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  • Question

    Can the government unilaterally de-obligate excess funds (expired or canceling) if the contract requirements have been satisfied, even though contingent liabilities may exist?


    Answer

    RESPONSE:  Yes, within the limitations of the following regulations (see below).  Before deobligating the funds, the Government shall ensure adequate, current funds are available to pay the balance due on the contract.  In this case, before executing a unilateral deobligation modification, recommend ensuring the contractor that the Government has reserved adequate funds to pay the balance due after final rates are negotiated.
     
    BASIS FOR RESPONSE:
    1.  FAR 43.103(b) defines a “unilateral change” as follows:
      "(b) Unilateral. A unilateral modification is a contract modification that is signed only by the contracting officer. Unilateral modifications are used, for example, to --
      (1) Make administrative changes;
      (2) Issue change orders;
      (3) Make changes authorized by clauses other than a changes clause (e.g., Property clause, Options clause, or Suspension of Work clause); and
      (4) Issue termination notices.”
     
    2.  FAR 43.103 further states that an “administrative change” (referenced in paragraph (b)(1) above) is “a unilateral (see 43.103 <http://farsite.hill.af.mil/reghtml/Regs/FAR2AFMCFARS/FARDFARS/FAR/43.htm?zoom_highlight=unilateral#P22_2644> (b)) contract change, in writing, that does not affect the substantive rights of the parties (e.g., a change in the paying office or the appropriation data).”
     
    3.  The deobligation of expired funds, and the reservation and reobligation of current year funds essentially meet the description of “a change in appropriation data.”
     
    4.  Therefore, deobligation of funds reasonably fits the definition of “administrative change.”  By definition, an administrative change can be executed unilaterally.
     
    5.  A review of FMR 7000.14-R provides additional insight on why the conclusion above is reasonable.
      - Within the FMR, there is no requirement for the contractor to sign a deobligation modification.
      - In addition, FMR 7000.14-R, Volume 3, chapter 10, paragraph 100302 (see below) provides the contractor assurance that even if the Gov’t deobligates the expiring funds, the Gov’t is still bound to reserve adequate funds in current year dollars in order to pay the contractor any balance due.
      --“100302  Expired Accounts
      A. Expired funds retain their fiscal year identity for five years after the time an appropriation expires (see Chapter 13, subparagraph 130208.B). Expired funds are not available for new obligations. Both the obligated and unobligated balances of expired appropriations must be available for recording, adjusting, and liquidating obligations properly chargeable to that account.
      B. Before an account closes/cancels, the affected DoD Component must identify valid unliquidated obligations subject to closure/cancellation to determine whether appropriations are available for future adjustments or payments against such obligations. Also, the DoD Component must confirm whether adequate resources are available to pay for obligations that will close/cancel with an account.”

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