B-198574, FEBRUARY 2, 1981, 60 COMP.GEN. 219

B-198574: Feb 2, 1981

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15 U.S.C. 636(J) WHICH ARE REQUIRED TO BE PERFORMED AS REQUESTED DURING SPECIFIED PERIOD EXTENDING BEYOND FISCAL YEAR IN WHICH CONTRACT WAS MADE. APPROPRIATIONS - OBLIGATION - CONTRACTS - FUTURE NEEDS WHERE PRIOR YEAR AGREEMENT PURPORTING TO BIND GOVERNMENT TO PAY FOR SERVICES REQUIRED TO BE PERFORMED IN SUBSEQUENT FISCAL YEAR IS ENFORCEABLE ONLY WHEN DEFINITE ORDER FOR SERVICES IS MADE. COST OF SERVICES PERFORMED PURSUANT TO SUCH ORDER MAY BE CHARGED AGAINST APPROPRIATION CURRENT WHEN SERVICES ARE ORDERED. OBLIGATED IN ONE FISCAL YEAR FOR CONTRACTS FOR SERVICES UNDER SECTION 7(J) OF THE SMALL BUSINESS ACT (15 U.S.C. 636(J)(1976)) ARE AVAILABLE FOR PAYMENT IN A SUBSEQUENT FISCAL YEAR DURING WHICH THE SERVICES ARE PERFORMED.

B-198574, FEBRUARY 2, 1981, 60 COMP.GEN. 219

APPROPRIATIONS - OBLIGATION - VALIDITY - AGREEMENTS - SMALL BUSINESS ADMINISTRATION - MANAGEMENT SERVICES ANNUAL APPROPRIATIONS MAY NOT BE OBLIGATED FOR ANY MANAGEMENT SERVICES UNDER SECTION 7(J) OF THE SMALL BUSINESS ACT, 15 U.S.C. 636(J) WHICH ARE REQUIRED TO BE PERFORMED AS REQUESTED DURING SPECIFIED PERIOD EXTENDING BEYOND FISCAL YEAR IN WHICH CONTRACT WAS MADE. APPROPRIATIONS - OBLIGATION - CONTRACTS - FUTURE NEEDS WHERE PRIOR YEAR AGREEMENT PURPORTING TO BIND GOVERNMENT TO PAY FOR SERVICES REQUIRED TO BE PERFORMED IN SUBSEQUENT FISCAL YEAR IS ENFORCEABLE ONLY WHEN DEFINITE ORDER FOR SERVICES IS MADE, COST OF SERVICES PERFORMED PURSUANT TO SUCH ORDER MAY BE CHARGED AGAINST APPROPRIATION CURRENT WHEN SERVICES ARE ORDERED.

MATTER OF: OBLIGATIONS AND CHARGES UNDER SMALL BUSINESS ADMINISTRATION SERVICE CONTRACTS, FEBRUARY 2, 1981:

AN AUTHORIZED CERTIFYING OFFICER OF THE SMALL BUSINESS ADMINISTRATION (SBA) REQUESTS OUR DECISION ON WHETHER ANNUAL APPROPRIATIONS, OBLIGATED IN ONE FISCAL YEAR FOR CONTRACTS FOR SERVICES UNDER SECTION 7(J) OF THE SMALL BUSINESS ACT (15 U.S.C. 636(J)(1976)) ARE AVAILABLE FOR PAYMENT IN A SUBSEQUENT FISCAL YEAR DURING WHICH THE SERVICES ARE PERFORMED. HERETOFORE, SBA'S PRACTICE HAS BEEN TO CHARGE THE FULL ESTIMATED COST OF THE SERVICES AGAINST APPROPRIATIONS CURRENT AT THE TIME OF THE AWARD OF THE CONTRACT ON THE THEORY THAT, SINCE PAYMENT MAY NOT EXCEED AN ESTIMATED MAXIMUM COST AND MAY BE MADE ONLY FOR COMPLETED TASKS ORDERED BY THE GOVERNMENT, THE SERVICE AGREEMENTS ARE ANALOGOUS TO DEFINITE QUANTITY SUPPLY CONTRACTS EXECUTED IN ONE FISCAL YEAR FOR DELIVERIES IN A SUBSEQUENT FISCAL YEAR. UNDER THOSE CONTRACTS THE GOVERNMENT MAKES PAYMENT ONLY FOR SUPPLIES ACTUALLY SHIPPED.

