Attachment_0012_-_Sample_PreStoryboard_Part_B.pptx

Common Obligation Actions in Budget Execution Module 3 Module 3 – Common Obligation Actions in Budget Execution

CC: In this module, we will discuss Common Obligation Actions in Budget Execution and their related processes.

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Upon completion of this module, you will be able to:

Identify common obligation actions in budget execution and their related processes Define the Economy Act Analyze the MIPR and IAO approval process in an organization to comply with appropriation funding laws and regulations Define a “New Start” and how to make a determination

3.0 Learning Objectives

CC: Upon completion of this module, you will be able to:

- Identify common obligation actions in budget execution and their related processes

- Define the Economy Act

- Analyze the Military Interdepartmental Purchase Request (MIPR) and Interagency Order (IAO) approval process in an organization to comply with appropriation funding laws and regulations

- Define a “New Start” and how to make a determination

Apportionment of Appropriated Funds The action by which the OMB distributes amounts available for obligation in an appropriation account.

Commitments An administrative reservation of funds based on firm procurement requests, unaccepted customer orders, directives, and equivalent instruments.

Obligations Amount representing orders placed, contracts awarded, services received, and similar transactions requiring payment during the same, or a future, period.

Commitments and Obligations

5.0 Learning Objectives

5.1 Description

5.2 Appropriation

5.3 Apportionments and

Treasury Warrants

5.4 Commitments and

Obligations

5.5 Anti-Deficiency Act

5.6 DFAS Role in Budget

Execution

5.7 Key Points

„Module 2: Budget Process

„Module 3:

Congressional Action on the Budget

„Module 4: Budget Amendments, Supplementals, & Sequestration

„Module 5: Budget Execution

„Module 6: DoD Funding

3.1 Overview of Purchase Requisition Process

Screen Functionality:

We learned in Module 2 about apportionment of appropriated funds, commitments, and obligations. Now we’re going to do a deeper dive on common obligation actions.

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Funds Control All appropriations require apportionment by OMB, with some exceptions The DoD Comptroller then allocates funds to the Military Services and Defense Agencies.

Funds may be further subdivided through suballocation and suballotment Distribution below the level of initial transfer to the Military Services and Defense Agencies is the responsibility of the Services and Agencies

3.1.1 Overview of Purchase Requisition Process

CC: All appropriations require apportionment, except appropriations and funds that OMB has informed the agency in writing are not subject to apportionment.

Following approval of apportionment/reapportionment requests by OMB, the DoD Comptroller allocates funds to the Military Services and Defense Agencies. Funds distributed by the Comptroller may be further subdivided through suballocation and suballotment to lower levels within the organizations or across organizations for execution. Initial distribution to Military Services and Defense Agencies is the responsibility of the Comptroller for all funds appropriated by Congress.

Distribution below the level of initial transfer to the Military Services and Defense Agencies is the responsibility of the Services and Agencies.

Apportionment and Reapportionment Schedule (Standard Form (SF) 132) Apportionments may contain quarterly and programmatic limitations All approved and/or appropriated transfers will be reflected on SF 132s Each SF 132 submitted must show all transfers processed to-date The SF 132 is processed concurrently for both the gaining and losing appropriations.

3.1.2 Overview of Purchase Requisition Process

CC: Now that we know apportionments are required by OMB Circular as the means to apportion funds, let’s delve into the process for apportionments and reapportionments. Standard Forms (SF) 132, Apportionment and Reapportionment Schedule, are the primary vehicle to apportion funds. They may contain quarterly and programmatic limitations on the face of the apportionment document. They may also provide more account specific guidance in the accompanying footnotes. All approved and/or appropriated transfers will be reflected on an SF 132. Each Apportionment and Reapportionment Schedule submitted must show all transfers processed to-date. The SF 132 is processed concurrently for both the gaining and losing appropriations.

Commitments A commitment is an administrative reservation of funds based upon firm procurement requests, orders, directives, and equivalent instruments The amount to be recorded as a commitment is the estimated procurement cost set forth in the commitment document The date the commitment document is signed by an authorized official determines the accounting period in which the commitment is to be recorded Officials may commit funds only to acquire goods, supplies, and services that meet the bona fide needs of the period for which Congress appropriated funds Commitments are required for some appropriations and are permissible for others Commitment accounting is required for procurement; military construction; and research, development, test and evaluation appropriation accounts

3.1.3 Overview of Purchase Requisition Process

CC: Once an organization has an apportionment, it may begin to spend it. A commitment, the first stage of accounting, is an administrative reservation of funds based on firm procurement requests, orders, directives, and equivalent instruments. The amount to be recorded as a commitment is the estimated procurement cost set forth in the commitment document. A commitment, when recorded in the accounting records, reduces the allotment’s available fund balance. The date the commitment document is signed by an authorized official determines the accounting period in which the commitment is recorded. Officials may commit funds only to acquire goods, supplies, and services that meet the bona fide needs of the period for which Congress appropriated funds or to replace stock used during that period. Commitments are required for some appropriations and are permissible for others. Commitment accounting is required for procurement; military construction; and research, development, test and evaluation appropriation accounts.

