Due to the lack of detail in the Background, two assumptions have to be made in order to answer this AAP Question. First, without knowing the nature of the proposed contingent liability, or liabilities, in question, the only assumption that can be made is that the liability is legitimate, with regard to purpose and amount, in accordance with DoD Financial Management Regulation (FMR) 7000.14-R, Volume 3, Chapter 8, paragraph 080203, sections A, B, and C and the Statement of Federal Financial Accounting Standards (SFFAS) 5. Therefore, the issue of contingent liability legitimacy will not be addressed here. Second, with regard to the specific appropriation in question, from the e-mail address of the questioner, it is being assumed that “RDA appropriations” are Research, Development, Test and Evaluation, Army (RDT&E,A) funds.
FMR, Volume 3, Chapter 8, paragraph 080203, section C says, “Amounts to cover these contingent liabilities must be carried as outstanding commitments pending determination of actual obligations.” Therefore, as soon as it is recognized that a contingent liability exists, an administrative reservation of funds should be completed to commit the funds that will be used to cover that liability. If, or when, the contingent liability comes to fruition, those committed funds will be obligated on the contract in the correct amount to cover it.
Since a contingent liability is a function of an “outstanding” contract (i.e. currently being worked or just completed), the appropriation used for the original obligation of funds on that contract is what should be used to fund the contingent liability. The reason is that the liability is a bona fide need of that contract’s work effort. The contingent liability is not supposed to be for new scope (i.e. new work).
Therefore, if the original funds are still in their current phase, they can be obligated directly from the commitment onto the contract. If those original funds are in their expired phase, an upward obligation adjustment will have to be worked through the Component (i.e. Service) to get the funds that will be obligated. Since those funds should have been committed for the liability during their current phase, they will retain all of their appropriation identity and a re-alignment should not be required. If the contingent liability was not recognized until after the original funds entered their expired phase, a re-alignment of funds, into the original long line of accounting of the original funds obligated on the contract that have since expired, of the same appropriation and fiscal year will be required prior to obligating them on the contract to cover the liability. Finally, if the original funds used to fund the contract are in their cancelled phase, the only option is to use current funds of the same appropriation to obligate on the contract to cover the liability. This is commonly referred to as “current for cancelled.”
Summary: The appropriation used for the original obligation of funds on the contract is what should be used to fund the contingent liability.
Note: With regard to the amount of funds that should be committed to cover a contingent liability, FMR, Volume 3, Chapter 8, paragraph 080203, section C states, “The amounts of such contingent liabilities, however, need not be recorded at the maximum or ceiling prices under the contracts. Rather, amounts should be committed that are estimated conservatively to be sufficient to cover the additional obligations that probably will materialize, based upon judgment and experience. In determining the amount to be committed, allowances may be made for the possibility of downward price revisions and quantity under runs. Each contingent liability, as referenced in SFFAS 5, paragraphs 38 and 39, must be supported by sufficient detail to support an audit.”
Suggestions: First, read DoD Financial Management Regulation (FMR) 7000.14-R, Volume 3, Chapter 8, paying particular attention to paragraph 080203, sections A, B, and C for discussions regarding contingent liability purpose and amount. Second, it may be worthwhile to read the applicable section of the Statement of Federal Financial Accounting Standards (SFFAS) 5 that discusses contingent liabilities, paying particular attention to paragraphs 38 and 39. SFFAS 5 can be found at https://fasab.gov/accounting-standards in the Federal Accounting Standards Accounting Advisory Board (FASAB) Handbook (the current version is 19 dated 06/20), PDF pages 528-539 of 2635. Finally, it is most strongly recommended that you contact your Government Contracting Officer, your local financial comptroller organization, and acquisition legal counsel for more information and their policy interpretation of this issue.