If we received FY18 FC11 funds in June of 2020 and it is stated that these funds are for Option Year 4 which is (1 Jan 2020-31 Dec 2020) can these funds be used for the remaining time of the option year June through December? There is a debate over the timeframe of 1 Oct 2020-31 Dec 2020 and the validity of the funds.
There are three (3) parts to this AAP Question: 1.) Use of FY18 Procurement (3010) funds for a FY20 requirement, 2.) Allowance of Procurement (3010) funds to be obligated for projects (contracts) that cross fiscal years, and 3.) Utilization of Procurement (3010) funds while they are in their Expired Phase. We will deal with each of these three parts separately in this AAP Answer.
First, with regard to the use of FY18 Procurement (3010) funds for a FY20 requirement, some organizations believe that they are unable to obligate FY18 Procurement (3010) funds for a new project (effort) in 2020. This position comes from those organizations’ interpretation of the Bona Fide Need Rule (31 U.S. Code §1502 and 1552). They believe that since the new project is a bona fide need of FY20, only FY20 Procurement (3010) funds can be obligated for it. This is a rather common stance among financial managers. However, on January 4, 1989, The Comptroller General of the United States released a “Decision on a Defense Technical Information Center—Availability of Two Year Appropriations case (B-232024).” In that decision The Comptroller General states, “The Defense Technical Information Center does not violate the bona-fide needs rule by charging purchases to a two-year appropriation during the second year of its availability. Requisitions by the Defense Technical Information Center represented bona fide needs arising within the two-year period for which the appropriation was intended and obligations may be made to the extent funds remain available.” Thus, any requirement that comes up in FY18, FY19 or FY20 is a legitimate bona fide need of the FY18 Procurement (3010) funds.
Second, with regard to the allowance of Procurement (3010) funds to be obligated for projects (contracts) that cross fiscal years, some organizations believe that they are unable to obligate funds (Procurement (3010), RDT&E (3600), or O&M (3400)) for severable service contracts that cross two fiscal years. This position is categorically incorrect! 10 U.S. Code §2410a makes it very clear that the Department of Defense, or a military service, may enter into, and obligated a given fiscal year’s funds for part or the total amount of, a contract for severable services for a period that begins in one fiscal year and ends in the next fiscal year if (without regard to any option to extend the period of the contract) the contract period does not exceed one year. Thus, per 10 U.S. Code §2410a it would be completely permissible to obligate Procurement (3010) funds for a severable service contract that crosses past the end of FY20 and into FY21, as long as the contract, or Option in this case, is for no more than a year.
Finally, we will briefly discuss the utilization of Procurement (3010) funds while they are in their Expired Phase. The Office of Management and Budget (OMB) specifically addresses this issue for all Federal Agencies in their Circular No. A-11, Section 20.4.c (Page 17 of Section 20). The Department of Defense (DoD) has taken the OMB guidance and put forth their own policy regarding Expired funds in the DoD Financial Management Regulation (FMR) 7000.14-R, Vol 2A, Ch 1, Paragraph 010107, Section B.25. In that Section it states, “Expired Appropriation. An appropriation whose period of availability for incurring new obligations has expired but the appropriation is not closed (canceled). During this period, the appropriation is available for adjustment to, or payment of, existing obligations. Appropriations remain in an expired status for 5-years as shown in the table below. At the end of the five-year expiration period, the appropriation is closed (canceled) and is no longer available for the payment of unliquidated obligations. (See Closed (Canceled) Appropriations.).”
Summary: There is nothing that would prohibit the use of the FY18 FC11 funds as described in this AAP Question. The Comptroller General of the United States B-232024 case allows the use FY18 FC11 funds for the FY20 requirement, Option Year 4. 10 U.S. Code §2410a authorizes the obligation of Procurement (3010) funds for a severable service contract that crosses fiscal years 20 and 21, as long as the Year 4 Option is for no more than a year. And, OMB Circular No. A-11, Section 20.4.c and FMR, Vol 2A, Ch 1, Paragraph 010107, Section B.25 allows the FY18 FC11 funds to be expended in their Expired Phase for work on the Year 4 Option, as long as it is obligated on the Option Year 4 contract by the end of its Current Phase (30 Sept 2020).
Note: Services, and organizations, are allowed to promulgate policies that are more stringent than the “rules” but at least you now know what the DoD rules with regard to Procurement (3010) funds are.
Suggestions: First, read DoD Financial Management Regulation 7000.14-R, Volume 2A, Chapter 1, paying particular attention to paragraphs 010107, Section B.25 and 010202. Second, read the other references cited in this Answer: 10 U.S. Code §2410a, the Comptroller General of the United States B-232024 case, and OMB Circular A-11, Section 20. Finally, it is most strongly recommended that you contact your PCO, your local financial comptroller organization, and acquisition legal counsel for more information and their policy interpretation of this issue.