TITLE: B-308969, Interagency Agreements--Obligation of Funds under an Indefinite Delivery, Indefinite Quantity Contract, May 31, 2007
BNUMBER: B-308969
DATE: May 31, 2007
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B-308969, Interagency Agreements--Obligation of Funds under an Indefinite Delivery, Indefinite Quantity Contract, May 31, 2007
Matter of: Interagency Agreements--Obligation of Funds under an Indefinite
Delivery, Indefinite Quantity Contract
File: B-308969
Date: May 31, 2007
DIGEST
The Department of the Interior, National Business Center, awarded a 1-year
indefinite delivery, indefinite quantity contract (IDIQ) on behalf of the
Department of Defense (DOD), having a period of performance from July 1,
2003, to June 30, 2004. The contract required the government to purchase a
minimum of $1 million in services from the contractor. The entire minimum
amount applicable to the IDIQ contract should have been obligated against
fiscal year 2003 funds; however, Interior and DOD only charged $45,000 to
the proper fiscal year appropriation. Accordingly, Interior and DOD should
adjust their accounts to correct the improper obligation.
DECISION
The Inspector General for the Department of the Interior requests our
decision under 31 U.S.C. sect. 3529 regarding issues raised during an
audit of transactions between the Department of the Interior (Interior)
and the Department of Defense (DOD).[1] This decision addresses the
transaction involving DOD's Personnel Security Research Center (PERSEREC)
and Interior's National Business Center Acquisition Services Division,
Southwest Branch (SWB), for acquisition of support services for
PERSEREC.[2]
The issue is whether SWB and/or DOD violated the Antideficiency Act when
SWB awarded a 1-year indefinite delivery, indefinite quantity (IDIQ)
contract on behalf of PERSEREC. The contract specified a guaranteed
minimum of $1 million over a 3-year period. Interior obligated $45,000 at
the time of award and $955,000 the following fiscal year.
As explained below, SWB should have obligated the contract's guaranteed
minimum of $1 million at the time of award using the fiscal year funds of
the year of contract award, 2003. Because SWB obligated only $45,000 of
the $1 million from fiscal year 2003 appropriations and incorrectly
obligated the balance from fiscal year 2004 appropriations, it potentially
risked committing an Antideficiency Act violation. It should now adjust
its accounts to reflect the proper obligation of fiscal year 2003 funds
for the full amount of the minimum. Also, since SWB was acting as DOD's
contracting agent and because DOD appropriations ultimately funded the
contract, as SWB adjusts its accounts, DOD should also adjust its
accounts. As with SWB, DOD should have obligated its fiscal year 2003
funds in the amount of the contract's guaranteed minimum, and it
incorrectly obligated the balance from fiscal year 2004 appropriations.[3]
Our practice when rendering decisions is to obtain the views of the
relevant federal agencies to establish a factual record and to elicit the
agency's legal position on the matter. GAO, Procedures and Practices for
Legal Decisions and Opinions, GAO-06-1064SP (Washington D.C.: Sept. 2006),
available at www.gao.gov/legal.htm. In this case, we contacted the General
Counsel of DOD and the Solicitor of Interior to obtain their legal views
and obtain factual information regarding the above-mentioned transaction.
The Solicitor provided documents and responses to our request for factual
information. Letter from David Bernhardt, Solicitor of the Interior to
Thomas H. Armstrong, Assistant General Counsel, GAO, Apr. 20, 2007
(Bernhardt Letter). He declined, however, to provide us with his legal
views regarding this matter. Id. The General Counsel of DOD also failed to
respond timely to our request for factual information or to our offer to
submit legal views. Although a response from the DOD General Counsel would
have been useful in our decision making process, we were able to obtain an
adequate record upon which to consider fully the issues raised through
documents provided to us and public documents such as Interior's and DOD's
Inspector General reports.
BACKGROUND
The Department of the Interior National Business Center, Acquisition
Services Division, Southwest Branch (SWB) provides acquisition services to
other government agencies. See www.nbc.gov/organization/index.html (last
visited May 30, 2007). The Center's operations are financed by the working
capital fund established by 43 U.S.C. sect. 1467. That section provides:
"There is established a working capital fund of $300,000, to be
available without fiscal year limitation, for expenses necessary for the
maintenance and operation of . . . such . . . service functions as the
Secretary determines may be performed more advantageously on a
reimbursable basis. Said fund shall be reimbursed from available funds
of bureaus, offices, and agencies for which services are performed at
rates which will return in full all expenses of operation, including
reserves for accrued annual leave and depreciation of equipment."
The fund is a revolving fund which charges its customers fees for the
costs of the services provided. On February 11, 2003, SWB awarded a
contract pursuant to an interagency agreement between DOD and SWB to
Northrop Grumman Mission Systems to provide support to the Defense
Personnel Security Research Center (PERSEREC), contract number
NBCCHD030003.
