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    It is clearly understood that procurement 3010 funds pay for the mod install. The question is what funds should be used to pay for the O&M repairs that are needed, Mod fund or 3400 Repair?


    Answer

    DoD Financial Management Regulation (FMR) 7000.14-R, Volume 2A, Chapter 1, paragraph 010201, is extremely helpful in answering this question. That paragraph of the FMR provides an in-depth discussion of the distinctions, policies, and procedures for the funding of expenses versus investments.

    FMR, Volume 2A, Chapter 1, paragraph 010201, section B.1. states, “Expenses are the costs incurred to operate and maintain the organization, such as personal services, supplies, and utilities.” While section B.2. says, “Investments are the costs that result in the acquisition of, or an addition to, end items. These costs benefit future periods and generally are of a long-term character such as real property and personal property.” Now, a person may be thinking: That’s all well and good, but why should I care? To answer that, FMR, Volume 2A, Chapter 1, paragraph 010201, section C.1. says, “The primary reasons for these distinctions are to allow for more informed resource allocation decisions and to establish criteria for determining which costs are appropriate to the various defense appropriations.”

    In this Question it is accurately stated that, “It is clearly understood that procurement 3010 funds pay for the mod install.” To that point, FMR, Volume 2A, Chapter 1, paragraph 010201, section D.2.d. states, “The costs of modification kits, assemblies, equipment, and material for modernization programs, ship conversions, major reactivations, major remanufacture programs, major service life extension programs, and the labor associated with incorporating these efforts into or as part of the end item are considered investments.” And, when determining what appropriations should be utilized to pay for investments, FMR, Volume 2A, Chapter 1, paragraph 010201, section C.1. says, “Costs budgeted in the Procurement and Military Construction appropriations are considered investments.”

    However, the real dilemma in this Question is what appropriation should be used to pay for “additional over and above charges for repairs that are "safety of flight" and needed to fly the jet home.” Fortunately, the answer to that can also be discerned from FMR, Volume 2A, Chapter 1, paragraph 010201. When defining items that are expenses, FMR, Volume 2A, Chapter 1, paragraph 010201, section D.1.g. states, “Cost of incidental material and items that are not known until the end item is being modified are conditional requirements and are considered expenses because the material is needed to sustain or repair the end item.” And, when determining what appropriations should be utilized to pay for expenses, FMR, Volume 2A, Chapter 1, paragraph 010201, section C.1. says, “Costs budgeted in the Operation and Maintenance (O&M) and Military Personnel appropriations are considered expenses.”

    Summary: Per FMR, Volume 2A, Chapter 1, paragraph 010201, section D.1.g., over and above charges for repairs, on aircraft that have been inducted for a mod to be installed, should be paid for using the 3400 (O&M) appropriations.

    Note: FMR, Volume 2A, Chapter 1, paragraph 010201, section D.3.c. caveats how to fund over and above repair charges for test aircraft by stating, “However, maintenance of equipment used exclusively for research, development, test, and evaluation efforts will be funded by the RDT&E appropriations.”

    Suggestions:  First, read DoD Financial Management Regulation (FMR) 7000.14-R, Volume 2A, Chapter 1, paragraph 010201, paying particular attention to sections B, C, and D. Second, it is most strongly recommended that you contact your local financial comptroller organization, and acquisition legal counsel for more information and their policy interpretation of this issue.

     

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