent modification were invalid, and should be revoked?

RachelleR,

The FAR allows for a simple letter or telegram notice of award, to be followed later with the formal award.  Such notice of award is official and binding immediately, and yet is done before (days or weeks before) the production of the formal award document.

Perhaps the pedants in your office can choose to look upon—

• the option exercise as a notice of award (based on the contracting officer’s possession of an e-mail attesting to funds availability); and
• the subsequent funding action as the formal award?

The notice of award process was more commonly used in the old days, when it took time to assemble and print and distribute a contract document.  It is still a legal and honorable process that has fallen into disuse because of desktop publishing capabilities that we all have.

RachelleR said:

The office discussion is whether this course of action taken by the Contracting Officer was permitted since the funds were chargeable to the current fiscal year vs new fiscal year.

Earlierr you said 

On 11/10/2018 at 6:11 AM, RachelleR said:

Scenario: Contract was awarded for base year and 2 option years that begin and end in October each year (Base Year, 12 Oct 2017 - 11 Oct 2018; Option Year 1, 12 Oct 2018 - 11 Oct 2019; Option Year 2, 12 Oct 2019 - 11 Oct 2020). Funding is O&M. Contracting Officer was prepared to exercise option year 1. Due to system issues Budget Officer was unable to route a PR to Contracting on the last day of the base year period of performance.

You are OK if the contracting officer exercised the option SAF in anticipation of use of FY 19 annual funds for period 12 Oct 2018 - 11 Oct 2019.

ji, the DoD and my former Agency’s contracting and Financial (CEFMS) and contracting software systems and accompanying rules and regulations might not allow a KO to issue an award by letter or telegraphic ( or other electronic) means, except in a combat or emergency/contingency operation. 

Someone else in my former agency can feel free to explain or rebut me. 

The reasons likely have to do with the automated systems being able to track all obligations in real time against valid funding and reeling in the rogues and others that haven’t always followed up their actions. It’s true that the government should be able to control and track all obligations in real time.

I have seen where DoD pulled back (proper term?) various committed but unobligated funding for other needs.  

I just don’t know if that the various systems allow an award prior to certification of available funds. Someone who circumvents those systems can find their butts in a crack (pun intended). 

Of course, the unmentionable elephant in the room is often whether the contractor begins performance under conditions of “subject to [subsequent] availability of funds”. 

So maybe the attaboy/girl should be unofficial. Followed by a slap on the wrist with a wet noodle.

joel hoffman said:

The KO probably deserves an attaboy or attagirl award.

However, Rachelle, please explain and expand upon what you meant by : “because the funds were chargeable to the current fiscal year vs new fiscal year.” That hasn’t been discussed  here, unless I missed it. 

A funding delay may again be a problem next October.  By “system issues”, you might be referring to delays in apportioning, allocating and processing distribution of appropriations that are not uncommon in some agencies right after the start of a fiscal year. 

Other options might be to have the parties bilaterally agree to an extension of the government’s right to exercise the next option or to bilaterally modify the option clause to  allow the government to issue the future options contingent to the availability of funds, per above ASBCA Decisions. Also, please note that in the above cited Cessna Decision, the timing was such that the funds were appropriated but not apportioned or allocated when the government exercised the option. 

See also the Appeal of the above  Cessna Aircraft ASBCA Decision at : https://caselaw.findlaw.com/us-federal-circuit/1233502.html

Was there a break in service until the funding was put on contract? Or did the Contractor continue performance beginning on October 12th? 

I suggest You ask for competent legal Counsel advice here. My advice is to explore now what can be done next October when the same problem will likely occur. 

At any rate the discussion has overlooked clarification of what funds were expended...

Good Morning, 

Some in the office have the opinion that the Clause Prescription would not have permitted the Contracting Officer to exercise the option SAF since the Clause Prescription specifically    referenced funds chargeable to a new fiscal year (FY20 in this case). The option was exercised SAF of current year funds (FY19 since it was 12 Oct 2018). The PR was certified but the Budget Officer had literal system issues that would not allow him to route the PR to the Contracting Officer on 12 Oct 2018 which is why the Contracting Officer chose to exercise Option Year 1 SAF rather than let the Contract expire. The Contractor was not authorized to perform the services and did not perform the services until the Contracting Officer modified the Contract on 15 Oct 2018 to add funding received from the Budget Officer after IT resolved their system issues. One other detail of note is 52.232-18 was properly included in the Contract at award. Thanks for your insight. Prescription is pasted below.

32.706-1 -- Clauses for Contracting in Advance of Funds.

(a) Insert the clause at 52.232-18, Availability of Funds, in solicitations and contracts if the contract will be chargeable to funds of the new fiscal year and the contract action will be initiated before the funds are available.

ji20874 said:

Jamaal,

So, are you arguing that the option exercise and subsequent modification were invalid, and should be revoked?

