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US Special Operations Command
FISCAL LAW AND YOU
(or Can You Spot the
“Correct” Answer?)
Briefer: CHRISTOPHER E. KERNAN
J-Code: SOJA-AQ
Date: 2 April 2014
The overall classification of this briefing is:
UNCLASSIFIED
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FISCAL LAW
This portion is provides a quick overview of the
various fiscal laws, regulations, and policies DoD
is required to comply with and the problems
USSOCOM is experiencing in complying with
these requirements. This presentation is
tailored to those concerns dealt with most often
by USSOCOM program and contracting offices.
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STATUTORY BASIS
• Appropriations Acts contain general as well as specific authorities.
• DOD establishes formal administrative subdivisions of funds. 31 USC
§1514(b)
• Bona Fide Needs Rule (year) 31 USC §1502(a)
• Purpose Statute (type) 31 USC §1301(a)
• Anti-Deficiency Act (amount) 31 USC §1341 or §1517
• Transfer of funds between appropriations, accounts, or agencies is
prohibited without specific statutory authorization (Economy Act, Project
Order Statute, specific legislation). 31 USC §1532
• Transferred funds are subject to the same purpose and limitation as
originally appropriated. 31 USC §1532
• Reimbursement authority. May temporarily charge expense to one
appropriation and recover costs from another appropriation of the same
agency later. 31 USC §1534. However, the deliberate charging of an
improper appropriation is a violation of the Purpose Statute.
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OBLIGATION AND EXPENDITURE
RULES
• O&M Funds
– Obligation must occur during initial year of appropriation
– Original rule on expenditure was: expenditure must occur
during initial year of appropriation
• Exception: Severable vs. Non-Severable: Severable could not
cross fiscal year. Non-Severable could cross fiscal year until
completed.
– FASA Rule: O&M Funds could be expended for a period of
12 months from date of award, severable or nonseverable.
– Must apply both rules to determine correct fiscal
application of expenditure rule.
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OBLIGATION AND EXPENDITURE RULES
• RDT&E Funds:
– Available for initial obligation for two years.
– Available for expenditure for 12 months, unless
Comptroller approves up to 18 months.
– Incremental funding rule applies year 2 on.
– What happens if contract performance is delayed?
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OBLIGATION AND EXPENDITURE RULES
• OPA (Procurement) Funds
– Obligation may occur during first 3 years of appropriation.
– Expenditure must occur prior to cancellation of funds.
– Mixture of years of OPA funds for single requirement is
permissible.
– Issue can be single system vs. individual components
– Full funding rule applies – Complete and usable end item
must result, cannot split requirements.
– Long lead items must be part of Appendix 10 POM
submittal.
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OBLIGATION AND EXPENDITURE
RULES
• Antecedent Liabilities
– Funds available at the time of the contract
creation are to be used, if available. (Relation
Back Doctrine)
– Rule is permissive not mandatory.
– If funds are not available, funds currently available
of the same type must be used.
– Arise from claims, performance delays,
Government breach of contract, i.e., late GFE.
– Must use current funds for discretionary spending
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OBLIGATION AND EXPENDITURE
RULES
• Bona Fide Needs Rule
– A contract must be issued for the requirement.
– Funds available for obligation at the time of the contract
creation must be used.
– There must exist an immediate genuine bona fide need for
the requirement, i.e., performance must begin in the year
of obligation and delivery must occur within 12 months or
delay must be the result of the contractor’s ability to
perform, i.e., a non-severable requirement crossing fiscal
years.
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RECENT ADA FINDINGS
• Bona Fide Need Rule Violations
– DoD IG Review of SOFSA and HQ USSOCOM as
well as various components has resulted in ADA
allegations of a violation of the Bona Fide Needs
Rule.
– At Headquarters, of 60 MIPRs reviewed, 59 were
questioned. Issues were various, but the Bona
Fide Needs Rule was the primary basis for
challenge.
