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  • Question

    What's the difference between de-committed and de-obligated? I'm not familiar with the term de-committed.


    Answer

    Reference is made to the following authority for definitions used in this response - A Glossary of Terms Used in the Federal Budget Process, September 2005, GAO-05-734SP (Go to www.gao.gov/new.items/d05734sp.pdf).

    A budgetary commitment is defined at page 32 of the above referenced authority as – “An administrative reservation of allotted funds, or of other funds, in anticipation of their obligation.”  

    An obligation is defined (p. 70) as – “A definite commitment that creates a legal liability of the government for the payment of goods and services ordered or received, or a legal duty on the part of the United States that could mature into a legal liability by virtue of actions on the part of the other party beyond the control of the United States.” (Emphasis added.)

    An easy way to think of the difference between the commitment and obligation of funds is to know that all funds must be committed in the service, or agency, accounting system (i.e. CCaR for the Air force, GFIBS for the Army, Navy ERP for the Navy, etc.) and from there a funding document is generated that provides those funds for obligation on a contract.

    The amount obligated at the time of award of a contract, or even paid during performance to complete the contract, may or may not, when considering the “or” condition emphasized above, be the full extent of the United States’ obligation. One could be tempted to draw some generalities based upon a basic understanding of contract types, and the families (e.g. cost, or fixed price) to which they belong.

    There have been epic misunderstandings in the complete communication of the contract type as they may be rendered in various records, and even direct verbal communications. For example, while reviewing a proposed Novation Agreement, an administrative contracting official (ACO) at the corporate/executive level called the senior service acquisition official (SAE) to inquire whether a particular (significantly large) contract was fixed price? She answered that it was. Based on her answer, this ACO considered it a firm-fixed-price (FFP) contract, which would not be effected by the merger. Yet in actuality, while it was in fact a contract belonging to the fixed price family of contracts (and thus the SAE provided a correct response), on the cover of the actual contract it was clearly marked to be a Fixed Price Incentive (Firm target), or FPIF, contract. Perhaps this distinction had not been captured in the computer run provided the ACO which gave rise to the ACO’s original inquiry. Nevertheless, while any FPIF contract may/will be awarded with an obligation amount equal to the Target Price, there exists a contingent liability up to the Ceiling Price which can mature into a legal liability, should the cost allocated (in this case after the corporate acquisition/merger) increase to exceed the Target.

    It would not be unusual, even with “fixed price” contracts, for there to have been an administrative commitment established in excess of the fixed price obligation, in advance of such contingent liabilities maturing. These would not necessarily be obvious after the fact; either when observing a computer generated report rendering a particular contract type, or even by observing just the cover page of a contract.

    Another example could be a contract indeed rendered as “FFP” both on the cover page of the contract, and (accurately) captured on a computer run. Within the contract upon award, there could be a “special” contract provision, or clause, which operates essentially as an Economic Price Adjustment (EPA). If that provision, or any other “special” provisions, allow for an upward adjustment of the price, that would also represent a contingent liability for which an obligation could mature and funding would be required.

    There is also another example where a contingent liability can exist in the “general” provisions of a contract. If the contract is covered by the Cost Accounting Standards (CAS) with full coverage, certain equitable adjustments may be available to the contractor allowing an upward adjustment to even FFP contracts. In this case, the current principal contracting officer (PCO) would/should have been advised whether such contingencies are present by the cognizant administrative contracting officer (ACO) who is authorized by statute to monitor/resolve such issues.

    If a commitment amount exceeds the obligation amount on a contract, it could be a sign that it was put there intentionally. Perhaps because of a contracting office notification to cover a contingent liability that was present upon contract award or one that arose sometime thereafter. These may not be obvious to the casual observer looking at a computer run, or even the cover page of a contract. Perhaps such excess amount would/should likely have been requested by the original principal contracting officer (PCO) familiar with the entirety of the contract and all liabilities contained therein. They would not only have been cognizant of the overarching contract type on the cover, but also any differing contract types used on various contract line items (CLINs) or Sub-CLINs. They would have also been cognizant of the unique features of the general, and/or special, terms and conditions of the contract. Thus, it would seem that it would be a matter of normal due-diligence to check with the current contracting officer of record to determine (formally) whether such contingent liabilities may still be present before de-committing the excess. Perhaps a form letter would/could be crafted stating the amount of the excess being planned for de-commitment, and requesting a review of the contract be performed (including all terms and conditions) be conducted to attest whether any contingent liabilities remain, and if so their approximate amount. If one does not do this due-diligence, they run the risk of those contingent liabilities maturing into an actual obligation for which there would then possibly be no choice other than funding those obligations with current-year funding when they arise.

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