FOR THE REASONS WHICH FOLLOW WE DO NOT AGREE THAT THE SBA CONTRACTS ARE FOR DEFINITE QUANTITIES OR THAT PAYMENTS FOR SERVICES RENDERED IN THE FISCAL YEAR FOLLOWING THAT IN WHICH A CONTRACT THEREFOR WAS EXECUTED REPRESENT VALID OBLIGATIONS OF THE PREVIOUS FISCAL YEAR. IN OUR VIEW, AN OBLIGATION UNDER THE SBA CONTRACTS AROSE ONLY WHEN SPECIFIC SERVICES WERE ORDERED FROM THE CONTRACTOR BY THE GOVERNMENT.

UNDER SECTION 7(J), SBA ARRANGES WITH PRIVATE ORGANIZATIONS TO PROVIDE TECHNICAL AND MANAGEMENT ASSISTANCE TO INDIVIDUALS OR BUSINESSES ELIGIBLE FOR ASSISTANCE UNDER THE ACT. THE PERIOD COVERED BY THE USUAL CONTRACT IS ONE CALENDAR YEAR AFTER ITS EXECUTION, WHICH, THE CERTIFYING OFFICER STATES, IN MOST INSTANCES COVERS MORE THAN ONE FISCAL YEAR. THE CONTRACTOR AGREES TO PERFORM CERTAIN SPECIFIED TASKS, AS REQUESTED BY THE AGENCY, AT ANY TIME DURING THE LIFE OF THE CONTRACT. ALTHOUGH THE CONTRACT TERMS PROVIDE A TOTAL ESTIMATED PRICE FOR THE SERVICES TO BE RENDERED, PAYMENTS ARE ACTUALLY MADE ONLY IN PROPORTION TO THE AMOUNT OF WORK REQUESTED AND PERFORMED. MOREOVER, THE AGENCY IS NOT BOUND TO ORDER ANY MINIMUM AMOUNT OF SERVICES NOR IS IT REQUIRED TO DEAL ONLY WITH THE CONTRACTOR.

THE CERTIFYING OFFICER ASKS TWO SPECIFIC QUESTIONS: (1) WHETHER THE CONTRACTS EXECUTED IN A CURRENT FISCAL YEAR REPRESENT VALID OBLIGATIONS FOR PAYMENT OF SERVICES TO BE PERFORMED IN A SUBSEQUENT FISCAL YEAR, AND (2) IF NOT, WHETHER THE CERTIFYING OFFICER MAY, NEVERTHELESS, CERTIFY VOUCHERS FOR SERVICES PERFORMED DURING A CURRENT FISCAL YEAR WHEN THE CONTRACTS FOR SUCH SERVICES WERE AWARDED DURING A PRIOR FISCAL YEAR.

FOR THE REASONS WE WILL EXPLAIN MORE FULLY IN OUR ANSWER TO QUESTION 2, THE SPECIFIC AGREEMENTS DESCRIBED BY SBA DO NOT GIVE RISE TO ANY CONTRACT OBLIGATIONS ON THE PART OF THE UNITED STATES AT ALL UNLESS AND UNTIL THE AGENCY REQUESTS THE CONTRACTOR TO PERFORM CERTAIN SPECIFIC SERVICES. THUS AN ORDER PLACED IN A SUBSEQUENT FISCAL YEAR TO RENDER SERVICES IN THAT YEAR IS A VALID OBLIGATION OF THE YEAR IN WHICH THE ORDER WAS PLACED. THERE IS NO FUNDING-ACROSS-FISCAL-YEAR-LINES PROBLEM IN THE INSTANT CASE.

