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  • Question

    Does the bona fide need rule apply to civil works construction? How long can the work be postponed using no year funds? Indefinitely?


    Answer

    After performing extensive research, no document could be located that specifically discussed civil works funding and the bona fide needs rule relating to construction.  There is guidance on the bona fide needs and construction and how the civil works funding works, separately.  I offer you the following research that I have found and recommend that you take this and review this with contracting, resource management, legal and project management to determine a consensus opinion in moving forward.

    1. This is guidance on the bona fide need rule and how it applies to construction from DPAP and the DoD Financial Management Regulation below:

     

    DPAP.mil

    ConstructionConstruction contracts obligated and awarded late in an FY (in September, for example) must have a performance commencement date within 90 days of award. (See DoD FMR 7000.14-R, Volume 11A, Paragraph 020510.) For example, if a contract was awarded on September 15 with funds from that FY, performance must commence and invoices must be submitted by December 14 of the new FY. Typically, commencement of work can take the form of the contractor’s ordering materials and delivering them to the government and the government’s receiving/taking possession of materials that will remain in its possession rather than being stored by contractors at their business locations, land surveys, groundbreaking activities, and other such functions. The key to defining and identifying performance of work is to include the elements of work on a progress schedule that will serve as the means of allocating a percentage of work performed and invoiced.

     

    DoD FMR 7000.14-R, Volume 11A, Paragraph 020510

    *020510. Commencement of Work

    The work to be performed under project orders must be expected to begin within a reasonable time after its acceptance by the performing DoD-owned establishment or the USCG.

    A. Although work on a project order is not required to commence in the year of project order acceptance, as a minimum requirement, evidence must exist at the time of project order acceptance showing the intention that work (or procurement if required prior to the beginning of work) must (1) begin without delay (usually within 90 days) and (2) be completed within the normal production period for the specific work ordered.

    B. If work (or procurement if required prior to the beginning of work) financed from an appropriation that expired for obligation on September 30 on a project order does not begin, or is not expected to begin, before January 1 of the following calendar year, then the project order must be returned by the performing activity for cancellation. If it is documented that the delay is unavoidable and could not have been foreseen at the time of project order acceptance, and that documentation is retained for audit review, then the project order can be retained and executed.

    DoD 7000.14-R Financial Management Regulation Volume 11A, Chapter 2

    020508. Bona Fide Need - The issuing activity’s project order must serve a bona fide need that exists in the fiscal year in which the project order is issued; otherwise, a valid obligation is not accomplished. It is not intended that the bona fide need of the fiscal year rule be construed to preclude procurement leadtime. Thus, where materials, for example, cannot be obtained in the same fiscal year in which they are needed and contracted for, a provision for delivery in the subsequent fiscal year does not violate the bona fide need rule so long as the time intervening between contracting and delivery is not excessive and the procurement is not for standard commercial items readily available from other sources. Bona fide need generally is a determination of the requesting activity and not that of the performing activity. A performing activity must refuse to accept a project order if it is obvious that the project order does not serve a need existing in the fiscal year in which issued.

     

    DoD Financial Management Regulation Volume 3, Chapter 8

    080303. In recording obligations under this section, the following principles shall be applied:

    C. Specific Guidelines for Maintenance and Repair Projects (O&M funds?). Current fiscal year appropriations may be obligated for those maintenance and repair contracts awarded near the end of the fiscal year, even though contractor performance may not begin until the following fiscal year. However, the contract must satisfy a bona fide need that arose in or before the fiscal year of the appropriation to be charged. In addition, contracts awarded near the end of the fiscal year must contain a specific requirement that work begin before January 1 of the following calendar year. The foregoing guidelines on required start dates do not apply to cases in which an installation or contracting officer is required to place an order or contract with a foreign government agency because of a legally binding provision in a treaty or other international agreement. Guidelines for the administrative contracting officer to use in determining the commencement of work are as follows: 1. Physical Onsite Evidence. A visual inspection of the work site discloses significant work has been accomplished, or contractor employees actually are engaged in work performance. (No further verification is necessary.) 2. Documentary Evidence. If physical onsite evidence of performance does not exist, and to prevent unwarranted default proceedings, the contractor may be requested to produce documentary evidence that cost has been incurred or material has been ordered to allow performance of the contract.

     

    2. The following is the guidance found on the civil works funding. Contracts are awarded as continuing contracts and the funding is considered “no-year” appropriation, but no discussions on bona fide need was related to civil works funding specifically.

    Principles of Federal Appropriations Law Third Edition Volume III - Chapter 13 F 1b.

    Construction projects often must extend beyond a single fiscal year. A device Congress has provided some agencies is the “continuing contract.” For example, the Army Corps of Engineers engages in extensive public works construction activity. A significant authority available to the Corps is 33 U.S.C. § 621: “Any public work on canals, rivers, and harbors adopted by Congress may be prosecuted by direct appropriations, by continuing contracts, or by both direct appropriations and continuing contracts.” Under a continuing contract, as the term is used in this context, the Corps enters into a multiyear contract for the completion of a construction project, although funds are sought and appropriated only in annual increments to cover work planned for the particular year. See C.H. Leavell & Co. v. United States, 530 F.2d 878, 886 (Ct. Cl. 1976). This statute is an exception to both 41 U.S.C. § 12 and the Antideficiency Act. It authorizes the Corps to record the full contract price as an obligation at the time the contract is entered into, even though appropriations to liquidate the obligation have not yet been made. 56 Comp. Gen. 437 (1977). The authority of 33 U.S.C. § 621 applies equally to contracts financed by the Civil Works Revolving Fund (33 U.S.C. § 576). B-242974.6-O.M., Nov. 26, 1991. To the extent applicable, the laws relating to river and harbor improvements—including the “continuing contract” authority of 33 U.S.C. § 621—apply also to the Corps’ shore protection and flood control projects.163 33 U.S.C. §§ 426b, 701.

    http://www.gao.gov/assets/210/203470.pdf

    GAO Report to Congressional Committees

    ARMY CORPS OF ENGINEERS - Recent Changes Have Reduced the Use of Continuing Contracts, but Management Processes Need to Be Improved

    The Corps receives “no-year” appropriations through the Energy and Water Development Appropriations Act—that is, there are no time limits on when the funds may be obligated or expended, and the funds remain available for their original purposes until expended. The majority of the Corps’ Civil Works appropriations are generally directed to two types of activities: (1) operations and maintenance and (2) construction.5 Operations and maintenance activities include the preservation, operation, and maintenance of existing rivers and harbors. Construction activities include construction and major rehabilitation projects related to navigation, flood control, water supply, hydroelectric power, and environmental restoration.

    https://www.gao.gov/assets/300/291441.pdf

     

    As a final note, per FAR 28.102-1(c) once properly executed performance and payment bonds have been received the notice to proceed (NTP) could be issued allowing the contractor to begin work in areas (ordering supplies or long lead time items, QC plans, safety plans, scheduling activities) that are not affected by the winter weather.  This could potentially resolve your issue of bona fide need.

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