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

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Case Study - Adopting Prudent Contracting Practices During a Continuing Resolution

Scenario:

The Indian Health Service (IHS) has an ongoing fixed-price contract for grounds-keeping services for one of its clinics. The last option year of this contract covers the period November 1, 2010 through October 31, 2011. The IHS appropriation for fiscal year 2011 has not been enacted; rather a continuing resolution (CR) has been passed to keep the Government running from October 1, 2010 through November 15, 2010. The IHS Contracting Officer’s Technical Representative (COTR) is concerned about ensuring continuity of contractual coverage and seeks advice from the Contracting Officer (CO).

Discussion:

Although grounds-keeping services are severable in nature, they are also considered commercial services. Per HHSAR 332.703-72, the use of incremental funding under fixed price (as well as time and materials and labor-hour) contracts is not permitted when acquiring commercial items (including services). Accordingly, that alternative is not available for this particular contract.

Given these facts, there are two potential alternatives for continuing to fund these services; however, each one must be coordinated with the responsible program and budget/finance offices to determine plans for implementing the CR.

  1. The preferred approach, if feasible based on the IHS CR operating plan, would be to fund the entire 12-month option period in the same manner as if there were an appropriation (e.g., application of bona fide need, use Federal Acquisition Streamlining Act (FASA) authority to cross fiscal years).
  2. Otherwise, negotiate with the contractor to divide the remaining 1-year option into smaller option periods (e.g., two 6-month options, three 4-month options, four 3-month options, etc.). This would negate the Government’s unilateral right to the existing option year pricing, re-open price negotiations, and require a contract modification signed by both parties.
    1. This alternative would likely be more expensive than funding the full 12-month option period and create funding challenges. Using multiple options rather than the single 12-month option still allows use of the authority provided by FASA to cross fiscal year lines. For example, if four 3-month option periods were established, the final 3-month option period (August 1, 2011 through October 31, 2011) could be funded using current FY 2011 funds and cross into the subsequent fiscal year (FY 2012 begins on October 1, 2011).  
    2. A further limitation is that performance can continue only upon the CO’s notice and execution of the appropriate contract modification, in this case, funding the next option period. Any direction to encourage performance beyond the option period funded may result in an Anti-Deficiency Act violation.
    3. In planning for the next contract, the Project Officer should try to make the 12-month base period and each option run from January through December to minimize the potential effect of a CR.

 

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