Contract and Fiscal Law Note

The time principle6 requires federal agencies to obligate funds only for legitimate-or bona fide-needs that arise within an appropriated fund's period of availability as established by Congress.7 To determine when the bona fide need arises, one must look to what is being procured.8 As a general rule, severable service contracts address a recurring or continuing need, and the bona fide need arises at the time the services are provided. 9 Therefore, a severable services contract that crosses fiscal years and is funded with the initial year's appropriation violates the bona fide needs rule because the agency is using the initial year's appropriation to fund a future year need.10 However, 2410a provides the Departments of Defense and Homeland Security with an exception to the general rule. The [agencies] may enter into a contract for [severable services, maintenance, and leases] for a period that begins in one fiscal year and ends in the next fiscal year if (without regard to any option to extend the period of the contract) the contract period does not exceed one year. . [...]based upon this statutory exception, the military departments may use current funds to pay for a severable services contract that extends into the next fiscal year so long as the contract does not exceed twelve months. Applying the Exception The GAO first addressed the application of 2410a in a 1996 opinion regarding an Air Force vehicle maintenance contract.11 In 1990, the Air Force entered into a one-year contract with four one-year options. 12 The first year of the contract was from October 1, 1991, until September 30, 1992.13 During the third option year, the Air Force decided to restructure some of its support contracts so they did not all conclude at the end of the fiscal year.14 Therefore, the Air Force modified the third option year of the vehicle maintenance contract to end one month early, on August 31, instead of September 30, and changed the fourth option year to run from September 1, 1994, until August 31, 1995.15 To complicate matters, the Air Force only had enough funds from fiscal year 1994 appropriations to fund the first four months of the newly-structured option year.16 In light of 2410a's one-year limitation, a certifying official was concerned that the Air Force was exceeding its authority by paying for fifteen months of performance-eleven in option year three and four in option year four-all with fiscal year 1994 funds.17 The GAO opined that the statute's one-year li