Obligations An obligation is a legally binding agreement or action that will result in outlays, immediately or in the future Funds that are not legally obligated before their period of availability expires are no longer available for new obligations Many charges are obligated early based on established rules in the DoD Financial Management Regulations:

Payroll charges based on salaries and wages are obligations at the time that salaries and wages are earned Travel charges for permanent change of station orders are obligated when orders are issued Tentative obligations for temporary duty travel are recorded from written administrative determinations, based on the travel authorizations issued

3.1.4 Overview of Purchase Requisition Process

CC: An obligation is a legally binding agreement or action that will result in outlays, immediately or in the future. Funds that are not legally obligated before their period of availability expires are no longer available for new obligations. Many charges are obligated based on specific rules in the DoD Financial Management Regulations. Examples are payroll charges based on salaries and wages (such as civilian living and quarters allowances, which are obligations at the time salaries and wages are earned). For travel charges, obligations occur at the time permanent change of station orders are issued for civilian and military personnel. For temporary duty (or TDY travel), tentative obligations are recorded from written administrative determinations, based on the travel authorizations issued, for the estimated transportation to be purchased and the estimated reimbursement to be earned by the traveler for per diem allowances, use of privately owned vehicles, and incidental travel expenses.

Other obligations are more complicated.

Common Obligation Actions Contracts Indefinite Delivery/Indefinite Quantity (ID/IQ) Example: BTRIC, CTRIC, A&AS Direct Foreign Example: Submarine dismantlement in Russia

Economy Acts Military Interdepartmental Purchase Request (MIPR) Example: OSD support for TREP program Interagency Order (IAO) Example: CDC training support for CBEP program

Miscellaneous Obligating Reimbursable Documents Fund Cites Example: Funding for DTRO operating expenses

3.1.5 Overview of Purchase Requisition Process

CC: Now that we know what constitutes an obligation, let’s review some common obligation actions. They include:

First, contracts such as Indefinite Delivery/Indefinite Quantity (ID/IQ). Examples are Biological Threat Reduction Integrating Contract (BTRIC), Chemical Threat Reduction Integrating Contract (CTRIC), and Advisory & Assistance Services (A&AS). Another example is a Direct Foreign contract such as for submarine dismantlement in Russia.

Second, Economy Acts contracts. For example, Military Interdepartmental Purchase Requests (MIPR) used for OSD support for the Threat Reduction Program (TREP), a DTRA-managed program. Another example is an Interagency Order (IAO) of Center for Disease Control (CDC) training support for the Cooperative Biological Engagement Program (CBEP).

Third, Miscellaneous Obligation Reimbursable Documents are another common obligation action. An example is a Fund Cites to fund the Defense Threat Reduction Office (DTRO) operating expenses.

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Purchase Requisition Packages Purchase Requisition (PR) (formerly Procurement Request) is a document or collection of documents that describes goods or services to be obtained These documents also identify the method by which the goods or services are to be provided Documentation required for PR packages varies greatly. Economy Act PRs and contract PRs have different requirements.

Common documents include a SOW (WBS and CDRL), Independent Government Cost Estimate (IGCE), market research and any other justification A full listing of requirements will be developed at an Early Strategy Session-related meeting

3.1.6 Overview of Purchase Requisition Process

CC: A Purchase Requisition is a collection of documents that is assembled by the project team and sent to Contracting to initiate a contract action.

Exact documents needed and time to assemble the package depends on the contract action being taken. Common documents include a Statement of Work (SOW), which includes a Work Breakdown Structure and Contract Data Requirements List (CDRL), an Independent Government Cost Estimate (IGCE), market research and any other justification.

Final product gets loaded in the Comprehensive Cost and Requirement System (CCaRS), DAI (Defense Agency Initiative), or other related Core Financial System in use. A full listing of the contents required will either be listed in a Standard Operating Procedure (SOP) or discussed in an Early Strategy Session-related meeting.

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Purchase Requisition Packages (Cont’d) Checklist of documents and steps that must be prepared and met prior to the PR package being sent to Contracting Different set of requirements dependent on the type of contract (or Economy Act) action Includes templates, models, guidance, and policy for each type of document required Normally listed on Agency/Service in Acquisition ToolBook and /or SharePoint site

3.1.7 Overview of Purchase Requisition Process

CC: Normally you will find on your respective Agency/Service’s SharePoint/webpage (Acquisition or Financial) a checklist of documents and steps that must be prepared and met prior to the PR package being sent to Contracting.

