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    Good Afternoon, My background has been O&M 3400 dominant; and am new, as of this fall, to working with R&D (3600 and 0400). I am trying to understand the rules that guide the R&D appropriations and the bona fide need rule on non-severable R&D service contracts (e.g. research projects/studies). I grapple with period of performance allowable for research work. I was told that contract work funded may cross fiscal years. If this is the case, then how many months exactly, 12? 18? till funds expire? I will provide a very specific example. I received incoming FY19 0400 funds on MIPR Direct Cite to fund a non-severable contract with a period of performance of contract award date through 30 Jan 2022 for a total of 24 months. That is all 24 months to be funded with FY19 0400 funds that obligates at contract award. Is this allowable? I hope my questions make sense, if not, please ask me follow-up questions. Thank you for your time, Susan


    Answer

    There are two issues that will be addressed in this response:  Bona Fide Need and Funding of Non-Severable efforts. 

    Bona Fide Need:  There is no restriction in the FMR that limits obligations of RDT&E to the first year of availability or limits the term of a non-severable effort to 12 or 18 months during execution.

    DoD Financial Management Regulation Volume 2A, Chapter 1 010214 states that RDT&E budget requests will be developed and presented in accordance with the following principles:

    Annual estimates of initial financing needed for new major weapon systems and other development programs and projects requiring several years to complete, and which involve contracts spanning more than one year, should be formulated to cover costs expected to be incurred during each fiscal year.

    While it is intended that the foregoing guidelines will be applicable to program execution as well as program formulation, there may be circumstances that could delay the start of an annual increment (such as legal, administrative, or technical problems). The 2-year availability of funds authorized for the Research, Development, Test and Evaluation appropriation provides the necessary flexibility for program execution in those circumstances

    The Bona Fide Need rule (U.S. Code Title 31, Section 1502(a) allows that funding be used for goods and services for which needs arise during the period that appropriation is available for obligation (two years for RDT&E).   The Agency and Service have placed a limitation on the use of the appropriation beyond the first fiscal year.  This may be considered more conservative than intended by Congress, however it is within the Service or Agency prerogative to be more restrictive than what is allowed by the U.S. Code.

    The second issue that you raised was the funding of a non-severable services contract.  Non-severable services constitute a specific, entire job or single undertaking with a defined end-product that cannot feasibly be subdivided for separate performance.  Non-severable services must be financed entirely out of the appropriation current at the time of award, even though performance may extend into future fiscal years.  Contracts for non-severable services cannot be incrementally funded. 

    DoD Financial Management Regulation (FMR), Vol. 11A, Chapter 18, states non-severable services contracts must be funded entirely with appropriations available for new obligations at the time the contract was awarded, and the period of performance may extend across fiscal years.  The non-severable service must meet the bona fide need rule and be fully funded at the time of award.  Contracts for non-severable services cannot be incrementally funded.       

    A key decision that supports this:

         GAO Decision B-317139, Matter of Financial Crimes Enforcement Network (June 1, 2009) - http://www.gao.gov/decisions/appro/317139.pdf

    The decision clearly states that failure to fully fund non-severable contracts at the time of award is a bona fide needs violation:

    “Failure to obligate the estimated cost (or ceiling) of a nonseverable cost-reimbursement contract at the time of award violated the bona fide needs rule.” (GAO Decision B-317139, page 1)

    “The general rule is that a nonseverable service is considered a bona fide need at the time the agency orders the service and, therefore, should be charged to an appropriation current at the time the agency enters into the contract…Whether a contract is for severable or nonseverable services affects how the agency may fund the contract; severable services contracts may be incrementally funded, while nonseverable services contracts must be fully funded at the time of the award of the contract.” (GAO Decision B-317139 (2009), page 4)

    Based on the information provided, funding the non-severable effort with FY19 RDT&E funding is appropriate.  Recommend that you consult with the local Comptroller or Legal department prior to awarding the contract.

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