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  • Question

    Is it possible to deobligate the funds without violating the full funding policy prior to final delivery?


    Answer

    Unfortunately, the question you asked falls within an area that will require an official response from your local Comptroller's office and legal office.
     
    However, here is information that you can use to help develop your path forward.
     
    In accordance with the Department of Defense (DOD) Financial Management Regulation (FMR):
     
    Full Funding Policy: The practice of funding the total cost of major procurement and construction projects in the fiscal year in which they will be initiated. The full funding policy requires the total estimated cost of a complete, military useable end item or construction project funded in the year in which the item is procured. If a future year’s appropriation is required for delivery of an end item, the end item is not fully funded. It prevents funding programs incrementally and provides a disciplined approach for program managers to execute their programs within cost.
     
      There are two general exceptions to the Full Funding Policy:
     
    1-  Advance Procurement (AP) funding for components or parts of an item that have long production lead times. AP funding is used routinely and extensively in the procurement of components for major end item due to manufacturing and production lead times (AP funding must be in the budget exhibit and approved by the Milestone Decision Authority and Congress prior to executing the funds).
    2-  Economic Order Quantity (EOQ) procurement, which normally occurs in programs that have been approved for multiyear procurements (MYP).
     
    In accordance with the FAR as it relates to contact funding: 
     
    FAR 32.702 (Policy) states:
    No officer or employee of the Government may create or authorize an obligation in excess of the funds available, or in advance of appropriations (Anti-Deficiency Act, 31 U.S.C. 1341), unless otherwise authorized by law. Before executing any contract, the contracting officer shall—
    (a) Obtain written assurance from responsible fiscal authority that adequate funds are available or
    (b) Expressly condition the contract upon availability of funds in accordance with 32.703-2. 
     
    FAR 32.703-1 (General) states:
    (a) If the contract is fully funded, funds are obligated to cover the price or target price of a fixed-price contract or the estimated cost and any fee of a cost-reimbursement contract.
    (b) If the contract is incrementally funded, funds are obligated to cover the amount allotted and any corresponding increment of fee.
     

    The DFARS goes on to further supplement the FAR as it relates to contract funding (specifically Fixed-price contracts): 
     
    DFARS 232.702  (Policy) states:
    Fixed-price contracts shall be fully funded except as permitted by 232.703-1
     
    DFARS 232.703-1  (General) states:
     
      (1)  A fixed-price contract may be incrementally funded only if—
      (i)  The contract (excluding any options) or any exercised option—
      (A)  Is for severable services;
      (B)  Does not exceed one year in length; and
      (C)  Is incrementally funded using funds available (unexpired) as of the date the funds are obligated; or
      (ii)  The contract uses funds available from multiple (two or more) fiscal years and—
      (A)  The contract is funded with research and development appropriations; or
      (B)  Congress has otherwise authorized incremental funding.
      (2)  An incrementally funded fixed-price contract shall be fully funded as soon as funds are available.
     
    There are also 3 Fiscal Laws that one has to be mindful of:
     
    1-  Misappropriation Act (Title 31, US Code, Sec 1301): Requires that appropriated funds be used only for the purposes and programs for which appropriation was made
    2-  Bona Fide Need Rule (Title 31, US Code, Sec 1502): Requires that appropriated funds be used only for needs or services that arise in the year(s) of the appropriation’s obligation availability period
    3-  Antideficiency Act (Title 31, US Code, Sec 1341, 1342, and 1517):

      Prohibits making or authorizing an expenditure from, or creating or authorizing an obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund unless authorized by law. 31 U.S.C. § 1341(a)(1)(A).
    -  Prohibits involving the government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law. 31 U.S.C. § 1341(a)(1)(B).
    -  Prohibits accepting voluntary services for the United States, or employing personal services not authorized by law, except in cases of emergency involving the safety of human life or the protection of property. 31 U.S.C. § 1342.
    -  Prohibits making obligations or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted by agency regulations. 31 U.S.C. § 1517(a)
    The flippant response to this question, especially knowing you’re using 3010 or Aircraft Procurement appropriation, would lead one to say NO!
     
    However as detailed above there are a few things that come into play here other than a simple de-obligation of funds under fixed-price or cost reimbursable CLINs. One must get into the budgeting and planning documentation provided to the  DoD and Congress for this effort; ensure the FAR and DFAR requirements can be met to change from the current full funding approach to an incremental funding approach {my assumption being the funding was going to be de-obligated without making adjustments (until after delivery/completion) to the target price/cost, and/or profit/fee; or the share ratios of these CLINs}; and/or would the de-obligations lead to any violations or concerns as it relates to Federal Government Contract’s Fiscal Law.  
     
    In order to determine if this de-obligation is possible, you must determine that doing so would not hamstring or contradict the program’s current or future budgeting formulation (i.e. Full Funding vice Incrementally Funding this effort). Next, you have to determine can you legally meet the requirements of the FAR and DFAR as it relates to incrementally funding this contract effort. After you have gotten over those hurdles, you have to be prudent and ensure that de-obligating and realigning this funding does not and/or would not lead to a violation of the Misappropriation Act, the Bona Fide Need Rule, and/or the
    Antideficiency Act.  
     
    As originally stated due to the many variables at play and the big picture impacts it could have on this program, I would highly recommend working with the entire acquisition team (especially the program manager, financial manager/
    Comptroller's office, and Legal office) on determining if this de-obligation is the best path forward.


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