Different sets of requirements are dependent on the type of contract (or Economy Act) action that is to be implemented. We will cover the Economy Act in some detail later in this course. This checklist will include templates, models, guidance, and policy for each type of document required.

Requirements Iteration and Flow

Agency Need Identified Req. Definition Process Acquisition Plan/ Acquisition Strategy Panel Background and Objectives & Plan of Action Solicitation Requirements

Functions to be performed;

Performance required;

Essential physical characteristics;

User need date;

Project cost Req. validated Broad requirements;

FYDP

SOO/SOW/PWS;

Specifications;

CDRLs Statement of need;

Applicable conditions;

Cost;

Capability or performance;

Delivery or performance period requirements;

Trade-offs and risks;

Budgeting & funding

Contract Requirements

3.1.8 Overview of Purchase Requisition Process

CC: To set the stage for the PR process, let’s review the requirement process from the identification of a requirement/need to the Solicitation and Contract Requirements. Each of the steps is important to the contracting process.

First, the agency identifies the broad requirements and ensures they are included in the Future Years Defense Plan.

Second, the requirements must be defined and then validated.

Third, for major acquisitions, an Acquisition Strategy Panel validates the Acquisition Plan including specific performance capabilities, trade-offs, risks and affordability.

Once the requirement is funded, the agency/Service defines the specific requirements in a Statement of Objective (SOO), Statement of Work (SOW) or Performance Work Statement (PWS) following FAR and agency/Service guidance. The Contract Data Requirements List (CDRL) is a list of authorized data requirements and delivery information for a specific procurement. It is included in the solicitation and becomes a part of the contract. The CDRL delineates a clear and unambiguous list of minimum essential data needs in a single source.

We will cover some of these steps in more detail in subsequent slides.

What is a Requirement?

A requirement is a description of the Government’s need(s) stated in terms sufficient to allow market research to be conducted A requirement is progressively elaborated and eventually incorporated in solicitation and contract To the maximum extent practicable, ensure that requirements are defined in terms of:

Functions to be performed – what it is supposed to do Performance required – how well it performs the requirements Essential physical characteristics, environment, interfaces or other constraints – conditions in which it has to work

3.1.9 Overview of Purchase Requisition Process

CC: In the next few slides we will discuss requirements which are very important to understand in the formulation of Purchase Requisitions. A requirement is a description of the Government’s need(s) stated in terms sufficient to allow the conduct of market research. A requirement is progressively elaborated and eventually incorporated in both a solicitation and a resulting contract.

To the maximum extent practicable, requirements should be defined in terms of:

1) Functions to be performed – what it is supposed to do

2) Performance required – how well it performs the requirements, and

3) Essential physical characteristics, environment, interfaces or other constraints – that is, the conditions in which it has to work

Estimated Contract Lead Times

3.1.10 Overview of Purchase Requisition Process

CC: The above slide is an extract of the Purchase Requisition Planned Acquisition Lead Times (PALT) established by one DoD agency as a guideline for its staff involved in the PR process. It’s very important to adhere to these established contract lead times to execute planned PRs for the fiscal year. This schedule takes into account several different types of purchases such as new competitive (newly competed) contracts, new non-competitive (sole source) contracts, Economy Act, and modifications to existing contracts. Adherence to these lead times will help execution and expenditure planning which will be discussed in greater detail in Module 4.

When Market Research is Required Market research is required for the following actions:

Economy Act actions Military Interdepartmental Purchase Requests (MIPRs) Interagency Orders (IAOs) Full proposals, downselects, or rapid response efforts on Indefinite Delivery/Indefinite Quantity (IDIQ) contracts Exceptions to Fair Opportunity Standard Procurements (direct contracts) Sole Source Procurements

3.1.11 Overview of Purchase Requisition Process

CC: There are circumstances in which market research musts be conducted to satisfy the Federal Acquisition Regulation (FAR).

- First, Economy Act actions such as Military Interdepartmental Purchase Requests and Interagency Orders.

- Second, full proposals, downselects, or rapid response efforts on Indefinite Delivery/Indefinite Quantity (IDIQ) contracts.

- Third, Exceptions to Fair Opportunity. The Federal Acquisition Streamlining Act of 1994 (implemented in the FAR 16.505) requires contracting officers (CO) who award multiple delivery-order contracts or multiple task-order contracts exceeding $2,500 to provide each awardee a fair opportunity to be considered. If the CO makes an exception to the Fair Opportunity legislation, the decision must be supported by market research.

- Fourth, Standard Procurements (direct contracts), and

- Fifth, Sole Source Procurements.

What is Market Research?

"Market research" means collecting and analyzing information about capabilities within the market to satisfy agency needs (Federal Acquisition Regulation (FAR) 2.101 - Definitions) Agencies/Services often establish implementing guidance For example, DTRA Instruction 5000.17 applies to all DTRA acquisitions, to include Interagency acquisitions under the Economy Act, with an estimated value in excess of the Simplified Acquisition Threshold (SAT) specified in the FAR, and Acquisitions with an estimated value below the SAT when adequate information is not available and the circumstances justify the cost of conducting market research

3.1.12 Overview of Purchase Requisition Process

CC: Let’s now define market research, what regulation requires it and under what circumstances.

