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Clarification on Source of Funding for Replacement Contracts

B-198074 Jul 15, 1981
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Highlights

The Environmental Protection Agency requested a GAO decision on the source of funding for replacement contracts. The original funds remain obligated and available for funding a replacement contract, regardless of the year in which the replacement contract is awarded where: (1) the contracting officer terminates an existing contract for default on the part of the contractor, and the determination that the contractor defaulted has not been overturned by a board of contract appeals or a court; or (2) a replacement contract has already been awarded, after an agency terminates for default, by the time a competent administrative or judicial authority converts the default termination to a termination for convenience of the government. In both situations, the replacement contract must satisfy certain general criteria to be considered a replacement contract, as opposed to a new contract. First, it must be made without undue delay after the original contract is terminated. Second, its purpose must be to fulfill a bona fide need that has continued from the original contract. Finally, it must be awarded on the same basis and be substantially similar in scope and size as the the original contract. The original funding obligation is extinguished upon termination of the contract and the funds will not remain available to fund a replacement contract where: (1) the contracting officer terminates an existing contract for the convenience of the government; or (2) the contracting officer has terminated an existing contract for default and has not executed a replacement contract by the date upon which the conversion of a termination for default to a termination for the convenience of the government is ordered. In these situations, the original obligation must be deobligated to the extent it exceeds termination costs. Any subsequent contract awarded must be regarded as a new contract chargeable to appropriations current at the time of the new award. With reference to the contracting situation in question, the fiscal year appropriation for the replacement contract may be charged with the costs of the replacement contract regardless of the eventual outcome of an appeal of the case.

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