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Factual Findings – ADA?
• Organization orders widgets deliverable in
next fiscal year.
• If delivery is due on October 5th (over a weekend)
– Is this a violation of the Purpose Statute (cited
by the IG)? Bona fide needs rule?
• If delivery is provided on 19 January for widget
systems – Is this a violation of the purpose
statute? Bona fide needs rule?
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Bona Fide Needs
Rule = ADA Violation?
• What are the factual basis needed to
establish a violation?
(Answer next slide)
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Bona Fide Needs
Rule = ADA Violation?
• What are the factual basis needed to
establish a violation?
– Was there a valid contract?
– Were funds available at the time of contracting?
– Was there an immediate genuine bona fide need
for the requirement?
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Applying the Bona Fide
Needs Rule Tests - 1
• In our first example (Oct 5 delivery) – did the
requirement meet these tests?
– Was there a valid contract? (Yes)
– Were funds available at the time of contracting?
(Yes)
– Was there an immediate genuine bona fide need
for the requirements? (?)
– Was there a potential purpose statute or bona
fide needs rule violation? (?)
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Applying the Bona Fide
Needs Rule Tests - 2
• In our 2nd example (Jan 19th delivery) - did
the requirement meet these tests?
– Was there a valid contract? (Yes)
– Were funds available at the time of contracting?
(Yes)
– Was there an immediate genuine bona fide need
for the requirements? (?)
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Applying the Bona Fide
Needs Rule Tests - 3
• In our 2nd example (Jan 19th delivery) - did
the requirement meet these tests?
– Was there an immediate genuine bona fide need
for the requirements? (?)
Would your answer change to know that the
contractor promised delivery in November?
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Applying the Bona Fide
Needs Rule Tests - 4
• In our 2nd example (Jan 19th delivery) - did
the requirement meet these tests?
– Was there an immediate genuine bona fide need
for the requirements? (?)
Would your answer change to know that the
Government ordered a change in the system
components in late October resulting in the
delayed delivery?
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Applying the Bona Fide
Needs Rule Tests - 5
•
In our 2nd example (Jan 19th delivery) - did
the requirement meet these tests?
– Was there an immediate genuine bona fide
need for the requirements? (?)
Would your answer change to know that:
a. long lead time precluded earlier delivery?
b. the item wasn’t needed for incorporation into a
major weapon system until January although
the contractor could deliver in November?
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Question: Bona Fide
Needs Rule Violation Possible?
•
What if on O&M funded requirements:
– Training is contracted this FY for various classes
during the next FY, all within 12 months of
award? (Answer?)
– Services or modifications are required, but GFE
(weapon systems) can only be provided on an
as available basis crossing multiple fiscal years?
(Answer?)
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RECENT ADA ISSUE
• Bona Fide Need Rule Application
– Contractor A is not performing adequately. The
contract was awarded using FY 09 O&M funds.
From 2010 through today various action plans
have been put in place to obtain performance to
no avail.
– In order to obtain needed materials, the KO
defaults the KR and seeks to obtain the supplies
from another KR. Can the O&M funds be used?
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RECENT ADA ISSUE
• Bona Fide Need Rule Application
– Rule: If a K is terminated for default the existing
funds may be used to reprocure the requirement
and excess costs charged to the defaulting KR.
– Is there a problem with using the FY09 O&M
funds as we are in year 4? -- Bona fide need?
– What if it takes 1 year to run a new competition?
Do we still have a bona fide need? What year of
need do we look at? 1949 Case
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Purpose Statute
•
Funds must be used for the purpose for
which they were appropriated.
– Rule is straightforward when specific bi-line
appropriations are made available for a
particular purpose.
– Rule becomes complicated when dealing with
two or more general appropriations.
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Purpose Statute Violations
•
What if OPA (Procurement Funds) are used
to:
– Acquire $10M of widgets with a unit price of
$249,000 each year one, $249,500 year 2,
$250,000 year three, and $250,500 year four.
