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1 Unclassified US Special Operations Command The overall classification of this briefing is: UNCLASSIFIED Briefer: CHRISTOPHER E. KERNAN J-Code: SOJA-AQ.

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Presentation on theme: "1 Unclassified US Special Operations Command The overall classification of this briefing is: UNCLASSIFIED Briefer: CHRISTOPHER E. KERNAN J-Code: SOJA-AQ."— Presentation transcript:

1 1 Unclassified US Special Operations Command The overall classification of this briefing is: UNCLASSIFIED Briefer: CHRISTOPHER E. KERNAN J-Code: SOJA-AQ Date: 2 April 2014 FISCAL LAW AND YOU (or Can You Spot the “Correct” Answer?)

2 2 This portion is provides a quick overview of the various fiscal laws, regulations, and policies DoD is required to comply with and the problems USSOCOM is experiencing in complying with these requirements. This presentation is tailored to those concerns dealt with most often by USSOCOM program and contracting offices. FISCAL LAW Unclassified SOJA-AQ

3 3 STATUTORY BASIS Appropriations Acts contain general as well as specific authorities. DOD establishes formal administrative subdivisions of funds. 31 USC §1514(b) Bona Fide Needs Rule (year) 31 USC §1502(a) Purpose Statute (type) 31 USC §1301(a) Anti-Deficiency Act (amount) 31 USC §1341 or §1517 Transfer of funds between appropriations, accounts, or agencies is prohibited without specific statutory authorization (Economy Act, Project Order Statute, specific legislation). 31 USC §1532 Transferred funds are subject to the same purpose and limitation as originally appropriated. 31 USC §1532 Reimbursement authority. May temporarily charge expense to one appropriation and recover costs from another appropriation of the same agency later. 31 USC §1534. However, the deliberate charging of an improper appropriation is a violation of the Purpose Statute. Unclassified SOJA-AQ

4 4 OBLIGATION AND EXPENDITURE RULES O&M Funds – Obligation must occur during initial year of appropriation – Original rule on expenditure was: expenditure must occur during initial year of appropriation Exception: Severable vs. Non-Severable: Severable could not cross fiscal year. Non-Severable could cross fiscal year until completed. – FASA Rule: O&M Funds could be expended for a period of 12 months from date of award, severable or non- severable. – Must apply both rules to determine correct fiscal application of expenditure rule. Unclassified SOJA-AQ

5 5 OBLIGATION AND EXPENDITURE RULES RDT&E Funds: – Available for initial obligation for two years. – Available for expenditure for 12 months, unless Comptroller approves up to 18 months. – Incremental funding rule applies year 2 on. – What happens if contract performance is delayed? Unclassified SOJA-AQ

6 6 OBLIGATION AND EXPENDITURE RULES OPA (Procurement) Funds – Obligation may occur during first 3 years of appropriation. – Expenditure must occur prior to cancellation of funds. – Mixture of years of OPA funds for single requirement is permissible. – Issue can be single system vs. individual components – Full funding rule applies – Complete and usable end item must result, cannot split requirements. – Long lead items must be part of Appendix 10 POM submittal. Unclassified SOJA-AQ

7 7 OBLIGATION AND EXPENDITURE RULES Antecedent Liabilities – Funds available at the time of the contract creation are to be used, if available. (Relation Back Doctrine) – Rule is permissive not mandatory. – If funds are not available, funds currently available of the same type must be used. – Arise from claims, performance delays, Government breach of contract, i.e., late GFE. – Must use current funds for discretionary spending Unclassified SOJA-AQ

8 8 OBLIGATION AND EXPENDITURE RULES Bona Fide Needs Rule – A contract must be issued for the requirement. – Funds available for obligation at the time of the contract creation must be used. – There must exist an immediate genuine bona fide need for the requirement, i.e., performance must begin in the year of obligation and delivery must occur within 12 months or delay must be the result of the contractor’s ability to perform, i.e., a non-severable requirement crossing fiscal years. Unclassified SOJA-AQ

