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    What is the true definition and intent of a no cost extension?


    1. The FAR references quoted below in pertinent part are applicable to this response.

    FAR 6.301 -- Policy
    (a) Contracting without providing for full and open competition or full and open competition after exclusion of sources is a violation of statute, unless permitted by one of the exceptions in 6.302 [Circumstances Permitting Other Than Full and Open Competition].

    (b) Each contract awarded without providing for full and open competition shall contain a reference to the specific authority under which it was so awarded. [That is, supported by a Justification pursuant to FAR 6.303 and an Approval pursuant to FAR 6.304, otherwise known as a “J&A” document.]

    FAR 43.103 -- Types of Contract Modifications
    (a) Bilateral. A bilateral modification (supplemental agreement) is a contract modification that is signed by the contractor and the contracting officer. Bilateral modifications are used to --
      (3) Reflect other agreements of the parties modifying the terms of contracts.

    FAR 52.216-7 -- Allowable Cost and Payment.
    (a) Invoicing. (1) The Government will make payments to the Contractor when requested as work progresses … in amounts determined to be allowable by the Contracting Officer in accordance with Federal Acquisition Regulation (FAR) Subpart 31.2 in effect on the date of this contract and the terms of this contract. The Contractor may submit to an authorized representative of the Contracting Officer … an invoice or voucher supported by a statement of the claimed allowable cost for performing this contract.

    FAR 52.216-8 -- Fixed Fee
    (a) The Government shall pay the Contractor for performing this contract the fixed fee specified in the Schedule.

    FAR 52.217-8 -- Option to Extend Services
    The Government may require continued performance of any services within the limits and at the rates specified in the contract. … The option provision may be exercised more than once, but the total extension of performance hereunder shall not exceed 6 months.

    FAR 52.232-20 -- Limitation of Cost
    (a) The parties estimate that performance of this contract, exclusive of any fee, will not cost the Government more than: (1) the estimated cost specified in the Schedule

    (d) Except as required by other provisions of this contract, specifically citing and stated to be an exception to this clause --
      (2)The Contractor is not obligated to continue performance under this contract (including actions under the Termination clause of this contract) or otherwise incur costs in excess of the estimated cost specified in the Schedule, until the Contracting Officer
      (i) notifies the Contractor in writing that the estimated cost has been increased and
      (ii) provides a revised estimated total cost of performing this contract.

    2. Other references cited below in pertinent part are also applicable to this response.

    A. DoD 7000.14-R (Financial Management Regulation)
    Vol 3: “Budget Execution - Available and Use of Budgetary Resources”

    Chapter 13, Section 130202. Appropriations
    A. General.
    1. Period of Availability. Budget authority may be made available for obligation for varying periods.
      b. Multiple Year Authority. Budget authority that is available for obligation for a specified period of time in excess of one fiscal year. For example, research, development, test and evaluation (RDT&E) appropriations (2 years);

    2. Phases of Availability. Annual and multiple year appropriations pass through three phases of availability.
      b. Expired Phase. The expired phase is the period of time when the appropriations are no longer allowed to incur new obligations but still available to liquidate valid obligations incurred during the unexpired phase. … Normally, this phase lasts for five years except when a law specifically lengthens this phase.

    B. GAO Decision B-235678 dated Jul 30, 1990 – Letter to The Honorable Beverly R. Byron, House of Representatives, RE: Cost-reimbursement contract between the Navy Space and Naval Warfare Systems Command (SPAWAR) and the Applied Physics Laboratory (APL) at Johns Hopkins University.
    ·  A severable service can be separated into components, each of which can be independently performed to meet a separate, recurring need of the Government.
    ·  A nonseverable service, on the other hand, involves work which cannot be separated into components, but instead must be performed as a single task to meet a need of the Government.
    ·  The type of contract does not affect the severable versus nonseverable distinction.

    3. As it pertains to a Cost-Plus-Fixed-Fee (CPFF) contract, a “no cost” contract extension would be defined as a bilateral contract modification executed in accordance with FAR 43.103(a)(3) that lengthens the contract period of performance with no increase in the estimated cost of the contract, in the fixed fee of the contract, and in the funds obligated to the contract as specified in the Schedule. Pursuant to the DoD 7000.14R Financial Management Regulation as described in reference 2A above, the remaining contract funding would still be available for liquidation (i.e., payment of invoiced expenses) during the contract extension period pursuant to clause FAR 52.216-7(a)(1), subject to the contract funding limit as prescribed by paragraphs (a) and (d) of clause FAR 52.232-20.

    4. A no cost extension of a CPFF contract for services could serve three purposes. First, a no cost extension may be required after physical completion of the work because a contractor’s approved accounting system may charge certain contract closeout activities direct to contract. Second, if work involves a nonseverable service, then a no cost extension may be necessary for the contractor to complete the work within the contract’s current estimated cost and funding.

    5. Finally, there may be a situation where the contract is for severable services, the six-month period to extend these serves in accordance with clause FAR 52.217-8 has been completed, and there is sufficient remaining “current funds” (e.g., RDT&E funding with a 2-year availability period) obligated to the contract that could be used to perform “new work” during an extended performance period. In this case, because any new work would be outside the scope of the existing contract, a J&A must first be executed pursuant to FAR 6.301 before a no cost extension to use these remaining funds for the new work could be negotiated.

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