I don't have enough information to make a case for it being valid or invalid. What clauses are in the contract and how are they written and assigned to the option? What are the services?

I am sure there were several sound solutions to the challenge. I prefer fundamentally sound contracting over gimmicky solutions.

napolik said:

Earlierr you said 

You are OK if the contracting officer exercised the option SAF in anticipation of use of FY 19 annual funds for period 12 Oct 2018 - 11 Oct 2019.

That is exactly what the Contracting Officer did. Thanks for your input.

RachelleR said:

One other detail of note is 52.232-18 was properly included in the Contract at award.

Does this mean the contract included a special clause stating that 52.232-18 applies to the option(s)?

Jamaal Valentine said:

Does this mean the contract included a special clause stating that 52.232-18 applies to the option(s)?

No special statement was included. Is there a reason this clause would not apply to the option? Thanks for your time.

RachelleR said:

No special statement was included. Is there a reason this clause would not apply to the option? Thanks for your time.

It would remove any doubt and save an argument that seems likely in that office.

Jamaal Valentine said:

It would remove any doubt and save an argument that seems likely in that office.

I'll remember that for the next award 😂

Take a look at this thread: 

Quote

joel hoffman said:

So maybe the attaboy/girl should be unofficial. Followed by a slap on the wrist with a wet noodle.

Yep.

RachelleR said:

Good Morning, 

Some in the office have the opinion that the Clause Prescription would not have permitted the Contracting Officer to exercise the option SAF since the Clause Prescription specifically    referenced funds chargeable to a new fiscal year (FY20 in this case). The option was exercised SAF of current year funds (FY19 since it was 12 Oct 2018). The PR was certified but the Budget Officer had literal system issues that would not allow him to route the PR to the Contracting Officer on 12 Oct 2018 which is why the Contracting Officer chose to exercise Option Year 1 SAF rather than let the Contract expire. The Contractor was not authorized to perform the services and did not perform the services until the Contracting Officer modified the Contract on 15 Oct 2018 to add funding received from the Budget Officer after IT resolved their system issues. One other detail of note is 52.232-18 was properly included in the Contract at award. Thanks for your insight. Prescription is pasted below.

32.706-1 -- Clauses for Contracting in Advance of Funds.

(a) Insert the clause at 52.232-18, Availability of Funds, in solicitations and contracts if the contract will be chargeable to funds of the new fiscal year and the contract action will be initiated before the funds are available.

RachelleR said:

That is exactly what the Contracting Officer did. Thanks for your input.

Attaboy/girl!!!!!!!! No slapping here!!!!

52.232-18 is clear; however, the clause prescription is the center of the office discussion.

What does "contract will be chargeable to funds of the new fiscal year and the contract action will be initiated before the funds are available" mean in this scenario?

In my judgment, this means the contract or CLIN (see FAR 2.101 definition of contract) will be chargeable to a new fiscal year (e.g., following, upcoming, or other than when the action is initiated) and the action will be initiated before the new fiscal year funds are available.

Does the prescription fit the scenario usage?

It could. For example, contract/CLIN is chargeable to FY 19 (12 Oct 2018, Option 1) and the contract action to exercise the option could have been initiated in FY 18 depending on option terms (e.g., first part of 52.217-9(a)).

*Surely, we all know what we would do so I am not interested in that (hopefully, that's not to wait until the day of and to read and understand our clauses) … I am merely interested in Rachelle's original post and assigning meaning to the prescription 52.232-18(a).

When discussing appropriations, the term “availability” or “available” is a term of art that means an organization has legal authority to obligate the funds in question, i.e., the prerequisites of purpose, time, and amount have been satisfied.  Per the OP, the funds were available; the PR was certified by the budget office but could not be routed through the IT system.  The fact that the budget office had technical issues routing the PR does not render otherwise available funds “unavailable.”

An appropriation is a type of budget authority that allows an agency to incur obligations and make payments out of the Treasury for specified purposes. 

Below an appropriation is the “apportionment,” which is a distribution by the OMB of amounts available in an appropriation into amounts available for specified time periods, activities, projects, or programs. The OMB apportions funds to prevent obligation at a rate that would create a need for a deficiency or supplemental appropriation.

Administrative subdivisions imposed by an agency are the third level of fiscal control.  These administrative subdivisions are divided into “formal” and “informal” administrative subdivisions.  Formal administrative subdivisions consist of allocations and allotments.  Informal administrative subdivisions are created by agencies at lower levels and are considered funding targets, or “allowances.”

The Antideficiency Act, 31 U.S.C. §§ 1341-42, 1511-19, prohibits any government officer or employee from:

    a. Obligating, expending, or authorizing an obligation or expenditure of funds in excess of the amount available in an appropriation, an apportionment, or a formal subdivision of funds.

    b. Incurring an obligation in advance of an appropriation, unless authorized by law.

    c. Accepting voluntary services, unless otherwise authorized by law.

