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Bona Fide Need

ABUS 013
Alternate Definition

The Bona Fide Need rule (law) requires appropriated funds be used only for goods and services for which a need arises during the period of that appropriation’s availability for obligation.

General Information

The three major fiscal law provisions that concern funds execution are the Anti-deficiency Act, Purpose Statute (also known as the "Misappropriation Act"), and the Bona Fide Need Rule (also known as the “time statute”). 

 

US Code, Title 31, Section 1502(a) states that, "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." 

 

Strict interpretation of this law – combined with the appropriation act language – means that the need may arise anytime during the period the appropriation act states the funds are available (e.g., two years for RDT&E or three years for most procurement accounts). However, a Service or Defense Agency has the discretion to further limit the period of the appropriation’s availability by policy, such as to the first year of that appropriation’s availability. The most common Service limitation on the use of an appropriation beyond the first year is for RDT&E appropriations, and specifically, for that part of the appropriation intended for activity operations (e.g., travel, office supplies, salaries, etc.) rather than for actual R&D efforts. While this might be considered more restrictive than intended by Congress, it is within the Service or Agency prerogative to be more restrictive by policy than what is allowed by the U.S. Code. 

 

Several examples of Bona Fide Need follow: 

 

  • Supply items: Generally, bona fide need is determined by when the government actually requires (i.e., will be able to use) the supplies being acquired. As such, supply needs of a future year are considered to be the bona fide need of the year in which they are required, unless an exception applies:
    • Lead-time exception: Agencies are permitted to consider normal lead-time in determining bona fide need for a purchase. For example, if the normal lead-time for an item is 30 days, the government may obligate FY 23 funds for an item required on or before 30 Oct 23.
    • Stock level exception: Agencies may use current year funds to replace stock consumed in the current fiscal year, even though the replacement stock will not be used until the following fiscal year. However, fiscal year-end stockpiling of supplies, in excess of normal usage requirements and regardless of price, is prohibited.
  • Service contracts: Generally, services are a bona fide need of the fiscal year in which the services are performed. Thus, service contracts would not seem to be permitted to cover a period which involves two different fiscal years. However, two important exceptions exist to this general rule:
    • Nonseverable services exception: If the services produce a single or unified outcome, product, or report, the services are considered to be nonseverable, and the government may fund the entire effort with budget available for obligation at the time the contract is awarded - even if the contract execution crosses fiscal years. A nonseverable contract is essentially a single undertaking that cannot feasibly be subdivided (Comp. Gen. Decision B-259274, 22 May 1996). The basic concept is that the government does not receive value from the service rendered until that service is completed.
    • Severable services contract exception: The FY98 Defense Authorization Act amended Title 10 of the U.S. Code (Section 2410a) to permit authorized DoD agencies to obligate funds available at the time of contract award to finance a severable service contract with a period of performance not to exceed 12 months at any point during the fiscal year. For example, the DoD agency may obligate FY 23 funds for a 12-month severable service contract that begins anytime during FY 23 and continues into FY 24. This provision of the statute provides greater flexibility to DoD agencies and also allows for a better distribution across the year for the workload of the contracting offices supporting buying organizations. However, a Service or Defense Agency has the discretion to limit application of this exception and require subordinate activities to budget for and execute this type contract on a strictly fiscal year basis or a period less than the 12 months.  
  • Project Orders: The DoD Financial Management Regulation (FMR) (Vol 11A, 020510) provides for a year-end exception for project orders. This exception applies only to DoD and states that a project will be considered to have met the bona fide need of the prior fiscal year (FY) if work is started by the end of the calendar year (CY). As per the FMR:
  •  
    • FMR (Vol 11A, 020510 "PROJECT ORDERS"):  Commencement of Work
      • The work to be performed under project orders must be expected to begin within a reasonable time after its acceptance by the performing DoD-owned establishment or the USCG.
        • A. Although work on a project order is not required to commence in the year of project order acceptance, as a minimum requirement, evidence must exist at the time of project order acceptance showing the intention that work (or procurement if required prior to the beginning of work) must (1) begin without delay (usually within 90 days) and (2) be completed within the normal production period for the specific work ordered.
        • B. If work (or procurement if required prior to the beginning of work) financed from an appropriation that expired for obligation on September 30 on a project order does not begin, or is not expected to begin, before January 1 of the following calendar year, then the project order must be returned by the performing activity for cancellation. If it is documented that the delay is unavoidable and could not have been foreseen at the time of project order acceptance, and that documentation is retained for audit review, then the project order can be retained and executed.
    • Repair and Maintenance: The FMR (Vol. 3, 080305) also provides for a year-end exception for repair and maintenance.  This exception applies only to DoD and states that a project will be considered to have met the bona fide need of the prior FY if work is started by the end of the CY.  As per the FMR:
      • FMR (Vol. 3, 080305 "Recording Maintenance and Repair Projects Obligations"): 
        • Current fiscal year appropriations may be obligated for those maintenance and repair contracts awarded near the end of the fiscal year, even though contractor performance may not begin until the following fiscal year. The contract must satisfy a bona fide need that exists in the fiscal year of the appropriation to be charged. In addition, contracts awarded near the end of the fiscal year must contain a specific requirement that work begins before January 1 of the following calendar year.  (Specific guidelines for the administrative contracting officer to use in determining the commencement of work are also spelled out in this section of the FMR.)
        • This exception DOES NOT apply to contracts which contain work that is classified as "construction".  See 10 USC §§ 2801 and 2811.