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    Is it allowable to buy the long-lead procurement items with Advance Procurement (AP) funds for Low Rate Initial Production II (LRIP II) before LRIP I is exercise and before the Milestone C approval?


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    The answer to your question is: Yes, it is allowable to buy the long-lead procurement items with Advance Procurement (AP) funds for Low Rate Initial Production II (LRIP II) before LRIP I is exercised and before the Milestone C approval.  The key here is to recognize that the procurement of a weapon system, or piece of military equipment, is required to follow the full funding policy.  Regulations governing the full funding policy are found in the Office of Management and Budget (OMB) Circular A-11 and in the DoD Financial Management Regulation 7000.14-R (FMR).

     

    The FMR, Volume 2A, Chapter 1, Paragraph 010202, Section A, defines the full funding policy by stating, “A budgeting rule that requires the total estimated cost of a militarily useable end item, be funded in the fiscal year in which the item is procured.”  Neither the FMR, nor the OMB Circular A-11, make a distinction regarding what acquisition system phase the procurement is done in.  Thus, whether the procurement is for Low Rate Initial Production (LRIP) or for Full Rate Production (FRP) following Milestone C, all procurement programs are required to abide by the full funding policy.  However, FMR, Volume 2A, Chapter 1, Paragraph 010202, Section B.2 designates two (2) exceptions to the full funding policy when it says, “Exceptions to this policy are advance procurement for long lead-time items and advance economic order quantity (EOQ) procurement.” 

     

    Since the Background to your Question specifically addresses the use of advance procurement to maintain a production schedule, let us explore what advance procurement is intended to be used for.  FMR, Volume 2A, Chapter 1, Paragraph 010202, Section C.3 states, “Long lead-time procurements shall be for components, parts, and material whose lead-times are greater than the life of the appropriation (3-5 years).”  Given that statement, one could postulate that your situation is not a candidate for the use of advance procurement authority.  However, in the very next line, FMR, Volume 2A, Chapter 1, Paragraph 010202, Section C.3 says, “In some circumstances, Advance Procurement is also warranted when items have significantly longer lead-times than other components, parts and material of the same end item or when efforts must be funded in an advance procurement timeframe in order to maintain a planned production schedule.”  Therefore, it is clear that the specific scenario contained in your Question is in fact a prime contender for the use of advance procurement!

     

    Note: The FMR does provide two cautions regarding the use of advance procurement that need to be considered.  The first deals with the planning of the acquisition for the weapon system.  FMR, Volume 2A, Chapter 1, Paragraph 010202, Section C.3 states, “For new development programs, the planned production schedule should be based on a full funding basis without the use of long lead material.  Planning the program content this way provides additional flexibility should development delays arise.”  The second caution deals with congressional notification and approval for using advance procurement.  When referring to long lead-time items and EOQ procurement, FMR, Volume 2A, Chapter 1, Paragraph 010202, Section B.2 says, “Both efforts must be identified in an Exhibit P-10, Advance Procurement, for the Budget Estimate Submission and the President’s Budget request.”  In addition, FMR, Volume 2A, Chapter 1, Paragraph 010202, Section C.3 states, “The budget requests will properly debit and credit advance procurement budget requests as defined in Exhibits P-1, P-5, P-10 and P-40 instructions.”

     

    Conclusion: While it is allowable to buy the long-lead procurement items with Advance Procurement (AP) funds for Low Rate Initial Production II (LRIP II) before LRIP I is exercised and before the Milestone C approval, it is not as simple as just deciding to do it.  It will be necessary to ensure that your program’s acquisition strategy reflects the use, or is updated to reflect the use, of advance procurement and is approved by your Milestone Decision Authority (MDA).  In addition, your program’s P-1, P-5, P-10 and P-40 Exhibits will have to be updated to reflect the use of advance procurement and obtain congressional approval.

     

    Suggestions:  First, read DoD Financial Management Regulation 7000.14-R, Volume 2A, Chapter 1, Paragraph 010202, paying particular attention to Section C.4 for a discussion of Advance Procurement within the context of the full funding policy.  Second, read DoD Financial Management Regulation 7000.14-R, Volume 2B, Chapter 4, Paragraph 040402, paying particular attention to the Exhibits P-1, P-5, P-10 and P-40 for a discussion of documentation that congress requires for using Advance Procurement authority.  Third, review Lesson 2.4, slides 18-20 of 39 in DAU’s on-line BCF-220 Course (Acquisition Business Management Concepts) which provides explanations and examples of Advance Procurement. 

    Finally, we most strongly recommend that you contact your local comptroller organization, DASC, MDA, and legal counsel for more information and their policy interpretation of this issue.

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