BNUMBER:  B-259274
DATE:  May 22, 1996
TITLE:  Funding of Maintenance Contract Extending Beyond Fiscal
Year

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Matter of:Funding of Maintenance Contract Extending Beyond Fiscal Year

File:     B-259274

Date:     May 22, 1996
          
DIGEST

1.  Section 2410a of title 10, U.S. Code, provides that funds 
appropriated to Department of Defense for a fiscal year are available 
for payments under maintenance contracts for 12 months beginning at 
any time during the fiscal year.  Kelly Air Force Base may award two 
vehicle maintenance contracts charging fiscal year 1994 money for each 
contract so long as each contract is properly awarded in fiscal year 
1994 and each contract does not exceed 12 months in duration.

2.  Section 2410a of title 10, U.S. Code, is a statutory exception to 
the bona fide needs rule.  The statute authorizes the Department of 
Defense to use current fiscal year budget authority to finance a 
severable service contract for equipment maintenance that continues 
into the next fiscal year.

3.  Air Force decision to leave 8 months of a 12-month severable 
service contract unfunded at the time of award does not violate the 
Antideficiency Act because of Availability of Funds clause in the 
contract.  Nor did the Air Force decision violate the bona fide needs 
rule, because severable services contracts are funded out of funds 
current at the time services are provided unless otherwise authorized 
by law.

DECISION
 
During the third option year of a fixed price contract for vehicle 
maintenance services, Kelly Air Force Base modified the contract 
period so that the contract would expire on August 31, 1994.  Kelly 
Air Force Base exercised a fourth option to extend performance from 
September 1, 1994 to August 31, 1995.  Because fiscal year 1994 budget 
authority was only available to finance performance through the first 
4 months, that is, until December 31, 1995, the Air Force modified the 
contract to provide that after that date, the government's obligation 
under the contract was contingent upon the contracting officer 
notifying the contractor in writing that funds were available for 
continued performance and that the contractor continue work.

A certifying officer at the Kelly Air Force Base asks whether the use 
of fiscal year 1994 budget authority to finance both the initial 11 
months of orders covered by the third option period and the 4 months 
of orders covered by the fourth option period violates 10 U.S.C.  sec.  
2410a and the bona fide needs rule.  There is also implicit in the 
facts and circumstances of this case a second question, namely, did 
the Air Force's failure to fund at the time of award the remaining 8 
months of the contract violate the Antideficiency Act, 31 U.S.C.  sec.  
1341(a)(1)(B).  For the reasons discussed below, we have no objection 
to the Air Force's financing of the contracts.

Background

According to the Air Force, in an effort to minimize the surge in 
workload at the end of the fiscal year, it has staggered contract 
periods for certain support service contracts, including this one, so 
that the contracts do not all expire simultaneously.  The Air Force 
awarded the vehicle maintenance contract here, a fixed price contract 
with K&M Maintenance Services, Inc., in 1990 for fiscal year 1991, 
with four 1-year option periods.  During the third option year, the 
Air Force modified the contract period, cutting it short by 1 month 
for that year, so that the contract would  expire on August 31 instead 
of September 30.  The Air Force correspondingly changed the fourth 
option period to run from September 1, 1994 to August 31, 1995. 
At the time of exercise of the fourth 1-year option, the Air Force 
only had fiscal year 1994 budget authority available to finance the 
first 4 months of the new contract (September through December 1994).  
Accordingly, the Air Force modified the contract by adding a clause 
stating that the government's obligation beyond December 31, 1994, was 
contingent upon the availability of appropriations.  The clause 
further provided that no legal liability on the part of the government 
would arise for contract performance beyond December 31, 1994, unless 
and until the contractor received notice in writing from the Air Force 
contracting officer that sufficient funds were available and that the 
contractor could continue work.  

The Air Force cited section 2410a of title 10, U.S. Code, as authority 
for its action.  Memorandum for SA-ALC/FM10 from SA-ALC/JAN, Sept. 22, 
1994.  Section 2410a authorizes the Air Force to use funds 
appropriated for a fiscal year for payments under contracts for the 
maintenance of tools, equipment, and facilities for 12 months 
beginning at any time during the fiscal year.  

The certifying officer has questioned the legality of the Air Force's 
action.  The certifying officer asserts that the Air Force used fiscal 
year 1994 funds to finance, effectively, a 15-month contract, i.e., 
the 11-month third option period (October 1, 1993 through August 31, 
1994) and the first 4 months of the fourth option period (September 1, 
1994 through December 31, 1994).  The certifying officer believes that 
while section 2410(a) permits the Department of Defense (DOD) to 
convert an in-house function to a 12-month contract at any time during 
a fiscal year, it does not permit DOD to order more than 12 months 
worth of services using fiscal-year funds.  The certifying officer 
reads section 2410a to permit the acquisition of only 12-month 
contract services using fiscal year funds, because the law refers to 
"payments under contracts . . . for 12 months beginning at any time 
during the fiscal year."  Our review of the facts and circumstances 
identified a second issue concerning the Anti-Deficiency Act 
prohibition, 31 U.S.C.  sec.  1341(a)(1)(B), against involving the 
government in a contract or an obligation in advance of the 
appropriation properly chargeable therefor.