Market research is collecting and analyzing information about capabilities within the market to satisfy agency needs (Federal Acquisition Regulation (FAR) 2.101 - Definitions).

- Agencies/Services often establish their own implementing guidance.

For example, Defense Threat Reduction Agency (DTRA) Instruction 5000.17 applies to all DTRA acquisitions, to include interagency acquisitions under the Economy Act, with an estimated value in excess of the Simplified Acquisition Threshold (SAT) specified in the FAR and for acquisitions with an estimated value below the SAT when adequate information is not available and the circumstances justify the cost of conducting market research.

Purpose of Market Research To gather current data on existing market sectors to identify Commercial product characteristics Commercial item standards and best practices Emerging technologies Vendor capabilities Potential sources of supplies and / or services Non-developmental item solutions

3.1.13 Overview of Purchase Requisition Process

Leverage opportunities so that informed acquisition strategy decisions can be accomplished!

CC: A logical follow-on question might be, “why should DoD conduct market research?” The purpose of market research is to gather current data on existing market sectors to identify potential sources of supplies and or services, commercial product characteristics, commercial item standards and best practices, emerging technologies, vendor capabilities, and non-developmental item solutions.

This will enable you to take advantage of Government leverage opportunities so that informed acquisition strategy decisions can be accomplished.

Why Market Research is Important Determines the commerciality of the item or service required If determined to be commercial, identify commercial terms and conditions in the marketplace Identifies potential sources in the market sector to include small businesses and potential set aside opportunities Optimizes best value acquisitions by identifying competitive market pressures Assesses the impact of emerging technologies to enhance warfighter capabilities and potential system performance or reliability improvements Proactively addresses diminishing manufacturing sources and obsolete parts issues Determines if bundling is justified and necessary Develops data to support the acquisition strategy decision process Determines to what extent commercial items are suitable and available to meet the agency’s needs

3.1.14 Overview of Purchase Requisition Process

CC: Now that we know what market research is, when it’s required, and its purpose, let’s explore why it is important.

Market research

- Determines the commerciality of the item or service required

- If determined to be commercial, identify commercial terms and conditions in the marketplace

- Identifies potential sources in the market sector to include small businesses and potential set aside opportunities

- Optimizes best value acquisitions by identifying competitive market pressures

- Assesses the impact of emerging technologies to enhance warfighter capabilities and potential system performance or reliability improvements

- Proactively addresses diminishing manufacturing sources and obsolete parts issues

- Determines if bundling is justified and necessary

- Develops data to support the acquisition strategy decision process and

- Determines to what extent commercial items are suitable and available to meet the agency’s needs

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Why Market Research is Important (cont’d) Determines if nondevelopmental items are available Determines the extent to which commercial items or nondevelopmental items could be incorporated at the Component level to meet the agency’s requirements Your market research has to justify the conclusions in your market research documentation. Otherwise, Contracting may not accept it!!

3.1.15 Overview of Purchase Requisition Process

CC:

Market research also

- Determines if nondevelopment items are available.

A “Nondevelopmental item” is:

(1) Any previously developed item of supply used exclusively for governmental purposes by a Federal agency, a State or local government, or a foreign government with which the United States has a mutual defense cooperation agreement;

(2) Any item described in paragraph (1) of this definition that requires only minor modification or modifications of a type customarily available in the commercial marketplace to meet the requirements of the procuring department or agency; or

(3) Any item of supply being produced that does not meet the requirements of paragraphs (1) or (2) solely because the item is not yet in use.

Market research also determines the extent to which commercial items or nondevelopmental items could be incorporated at the Component level to meet the agency’s requirements.

Writing Requirements Statement of something that someone needs Must state something that can be verified by inspection, analysis, test or demonstration Must be attainable – within budget, schedule and technically feasible Must be clear – use short, simple sentences with consistent terminology

3.1.16 Overview of Purchase Requisition Process

CC: Defining, documenting, and disseminating scope, operational concepts and interfaces leads to this step. If you don’t do these beforehand it will lead to inconsistent and incomplete requirements.

Using a car example: I need a car with off-road capability for sand, mountainous regions, fording small streams.

The requirement is not attainable if I’ve defined the attributes of a Ferrari when I only have the budget for a Volkswagen.

