Emerging Issues and
What You Need to Know:
Some Basics About Funding Government
Contracts
Prepared by:
September 9, 2015
Susan Warshaw Ebner
[email protected]
Fortney & Scott, LLC
1750 K Street, NW
Suite 325
Washington, DC 20006
202.689.1200
www.fortneyscott.com
Emerging Issues and What You Need to Know:
Some Basics About Funding Government Contracts
In government contracting it really is all about the money! A government contract can only be issued
when there is an established government need and money of the right type, amount and duration is
available to fund the procurement. Indeed, you can’t start work or get paid unless the right type of
money is available to fund the purposes to be accomplished by the contract, the right amount of money is
allotted to the procurement to carry out these purposes, and the money actually is obligated to and
available for expenditure on the specific contract awarded to you. Budgeting and procurement are two
sides of the same coin. Policy drives funding, and funding drives policy and its implementation. Absent
a policy decision to fund a particular project and the allotment and obligation to fund the ultimate
contract action, contracts will not be issued and option years will not be exercised. Right now the
Department of Defense (“DOD”) authorization and appropriation bills are wending their way through the
Congressional process. As the end of this fiscal year and the start of a new one approach, this advisory is
intended to provide you with some basic points regarding how the government procurement process gets
its funding and areas in that process that you need to watch.
I.
Constitutional Authority and the Budget, Authorization, and Appropriation Process
The Federal Government’s authority to enter into and fund contracts starts with the U.S. Constitution.
The Constitution’s taxing and spending authority provides the Federal Government with the authority to
spend money to carry out its governmental purposes.1 The Constitution’s power of the purse provides a
Legislative Branch check and balance on the Executive Branch’s spending authority, permitting the
Executive Branch to only spend those monies that both Houses of Congress have agreed to authorize and
appropriate.2 Thus, as part of the checks and balances under the Constitution, Congress is responsible for
passing laws that authorize and appropriate funds for the Executive Branch to carry out identified
government purposes.
Both the House of Representatives and the Senate have committees to oversee the different government
functions. These include substantive committees to investigate, hold hearings, and otherwise review and
develop positions that are used to build up the Federal budgeting and funding laws that ultimately
provide the Executive Branch with the specific types and amounts of funds available for their use to carry
out various government purposes during the budgeted period. These committees cover such areas as
Defense, Commerce, Education, Energy, Health and Human Services, Interior, Transportation, and the
Treasury. The Executive Branch, headed by the President, includes various Executive branch agencies
and offices that track the specific substantive committees in Congress. The Executive Branch also
1
U.S. Const. Art. I, § 8, Cl. 1 (“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay
the Debts and provide for the common Defence [sic] and general Welfare of the United States; but all Duties, Imposts and
Excises shall be uniform throughout the United States”).
2
Id. §9, Cl. 7 (“No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a
regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”).
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includes the Office of Management and Budget (“OMB”), which is part of the Executive Office of the
President. OMB also maintains various divisions and branches that are responsible for overseeing the
budgeting, management, and assessment of the different Executive Branch agencies, as well as
procurement, regulatory, financial management and technology policy.
II.
The Budget Process
The budget is the lynchpin of the process for determining what programs and purposes can be funded,
and how much funding ultimately is budgeted and made available for specific programs and contracts. In
our procurement world, the Executive Branch cannot spend money that has not been authorized and
appropriated by Congress, and then ultimately allotted and obligated by the Executive Branch to a
particular agency’s procurement.
A.
The Executive Branch Side
OMB Circular A-11, entitled “Preparation, Submission, and Execution of the Budget,” as most recently
revised in June 2015, lays out the process for developing budgets for the Executive Branch.3 The Federal
fiscal year runs from October 1 through September 30. Generally, during the period of September
through January, the Executive Branch compiles the President’s proposed budget for submission to
Congress. At the lowest level, OMB budget analysts coordinate with their executive agency counterparts
to identify the President’s agenda and the agency’s specific programs and purposes needed to carry out
the essential mission of the agency and the President’s agenda. Agency financial and management
personnel work with the agency’s divisions and programs to develop a build-up of which programs,
projects, and funding are needed for the next fiscal year. This is a look-back, look-now, and lookforward exercise—a look at the continuum of funding for projects and programs in prior fiscal years, the
current year, and future years. At the agency level, the amounts sought for specific programs and
projects are rolled up into a budget that is provided to the appropriate OMB division. At OMB, the
budget proposals are analyzed and compared to the President’s agenda, prior performance metrics, and
future expectations. In short, OMB assesses whether the proposals are in line with the President’s
agenda, whether the costs and amounts sought are reasonable, and the potential risks and liabilities.
