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    1. Does this violate the Bona Fide Needs rule? a. Bona fide needs for the original obligation was for specifically 357 days, 10 contractors doing supply stuff / 40 hours a week. The bona fide need for adding 7 more days of performance was not realized until late DEC 2020. How can one use expired funds for the new bona fide need? KO says adding the 7 days is not a scope change and the funds are already obligated and do not require adjustment. b. Does changing period of performance on a severable service contract after funds expired because of cost underrun violate the bona fide needs rule? There are 2 GAO decisions with similar characteristics that are definitely relevant (GAO decisions B-207433, SEP 16, 1983 which is more about non severable contracts but does address underruns and attempts to change quantities and B-183184, MAY 30, 1975 which is about level of effort on a cost type contract and deobligating funds in excess of the original need...) 2. Scope change – KO says that "TIME" (period of performance) is not a component of scope. The POP may not be part of scope in every instance but for severable service contracts that were proposed, priced and awarded for a specific period, I think TIME is part of scope. For severable service contracts were the govt purchases performance (people doing stuff) and level of effort (not a specific deliverable) we are purchasing PERIODs of performance. The customer purchased 10 FTEs per work day for a period of 357 days. I submit, adding days is adding scope. 3. Treatment for cost impacts? Generally, these POP extensions are called ‘no cost’ extensions because there is a positive variance and the contractor says they can charge the additional costs to the positive variance and not impact contract's price. What happens when the contractor makes a mistake or business rates are adjusted and the positive variance turns to a negative variance. How is the negative variance resolved? With current year dollars or expired dollars? No KO will award these extensions if there is a ZERO variance available or a negative variance. They require current year dollars for any extension. So if a ‘no cost’ POP extension is executed on a severable service contract and there is an unexpected cost overrun is there a possible ADA? Appropriations are available only for the bona fide need of an appropriation’s period of availability (31 U.S.C. § 1502(a)). The original bona fide need was for the original obligation made during the fund’s period of availability and was for a specific period of time, level of performance and price.


    Answer

    Question Background:

    Severable service contract (w/options) awarded in JAN 2020 for 357 days (not a full year), for 10 contractors to perform supply functions. Fast forward to NOV/DEC and the requiring activity does not have FY21 funds to execute Option 1 and there will be a break in service. In an effort to avoid a break in service, the KO extends the contract POP thru 07JAN2021 (full year IAW 10 USC 2410a) against the original obligation because of an existing cost underrun.  I’m concerned about possible bona fide needs violation, the precedence and unknown resource consequences.

    Question:

    Does this violate the Bona Fide Needs rule?

    a.  Bona fide needs for the original obligation was for specifically 357 days, 10 contractors doing supply stuff / 40 hours a week. The bona fide need for adding 7 more days of performance was not realized until late DEC 2020. How can one use expired funds for the new bona fide need? KO says adding the 7 days is not a scope change and the funds are already obligated and do not require adjustment.

     

    b.  Does changing period of performance on a severable service contract after funds expired because of cost underrun violate the bona fide needs rule? There are 2 GAO decisions with similar characteristics that are definitely relevant (GAO decisions B-207433, SEP 16, 1983 which is more about non severable contracts but does address underruns and attempts to change quantities and B-183184, MAY 30, 1975 which is about level of effort on a cost type contract and deobligating funds in excess of the original need...)

    Answer:

    An in-scope determination for a modification resolves both CICA and Bona Fide Need rule concerns in these situations.  If one determines the new period of performance to essentially be the original requirement, then an adjustment with the expired, obligated funds is permissible.

    For the benefit of others reading this question in the future, I’d like to draw attention to 10 USC, Section 2410a/FAR 37.106(b).  When 31 USC, Section 1502 (Bona Fide Need rule) is applied to this scenario in conjunction with FAR 37.106(b), the referenced fiscal year constraint for annual funding becomes a one year constraint.  And, the background information provided with your question confirms that the final adjusted period of performance for this contract did not exceed one year.

    I’ve also included an excerpt from one of the GAO decisions you referenced in your question.  It captures the crux of this issue and can provide great insight for future decision making.

    Excerpt from B-183184, MAY 30, 1975

    “THE BASIC EFFECT OF THE BONA FIDE NEEDS PRINCIPLE, DISCUSSED IN THE DECISIONS CITED ABOVE, IS THAT AN OBLIGATION AGAINST A FISCAL YEAR APPROPRIATION IS VALID ONLY IF IT RELATES TO AN ACTUAL NEED EXISTING WITHIN SUCH FISCAL YEAR. IN ORDER TO PROPERLY IMPLEMENT THIS PRINCIPLE, THERE MUST BE SOME BASIS FOR ADMINISTRATIVELY DETERMINING WHETHER A NEW OR INCREASED OBLIGATION MEETS A BONA FIDE FISCAL YEAR NEED. AS TO THE INSTANT CONTRACT, IT IS DIFFICULT TO PERCEIVE HOW SUCH A DETERMINATION COULD BE MADE WITHOUT REGARD TO THE SUFFICIENCY OF THE EXISTING LEVEL OF EFFORT TO MEET WORK ORDERS IN PROCESS.”