Let’s drill down a bit on Bullet 4 - “must be clear”. Common mistakes in this stage include:

- Making bad assumptions

- Writing implementation instead of requirements

- Describing operations instead of writing requirements

- Using incorrect terms or sentence structure

- Writing unverifiable requirements

- Missing requirements

- Making requirements more specific than needed (which may result in unnecessarily driving up costs)

Budgeting for Requirements Agency/Service Program Budgets (including the FYDP) must cover full funding of existing and new requirements

Funding for Agency/Service requirements should comply with appropriation and financial policies

DoD Funding Policies / Rules to be Aware of Annual Funding (Expense Type Items – travel, training, labor, etc.)

Full Funding (Investment Type Items – equipment, construction, etc.)

Incremental Funding (Both Expense & Investment Type Items) Integrated Services Procured Over Multiple Years Severability Considerations

3.1.17 Overview of Purchase Requisition Process

CC: Now that the requirement is written, we must ensure our budget includes funding for the requirement. Agency/Service Program Budgets (including the FYDP) must cover full funding of existing and new requirements.

Funding for Agency/Service requirements must also comply with appropriation and financial policies.

To comply with financial laws and regulations and to avoid inadvertent adverse circumstances such as Antideficiency Act violations or augmentation of funds, there are several DoD funding policies / rules to be aware of. They include:

- Annual Funding (Expense Type Items – travel, training, labor, etc.)

- Full Funding (Investment Type Items – equipment, construction, etc.)

- Incremental Funding (Both Expense and Investment Type Items)

- Integrated Services Procured over Multiple Years

- Severability Considerations, which we will discuss in more detail momentarily

Economy Act Basics 31 U.S.C. § 1535 – Agency Agreements

The “head of an agency or major organizational unit within an agency” may place an order for goods or services with another if –

Funds are available;

The order is in the best interest of the Government;

The servicing agency is able to provide or get by contract the ordered goods or services; and The goods or services cannot be provided by contract as conveniently or cheaply by a commercial enterprise.

3.2 Economy Act

As promised earlier, we will now discuss the Economy Act. The Economy Act allows one Federal agency to order goods and services from another Federal agency. It also allows one DoD Component to order goods and services from other DoD Components or other organizational units (with their own appropriation) on a reimbursable basis. The rationale behind the Economy Act is that economies can be realized if one department uses equipment and services of another department. It may be cheaper than getting the equipment or supplies from a private contractor. This would also cut down on various Government departments having unnecessary duplicating and overlapping activities. Tasks can also be accomplished more simply and economically by using another agency’s expertise in the areas required.

Here are some thoughts from 31 U.S. Code, Section 1535 – Agency Agreements:

Elements/Requirements of entering into an Economy Act agreement are listed here:

- Funds are available;

- The order is in the best interest of the Government;

- The servicing agency is able to provide or get by contract the ordered goods or services; and

- The goods or services cannot be provided by contract as conveniently or cheaply by a commercial enterprise.

We will discuss them in more detail.

Economy Act Requirements

Determinations and Findings (D&F) documents are a special form of written approval by an authorized official that is required by statute or regulation as a prerequisite to taking certain contract actions (FAR Part 17.502-2). The D&F documents the following:

That an interagency transaction is in the best interest of the government, and That goods or services ordered could not be obtained as conveniently or cheaply by contracting with a private source Orders with non-DoD agencies (FMR Vol 11A, Ch 3) Acquisition will appropriately be made under an existing contract of the servicing agency, The servicing agency has capabilities or expertise to enter into a contract, or The servicing agency is authorized by law to purchase such goods/services for other agencies.

Funds are available Purpose of the transaction must be something the ordering agency is authorized to do Proper appropriations must be available Performing agency is in position to perform the desired services Likewise, must be something the performing agency is authorized to do Primarily the performing agency’s determination

3.2.1 Economy Act

CC: Some of the most important points concerning Economy Act requirements are:

Federal Acquisition Regulation (FAR) and Financial Management Regulation (FMR) require certain documentation before entering into an Economy Act agreement

Documentation is called a Determinations and Findings (D&F) document.

Required to document that:

- Agreement is in best interest of the government

- Could not obtain goods/services as cheaply or conveniently from private contractor

Additional documentation required if the Performing Agency will be contracting for the goods or services as opposed to performing in-house:

- Existing contract or

- Has capability/expertise to enter into contract or

- Is authorized by law to purchase goods/services for other agencies

The ordering agency’s contracting officer must approve D&F (check your activity’s policy to see if other approvals are required). For example, Navy policy requires that 51% of work be performed with in-house resources. Organizations may seek a waiver from Department of Navy FM&C (Financial Management and Comptroller).

Must have written agreement (under recording statute). Allows obligation to be made and documents work to be performed.