HOWEVER, BECAUSE THE QUESTION ITSELF AND THE REFERENCES CITED INDICATE SOME CONFUSION WITH THE PRINCIPLES INVOLVED, WE WILL TAKE THIS OPPORTUNITY TO EXPLAIN THE "BONA FIDE NEEDS" RULE MORE PRECISELY.

ASSUMING FOR THE MOMENT THAT THE SBA AGREEMENT DID REPRESENT A CONTRACT OBLIGATION IN THE YEAR IN WHICH IT WAS EXECUTED THE ANSWER TO THE FIRST QUESTION WOULD BE NO, SINCE IT IS HARD TO SEE HOW SERVICES, WHICH BY THE VERY TERMS OF THE AGREEMENT, CAN ONLY BE RENDERED IN A SUBSEQUENT FISCAL YEAR, CAN BE SAID TO BE A "BONA FIDE NEED" OF THE AGENCY FOR THE FISCAL YEAR IN WHICH THE CONTRACT WAS MADE. THE "BONA FIDE NEED" RULE WAS DEVELOPED BY THE GENERAL ACCOUNTING OFFICE TO IMPLEMENT ONE OF THE OLDEST FUNDING STATUTES ON THE BOOK. FIRST ENACTED IN 1789 (1 STAT. 95), THE PRINCIPLE KNOWN AS "THE ONE YEAR RULE," NOW CLASSIFIED TO 31 U.S.C. 712(A), IS THAT ANNUAL APPROPRIATIONS MAY ONLY BE APPLIED "TO THE PAYMENT OF EXPENSES PROPERLY INCURRED DURING THAT YEAR OR TO THE FULFILLMENT OF CONTRACTS PROPERLY MADE WITHIN THAT YEAR." THIS MAKES APPROPRIATIONS AVAILABLE ONLY TO FULFILL A GENUINE OR "BONA FIDE" NEED WHICH EXISTS AT THE TIME THE CONTRACT IS EXECUTED.

THE FACT THAT DELIVERY OF GOODS OR PERFORMANCE OF SERVICES TAKES PLACE IN A FISCAL YEAR SUBSEQUENT TO THE YEAR IN WHICH THE CONTRACT WAS MADE DOES NOT AUTOMATICALLY PRECLUDE THE CHARGING OF THE EARLIER FISCAL YEAR APPROPRIATIONS WITH THE FULL COST OF THE GOODS OR SERVICES. THE TEST IS WHETHER THE GOODS OR SERVICES WILL MEET AN IMMEDIATE NEED OF THE AGENCY, REGARDLESS OF WHEN THE WORK UNDER THE CONTRACT IS COMPLETED. GENERALLY, THERE IS LITTLE PROBLEM DETERMINING THAT CONTRACTS FOR SUPPLIES OR EQUIPMENT OR FOR CONSTRUCTION OF A BUILDING REPRESENT GENUINE NEEDS OF THE YEAR IN WHICH THE CONTRACT WAS MADE. THIS MAY ALSO BE TRUE OF SOME SERVICES. ON THE OTHER HAND, CONTINUING AND RECURRING SERVICES, TO THE EXTENT THAT THE NEED FOR A SPECIFIC PORTION OF THEM ARISES IN A SUBSEQUENT FISCAL YEAR, DO NOT MEET THE TEST. THE PORTION OF THE SERVICES NEEDED IN THE SUBSEQUENT FISCAL YEAR WOULD BE REGARDED AS "SEVERABLE," AND NOT CHARGEABLE AGAINST APPROPRIATIONS AVAILABLE AT THE TIME THE CONTRACT WAS MADE.

