TITLE: Bureau of Customs and Border Protection--Automated Commercial Environment Contract, B-302358, December 27, 2004
BNUMBER: B-302358
DATE: December 27, 2004
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Decision
Matter of: Bureau of Customs and Border Protection--Automated Commercial
Environment Contract
File: B-302358
Date: December 27, 2004
DIGEST
1. Customs's Automated Commercial Environment (ACE) contract was an
indefinite delivery, indefinite quantity (IDIQ) contract and therefore was
not subject to the multiyear contracting requirements of 41 U.S.C. S 254c,
including the termination provisions in that section.
2. Upon award of Automated Commercial Environment (ACE) contract, Customs
should have obligated the contract minimum of $25 million in accordance
with 31A U.S.C. S 1501(a), the recording statute, to ensure the integrity
of Customs's obligational accounting records.
DECISION
The Bureau of Customs and Border Protection (Customs)[1] and the Office of
Inspector General (OIG), Department of Homeland Security, have jointly
requested our decision, pursuant to 31 U.S.C. S 3529, concerning
implementation of the Customs modernization program[2] contract
(Tc-2001-025), known as the Automated Commercial Environment (ACE)
contract. Letter from Clark Kent Ervin, Acting Inspector General,
Department of Homeland Security, and Robert C. Bonner, Commissioner,
Bureau of Customs and Border Protection, to David Walker, Comptroller
General, GAO, Dec. 5, 2003. Specifically, the requestors ask whether
Customs should have obligated estimated termination costs pursuant to the
Federal Acquisition Streamlining Act's multiyear contracting authority,
codified at 41 U.S.C. S 254c. Section 254c permits an agency to enter into
a contract for up to 5A years and requires the agency, at the time of
contract award, to obligate the estimated costs of termination (as well as
the cost of the first fiscal year in which the contract is in effect)
unless the agency obligates for the full period of the contract.
OIG's position is that the ACE contract is a multiyear contract governed
by the section 254c requirement to obligate termination costs and that
Customs's failure to obligate estimated termination costs could result in
an Antideficiency Act violation if Customs needs to terminate the contract
before its expiration and there are insufficient funds to cover these
costs. Customs ACE Contract Management: Deficiencies Noted With Customs
Modernization Contract, OIG-03-087 at 7 (June 30, 2003) (hereinafter OIG
Report). Customs maintains that the ACE contract is not subject to section
254c. Customs says that it is an indefinite delivery indefinite quantity
(IDIQ) contract, funded by a no-year appropriation, and that Customs has
correctly followed the rules for obligating funds for IDIQ contracts.
Letter from Douglas M. Browning, Deputy Commissioner of Customs, to Jeffrey
Rush, Office of Inspector General, Department of the Treasury, Dec. 20,
2002.[3]
As we explain below, we conclude that the ACE contract is an IDIQ contract
and therefore is not subject to the requirements of section 254c,
including the termination provisions of that section. Consequently,
Customs did not need to obligate estimated termination costs at the time
of contract award. We also conclude that Customs, at the time of contract
award, incurred a legal liability of $25 million for its minimum contractual
commitment, but failed to obligate that amount. Customs did not record its
$25 million obligation until 5 months after contract award. There is no
indication in the submitted record that Customs did not have sufficient funds
to cover the obligation at the time of contract award. Certainly, five
months later when Customs finally recorded its obligation, Customs did have
sufficient budget authority to meet the contractual minimum. Consistent
with 31 U.S.C. S 1501(a)(1), commonly referred to as the recording statute,
Customs should have recorded an obligation against a currently available
appropriation for the authorized purpose in an amount reflecting the
liability incurred as a result of a binding written agreement at the time
the contract was awarded.
