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  • Question

    Is there a regulation that supports the use of current year funds to execute a new obligation for a need that already occurred in a prior year. In this case a contractual fund swap to align the funds with the requirement change.


    Answer

    The simple answer to this question is NO.  After a significant amount of research, it is clear that nowhere in either Title 10 or 31 of the United States Code (USC), nor in the DoD Financial Management Regulation (FMR) 7000.14-R, is there any statute or regulation that would allow the use of current year funds to execute a new obligation for a need that already occurred in a prior year.  In fact, the Bona Fide Need rule (law), 31 USC § 1502(a), states that, “The balance of an appropriation or fund limited for obligation to a definite period is available only for payment of expenses properly incurred during the period of availability, or to complete contracts properly made within that period of availability and obligated consistent with section 1501 of this title.”  An appropriation’s period of availability to make new obligations is while it is in its current phase.
     
    With that being said, as addressed in 31 USC §1553(b) and FMR Volume 3, Chapter 10, there is the ability to use a current appropriation to pay for obligations or adjustments to obligations that arise from obligations credited to appropriations that have been closed (i.e. cancelled).  This practice is commonly referred to as “current for cancelled.”  However, that does not appear to be what is happening in this scenario.  In this particular situation, the FY15 OPA funds are in their expired phase, but will not go into their cancelled phase until 01 October 2022.  
     
    This scenario leads to two questions that should be considered: 1.) Should a funds swap be done at all, and 2.) How can a funds swap be done (i.e. what year RDT&E funds should be used)?
    With regard to the first question, FMR, Volume 2A, Chapter 1, Paragraph 010213, Section C.5.d is correctly cited as the reference to the fact that if a test article is expected to be destroyed during test and evaluation, as opposed to not being destroyed and later put into inventory, RDT&E funds are the correct appropriation to be used.  However, this specific vehicle was not expected to be consumed during testing.  It was intended to be placed in the inventory.  Thus, it was properly funded with FY15 OPA funds.  It was subsequently diverted to support Ballistic Test based on a priority change and destroyed.  FMR, Volume 2A, Chapter 1, Paragraph 010213, Section C.5.d states, “… In addition, excess items that can be made available on a priority basis from existing inventory will be reassigned for use in R&D test and evaluation programs without reimbursement. …”  Given all of this information, it would not be difficult to make a very valid case that a funds swap is not required at all.
     
    With regard to the second question, it is completely understandable that, from the standpoint of wanting to align the contract and accounting system with the reality of the requirement change, the Resource Management (RM) office would want to do the RDT&E for OPA funds swap.  It absolutely can be done, but NOT with FY17 or FY18 RDT&E funds.  It must be recognized that this is not a new requirement (i.e. increased work scope for the contractor).  The vehicle in question was clearly a bona fide need of FY15.  Since neither FY15 OPA nor RDT&E are in their cancelled phase, per 31 USC § 1502(a), RDT&E funds that were available for new obligations (i.e. increased work scope) in FY15 must be used for this funds swap (i.e. no current for cancelled).  Therefore, an upward obligation request for either FY14 or FY15 RDT&E funds would have to be made to the Army, since those funds are in their expired phase.
     
    Obligation adjustments involving “non-contract changes” during the expired status period are extremely limited; specific allowable adjustments include re-procurement actions (which this would be), incentive and award fee adjustments, and price adjustments based on contract clauses or final indirect rate determinations.  Those type actions are not considered “contract changes” which are defined in the cited public law as a “change to a contract under which the contractor is required to perform additional work.”  Such adjustments need to be supported by comprehensive written documentation containing a statement that the adjustments do not require, involve, or result in additional work or changes in scope of the original contract. 
     
    Conclusion: In the end, a funds swap may not be necessary.  However, if RM wishes to proceed with it, FY14 or FY15 RDT&E would be the correct appropriation to use.
     
    Note: The FY14 or FY15 RDT&E funds must be placed on the contract prior to the de-obligation of the FY15 OPA funds in order to avoid any potential for an Anti-Deficiency Act violation (31 USC §1341, 1342, and 1517).  
     
    Suggestion:  Read the source documents that pertain to your question.  First, read DoD Financial Management Regulation (FMR) 1400-7R Volume 3, paying particular attention to Chapter 10.  Second, read Title 31, United States Code (USC), sections 1341, 1342, 1502, 1517, and 1553.  Finally, it is most strongly recommended that you contact your local comptroller organization, and legal counsel for more information and their policy interpretation of this issue.

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