THE LEGAL OPINION UPON WHICH SBA RELIED IN THIS CASE FOR THE CONCLUSION THAT FUNDS OF THE FISCAL YEAR OF CONTRACT FORMATION WERE VALIDLY OBLIGATED WAS AN AUGUST 18, 1977, MEMORANDUM FROM SBA'S OFFICE OF GENERAL COUNSEL. IT VIEWS THE AGREEMENTS HERE IN QUESTION AS "ENTIRE," BASED IN PART UPON TWO OF OUR DECISIONS CONCERNING A CONTRACT AWARDED BY THE DEPARTMENT OF STATE. B-125444, FEBRUARY 16, 1956, AND MAY 2, 1956. ON THE OTHER HAND, THE CERTIFYING OFFICER RECOGNIZES THAT IN A MORE RECENT CASE, B-192518, AUGUST 9, 1979, WE STATED:

IN THE ABSENCE OF ANY SPECIFIC LEGISLATIVE AUTHORITY, A CONTRACT FOR MANAGEMENT SERVICES, FUNDED WITH ANNUAL APPROPRIATIONS, MAY BE MADE ONLY FOR SERVICES TO BE RENDERED DURING THE CURRENT FISCAL YEAR AND MAY NOT CROSS FISCAL YEAR LINES. * * *

THE STATE DEPARTMENT CONTRACT INVOLVED IN THE 1956 DECISION PROVIDED FOR GARDENING SERVICES FOR A CERTAIN NUMBER OF DAYS EACH MONTH DURING A 12 MONTH PERIOD EXTENDING ACROSS FISCAL YEAR LINES. THE TOTAL CONTRACT PRICE CONSISTED OF THE GARDENER'S WAGES FOR 207 DAYS, THE COST OF EQUIPMENT RENTAL AND MAINTENANCE, AND THE COST OF REFUSE REMOVAL, MOLD, AND GRASS SEED. ALTHOUGH SOME OF THE GARDENING SERVICES WERE NOT RENDERED UNTIL THE FISCAL YEAR FOLLOWING THAT IN WHICH THE CONTRACT WAS EXECUTED, WE FOUND THAT SINCE IT ALSO INCLUDED EQUIPMENT AND SUPPLY COSTS, THE CONTRACT WAS NOT PURELY A SERVICES CONTRACT AND WAS NOT SEVERABLE. THEREFORE, WE HELD THAT THE ENTIRE AMOUNT DUE UNDER THE CONTRACT WAS CHARGEABLE AGAINST THE FISCAL YEAR APPROPRIATIONS CURRENT AT THE TIME THE CONTRACT WAS EXECUTED.

WHETHER B-125444 WAS CORRECTLY DECIDED ON THE FACTS OF THAT CASE IS OPEN TO QUESTION SINCE THE TYPE OF GARDENING SERVICE INVOLVED (AS OPPOSED TO THE SUPPLIES AND EQUIPMENT) BY ITS VERY NATURE HAD TO BE PERFORMED ON A PERIODIC BASIS THROUGHOUT THE LIFE OF THE CONTRACT. AT ANY RATE, IT IS CLEAR THAT SBA AGREEMENTS UNDER SECTION 7(J) OF THE SMALL BUSINESS ACT DO NOT REQUIRE DELIVERY OF EQUIPMENT AND SUPPLIES BUT ARE PURELY FOR SERVICES TO BE PERFORMED UPON REQUEST OF THE CONTRACTING OFFICER AT ANY TIME DURING THE LIFE OF THE CONTRACT, AND THAT LIFE SPANS TWO FISCAL YEARS. THE SBA AGREEMENT CALLS FOR SERVICES WHICH FULFILL A NEED OF A SUBSEQUENT FISCAL YEAR, AS WELL AS THE CURRENT FISCAL YEAR AND THUS IS SEVERABLE. BECAUSE ONE CANNOT LOGICALLY SAY THAT SERVICE RENDERED IN THE SUBSEQUENT FISCAL YEAR FULFILLS NEEDS OF THE CURRENT FISCAL YEAR, APPROPRIATIONS CURRENT AT THE TIME OF CONTRACTING ARE NOT AVAILABLE TO PAY FOR SERVICES RENDERED IN THE FOLLOWING YEAR.

