[Request Concerning Funding of Contract Modification After Expiration of Appropriations]

Pursuant to a congressional request, GAO investigated whether an appropriation used to finance a contract could be used once the period of availability expired. In 1977, the Army intended to purchase 557 thermal viewers from a firm. The firm agreed to provide only 509 viewers for the amount of money that the Army was willing to spend. The Army and the firm then entered into a fixed-price incentive contract for the Army to purchase the 509 viewers. In 1981, the contractor learned that its cost would be below the contract's target cost; therefore, it suggested modifying the 1977 contract to increase the number of viewers it would provide to 577, instead of decreasing the contract price. The Army believed that such a procedure was contrary to law and refused to execute the modification agreement. The contractor contended that: (1) in 1977 the Army obligated sufficient funds for procuring additional viewers in 1981; (2) the appropriation that was available in 1977 was the correct one to charge for 557 viewers because the Army had a bona fide need for this number of viewers; and (3) the situation was analogous to the treatment of replacement contracts. GAO stated that funds from an expired appropriation can only be used to liquidate obligations which are validly incurred while the appropriation was available. Since there was no binding agreement for the purchase of additional viewers, no obligation for them could have been incurred. Accordingly, GAO concurred with the Army's position that it could not enter into the modification agreement, except by using current funds.