Economy Act Limitations

Transactions with States or the District of Columbia not authorized by Economy Act

Deobligation of funds required To the extent funds not obligated by servicing agency New funds must be applied

Not all services can be performed

3.2.2 Economy Act

CC: Here are some limitations in use of the Economy Act:

Not everything can be done under Economy Act

Cannot enter into agreements with states, DC or other Federal territories

Must de-obligate funds when their period of availability ends if Performing Agency has not incurred obligations against funds:

Not all services can be performed under Economy Act authority (will talk about this in next slide)

Economy Act Types of Work

Permitted Details of personnel Loans of equipment Provide services Not permitted Those services which the performing agency is required by law to provide and for which it receives appropriations Examples – Department of Justice, regulatory agencies Inadequacy of the performing agency’s appropriations is legally irrelevant and does not permit reimbursement by the ordering agency

3.2.3 Economy Act

CC: What types of work can/cannot be done via the Economy Act?

An agency may:

Reimburse for personnel detailed to the ordering agency Loan equipment Provide services

An agency may not:

Use an Economy Act order to pay another agency to perform services that it is required by law to perform and for which it receives appropriations to perform:

For example, it cannot pay regulating agency to regulate. Some agencies have had issues with environmental regulatory agencies requesting money to do things they are required by law to do (to regulate). Even if the if regulatory agency does not have money to do work, an agency cannot pay. The regulating agency receives an appropriation to do the work; if another agency pays, it constitutes an augmentation of funds (i.e., spending more money than appropriated by Congress).

Another example is that the Department of Justice (DOJ) cannot receive funds from another agency involved in litigation to conduct litigation the ordering agency is required by law to conduct or for which it receives appropriations (i.e., Department of Army Office of General Counsel (DA OGC) cannot pay DOJ to handle Army litigation in court).

3.2.4 Economy Act

Bona Fide Need Time availability still applies Requirement to deobligate at end of period of availability Purpose Availability Determined by the source appropriation – from the ordering agency Once transferred, remain subject to limitations and restrictions Actual costs All direct costs attributable to the work performed, regardless of whether expenditures were increased For indirect costs, see FMR volume 11A chapter 1 or volume 11B for Defense Working Capital Funds (DWCF) Severability Severable/non-severable status must be determined early because it can impact planned future obligations Other Points to Consider

CC: Some other points to consider and remember are:

Funds are still subject to Time and Purpose restrictions and any other limitations that applied when originally appropriated (transfer to another agency does not change this).

- If the performing agency is doing work in-house and if all of the funds have not been used at end of funds period of availability, they must deobligate the remaining funds and use current funds to complete work, even if the work is non-severable (remember this only applies to Economy Act, not other Interagency Transactions).

Work must be something that the:

Cannot pay agency to do something that it is by law required to do and for which it receives an appropriation (this would be a reallocation of funds between the agencies to circumvent appropriations process).

Under the Economy Act, the ordering agency must reimburse the performing agency actual costs of work performed.

Look to the DoD FMR for guidance on what goes into actual costs. Generally, the following are included:

- costs/rates of personnel, depreciation of equipment, repair/restoration of equipment and transportation, activation, operation, maintenance.

Severability must be determined early because it can impact planned future obligations. We will cover this topic in detail later in this course.

Other Considerations - Bona Fide Need Bona Fide Need rule

“…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” If at any point prior to or during the active life of the money, requirements have been defined on contract (within the Statement of Work (SOW) or implied therein) and continue to exist, there is a bona fide need and active funding can be applied Funds can be obligated in one fiscal year for work that is being done now and will continue into the next fiscal year

3.2.5 Economy Act

CC: Let’s expand our coverage of the Bona Fide Need Rule mentioned in the last slide. The Bona Fide Rule states:

“…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.”

If at any point prior to or during the active life of the money, requirements have been defined on contract (within the Statement of Work (SOW) or implied therein) and continue to exist, there is a bona fide need and active funding can be applied.

Funds can be obligated in one fiscal year for work that is being done now and will continue into the next fiscal year.

Other Considerations - Severability Severability must be determined early because it can impact planned future obligations Severable: there is benefit to be derived from work/services that are partially complete Example – Missile Elimination Total of 30 missiles need to be eliminated A base contract and two option tasks were created to split the work into severable pieces of 10 missiles each Non-severable: work represents a single undertaking Example – construction of a building The construction is a single action with the deliverable as the finished building. Becomes a benefit once the building is completed If contract is deemed non-severable, contract must be fully funded within the current Future Years Defense Program (FYDP) at the time of award Limitation of Funds Clause may apply

3.2.6 Economy Act

CC: One of the other considerations mentioned just a few slides ago was severability. It must be determined early because it can impact planned future obligations.

If there is benefit to be derived from work/services that are partially complete – then it is Severable

- Example – Missile Elimination

- Total of 30 missiles need to be eliminated.

- A base contract and two option tasks were created to split the work into severable pieces of 10 missiles each If work represents a single undertaking – then it is non-severable

- Example – construction of a building

- The construction is a single action with the deliverable as the finished building. It becomes a benefit once the building is completed.

