Christmas in September

As the end of fiscal 2002 approaches, experienced government contractors are preparing for the traditional end-of-year buying flurry, as government agencies strive to spend whatever "fallout" money they have left before it disappears Sept. 30. If anything, this year promises to be even more frenetic than usual, due in part to the Office of Management and Budget's decision to freeze much of the funds earmarked for information technology investments for agencies that might be affected by the Bush administration's new emphasis on homeland security.

OMB's desire to coordinate spending on IT, to avoid waste and inefficiency, is laudable. Indeed, such coordination has been mandated by statute for years — though honored more in the breach than in the observance. It would have been better, however, if OMB had dealt with this issue earlier.

The General Accounting Office has noted the phenomenon of year-end spending, likening it to sharks on a feeding frenzy, "furiously thrashing about to gobble up every appropriated dollar in sight." This last-minute thrashing raises significant legal issues.

Under the bona fide needs rule, appropriated funds may be used only for the bona fide needs of the period for which they were obligated. According to GAO, "where an obligation is made toward the end of a fiscal year and it is clear from the facts and circumstances that the need relates to the following fiscal year, the bona fide needs rule has been violated."

The consequences of violating the bona fide needs rule typically include the cancellation of the funding commitment and reprimands for the government personnel involved.

In general, the issue is less likely to be a problem when the items being purchased are articles of equipment, or services that are inherently nonseverable. Nonseverable services include projects that represent a single undertaking, such as conducting a study and issuing a report, or designing a system and producing plans. In contrast, severable services are those that involve recurring requirements, such as routine operations or maintenance services. Agencies may not commit funds appropriated for one period for severable services to be performed in another period.

End-of-year commitments always raise the possibility that an agency is trying to use its appropriations without proper regard for normal fiscal rules. Therefore, GAO often has said that such last-minute commitments should receive heightened scrutiny. On the other hand, the agency has also noted that an "appropriation is just as much available to supply the needs of the [last day] of a particular year as any other day or time in the year."

Presumably, OMB will allow the affected agencies to commit their fiscal 2002 funds before they expire. But the delay is likely to make an always hectic experience even more frantic than usual.

Peckinpaugh is corporate counsel for DynCorp in Reston, Va. This column represents his personal views.

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