9 9 RECENT ADA FINDINGS Bona Fide Need Rule Violations – DoD IG Review of SOFSA and HQ USSOCOM as well as various components has resulted in ADA allegations of a violation of the Bona Fide Needs Rule. – At Headquarters, of 60 MIPRs reviewed, 59 were questioned. Issues were various, but the Bona Fide Needs Rule was the primary basis for challenge. Unclassified SOJA-AQ

10 10 Factual Findings – ADA? Organization orders widgets deliverable in next fiscal year. If delivery is due on October 5 th (over a weekend) – Is this a violation of the Purpose Statute (cited by the IG)? Bona fide needs rule? If delivery is provided on 19 January for widget systems – Is this a violation of the purpose statute? Bona fide needs rule? Unclassified SOJA-AQ

11 11 Bona Fide Needs Rule = ADA Violation? What are the factual basis needed to establish a violation? (Answer next slide) Unclassified SOJA-AQ

12 12 Bona Fide Needs Rule = ADA Violation? What are the factual basis needed to establish a violation? – Was there a valid contract? – Were funds available at the time of contracting? – Was there an immediate genuine bona fide need for the requirement? Unclassified SOJA-AQ

13 13 Applying the Bona Fide Needs Rule Tests - 1 In our first example (Oct 5 delivery) – did the requirement meet these tests? – Was there a valid contract? (Yes) – Were funds available at the time of contracting? (Yes) – Was there an immediate genuine bona fide need for the requirements? (?) – Was there a potential purpose statute or bona fide needs rule violation? (?) Unclassified SOJA-AQ

14 14 Applying the Bona Fide Needs Rule Tests - 2 In our 2nd example (Jan 19th delivery) - did the requirement meet these tests? – Was there a valid contract? (Yes) – Were funds available at the time of contracting? (Yes) – Was there an immediate genuine bona fide need for the requirements? (?) Unclassified SOJA-AQ

15 15 Applying the Bona Fide Needs Rule Tests - 3 In our 2nd example (Jan 19th delivery) - did the requirement meet these tests? – Was there an immediate genuine bona fide need for the requirements? (?) Would your answer change to know that the contractor promised delivery in November? Unclassified SOJA-AQ

16 16 Applying the Bona Fide Needs Rule Tests - 4 In our 2nd example (Jan 19th delivery) - did the requirement meet these tests? – Was there an immediate genuine bona fide need for the requirements? (?) Would your answer change to know that the Government ordered a change in the system components in late October resulting in the delayed delivery? Unclassified SOJA-AQ

17 17 Applying the Bona Fide Needs Rule Tests - 5 In our 2nd example (Jan 19th delivery) - did the requirement meet these tests? – Was there an immediate genuine bona fide need for the requirements? (?) Would your answer change to know that: a.long lead time precluded earlier delivery? b.the item wasn’t needed for incorporation into a major weapon system until January although the contractor could deliver in November? Unclassified SOJA-AQ

18 18 Question: Bona Fide Needs Rule Violation Possible? What if on O&M funded requirements: – Training is contracted this FY for various classes during the next FY, all within 12 months of award? (Answer?) – Services or modifications are required, but GFE (weapon systems) can only be provided on an as available basis crossing multiple fiscal years? (Answer?) Unclassified SOJA-AQ

19 19 RECENT ADA ISSUE Bona Fide Need Rule Application – Contractor A is not performing adequately. The contract was awarded using FY 09 O&M funds. From 2010 through today various action plans have been put in place to obtain performance to no avail. – In order to obtain needed materials, the KO defaults the KR and seeks to obtain the supplies from another KR. Can the O&M funds be used? Unclassified SOJA-AQ

20 20 RECENT ADA ISSUE Bona Fide Need Rule Application – Rule: If a K is terminated for default the existing funds may be used to reprocure the requirement and excess costs charged to the defaulting KR. – Is there a problem with using the FY09 O&M funds as we are in year 4? -- Bona fide need? – What if it takes 1 year to run a new competition? Do we still have a bona fide need? What year of need do we look at? 1949 Case Unclassified SOJA-AQ

21 21 Purpose Statute Funds must be used for the purpose for which they were appropriated. – Rule is straightforward when specific bi-line appropriations are made available for a particular purpose. – Rule becomes complicated when dealing with two or more general appropriations. Unclassified SOJA-AQ

