The Government Accountability Office (GAO) approved the obligation by the National Labor Relations Board (NLRB) of its fiscal year (FY) 2006 annual funds for several subscriptions beginning on the first day of FY 2007. (1) In reaching this conclusion, the GAO recognized the key issue as whether the subscriptions were the bona fide need of FY 2006. (2) Historically, the GAO has analyzed bona fide needs issues based on the specific facts and circumstances of each case. The GAO's starting point was classifying the acquisition as one for materials or services. (3) In determining that the NLRB subscriptions were the bona fide need of FY 2006, the GAO appears to have placed acquisition form (subscription) over substance (material or service) and thus strained the bona fide needs rule analysis. (4) In the instant case, the NLRB renewed seven subscriptions for on-line research tools (5) in September 2006, with five beginning on 1 October 2006 and two beginning on 1 November 2006. (6) In renewing these subscriptions in September 2006, the NLRB obligated FY 2006 funds even though the contract would be performed entirely in FYs 2007 and FY 2008. (7) The NLRB justified its actions regarding these obligations by asserting that the research tool subscriptions were critical to NLRB operations, and that to ensure uninterrupted service on 1 October 2006, the NLRB had to renew the subscriptions in September 2006. (8) The GAO accepted the NLRB position, stating that,
NLRB reasonably determined that it should place the renewal orders before the subscription ended, which would necessarily be FY 2006.... While Web site database subscription renewals can be effectuated quickly, we do not believe that the agency should run the risk of the subscription lapsing by waiting until October 1 to renew the subscription that is to begin that same day. (9)
Thus, the GAO determined that the NLRB's need for contract performance beginning on 1 October 2006 made the subscriptions the bona fide need of the prior FY, FY 2006. (10)
The GAO defined this procurement as a "subscription." (11) The GAO then rejected the NLRB's assertion that the bona fide needs rule does not apply to subscriptions. (12) The GAO determined that although prior GAO interpretations of the advance payment statute (13) allowed some special treatment of periodical subscriptions, (14) these opinions had not exempted subscriptions from the requirement to comply with the bona fide needs rule. (15) In each of the prior GAO subscription opinions, the subscription had begun in the same FY as ordered and needed, thus complying with the bona fide needs rule. (16) Although these prior opinions implicitly recognized bona fide needs rule applicability, none specifically analyzed how the bona fide needs rule should apply to subscriptions. (17)
In the author's opinion, computer access to legal research tools, like internet service or cable or satellite television service, is more closely related to a "service" than to a "material." (18) If the NLRB subscriptions are for services, then the GAO should have applied the principle from its prior opinions addressing the bona fide needs rule concerning service contracts. (19) The GAO has stated, "services procured by contract are generally viewed as chargeable to the appropriation current at the time the services are rendered." (20) Application of this principle to the instant NLRB subscription would result in the determination that the NLRB should have obligated FY 2007 funds-vice FY 2006 funds. (21)
Had the GAO analyzed this case's bona fide needs issues similar to how it has analyzed prior subscription cases, the materials bona fide needs analysis most likely would have been proper if the NLRB's subscriptions involved paper periodicals to be delivered to the agency. (22) The GAO appears to have applied a materials bona fide needs analysis to the NLRB subscriptions, even though the NLRB's subscriptions involved an online subscription and not a paper subscription. (23) The GAO recalled past materials opinions in which it stated that,
[M]aterials may be needed in the future when related work or processes currently under way may be completed. If such material is not obtainable on the open market at the time needed for use, a contract for its delivery when needed may be considered a bona fide need of the fiscal year in which the contract is made, provided the time intervening between contracting and delivery is necessary. (24)
The GAO also mentioned an opinion approving the purchase of stock materials which the agency knows it will not use until the next FY. (25) Because these past materials bona fide needs opinions approved the obligation of funds in one FY for delivery of materials in the next FY, the GAO determined the same concept should apply for the NLRB subscriptions. (26)
If subscription contracts are to be treated as materials for bona fide needs analysis, the GAO stretched the rules for the NLRB subscriptions. First, generally speaking,
[a]n appropriation may not be used for the needs of some time period subsequent to the expiration of its period of availability. With respect to annual appropriations, a more common statement of the rule is that an appropriation for a given fiscal year is not available for the needs of a future fiscal year. (27)
Applying this basic premise to the NLRB subscriptions appears to require the determination that access to a legal research tool on 1 October 2006 cannot possibly be a need earlier than the day that access will be provided. "[W]here 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." (28) Thus, the subscriptions would be the bona fide need of FY 2007 and must be funded with FY 2007 appropriations.
