What happens to the remaining funding capacity under the base period? Is ir "rolled" forward and still available after the option is exercised or are we bound to stay only within the option year funding limits?
Since we do not have all of the facts pertaining to your requirement, solicitation/contract or contractor(s), the following answer is based solely on the background and question provided. As we do not have access to the contract folder or particulars that apply to this situation, we highly recommend you consult the Contracting Officer and possibly the Legal Office.
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The three major legal provisions that concern funds execution are the: Anti-deficiency Act, Misappropriation Act, and the Bona Fide Need Rule (also known as the “time statute”). Your question and background appears to center on the Bona Fide Need rule (law), which requires appropriated funds be used only for goods and services for which a need arises during the period of that appropriation’s availability for obligation. With the assumption that your IDIQ contract is for a service requirement, the following is provided.
Services performed in the base year period of performance should be paid for with the funds from the base year, and services performed in the option year period of performance should be paid for with the funds from the option year. Generally, services are a bona fide need of the fiscal year in which the services are performed. Thus, service contracts have not normally been permitted to cover a period which involves two different fiscal years. However, two important exceptions exist to this general rule:
Nonseverable services exception: If the services produce a single or unified outcome, product or report, the services are nonseverable and the government may fund the entire effort with dollars available for obligation at the time the contract is awarded and the contract execution may cross fiscal years. A nonseverable contract is essentially a single undertaking that cannot feasibly be subdivided (Comp. Gen. Decision B-259274, 22 May 1996). The basic concept is that the government does not receive value from the service rendered until that service is completed.
Statutory exceptions: The FY98 Defense Authorization Act amended Title 10 of the U.S. Code (Section 2410a) to permit authorized DoD agencies to obligate funds available at the time of contract award to finance a severable service contract with a period of performance not to exceed 12 months. For example, the DoD agency may obligate FY 08 funds for a 12 month severable service contract that begins anytime during FY 08 and continues into FY 09. This provision of the statutes provides greater flexibility to DoD agencies and also allows for a better distribution across the year for the workload of the contracting offices supporting buying organizations. However, a Service or Defense Agency has the discretion to limit application of this exception and require subordinate activities to budget for and execute this type contract on a strictly fiscal year basis or a period less than the 12 months.
Please note, as discussed above, these actions are based on the premise of obligation AT THE TIME OF AWARD. Based on your question and background provided, your organization has already awarded the contract and performance has already started on the basic year. Therefore, your conditions at this time, do not meet the conditions for non-several services exception or the statutory exception for severable service contracts. Further, your agency’s intent was not clearly stated up front to all competitors.