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

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Case Study - Alternatives in Forming a Contract for Non-Severable Services

Scenario:

The National Institutes of Health wants to contract for a 7-year longitudinal study of the effect of diet and exercise on controlling diabetes. The proposed period of performance is January 1, 2011 through December 31, 2017, and the estimated funding is $14 million for all 7 years. The Project Officer (PO) indicates that s/he would like to provide funding each year because s/he might not have the full 7 years of funding available from the FY 2011 appropriation.

Early in the process, the PO asks the Contracting Officer (CO) to determine possible alternatives so s/he knows what level of funding will be required, whether there are any impediments to a single contract of that length, and what types of approvals, if any, may be required.

Discussion:

  1. This study is a non-severable service as it requires the contractor to study a research cohort (i.e., diabetics) for an extended period and then report on the findings.1  Thetwo primary alternatives for funding this contract are: full funding at the outset based on the policy in HHSAR 332.702-70(a), or multi-year contracting under FAR 17.1 and HHSAR 317.1. Both of these alternatives, however, entail limitations on contract duration.
    1. Even a fully funded contract could not be funded for the requested 7 years. Notwithstanding HHSAR 317.204(e) Contracts, which states that, “The total of the basic and option periods shall not exceed 10 years in the case of services…,” the proposed award, if funded using an FY 2011 annual appropriation, could be funded only through September 30, 2015. This is because annually appropriated funds, once obligated, are only available for disbursement (i.e., expenditure) for a period of 5 years from the year of availability for obligation. In most cases, in order to accommodate the 5-year rule, a contract for non-severable services fully funded with annual appropriations would need to be less than 5 years in length so that all payments due could be resolved prior to the account being closed and no longer available for any purpose [31 U.S.C. 1552(a)]. However, even after an appropriation account is closed, obligations or adjustments to obligations that would have been properly charged to the closed account (both as to purpose and amount) may be charged to a current appropriation account available for the same purpose [31 U.S.C. 1553(b)(1)].
    2. Multi-year contracts, which are required to be funded each program year, would partially resolve the problem of availability of funds. However, multi-year contracts also are constrained by a 5-year limitation, but for a different reason. The source of that limitation is the general authority to enter into multi-year contracts conferred by 41 U.S.C. 254c* and FAR Subpart 17.1. HHS does not have specific statutory authority to exceed the 5-year limitation in FAR 17.104(a). Therefore, under a multi-year contract, the performance period could not go beyond December 31, 2015.

  1. This contract has to be awarded using either: (a) a fully funded base period that runs from January 1, 2011 through September 30, 2015; or (b) a 5-year base period structured as a multi-year contract to be funded each year from annual appropriations—with a cancellation ceiling that must also be fully funded at the time of initial award. Either approach could then be followed by a subsequent option period (2 ¼ years with the fully funded base period; 2 years with the multi-year contract). Upon exercise, the option would be fully funded from the then-current appropriation as a bona fide need of the year in which exercised.
      1. In either case, the statement of work must be structured such that both the base period and the option stand alone and independently provide merit and value to the Government. The base period would represent the data collection phase with a report on the results, with the option being follow-up study of research study participants.
      2. If the base period is structured and funded as a multi-year contract, an HCA determination will be required, as provided in HHSAR 317.105-1(a). If the base period is fully funded, no special approvals are required.

 

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1 In this instance, the requirement is a final report summarizing the changes in the research population over the complete 7-year period. Not every longitudinal study, however, is a non-severable service. HHS personnel are, therefore, encouraged to consult with OGC when planning acquisitions for long-term studies, research, or similar services where the issue of severability is not clear to ensure that it is assessed based on the specific facts involved. 

* Re-codified as 41 U.S.C. 3903 by Public Law 111-350, January 4, 2011. This new citation is not yet available as a hyper-link in the United States Code web site maintained by the Office of the Law Revision Counsel, U.S. House of Representatives.