Federal Acquisition: Key Issues and Guidance

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Introduction

Every year the federal government spends billions of dollars on the acquisition of supplies and services to carry out its duties and responsibilities. The government uses complex acquisition policies and procedures to make these purchases. These policies and procedures are followed during each of the four phases of the federal acquisition process: the acquisition planning phase; the solicitation phase; the evaluation, negotiation, and award phase; and the postaward phase.

The acquisition planning phase is the first phase of the federal acquisition process. This phase is very important because it establishes the foundation of the contract. During the planning phase, the government must ensure that:

Appropriated funds are available

Proper cost estimates are prepared

Sole source procurements are justified (when using noncompetitive procedures)

Market research is performed

The government’s requirements are well defined in the statement of work

The appropriate type of contract is selected for the acquisition

Performance-based acquisition is employed (when acquiring services)

Small business concerns are given an opportunity to obtain the contract.

When the required planning documents are of poor quality or are omitted from the planning process, the solicitation activities in the second phase of the acquisition process will be negatively affected. The planning process must be thorough, addressing each of the points above. Otherwise, the resulting contract may cost much more than budgeted for or may take longer to complete than expected. For example, if the government’s cost estimate is inaccurate because it was poorly prepared, it will hinder the cost or price evaluation process. It may be useless in determining whether the proposed contract price is fair and reasonable. Conversely, well-planned and documented acquisition actions that are in compliance with laws and regulations will meet the government’s needs in the most effective, economical, and timely manner.

The second phase of the federal acquisition process is the preparation of the solicitation and associated documentation. The solicitation must:

Include the appropriate solicitation and contract provisions and clauses to be in compliance with applicable laws and regulations.

Include the criteria to be used in the evaluation of vendor proposals. The technical evaluation criteria should be prepared with great care so that they fit the evaluation method to be used. Carefully chosen and documented criteria allow for the thorough and accurate evaluation of proposals, which is performed during the evaluation and negotiation phase of the acquisition process.

Be legally sufficient before it is issued to the public. All solicitations beyond the simplified acquisition threshold must be reviewed for legal sufficiency. Legal review will ensure that the solicitation is in compliance with acquisition laws and is legally defensible in case of a protest.

The third phase of the federal acquisition process is the evaluation, negotiation, and award phase. Under the contracting by negotiation method, proposals are evaluated, and discussion and negotiations are held with vendors. This phase includes:

Evaluating proposals. When an evaluation is not performed in accordance with the evaluation criteria specified in the solicitation, the Government Accountability Office will contest the evaluation and find it to be not fair or reasonable.

Determining vendors’ price reasonableness and responsibility.

Negotiating with competing vendors. Negotiations must be held unless the solicitation states that the award will be made without discussion.

Reviewing the award document. It is very important to have contracts reviewed for legal sufficiency prior to award to ensure that they are in compliance with the appropriate laws and regulations.

Awarding the contract

Announcing the contract award to the public. This announcement should be made in accordance with policies established by the agency.

Notifying and debriefing unsuccessful vendors. These vendors must be told why they were eliminated from competition or did not receive the contract award.

The fourth phase of the federal acquisition process is the postaward phase, sometimes called the contract administration phase. The goal of contract administration is to ensure that the government receives quality supplies or services that conform to the requirements of the contract in a timely manner.

To that end, certain postaward activities must be carried out properly for each acquisition. This includes training and certifying the contracting officer’s technical representative to properly perform contract surveillance, which helps ensure that quality supplies or services are delivered to the government in a timely manner. This also includes exercising contract option periods in accordance with contract provisions and clauses. Option periods exercised by federal agencies must be in exact compliance with the option provisions and clauses of the contract.

Federal agencies too often allocate more time to awarding contracts than to the postaward phase of the acquisition process. The postaward phase is also very important, so it should receive the proper amount of resources and time.

PART I

The Acquisition

Planning Phase

CHAPTER 1

Funding: The Availability of Appropriations and the Bona Fide Needs Rule

(FAR 32.7; Government Accountability Office, Principles of Federal Appropriations Law, Volumes I and II)

The first phase of the federal acquisition process is known as the acquisition planning phase. Understanding the rules that apply to federal appropriations is an important part of the planning phase—one that is too often neglected. Acquisition audit reports have identified many violations of the rules that pertain to federal appropriations. The audit reports indicate that some federal agencies do not adhere to the limitations on purpose, amount, and time. For example, an acquisition organization violated the purpose limitation by using a contract for computers and accessories to purchase army Humvees. Another organization violated the time and amount limitation by awarding a contract to purchase equipment for use in fiscal year 2005 with expired fiscal year 2004 funds.

It is essential, then, for every acquisition professional to understand that appropriations for federal agencies are made for specific purposes during specified fiscal years and that the funds may be obligated and expended only within the amounts appropriated by Congress. They must also understand that appropriated funds may be obligated only to meet a legitimate—or bona fide—need in the fiscal year(s) for which appropriation was made.