Exceeding an allowance or other informal subdivision of funds does not violate the ADA unless to do so would also cause a formal subdivision, an apportionment, or an appropriation to be exceeded.

The purpose of 52.232-18 is to prevent a contracting officer from violating the Antdeficiency Act when it is necessary to take a contract action (e.g., contract award or option exercise) in one fiscal year but funds will not be available (i.e., they will not be appropriated, apportioned, and formally subdivided) until the next fiscal year. 

With regard to the issue raised by RachelleR’s original post, I’ll need to speculate a bit, so take the following with a grain of salt.  RachelleR stated that the budget office had certified the funds as available.  This leads me to believe that funds had been appropriated, apportioned, allocated, and allotted as needed.  However, an IT glitch prevented the routing of the funded PR.  I do not know the administrative ramifications are of routing the PR in RachelleR’s agency.  It could simply be a technical notification process with no impact on the funds at all.  But at most, it involved a transfer of funds authority between informal subdivisions, i.e., an allowance, and obligating in excess of that allowance does not implicate the ADA.

Therefore, while the KO might have committed an internal, administrative violation, the exercise of the option was valid.  It was not necessary to exercise the option “subject to availability of funds” because the funds were legally available and exercising the option did not violate the ADA.  Stating the option was being exercised pursuant to 52.232-18, while not technically accurate or necessary, did not cause any harm, assuming unbroken service was not needed.

Lionel:

Solid post! (Reminds me of a discussion I had with a lawyer about some myth-information regarding ADA)

As I read it, the OP seemed to say that funds were commited (commitment being an administrative reservation of funds in advance of an obligation). All the contracting officer needed was a written assurance from the financial authority that adequate funds were available (e.g., commited).

Lionel Hutz said:

When discussing appropriations, the term “availability” or “available” is a term of art that means an organization has legal authority to obligate the funds in question, i.e., the prerequisites of purpose, time, and amount have been satisfied.  Per the OP, the funds were available; the PR was certified by the budget office but could not be routed through the IT system.  The fact that the budget office had technical issues routing the PR does not render otherwise available funds “unavailable.”

An appropriation is a type of budget authority that allows an agency to incur obligations and make payments out of the Treasury for specified purposes. 

Below an appropriation is the “apportionment,” which is a distribution by the OMB of amounts available in an appropriation into amounts available for specified time periods, activities, projects, or programs. The OMB apportions funds to prevent obligation at a rate that would create a need for a deficiency or supplemental appropriation.

Administrative subdivisions imposed by an agency are the third level of fiscal control.  These administrative subdivisions are divided into “formal” and “informal” administrative subdivisions.  Formal administrative subdivisions consist of allocations and allotments.  Informal administrative subdivisions are created by agencies at lower levels and are considered funding targets, or “allowances.”

The Antideficiency Act, 31 U.S.C. §§ 1341-42, 1511-19, prohibits any government officer or employee from:

    a. Obligating, expending, or authorizing an obligation or expenditure of funds in excess of the amount available in an appropriation, an apportionment, or a formal subdivision of funds.

    b. Incurring an obligation in advance of an appropriation, unless authorized by law.

    c. Accepting voluntary services, unless otherwise authorized by law.

Exceeding an allowance or other informal subdivision of funds does not violate the ADA unless to do so would also cause a formal subdivision, an apportionment, or an appropriation to be exceeded.

The purpose of 52.232-18 is to prevent a contracting officer from violating the Antdeficiency Act when it is necessary to take a contract action (e.g., contract award or option exercise) in one fiscal year but funds will not be available (i.e., they will not be appropriated, apportioned, and formally subdivided) until the next fiscal year. 

With regard to the issue raised by RachelleR’s original post, I’ll need to speculate a bit, so take the following with a grain of salt.  RachelleR stated that the budget office had certified the funds as available.  This leads me to believe that funds had been appropriated, apportioned, allocated, and allotted as needed.  However, an IT glitch prevented the routing of the funded PR.  I do not know the administrative ramifications are of routing the PR in RachelleR’s agency.  It could simply be a technical notification process with no impact on the funds at all.  But at most, it involved a transfer of funds authority between informal subdivisions, i.e., an allowance, and obligating in excess of that allowance does not implicate the ADA.

Therefore, while the KO might have committed an internal, administrative violation, the exercise of the option was valid.  It was not necessary to exercise the option “subject to availability of funds” because the funds were legally available and exercising the option did not violate the ADA.  Stating the option was being exercised pursuant to 52.232-18, while not technically accurate or necessary, did not cause any harm, assuming unbroken service was not needed.

Appreciate your thoughtful and informative response.

Jamaal Valentine said:

As I read it, the OP seemed to say that funds were commited (commitment being an administrative reservation of funds in advance of an obigation). All the contracting officer needed was a written assurance from the financial authority that adequate funds were available (e.g., commited).

I agree.