Anti-Deficiency Act and Minimum Order on IDIQ

Have you checked whether a fiscal exception applies to your scenario? Such as stock, lead time, severable exceptions

Subject to the availability of funds, if it qualifies. If the requirement is for operation and maintenance and continuing services necessary for normal operations, you may want to take a look at FAR clause 52.232-18, described at FAR 32.703-2(a) and prescribed at 32.705-1(a). The clause provides:

Funds are not presently available for this contract. The Government's obligation under this contract is contingent upon the availability of appropriated funds from which payment for contract purposes can be made. No legal liability on the part of the Government for any payment may arise until funds are made available to the Contracting Officer for this contract and until the Contractor receives notice of such availability, to be confirmed in writing by the Contracting Officer.

I don't see anything in the FAR suggesting 52.232-18 can't be used with ID/IQ contracts. Obviously, the government needs to be careful about the contractor performing at risk, and certainly cannot accept anything performed at risk, but I don't see anything in your question to suggest that's your goal.

Why not apply SAF funds?

woop85,

Don't quite know what you mean when you say "apply SAF funds," as "subject to the availability of funds" aren't funds. In any case, is it really that wide open? Can I award any old contract "subject to availability of funds," or does the FAR restrict my ability to do that? I'm thinking of FAR 32.702, which says in part, "Before executing any contract, the contracting officer shall -- (a) Obtain written assurance from responsible fiscal authority that adequate funds are available or ( Expressly condition the contract upon availability of funds in accordance with 32.703-2." (emphasis added).

Obviously there are lots of other circumstances where the government incurs obligations subject to the availability of funds (e.g., see Cray Research, Inc. v. United States, 44 Fed.Cl. 327 (1999), where the court found that the use of options not violate the ADA where each renewal option is (1) contingent on future congressional appropriations, and (2) exercised only by the government‟s affirmative action). When awarding a new contract, I think FAR 32.702 provides the rule.

The "better solution" would be to award it subject to availability of FY 11 funds, then all you have to worry about is whether you suffer and permit performance to begin if an appropriation is not enacted in a timely manner

Stan said it better than I did. I assume the minimum guarantee language has something in it about when that would be paid out if an order not received. Since POP doesn't start until FY11, assuming earliest payout would be in FY11 and therefore using a FY11 Line of accounting that is subject to availability allows you to make your award

FAR 32.702( limits when a CO can award a contract subject to the availability of funds to the circumstance described in FAR 32.703-2, to wit:

This authority may be used only for operation and maintenance and continuing services (e.g., rentals, utilities, and supply items not financed by stock funds) --

(1) necessary for normal operations and

(2) For which Congress previously had consistently appropriated funds, unless specific statutory authority exists permitting applicability to other requirements.

Since POP doesn't start until FY11, assuming earliest payout would be in FY11 and therefore using a FY11 Line of accounting that is subject to availability allows you to make your award

My understanding is you can't award the contract subject to the availability of funds. You can initiate a contract action though permitting you to get up to award. I'm bringing this up as I've seen a lot of of people award with this language and basically tell the contractor, "you can work but you are doing so at risk as there is no guarantee you'll get paid" so you end up with a contract saying, "Contractor do X and Y and we'll pay you Z if we ever get money and if not you get paid nothing."

It looks like, in this thread, there is a practice of signing the contract but not permitting performance to begin until funds are available then you sort of pull the trigger (I'm not sure why you don't just hold off signing until funds are available though).

I always thought that awarding subject to the availability of funds was improper ,as does our Office of General Counsel, but it seemed such a common practice I've always wondered if I was just missing something or if it was just being misused.

I'd sincerely appreciate it if someone could shed some light on this issue for me.

The contract in question is for services. Dgm, why do you think you can't award the contract subject to the availability of funds? That's the primary purpose of the clause. There is no government-wide requirement that funds are available when you release a solicitation.

dgm, the reason for the rule (or at least one such reason) was stated clearly enough in DAR 1-318(a), the predecessor to 32.702 & .703 back in the day: "To effect procurements promptly upon the beginning of a new fiscal year, it may at times be necessary to initiate a procurement properly chargeable to funds of the new fiscal year prior to the availability of such funds." If performance is to begin 1 Oct (or as close to 1 Oct as possible consistent with the availability of funds), it may be unreasonable to award 1 Oct.

Scenario: A CO is preparing to execute a single-award IDIQ contract in September 2010. However, the period of performance begins, and the contract effective date, is 1 October 2010. I am well aware of the requirement that funds at least equal to the minimum guarantee need to be obligated when signing an IDIQ in order to not violate the anti-deficiency act. However, in this case, the PoP is solely in FY2011, even though the contract will be signed in FY2010. Clearly, FY2011 funds are not available yet for obligation. If FY2010 funds were to be used to meet the minimum order, it would be a violation of the Bona Fide needs rule. Thus, as I see it, the CO would either be anti-deficient or be violating the bona fide needs rule. Would making the award Subject to the Availability of Funds resolve this? Is there some better solution?

Why is the CO planning to sign the contract in September 2010 if it will be funded with FY2011 funds? Why not wait until funds are available? Why must the contract be signed in September? The only thing that will start on October 1 is the ordering period. There will be no "period of performance" until an order has been issued. Why does the ordering period have to start on October 1? Do you have to issue an order on October 1?

The reason here being that the contract provides for mission critical services and there is a desire to get it awarded so that the protest clock can be started as soon as possible.

I don't know what to say about that. Well, yes, I do, but I won't.

civ_1102,

You wrote, "I am well aware of the requirement that funds at least equal to the minimum guarantee need to be obligated when signing an IDIQ in order to not violate the anti-deficiency act." I don't believe this is a FAR-level requirement, but is probably more of an agency matter. I routinely award IDIQ contracts without simultaneously issuing task orders to obligate the contract minimums. In my agency (Forest Service), I have the entire life of the contract to do meet the minimum.

In my agency, I would have no problem awarding an IDIQ contract today (in September of 2010, FY2010) with no task order award until October of 2010 (FY2011).

Your own agency regulations requiring task order obligation of the contract minimum simultaneously with the contract award might be putting in the position you are in.

jj20874, you might want to take a look at the Red Book (GAO's Principles of Federal Appropriations Law) at 5-43 (2004 Update):

When an agency executes an indefinite-quantity contract such as an IDIQ contract, the agency must record an obligation in the amount of the required minimum purchase. At the time of award, the government commits itself to purchase only a minimum amount of supplies or services and has a fixed liability for the amount to which it committed itself. See 48 C.F.R. ?? 16.501-2((3) and 16.504(a)(1). The agency has no liability beyond its minimum commitment unless and until it places additional orders. An agency is required to record an obligation at the time it incurs a legal liability. 65 Comp. Gen. 4, 6 (1985); B-242974.6, Nov. 26, 1991. Therefore, for an IDIQ contract, an agency must record an obligation for the minimum amount at the time of contract execution.

The Red Book references the appropriations decision, Bureau of Customs and Border Protection - Automated Commercial Environment Contract, B-302358, Dec. 27, 2004.

Jacques,

Please note that I wrote, "I don't believe this is a FAR-level requirement" but suggested it might be captured in the acquisition regulations of some agencies.

I've seen that Red Book statement before, but I wasn't talking about the Red Book. The Red Book gives guidance to agency heads, and doesn't pretend to act as an agency acquisition regulation dispositive on individual contracting officers -- after all, contracting officers follow their own agency regulations. Isn't it odd that the requirement for task order issuance simultaneous with IDIQ contract award to meet the contract minimum has never worked itself into the FAR, after all these years? If the only possible interpretation of the Red Book guidance was simultaneous contract and task order issuance, and if the Red Book guidance is dispositive on executive branch agencies, then one might reasonably suppose these instructions would have been worked into the FAR. I know these instructions have worked themselves into the acquisition regulations of some agencies, but not all. If the Red Book guidance is dispositive on all federal agencies in the same way, it seems to me it would be better to deal with the implementation language at the FAR level rather than haphazardly and differently in each agency's own acquisition regulations.