Of course, the GAO has developed exceptions to the general rule for materials, and it is these exceptions that the GAO relied on in approving the NLRB subscriptions. (29) In an oft-cited opinion, the GAO indicated that material needed in the next FY could be considered the bona fide need of the current FY if the material would not be available on the open market at the time needed for use and the time between contracting and delivery was needed for production of the material. (30) This opinion lacks persuasiveness as applied to the NLRB subscriptions. While the GAO accepted the NLRB position that it had to order the subscription in FY 2006 to ensure uninterrupted service, (31) there is no indication that the time between contracting and delivery, or access in this case, was needed for production of "the material." (32) Rather, the NLRB asserted that the intervening time was needed for internal agency coordination. (33)
The GAO next relied on reasoning found in its opinions addressing agency acquisition of materials as stock. (34) The GAO has determined that ordering stock items an agency knows will not be used until the next FY does not violate the bona fide needs rule so long as the type and amount of stock is reasonable. (35) Under this rationale, "readily available common use standard items" (36) may be purchased to replace items used during the FY. (37) This stock-level exception does not apply neatly to the NLRB subscriptions. While some new documents will be available through the research tools, these new documents generally are not provided to replace documents used during FY 2006. Further, these research tools do not appear to qualify as "readily available common use standard items." (38)
Thus, it appears that the GAO, rather than considering the funding of the NLRB subscriptions as already authorized by the existing bona fide needs rule exceptions, has crafted a new bona fide needs rule exception. Agencies may now enter subscription contracts for delivery in the next FY so long as the time between contracting and delivery is necessary. (39) The GAO accepted about one month as necessary in this case. (40) Unfortunately, the opinion itself does not expressly state this new bona fide needs exception.
Finally, the lead time approved by the GAO in this case is not the result of normal business considerations as had been the underpinning for the prior lead time exceptions. (41) Rather, the GAO allowed for the agency's own administrative lead time "to place and coordinate the orders administratively within the agency." (42) This consideration has not supported funding future FY needs with current FY funds in any cited GAO opinions, and its use in this case provides concerning precedent. (43) In this case, the GAO's reference to selected portions of distinguishable prior opinions to support its new exception to the bona fide needs rule may leave fiscal law practitioners frustrated as they struggle to determine just how broad this new exception really is.
Major Mark A. Ries
(1) Nat'l Labor Relations Bd., B-309530, 2007 U.S. Comp. Gen. LEXIS 172, at *2 (Sept. 17, 2007).
(2) Id. at *10. "Over a century ago, the Comptroller of the Treasury stated, 'An appropriation should not be used for the purchase of an article not necessary for the use of a fiscal year in which ordered merely in order to use up such an appropriation.'" OFF. OF THE GEN. COUNSEL, U.S. GOV'T ACCOUNTABILITY OFF., PRINCIPLES OF FEDERAL APPROPRIATIONS LAW, VOL. I, at 5-11 (3d ed. 2006) [hereinafter GAO REDBOOK] (citing 8 Comp. Gen. 346, 348 (1901)). The Government Accountability Office (GAO), Principles of Federal Appropriations Law (Redbook) continues, stating, "[t]he 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 ... the fiscal year for which the appropriation was made." Id. "The bona fide needs rule has a statutory basis." Id. at 5-12. "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 ... . " 31 U.S.C. [section] 1502(a) (2000).
(3) See GAO REDBOOK, supra note 2, at 5-22 (Delivery of Materials beyond the Fiscal Year), 5-23 (Services Rendered beyond the Fiscal Year). Note that there are only two categories of acquisitions noted in the Redbook, "materials" and "services." Id.
(4) A similar form over substance issue also arose in the context of the distinction between severable and nonseverable services. Id. at 5-27. The GAO stated in 1985, that level-of-effort contracts are by definition severable services, placing emphasis on the form of the contract vehicle used for the acquisition. Id. However, the GAO corrected this error in 1990 when it determined that the application of the bona fide needs rule depends not on contract type, but rather on the nature of the service performed. Id.
(5) These tools included Westlaw, LexisNexis Online Service, BNA, PACER, GalleryWatch, LexisNexis Shepard's Online Service, and Dun & Bradstreet. Nat'l Labor Relations Bd., 2007 U.S. Comp. Gen. LEXIS 172, at *4.
(6) Id. at *5. The GAO found that the subscriptions scheduled to commence on 1 October 2006 could be renewed and funded in FY 2006. Id. at *2. This article addresses this portion of the GAO decision. The GAO also found that the subscriptions scheduled to commence on 1 November 2006 were the bona fide need of FY 2007, and thus the agency improperly awarded the contracts in FY 2006 and also improperly obligated FY 2006 funds. Id. As this portion of the GAO decision does not appear noteworthy, this article does not address these particular subscriptions.
(7) Id. at *5.
(8) Id. at *12.
(9) Id. at *12-*13. The GAO did not address alternative solutions, such as modifying the existing subscription period to end in September 2006. This solution would have allowed the NLRB to renew the subscription to begin in FY 2006, thus satisfying the bona fide needs rule. Prior GAO opinions regarding subscriptions had previously approved crossing FYs. See note 14 infra.
(10) Nat'l Labor Relations Bd., 2007 U.S. Comp. Gen. LEXIS 172, at *13.
(11) Id. at *10.
(12) Id. at *7-*8.
(13) 31 U.S.C. [section] 3324 (2000). The advance payment statute generally prohibits an agency from paying a contractor before receiving the goods or services under the contract. Id. [section] 3324(a). Section (d), however, provides an exception allowing agencies to pay in advance "charges for a publication printed or recorded in any way for the auditory or visual use of the agency." Id. [section] 3324(d).
