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What is the "Bona Fide Need" Rule? - ANSWER The concept of the "legal availability" of Congressional appropriations is defined in terms of three elements - purpose, time, and amount. The Bona Fide Need rule covers the "time" aspect of legal availability and is one of the primary means of congressi...

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  • September 29, 2024
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Fiscal Law/Finance Questions &
Answers 100% Correct!!

What is the "Bona Fide Need" Rule? - ANSWER The concept of the "legal availability" of
Congressional appropriations is defined in terms of three elements - purpose, time, and amount. The
Bona Fide Need rule covers the "time" aspect of legal availability and is one of the primary means of
congressional control over its appropriations. The Bona

Fide Need rule basically means that a federal agency must have a legitimate or "bona fide" need for
the requirement during the time period that the appropriation is available. It is codified in 31 U.S.C.
1502(a),

which says, "The balance of an appropriation or fund limited for obligation to a definite period is
available only for payment of expenses properly incurred during the period of availability or to
complete contracts properly made within that period of availability and obligated consistent with
Section 1501 of

this title." In other words, the rule states that a fiscal year's appropriation may be obligated only to
meet a legitimate need arising in the FY for which the appropriation was made. Several GAO
decisions have

validated that the bona fide needs rule also applies to multiple year appropriations (B-132900,
FEBRUARY 19, 1976, 55 COMP.GEN. 768; B-215825, DEC 21, 1984, 64 COMP.GEN. 163).



What is a contingent liability? Give two examples. How is it funded? What are the PCO's
responsibilities when one is identified? - ANSWER An existing condition, situation, or set of
circumstances that poses the possibility of a loss to an agency that will ultimately be resolved when
one or more events occur or fail to occur. A contingent liability has not ripened into a definite
obligation and thus is not recordable as such. However, funds must be committed to cover the
liability in the event that the contingency ripens, so as to avoid a violation of the Anti-Deficiency Act.
Some examples of contingent liabilities are available, but unearned, award fees, target cost to ceiling
overruns on FPIF, fixed-price contracts containing escalation, upward adjustments under savings
clauses, etc.



As the PCO, funds are committed for these liabilities at the time of contract award at levels sufficient
enough to cover the additional obligations that will probably materialize (i.e. "most probable cost" -
this is based on judgment and experience, and you do not necessarily have to commit to
ceiling/maximum prices). It is your job to document these liabilities, including when they will likely
take place, ensuring the correct year & appropriation funds are committed/budgeted, and also
review such commitments over time to determine if funds should be reduced or released.

,SAF/FM has suggested maintaining contingent liability matrices for all contracts, with funds to be
committed for all contingent liabilities classified as "probable." All ACAT I and II programs must
identify and describe "probable" and "possible" contingent liabilities and estimated obligation dates.



In August of fiscal year 2013 (FY13), you awarded a contract to XYZ Company for $15,000 to
assemble and deliver 10 leather reclining chairs for your newly upgraded VTC room. The Air Force
needs these chairs by December to host a VTC with Congressional staffers to discuss better ways to
make federal employees work longer hours for less pay. XYZ Company proposed to assemble and
deliver the chairs in approximately three months. This contract was properly funded with FY13 Air
Force Operations and Maintenance (3400) money. XYZ Company delivered the chairs on Friday,
November 15, 2013, and you accepted delivery at the loading dock. On Monday, November 18, three
Airmen from your office went to the loading dock to move the chairs into the VTC room. When they
arrived at the loading dock, they discovered that the chairs had been stolen over the weekend.
Security Forces opened an investigation, but to date do not have any leads - ANSWER You may not
use FY13 funds to replace these chairs. The bona fide needs rule is one of the fundamental principles
of appropriations law: A fiscal year appropriation may be obligated only to meet a legitimate, or bona
fide, need arising in, or in some cases arising prior to but continuing to exist in, the fiscal year for
which the appropriation was made.



The Contracting Officer (CO) awarded a Firm-Fixed Price (FFP) type contract to install new
telephones. The contract was awarded 15 Sep 14 for a total price of $200K, with a period
performance ending 14 Sep 15, and incrementally funded in the amount of $100K of O&M (3400) FY
14 funding. Based on the above situation, is it acceptable to award this contract with FY 14 funds for
performance mostly occurring in FY 15? - ANSWER Yes, since this contract is for a severable service
initiated in FY14, the same year (3400) funding is appropriate. DFARS guidance says that the CO may
enter into a contract, exercise an option, or place an order under a contract for severable services for
a period that begins in one fiscal year and ends in the next fiscal year if the period of the contract
awarded, option exercised, or order placed does not exceed 1 year.