"Therefore, for an IDIQ contract, an agency must record an obligation for the minimum amount at the time of contract execution." Perhaps some agencies have ways of meeting this Red Book requirement without simultaneous issuance of a task order with the IDIQ contract. Or maybe my agency chooses not to implement the Red Book guidance for some reason? I don't know, just wondering...

But I'll stand by my statement that I believe the notion we're discussing is not a FAR-level requirement.

I guess you're arguing that B-302358 is not authoritative. Do you have an argument as to why you believe it was wrongly decided? Perhaps more importantly, does your agency?

Of course, I'll let Vern speak for himself, but in Obligating Funds for Services Under IDIQ Contracts that Cross Fiscal Years: What Are the Rules?, 21 N&CR ? 42 (August 2007), discussing B-308969, May 31, 2007, he writes, "Moreover, there was nothing new about the rule that an obligation must be recorded in the amount of the minimum at the time of contract award. That is a rule of long standing, and the NBC's failure to comply is inexplicable."

Jacques,

I'm merely relating a fact that the notion that a task order obligation to satisfy the contract minimum must be issued simultaneously with the IDIQ contract is not a requirement of the FAR. Some agencies have made it a requirement in their internal agency regulations. Some have not. I cannot explain the why not.

GAO decision B-302358 is not authoritative on my agency, and I haven't posited that it was wrongly decided. This decision involved the Bureau of Customs and Border Protection, but it really isn't even authoritative for that agency. To wit, the final words of that decision: "we [the GAO] recommend that Customs take the necessary steps to ensure timely obligation of the minimum financial liability represented by IDIQ contracts" (my emphasis on the word "recommend").

jj20874, I thought you were suggesting the requirement to record the obligation was discretionary (when you said, "I routinely award IDIQ contracts without simultaneously issuing task orders to obligate the contract minimums."). Upon review, it seems you're pointing out that issuing a task order in conjunction with the award of an IDIQ is discretionary. I agree with the second. The Recording Statute, 31 USC 1501, does not require the issuance of a task order. It requires the recording of an obligation. Agencies have some discretion in how to meet the requirement to record the obligation. For instance, the Air Force encourages issuing the task order. It provides, "Recording and subsequently reporting the required obligation using anything other than a delivery or task order will result in the action not being reported in FPDS-NG." AFFARS MP5316.504(a)(2).

Thanks.

Jacques,

I'm merely relating a fact that the notion that a task order obligation to satisfy the contract minimum must be issued simultaneously with the IDIQ contract is not a requirement of the FAR. Some agencies have made it a requirement in their internal agency regulations. Some have not. I cannot explain the why not.

GAO decision B-302358 is not authoritative on my agency, and I haven't posited that it was wrongly decided. This decision involved the Bureau of Customs and Border Protection, but it really isn't even authoritative for that agency. To wit, the final words of that decision: "we [the GAO] recommend that Customs take the necessary steps to ensure timely obligation of the minimum financial liability represented by IDIQ contracts" (my emphasis on the word "recommend").

ji20874,

It's true that a task order for the contract minimum need not be issued simultaneously with the award of an IDIQ contract. However, if you don't do this, then you must record an obligation for the contract minimum on the IDIQ contract itself.

When an IDIQ contract is awarded, an obligation is created for the amount of the contract minimum. It doesn't matter if the obligation does not get recorded--the obligation still exists. By law, an agency is required to record its obligations in its books. Contract obligations are typically communicated to an agency's accounting folks by providing a copy of the contractual document that cites an appropriation and states the amount of the obligation that has been created.

If you award an IDIQ contract and do not record an obligation for the contract minimum (either on a task order or on the IDIQ contract), then the result will be that your agency will underrecord its obligations.

Lastly, it's foolish to rely solely on acquisition regulations when it comes to matters of fiscal law.

Don,

Let me re-write a couple of your paragraphs...

It's true that a task order for the contract minimum need not be issued simultaneously with the award of an IDIQ contract. However, if you don't do this, then [your agency] must record an obligation for the contract minimum on the IDIQ contract itself.

If you award an IDIQ contract and [your agency] do[es] not record an obligation for the contract minimum (either on a task order or on the IDIQ contract), then the result will be that your agency will underrecord its obligations.

I agree with these two paragraphs as re-written, changing "you" to "your agency."

Here's what NITAAC at NIH did when they awarded CIO-SP2. Award was made in Dec to the 40+ vendors. They entered Records of Call (ROCs - their funding documents) into the system, one for each vendor, in the amount of the minimum guarantee. Min guarantee language stated that it would be paid out within the FY of the contract award. They did not complete the approval process on the ROCs. When a prime received an award from Jan - Sep of that year, they deleted the ROC in the system. On 30 Sept, around 5PM, they approved the remaining minimum guarantee ROCs for those primes that had not yet received a Task Order award. Would that work in your agency?

Civ - You have started an interesting discussion regarding fiscal law regarding IDIQ's however reading the thread in total I do have two questions. Why do you need to award to start the protest clock? Could you not simply formally announce to the interested parties that you are going to award the contract on date such and such to Contractor X to start the protest clock?

I will not be around to field your response but thought I would throw these questions into the mix.

Scenario: A CO is preparing to execute a single-award IDIQ contract in September 2010. However, the period of performance begins, and the contract effective date, is 1 October 2010.

I don't understand the problem. If the effective date of the contract is October 1, 2010 you sign it now and its an FY 11 obligation. The period of performance doesn't begin until the effective date of the contract.

Formerfed, there is no problem* if FAR 52.232-18 is included and the prescription for it is met. If the award is not subject to the availability of funds, as you know it would be an obligation in advance of an appropriation, and a violation of the Anti-Deficiency Act. The government has to take some affirmative step following the availability of the funds to avoid the violation.

If you're trying to suggest that the government can avoid an obligation this year simply by saying it is next year's obligation (e.g., having a future effective date), I would take issue with that. It is, in your words, "an FY 11 obligation" only if the contract contains FAR 52.232-18 (or a clause pointing out that the government's obligation is subject to the availability of funds and the government's obligation only arises after it gives notice to the contractor following the availability of funds).

* Vern points out the motivation under the present facts is dubious.

Jacques,

Thanks. I meant FAR 52.232-18 is included.

A friend of mine as a CO once accidently signed a contract like this in in the FY end rush. He had a big stack of actions that had been reviewed and approved and were just awaiting his signature. Most involved year end funds but this one didn't, it wasn't effective until the next year and it didn't have the 52.232-18 clause.

The agency IG discovered this and said it constituted a technical violation of the Anti Deficiency Act. The IG said the agency was required to report this in a letter to the White House and Congress citing the CO's name as the resonsible party. Fortunately for him, cooler heads prevailed and nothing more happened.

In my agency, I would have no problem awarding an IDIQ contract today (in September of 2010, FY2010) with no task order award until October of 2010 (FY2011).

ji20874,

Some questions for you. Following your example--

1. When you award your IDIQ contract in September 2010, do you record an obligation of FY10 funds?

2. When you award your task order in October 2010, do you record an obligation of FY11 funds?

3. If the answer to 2 and 3 are both yes, then is it correct to conclude that the FY10 funds were never used to purchase anything?

I recommend Vern's article, Obligating Funds for Services Under IDIQ Contracts That Cross Fiscal Years: What are the Rules?, 21 Nash & Cibinic Report ? 42 (August 2007). I also recommend a decision that appears to back pedal from the implications of B-308969. The newer decision is Library of Congress--Obligation of Guaranteed Minimums for Indefinite-Delivery, Indefinite-Quantity Contracts under the FEDLINK Program, B-318046, July 7, 2009. That decision, immediately after citing to B-308969, states: "A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum. See B-317636, Apr. 21, 2009; B-308969, May 31, 2007."

While a bit of a stretch, perhaps "at the time of the obligation" means "during the same period of availability as the obligation." If so, that means the government can issue delivery orders in meeting the minimum at least during the same FY as the obligation, and apply those obligated funds toward those delivery orders. If the contract involves severable services and otherwise meets 10 USC 2410a (or 41 USC 253l), presumably orders placed during the 12 months following the award of the contract could apply those funds, but this is all speculation.