BACKGROUND
On April 27, 2001, Customs awarded its Modernization Prime Integration
Contract, commonly referred to as the ACE contract, to IBM Global
Services.[4] The contract provided for an initial performance period of 5
years and included two options, each option allowing Customs to extend the
contract for an additional 5 years. ACE Contract at B-1, B-5, B-8. The
contract provided a minimum order amount of $25 million and a maximum order
amount of $5 billion. In other words, at the time of contract award, Customs
committed to an order of $25 million; Customs, at its election, may order
additional services and supplies up to $5 billion through delivery and task
orders under the contract.
The OIG Position
Because of the large sum that Customs can expend under the contract, OIG
conducted two oversight audits of the contract. OIG Report at 2. The
conclusions of OIG's second report, dated June 30, 2003, are at issue
here. In that report, OIG concluded that the ACE contract is "both a
multiyear and IDIQ contract." [5] OIG Report at 4. OIG concluded further
that because the ACE contract is a "multiyear contract," Customs was
required to comply with section 254c and FAR Subpart 17.1, which govern
multiyear contracting. Id. at 7-10, 12-13. OIG found that Customs had
not obligated estimated termination costs for the contract. Id. at 3.
OIG concluded that section 254c applies primarily for two reasons.[6]
First, the base ACE contract covers a period of 5 years. Referring to the
two 5-year option periods, OIG concluded, "Consequently, the full term of
this contract could cover a 15-year period." Id. at 12, 31-32. To OIG,
this is important because multiyear contracts are governed by section 254c.
Id. at 12-13.
Second, OIG noted that Customs itself, at the time of procurement,
proceeded as if this were a section 254c contract. OIG reported that upon
reviewing the draft solicitation, the Customs Chief Counsel had advised
the Procurement Division that a multiyear contract procurement action
required a "Determination and Finding" (D&F) signed by the Commissioner.
OIG Report at 30. According to OIG, a D&F is required only of section
254c contracts. Id. The contracting officer, on this advice, prepared a
D&F. Id. In addition, in both its final solicitation and the awarded
contract, Customs included the multiyear contract clause required by the
Federal Acquisition Regulation.[7]
The Customs Position
Customs disagrees with the OIG conclusion. Letter from Douglas M.
Browning, Deputy Commissioner, U.S. Customs Service, to Jeffrey Rush,
Office of Inspector General, U.S. Department of the Treasury, Dec. 20,
2002. Customs contends that the contract is an IDIQ contract, and as such
is not subject to the requirements of section 254c. Customs bases its
position on, among other things, the plain language of the contract. Id.
Customs maintains that because the ACE contract is not governed by section
254c, it is not required to obligate funds for estimated termination
costs. Id.
In a letter to this Office dated February 3, 2004, the Customs Chief
Counsel took the position that although "the evidence cited by the IG
could conceivably lead to some confusion" as to the correct contract type,
"the plain language of the contract, the underlying conflicting nature of
the two contract types (IDIQ vs. Multi-Year), and the actions of the
parties to the contract" support its position that the ACE contract is
solely an IDIQ contract. Letter from Alfonso Robles, Chief Counsel,
Customs, to Jon Barker, Senior Attorney, GAO, Feb. 3, 2004. The Chief
Counsel also noted that "the parties have administered the contract as an
IDIQ contract" and that Customs "has already fulfilled its contractual
obligation to the ACE contractor by issuing task orders in excess of the
$25 million minimum liability stated in the contract." Id.
ANALYSIS
It is widely accepted that the plain language of a contract, if
unambiguous, is the best source to use to interpret it. In re: Crow
Winthrop Operating Partnership, 241 F.3d 1121, 1124 (9th Cir. 2001); In
re: Cambridge Biotech Corp., 186 F.3d 1356, 1374
(Fed. Cir. 1999); Kokomo Tube Co. v. Dayton Equipment Services Co., 123
F.3d 616, 624 (7th Cir. 1997). Not only will courts look to the terms of
a contract to determine its type, but they will do so in preference to
statements of the parties external to the contract itself. In Crown
Laundry and Dry Cleaners v. United States, 29 Fed. Cl. 506, 515 (1993),
the Court of Federal Claims held:
"In determining which type of contract was entered into by the parties,
the court . . . is not bound by the name or label given to a contract.