- If a contract is deemed non-severable, the contract must be fully funded within the current Future Years Defense Program (FYDP) at the time of award There may be a Limitation of Funds Clause that may apply as well. This means, FAR 32.705-2(b) directs Contracting Officers to insert a Limitation of Funds clause in solicitations and contracts if an incrementally funded cost-reimbursement contract is contemplated.

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Continuing in nature Examples: Rental/Lease Contracts, Janitorial Services

< 12 MONTHS:

Obligate current funds at time contract is signed for the amount of the contract Crosses FY: Obligate current funds at time contract is awarded. Option years are treated as new contracts

> 12 MONTHS:

Obligate with appropriations of the FYs in which the services are rendered Exception: Obligate current funds when services are rendered in foreign countries where laws and customs require advance payments Severable Contracts Module 3 – Common Obligation Actions in Budget Execution

3.2.7 Economy Act

CC: Remember, severable contract generally refers to contracts that are continuing in nature, such as rental contracts or contracts for services, such as janitorial services.

For contracts with a period of performance of 12 Months or Less, agencies/Services should obligate current funds for the full amount when the contract is signed even if crosses fiscal years (normally this would violate the bona fide need rule, however, this is a specific exception). One rule though – there must be a need now to start this FY and carry over into next FY.

Here’s an example: On June 16th a 12-month contract is accepted/signed for $2,000 a month. The full amount of the contract is $24,000. The amount that is applicable to the current appropriation is $7,000. The correct amount to be obligated is $7,000.

For contracts greater than 12 Months in duration, obligate with appropriations of the FYs in which the services are rendered.

For example, on January 1st a 15-month contract is accepted/signed for $1,000 a month. The full amount of the contract is $15,000. The amount that is applicable to the current appropriation is $9,000. The correct amount to be obligated is $9,000.

Single undertakings Partial Performance = No Benefit Obligate the full amount when the contract is signed Examples:

Paving a parking lot Painting a building Non-Severable Contracts Module 3 – Common Obligation Actions in Budget Execution

3.2.8 Economy Act

CC: Non-Severable Contracts These contracts are for single undertakings, such as paving a parking lot or painting a building. Once it’s started, it can’t stop.

Obligate the full amount when the contract is signed.

Here is an example. A contract is accepted on September 1st to pave the commissary parking lot at a cost of $4,000. The contract will take two months to complete. Though the contract will not be completed until the next fiscal year, the correct obligation amount is $4,000 against the funds current on September 1st.

Severability Example 1

3.2.9 Economy Act

CC: Let’s apply what we just learned. Is this work on the fence work severable or non-severable? It is non-severable since the function of a fence is to keep something in or out (not being done here). The fence could have been completed in Phase 1 and the razor wire added in another phase 2 for example.

Severability Example 2

3.2.10 Economy Act

CC: Is the construction work on the building severable or non-severable? It is non-severable since the building has not been completed and is not functioning even though people are living there! Building construction is almost always a non-severable activity as mentioned in earlier slides.

Interagency Acquisitions

Determinations & Findings (D&F) Requirement:

Module 3 – Common Obligation Actions in Budget Execution

3.3 MIPR & IAO Process

CC: With a good understanding of the Economy Act under our belt, let’s review interagency acquisitions and why they may be in the best interest of the Government.

The relevant portions of the FAR are shown under the graphic on the left portion of the slide.

Interagency Economy Act orders (MIPRs and IAOs) must be supported by a Determinations & Findings (D&F) Requirement.

The D&F states that the use of an interagency acquisition is in the best interest of the government and the supplies or services cannot be obtained as conveniently or economically by contracting directly with a private source.

Economy Act orders requiring contract action by the performing agency also must include a statement on the D&F that the acquisition will appropriately be made under an existing contract of the performing agency, entered into before placement of the order, to meet the requirements of the performing agency for the same or similar supplies or services;

The performing agency has the capability/expertise to contract for the supplies or services, which capability is not available within the ordering agency; or The performing agency is specifically authorized by law or regulation to purchase such supplies or services on behalf of other agencies.

Many Services and agencies have established their own D&F policies. Be sure to check those applicable in your Service/agency.

The ordering agency's contracting officer with authority to contract for the supplies or services to be ordered (or other person designated by the agency head) must approve the D&F.

The Senior Procurement Executive of the ordering agency must approve the D&F if the performing agency is not covered by the FAR.

DoD Requirements

SECDEF Memo – Agency heads or designees must determine that supplies or services must be cheaper, not available within DoD and within the scope of the servicing agency that normally contracts for those supplies or services for itself.

Implementation of the SECDEF Memo – Before Economy Act orders are released for contract action, the requiring activity must prepare a D&F addressing the SECDEF memo.

Scope of Applicability – The procedures of FAR Subpart 17.5, DFARS Subpart 217.5, and DoDI 4000.19 apply

Module 3 – Common Obligation Actions in Budget Execution

3.3.1 MIPR & IAO Process

CC: Let’s review DoD requirements that supplement the Federal guidance in the FAR.