PERSEREC was established in 1986 following a number of espionage cases
involving United States employees. Devaney Letter, enclosure at tab 3. Its
mission is to improve the effectiveness, efficiency, and fairness of DOD's
personnel security systems. Id. It conducts long-term programmatic
research for the security and intelligence communities, provides studies
and analyses supporting policy formation and systems operation,
disseminates research information to security policymakers and
practitioners, and develops tools and job aids for security professionals.
Id. However, PERSEREC has not had enough staff to accomplish its mission
and has outsourced its research since 1987. Id.
The contract calls for Northrop Grumman to provide services to design and
conduct personnel security research and development tasks. Contract sect.
C.1. The contract is an indefinite delivery, indefinite quantity contract.
Contract sect. B.1. At the time of award, February 11, 2003, the contract
stated that the period of performance was "1 July 2003 through 30 June
2004." Contract sect. F.4. SWB orders services under the contract by
issuing cost-plus-fixed-fee task orders to the contractor. Contract sect.
B.1. Another clause of the contract, I.13, entitled "Indefinite Quantity,"
provided in part that "[t]he Government shall order at least the quantity
of supplies or services designated in the Schedule as the `minimum'." The
contract maximum is $46,000,000. Contract sect. F.4. The contract states
that the minimum guarantee is "$1,000,000 over a 3-year period." Contract
sect. B.2.
SWB did not record any obligation at the time of contract award. SWB,
using funds transferred to it by DOD Military Interagency Purchase
Requests (MIPRs), recorded obligations as it issued task orders. DOD
recorded obligations upon SWB's acceptance of the MIPRs. On October 18,
2002, DOD transferred $175,000 of fiscal year 2003 funds from its Office
of the Secretary, Operations and Maintenance appropriations.[4] SWB issued
its acceptance of the MIPR on the same date. Interior held the transfer in
its working capital fund until September 30, 2003, when it issued its
first task order. At that time, SWB obligated $45,000 of the $175,000 DOD
transferred to cover the task order. Bernhardt Letter enclosure, tab A.
SWB issued a second task order and four amendments after receiving and
accepting MIPRs to finance them, as follows:
o On November 3, 2003, DOD submitted MIPR No. QS4H5A44F039MP for Task
Order 0002 in the amount of $422,454. On November 13, 2003, SWB issued
its acceptance of the MIPR, and on December 3, 2003, SWB issued the
task order.
o On February 12, 2004, DOD transmitted a second MIPR for Task Order
0002 in the amount of $291,000; SWB accepted the same day. On February
20, 2004, SWB issued the first amendment to Task Order 0002 in the
same amount as the second MIPR.
o On April 4, 2004, DOD transmitted the third MIPR for $3,138,834; SWB's
acceptance followed on April 9, 2004. On April 20, 2004, SWB issued
the second amendment to Task Order 0002 in the same amount as the
third MIPR.
o On July 20, 2004, DOD transmitted a MIPR in the amount of $795,350
that SWB accepted the same day; on August 6, 2004, SWB issued the
third amendment to Task Order 0002 for that same amount.
o On September 29, 2004, DOD transmitted a MIPR for $200,000; SWB
accepted the MIPR on September 30, 2004, and issued another amendment
to Task Order 0002 on September 30, 2004.
The request for this decision stems from a finding in the Interior Office
of Inspector General report cited above. The IG reported finding a
potential Antideficiency Act violation relating to contract NBCCHD030003.
The report concluded that by agreeing to pay a minimum of $1 million over
a 3-year period at a time before Congress had appropriated funds for all 3
years, Interior violated the Antideficiency Act, 31 U.S.C. sect.
1341(a)(1)(B), because it obligated funds in advance of appropriations.
Interior included an "Availability of Funds for the Next Fiscal Year"
clause in the contract, as set forth in section 52.232-19 of the Federal
Acquisition Regulation. That clause provides:
"Funds are not presently available for performance under this contract
beyond ___________. The Government's obligation for performance of this
contract beyond that date is contingent upon the availability of
appropriated funds from which payment for contract purposes can be made.
No legal liability on the part of the Government for any payment may
arise for performance under this contract beyond __________, 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."
41 C.F.R. sect. 52.232-19.
SWB did not fill in the blank spaces specifying in the clause the last
date that appropriations would be available for contract performance and
the date after which no government liability would arise until additional
funds were made available. The IG's position is that without specifying
those dates, the Availability of Funds clause does not protect the
government from obligations beyond the fiscal year in which the contract
was executed, when funds were available for the contract.
The Inspector General asks whether in awarding Contract NBCCHD030003,
Interior and/or DOD violated the Antideficiency Act by agreeing to pay a
minimum of $1 million over a 3-year period before Congress had
appropriated funds for all 3 years.
