In order to obligate FY13 OMA funding in the 3rd Qtr, we intend to exercise the option on a severable services contract by 28 June 2013. However, the period of performance (PoP) doesn't start until 1 Sep 2013, and runs through 31 Aug 2014 (1 year). IAW DFARS 232.703-3(b) and 10 USC 2410a, it is permissable to cross the FY as long as the PoP does not exceed 1 year. But I cannot find anywhere that addresses the issue of how soon the money can actually be obligated. By obligating on 28 June 2013, is it permissable that the PoP extend beyond 1 year from the date of obligation (to 31 Aug 2014)? Or would we have to either: (a) wait until the end of Aug 2013 to obligate or, (b) adjust the PoP to end prior to 28 June 2014?
This question is answered from two sources – the contracting side and the legal side.
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This question will be a common one given our current environment. We are being pressed to obligate our requirements now so that our agencies truly understand our budget excesses and deficiencies.
That being said -
"232.703-3 Contracts crossing fiscal years.
(b) The contracting officer may enter into a contract, exercise an option, or place an order under a contract for severable services for a period that begins in one fiscal year and ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed does not exceed 1 year (10 U.S.C. 2410a)."
Thus, on the contracting side, we can potentially find supporting acquisition legislation for obligating funds on 28 June 2013 for a period of performance from 1 September 2013 to 31 August 2013, because "the period of the option exercised does not exceed 1 year."
However, there are issues:
1 - will the financial management system allow the funds to remain in the system for over a year after obligation on the contract?
2 - do we have legal risks associated with obligating funds before the option is exercised?
a. By placing the next option year funds on the contract, the contractor may renew contracts, may turn aside other work, etc. This is a liability for the government. Options can be exercised at any time, but normally, the government does not exercise those options until directly before the option period. Option letters may be sent 60+ days before an option is exercised. Yet, the option itself is not awarded until period of performance for the option is ready to begin. An earlier option award becomes a contractual obligation; thus, rather than simply not awarding the option if current or future sequestration eliminates the funding, the option must be terminated for convenience, an expensive process.
b. A precedent may potentially be set. Has the contractor shown enough work during the period to justify continued performance and the option award? If we can say yes this year, will we have an issue the following year? And, what about the other contracts - will these other contractors not expect early option exercises also so that they can have the same opportunity to solidify their future projections?
Financial Management –
As stated above, and as supported by the DoD Financial Management Regulation (FMR), as well as the DFARS regulation cited below, one of the exceptions to the Bona Fide Needs rule (which is part of 31 USC 1502 and 10 USC 2401a), allows activities to "fully fund severable service contracts up to 12 months at any time during a FY". However, by policy, 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.
That said, the real question becomes "Does the 12-month exception to the severability funding rule start the day you obligate the funds, or can you stipulate a later PoP start date within that same FY?" To this, the DoD FMR, Vol 3, Ch 8 (080303, para) B states that, "Performance Under Contracts or Orders. Contracts entered into or orders placed for goods, supplies, or services shall be executed only with bona fide intent that the contractor (or other performing activity) shall commence work and perform the contract without unnecessary delay." Moreover, this is clearly an attempt to work around "the system" of obligating funds as soon as possible during the FY with the purpose that they are used largely in that FY (and thus limiting carryover to the next FY). If the program office desires a Q3 contact award for this severable services contract (a good idea to better protect their funds), and since it seems as if the contract paper work is in place to award on 28 June 2013, why can't the PoP simply run from 12 months starting at that point, thus establishing 28 June as the new annual contract award date for his severable service contract (vice 1 Sept)?
With regards to any FM systems limitations, that should not be an issue as the Army FM system allows for a PoP of 12 months on a severable service contract (so as long as the PoP entered does not exceed 12 months total). However, it is always best to communicate with your FM counterpart before contract award.
Contractual attempts to work around the system should be collaborated with your legal team. These individuals will be responsible for supporting any push back from the other vendors; thus, these are the individuals who should also be consulted when moving “outside the box”.