The Red Book characterizes the significance of the Library of Congress decision this way: "Of course, the bona fide needs rule applies both at the time the agency enters into the contract (i.e., the agency must have a bona fide need for the guaranteed minimum in the IDIQ contract) and when the agency subsequently places task or work orders." 2010 Annual Update, at 7-2.

Another reading of "at the time of obligation" is literal. This would suggest that the need must exist at the time of the award of the contract. If that is the case, what would be the justification for not issuing task orders sufficient to cover the minimum in conjunction with the award of the contract?

While the literal reading would not close the door to using 10 USC 2410a, it would require that the delivery order issued toward meeting the minimum be issued at the time of award, even though it could include up to 12 months of severable services that cross fiscal years.

Ignore my discussion of 10 USC 2410a. It doesn't change the period of availability; it provides an exception to the bona fide needs rule that permits paying for severable services that represent the bona fide needs of, e.g., FY01 with FY00 funds, when entering a contract that begins in one fiscal year and ends in the next. So, it's a little harder to argue that a new order placed in the next fiscal year represents the bona fide need of the prior fiscal year, solely by virtue of the fact that there is still money available to "spend down" the initial contractual obligation. There would have to be some other reason it was the bona fide need of the prior year.

Separately, what impact, if any, does the peculiar implementation of the statute have? FAR 32.703-3( provides:

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.

In parsing out contract and order, does the FAR impose an additional hurdle beyond the decisions and the statutes? Even under our contract minimum scenario, does the ORDER have to begin in the initial FY? Alternatively, is the basic the "contract" for purposes the minimum order? For IDIQ contracts I have always assumed that one assesses whether an effort is severable or entire at the order level. Wouldn't any IDIQ contract, when viewed at the level of the basic, be severable?

While many may find this thread interesting, I find it silly. Not one new piece of knowledge has come out of it. An agency did a crummy job of acquisition planning and now wants to award an IDIQ contract for a "critical" need of the next fiscal year before that year and the funds for that year arrive. Why? To start the protest clock. And the CO cannot figure out what to do. Kindergarten contracting. Honestly, it's ridiculous. That CO is probably getting paid a GS-12 or GS-13 salary.

Jacques,

Thanks. I meant FAR 52.232-18 is included.

A friend of mine as a CO once accidently signed a contract like this in in the FY end rush. He had a big stack of actions that had been reviewed and approved and were just awaiting his signature. Most involved year end funds but this one didn't, it wasn't effective until the next year and it didn't have the 52.232-18 clause.

The agency IG discovered this and said it constituted a technical violation of the Anti Deficiency Act. The IG said the agency was required to report this in a letter to the White House and Congress citing the CO's name as the resonsible party. Fortunately for him, cooler heads prevailed and nothing more happened.

How do you "accidentally" sign a contract? Maybe the same way that a doctor accidentally amputates the wrong limb. The "cooler heads" should have taken disciplinary action. That CO was nothing more than a signature factory, an empty suit. It's that very sort of thing we must fight if the "profession" is ever going to get any kind of respect.

Jacques:

I am responding to your post, post #29 of this thread, in which you wrote about the opinion provided by the GAO to the Library of Congress about obligating the minumum under an IDIQ contract. Specifically, I'm responding to the following parts of that post:

I also recommend a decision that appears to back pedal from the implications of B-308969. The newer decision is Library of Congress--Obligation of Guaranteed Minimums for Indefinite-Delivery, Indefinite-Quantity Contracts under the FEDLINK Program, B-318046, July 7, 2009. That decision, immediately after citing to B-308969, states: "A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum. See B-317636, Apr. 21, 2009; B-308969, May 31, 2007."

While a bit of a stretch, perhaps "at the time of the obligation" means "during the same period of availability as the obligation." If so, that means the government can issue delivery orders in meeting the minimum at least during the same FY as the obligation, and apply those obligated funds toward those delivery orders. If the contract involves severable services and otherwise meets 10 USC 2410a (or 41 USC 253l), presumably orders placed during the 12 months following the award of the contract could apply those funds, but this is all speculation.

The Red Book characterizes the significance of the Library of Congress decision this way: "Of course, the bona fide needs rule applies both at the time the agency enters into the contract (i.e., the agency must have a bona fide need for the guaranteed minimum in the IDIQ contract) and when the agency subsequently places task or work orders." 2010 Annual Update, at 7-2.

Another reading of "at the time of obligation" is literal. This would suggest that the need must exist at the time of the award of the contract. If that is the case, what would be the justification for not issuing task orders sufficient to cover the minimum in conjunction with the award of the contract?

While the literal reading would not close the door to using 10 USC 2410a, it would require that the delivery order issued toward meeting the minimum be issued at the time of award, even though it could include up to 12 months of severable services that cross fiscal years.

I find your statements to be very confusing and I'm not sure what you are saying. I do not read the GAO's Library of Congress opinion to depart in any way from its earlier opinions about recording obligations for IDIQ minimums. Here is the GAO's statement from Library of Congress in its entirety:

From an appropriations standpoint, an agency must record an obligation against its appropriation at the time that it incurs a legal liability, such as when the agency signs a contract committing the government to purchase a specified amount of goods or services. B-116795, June 18, 1954. See also B-300480.2, June 6, 2003, at 3 n.1. 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. A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum. See B-317636, Apr. 21, 2009; B-308969, May 31, 2007.

When a CO signs a contract, as defined in FAR 2.101, he or she obligates the agency to an expenditure of appropriated funds. He or she must have those funds in order to avoid a violation of the Anti-deficiency Act, and must record the obligation at the time of signing. When a CO signs an IDIQ contract he or she buys the minimum, whether or not he or she specifies it or directs delivery of it at that time. Thus, he or she must have funds to cover the buy, and must record the obligation.The minimum must be a bona fide need of the year for which the funds were appropriated.

Vern,

I know this thread is yielding diminishing marginal returns, so I'll try to be brief.

I agree that B-308969 & B-318046 are consistent on recording obligations.

I was thinking out loud about the bona fide needs implications of B-308969. I've concluded that to the extent B-308969 opened the door to the potential to "park funds" using the minimum obligation, the CG backed away from (at least some of) those implications with B-318046.

What remains unclear to me is how far it backed away, specially in light of 10 USC 2410a.

Vern,

I know this thread is yielding diminishing marginal returns, so I'll try to be brief.

I agree that B-308969 & B-318046 are consistent on recording obligations.

I was thinking out loud about the bona fide needs implications of B-308969. I've concluded that to the extent B-308969 opened the door to the potential to "park funds" using the minimum obligation, the CG backed away from (at least some of) those implications with B-318046.

What remains unclear to me is how far it backed away, specially in light of 10 USC 2410a.

Jacques,

I'm confused, too. Are you trying to say that, based on these decisions, an agency may obligate a large amount of FY10 funds under an IDIQ as a minimum in FY10 and use those funds to issue orders in FY11?

Don, that seemed to be the implication in B-308969 (which ignored bona fide needs), but not in B-318046. If B-308969 were decided today, I don't know how the CG could come to the conclusion it did (suggesting that the agency would have avoided any issue had it simply obligated the full amount of the $1M minimum) consistent with its statement in B-318046 that, "A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum."

The lingering question in my mind is, is there any flexibility in the language, "at the time the obligation is incurred." If there is NONE, when would you ever award the contract without simultaneously issuing orders sufficient to cover the minimum?

I don't pretend to know the answer to these questions, but let me ask you: Relying on any statute, regulation, or decision other than B-318046, do you think it would violate any fiscal law to award an IDIQ contract in FY10, record the full minimum, and, in the same FY10, issue an order paid with funds already recorded? Why or why not?

If that is acceptable, and the contract involves "severable services," what would prevent the government from paying for severable services that are properly the bona fide needs of FY11 if the contract vehicle was awarded in FY10 and was limited to 12 months, even though it crosses fiscal years? (Of course, this forces the initial ordering period on the basic IDIQ contract to be for 12 months, which is otherwise ridiculous.)

