Is the award fee on a Cost Plus Award Fee contract considered a contingent liability? It seems to fit the FMR Glossary definition of a contingent liability under the budgetary terms. If it is a contingent liability, how do we handle it across fiscal years? Do we leave it as a commitment till 30 September when we decommit it, then recommit it next fiscal year keeping the appropriation that is on the base contract, then when the award is determined obligate the funds? Or do we decommit the funds on 30 September, don't recommit them, then do an in-scope upward adjustment to pay the award from the base year appropriation ? If it is not a contingent liability, do we obligate the award fee when we obligate the contract or when the award fee is earned with funds current at the time it is awarded?
The question asked concerns the Award Fee on a Cost Plus Award Fee contract and if the Award Fee is considered a contingent liability. Based on the Financial Management Regulation (FMR) 7000.14-R the award fee portion of a CPAF contract is considered a contingent liability (so long as the specific award fee in question is tied to the current period of performance/evaluation period). Contingent liabilities are funds committed, yet not obligated, for current budgeted program requirements. The DoD FMR 7000.14-R (Feb 2016), Vol. 3, Ch. 8, Sec. 080603 specifies: "the obligation established for a cost plus award fee contract must be adjusted at the time the actual or final award fee award amount is determined." The contracting officer shall execute a contract amendment once the final award fee amount is known for the evaluation period in question.
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As for funds that cross fiscal years, please refer to appropriations law concerning the "current" and "expired" periods and uses. While the current period allows for new obligations and adjustments to existing obligations, the expired period only allows for adjustments (up or down) to existing obligations. For CPAF contract, the final award fee amount is considered an allowable obligation adjustment to an existing obligation. If the funds expire, the contingent liability for the award fee amount should remain as an outstanding commitment until the final amount is determined. If funds are decommitted (especially during end of a fiscal year and when funds are about to enter the expired period), they will no longer be considered a contingent liability and potentially committed/obligated for another program requirement. On the other hand, if a contingent liability is obligated at time of contract award or prior to final award fee determination, the award fee amount will no longer be a contingent liability. Not only does this violate policy (liabilities should only be recorded as obligations when amounts are known), but this action could "waste" appropriated funds in cases where the contract does not earn the specific award fee amount obligated.
For reference purposes, please find the latest DoD FMR volumes and chapters as the following url: http://comptroller.defense.gov/fmr.aspx.
I strongly suggest that you contact your Comptroller/Contracting Officer for additional guidance as each Service/Agency can have a more specific regulation.