What fiscal rules apply to interagency transactions?

A reader raised the following question: Many government acquisitions are being accomplished through interagency transactions. For example, the General Services Administration manages several programs that support other agencies. Some of these programs employ a revolving fund that may be exempt from normal constraints on the use of appropriated funds. Does an interagency transaction allow the user to take advantage of these exemptions?

The answer is found in the way an agency "obligates" the funds that Congress appropriates for its use. In general, Congress appropriates funds for an agency's use on a fiscal-year basis. An agency may obligate funds only for the bona fide needs of the fiscal year for which the funds were appropriated. If the agency obligates less than its total appropriation by the end of the year, it must return the unobligated balance to the general revenue fund for reappropriation. If, on the other hand, the agency obligates more than was appropriated for its use, it has committed an Antideficiency Act violation, which must be reported to Congress and may result in severe penalties for those responsible.

As part of the bona fide needs rule, an agency must determine whether a particular need is "severable" or "entire," which means nonseverable. Typically, a severable requirement is one that is satisfied by a series of separate actions, for example, daily janitorial services. For severable services, an agency must assure that each fiscal year's appropriation is charged for the services rendered during that year only.

An entire requirement is a single discrete project, such as the procurement of a computer system, for example. When an agency enters into a contract with a private entity to satisfy an entire requirement, it must obligate sufficient current year funds to cover its entire commitment even if the contract will not be finished during the current year.

For example, if an agency has a bona fide need in fiscal 1999 for 1,000 new desktop computers, and awards a contract to buy the systems, it must obligate sufficient fiscal 1999 funds to pay for the desktops even though delivery may not be completed until the following year.

Indefinite-delivery, indefinite-quantity contracts are treated the same way, but the focus is shifted to the ordering process. Thus, the foregoing example is no different whether the agency awards a new contract for the 1,000 computers or chooses to place an order for the computers under a pre-existing IDIQ contract.

The rules for obligating funds are the same, except for when an agency decides to use an interagency transaction instead of contracting on its own. Using the preceding example, if an agency chooses to acquire the computers through GSA's Federal Systems Integration and Management Center, it would obligate the funds for the transaction upon entering into a binding agreement with Fedsim. In fact, the governing statute treats contracts with private entities and agreements with other agencies together by reference to "a binding agreement between an agency and another person (including an agency)." [See 31 U.S.C. : 1501(a)(1).]

However, an additional rule applies to interagency transactions that are undertaken pursuant to the Economy Act (31 U.S.C. : 1535). Fiscal year appropriations used in an Economy Act transaction must be returned to the general treasury if the servicing agency has not completed performance or incurred binding obligations for the requiring agency before the end of the fiscal year. [See, for example, 58 Comp. Gen. 471 (1979).] Common Economy Act transactions to which this rule applies include transactions that employ a Military Interdepartmental Procurement Request to transfer funds between Defense Department agencies [see 59 Comp. Gen. 563 (1980)] and most purchases by one agency using a different agency's contract.

If the interagency transaction is authorized by a statute other than the Economy Act, the special requirement to return the funds at the end of a fiscal year is inapplicable. Common interagency transactions that are authorized by a statute other than the Economy Act include GSA programs, such as Fedsim, that rely on GSA's Information Technology Revolving Fund [see 55 Comp. Gen. 1497 (1976)] and acquisitions through contracts designated by the Office of Management and Budget pursuant to 40 U.S.C. : 1424.

By entering into a binding agreement with another agency pursuant to a statute other than the Economy Act, the using agency effectively increases the life of its appropriation. For this reason, some agencies will get into these agreements at the end of a fiscal year, when they realize that they have insufficient time to spend the money any other way. Once the money is committed to such an agreement, it can be used only in furtherance of that transaction. There is no authority to return funds to the original agency after the fiscal year for which it was appropriated has expired.

Many of the agencies that provide services to other agencies have been given special authorities by Congress to maintain and use money without regard to fiscal year or other "earmarking" limitations. Many also have been given contract authority, allowing them to contract in advance of appropriations. How these authorities work and how they can benefit requiring agencies will be discussed in another column.

Peckinpaugh is a member of the government contracts section of the law firm Winston&Strawn, Washington, D.C. This column addresses legal topics that arise in government acquisition and management of ADP resources.