I don't pretend to know the answer to these questions, but let me ask you: Do you think it would violate any fiscal law to award an IDIQ contract in FY10, record the full minimum, and, in the same FY10, issue an order paid with funds already recorded? Why or why not?

No. Let's say an agency awards an IDIQ contract in January 2010 with a guaranteed minimum of $100K. It has a liability under the contract of $100K and must record an obligation of $100K in FY10 funds (let's assume annual appropriations). In February 2010, the agency will issue the first order for $50K under the IDIQ contract. The issuance of this order will reduce their liability under the IDIQ contract to $50K, so the agency must record a deobligation of $50K. This $50K that has been deobligated can be used to fund the February 2010 order.

If that is acceptable, and the contract involves "severable services," what would prevent you from doing the same thing within 12 months of the award of the basic, even if it crosses fiscal years?

The bona fide needs rule. Each new order under an IDIQ is a new obligation and must be funded with a current appropriation. Following the example above, let's say the agency wants to issue it's second order in October 2010 for $50K. The issuance of this order will reduce their liability under the IDIQ contract to $0, so the agency must record a deobligation of $50K. This $50K that has been deobligated is from a FY10 appropriation, so it cannot be used to fund the October 2010 (FY11) order.

This is why I posed the questions that I did in response to the following statement by ji20874:

In my agency, I would have no problem awarding an IDIQ contract today (in September of 2010, FY2010) with no task order award until October of 2010 (FY2011).

If he/she were dealing with annual appropriations, then the funds obligated to cover the minimum would never be used to buy anything. I doubt that the folks providing the funds would have "no problem" with this practice.

Don, is your answer the same if need fulfilled with the Feb 10 order did not exist at the time of the award of the basic?

Effectively, at time of award of the basic, are we saying we have a current bona fide need for at least the minimum order quantity, or are we saying that we anticipate a need for at least the minimum order quantity during the ordering period? I think B-308969 assumed the later, and B-318046 assumed the former. In other words, B-318046 seems to require the bona fide need to exist at time of award (or, at least the most restrictive reading of the decision does).

If the first, why wouldn't the bona fide need have to exist at the time the basic was awarded? If the second, why wouldn't 10 USC 2410a permit a 12 month ordering period?

Don, is your answer the same if need fulfilled with the Feb 10 order did not exist at the time of the award of the basic?

Yes.

Effectively, at time of award of the basic, are we saying we have a current bona fide need for at least the minimum order quantity, or are we saying that we anticipate a need for at least the minimum order quantity during the ordering period? I think B-308969 assumed the later, and B-318046 assumed the former. In other words, B-318046 seems to require the bona fide need to exist at time of award (or, at least the most restrictive reading of the decision does).

We are saying that we have a bona fide need of the current fiscal year for at least the minimum at contract award. In setting the minimum, we should ensure that we are reasonably certain to order the minimum during the current fiscal year.

If the second, why wouldn't 10 USC 2410a permit a 12 month ordering period?

Like I explained before, each order is a new obligation. If that obligation occurs in a fiscal year subsequent to the fiscal year in which the IDIQ contract was awarded, then it cannot be funded with the same funds that were obligated upon award of the basic IDIQ contract.

Don,

Thanks for your help. If I'm understanding you properly, there would never be a time the CG would find a fiscal law violation requiring corrective action based SOLELY on the agency's failure to have a bona fide need at the time it awarded the basic contract.

Assume an IDIQ contract with a basic 5 year ordering period and annual funds.

Scenario #1: Assume I don't actually have a bona fide need at time of award of the contract minimum. However, just as I predicted, during the same year as the obligation, new bona fide needs are identified that meet my contract minimum. According to my reading of Library of Congress, I've "violated" the bona fide needs rule. Under Scenario #1, what is the Comptroller General going to do? Presumably nothing, because I ended up having bona fide needs that met my contract minimum.

Scenario #2a: Assume I don't actually have a bona fide need at time of award of the contract minimum, but I obligate the minimum. The year is quickly coming to a close, so my options appear to be: (1) Terminate and pay the contract minimum from the funds already obligated; or (2) Keep the funds on contract, and when a delivery order is issued, use then-current funds for the DO. Under Scenario #2, what is the Comptroller General going to do? Presumably nothing. Are they going to say it was an invalid obligation at time of award? Even if they did, no corrective action is required.

Scenario #2b: It turns out I really don't need the contract minimum. If I terminate the contract, to the extent there is a balance on the contract minimum, the funds obligated at the time of the basic contract award would be used to settle up. So long as I keep sufficient original funds obligated to cover the balance remaining on the minimum, but obligate current funds at the time I issue any delivery orders, what is the CG going to do? Again, presumably nothing.

Scenario #3: Assume I don't actually have a bona fide need at time of award of the contract minimum, but I obligate the minimum. During the second year, I issue an order under the contract minimum citing last year's funds. Under Scenario #3, what is the Comptroller General going to do? Presumably, it will find two problems: (1) Point out I didn't have a bona fide need at the time you awarded the contract (true for all the above scenarios); but more importantly, (2) point out that I used the wrong year funds on the order, because the order was not the bona fide need of the year of the funds.

It doesn't seem to matter (from an enforcement perspective) whether the government has a bona fide need for guaranteed minimum at the time it awards the contract, as it appears the only time the CG would have a problem is if the government violates the bona fide needs rule later. Am I missing something?

It doesn't seem to matter (from an enforcement perspective) whether the government has a bona fide need for guaranteed minimum at the time it awards the contract, as it appears the only time the CG would have a problem is if the government violates the bona fide needs rule later. Am I missing something?

Assuming that there aren't any decisions that take exception to an agency's actions under circumstances similar to scenarios 1, 2a, and 2b (I haven't looked), then I agree with your statement.

Again, here is what the GAO said in the Library of Congress decision about obligation funds for the minimum of an IDIQ contract:

From an appropriations standpoint, an agency must record an obligation against its appropriation at the time that it incurs a legal liability, such as when the agency signs a contract committing the government to purchase a specified amount of goods or services. B-116795, June 18, 1954. See also B-300480.2, June 6, 2003, at 3 n.1. 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. A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum. See B-317636, Apr. 21, 2009; B-308969, May 31, 2007.

The contract is indefinite-delivery. The government orders when a need arises. Suppose that the government awards an IDIQ contract with a five year ordering period and a guaranteed minimum of $100,000 on 1 Oct 2011 with FY2011 funds. The government must anticipate a need during FY2011, but the need need not exist at the time of award. Moreover, it need not exist in total at any one point in time. The government can issue one or more orders against the 2011 funds as needs arise, as long as the orders cover bona fide needs of FY2011.

As for "what is the comptroller going to do," that's not a smart question. The answer is nothing, except report the misuse of funds to Congress. That's all it can ever do when it comes to funds violations.

What if a bona fide need never arises in FY2011? The agency can terminate the contract for convenience and pay its debt out of the FY2011 funds. Alternatively, it can deobligate the FY2011 funds and cover the obligation for the minimum with FY2012 funds. It will lose the FY2011 funds, and that's mismanagement, but that's all there is.

Vern, before the Library of Congress opinion, I would never have questioned your statement, "The government must anticipate a need during FY2011, but the need need not exist at the time of award." But your statement flies directly in the face of the quote immediately above it: "A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum."

The only way I have to reconcile these statements is the GAO must not have meant what it plainly said. This wasn't a decision where someone (e.g., an IG) was alleging a fiscal law violation. The point of the decision was to encourage agencies to use small minimums when the circumstances warranted them. So, it isn't completely impossible that the author of the decision hadn't really thought through the implications of the statement. Another reason to believe this is because there is really no way for the issue to come before the GAO. This was the point of my scenarios.

To be clear, I think the last two sentences from your quote of the decision in Post #43 means that, at the time of the award of an ID/IQ contract, the government must have a bona fide need (not in any unusual or forward-looking or predictive sense--literally, a bona fide need just like any other) for the guaranteed minimum. If these sentences don't mean this, what do they mean?