(Answer?)
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Purpose Statute Violations
•
What if O&M funds are used to:
– Acquire data under production contract for
widgets during year 1?
– Acquire initial fielding spares?
– Acquire initial training?
– Acquire widget spares totaling $1M over five
years (annually funded in equal amounts)?
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Purpose Statute Violations
•
What if OPA funds are used to:
– Acquire spares costing less than $250K each in
the 2nd through 4th contract year?
– Acquire training in the 2nd through 4th contract
year?
– Acquire additional data in the 2nd year after
funding data with O&M funds in year 1?
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FUNDING ISSUES
The IDIQ contract was awarded in July 09 for production of
Widgets. The contract has $1.4M of FY07 Proc Funds
placed on it. The contract minimum is $100,000.
•
Is there a problem with placing the funds on contract?
•
Is there a problem with placing $1.4M on contract?
DO’s 001 through 004 are funded from the initial FY07 Proc
Funds and are issued in 2009 on:
•
001 – July
002 – Aug 003 Sep
Is there a funding issue here?
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004 Oct
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FUNDING ISSUES
Same facts, but DO 005 is issued in Jan 10 with FY 10 Proc
Funds in the amount of $540,000. In July we determine
that there is $40K unused on this order.
DO 006 is issued in the amount of $1.5M funded with the
excess $40K and the remainder with FY10 O&M.
Any concerns?
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FUNDING ISSUES
1. Can O&M and PROC funds be used on the same Order?
2. What if the Order had different CLINS for the O&M and
PROC funds?
3. What if the PROC funds were split between the two
CLINs and the remainder of each CLIN was funded with
the FY10 O&M funds?
4. What if DO007 and 008 are funded with PROC funds?
Does that affect your analysis? Are any of the O&M
funds usable?
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FUNDING ISSUES
1. Same facts – What if your analysis reveals that all orders
were issued for widgets? Does that affect your
determination of proper source of funding for DO 006?
2. Same facts - What if your analysis reveals that DO 006
was for spares for the previously ordered widgets?
Does that affect your determination of proper source of
funding for DO 006? IS O&M or Proc the correct Fund?
3. Same facts – The KO claims that the $40K was for
widgets CLIN 001 and the $1.5M FY10 O&M funds were
for spares CLIN 002. Any problems?
4. What if these were “initial spares”? Any problem?
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FUNDING ISSUES
1. Same facts – The $1.5M FY10 O&M funds were for
spares, but in researching the various Orders we find
that DO 004 was for spares also. Does that make DO
006 O&M funded spares improper? (Remember DO
004 was funded with Proc funds.)
2. Was DO 004 improperly funded?
3. What if the $40K of Proc was for data on DO 006.
Would that change your analysis of the use of O&M
funds on DO 006?
4. What if DOs 001-005 also had data ordered on them?
Problem?
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FUNDING ISSUES
In summary, what were the issues we were dealing with?
1. Use of Proc for data on a production contract.
2. Use of O&M for data on a production contract.
3. Use of Proc for spares on a production contract.
4. Use of O&M for spares on a production contract.
5. Use of Proc then O&M for data on a production
contract.
6. Use of Proc then O&M for spares on a production
contract.
7. Comingling funds on the same order for the same
requirement.
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Funding Of Definitization
Actions
The Relation Back Doctrine would require the use of the
original FY10 O&M appropriation for the funding of the
now definitized letter contract in FY 2011, i.e., you must
go back to the original source of funds at the time of
the creation of the contract.
Based upon this rule, what year(s) funding would be
required?
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Funding Of Definitization
Actions
In 1987, the Comptroller General issued an opinion that
stated that the relation back document was
discretionary, not mandatory, thereby allowing the
Agencies to fund either with the original appropriation
or with current funds.
Based upon this rule, what year(s) funding would be
required?
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Funding Of Definitization
Actions
In 2008, the Comptroller General issued an opinion that
stated that the relation back document was dependent
upon whether or not the action on the part of the
Government was required or discretionary.