Rather, it must look beyond the first page of the contract to determine
what were the legal rights for which the parties bargained, and only then
characterize the contract. See A-Transport Northwest Co. v. United
States, 27 Fed. Cl. 206, 214 (1993); Ralph Constr., Inc. v. United States,
4 Cl. Ct. 727, 731 (1984); Mason v. United States, 222 Ct. Cl. 436, 442,
615 F.2d 1343, 1346 (1980)."
We examined the language of the ACE contract and find it clear that the
contract is an IDIQ contract. In addition, Customs has generally
administered it as an IDIQ contract. The fact that the term of the ACE
contract covers more than one year does not compel a conclusion that it is
subject to section 254c. Apparently the multiple-year term of the ACE
contract has resulted in some confusion as to the nature of the contract
and the obligational consequences of the contract. In this decision, we
address the fundamental difference between IDIQ contracts (such as the ACE
contract), multiple-year contracts, and multiyear contracts (such as
section 254c contracts).
IDIQ Contracts
An IDIQ contract is a form of an indefinite-quantity contract. An
indefinite-quantity contract provides for an indefinite quantity of
supplies or services, within stated limits, during a fixed period. 48
C.F.R. S 16.504(a). See also Mason v. United States, 442, 615 F.2d 1343,
1346, n.5 (Ct. Cl. 1980), cert. denied 449 U.S. 830 (1980); Cheryl Lee
Sandner and Mary Ita Snyder, Multiple Award Task and Delivery Order
Contracting: A Contracting Primer, 30 Pub. Cont. L. J. 3, 461 (2001).
Although the quantity is indefinite, an IDIQ contract must require the
government to order, and the contractor to furnish, at least a stated
minimum quantity of supplies or services. FAR S 16.504(a). If additional
amounts above the minimum are ordered, the contractor must furnish any
additional quantities, but not to exceed the stated maximum. Id. Also,
while the agency may place orders at any time during a fixed period,
actual delivery dates during that period are undefined.
After award of an IDIQ contract, the government places task or delivery
orders with the contractor (or contractors) as the government's needs
become definite. IDIQs have been a common acquisition vehicle for several
years. See GAO/NSIAD-00-56, Contract Management: Few Competing Proposals
for Large DOD Information Technology Orders, March 2000 at 5. In 1994,
the Federal Acquisition Streamlining Act (FASA) added sections 303H
through 303K to the Federal Property and Administrative Services Act of
1949, codified at 41 U.S.C. SS 253h-253k, providing specific statutory
authority for "task or delivery order" contracts. Pub. L.
No. 103-355, SS 1004, 1054, 108 Stat. 3261-3265 (Oct. 12, 1994). Section
253k of title 41 of the U.S. Code defines task and delivery order contracts
as follows:
"(1) The term `task order contract' means a contract for services that
does not procure or specify a firm quantity of services (other than a
minimum or maximum quantity) and that provides for the issuance of orders
for the performance of tasks during the period of the contract.
"(2) The term `delivery order contract' means a contract for property
that does not procure or specify a firm quantity of property (other than a
minimum or maximum quantity) and that provides for the issuance of orders
for the delivery of property during the period of the contract."
41 U.S.C. S 253k.
Task or delivery order contracts under FASA include both "requirements
contracts"[8] and indefinite quantity contracts, such as IDIQ
contracts.[9] See, e.g., John A. Howell, Governmentwide Agency Contracts:
Vehicle Overcrowding on the Procurement Highway, 27 Pub. Cont. L. J. 395,
397 (1998). The FAR implements the FASA task and delivery order contract
provisions in Subpart 16.5, "Indefinite-Delivery Contracts," which, in FAR
S16.504, "Indefinite-quantity contracts," establishes criteria for the use of
indefinite-delivery contracts that are also indefinite-quantity contracts,
i.e., IDIQ contracts:
"Contracting officers may use an indefinite-quantity contract when the
Government cannot predetermine, above a specified minimum, the precise
quantities of supplies or services that the Government will require during
the contract period, and it is inadvisable for the Government to commit
itself for more than a minimum quantity. The contracting officer should
use an indefinite-quantity contract only when a recurring need is
anticipated."