You have misread the Library of Congress decision. The bona fide needs rule is a use-limitation rule. Funds appropriated for a given fiscal year must be used only for the needs of that fiscal year. See the Red Book at page 5-13:

In its most elementary form?where the entire transaction (contract or purchase, delivery or other performance, and payment) takes place during the same fiscal year?the rule means simply that the appropriation is available only for the needs of the current year. A common application of the rule in this context is that an appropriation is not available for the needs of a future year.

You are interpreting Library of Congress as turning the bona fide needs rule into some kind of rule about the criteria for recording an obligation. Your interpretation turns on a single sentence in a single decision: "A valid obligation must reflect a bona fide need at the time the obligation is incurred." Note the word "reflect." In context, that word means embody or represent. An IDIQ minimum can embody or represent a need in actuality or in anticipation. Thus, the obligation of the amount of the minimum reflects a bona fide need of the fiscal year, even though the need may not exist in actuality at the moment of award. But you are interpreting that sentence to mean: A bona fide need must actually exist at the moment of award. That is not supported by the language of the decision, by any other GAO decision of which I am aware, or by the Red Book, and it is contrary to the notion of an indefinite-delivery contract.

The sole purpose of the IDIQ minimum is to furnish consideration by the making of a promise. However, there is no promise of when the minimum will be purchased. FAR 16.504(a)(2) says of the minimum: "(2) To ensure that the contract is binding, the minimum quantity must be more than a nominal quantity, but it should not exceed the amount that the Government is fairly certain to order." "Fairly certain" to order, not ready to order. See also the GAO's discussion of IDIQ contracts in its discussion about obligations in Vol. II, Ch. 7, pages 7-20 and 7-21:

An indefinite-delivery, indefinite-quantity (IDIQ) contract is a form of an indefinite-quantity contract. As with other indefinite quantity contracts, an IDIQ contract must require the government to order, and the contractor to furnish, at least a stated minimum quantity of supplies or services. FAR, 48 C.F.R. ? 16.504(a). While the agency may place orders at any time during a fixed period, actual delivery dates during that period are undefined. After award of an IDIQ contract, the government places task or delivery orders with the contractor (or contractors) as the government?s needs become definite. B-302358, Dec. 27, 2004. IDIQs have historically provided a way to expeditiously fill certain government needs. See GAO, Contract Management: Few Competing Proposals for Large DOD Information Technology Orders, NSIAD-00-56 (Washington, D.C.: Mar. 20, 2000), at 5.

What does all this signify from the perspective of obligating appropriations? As we noted at the outset, the obligational impact of a variable quantity contract depends on exactly what the government has bound itself to do. A fairly simple generalization can be deduced from the decisions: In a variable quantity contract (requirements or indefinitequantity), any required minimum purchase must be obligated when the contract is executed; subsequent obligations occur as work orders or delivery orders are placed, and are chargeable to the fiscal year in which the order is placed. B-302358, Dec. 27, 2004.

Nowhere does GAO say that an IDIQ minimum need must exist in actuality at the moment of contract award. Such a rule would be a fundamental change in the rules about IDIQ contracts. Indeed, the Library of Congress decision was written in recognition of the fact that the need may not exist in actuality at the moment of award and there may be no usage data to support an anticipation of need. One would think that if the GAO was making new law in Library of Congress it would say so, either in a decision or in the Red Book. The 2010 Red Book update treats Library of Congress as new only in the sense that it allows agencies to use $500 in the absence of a reliable basis for anticipation.

The GAO was not making new law in the Library of Congress decision. Note that at the end of the GAO's quote it cites as precedent two prior decisions: B-317636, Apr. 21, 2009 and B-308969, May 31, 2007. Neither of those decisions stands for the proposition that the minimum need must exist in actuality at the time of award. Moreover, the Red Book does not state such a proposition. When it says that an agency must have a bona fide need when it obligates funds, the emphasis is on "bona fide." It means that the minimum need for which funds have been obligated, whenever it arises in actuality, must be a bona fide need of the fiscal year for which the funds were appropriated.

Your interpretation of the Library of Congress decision is not justified by the language of the decision itself, by the language of any decision cited therein, by the Red Book, or by the history of the bona fide need rule as I know it. Thus, I say that your interpretation is unjustified and unsound.

Perhaps the bona fide need that supports the concept of an IDIQ contract where the Government is not going to immediately issue an order for the guaranteed minimum is the Government's need to have a contractor available to receive and perform orders. The guaranteed minimum is intended to cover the cost incurred by a contractor in being ready to perform. It is "insurance" for the Government and from that perspective represents a current need of the Government. The guaranteed minimum is simply the price of that "insurance."

The bona fide need rule means one thing and one thing only: You must use funds to buy the needs of the year for which they were appropriated. Period.

At the risk of incurring the wrath of Vern, I feel compelled to tease a little more out of this line of discussion. I'm not arguing about the proposition that an order for the guaranteed minimum is required to be placed at time of award of an IDIQ or that the bona fide needs rule somehow dictates the Government's determination of when to issue an order or orders for the guaranteed minimum (it does not). Maybe I'm way off base or missing something elemental, but after reviewing B-308969 and upon rereading this discussion, a recurring theme kept jumping out (and for the purposes of this discussion, I am assuming the use of annual funds):

In Post 30, Don states:

each order is a new obligation. If that obligation occurs in a fiscal year subsequent to the fiscal year in which the IDIQ contract was awarded, then it cannot be funded with the same funds that were obligated upon award of the basic IDIQ contract.

In Post 46, Vern states:

Suppose that the government awards an IDIQ contract with a five year ordering period and a guaranteed minimum of $100,000 on 1 Oct 2011 with FY2011 funds. The government must anticipate a need during FY2011, but the need need not exist at the time of award. Moreover, it need not exist in total at any one point in time. The government can issue one or more orders against the 2011 funds as needs arise, as long as the orders cover bona fide needs of FY2011.

What if a bona fide need never arises in FY2011? The agency can terminate the contract for convenience and pay its debt out of the FY2011 funds. Alternatively, it can deobligate the FY2011 funds and cover the obligation for the minimum with FY2012 funds. It will lose the FY2011 funds, and that's mismanagement, but that's all there is.

But in light of B-308969, is that really true?

In that case, the Dept of Interior set up a one-year IDIQ, period of performacne 1 July 03 to 30 June 04, with a guaranteed minimum of $1M over three years (presumably, the contract also had two 1-year option periods, although the decision does not specify this). The contract called for the contractor to provide services to design and conduct personnel security research and development tasks. Interior did not obligate any funds against the contract upon award, but instead recorded obligations (using funds received by way of interdepartmental transfers) as it placed task orders against the contract. Thus, in FY03, Interior received $175K in FY 03 funds from DOD, and recorded a $45K obligation when it issued TO 1 (presumably TO 1 had a $45K value). Shortly after the beginning of FY04, Interior received $422,454 in FY04 funds from DOD, accepted it a few days later, and a few days after that, issued TO 2 (presumably for $422,454 although that is not specified in the decision). In February 04, Interior received $291,000 of FY04 funds from DOD and issued the first amendment to TO 2, increasing its value by $291,000. In April 04, Interior received a little over $3.1M of FY04 funds from DOD and issued the second amendment to TO 2, increasing its value by the same amount. There are two more transfers that take place, but neither are relevant to this discussion.

Recap: Interior issues one TO in FY03 for $45K and obligates $45K in FY03 against it.

Interior issues one TO in FY04 (with 4 amendments) for a total of $4,847,638 and obligates $4,847,638 in FY04 against it.

Did Interior satisfy the $1M minimum? Yes.

Did Interior satisfy the $1M minimum with the correct funds? According to GAO, no.

According to the GAO, Interior should have obligated a total of $1M in FY03 funds at the time of contract award. Instead, Interior only obligated $45K of FY03, and it then

obligated $955,000 against fiscal year 2004 appropriations that it should have obligated against fiscal year 2003 appropriations. [interior] used fiscal year 2004 funds to satisfy an obligation established in fiscal year 2003. Fiscal year 2004 funds are not available to satisfy fiscal year 2003 obligations. 31 U.S.C. sect. 1502.

