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HHS Reference Tool for Contract Funding, Formation and Appropriations Law Compliance

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Case Study - Advance Funding of Options

Scenario:

The Food and Drug Administration had a requirement for cost advisory services support over a period of 5 years. The Contracting Officer (CO) conducted a competitive procurement and awarded a contract that was structured with a base year and 4 option years. The award was made on December 1, 2009 with the base period to run through November 30, 2010. In early August 2009, the Contracting Officer’s Technical Representative (COTR) informed the CO that, due to some delays in initiating other actions this fiscal year, sufficient funds are available to exercise the first option year early (i.e., before the end of the current fiscal year).

Discussion:

The cost advisory services involved are clearly severable in nature. Each period’s services stand on their own and meet a separate, on-going and recurring need of the Government. The Government receives "something of value" every time the services are provided. Services delivered in a future period are a need and of that period.

  1. Options for severable services cannot be funded in advance of the need for such services. A bona fide needs test must be applied to the base period and each option period, each of which must be funded from an appropriation source that is available for obligation at that time.
  2. The COTR’s desire to fully fund all, or even a portion, of an option year for these severable services cannot be carried out. This is because the option period is a bona fide need of – and does not begin until – the subsequent fiscal year.

 

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