Proper Appropriation To Be Charged Cost Overrun

B-195732: Jun 11, 1980

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A decision was requested concerning the proper appropriation against which to charge the cost overrun on a cost-plus-fixed-fee contract for technical consulting services. Through modifications to the basic contract, the final overhead rate was revised, which required an adjustment in the estimated cost of the contract. The contract also contained a "Limitation of Cost" clause which provided that once the expended funds equaled the estimated cost or ceiling, the contractor was no longer under obligation to continue performance and the agency was not obligated to fund the overrun until the amount alloted the contract was increased. It was asked: (1) whether an overrun should be funded from the original appropriation, the current year appropriation, or either; (2) if a general rule existed which a certifying officer could use to determine the proper appropriation to be charged with cost overruns from prior year contracts; and (3) if a contract modification extending the performance period and increasing the cost without changing the scope of the work affected the source of funding. GAO found that the Government's liability to pay for increased costs resulting from changes in overhead rates is governed by standard contract clauses such as the "Negotiated Overhead Rates" clause, as was the case here. Thus, the Government's liability arose at the time the contract was executed and payment must be made from the appropriation current when that original agreement was made. A current or subsequent appropriation may only be used if the contract modification gives rise to a new liability involving an obligation incurred in the year the appropriation is available. The modification which increased the estimated cost of the contract in question was issued pursuant to the "Negotiated Overhead Rates" clause of the original contract which entitled the contractor to a price adjustment. Where a modification does not fall outside the general scope of the contract, the source of funding will be affected only if it is not authorized by the contract terms and the modification is not based on any antecedent liability. In this case, the contract was funded from "no year" appropriations which are available until exhausted for both old and new obligations.

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