ANALYSIS
An agency must record an obligation against its appropriation at the time
that it incurs a legal liability for payment from that appropriation.
B-300480.2, June 6, 2003; B-300480, Apr. 9, 2003; 42 Comp. Gen. 733, 734
(1963). Clearly, an agency can incur a legal liability, that is, a claim
that may be legally enforced against the government, by signing a
contract. B-300480.2, June 6, 2003. We addressed the question of the
proper obligation of an IDIQ contract in our decision, B-302358, Dec. 27,
2004:
"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. . . . At the time of award, the government
has a fixed liability for the minimum amount to which it committed
itself. See [Federal Acquisition Regulation] 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."
Thus, in the case of an IDIQ contract, the government incurs a legal
liability in the amount of the guaranteed minimum at the time at which it
awards the contract.
Contract clause, I.13, entitled "Indefinite Quantity,"[5] further supports
our conclusion that SWB incurred an obligation at the time of contract
award. It provides, in part (with emphasis added):
"This is an indefinite-quantity contract for the supplies or services
specified, and effective for the period stated, in the Schedule. . . .
The Contractor shall furnish to the Government, when and if ordered, the
supplies or services specified in the Schedule up to and including the
quantity designated in the Schedule as the `maximum'. The Government
shall order at least the quantity of supplies or services designated in
the Schedule as the `minimum'."
By using the words "shall order," the emphasized sentence indicates that
under the contract the government is liable to the contractor for the
minimum specified in the contract. It therefore incurs a legal liability
for that amount. This is so whether SWB ever issues a task order to the
contractor or not, and is so immediately upon contract award.
Accordingly, on February 11, 2003, SWB incurred a legal liability of $1
million and should have obligated $1 million on that date. SWB, however,
did not obligate any funds at the time of contract award. As indicated
above, SWB obligated only $45,000 in fiscal year 2003 against fiscal year
2003 appropriations when it should have obligated the full amount of the
minimum, $1 million. All funds obligated under the contract after the
$45,000 for the first task order were obligated against fiscal 2004
appropriations. Consequently, SWB obligated $955,000 against fiscal year
2004 appropriations that it should have obligated against fiscal year 2003
appropriations. SWB used fiscal year 2004 funds to satisfy an obligation
established in fiscal year 2003. Fiscal year 2004 funds are not available
to satisfy fiscal year 2003 obligations. 31 U.S.C. sect. 1502. As
indicated above, DOD obligated and transferred the funds that SWB used for
the task orders upon SWB's acceptance of DOD's MIPRs. Accordingly, DOD
also obligated $955,000 against fiscal year 2004 appropriations that
should have been obligated against fiscal year 2003 appropriations.
Although we conclude that SWB and DOD are at risk of violating the
Antideficiency Act, it is not for the reason that the IG suggests. As
described in the background section above, the IG concluded that by
agreeing to pay a minimum of $1 million over a 3-year period[6] at a time
before Congress had appropriated funds for all 3 years, SWB obligated
funds in advance of appropriations and violated the Antideficiency Act, 31
U.S.C. sect. 1341(a)(1)(B). However, the contract, if obligated properly
as described above, does not result in the agency's making obligations in
advance of appropriations. If, as it should have, SWB had obligated the
entire minimum at contract award, it would have completely satisfied the
government's initial liability under the contract. No further obligation
would remain under the contract that would require an appropriation in a
future fiscal year to fund it unless and until the government placed
orders exceeding the $1 million minimum.
Interior stated in response to our development letter that the failure to
obligate the minimum in the first contract fiscal year did not result in
the government's being obligated for the payment of funds in advance of
appropriations because, in its view, the contract ensures that the
government has no legal liability unless and until SWB submits a task
order to the contractor and that the task orders are not submitted unless
they are fully funded. (Bernhardt Letter, enclosure, tab D.) Interior
notes that the contract at award clearly indicated that no funds had been
allotted to it. Contract, at 1. Each task order set out a specific period
of performance, an end date for the availability of funds, and the funded
amount. For this reason, Interior maintains that the task orders
themselves provided protection against the obligation of funds in advance
of appropriations. Interior relies on the language of clause B.1 of the
contract to support its position. Interior states that the clause
"provides that all services will be obtained through the issuance of task
orders, and therefore the basic IDIQ contract did not allot or obligate
any funds on the contract." (Bernhardt Letter, enclosure, tab C).
As indicated from our discussion above, Interior's view of how funds
should have been obligated under the contract is incorrect, as is its
interpretation of clause B.1. The actual language of the clause reads,
"This is an Indefinite Delivery, Indefinite Quantity (IDIQ) contract. All
supplies and services will be obtained through the issuance of
Cost-Plus-Fixed-Fee task orders. Task orders will be issued by a
Contracting Officer with the Department of the Interior, National Business
Center, Acquisition Services Division, Southwest Branch." The clause does
not speak to the funding of the contract directly in any way. Rather, it
definitizes for the parties the authorized manner in which services may be
ordered under the contract.[7] Acceptance of MIPRs for task orders does
serve as a trigger for the additional obligation of appropriations under
the contract, as Interior maintains, but only, as explained above, after
the contract minimum, properly obligated at the time of award, has been
expended.