48 C.F.R. S 16.504(b) (2003).
The ACE contract is a typical IDIQ contract, governed by 41 U.S.C. SS
253h-253k and FAR SS 16.504-16.506. The contract obligates the government
to buy only a specified minimum amount of supplies and services and calls
for the government to place task or delivery orders with the contractor as
its requirements become definite. This is the essential nature of an IDIQ
contract.
Additionally, the terms of the ACE contract, as awarded, make it clear
that it is an IDIQ contract. For example, the contract in subsection I.1
incorporates FAR clause 52.216-22, which states, "This is an
indefinite-quantity contract for the supplies or services specified, and
effective for the period stated, in the Schedule. The quantities of
supplies and services specified in the Schedule are estimates only and are
not purchased by this contract." Subsection B.4 of the contract provides
that "[t]he Government shall order services/supplies worth a minimum of
$25 million ($25,000,000) under this Contract." Subsection H.4 includes
ordering procedures typical of IDIQ contracts. Section L includes FAR
clause 52.216-1, Type of Contract, which states that the government
contemplates the award of an IDIQ type contract with delivery and task
orders to be awarded.
When an agency executes an indefinite-quantity contract such as an IDIQ
contract, the agency must record an obligation in the amount of the
required minimum purchase. In an IDIQ contract, the government commits
itself to purchase only a minimum amount of supplies or services. FAR S
16.501-2(b)(3). At the time of award, the government has a fixed
liability for the minimum amount to which it committed itself. See FAR S
16.504(a)(1) (specifying that an IDIQ contract must require the agency to
order a stated minimum quantity). An agency is required to record an
obligation at the time it incurs a legal liability. 65 Comp. Gen. 4, 6
(1985); B-242974.6, Nov. 26, 1991. Therefore, for an IDIQ contract, an
agency must record an obligation for the minimum amount at the time of
contract execution.
Further obligations occur as task or delivery orders are placed and are
chargeable to the fiscal year in which the order is placed. See, e.g., 60
Comp. Gen. 219 (1981). This principle was explained in 63 Comp. Gen. 129
(1983), in which we discussed funding of orders placed under GSA's
Multiple Award Schedule (MAS) program:
"Thus, under the MAS agreements an agency does not actually bind the
Government to make a payment unless and until it administratively
determines that it has a requirement for a scheduled item and then issues
a purchase order for it. Viewed as of the time FSS [Office of Federal
Supply and Service] executes the agreements, no binding commitment which
will necessitate the expenditure of funds is created because purchasing
agencies have not ordered any scheduled items. Since the mere signing of
an agreement does not result in a commitment for the payment of funds, no
"obligation in advance of appropriations" prohibited by 31 U.S.C. S
1304(a)(1)(B) and in effect by 41 U.S.C. S 11 comes into being. [Footnote
omitted.] Consequently, FSS would not violate those two provisions at the
time MAS agreements are executed."
63 Comp. Gen. at 131-132.
The government controls the decision to make additional purchases (through
task and delivery orders), the timing of those purchases, and the amount
of those purchases. We discuss the obligational consequences of IDIQ and
other variable quantity contracts in Principles of Federal Appropriations
Law. GAO, Principles of Federal Appropriations Law, Vol. II, ch. 7, at
7-16 to 7-19 (2d ed. 1992) (commonly known as the Red Book). See also
Office of Management and Budget (OMB) Circular No. A-11, S 20.5 (c).