22 22 Purpose Statute Violations What if OPA (Procurement Funds) are used to: – Acquire $10M of widgets with a unit price of $249,000 each year one, $249,500 year 2, $250,000 year three, and $250,500 year four. (Answer?) Unclassified SOJA-AQ

23 23 Purpose Statute Violations What if O&M funds are used to: – Acquire data under production contract for widgets during year 1? – Acquire initial fielding spares? – Acquire initial training? – Acquire widget spares totaling $1M over five years (annually funded in equal amounts)? Unclassified SOJA-AQ

24 24 Purpose Statute Violations What if OPA funds are used to: – Acquire spares costing less than $250K each in the 2 nd through 4 th contract year? – Acquire training in the 2 nd through 4 th contract year? – Acquire additional data in the 2 nd year after funding data with O&M funds in year 1? Unclassified SOJA-AQ

25 25 FUNDING ISSUES The IDIQ contract was awarded in July 09 for production of Widgets. The contract has $1.4M of FY07 Proc Funds placed on it. The contract minimum is $100,000. Is there a problem with placing the funds on contract? Is there a problem with placing $1.4M on contract? DO’s 001 through 004 are funded from the initial FY07 Proc Funds and are issued in 2009 on: 001 – July002 – Aug003 Sep004 Oct Is there a funding issue here? Unclassified SOJA-AQ

26 26 FUNDING ISSUES Same facts, but DO 005 is issued in Jan 10 with FY 10 Proc Funds in the amount of $540,000. In July we determine that there is $40K unused on this order. DO 006 is issued in the amount of $1.5M funded with the excess $40K and the remainder with FY10 O&M. Any concerns? Unclassified SOJA-AQ

27 27 FUNDING ISSUES 1.Can O&M and PROC funds be used on the same Order? 2.What if the Order had different CLINS for the O&M and PROC funds? 3.What if the PROC funds were split between the two CLINs and the remainder of each CLIN was funded with the FY10 O&M funds? 4.What if DO007 and 008 are funded with PROC funds? Does that affect your analysis? Are any of the O&M funds usable? Unclassified SOJA-AQ

28 28 FUNDING ISSUES 1.Same facts – What if your analysis reveals that all orders were issued for widgets? Does that affect your determination of proper source of funding for DO 006? 2.Same facts - What if your analysis reveals that DO 006 was for spares for the previously ordered widgets? Does that affect your determination of proper source of funding for DO 006? IS O&M or Proc the correct Fund? 3.Same facts – The KO claims that the $40K was for widgets CLIN 001 and the $1.5M FY10 O&M funds were for spares CLIN 002. Any problems? 4.What if these were “initial spares”? Any problem? Unclassified SOJA-AQ

29 29 FUNDING ISSUES 1.Same facts – The $1.5M FY10 O&M funds were for spares, but in researching the various Orders we find that DO 004 was for spares also. Does that make DO 006 O&M funded spares improper? (Remember DO 004 was funded with Proc funds.) 2.Was DO 004 improperly funded? 3.What if the $40K of Proc was for data on DO 006. Would that change your analysis of the use of O&M funds on DO 006? 4.What if DOs also had data ordered on them? Problem? Unclassified SOJA-AQ

30 30 FUNDING ISSUES In summary, what were the issues we were dealing with? 1.Use of Proc for data on a production contract. 2.Use of O&M for data on a production contract. 3.Use of Proc for spares on a production contract. 4.Use of O&M for spares on a production contract. 5.Use of Proc then O&M for data on a production contract. 6.Use of Proc then O&M for spares on a production contract. 7.Comingling funds on the same order for the same requirement. Unclassified SOJA-AQ

31 31 Funding Of Definitization Actions The Relation Back Doctrine would require the use of the original FY10 O&M appropriation for the funding of the now definitized letter contract in FY 2011, i.e., you must go back to the original source of funds at the time of the creation of the contract. Based upon this rule, what year(s) funding would be required? Unclassified SOJA-AQ

32 32 Funding Of Definitization Actions In 1987, the Comptroller General issued an opinion that stated that the relation back document was discretionary, not mandatory, thereby allowing the Agencies to fund either with the original appropriation or with current funds. Based upon this rule, what year(s) funding would be required? Unclassified SOJA-AQ

