Sign In
  • Question

    If the TO is issued to the contractor prior to the end of the option period, does the work have to begin within the option period or can it begin after the option expires as long as the color of money is appropriate?


    This response is based on the information provided.  We suggest you discuss with your contracting and finance team, program manager and/or legal department as appropriate.


    As the question is from USACE, we assume the funds are MILCON funds.  Since you refer to a Task Order (TO), we further assume it is a service of some sort.  The work you are contemplating on the TO is a requirement of the period for which the funds were allocated.


    The Bona Fide Need Rule (also known as the “time statute”) come from US Code, Title 31, Section 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."


    DoD Financial Management Regulation Volume 3, Chapter 8 provides greater detail on the commencement of work for contracts.


    080304. In recording obligations under this section, the following principles shall be applied:


    A. Contracts or Orders for Goods, Supplies, or Services to Meet Bona Fide Need.

                    DoD Components must determine that the goods, supplies, or services required under contracts entered into, or orders placed obligating an annual or multiple year appropriation, are intended to meet a bona fide need of the period for which funds were appropriated. Such determinations must consider estimated current consumption; the requirements that may be foreseen for future years based upon the procurement lead time; authorized stock levels; and authorized mobilization reserves. If, however, a provision of law makes such appropriations available for payments under contracts for specified services for periods beyond the period for which the appropriation otherwise is available, the contract for such services extending into the ensuing period (e.g., fiscal year) may be charged to the appropriation current at the time that the contract is signed. Obligate funds for each option period after funds become available.

    Obligations must be consistent with all normal limitations on the obligation of appropriated funds, e.g., bona fide needs rule, period of availability, and type of funds.


    1. Execution Requirements Under Contracts or Orders.

                    Contracts entered into or orders placed for goods, supplies, or services must be executed only with bona fide intent that the contractor (or other performing activity) must commence work and perform the contract without unnecessary delay.


    B. Service Contracts.

                    Service contracts may be either severable or non-severable. Services are generally chargeable to the appropriation current at the time the services are rendered. The contract is thereby, established in a manner that defines the contractors level of responsibility to provide a specified level of effort for a stated period. The determination to charge the appropriation current on the date the contract is let, or to charge the funds current at the time services are rendered, depends upon whether the services are “severable” or “entire.” A contract which is considered entire is charged to the fiscal year current when it was let, even though performance may extend into the next fiscal year. Service contracts that are considered severable must be charged to the fiscal year in which the services are rendered and may not cross fiscal years, absent statutory authority. There is no precise formula or rule that determines whether a contract is severable or entire. Each case must be determined by the terms and circumstances involved. Non-severable services may occur at a contract line item level as defined in DFARS 204.7101.


    1. Severable Services.

                    A contract is severable when the related services are continuing and recurring in nature and the scope of the work to be performed is defined in the general terms of the contract. Service contracts can be for either a single undertaking or end item (entire) or for performance with compensation fixed in proportion to the amount of service performed. Absent statutory authority, the term of a severable service contract that is funded by annual appropriations will not extend beyond the end of the fiscal year current at the time the contract is awarded except when authorized by law. Option years are treated as new contracts therefore, when the severable service contract has renewal options, obligate funds for the basic period and any penalty charges for failure to exercise options. Refer to 10 U.S.C. § 2410a for statutory authority permitting full obligation of severable service contracts that begin in one fiscal year and end in the next, provided the contract period does not exceed one year. The contract period for performance of severable services must begin during the fund’s period of availability and may not exceed the fund’s period of availability, absent statutory authority.


    * 2. Non-Severable Services.

                    A service contract is non-severable or entire if performance of the service results in a single or unified outcome, product, or report that cannot be subdivided. The performance period of a fixed price non-severable services contract may cross fiscal years, but must be fully funded in the initial fiscal year unless contract funding requirements exists set forth at DFARS 232.703-1(1)(ii). Unless the period of performance is entirely within a single fiscal year or within the charged account’s period of availability if funded using a multiyear appropriation, non-severable services contracts may not be funded on an incremental basis unless Congress has authorized incremental funding. These type contracts must be funded entirely with appropriations available for new obligations at the time the contract is awarded or options exercised.


    "080305. Recording Maintenance and Repair Projects Obligations

                    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. The contract must satisfy a bona fide need that exists in 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."


    Working with your finance team, you may execute an order within the period of performance and with the funds appropriate to that task and period of time.  The lag time for performance to begin should be minimal, but should not be longer then 1-3 months


    Open full Question Details
Chat with DAU Assistant
Bot Image