As a result of DoD abuses of Economy Act transactions, the Secretary of Defense has ordered that before issuing an Economy Act order for contract action outside of DoD, the head of the agency or designee shall determine that:

The ordered supplies or services cannot be provided as conveniently and cheaply by contracting directly with a private source;

The servicing agency has unique expertise or ability not available within DoD; and The supplies or services are clearly within the scope of activities of the servicing agency and that agency normally contracts for those supplies or services for itself.

Implementation of the SECDEF Memo. Both the Army and Air Force have directed that before Economy Act orders are released outside of DoD for contract action, the requiring activity must prepare a D&F addressing the elements in the SECDEF memo. See AFFARS 5317.503-90. Check your Service/agency policies.

This policy source is Secretary of Defense Memorandum to Secretaries of the Military Departments, Subject: Use of Orders Under the Economy Act (8 Feb 94)(Appendix C).

Delegation of Authority. Pursuant to the SECDEF memo, the Army and Air Force have delegated their authority to approve Economy Act determinations for orders to non-DoD agencies. Air Force Federal Acquisition Regulation Supplement (AFFARS) 5317.503-90.

A Senior Executive Service or General Officer commander/director of the ordering activity must approve the written determination if the performing agency is required to comply with the FAR.

The Senior Procurement Executive of the ordering activity must approve the written determination if the performing agency is not required to comply with the FAR. See AFFARS 5317.590 (list of agencies not covered by FAR).

Scope of Applicability. The procedures of FAR Subpart 17.5, Defense Federal Acquisition Supplement (DFARS) Subpart 217.5, and DoD Instruction (DoDI) 4000.19 apply to all purchases, except micropurchases, made for DoD by another agency (unless more specific statutory authority exists). This includes orders under a task or delivery order contract entered into by the other agency.

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MIPR Ordering Procedures

DD Form 448 Source: DFAS-IN Reg. 37-1, para. 120803 Module 3 – Common Obligation Actions in Budget Execution

3.3.2 MIPR & IAO Process

CC: Now that we’ve been exposed to interagency acquisitions, let’s discuss two types of orders that agencies/Services may place to obligate funds FAR Requirements: Military Interdepartmental Purchase Requests (MIPR) and Interagency Orders.

First, the MIPR Ordering Procedures. Orders must include all supporting data necessary to prepare the required contract documentation, including a description of the requirement, delivery terms, fund citation, payment provisions, and required determinations.

Orders must be specific, definite, and certain both as to the work encompassed by the order and the terms of the order itself.

Economy Act orders citing an annual or multiyear appropriations must serve a bona fide need arising, or existing, in the fiscal year(s) for which the appropriation is available for obligation. The work to be performed under Economy Act orders must begin within a reasonable time after its acceptance by the performing activity. The ordering activity should ensure in advance of placing an order that such capability exists.

Normally, DoD ordering activities issue Economy Act orders using a DD Form 448, Military Interdepartmental Purchase Request (MIPR).

Project orders require no specific form, however, DoD activities often use MIPRs. The order must be specific, definite, and certain. For additional information, see DFAS-IN Reg. 37-1, para. 120803. Activities issue only reimbursable orders. The order must indicate whether it will be performed on a cost basis or fixed-price basis.

MIPR Acceptance

The accepting officer must be duly authorized

Module 3 – Common Obligation Actions in Budget Execution

3.3.3 MIPR & IAO Process

DD Form 448-2

CC: After the ordering agency issues a MIPR, the following actions must take place for the MIPR acceptance.

The accepting officer must be a duly authorized employee of the performing activity.

If the ordering activity uses a MIPR, the performing activity accepts the order by issuing a DD Form 448-2, Acceptance of MIPR. Otherwise, the terms of the interagency agreement will determine the method of acceptance.

If the activity issues a MIPR on a reimbursable basis, acceptance establishes fund obligation authority in the performing activity account, and the activity may incur costs in accordance with the terms of the order.

Acceptance must indicate whether reimbursement will be on a "fixed-price" or "cost-incurred" basis.

Acceptance on a fixed-price basis is required if:

Billable unfunded costs will be included on the accepted price of the order;

Each item or service ordered is priced separately;

The price does not include substantial contingencies;

The cost estimate includes consideration of expected variances;

Neither activity expects many change orders; and The requirement is the type for which a fixed-price basis is practicable.

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Project Order Statute Project Order Statute (41 U.S. Code 23) provides project order authority to obligate funds and is available only for intra- or inter-DoD orders A Project Order is a specific, definite and certain order All project orders shall be identified on the order document itself When a project order is accepted in writing by the performing activity (a separately-managed DoD establishment, the amount of the project order shall be recorded as an obligation in the amount stated in the order

3.3.4 MIPR & IAO Process

CC: The Project Order Statute (41 U.S.C.