While this process is not completely transparent to mere mortals—it is subject to the deliberative process
privilege—the end result is the President’s proposed budget that is presented to Congress for its review
and approval each year.
3
OFFICE OF MGMT. & BUDGET CIRCULAR NO. A-11: PREPARATION, SUBMISSION, AND EXECUTION OF THE BUDGET (June
2015), https://www.whitehouse.gov/sites/default/files/omb/assets/a11_current_year/a11_2015.pdf .
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B.
The Congressional Side
On the Congressional side, Congress’s committees are supposed to perform their own review of the
President’s budget during the February through March timeframe. The Congressional Budget Office
(“CBO”) scores the President’s proposed budget items—to determine whether the kinds and amounts of
funding sought are reasonable and realistic. The CBO uses different measuring criteria and it is not
unusual for CBO and OMB scoring results to differ.
Congressional committees analyze and hold committee hearings on the various pieces of the budget
sought. Appropriation and authorization bills may cover specific agencies, or in some cases may be
omnibus in nature and cover many agencies. To develop a particular appropriation or authorization bill,
the Senate and the House of Representatives each develop, debate, and, hopefully, pass their own version
of the bill. As passed by the House and Senate, these bills may authorize/appropriate for different items
and funds. These bills then go through a reconciliation process so that Congress can reach agreement on
the bill to be passed. When the stars are all aligned, this process is completed and a bill is passed by both
Houses of Congress and presented to the President for signing and execution.
C.
Presidential Veto and Continuing Resolutions
If the President signs the bill, it becomes law and the President is charged with its execution. If the
President vetoes the bill, it does not become law unless the Senate votes by a two-thirds majority to
override that veto. If the bill is vetoed and not overridden, or the budget process takes too long and
would cause there to be no authorization and appropriation in place sufficient to fund ongoing
government activities, then there could be a Government shutdown where only those activities deemed
essential could continue. To avoid this serious problem, Congress may pass continuing resolutions—to
allow the work of the government to continue while Congress goes back to the drawing board to develop
budget legislation that the President will not veto, or that can be passed with sufficient votes by Congress
to override a Presidential veto. Under continuing resolutions, there can be few, if any, new starts—only
essential activities and previously funded procurements can continue.
III.
Budget Control Laws
In addition to the foregoing process, laws have been passed that place controls on the Federal deficit and
that ensure that the Executive Branch complies with the check and balance process in its commitment
and expenditure of funds. Some notable ones are identified below:
A.
Government Performance Measured
The Government Performance Results Act of 1993, Pub. L. No. 103-62 (“GPRA”), and its subsequent
amendment, the GPRA Modernization Act of 2010, Pub. L. No. 111-352, were enacted to improve
congressional decision-making and to make Federal programs and spending more efficient and
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accountable by requiring the gathering and analysis of objective performance information on these
government programs and spending.
B.