THE AVAILABILITY OF APPROPRIATIONS

The fiscal year for federal agencies begins on October 1 and ends on September 30 of the following year. Funds are provided to federal agencies through annual appropriations acts passed by Congress and approved by the president of the United States.

Appropriations acts make funds available to federal agencies for obligations. The funds are classified as annual, multiple-year (or multiyear), and no-year appropriations. Annual appropriations are available for obligation for one year; multiple-year appropriations are available for obligation for a certain period of time beyond one fiscal year. No-year appropriations are not limited to any fiscal year and are available for obligation for an indefinite period. The appropriations act for each agency identifies the function, amount, and purpose of the funding and the time frame for its use. Most agencies are allotted funding for functions such as operations and maintenance, procurement, research and development, and other functions within the agency.

These appropriations acts (also called appropriations bills or appropriations legislation) are supposed to be enacted by September 30 of each year so that agencies can be fully operational by October 1. Congress has not been able to pass the necessary appropriations for most civilian agencies in a timely manner for quite some time now. When appropriations acts are not passed by October 1, Congress passes a piece of legislation called a continuing resolution, which provides temporary budget authority so that agencies can continue operating until the appropriations are approved. A continuing resolution, which must be signed by the president, makes funds available until the resolution expires or annual appropriations acts are passed and enacted. During the continuing resolution period, funds are provided for one or two months at a time and at the same funding level as the previous year.

The 12 appropriations acts for fiscal year 2009 passed by Congress and signed by the president are listed in Exhibit 1-1. Federal departmental and nondepartmental agencies are listed under the 2009 appropriations acts that apply to them.

LIMITATIONS ON APPROPRIATED FUNDS

Congress retains full control over appropriated funds by imposing three limitations that are related to purpose, time, and amount. These limitations restrict the amount of appropriated funds a federal agency can spend within a specified period of time and ensure that funds are spent only for the intended purpose. Funds for each fiscal year must be legally available for obligation or expenditure before an agency may purchase supplies or services. Legally available means that all three limitations—on purpose, time, and amount—must be satisfied. An obligation or expenditure for any given item is not legal if all three are not satisfied. Of the three, the purpose and time limitations are most frequently violated by acquisition organizations.

The Purpose Limitation

The statute for the purpose element (at 31 USC 1301(a)) reads:

Appropriations shall be applied only to the objects for which the appropriations were made except as provided by law.

The statute clearly indicates that public funds may be used only for the purpose or purposes for which they were appropriated. The purpose language in an appropriations act is usually clear so that the agency can easily determine the purpose for which the funds are to be used. Nonetheless, sometimes the appropriation language is not clear or is too general to determine the purpose of the appropriation. In a situation like this, it is necessary for the agency to review both the legislation that authorized the program and the appropriations act that provided budget authority for the program to determine the purpose for which the funds may be used.

When an agency deliberately obligates funds from the wrong appropriation with the intent to later use the right appropriation, it violates the purpose statute. It is also a violation if an agency transfers funds from one program account to another without approval from Congress. (It should be noted that getting congressional approval to transfer funds is a lengthy process that may not be successful.)

The Time Limitation

Time is the second limitation with which agencies must comply. Most appropriated funds are available for a limited time, often called the period of availability, and they must be obligated within the period specified in the appropriations act, or they will expire. Any remaining balance is considered to be expired funds, unless it was obligated before the end of the period of availability. For example, if funds were appropriated for a one-year period, the agency must obligate the funds for the supplies or services within that one-year period of availability. The obligated funds are available beyond the one-year period so that payments can be made for expenditures made within that one-year period.

By placing time limits on the availability of appropriated funds, Congress maintains control and gives itself the right to review federal agencies’ funding activities. The right of Congress to limit the expenditure and obligation of federal appropriations to specific time periods is supported by the statute at 31 USC 1502(a), which reads:

The balance of an appropriation or fund limited for obligation to a definite period is available only for payment of expenses properly incurred during the period of availability or to complete contracts properly made within that period of availability and obligated consistent with section 1501 of this title. However, the appropriation or fund is not available for expenditure for a period beyond the period otherwise authorized by law.

This statute applies to fixed-term appropriations that are available only for payment of expenses properly incurred during the appropriation’s period of availability and to complete contracts properly made during that period. Thus, if an agency has a genuine need for certain supplies or services but does not obligate the funds before the end of the appropriation’s period of availability, the funds are no longer available to fill that need.

The limitation on the use of appropriated funds for particular times and objects goes back to an 1870 decision by attorney general Amos T. Akerman, (13 Op. Att’y Gen. 288, 292), who wrote:

Congress has the right to limit its appropriations to particular times as well as to particular objects, and when it has clearly done so, its will expressed in the law should be implicitly followed. This view will not forbid the use in the next year of balances remaining from such appropriations at the end of this year in the payment of expenses incurred and contracts made within this year, as authorized in section 5 [of the Appropriations Act of July 27, 1870].

The Amount Limitation

The third limitation agencies must respect is the amount limitation. An agency may not overobligate or overspend its appropriation, or it will be in violation of the Antideficiency Act (31 USC 1341). The Antideficiency Act prohibits government employees from making payments or committing to make payments in the future for the acquisition of supplies and services unless there is a sufficient amount of appropriated funds in the agency’s budget to cover the costs in full.