As a result, the GAO recommended that

ecause of its incorrect obligation of funds, [interior] must now adjust its accounts. It should deobligate $955,000 in funds obligated against fiscal year 2004 appropriations and should instead charge the obligation to fiscal year 2003 appropriations, the appropriations that were current at the time of contract award when [interior] incurred the liability for the guaranteed minimum.

Apparently, then, the guaranteed minimum is immediately established upon award of an IDIQ as a bona fide need of the FY of the award, and, from a funding perspective, it doesn't matter when orders are placed that might satisfy it - the minimum must be extinguished using funds current at the time of contract award, and it is not until you've satisfied the minimum that you start using funds current at the time of issuance of future orders. As a corollary, if you never get around to issuing an order (i.e., mismanagement perhaps), you satisfy the minimum guarantee with the funds you obligated at the time of contract award, even if the ordering period ends (and therefore the obligation to pay the piper arises) in a different FY.

Have I been missing something that was evident all along?

What do you care about "the wrath of Vern"? Give me a break.

I've been talking about the bona fide needs rule. The decision you cited is not a bona fide needs rule decision. The term "bona fide needs" does not appear in the decision. It is an Anti-deficiency Act decision. What the GAO said was that the agency incurred an obligation in FY2003 when it awarded the contract and should have recorded that obligation at that time, but did not. By not recording an oblgation at the time of the award the agency ran the risk of violating the Anti-deficiency Act. I agree with the GAO. When the agency issued orders to buy the minimum, they fulfilled a 2003 obligation with the funds of three different fiscal years: 2003, 2004, and 2005. But they could not use FY2004 and FY2005 funds to cover an FY2003 obligation. If there weren't enough 2003 funds to fulfill the obligation, then they might have been in trouble. That is not what I was talking about.

Now let's say that a CO awards an IDIQ contract with a five-year ordering period and promises to buy a minimum of $1 million. The CO anticipates a need to buy $1 million in the first year, but does not promise the contractor that he will do so, just that he will buy a $1 million during the life of the contract. The Anti-deficiency Act says that the CO cannot obligate the government in advance of appropriations and the bona fide needs rule says that the CO must use funds appropriated for the year in which the promise is made. So the CO records an obligation of $1 million using the first year's funds. Now what if a need for the $1 million does not arise in that first year. The obligation exists but there is nothing to order. Must the CO terminate the contract and pay off the contractor, even if he now anticipates that he will buy the $1 million in the second year? Must he award a new contract? I say no, because the CO did not promise to buy the $1 million in the first year. I say that the CO can deobligate the unused first year funds and fund what remains of the $1 million obligation with the funds of the second year. It would be bad management, due to the loss of the first year's funds, but there is no violation of the Anti-deficiency Act or the bona fide needs rule. If second year funds do not become available, the CO can terminate the contract for convenience and pay off the contractor with the first year's funds.

This is an academic exercise. I am not advocating this kind of thing. I am merely trying to explain my interpretation of the bona fide needs rule.

Although B-308969 did not use the term ?bona fide needs,? it should have, because, even as Jacques recognized, there is a bona fide needs issue raised by how GAO dealt with the agency?s failure to record an obligation equal to the minimum guaranteed amount. They recommended that the agency adjust its accounts by deobligating the FY04 funds it obligated for an FY04 order and to correct by obligating FY03 funds for that order.

Vern, you said that

When the agency issued orders to buy the minimum, they fulfilled a 2003 obligation with the funds of three different fiscal years: 2003, 2004, and 2005. But they could not use FY2004 and FY2005 funds to cover an FY2003 obligation.

Tell me how an order placed in FY04 is an FY03 obligation (and therefore, a bona fide need of FY03). If Interior had properly obligated the $1M of FY03 funds upon contract award, would it have applied the $955,000 of FY03 it had left at the end of FY03 against TO2 placed in FY04?l

This is an academic discussion, but so what? I went back and reviewed the ?Terms of Use? for this forum, and find no prohibition against discussing academic or hypothetical issues. What better time to discuss bona fide needs and rules pertaining to obligations than Fiscal New Year?s Eve?

Apparently, then, the guaranteed minimum is immediately established upon award of an IDIQ as a bona fide need of the FY of the award, and, from a funding perspective, it doesn't matter when orders are placed that might satisfy it - the minimum must be extinguished using funds current at the time of contract award, and it is not until you've satisfied the minimum that you start using funds current at the time of issuance of future orders. As a corollary, if you never get around to issuing an order (i.e., mismanagement perhaps), you satisfy the minimum guarantee with the funds you obligated at the time of contract award, even if the ordering period ends (and therefore the obligation to pay the piper arises) in a different FY.

parkerr,

You are making things up. There is no such rule. If an agency issues an order against an IDIQ contract in a fiscal year subsequent to the year in which it awarded that IDIQ contract, it must use funds that are current at the time the order is issued. Period. Whether or not the agency met the minimum in the fiscal year in which the IDIQ contract was awarded is totally irrelevant. From Principles of Federal Appropriations Law, Volume II, Chapter 7, p. 7-21:

In a variable quantity contract (requirements or indefinite-quantity), any required minimum purchase must be obligated when the contract is executed; subsequent obligations occur as work orders or delivery orders are placed, and are chargeable to the fiscal year in which the order is placed. B-302358, Dec. 27, 2004.

Imagine if what you wrote were really true. What would stop agencies from awarding IDIQ contracts with high minimums at the end of a fiscal year as a way to park unused funds that they would then be able to use in subsequent fiscal years? Everyone would be doing it.

Don.

I'm not making anything up; I'm just trying to understand the GAO's recommendation in B-308969, because they recommended that the agency do exactly what I described - charge FY03 funds for what looks to me like a requirement of FY04. Go to this site:

http://www.gao.gov/special.pubs/appforum20...ontract_law.pdf

Look at the table on obligational rules, and in particular, at the part about IDIQs and see what you think GAO is saying about this.

And, oh yes, the parking issue is the thing that concerned Jacques in Post 35.

parker,

You are confusing the requirement to record an obligation and placing orders. The government incurs an obligation for the guaranteed minimum at time of award. That must be recorded. If you don't have an immediate need for placing an order, you just record the obligation.

GAO said Interior did it wrong. They incurred a $1 million obligation in FY 03 and placed an order for only $45K. They were deficient by $955K for FY 03. Even though they placed more orders in FY 04, that doesn't negate they failed to meet an FY 03 obligation. Furthermoe even if they "parked" $1 million in FY 03, they can't use the balance to buy needs of FY 04.

I'm not making anything up; I'm just trying to understand the GAO's recommendation in B-308969, because they recommended that the agency do exactly what I described - charge FY03 funds for what looks to me like a requirement of FY04

No, GAO said charge FY 03 funds to fulfill the FY 03 obligation!

formerfed,

They may have incurred a $1M obligation in FY03, but according to the terms of the contract, they did not have to satisfy it by the end of FY03. They had three years. They were certainly deficient in recording the required obligation at time of contract award. Assuming that they had complied with the recording requirement, having only ordered $45K in FY03, what should have happened at the end of FY03?

formerfed,

They may have incurred a $1M obligation in FY03, but according to the terms of the contract, they did not have to satisfy it by the end of FY03. They had three years. They were certainly deficient in recording the required obligation at time of contract award. Assuming that they had complied with the recording requirement, having only ordered $45K in FY03, what should have happened at the end of FY03?

I understand that. What GAO is saying is Interior violated the Anti-Deficieny Act because they only obligated $45K against a $1 million obligation. They should have obligated another $955K at the end of FY 03. Actually they should have obligated a full $1 million at time of award.