As indicated above, the ACE contract included a minimum order amount of
$25A million. Customs, however, did not record any obligation for the ACE
contract at the time of contract award. Instead, Customs recorded a $25
million liability five months later, on September 28, 2001, when it issued
three task orders. Customs has advised us that its failure to record the
$25 million obligation at time of contract award was inadvertent. It had
expected to issue the three task orders concurrently with the award of the
contract. Had it done so, Customs would have recorded the obligation at
that time. Because of the technical nature of the task orders, however,
it took Customs more time to process them than Customs had expected. In
the effort to prepare and process the task orders, Customs neglected to
record its $25 million obligation. Customs's failure to obligate the ACE
contract's minimum order amount of $25 million on contract award was
inconsistent with the principles for funding of IDIQ contracts, set forth
above, which require that the required minimum purchase must be obligated
when the contract is executed. Nonetheless, Customs has advised us that it
"has already fulfilled its contractual obligation to the ACE contractor by
issuing task orders in excess of the $25 Million minimum liability stated in
the contract." Letter from Alfonso Robles, Chief Counsel, Customs, to
Jon Barker, Senior Attorney, GAO, Feb. 3, 2004. There is no indication in
the submitted record that Customs did not have sufficient funds to cover the
obligation at the time of its contract award. Certainly, 5 months later when
Customs issued the three task orders and recorded the $25 million obligation,
it had sufficient budget authority.
As noted above, Customs failed to record the $25 million minimum order
amount as an obligation in its obligational accounting records at the time
of ontract award. Consistent with 31 U.S.C. S 1501(a)(1), commonly
referred to as the recording statute, Customs should have recorded an
obligation against a currently available appropriation for the authorized
purpose in an amount reflecting the liability incurred as a result of a
binding written agreement at the time the contract was awarded. To ensure
the integrity of Customs's obligational accounting records needed for a
variety of reasons not least of which is compliance with the
Antideficiency Act, we recommend that Customs take the necessary steps to
ensure timely obligation of the minimum financial liability represented by
IDIQ contracts.
Multiyear Contracts Under Section 254c Section 254c authorizes
executive agencies to "enter into a multiyear contract for the acquisition
of property or services" if certain conditions are met. This multiyear
contracting authority provides an exception to the Antideficiency Act,
which prohibits obligations or expenditures in advance of appropriations,
31 U.S.C. S 1341(a), and the time statute, which provides that an
appropriation is available only to cover legitimate bona fide needs of an
agency during the appropriation's period of availability, 31 U.S.C.
S 1502(a). Section 254c permits agencies to bind the government in advance
of the availability of appropriated funds.[10] Subsection 254c(d) defines
a multiyear contract as "a contract for the purchase of property or services
for more than one, but not more than five, program years." Under section
254c, an agency awarding a multiyear contract needs only to have funds
available for "the first fiscal year in which the contract is in effect,
and for the estimated costs associated with any necessary termination of
such contract." 41 U.S.C. S 254c(a)(1).
Subsections (b) and (c) of sections 254c relate to cancellation of the
contract in the event that funds are not made available:
"(b) Termination clause. A multiyear contract entered into under the
authority of this section shall include a clause that provides that the
contract shall be terminated if funds are not made available for the
continuation of such contract in any fiscal year covered by the contract.
Amounts available for paying termination costs shall remain available for
such purpose until the costs associated with termination of the contract
are paid.
"(c) Cancellation ceiling notice. Before any contract described in
subsection (a) of this section that contains a clause setting forth a
cancellation ceiling in excess of $10,000,000 may be awarded, the
executive agency shall give written notification of the proposed contract
and of the proposed cancellation ceiling for that contract to the
Congress, and such contract may not then be awarded until the end of a
period of 30 days beginning on the date of such notification."