33 33 Funding Of Definitization Actions In 2008, the Comptroller General issued an opinion that stated that the relation back document was dependent upon whether or not the action on the part of the Government was required or discretionary. Based upon this rule, what year(s) funding would be required? (Answer) Unclassified SOJA-AQ

34 34 Funding Of Definitization Actions In 2008, the Comptroller General issued an opinion that stated that the relation back document was dependent upon whether or not the action on the part of the Government was required or discretionary. Based upon this rule, what year(s) funding would be required? FY10 funds must be used, since the definitization of the contract is a discretionary action on the part of the Contracting Officer, e.g., termination is also an option. Unclassified SOJA-AQ

35 35 Funding For Equipment The component contracting officer comes to you with a requirement for indigenous vehicle brand X. The vehicle costs under $250,000. The correct source of funds for this requirement is: a.O&M Funds b.Procurement Funds c.RDT&E Funds Same facts, except this is the USSOCOM PM asking. The correct funds are? Unclassified SOJA-AQ

36 36 Funding For Equipment For the component contracting officer the correct source of funds for this requirement is: a.O&M Funds Rationale: The FMR has a $250K investment/expense threshold and the cost per item is under $250K For the USSOCOM PM the correct source of funds for this requirement is: b.Procurement Funds Rationale: Where a PM is appointed at HQ SOCOM for a commodity, it is centrally managed and funded with OPA funds. Unclassified SOJA-AQ

37 37 Funding For Equipment Question 1: If both execute a contract for the vehicles in the same year, does USSOCOM have a fiscal problem? If so, why? Question 2: If the USSOCOM has a program and existing contract for the same vehicles awarded in a previous year, are O&M funds appropriate for the acquisition of the component’s vehicles? Unclassified SOJA-AQ

38 38 Funding For Equipment Question 1: ANSWER: Yes. This is based upon the binding election rule, i.e., if two general appropriations are available for the same purpose, once an election of the source of funds to be used for that requirement, that source must be used for all additional requirements. Ultimately, we have a potential ADA to the value of the 2 nd in time issued contract. RESULT: Two perfectly acceptable contracting actions result in an ADA based upon the Commander's determination that where a PM is appointed for a particular commodity, it is centrally managed and must be funded with OPA funds, while the unit KO is using the FMR rules. Unclassified SOJA-AQ

39 39 Funding For Equipment Question 2: If the USSOCOM has a program and existing contract for the same vehicles awarded in a previous year, are O&M funds appropriate for the acquisition of the component’s vehicles? ANSWER: Yes. This is based upon the determination by the Commander that if a PM is appointed at USSOCOM, then the item is centrally managed. We have a potential ADA to the value of the component issued contract. Unclassified SOJA-AQ

40 40 Expired Funding Request Factual Situation: In 2007 a procurement contract was issued for widgets costing $400,000 each. During the course of performance a change in the performance requirements was authorized by the contracting officer without consideration of potential cost. During contract closeout (2011) you receive an equitable adjustment claim for the change dating back to (Settlement of the claimed amount was delayed due to audit issues.) What year procurement funds are available to pay for this obligation that is properly certified, reasonable, allocable to the contract, and due to the actions of the Government? FY 04, 05, 06, 07, 08, 09, 10, 11, and/or 12? Unclassified SOJA-AQ

41 41 CASE STUDY #5 Expired Funding Request ANSWER: FY 04 – Not available for contract award in FY07. FY 05 – Available for K award and therefore available. FY 06 – Available for K award and therefore available. FY 07 – Available for K award and therefore available. FY 08 – Not available for 07 K, expired for 11 settlement. FY 09 – Available for 11 obligation and EA settlement? FY 10 – Available for 11 or 12 obligation and settlement. FY 11 – Available for 11 or 12 obligation and settlement. FT 12 – Available for 12 obligation and EA settlement. Unclassified SOJA-AQ

42 42 SUMMARY Fiscal Rules are complex, intertwined and are not susceptible to application of common sense. If the situation is complex or if you are not sure of the answer ask your lawyer for advice. Remember, the wrong answer can led to a violation of the Anti-Deficiency Act! Unclassified SOJA-AQ


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