    Question Background:

    Severable service contract (w/options) awarded in JAN 2020 for 357 days (not a full year), for 10 contractors to perform supply functions. Fast forward to NOV/DEC and the requiring activity does not have FY21 funds to execute Option 1 and there will be a break in service. In an effort to avoid a break in service, the KO extends the contract POP thru 07JAN2021 (full year IAW 10 USC 2410a) against the original obligation because of an existing cost underrun.  I’m concerned about possible bona fide needs violation, the precedence and unknown resource consequences.

    Question:

    Scope change – KO says that "TIME" (period of performance) is not a component of scope. The POP may not be part of scope in every instance but for severable service contracts that were proposed, priced and awarded for a specific period, I think TIME is part of scope. For severable service contracts were the govt purchases performance (people doing stuff) and level of effort (not a specific deliverable) we are purchasing PERIODs of performance. The customer purchased 10 FTEs per work day for a period of 357 days. I submit, adding days is adding scope.

    Answer:

    The GAO’s decision in Zodiac of North America, Inc., B-414260 (Mar. 28, 2017) lists period of performance as a relevant factor in a scope determination.  I’ve included an excerpt (below) for easy reference.

    Additionally, that same GAO decision presents the phrase “essentially and materially different” as criteria for evaluating the relevant factors in the scope determination.  I defer to your KO’s judgement that adding 7 days to a 357 day contract is not a material change and is within scope.    

    Excerpt from Zodiac of North America, Inc., B-414260 (Mar. 28, 2017):

    “To assess whether a contract is so substantially changed by the modification that the original and modified contracts are essentially and materially different, we consider such factors as the extent of any changes in the type of work, performance period, and costs between the modification and the original contract, as well as whether the original solicitation adequately advised offerors of the potential for the change or whether the change was the type that reasonably could have been anticipated, and whether the modification materially changed the field of competition for the requirement.”

    Question Background:

    Severable service contract (w/options) awarded in JAN 2020 for 357 days (not a full year), for 10 contractors to perform supply functions. Fast forward to NOV/DEC and the requiring activity does not have FY21 funds to execute Option 1 and there will be a break in service. In an effort to avoid a break in service, the KO extends the contract POP thru 07JAN2021 (full year IAW 10 USC 2410a) against the original obligation because of an existing cost underrun.  I’m concerned about possible bona fide needs violation, the precedence and unknown resource consequences.

    Question:

    Treatment for cost impacts? Generally, these POP extensions are called ‘no cost’ extensions because there is a positive variance and the contractor says they can charge the additional costs to the positive variance and not impact contract's price. What happens when the contractor makes a mistake or business rates are adjusted and the positive variance turns to a negative variance. How is the negative variance resolved? With current year dollars or expired dollars? No KO will award these extensions if there is a ZERO variance available or a negative variance. They require current year dollars for any extension. 

    So if a ‘no cost’ POP extension is executed on a severable service contract and there is an unexpected cost overrun is there a possible ADA? Appropriations are available only for the bona fide need of an appropriation’s period of availability (31 U.S.C. § 1502(a)). The original bona fide need was for the original obligation made during the fund’s period of availability and was for a specific period of time, level of performance and price.

    Answer:

    As presented in the GAO’s ADA breakdown (below), an unexpected cost overrun would not trigger an ADA violation.  An unexpected cost overrun would likely be addressed through the claim and settlement process.   That settlement effort could trigger a modification to the contract that would require current year funds.

    On cost contracts specifically, it’s not uncommon to have rate adjustments that trigger overruns.  The final indirect rates may even have been impacted by modifications throughout the period of performance.  Regardless, the expired or current funds are used in the settlement and there is not a ADA violation.

    References:

    I reviewed GAO decision B-317413, National Science Foundation--Potential Antideficiency Act Violation by the National Science Board Office, April 24, 2009 for guidance on ADA violations and proper funding. 

    GAO’s breakdown of 31 USC, Section 1341:

    The Antideficiency Act prohibits federal employees from

    • Making or authorizing an expenditure from, or creating or authorizing an obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund unless authorized by law. 31 U.S.C. § 1341(a)(1)(A).
    • Involving the government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law. 31 U.S.C. § 1341(a)(1)(B).
    • Accepting voluntary services for the United States, or employing personal services not authorized by law, except in cases of emergency involving the safety of human life or the protection of property. 31 U.S.C. § 1342.
    • Making obligations or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted by agency regulations. 31 U.S.C. § 1517(a).

    31 U.S. Code § 1502.Balances available

     (a)

    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. However, the appropriation or fund is not available for expenditure for a period beyond the period otherwise authorized by law.

    37.106 Funding and term of service contracts.

          (a) When contracts for services are funded by annual appropriations, the term of contracts so funded shall not extend beyond the end of the fiscal year of the appropriation except when authorized by law (see paragraph (b) of this section for certain service contracts, 32.703-2 for contracts conditioned upon availability of funds, and 32.703-3 for contracts crossing fiscal years).

          (b) The head of an executive agency, except NASA, may enter into a contract, exercise an option, or place an order under a contract for severable services for a period that begins in one fiscal year and ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed does not exceed one year (10 U.S.C.2410a and 41 U.S.C.3902). Funds made available for a fiscal year may be obligated for the total amount of an action entered into under this authority.

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