Procedures for cancellation of contracts under section 254c are set forth
in the FAR at 48 C.F.R. SS 17.106-1, 17.108 (2003).[11]
Section 254c was enacted by FASA, Pub. L. No. 103-355, Oct. 13, 1994, S
1072, 108 Stat. 3270. Its purpose was to "permit civilian agencies to enter
into multiyear contracts where sufficient appropriations are available and
obligated and the agency head determines that the need for property or
services is reasonably firm and continuing and such a contract is in the
best interest of the United States." H.R. Rep. No. 103-712, at 183
(1994). Although section 254c provides agencies with the discretion to
enter into multiyear contracts when certain conditions are satisfied, it
does not require agencies to do so. B-292179, B-292179.2, B-292179.3,
June 27, 2003.
Section 254c (and certain other multiyear contracting authorities) are
implemented in Subpart 17.1 of the FAR. 48 C.F.R. Subpart 17.1 (2003).
FAR S 17.104 provides in part: "Multiyear contracting is a special
contracting method to acquire known requirements in quantities and total
cost not over planned requirements for up to 5A years unless otherwise
authorized by statute, even though the total funds ultimately to be
obligated may not be available at the time of contract award."
48 C.F.R. S 17.104(a) (2003).
It is critical in this case to distinguish between "multiyear contracting"
and "multiple year contracts." The unfortunate partial homonymy of the
terms "multiyear" and "multiple year" evidently led to confusion both at
Customs and at OIG and is the essential origin of the current dispute.
The term "multiple year contracts" is commonly used to refer to contracts
that extend beyond one year. It includes multiyear contracts, such as
those authorized by section 254c, obligating the government for future
years. It may also include contracts that extend for more than one year,
but do not obligate the government beyond the initial year.[12] This
distinction is explained in FAR Part 17:
"The key distinguishing difference between multiyear contracts and
multiple year contracts is that multiyear contracts, defined in the
statutes cited at 17.101, buy more than 1 year's requirement (of a product
or service) without establishing and having to exercise an option for each
program year after the first."
48 C.F.R. S 17.103. See, e.g., definition of multiple year contracts in
FAR Part 22.10 (Multiple year contracts means "contracts having a term of
more than 1 year regardless of fiscal year funding. The term includes
multi-year contracts (see 17.103)." 48A C.F.R. S 22.1001.
A few years after the enactment of FASA, Professors Cibinic and Nash noted
the "confusion" created by the failure to distinguish between "multi-year
contracting" and "multiple year contracts":
"Multiple-Year Requirements Contracts Distinguished" We use the term
`multiple-year' to distinguish such a contract from a `multiyear'
contract. This is not just an exercise in semantics. Considerable
confusion has arisen through overly broad use of the term "multiyear."
That term should only be used when referring to the unique arrangements
covered in FAR Subpart 17.1 . . . . At present, FAR Part 17 does not use
the term `multiple-year contract.' We use it here to refer to a contract
that covers performance over a number of years but is not a multiyear
contract. It could be a contract for supplies or nonseverable services
that require more than one year to perform."
Ralph C. Nash and John Cibinic, Multiple-Year Task and Delivery Order
Contracts: Can Annual Funds Be Used?, Nash & Cibinic Report, June 1996 at
P 31.[13] See also W.A Noel Keyes, Keyes Encyclopedic Dictionary of
Contract and Procurement Law, 5th Ed., 1992 at 30, 32 (definitions of
"multi-year contracts" and "multiple year contracts").
We recognize that the contract file is replete with references to
"multiyear contracting," including FAR Clause 52.217-2, Cancellation
Under Multiyear Contracts. Many of these references apparently result from
imprecise usage and apparent confusion between "multiyear contracting"
and "multiple year contracts," discussed above. Further, at various times
in the acquisition planning process, Customs's actions appeared consistent
with an intent to award a "multiyear contract." Nonetheless, as explained
above, Customs plainly awarded an IDIQ contract and not a multiyear contract.