(14) Nat'l Labor Relations Bd., 2007 U.S. Comp. Gen. LEXIS 172, at *7. Based upon the exception in the advance payment statute allowing payment in advance for publications, the GAO addressed the proper funding of subscriptions in a number of early opinions. First, the GAO determined that a subscription beginning and funded in one fiscal year (FY) may extend into the next FY so long as it does not exceed one year. Decision by Comp. Gen. McCarl, 2 Comp. Gen. 451 (Jan. 24, 1923). Next, the GAO determined that a subscription may exceed one year in length, and is funded in the year it begins. Comp. Gen. Warren to the Sec'y of Agric., B-37388, 23 Comp. Gen. 326 (Nov. 2, 1943). The GAO then determined that payments may be made by lump sum or installments during the period of the subscription. Acting Comp. Gen. Yates to the Dir., Div. of Cent. Admin. Servs., Office for Emergency Mgmt., B-43844, 24 Comp. Gen. 163 (Aug. 29, 1944). Finally, the GAO determined that a subscription needed and ordered in FY1 may be funded with FY1 annual funds even though the period of performance was subsequently reduced to only FY2 due to the contractor's inability to perform. Decision of the Comp. Gen., B-129390, 1956 U.S. Comp. Gen. LEXIS 2614 (Nov. 28, 1956).
(15) Nat'l Labor Relations Bd., 2007 U.S. Comp. Gen. LEXIS 172, at *9.
(18) The NLRB does not appear to receive anything tangible under this contract; rather, NLRB personnel are granted access to information on the internet. Id at *4.
(19) See, e.g., Nat'l Labor Relations Bd., B-308026, 2006 Comp. Gen. LEXIS 149 (Sept. 14, 2006). See generally GAO REDBOOK, supra note 2, at 5-23 thru 5-28.
(20) GAO REDBOOK, supra note 2, at 5-23. Because the GAO apparently did not analyze the provision of web-based database access as a service, this article provides only a surface discussion of the bona fide needs rule as applied to services.
(21) See, e.g., Nat'l Labor Relations Bd., 2006 Comp. Gen. LEXIS 149.
(22) See, e.g., Decision of the Comptroller General, 1956 U.S. Comp. Gen. LEXIS 2614.
(23) See Nat'l Labor Relations Bd., 2007 U.S. Comp. Gen. LEXIS 172, at *11.
(24) Id. (citations omitted).
(26) Id. at *12.
(27) GAO REDBOOK, supra note 2, at 5-15.
(28) Id. at 5-16.
(29) Nat'l Labor Relations Bd., 2007 U.S. Comp. Gen. LEXIS 172, at *11.
(30) To the Chairman, U.S. Atomic Energy Comm'n, B-130815, 37 Comp. Gen. 155 (Sept. 3, 1957). In the actual opinion, the GAO stated that "the time intervening between contracting and delivery is necessary for production or fabrication of the material." Id. at *13. In the 2007 NLRB opinion, the GAO truncated the sentence, ending with "necessary." Nat'l Labor Relations Bd., 2007 U.S. Comp. Gen. LEXIS 172, at *11.
(31) Nat'l Labor Relations Bd., 2007 U.S. Comp. Gen. LEXIS 172, at *12. The GAO noted that, "[w]ebsite renewals can be effectuated quickly," but accepted the NLRB position regardless. Id.
(34) Id. at *11.
(35) GAO REDBOOK, supra note 2, at 5-23.
(38) Id. If the subscriptions are viewed as readily available common use standard items, this fact would cut directly against one of the limiting factors pertaining to the lead time exception. See id. at 5-22.
(39) See Nat'l Labor Relations Bd., 2007 U.S. Comp. Gen. LEXIS 172, at *11.
(40) Id. at *12.
(41) See, e.g., GAO REDBOOK, supra note 2, at 5-22.
(42) Nat'l Labor Relations Bd., 2007 U.S. Comp. Gen. LEXIS 172, at *12.
(43) Much like appellate court opinions, it is impossible to know the import of any given GAO fiscal opinion at the time it is published. The GAO opinion discussed in this article may fade away before the turn of the next fiscal year. Alternatively, the opinion may change the face of the bona fide needs rule, much like the past opinions discussed in this article. For example, the opinions cited by the GAO in the instant opinion, and in the Redbook, allowing for materials to be delivered in the next FY actually determined that the agency action involved violated the bona fide needs rule. Only in what should be termed dicta did the GAO express the concepts we now cite freely as authorizing the "lead time" exception. See To the Chairman, U.S. Atomic Energy Comm'n, 37 Comp. Gen. 155; To the Adm'r, Gen. Servs. Admin., B-138574, 38 Comp. Gen. 628 (Mar. 25, 1959).
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|Title Annotation:||Contract and Fiscal Developments of 2007 - the Year in Review|
|Author:||Ries, Mark A.|
|Date:||Jan 1, 2008|
|Previous Article:||Contingency contractor personnel.|
|Next Article:||Antideficiency Act.|