I can't think of a legal reason why you can't incrementally fund an option, but two colleagues swear that you can't -- although they can't come up with the specifics. Here will be the situation. We have a CPAF contract for services. The contract has a base period of 12 months with four, 12 month option periods. Option prices were evaluated at time of award. We are on annual appropriations.

I've read FAR 17 and 32 over and over....what am I missing?

All comments are greatly appreciated.

By Vern Edwards on Monday, May 13, 2002 - 03:25 pm:

If your funds are appropriated annually, then why do you want to incrementally fund the option periods? Why can't you fully fund them at the time of exercise, after funds have become available? Is the base period incrementally funded?

By joel hoffman on Monday, May 13, 2002 - 04:15 pm:

Please explain what you mean by incrementally funding an option.

Do you mean incrementally funding an option year by not fully funding it at the time you exercise the option?

Or do you mean by not funding it until you exercise the option?

thanks! happy sails! joel hoffman

By Anonymous on Monday, May 13, 2002 - 04:26 pm:

Vern- We could. Let's assume we anticipate multiple CRs and have to fund piecemeal, or that there are no CRs but the program office prefers to fund quarterly. Frankly, I don't know that the CS wants (or rather anticipates) that funding will not occur fully with each appropriation, but the written acquisition plan that I reviewed was written with the scenario I described. The base would be fully funded at time of award. Now what do you think?

Joel- Your first question is exactly what I mean -- sorry for the confusion.

By anoncon on Monday, May 13, 2002 - 07:49 pm:

All:

I don't see this as too unusual. I have two large CPAF contracts that have been incrementally funded throughout their tenure. I sometimes think that the agencies try to use it as a cost control measure. Also believe it has something to do with monies being applied against the contract from various Government customers to the contracting agency. I can tell you it is one pain in the butt for me under the LOF clause.

By Anon2U on Monday, May 13, 2002 - 11:39 pm:

I also don't understand why program offices cannot fund annual appropriations for the full year. The requirement is not going to go away and by funding quarterly they cause their people 4 times the work, the budget office 4 times the work, the liasion 4 times the work, and the contracting office 4 times the work. Oh yes, and the contractor 4 times the work. We do hundreds (if not thousands) of mods a year. I have seen them fund a $400 requirement $100 at a time. The HCA doesn't seem powerful enough (or is just unwilling) to tell the program office that enough is enough.

I guess its all part of the keep the government employees busy doing work that don't need doing. Then they wonder why we aren't the Most Efficient Organization and can't win A-76. Oh, and if a contractor wins the A-76 - will they be surprised when they are asked to do 4 times the work.

By formerfed on Tuesday, May 14, 2002 - 08:14 am:

Anon2U,

I'm not defending poor and inefficient practices here, but many agencies/programs are at the mercy of financial practices that are difficult (but not impossible) to change.

Several of the OMB budget types still control their agencies through tight quarterly alottment of approrpriations. Just because a certain amount got appropriated on an annual basis doesn't maen an agency can spend it. Rather some at OMB still realease te money quaarterly for a variety of reasons, one of which is to control how it's spent. Particularly if there's no legal basis to relaease amounts in the full level in the fisrt quarter, the pracatice continues.

What's needed is for someone to get the attention of seneior acquisition and fiscal peopple and explainhow inefficient this process is.

By Vern Edwards on Tuesday, May 14, 2002 - 09:38 am:

Anonymous of May 13 at 3:02pm:

Your question was whether or not it would be legal to incrementally fund an option.

The answer appears to depend on agency policy. I cannot find any statutory prohibition. The FAR describes the practice of incremental funding, but does not regulate its use. The Defense FAR Supplement, § 232.703-1, limits its use for fixed-price contracts, but otherwise says nothing about its use to fund options. NASA's FAR supplement provides as follows:

"1832.702-70 NASA policy.

(a) Cost-reimbursement contracts may be incrementally funded only if all the following conditions are met:

(1) The total value of the contract (including options as defined in FAR Subpart 17.2) is--

(i) $500,000 or more for R&D contracts under which no supplies are deliverable; or

(ii) $1,000,000 or more for all other contracts.

(2) The period of performance exceeds one year.

(3) The funds are not available to fund the total contract value fully at award.

(4) Initial funding of the contract is $100,000 or more."

Thus, NASA's policy appears to preclude the incremental funding of an option to extend an annually funded contract.

The use of incremental funding for some programs may require Congressional assent (see the Defense Financial Management Regulation, Ch. 2; the Air Force Material Command Financial Management Handbook, Ch. 49; and the GAO's February 26, 2001 letter to Senator Pete Domenici, "Budget Issues: Incremental Funding of Capital Asset Acquisitions"), but only if it has implications for future year apppropriations. In such cases, however, incremental funding is described differently than it is in FAR § 32.703-1(b). For example, the Defense Financial Management Regulation defines it as follows in Volume 2A, Ch. 1, Sec. 010107, paragraph 31:

"The phasing of total funding of programs or projects over two or more fiscal years based upon levels and timing of obligational requirements for the funds. Differs from full funding concept where total funds for an end item, program or project are provided in the fiscal year of program or project initiation, regardless of the obligational requirement for the funds."

As described in FAR Subpart 32.7, incremental funding is a process in which the government enters into a contract under which the parties agree to limit their obligations to each other based on the amount of money that the government makes available for contract performance.

So, unless you work for NASA, or unless your agency limits the use of incremental funding, I cannot come up with any reason why you cannot incrementally fund an option. Check your agency funding policies and ask your colleagues to cite the basis for their conclusion.