Because the ACE contract is an IDIQ contract, it is not governed by
section 254c and implementing regulations in FAR Subpart 17.2, including
the contract cancellation provisions. IDIQ contracts and multiyear
contracts have substantially inconsistent statutory and regulatory
requirements. As discussed above, section 254c authorizes multiyear
contracts when "the need for the property or services is reasonably firm
and continuing over the period of the contract." 41 U.S.C. S 254c(a)(2)(A).
An IDIQ contract, on the other hand, is a contract "that does not procure or
specify a firm quantity" of supplies or services, other than a minimum or
maximum quantity.
41 U.S.C. SA 253k(1)-(2). The FAR authorizes multiyear contracts only
when "the need for the supplies or services is reasonably firm and
continuing over the period of the contract." 48 C.F.R. S 17.105-1(a)(1).
The FAR authorizes an IDIQ contract, however, "when the Government cannot
predetermine, above a specified minimum, the precise quantities of
supplies or services that the Government will require during the contract
period." 48 C.F.R. S 16.504(b). Similarly, multiyear contracts "buy more
than one year's requirement (of a product or service)," 48 C.F.R. S
17.103, but supplies and services specified in an IDIQ contract "are
estimates only and are not purchased" by the contract. 48 C.F.R. S
52.216-22 (2003). A single contract cannot satisfy these wholly
inconsistent sets of statutory and regulatory requirements.
It is plain, therefore, that the ACE contract is an IDIQ contract and
cannot also be a "multiyear contract" governed by section 254c and Part 17
of the FAR. As set forth above, the ACE contract has all the essential
indicia of an IDIQ contract and none of the indicia of a multiyear
contract. It is governed by sections 253h though 253k of Title 41 of the
U.S. Code and associated regulations in Part 16 of the FAR as well as
general principles regarding funding of indefinite quantity contracts,
discussed above.
CONCLUSION
The ACE contract is an indefinite delivery, indefinite quantity (IDIQ)
contract and therefore is not subject to the requirements of section 254c,
including the termination provisions in that section. Customs failed to
record the $25 million minimum order amount as an obligation in its
obligational accounting records at the time of contract award. Consistent
with 31 U.S.C. S 1501(a)(1), commonly referred to as the recording
statute, Customs should have recorded an obligation against a currently
available appropriation for the authorized purpose in an amount reflecting
the liability incurred as a result of a binding written agreement at the
time the contract was awarded. To ensure the integrity of Customs's
obligational accounting records needed for a variety of reasons not least
of which is compliance with the Antideficiency Act, we recommend that
Customs take the necessary steps to ensure timely obligation of the
minimum financial liability represented by IDIQ contracts.
Anthony H. Gamboa
General Counsel
------------------------
[1] The name of the Customs Service was changed to the Bureau of Customs
and Border Protection by Reorganization Plan Modification for the
Department of Homeland Security, effective Mar. 1, 2003, H.R. Doc. No.
108-32, 108th Congress,1st Session, set out as a note under 6 U.S.C. S
542. We use Customs throughout for both the Customs Service and the
Bureau of Customs and Border Protection.
[2] GAO has reviewed the Customs modernization program several times. The
most recent related GAO work product is GAO-04-719, Information
Technology: Early Releases of Customs Trade System Operating, But Pattern
of Cost and Schedule Problems Needs to Be Addressed, May 14, 2004.
[3] In view of the disagreement between OIG and Customs, OIG has suspended
the requirement for Customs to submit a corrective action plan pending our
decision.
[4] On December 21, 2000, the Consolidated Appropriations Act, 2001,
appropriated $258,400,000 to Customs for automation modernization "to
remain available until expended," and provided that, "not less than
$130,000,000 [of that amount] shall be for the development of the
Automated Commercial Environment." Pub. L. No. 106-554, 114
Stat. 2763, 2763A-131 (Dec. 21, 2000). To date, all subsequent
appropriations for the Automated Commercial Environment have been enacted
"to remain available until expended." Department of Homeland Security
Appropriations Act, 2004, Pub. L. No. 108-90, 117 Stat. 1137, 1139 (Oct.