Depending on the severity of the violation, employees who violate the Antideficiency Act may be suspended from work without pay, removed from office, fined not more than $5,000, imprisoned for not more than two years, or both fined and imprisoned.

Of the three limitation elements, only the amount limitation is subject to the Antideficiency Act. Employees of the federal government, whether the executive, judicial, or legislative branch, would be in violation of the Antideficiency Act if they obligated funds or made payment for supplies or services in excess of funds available in their agency’s budget. For example, a violation occurred when an employee made a $200,000 payment on an invoice from the agency’s operation and maintenance (O&M) funds but only $198,000 was available.

The Antideficiency Act is applicable not only to employees of the executive, judicial, and legislative branches but also to wholly owned government corporations that receive appropriated funds and use them to operate.

THE BONA FIDE NEEDS RULE

The bona fide needs rule is one of the fundamental principles of appropriations law. It states that a fiscal year appropriation may be obligated only to meet a legitimate or bona fide need arising in, or continuing to exist in, the fiscal year for which the appropriation was made. In other words, funds may be obligated only to meet a legitimate need, and obligations must be made during the period of availability so that expenses can be charged to that period. The bona fide needs rule applies to the obligation of funds from annual and multiyear appropriations but does not apply to no-year appropriations.

The bona fide needs rule has a statutory origin and is codified at 31 USC 1502(a). What constitutes a bona fide need depends on the facts and circumstances surrounding each acquisition. However, for obligation purposes, there must be a legitimate need for the supplies or services during the period the funds are available.

The Applicability of the Bona Fide Needs Rule to Annual Appropriations

Agencies are authorized to obligate or expend their annual appropriations only for bona fide needs in the fiscal year specified in the appropriations acts. For example, the appropriation for a certain agency’s O&M activities is available for a one-year period. To obligate these funds for supplies or services, the agency must have a bona fide need for the supplies or services during that one-year period. If the funds are obligated within the one-year period, they will remain available for new obligations or payments of invoices for all supplies or services acquired during that period.

The Applicability of the Bona Fide Needs Rule to Multiyear Appropriations

Based on past Government Accountability Office (GAO) decisions, the bona fide needs rule applies to multiple-year appropriations (Comp. Gen. B-232024, Jan. 4, 1989; Comp. Gen. B-235678, July 30, 1990). Multiyear appropriations may be used for bona fide needs arising at any time during the period the funds are available. Although the funds can be used to acquire supplies or services at any time during the period of availability, the bona fide needs rule for the last year of the appropriation applies in the same way as the bona fide needs rule for annual appropriations. For example, if an agency obligates funds from its three-year appropriations in the last month of the third year, it must ensure that the obligation satisfies a bona fide need for the third year and not the following year.

Continuing Needs under Multiyear Appropriations

A need that arises in one fiscal year and continues to exist in the following year may be a bona fide need for both fiscal years. If the agency does not obligate the funds in the first year even though the need exists at the time, and the need extends into the next fiscal year, it is chargeable to the second year’s funds, not the first year’s (B-197274, September 23, 1983). For example, if the boiler in a high-rise office building must be repaired to operate more efficiently, but it is not repaired until the second year funds are available, the obligation is properly chargeable to the second-year funding.

The Applicability of the Bona Fide Needs Rule to No-Year Appropriations

No-year funds have no fiscal year limitations and are available until expended. In 1965, GAO determined that the bona fide needs rule did not apply to no-year appropriations (43 Comp. Gen. 657 and 661, 1964). Federal agencies have an advantage under no-year appropriations because they have the flexibility to use their appropriations when they need the funds most. Congress, however, is at a disadvantage under no-year appropriations because it has no control over the funds from year to year.

Even though GAO determined that the bona fide needs rule does not apply to no-year appropriations, care should still be taken when obligating and expending taxpayer dollars.

The Applicability of the Bona Fide Needs Rule to Supply Contracts

A 1901 comptroller general decision (8 Comp. Gen. 346 and 348) reads:

An appropriation should not be used for the purchase of an article not necessary for the use of a fiscal year in which ordered merely in order to use up such appropriation. This would be a plain violation of the law.

Based on this decision, an agency would be in violation of the bona fide needs rule if it obligated funds for supplies at the end of a fiscal year, but it did not need those supplies until the next fiscal year.

Consumable supplies ordered through supply contracts must fill a bona fide need, whether they are to be used immediately or gradually over a period of time. In a 1921 decision, the comptroller general made a distinction between consumable supplies used gradually over time and those that can be used immediately (1 Comp. Gen. 115). In this case, an agency placed an order for gasoline three days before the end of the fiscal year. The gasoline was to be delivered in monthly installments in fiscal year 1922. The comptroller general determined that because the contract for the gasoline purchase was awarded near the end of the fiscal year, the gasoline, as a consumable supply item, could not have been purchased to meet a need for fiscal 1921. Delivery would