10 U.S.C.  sec.   2410a and the Bona Fide Needs Rule
  
The first issue is one of statutory construction.  The statute at 
issue, 10 U.S.C.  sec.  2410a, reads as follows:

        "Funds appropriated to the Department of Defense for a fiscal 
        year shall be available for payments under contracts for any 
        of the following purposes for 12 months beginning at any time 
        during the fiscal year:

        "(1) The maintenance of tools, equipment, and facilities . . . 
        ."[1]

The Air Force Staff Judge Advocate takes the position that the use of 
fiscal year 1994 funds to support 15 months of services "is consistent 
with both the letter and spirit of 10 U.S.C.  sec.  2410a".  He reasons 
that when in October 1993, the Air Force awarded the contract for the 
third option period, the Air Force properly charged fiscal year 1994 
funds for the obligation incurred.  By virtue of 10 U.S.C.  sec.  2410a, 
when the Air Force on September 1, 1994, entered into a contract  for 
the fourth option period, it necessarily charged fiscal year 1994 
funds for the 4-month liability it incurred.  The only limitation in 
10 U.S.C.  sec.  2410a is that the contract may not exceed 12 months in 
duration.  The fact that the Air Force could obligate fiscal year 
funds to cover a period in excess of 12 months is without "any legal 
significance."

We agree with the Air Force's reading of the statute.  In our opinion, 
the phrase "for 12 months" modifies "contracts" and not "payments."  
Fiscal year appropriations have long been available to make payments 
for more than 12 months to liquidate valid obligations.  We know of no 
reason for Congress to enact legislation to limit payments on valid 
obligations only to 12 months.  If Congress had intended such a 
significant departure from settled law, we think it would have more 
clearly so indicated.  

The purpose of 10 U.S.C.  sec.  2410a is to overcome the bona fide needs 
rule of this Office.  By making current fiscal year budget authority 
available in the next fiscal year when it would otherwise not be 
available, section 2410a is a statutory exception to the bona fide 
needs rule.  The bona fide needs rule provides that a fiscal year 
appropriation may be obligated only to meet a legitimate, or bona 
fide, need arising in the fiscal year for which the appropriation was 
made.[2]  For service contracts, whether an expense was properly 
incurred or properly made during the period of availability depends 
upon whether the services are severable or nonseverable.  A 
nonseverable contract is essentially a single undertaking that cannot 
be feasibly subdivided.  B-240264, Feb. 7, 1994.  It is considered a 
bona fide need of the fiscal year in which the agency entered into the 
contract.  Consequently, agencies should record nonseverable service 
contracts as obligations at the time of award.  Service contracts, 
where the services are continuing and recurring in nature, such as the 
vehicle maintenance contract here, are severable and are chargeable to 
the appropriation current at the time services are rendered.  See 60 
Comp. Gen. 219, 221 (1981).  By definition, severable services address 
needs of the time the services are rendered.  71 Comp. Gen. 428, 430 
(1992).

As a general rule, a severable service contract crossing fiscal years 
and financed exclusively from annual appropriations in the year of 
award requires specific statutory authority.  71 Comp. Gen. at 430.  
Section 2410a provides the requisite statutory authorization for DOD 
vehicle maintenance contracts.  By making current year budget 
authority available for such contracts for a 12-month period 
"beginning at any time during a fiscal year," section 2410a clearly 
exempts DOD from the bona fide needs rule as it ordinarily applies to 
severable service contracts.  It permits DOD to obligate budget 
authority covering the entire, annual contract at the time it enters 
into the contract, similar to nonseverable service contracts, rather 
than budget authority available at the time the services are rendered.  
The fact that fiscal year funds may be used to make payments for more 
than 12 months of services is a consequence of the law that, in the 
words of the Air Force Staff Judge Advocate, has "no legal 
significance."

Antideficiency Act

The second issue in this case is application of the basic proscription 
of the Antideficiency Act contained in 31 U.S.C.  sec.  1341(a)(1)(B).  The 
Antideficiency Act prohibits an officer or employee of the United 
States from "involving [the] government in a contract or obligation 
for the payment of money before an appropriation is made unless 
authorized by law."  31 U.S.C.  sec.  1341(a)(1)(B).  Here, the Air Force, 
as a result of its actions during the period questioned by the 
certifying officer, awarded two contracts:  one covering the 11-month 
third option period and the other covering the 12-month fourth option 
period.  With respect to the latter contract, the Air Force included 
an Availability of Funds clause in an attempt to limit its liability 
under the contract to the amount of fiscal year 1994 funds obligated 
to cover performance in the first 4 months, that period beginning 
September 1, 1994 and ending December 31, 1994, of the 12-month 
contract:

     "No legal liability on the part of the Government for any payment 
     may arise for performance under this contract beyond 31 December 
     1994, until funds are made available to the Contracting Officer 
     for performance and until the contractor receives notice of 
     availability to be confirmed in writing by the Contracting 
     Officer."