1, 2003); Consolidated Appropriations Resolution, 2003, Pub. L. No. 108-7,
117 Stat. 11, 434 (Feb. 20, 2003);Treasury and General Government
Appropriations Act, 2002, Pub. L. No.A 107-67, 115 Stat. 514, 520 (Nov.
12, 2001).
[5] At the time of the audits, Customs was part of the Department of
Treasury. The Department of Homeland Security OIG is now responsible for
tracking compliance with the report's recommendations.
[6] OIG, in its report, addressed the multiyear character of the ACE
contract; OIG did not address the IDIQ character of the contract despite
concluding that the contract is "both a multiyear and IDIQ contract." OIG
Report at 2.
[7] FAR S 52.217-2 ("Cancellation Under Multiyear Contracts"), 48 C.F.R. S
52.217-2. The FAR requires agencies to include this clause "in
solicitations and contracts when a multiyear contract is contemplated."
48 C.F.R. S 17.109(a). The FAR is codified in title 48 of the Code of
Federal Regulations.
[8] "A requirements contract provides for filling all actual purchase
requirements of designated Government activities for supplies or services
during a specified contract period, with deliveries or performance to be
scheduled by placing orders with the contractor." FAR S 16.503(a), 48
C.F.R. S 16.503(a) (2003).
[9] See 48 C.F.R. S 16.501-2(a):
"There are three types of indefinite-delivery contracts: Definite-quantity
contracts, requirements contracts, and indefinite-quantity contracts. The
appropriate type of indefinite-delivery contract may be used to acquire
supplies and/or services when the exact times and/or exact quantities of
future deliveries are not known at the time of contract award. Pursuant to
10 U.S.C. 2304d and section 303K of the Federal Property and
Administrative Services Act of 1949, requirements contracts and
indefinite-quantity contracts are also known as delivery order contracts
or task order contracts."
[10] Other statutes in addition to section 254c authorize multiyear
contracting, e.g., 10 U.S.C. SS 2306b, 2306c. For a discussion of
multiyear contracting and its fiscal law implications, see GAO, Principles
of Federal Appropriations Law, Vol. I, ch. 5, at 5-44 to 5-48. (3d ed. 2004).
[11] Cancellation under section 254c in the event of nonavailability of
funds is distinct from "termination for convenience of the government,"
which is governed by FAR Part 49. 48 C.F.R. pt. 49.
[12] Using a no-year appropriation, Customs entered into a multiple year
contract, covering a period of five years. As discussed above, Customs
did not incur a 5-year financial obligation, however. At the time of
award, Customs incurred an obligation only for the $25 million of supplies
and services that it had agreed to purchase; during the 5-year contract
period, Customs would incur additional obligations whenever it might place
an order for additional supplies or services, and would charge the new
obligations to appropriations available at that time.
[13] In March 1995, the Federal Acquisition Regulatory Council published
in the Federal Register a proposed rule covering implementation of the
"Multiyear Contracting" provisions of FASA as part of FAR Case 94-710,
Special Contracting Methods. 60 Fed. Reg. 14340, 14341 (Mar. 16,
1995). The proposed rule included the following definitions in proposed
FAR S 17.103:
"Multiple year contract, as used in this subpart, means a contract having
a term of more than one year regardless of the type of funding that
applies.
"Multiyear contract means a contract for the purchase of supplies or
services for more than one, but not more than five, program years. A
multiyear contract may provide that performance under the contract during
the second and subsequent years of the contract is contingent upon the
appropriation of funds, and (if it does so provide) may provide for a
cancellation payment to be made to the contractor if appropriations are
not made."
The final rule covering multiyear contracting was published in July 1996,
but included no definition of "multiple year contract." 61 Fed. Reg.
39203, July 26, 1996. However, a definition of "multiple year contract"
is found at 48 C.F.R. S 22.1001.