However, the contract should have been fully funded when the contract was awarded. AFI 65-601v1
says that the total cost of the services to be provided over the 12-month period must be reflected in
the contract and that amount must be obligated when the contract is signed. Therefore, the CO
should fully fund the contract with FY14 3400 funds.



A Fixed Price Incentive Firm (FPIF) type contract was awarded 20 August 2013 for the development
of a software system. The period of performance (PoP) was through 19 December 2014 and the
contract was funded with 3600 (2 year) Fiscal Year (FY) 13 funds. On 7 March 2014, the Contracting
Officer (CO) issued a Change Order modification to the contract to incorporate a revised Capability
Release Sequence (CRS). Fiscal Year 13 funds in the amount of $2,767,682 were set aside in
contingent liability 12 June 2014 to fund this change order. The contractor submitted a Request for
Equitable Adjustment (REA) on 3 October 2014 in the amount of $2,621,304. The CO requested to
use the FY13 3600 (expired) funds reserved in contingent liability to award the REA through the
Upward Obligation Adjustment (UOA) System. Based on the above situation, is FY13 funding

, appropriate to fund the Change Order? - ANSWER The CO issued a Change Order modification which
altered the program direction and resulted

in a change to the contract scope (i.e. additional hours). The contractor submitted an REA stating the
directed change would result in additional hours and cost. The AFI says that when contract changes
increase the contract's scope, you must fund the additional work from appropriations available for
current obligation. Both the change order mod and contractor's REA were submitted in FY14.
However, the final price determination of the REA occurred in FY15. Additional guidance from the AFI
and case law says that when an annual appropriation or a multi-year appropriation in the last year of
availability is used to execute one of these types of contractual actions and definitization occurs in
the following fiscal year, the amount being definitized becomes a bona fide need of the (annual
appropriation) or a (multi-year appropriation) fiscal year current at the time of definitization.
Therefore, the contract price increase, which was definitized in FY15, is a bona fide need of FY15. The
CO must obtain FY14 or FY15 3600 funds to obligate so that the contract change may be funded.



An Advisory and Assistance Services (A&AS) contract had just expired and performance had been
completed 1 February 2010. From 15 February 2010 through 30 April 2011 the Air Force (AF)
accepted services from four individuals previously employed on the expired A&AS contract. The
length of service of each individual varied from about four months to fourteen months. One
individual was assigned to analyze the performance of certain projects, while another individual
supported preparations for an annual meeting, and the other two individuals provided daily written
briefings on financial market developments. The AF did not appoint any of the individuals to federal
employment, nor did any individual qualify as a student, who may under certain circumstances,
perform voluntary services. The AF did not pay any of the individuals for these services. Did the AF
violate the voluntary services prohibition of the Anti-Deficiency Act - ANSWER The Anti-Deficiency
Act states an agency "may not accept voluntary services...the purpose of the prohibition is to
preclude situations that might generate claims for compensation that might exceed an agency's
available funds." In this scenario, the AF accepted the unpaid services of four individuals, and it never
intended to pay the individuals. This clearly violates the voluntary services prohibition. By accepting
the services of these individuals, a risk was created that the individuals will assert a claim for
payment. The only time the AF may accept unpaid services is when someone offering such services
executes an advance written agreement that (1) states that the services are offered without
expectation of payment, and (2) expressly waives any future pay claims against the Government. The
AF obtained no such agreements and should report a violation of the Anti-Deficiency Act as required
by 31 U.S.C. § 1351.



There are situations in which it is not only proper but mandatory to use currently available
appropriations to satisfy a need that arose in a prior year. We refer to this as the "continuing need."
If a need arises during a particular fiscal year and the agency chooses not to satisfy it during that
year, perhaps because of insufficient funds or higher priority needs, and the need continues to exist
in the following year, the obligation to satisfy that need is properly chargeable to the later year's
funds. An unfulfilled need of one period may well be carried forward to the next as a continuing need
with the next period's appropriation being available for funding. Thus, an important corollary to the
bona fide needs rule is that a continuing need is chargeable to funds current for the year in which
the obligation is made, regardless of the fact that the need may have originated in a prior year. In this

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