In light of the above, SWB and DOD may have violated the Antideficiency
Act by failing to obligate funds for the PERSEREC contract correctly. SWB
should have obligated the entire amount of the contract's guaranteed
minimum at the time of contract award against fiscal year 2003
appropriations. Likewise, DOD should have obligated the guaranteed minimum
against its fiscal year 2003 appropriations. Then, once SWB had issued
task orders sufficient to exhaust the minimum, it should have charged the
funds needed to cover the amounts remaining for Task Order 0002 to fiscal
year 2004 appropriations. Likewise, once DOD had obligated the minimum,
DOD should have obligated fiscal year 2004 appropriations for the
remaining amount.
Because of its incorrect obligation of funds, SWB must now adjust its
accounts. It should deobligate $955,000 in funds obligated against fiscal
year 2004 appropriations and should instead charge the obligation to
fiscal year 2003 appropriations, the appropriations that were current at
the time of contract award when SWB incurred the liability for the
guaranteed minimum. DOD should also make corresponding adjustments to its
accounts. SWB and DOD must determine whether those adjustments result in
any violations of the Antideficiency Act, 31 U.S.C. sect. 1341(a). To the
extent that there are insufficient fiscal year 2003 appropriations
available for obligation, they should report the deficiency in accordance
with the Antideficiency Act. B-289209, May 31, 2002.
CONCLUSION
SWB should have obligated its IDIQ contract's guaranteed minimum of $1
million at time of award, using the fiscal year funds of the year of
contract award, 2003. Similarly, DOD should have obligated fiscal year
2003 funds in the amount of the guaranteed minimum. Because Interior and
DOD obligated only $45,000 of the $1 million from fiscal year 2003
appropriations, and incorrectly obligated the balance from fiscal year
2004 appropriations, the agencies are potentially at risk of committing an
Antideficiency Act violation. They should now adjust their accounts to
reflect the proper obligation of fiscal year 2003 funds for the full
amount of the minimum.
Gary L. Kepplinger
General Counsel
------------------------
[1] Letter from Earl E. Devaney, Inspector General, Office of the
Inspector General, Department of the Interior, to David M. Walker,
Comptroller General of the United States, Jan. 22, 2007 (Devaney Letter).
This request arose out of the Inspector General's report on an audit of
transactions between the Department of Defense (DOD) and the Department of
the Interior (Interior). U.S. Department of the Interior Office of
Inspector General, FY 2005 Department of the Interior Purchases Made on
Behalf of the Department of Defense, Report No. X-IN-MOA-0018-2005 (Jan.
9, 2007), available at www.doioig.gov/upload/2007-G-0002.txt (last visited
on May 30, 2007) (Interior IG Report). The Inspector General for the
Department of Defense also audited many of these transactions and reported
results in U.S. Department of Defense Office of Inspector General, FY 2005
DoD Purchases Made Through the Department of the Interior, Report No.
D-2007-044 (Jan. 16, 2007), available at
www.dodig.osd.mil/Audit/reports/07report.htm (last visited on May 30,
2007).
[2] We will be issuing two companion decisions responding to the Interior
Inspector General request: B-309181, relating to authority to enter into a
lease, and B-308944, relating to expiration of funds transferred in
interagency agreements, in the near future.
[3] SWB and DOD must determine whether the adjustments to their respective
accounts result in any violation of the Antideficiency Act, 31 U.S.C.
sect. 1341(a). To the extent that there are insufficient fiscal year 2003
appropriations available for obligation, SWB and DOD should report the
deficiencies in accordance with the Antideficiency Act. B-289209, May 31,
2002.
[4] MIPR No. QS3H5A33F011MP, Oct. 18, 2002.
[5] Federal Acquisition Regulation (FAR), 48 C.F.R. sect. 52.216-22.
[6] Since the contract period is for one year, we asked SWB the meaning of
the phrase, "over a 3-year period." Telephone conversation between Keith
Larsen, Attorney Advisor, Department of the Interior, and Jonathan Barker,
Senior Attorney, GAO, May 24, 2007. SWB stated that it initially
considered using a multi-year contract, and the phrase was included in the
solicitation. Id. When SWB awarded the contract as a 1-year contract, SWB
mistakenly neglected to remove the phrase. Id.
[7] We note that SWB accepted MIPRs and issued amendments to Task Order
0002 to add services after the expiration of the 1-year period of
performance (June 30, 2004). These actions have no bearing on the legal
liability of the government at the time it entered into the IDIQ contract.