IN HIS SECOND QUESTION, THE CERTIFYING OFFICER ASKS WHETHER HE MAY CERTIFY VOUCHERS FOR SERVICES RENDERED IN THE FISCAL YEAR FOLLOWING THAT IN WHICH THE CONTRACT WAS AWARDED, PRESUMABLY BY CHARGING THE SUBSEQUENT FISCAL YEAR'S APPROPRIATIONS. THIS QUESTION AND QUESTION ONE ARE MERELY OPPOSITE SIDES OF THE SAME COIN. IN ADDITION TO THE ARGUMENTS ADVANCED BEFORE, INVOLVING 31 U.S.C. 712(A) AND THE "BONA FIDE NEEDS" RULE, THE PROHIBITIONS IN 31 U.S.C. 665(A), THE SO-CALLED ANTI-DEFICIENCY ACT, MUST ALSO BE CONSIDERED. THE ANTIDEFICIENCY ACT (AMONG OTHER THINGS) FORBIDS THE INCURRING OF OBLIGATIONS IN ADVANCE OF OR IN THE ABSENCE OF AVAILABLE APPROPRIATIONS TO COVER THE OBLIGATION. SINCE SECTION 712(A) MAKES APPROPRIATIONS UNAVAILABLE FOR GOODS OR SERVICES WHICH DO NOT REPRESENT A BONA FIDE NEED OF THE FISCAL YEAR SOUGHT TO BE CHARGED, IF A VALID CONTRACT OBLIGATION FOR SERVICES AROSE IN THE PRIOR FISCAL YEAR, FUNDS OF THE SUBSEQUENT FISCAL YEAR COULD NOT BE USED TO PAY FOR THEM WITHOUT VIOLATING THE PROHIBITION IN 31 U.S.C. 665(A). SEE E.G., 28 COMP.GEN. 553(1949); 29 ID. 451(1950); 37 ID. 60 AND 155 (1957); 42 ID. 272(1962); 56 ID. 142(1976); AND B-192518, AUGUST 9, 1979.

IN THE INSTANT CASE, HOWEVER, AS WE STATED IN ANSWER TO QUESTION ONE, THE SAMPLE AGREEMENT SUBMITTED TO US DOES NOT, BY ITSELF, GIVE RISE TO A CONTRACTUAL OBLIGATIONS ON THE PART OF THE UNITED STATES. UNDER THE SO- CALLED "CONTRACT" TERMS, ALL ORDERS FOR SERVICES MUST BE PLACED ON BEHALF OF THE GOVERNMENT BY A DESIGNATED PROJECT MANAGER WHO MUST ISSUE A TASK ORDER WHICH REFERENCES THE BASIC CONTRACT AND DESCRIBES THE SPECIFIC TASK TO BE PERFORMED. AS WE HAVE ALREADY NOTED, THE "CONTRACT" TERMS PROVIDE AN ESTIMATED PRICE FOR THE ENTIRE PROJECT. THE "CONTRACT" STATES IN ADDITION, HOWEVER, THAT--

(THE CONTRACTOR SHALL BE PAID ONLY FOR COMPLETED AND ACCEPTED TASKS. TASK SHALL BE DEEMED TO BE COMPLETED UNTIL A REPORT THEREON HAS BEEN ACCEPTED. PAYMENTS ARE AUTHORIZED FOR TASKS (AND REPORTS THEREON) COMPLETED AND ACCEPTED WITH INVOICES TO BE SUBMITTED ON A MONTHLY BASIS. HOWEVER, PAYMENT FOR THE FINAL GOVERNMENT * * *. THERE ARE NO MINIMUM PAYMENTS REQUIRED UNDER THE TERMS OF THIS CONTRACT. CONTRACTOR SHALL BE PAID ONLY FOR WORK COMPLETED AND APPROVED BY SBA PROJECT MANAGER.