Here's from the decision

Accordingly, on February 11, 2003, SWB incurred a legal liability of $1 million and should have obligated $1 million on that date. SWB, however, did not obligate any funds at the time of contract award. As indicated above, SWB obligated only $45,000 in fiscal year 2003 against fiscal year 2003 appropriations when it should have obligated the full amount of the minimum, $1 million. All funds obligated under the contract after the $45,000 for the first task order were obligated against fiscal 2004 appropriations. Consequently, SWB obligated $955,000 against fiscal year 2004 appropriations that it should have obligated against fiscal year 2003 appropriations. SWB used fiscal year 2004 funds to satisfy an obligation established in fiscal year 2003. Fiscal year 2004 funds are not available to satisfy fiscal year 2003 obligations. 31 U.S.C. sect. 1502. As indicated above, DOD obligated and transferred the funds that SWB used for the task orders upon SWB?s acceptance of DOD?s MIPRs. Accordingly, DOD also obligated $955,000 against fiscal year 2004 appropriations that should have been obligated against fiscal year 2003 appropriations

Once they met the minimum by the orders placed in FY 04, they should de-obligate the $1 million of FY 03 funding because the obligation for ordering the minimum was fulfilled

Don.

I'm not making anything up; I'm just trying to understand the GAO's recommendation in B-308969, because they recommended that the agency do exactly what I described - charge FY03 funds for what looks to me like a requirement of FY04. Go to this site:

http://www.gao.gov/special.pubs/appforum20...ontract_law.pdf

Look at the table on obligational rules, and in particular, at the part about IDIQs and see what you think GAO is saying about this.

parkerr,

This is what the table says for recording obligations on IDIQ contracts:

Record minimum contract amount. Amounts over the minimum are obligated as task or delivery orders are placed against the original contract. Thus, current year funds are used when placing orders above the guaranteed minimum.

This is what you said:

the minimum must be extinguished using funds current at the time of contract award, and it is not until you've satisfied the minimum that you start using funds current at the time of issuance of future orders.

Nothing in the table suggests that you can use funds obligated to cover the contract minimum on an IDIQ to place orders in future fiscal years. That is something that you incorrectly concluded from the statement in the table. Your conclusion ignores the Bona Fide Needs rule.

In light of the above, [interior] and DOD may have violated the Antideficiency Act by failing to obligate funds for the PERSEREC contract correctly. [interior] should have obligated the entire amount of the contract?s guaranteed minimum at the time of contract award against fiscal year 2003 appropriations. Likewise, DOD should have obligated the guaranteed minimum against its fiscal year 2003 appropriations. Then, once [interior] had issued task orders sufficient to exhaust the minimum, it should have charged the funds needed to cover the amounts remaining for Task Order 0002 to fiscal year 2004 appropriations. Likewise, once DOD had obligated the minimum, DOD should have obligated fiscal year 2004 appropriations for the remaining amount.

(Emphasis supplied).

Gosh folks, maybe I'm thick today, but somebody explain to me how the language above does not plainly mean that the GAO was sanctioning the use of FY03 funds to cover at least part of an obligation created by a task order issued in FY04?

And by the by, I'm not concluding anything. I'm trying to understand a GAO case that seemingly ignores the bona fide needs rule.

This is an academic discussion, but so what? I went back and reviewed the ?Terms of Use? for this forum, and find no prohibition against discussing academic or hypothetical issues. What better time to discuss bona fide needs and rules pertaining to obligations than Fiscal New Year?s Eve?

parkerr:

You read the forum rules? I'm glad, but I don't need a lecture from you about the forum rules or when it's time to discuss something. I have forgotten more posts than you have made. Besides, I'm discussing it with you, am I not? I discuss things here all the time, even when the people I'm discussing them with are dim bulbs. When I said this is an academic discussion I meant that I was not suggesting that anyone should do what I described. So, again, spare me. First you came out with that "wrath of Vern" bull, now you're reading me the rules. If you are going to approach me like that, don't bother addressing me again, because you won't get a response. I'm more than happy to discuss and debate with anybody, but I won't take any bull from someone seeking my input.

Here is the situation in the case you cited as described by the GAO:

The agency awarded a contract on 2/11/2003 with a minimum of $1 million. The contract expressly provided that the $1 million was to be fulfilled over three years. It thus appears that they did not anticipate a need for $1 million in 2003. They had a problem: they did not anticipate a bona fide need for the million in 2003, yet they made an obligation for $1 million. They could not use 2003 funds to buy the needs of future years, and they could not enter into an obligation for future year buys in advance of appropriations. So they did not record any obligation at the time of award, although they had undertaken an obligation to buy $1 million. At that point they had committted a recording violation and possible violation of the Anti-deficiency Act. They had not violated the bona fide needs rule however, because they did not use 2003 funds to buy the needs of future years.

The agency then issued an order in FY2003 for $45,000 using 2003 funds. No violation of the bona fide needs rule.

The agency then issued orders in Fy2004 for the needs of 2004 using 2004 funds. No violation of the bona fide needs rule.

Now here is what the decision was about, quoting GAO:

The request for this decision stems from a finding in the Interior Office of Inspector General report cited above. The IG reported finding a potential Antideficiency Act violation relating to contract NBCCHD030003. The report concluded that by agreeing to pay a minimum of $1 million over a 3-year period at a time before Congress had appropriated funds for all 3 years, Interior violated the Antideficiency Act, 31 U.S.C. sect. 1341(a)(1)(, because it obligated funds in advance of appropriations. Interior included an ?Availability of Funds for the Next Fiscal Year? clause in the contract, as set forth in section 52.232-19 of the Federal Acquisition Regulation. That clause provides:

?Funds are not presently available for performance under this contract beyond ___________. The Government?s obligation for performance of this contract beyond that date is contingent upon the availability of appropriated funds from which payment for contract purposes can be made. No legal liability on the part of the Government for any payment may arise for performance under this contract beyond __________, until funds are made available to the Contracting Officer for performance and until the Contractor receives notice of availability, to be confirmed in writing by the Contracting Officer.?

41 C.F.R. sect. 52.232-19.

SWB did not fill in the blank spaces specifying in the clause the last date that appropriations would be available for contract performance and the date after which no government liability would arise until additional funds were made available. The IG?s position is that without specifying those dates, the Availability of Funds clause does not protect the government from obligations beyond the fiscal year in which the contract was executed, when funds were available for the contract.

The Inspector General asks whether in awarding Contract NBCCHD030003, Interior and/or DOD violated the Antideficiency Act by agreeing to pay a minimum of $1 million over a 3-year period before Congress had appropriated funds for all 3 years.

Here is what the GAO concluded:

Although we conclude that SWB and DOD are at risk of violating the Antideficiency Act, it is not for the reason that the IG suggests. As described in the background section above, the IG concluded that by agreeing to pay a minimum of $1 million over a 3-year period[6] at a time before Congress had appropriated funds for all 3 years, SWB obligated funds in advance of appropriations and violated the Antideficiency Act, 31 U.S.C. sect. 1341(a)(1)(. However, the contract, if obligated properly as described above, does not result in the agency?s making obligations in advance of appropriations. If, as it should have, SWB had obligated the entire minimum at contract award, it would have completely satisfied the government?s initial liability under the contract. No further obligation would remain under the contract that would require an appropriation in a future fiscal year to fund it unless and until the government placed orders exceeding the $1 million minimum.

It appears that GAO said that the agency could have used FY2003 funds to buy the needs of FY2004 and future years. I hope that's not what they meant, because if they did they departed from their bona fide needs rule case law. I wrote at length about B-308969 in the August 2007 edition of The Nash & Cibinic Report: "Obligating Funds for Services Under IDIQ Contracts That Cross Fiscal Years: What Are The Rules?" 21 N&CR ? 42 (August 2007). Here are some of the things that I said:

The Government Accountability Office, in a decision requested by the Department of the Interior Inspector General, Interagency Agreements--Obligation of Funds Under An Indefinite Delivery, Indefinite Quantity Contract, Comp. Gen. Dec. B-308969, 2007 WL 1695125 (May 31, 2007), has shed some light on the rules for obligating funds against IDIQ contracts for services that cross fiscal years. Unfortunately, the decision does not clarify all issues and may cause some confusion.