Budget Control Act and Sequestration
The Budget Control Act of 2011, Pub. L. No. 112-25 (the “Act”), raised the debt limit,4 but also
contained mechanisms intended to reduce the budget deficit between the amount the government brings
in and the amount it spends and owes. This is done by putting in place statutory caps on discretionary
spending over the next 10 years and establishing a Joint Select Committee on Deficit Reduction to
identify budgetary savings each year; all with the end purpose of achieving at least $2.1 trillion in budget
deficit reduction during the 10-year period FY 2012 through FY 2021.5 If agreement is not reached on
the specific budget cuts needed to achieve these statutory reductions, the Act provides for the imposition
of automatic across the board cuts in discretionary spending. There is a provision for emergency
spending notwithstanding these automatic cuts to fund exigencies such as war and contingency
operations.6
Sequestration of budgeted funds would occur if the amount of the budget for discretionary funding would
exceed the budget caps set by the Act.7 Under the Act, OMB is authorized to “allocat[e] the automatic
spending reductions across non-exempt accounts under sequester.”8 When those cuts are passed on to
the agency, the agency fiscal and financial personnel work with program and contracting personnel to
identify where to make the cuts. This could result in agency decisions to delay procurements; to not
exercise contract options; to descope work under an existing contract; to stop work; or to fully or
partially terminate a current contract in order to avoid spending monies that the Government does not
have authority to spend. Contract work that is fully funded may continue, unless the contracting officer
imposes a stop work, contract change, or full or partial termination.
4
See Initiatives: Debt Limit, U.S. DEP’T OF THE TREASURY, available at
http://www.treasury.gov/initiatives/Pages/debtlimit.aspx (“The debt limit is the total amount of money that the United States
government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits,
military salaries, interest on the national debt, tax refunds, and other payments. The debt limit does not authorize new
spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents
of both parties have made in the past. …Failing to increase the debt limit would have catastrophic economic consequences. It
would cause the government to default on its legal obligations—an unprecedented event in American history. …Congress has
always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise,
temporarily extend, or revise the definition of the debt limit … In the coming weeks, Congress must act to increase the debt
limit. Congressional leaders in both parties have recognized that this is necessary. The debt limit places a ceiling on the
amount of debt that the United States can maintain.”)
5
Marc LaBonte & Mindy R. Levit, CONG. RESEARCH SERV., R42013, THE BUDGET CONTROL ACT OF 2011: EFFECTS ON
SPENDING LEVELS AND THE BUDGET DEFICIT, (Oct. 5, 2011) at 1-2.
6
Id. at 2.
7
Id. at p. 14.
8
Id. at p. 19.
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C.
Antideficiency Act
The Antideficiency Act (“ADA”), 31 U.S.C. §§ 1341, 1342, 1517, prohibits any officer or employee of
the Government from: (1) “making or authorizing an expenditure from, or creating or authorizing an
obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund
authorized by law,” (2) “involving the government in any obligation to pay money before funds have
been appropriated for that purpose, unless otherwise allowed by law,” (3) “accepting voluntary services
for the United States, or employing personal services not authorized by law, except in cases of
emergency involving the safety of human life or the protection of property,” and (4) “making obligations
or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted
by agency regulations.”9 The ADA requires, among other things, that the contracting officer—before
executing any contract—obtain written assurance from the responsible fiscal authority that adequate
funds are available, or expressly condition the contract upon availability of funds in accordance with
FAR 32.703-2. A government officer’s or employee’s failure to comply with ADA terms can result in
the Government incurring or expending funds it does not have in violation of the Act. Violations must
be reported to the head of the agency, the President, OMB, and Congress. The matter also will be
referred to the Department of Justice for investigation. A government officer or employee found to have
violated the Act can be subjected to civil or criminal prosecution10. Entering into or causing a contractor
to perform work when no funds are available to pay for it can result in a violation of the ADA.
IV.
Funding and Payment Under a Government Procurement
Once the authorization/appropriation legislation is passed and there is a budget, OMB allocates the
funding authorized and appropriated to the various agencies and programs. The agencies then further
allocate funding to specific programs, projects, and procurements based on the funds and projects
authorized by Congress, and the kinds and amounts of funds released by OMB to the agencies.
An agency will analyze and determine whether there are sufficient funds available for a particular
procurement to proceed. If it determines there are sufficient available funds, then the agency will
proceed with the procurement. Remember under the ADA an agency cannot enter into a contract unless
it has sufficient funds for the performance it would authorize, or it includes appropriate clauses to ensure
that before performance proceeds, the funds are made available. The contract ultimately issued must be
within the authorized, appropriated and allocated funding permitted by Congress, OMB and the agency.