Based upon this rule, what year(s) funding would be
required? (Answer)
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Funding Of Definitization
Actions
In 2008, the Comptroller General issued an opinion that
stated that the relation back document was dependent
upon whether or not the action on the part of the
Government was required or discretionary.
Based upon this rule, what year(s) funding would be
required?
FY10 funds must be used, since the definitization of the
contract is a discretionary action on the part of the
Contracting Officer, e.g., termination is also an option.
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Funding For Equipment
The component contracting officer comes to you with a
requirement for indigenous vehicle brand X. The
vehicle costs under $250,000. The correct source of
funds for this requirement is:
a. O&M Funds
b. Procurement Funds
c. RDT&E Funds
Same facts, except this is the USSOCOM PM asking. The
correct funds are?
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Funding For Equipment
For the component contracting officer the correct source of
funds for this requirement is:
a. O&M Funds
Rationale: The FMR has a $250K investment/expense
threshold and the cost per item is under $250K
For the USSOCOM PM the correct source of funds for this
requirement is:
b. Procurement Funds
Rationale: Where a PM is appointed at HQ SOCOM for a
commodity, it is centrally managed and funded with
OPA funds.
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Funding For Equipment
Question 1: If both execute a contract for the vehicles in
the same year, does USSOCOM have a fiscal problem?
If so, why?
Question 2: If the USSOCOM has a program and existing
contract for the same vehicles awarded in a previous
year, are O&M funds appropriate for the acquisition of
the component’s vehicles?
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Funding For Equipment
Question 1:
ANSWER: Yes. This is based upon the binding election rule, i.e.,
if two general appropriations are available for the same
purpose, once an election of the source of funds to be used
for that requirement, that source must be used for all
additional requirements. Ultimately, we have a potential
ADA to the value of the 2nd in time issued contract.
RESULT: Two perfectly acceptable contracting actions result in
an ADA based upon the Commander's determination that
where a PM is appointed for a particular commodity, it is
centrally managed and must be funded with OPA funds,
while the unit KO is using the FMR rules.
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Funding For Equipment
Question 2: If the USSOCOM has a program and existing
contract for the same vehicles awarded in a previous
year, are O&M funds appropriate for the acquisition of
the component’s vehicles?
ANSWER: Yes. This is based upon the determination by the
Commander that if a PM is appointed at USSOCOM,
then the item is centrally managed. We have a
potential ADA to the value of the component issued
contract.
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Expired Funding Request
Factual Situation: In 2007 a procurement contract was
issued for widgets costing $400,000 each. During the
course of performance a change in the performance
requirements was authorized by the contracting
officer without consideration of potential cost. During
contract closeout (2011) you receive an equitable
adjustment claim for the change dating back to 2007.
(Settlement of the claimed amount was delayed due
to audit issues.) What year procurement funds are
available to pay for this obligation that is properly
certified, reasonable, allocable to the contract, and
due to the actions of the Government?
FY 04, 05, 06, 07, 08, 09, 10, 11, and/or 12?
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CASE STUDY #5
Expired Funding Request
ANSWER:
FY 04 – Not available for contract award in FY07.
FY 05 – Available for K award and therefore available.
FY 06 – Available for K award and therefore available.
FY 07 – Available for K award and therefore available.
FY 08 – Not available for 07 K, expired for 11 settlement.
FY 09 – Available for 11 obligation and EA settlement?
FY 10 – Available for 11 or 12 obligation and settlement.
FY 11 – Available for 11 or 12 obligation and settlement.
FT 12 – Available for 12 obligation and EA settlement.
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SUMMARY
• Fiscal Rules are complex, intertwined and are
not susceptible to application of common
sense.
• If the situation is complex or if you are not
sure of the answer ask your lawyer for advice.
Remember, the wrong answer can led to a
violation of the Anti-Deficiency Act!
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