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

Bona Fide Needs Rule

The Bona Fide Needs Rule is one of the fundamental principles of federal appropriations law. Simply stated, a "fiscal year appropriation may be obligated only to meet a legitimate, or bona fide, need arising in, or in some cases arising prior to, but continuing to exist in, the fiscal year for which the appropriation was made." (The underlying statute is 31 U.S.C. § 1502(a), sometimes called the "bona fide needs statute"). The general rule is that services acquired by contract generally are chargeable to the appropriation current at the time the services are rendered. However, the Comptroller General has held that the question of whether to charge the appropriation current on the date the contract is executed, or to charge funds current at the time the services are performed, depends upon whether the services are severable or entire (i.e., non-severable).

GAO considers services to be non-severable when they constitute an entire job or single undertaking with a defined end-product that cannot feasibly be subdivided for separate performance in each fiscal year. GAO’s Principles of Federal Appropriations Law presents a contract to conduct a study and prepare a final report as an example of non-severable services and concludes that non-severable services must be funded entirely out of the appropriation current at the time of award, notwithstanding that performance may extend into future fiscal years. Following that logic, GAO has further determined that contracts for non-severable services cannot be incrementally funded. (See 71 Comp. Gen. 428 [1992]). These concepts were re-confirmed in B-317139, Matter of Financial Crimes Network—Obligations under a Cost-Reimbursement, Non-severable Services Contract, June 1, 2009; and B-240264, Matter of: Incremental Funding of U.S. Fish and Wildlife Service Research Work, February 7, 1994.

Severable services means services provided on an on-going, as needed or recurring basis and that meet a need of the Government at the time they are delivered (e.g., information technology help-desk support). When the need for a portion of recurring or continuing services arises in the fiscal year subsequent to the one in which the services were initially funded, that portion is severable and chargeable to appropriations available for obligation in the subsequent fiscal year. A notable exception to this general rule was authorized when Congress passed the Federal Acquisition Streamlining Act (FASA) in 1994, which gave agencies greater flexibility in their use of fiscal year appropriations. As a result, agencies may enter into a contract for severable services beginning in one fiscal year and ending in the next fiscal year and fully fund the contract from the initial year’s appropriation, provided that the period of the contract awarded, option exercised, or order placed does not exceed 1 year. (The specific statutory cite for this FASA provision is 41 U.S.C. 253l*; the implementing regulations are FAR 32.703-3(b) and 37.106(b))

Application of the Bona Fide Needs Rule to Contracts for Supplies and Equipment

Relevant Case Study

*Re-codified as 41 U.S.C. 3902 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.


Content created by Assist. Sec./Financial Resources - Grants/Acquisition Policy
Content last reviewed on April 16, 2014