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    We are currently looking to procure 200 aircraft modification kits. We know we need these 200 mod kits, but we won't be able to install them or receive them all immediately, it will take a few years. Finance wants us to do a contract with options, a base year using FY18 3010 funds for some of the kits, then option years using FY19 3010, and FY20 3010 to procure remaining kits. It has to do with their budgeting and planning process. But FAR 17.202(c)(3) states that the contracting officer "shall not employ options if the option represents known firm requirements for which funds are available." We do have funds available to pay for all of the kits up front, but finance interprets the bona fide need rule for these supplies as being the year that the kits will actually be put on the aircraft. We feel the bona fide need exists now because we know we need the kits at this time. This seems like a bad way to do contracting for a known requirement because we could lose quantity discounts, and have an increased burden of administering the options when it seems that we could be more efficient. Is finance correct with their interpretation?


    Answer

    This response is based on the information provided.  We suggest you discuss with your contracting officer, financial officer and/or legal department as appropriate. 
     
    The fundamental question that needs to be answered is when are the 200 mod kits needed.  What year is the requirement for the mod kits?  Are the 200 mod kits a proper requirement of FY18?  Simply because funds are available does not make it a bona fide need.  Are the kits required in FY18 (separate from can 200 kits be installed in FY18)?
    Even though the requirement cannot be fully executed (installed) in a single fiscal year, that does not automatically make it a requirement of more than one year.  The FAR reference [FAR 17.202(c)(3), "...shall not employ options if the option represents known firm requirements for which funds are available."] is correct with regard to options if the requirement is a bona fide need of FY18.
     
    DoD Financial Management Regulation Volume 11A, Chapter 2 020508. Bona Fide Need.
    Project orders must serve a bona fide need, of the issuing activity, that exists in the fiscal year in which the project orders is issued;  otherwise, a valid obligation is not accomplished. It is not intended that the rule of bona fide need of the fiscal year rule be construed to preclude procurement lead time. 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 should, however, 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.

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