Under these circumstances, the issue is whether the Air Force involved 
the government in a contract for the payment of money in advance of 
the appropriation available for the remaining 8-month period of the 
contract without authority of law.   
We think the resolution of this issue is controlled by our decision in 
A-60589,    July 12, 1935.  In order to even out the workload, the 
Procurement Division of the Treasury Department adopted the practice 
of staggering the award of contracts.  To this end, the Treasury 
Department awarded a contract for gear oil, the contract term running 
from January 1, 1935 to March 31, 1936 (the then fiscal year ran from 
July 1 to June 30).  The contract was for an indefinite quantity and 
imposed no financial liability on the government until the government 
placed an order;  the only obligation under the contract was a 
negative one--not to procure from someone else.  Even though the 
contract extended beyond the period of availability of the annual 
appropriation involved, we did not object to the "contractual 
obligation" as a violation of the Anti-Deficiency Act, 31 U.S.C.  sec.  
1341(a)(1)(B).[3]

We have had occasion to revisit our decision in A-60589, July 12, 
1935, and expressly declined to overrule it.  48 Comp. Gen. 497, 500 
(1969).  In 48 Comp. Gen. 497, 500 (1969), we questioned whether the 
decision was "technically correct" in light of 42 Comp. Gen. 272 
(1962).  However, since we had permitted 1-year requirements contracts 
under fiscal year appropriations to extend beyond the end of the 
fiscal year "for over 30 years apparently in reliance upon the July 
12, 1935, decision [A-60589]," we did not object to the continuance of 
this practice.            Id. at 500.

Today, as in 1969, we see no reason to disturb the implicit holding of 
A-60589, July 2, 1935, namely, that a naked contractual obligation 
that carries with it no financial exposure to the government does not 
violate the Antideficiency Act.[4]  Indeed, the criticism of the logic 
of A-60589 contained in 48 Comp. Gen. 497, 500, is arguably based on a 
misreading of the facts and the rationale for our decision in 42 Comp. 
Gen. 272 (1962).  (See, in this regard, our discussion of the effect 
of a Limitation of Funds clause in light of the Antideficiency Act in 
71 Comp. Gen. at 431.)  However, we need not resolve that matter here 
since we are persuaded that the Availability of Funds clause included 
in the contract converted the government's obligation for the 
remaining 8 months of the fourth option period contract to no more 
than a "negative" obligation not to procure maintenance services 
elsewhere should such services be needed.  Since section 2410a 
extended the availability of Air Force's budget authority beyond the 
end of the fiscal year, the critical point in time for Antideficiency 
Act purposes was the date on which the Air Force was to exhaust the 
amount of its fiscal year 1994 appropriations.  At this point, the Air 
Force had a choice:  either fund the remaining term of the contract 
with fiscal year 1995 funds or do without the maintenance services.  
The effect of the Air Force's inclusion of the Availability of Funds 
clause, for fiscal law purposes, was to convert the government's 
financial obligation to only a contractual obligation not to procure 
elsewhere.

Accordingly, we do not object to the Air Force's financing of its 
fourth option period, beginning September 1, 1994.

/s/Robert P. Murphy
for Comptroller General
of the United States    

1. Section 2410a is a codification of a freestanding, permanent 
authority contained in a continuing defense appropriation for fiscal 
year 1986.  Pub. L. No. 99-190,  sec.  8005(e), 99 Stat. 1202-1203 (1985).  
The language of section 8005(e) of Public Law 99-190 is not materially 
different from section 2410a and as relevant here simply made fiscal 
year DOD appropriations available for "payments under contracts for 
maintenance of tools and facilities for 12 months beginning at any 
time during the fiscal year."

2. The rule has its statutory basis in section 1502(a) of title 31, 
U.S. Code, which provides:  "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."

3. We did object in this case to the 15-month term of the contract.  
Title 41 U.S.C., Section 13, then Revised Statutes  sec.  3735, limits the 
duration of contracts for stationery and other supplies to one year 
from the date of contract award.  

4. We do not view our conclusion here or our reliance on A-60589, July 
12, 1935, as inconsistent with the Supreme Court's decision in Leiter 
v. United States, 271 U.S. 204 (1925) or our decisions based thereon.  
See 63 Comp. Gen. 129 (1983) (3-year Multiple Award Schedule 
agreements do not violate Anti-Deficiency Act since there is no 
binding obligation to expend funds until agencies issue purchase 
orders against MAS agreements).