ANOTHER PROVISION OF THE CONTRACT PROVIDES AS FOLLOWS:

IT IS FURTHER UNDERSTOOD AND AGREED THAT THIS IS NOT A CONTRACT FOR ALL OF SBA'S REQUIREMENTS FOR TECHNICAL AND MANAGEMENT ASSISTANCE TO BE RENDERED TO ELIGIBLE INDIVIDUALS OR ENTERPRISES WITHIN THIS REGION AND SBA MAY AWARD CONTRACTS TO OTHER CONCERNS OR OTHERWISE PROVIDE FOR FURNISHING SUCH ASSISTANCE WITHIN THIS REGION AS MAY BE NECESSARY.

THUS, NO OBLIGATION ARISES UNTIL SPECIFIED SERVICES ARE ORDERED, AND THERE IS NOTHING IN THE CONTRACT TO REQUIRE SBA TO PLACE ANY ORDERS OR TO CREATE ANY LIABILITY IN THE EVENT NO ORDERS ARE PLACED AT ALL. FURTHERMORE, SUCH ORDERS AS ARE PLACED NEED NOT BE PLACED WITH ANY GIVEN CONTRACTOR. FINALLY, PAYMENT FOR SERVICES PERFORMED UNDER THE CONTRACT MAY BE MADE ONLY FOR COMPLETED TASKS, AND NO MINIMUM PAYMENT IS REQUIRED, IT IS WELL SETTLED THAT CONTRACTS OF THIS NATURE ARE UNENFORCEABLE FOR WANT OF MUTUALITY IF THE "WILL, WISH OR WANT" OF THE BUYER, IN THIS CASE THE GOVERNMENT, DETERMINES ABSOLUTELY THE QUANTITY TO BE DELIVERED. FURTHER, IF THERE IS NO CONSIDERATION OTHER THAN THE PROMISES OF THE PARTIES, AN AGREEMENT FOR SUCH QUANTITY AS THE BUYER, AT HIS OPTION, MAY ORDER OR REQUEST FROM THE SELLER IS UNENFORCEABLE FOR THE REASON THAT NO ABSOLUTE OBLIGATION TO PURCHASE IS IMPOSED UPON THE BUYER. WILLARD SUTHERLAND & CO. V. UNITED STATES, 262 U.S. 489, 493(1923); B-161841, JULY 26, 1967; B-160063, FEBRUARY 10, 1967; B-101099, MARCH 7, 1961.

INASMUCH AS SBA HAS NO LEGAL OBLIGATION TO ORDER OR PAY FOR ANY SERVICES UNDER THE AGREEMENTS IN QUESTION, SUCH AGREEMENTS LACK MUTUALITY OF OBLIGATION AND ARE NOT CONTRACTS. SIMILAR AGREEMENTS LACKING MUTUALITY HAVE BEEN HELD ENFORCEABLE ONLY TO THE EXTENT PERFORMED. WILLARD SUTHERLAND & CO. V. UNITED STATES, SUPRA: ATWATER & CO. V. UNITED STATES, 262 U.S. 495(1923); 16 COMP.GEN. 779(1937). THEREFORE, SINCE THE GOVERNMENT INCURS A CONTRACT OBLIGATION ONLY WHEN ORDERS ARE PLACED AND SERVICES ARE RENDERED, THERE WOULD BE NO VIOLATION OF 31 U.S.C. 665(A) IF VOUCHERS FOR SERVICES ORDERED AND PERFORMED DURING A CURRENT FISCAL YEAR ARE CERTIFIED FOR PAYMENT FROM CURRENT FISCAL YEAR FUNDS ONCE THE SERVICES ARE PERFORMED AND ACCEPTED. IN OTHER WORDS, WE REGARD THE CONTRACT OBLIGATION AS ARISING ONLY WHEN A DEFINITE ORDER FOR SERVICES IS PLACED, NOTWITHSTANDING THE AGREEMENT EXECUTED IN THE PRIOR FISCAL YEAR.