Where the agency has certain funds identified for performance of a contract and expects that sufficient
funds will be made available in time to fund the contract performance, the agency may enter into a
9
Antideficiency Act, U.S. Gov’t Accountability Office, http://www.gao.gov/legal/anti-deficiency-act/about (last visited on
Aug. 31, 2015) (citing Principles of Federal Appropriations Law: Third Edition, Vol. II, Ch. 6, GAO-06-382SP (Feb. 1, 2006),
also referred to as “GAO Red Book”).
10
Id. (“Federal employees who violate the Antideficiency Act are subject to two types of sanctions: administrative and penal.
Employees may be subject to appropriate administrative discipline including, when circumstances warrant, suspension from
duty without pay or removal from office. In addition, employees may also be subject to fines, imprisonment, or both.”).
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contract, however, the contract must include appropriate clauses to ensure that the agency and contractor
cannot and will not proceed to perform the contract without appropriate funding. Where the contractor
can proceed to perform a contract that is not fully funded, the ADA and regulations require that specific
provisions be included in the contract to ensure that where the contractor does proceed, it will not exceed
the amount of funding authorized, appropriated, available, and obligated to the contract.11 These clauses
may include FAR 52.232-18 Availability of Funds, FAR 52.232-19 Availability of Funds for the Next
Fiscal Year, FAR 52.232-20 Limitation of Cost, and FAR 52.232-22 Limitation of Funds.
It is imperative that contractors understand the funding that is on their particular contract, and how that
ties in with their required performance and payment terms. The contract schedule will include the
specific deliverables to be performed and amounts for which they will be paid under the contract.
Accounting Classification Reference Numbers (“ACRNs”) will be included in the contract to show the
kind12 and amount of funding obligated to the particular contract. These funds may be obligated
generally to the contract to pay for the various Contract Line Items (“CLINs”) and sub CLINS
(“SLINs”). Alternatively, specific funds may be obligated to fund discrete CLINS, or even SLINs. As a
contractor, you need to pay attention to what is funded under the contract, and the particular invoicing
and payment terms of the contract. A failure to work to the funding terms, or to invoice for work in a
manner inconsistent with the CLIN/SLIN/ACRN structure of the contract, could result in delays or even
nonpayment of an invoice.
V.
Conclusion
Federal contracts operate within the parameters of the Federal budget and management processes.
Understanding where the money comes from and whether there is enough of the type and amount needed
at the time it is needed is crucial. Determine where the risks lie in your contract. Exercise care to
understand whether and to what extent the contract is fully or partially funded, whether you have any
advance notice obligations in order to obtain additional funds for performance, or special invoicing
requirements. Where the contract is not fully funded and includes funding limitation and availability
terms, the contractor must pay particular attention to its performance, accounting and invoicing, and any
duty to give the Government timely notice of amounts due or needed. Proper contract tracking, invoicing
and payment records are always essential.
11
See generally FAR pt. 32.7.
Generally speaking, the type of money determines its uses, e.g., operations and maintenance, research, construction are
some of the different types of money used to fund government contracts. Budgeting legislation also may provide that certain
funds can be used for specific or general purposes. Some funds may only be spent during a particular fiscal year. Others may
be spent over multiple years. And, still others may be considered “no year” funds or part of a “revolving fund” that can be
used beyond a single fiscal year. This is a complex business and this advisory does not permit a detailed look into this area.
See generally, OMB Circular A-11, supra.
12
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The Government commits a significant amount of its funding in the last quarter of the fiscal year. This
may make it difficult to address funding shortfalls. If you have concerns about funding availability and
limitations, or are having problems with invoicing and payment under your contract, action may need to
be taken quickly and before the end of the fiscal year since available funds can expire or otherwise
become unavailable. If you have questions about these types of procurement and fiscal law issues,
consult with counsel. Timing is everything—especially when it comes to Federal funding.
Susan Warshaw Ebner, Esq.
Fortney & Scott, LLC
[email protected]
1750 K Street, NW, Ste. 325
Washington, DC 20006
Office: (202) 689-1200 x1228
Mobile: (202) 286-4888
This advisory is intended to be a general summary of the law and does not
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constitute legal advice. You What
should
consult
with
competent counsel in the
event that you have specific questions about applicable legal requirements
or a specific matter.
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