***

The GAO decision appears to indicate that the NBC could properly have issued orders against 2003 funds at any time during the three-year period. But that seems to us to be inconsistent with the bona fide needs rule, which says that agencies may obligate funds only for a bona fide need of the year for which the funds were appropriated. See the GAO Redbook at 5-11 through 5-50. The Redbook at 5-11, states:

Over a century ago, the Comptroller of the Treasury stated, ?An appropriation should not be used for the purchase of an article not necessary for the use of a fiscal year in which ordered merely in order to use up such an appropriation.? 8 Comp. Dec. 346, 348 (1901). The bona fide needs rule is one of the fundamental principles of appropriations law: A fiscal year appropriation may be obligated only to meet a legitimate, or bona fide, need arising in, or in some cases arising prior to but continuing to exist in, the fiscal year for which the appropriation was made.

If the NBC contract had actually been for three years, we wonder how an order issued for services in the second or third year of the contract could be a bona fide need of the first year... Presumably, a purchase of services in the second or third year of the contract would be a bona fide need of that year and should be charged to that year's appropriation. So we wonder whether the GAO misspoke or if we do not understand the bona fide needs rule.

I then concluded, in part, as follows:

There are some summary points to be made about this case. First, the rules about Government contract funding as presented in the Redbook are very complex and are based largely on GAO decisions interpreting some statutes, mainly in Title 31 of the U.S. Code. The Redbook is a massive compilation of decisional law, and, while informative and useful, it can leave the reader uncertain about how a rule applies in a given situation. And if the GAO has not rendered an opinion about a matter, the Redbook probably does not say much about it. Thus, we have no clear statement of how the bona fide needs rule applies to IDIQ contracts that have ordering periods that cross fiscal years.

Second, since we lack a clear statement of how the bona fide needs rule applies to IDIQ contracts that cross fiscal years, agencies are probably all over the map in how they are interpreting and applying the rule. The lack of clear guidance leaves a lot of room for ?creative? contract financing.

Jacques raised the Library of Congress decision, in which the GAO said:

From an appropriations standpoint, an agency must record an obligation against its appropriation at the time that it incurs a legal liability, such as when the agency signs a contract committing the government to purchase a specified amount of goods or services. B?116795, June 18, 1954. See also B?300480.2, June 6, 2003, at 3 n.1. 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. A valid obligation must reflect a bona fide need at the time the obligation is incurred. Thus the agency must have a bona fide need for the guaranteed minimum. See B?317636, Apr. 21, 2009; B?308969, May 31, 2007.

He interpreted that to mean that the agency must have the need in actuality at the time of award. I disagreed and said that the need could exist either in actuality or in anticipation. I have twice explained how an agency could handle a situation without violating the bona fide needs rule and without terminating the contract when an anticipated need did not arise in actuality. I won't explain it again.

To me, the bona fide needs rule is simple in concept: you cannot use the funds of one year to pay for the needs of another. In my opinion, any attempt to make it say anything else is wrong.

You either get it or you don't.

Vern,

1. No bs or lecture ever intended.

2. I get the bona fide needs rule - you had me at Post 47.

That said, this "dim bulb" is finished and out.

I attended a GAO fiscal law training and asked the instructors about obligations on multiple award IDIQ service contracts. We awarded five IDIQ contracts and issued two task orders in the first year (meeting the contractual minimum for these two companies). We also obligated the contractual minimum for the remaining three contractors. The plan was to compete the service requirements amongst these five companies throughout the period of performance.

GAO stated that the minimum had to be obligated at time of award (so we wouldn?t be Anti Deficient) to each company and a task order had to be issued before those funds expired to each of the companies in order to meet the Bona Fide Needs rule. If we were using annual funds the task order had to be issued within a year. Basically they said since we didn?t issue a task order to three companies there wasn?t a Bona Fide need in the fiscal year charged.

I changed the scenario to no year funds and that gave me the entire period of performance to issue task orders. However, if one or more of the contractors never received a task order they considered that specific IDIQ contract award a violation of the bona fide needs rule.

They gave a couple of ways to get around this as long as it was properly reflected in the ordering instructions (e.g., rotate vendors until minimum awarded to all and then compete future task orders).

So, based on what they told you, an agency could award an IDIQ contract on September 30, 2010 with a minimum of $1 million, obligate FY10 funds, and then use those funds to issue orders through September 29, 2011? That's a new one.

GAO stated that the minimum had to be obligated at time of award (so we wouldn?t be Anti Deficient) to each company and a task order had to be issued before those funds expired to each of the companies in order to meet the Bona Fide Needs rule. If we were using annual funds the task order had to be issued within a year. Basically they said since we didn?t issue a task order to three companies there wasn?t a Bona Fide need in the fiscal year charged.

Listen, everybody: the whole idea behind an "indefinite" delivery "indefinite" quantity contract is that you want a contract in place in the event that you might need something at some point in time in the future. When awarding an IDIQ contract you have to promise to buy a minimum quantity in order to have consideration that binds the parties. Prudence dictates that you don't commit to a minimum unless you at least anticipate a need. However, it has happened on more than one occasion that an agency has awarded an IDIQ contract only to find that it did not need to buy anything, much less the minimum. For a discussion of this, see Cibinic and Nash, Formation of Government Contracts, 3d ed., pp. 1252 - 1253, and Administration of Government Contracts, 4th ed.. pp. 1120 - 1121. The GAO has acknowledged that the government has the right to terminate an IDIQ contract for convenience before it buys the minimum. See Southwest Laboratory of Oklahoma, Inc., B-251778, 93-1 CPD ? 368:

A stated minimum quantity in an indefinite quantity contract operates to commit the government to ordering a predetermined minimum amount of goods or services where the government's need for any greater quantity is uncertain. FAR ? 16.504(. As such, the minimum quantity forms the consideration for such a contract instrument, and without a minimum quantity there is no binding contract. See Willard, Sutherland & Co. v. United States, 262 U.S. 489 1923). However, because of the unique requirement that the government act in the interest of the society it serves, it retains a special power to terminate its contract obligations when such action serves the public interest. See United Steam-Engine Co., 91 U.S. 321 (1876); Torncello v. United States, 681 F.2d 756 (Cl.Ct. 1982). In our view, this power rests like a mantle over all the other contractual provisions in any government contract and can be summoned during the period of contract performance at any time events require such action.

I know of no decision by the GAO holding (1) that there must be an actual need at the time of contract award in order to avoid a violation of the bona fide needs rule, or (2) that failure to order the minimum by the end of the year in which funds were obligated to buy the minimum violates the bona fide needs rule. The bona fide needs rule says one thing and one thing only: You cannot use the funds of one year in order to buy the needs of a different year. You cannot violate the bona fide needs rule, which limits the uses to which funds can be put, by not buying anything.

You don't have to issue a task order before the funds expire in order to comply with the bona fide needs rule. If the GAO instructor told you that, he or she was wrong. If you award an indefinite-delivery indefinite-quantity contract with a minimum based on an anticipated need and the need does not emerge in actuality, then you cannot fulfill your obligation to the contractor, but you have not violated the bona fide needs rule. The only way to violate the bona fide needs rule is to use the funds of one year to buy the needs of a different year.

Where does it say in the FAR that you must obligate your minimum order at the time of award of the contract?

Where does it say in the FAR that you must obligate your minimum order at the time of award of the contract?

It is not stated in the FAR. It is stated in the GAO Red Book. See post 16 of this thread for the reference.

The same rule is stated in the DOD Financial Management Regulation, Vol. 3, Ch. 8, at 080504.

I know of no decision by the GAO holding (1) that there must be an actual need at the time of contract award in order to avoid a violation of the bona fide needs rule...

Perhaps this 9/19/11 decision B-321640 brings a new spin:

“An agency must consider both the Federal Acquisition Regulation (FAR) and appropriations law principles when determining its guaranteed minimum quantity.”

And

“While it is true that task orders must be funded with appropriations available at the time of the issuance of the task order, it is also true that a bona fide need must exist for the amounts obligated as the guaranteed minimum.”