This Air Force customer says it is legal to do so. I can't find anything in the DOD FMR or any USC statute, regulation, saying otherwise. Can this MIPR be amended from an Economy Act to a Project Order, after there have been obligations and disbursements on it?
The following response is based on only the limited information provided. The underlying question presented in this situation has to do with the original requirement for issuance of the Economy Act Order. While the Financial Management Regulation (FMR) does explicitly address amendments to an Economy Act Orders, it is clear on the purpose and intent of both an Economy Act Order and a Project Order. A "project order" is a specific, definite, and certain order issued under the authority contained in 41 U.S.C. 6307. The FMR specifically articulates that “The Project Order statute 41 U.S.C. 6307 differs from the Economy Act 31 U.S.C. 1535 because it permits agencies to account for obligations for orders (encompassed in paragraph 020102) in the same manner as orders for similar work placed with commercial manufacturers and private contractors. Project orders, similar to commercial contracts, may contain special provisions and may be modified.” “The Economy Act 31 U.S.C. 1535 provides authority for federal agencies to order goods and services from major organizations within the same agency or other federal agencies and to pay the actual costs of those goods and services.” In addition, there is a requirement for a written Determination and Findings (D&F) by the requesting agency supporting the Economy Act order. This D&F must be approved by the contracting officer of the requesting agency with the authority to contract for the supplies or services ordered.
Open full Question Details
What needs to be considered is whether the original intent of the order was to purchase a specific, definite, and certain end-product (the “entire” end-item or service; not severable) which would qualify for project order financing, or simply to order supplies or services as prescribe in the Economy Act. Furthermore, to be eligible to project order financing, the effort must meet the requirement to be performed “substantially” by the servicing agency. Substantially means that the project order recipient shall incur costs of not less than 51 percent of the total costs attributable to rendering the work or services ordered. Total costs to render the work or services ordered include the cost of goods or services obtained from or provided by contractors. The recommended course of action for this matter is to refer to both your legal counsel and the contracting officer for guidance in this situation.
The following references from the FMR, Volume 11A, Chapter 2, provide insight on this discussion.
030104. Legal Authority:
A. 31 U.S.C. 1535 establishes four (4) basic conditions on use of Economy Act authorities. In accordance with the statute, the head of an agency or major organizational unit within an agency may place an order with a major organizational unit within the same agency or another agency for goods or services if:
1. Funds are available;
2. The head of the requesting agency or unit decides the order is in the best interest of the United States (U.S.) Government;
3. The agency or unit to be asked to fill the order is able to provide or get by contract the ordered goods or services; and
4. The head of the requesting agency decides that ordered goods or services cannot be provided by contract as conveniently or economically by a commercial enterprise.
0302 USES OF ECONOMY ACT ORDERS
Subject to the provisions herein, Economy Act orders may be used for any required goods, supplies or services that are appropriate and legal. Typical uses include, but are not limited to:
A. Intra-agency Support Agreements. This type of agreement typically is used for, but not limited to, base support (host-tenant) services such as: administrative services, civilian personnel services, community services, environmental compliance, fire protection, food service, health service, mail service, police service, security/guard services, warehousing, etc. Services such as testing and evaluation, and level of effort workyears may be covered by Economy Act orders.
030302. Determinations and Findings Requirements
A. Each Economy Act order must be supported by a Determinations and Findings (D&F) that the use of interagency support capabilities are in the best interest of the government and that the required goods, supplies or services cannot be obtained as conveniently or economically by contracting directly with a private source. (Refer to FAR 17.502-2(c) for D&F requirements.)
020301. Project Order. A “project order” is a specific, definite, and certain order issued under the authority contained in 41 U.S.C. 6307. When placed with, and accepted by, a separately managed DoD establishment, the project order serves to obligate appropriations in the same manner as orders or contracts placed with commercial enterprises.
0205 CONDITIONS GOVERNING ISSUANCE AND ACCEPTANCE OF PROJECT ORDERS
020504. DoD-Owned Establishment: Project orders may be issued only to DoD-owned establishments (see paragraph 020303) that have been given the authority to operate a reimbursable program in an amount equal to or exceeding the project order amount(s). Transactions between the Department of Defense and other government agencies are governed by the Economy Act 31 U.S.C. 1535. To determine whether the project order statute, rather than the Economy Act, gives the statutory authority for an intra-DoD order, determine whether the order is being placed with a DoD-owned establishment as that term is defined in paragraph 020303, above. Also, determine whether the order is “entire” under paragraph 020509, or whether the order satisfies the requirements of the Economy Act set forth in Chapter 3.
020509. “Entire” Versus “Severable”: To be eligible for project order financing, the need shall be present in the fiscal year in which the project order is issued, require a series of actions over a period of time which may cross a fiscal year, and call for work or services that are reasonably not severable between fiscal years. For instance, an order for an “entire” end-item or service would call for a single or unified outcome or product and would be one in which few, if any, benefits would accrue if the work were terminated without completion at the end of the fiscal year in which it was placed. The distinction between “entire” and “severable” may not be evident readily and, therefore, requires some judgment. The objective desired by the requesting customer shall be used in the determination. For example, if the customer supplies an item (for example, an aircraft) for overhaul or renovation and wants the entire item returned in a serviceable state, then a repair of a single component (for example, avionics, landing gear, electronics) of the item when the item consists of many components needing repair, would not be a “severable” action. Conversely, if a customer desires an automated system that consists of multiple modules and some (or all) modules can be used independent of the entire system, then each module that can be used independent of the entire system is severable. (Under this paragraph the FMR goes on to provide examples of efforts that would be consider severable in nature, and not eligible for project order financing, as well as examples of efforts in which an entire need generally exists and therefore are eligible for project order financing.)