Contracting with the U.S. Government is based on many of the same principles as commercial contracting and can be very profitable, but is sufficiently different from commercial contracting to require special care.
Persons entering into commercial contracts are pretty much free to do anything that they can agree on. Each represents their own interests and can obligate themselves in any way they believe will benefit them. If one or both persons are represented by agents, usually employees, commercial contracting law allows the agent to form contracts based on generally accepted notions of commercial reasonableness. In essence, the law allows each side to rely on the other's authority to make a binding contract. Of course there are many nuances and cases covering this, but generally speaking the law favors the creation of commercial contracts in order to facilitate business.
The powers given to the Government are set forth in the Constitution. The government exercises its powers through legislation and regulations issued as prescribed in legislation.
Thus, the authority of a Contracting Officer (the Government's agent) to contract on behalf of the Government is set forth in public documents that a person dealing with the Contracting Officer can review. As a result, unlike in the commercial arena, where the parties have great freedom, a contract with the U.S. Government must comply with the laws and regulations that permit it, and be made by a Contracting Officer with actual authority to make the contract.
The Contracting Officer has no authority to deviate from the laws and regulations, and the contracting party is held to know the limitations of the Contracting Officer's authority, even if the Contracting Officer does not. This makes contracting with the United States a very structured and restricted process.
The Law
The United States Constitution
The Government gets its ability to act from the powers given to it by the people of the United States through the Constitution. The Constitution gives the Government specific enumerated powers in Article 1 Section 8. While the power to purchase is not explicit in the enumerated powers, it is understood to be implied as part of the specific powers granted. For example, the powers to establish post offices and post roads; to raise and support armies; to provide and maintain a navy; and to provide for organizing, arming, and disciplining, the militia, all would be meaningless if the Government could not purchase goods and services to these ends. In addition, the Government is given the power to make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof. This clause has been interpreted extremely broadly.
The Statutes
The Government exercises its powers through legislation. We can view legislation in the acquisition arena to fall into two classes.
- First, every acquisition can be traced to legislation that permits the acquisition and that provides money for it.
These are normally covered in authorization and appropriation legislation. Generally, this legislation does not affect the acquisition process itself, although the appropriation process has been used to amend procurement laws, notably with the Federal Acquisition Reform Act ("FARA") and the Federal Acquisition Streamlining Act ("FASA").
- Second, every acquisition must follow the rules for acquisition contained in the applicable laws.
The procurement process is subject to legislation separate from the authorization and appropriation process. This legislation may apply to specific agencies, such as the Federal Aviation Administration or the United States Postal Service, NASA or the Department of Defense, or may apply to a broad class of agencies. In addition, there is legislation that regulates the process of acquisition itself.
Federal Property and Administrative Services Act
Federal Property and Administrative Services Act
Armed Services Procurement Act
ASPA
Federal Acquisition Reform Act
Federal Acquisition Reform Act of 1995 Pub. L. No. 104-106, 110 Stat. 186 (1995) Division D of the National Defense Authorization Act for Fiscal Year 1996.
Federal Acquisition Streamlining Act
Federal Acquisition Streamlining Act of 1994 (FASA) Pub. L. No. 103-355, 108 Stat. 3243; see also 10 U.S.C. § 2323 which contains language similar to FASA for the Department of Defense (DoD), NASA and the Coast Guard.
In this legislation, Congress extended the affirmative action authority granted DoD by 10 U.S.C. § 2323 to all agencies of the federal government. See 15 U.S.C. § 644 note. Regulations to implement that authority were delayed because of the decision in Adarand Constructors v. Peña, 515 U.S. 200 (1995). See 60 Fed. Reg. 48,258 ( September 18 , 1995 ). See 61 Fed. Reg. 26,042 ( May 23 , 1996 ) (proposed reforms to affirmative action in federal procurement) for the basis for the regulations to implement this provision of FASA. See 62 Fed. Reg. 25,648 ( May 9 , 1997 ) for government response to comments on the proposal, and 62 Fed. Reg. 25,786 ( May 9 , 1997 ) (proposed rules), 63 Fed. Reg. 35,719 ( June 30 , 1998 ) (interim rules), and 63 Fed. Reg. 36,120 ( July 1 , 1998 ) (interim rules), Federal Acquisition Regulation, Reform of Affirmative Action in Federal Procurement addressing the General Services Administration (GSA), NASA, and DoD.
AntiDeficiency Act (ADA)
It has been noted that fiscal law is not about getting the mission accomplished or getting a good deal for the government. Fiscal law is only about Congressional oversight of the Executive Branch. Thus, fiscal law frequently prevents government agencies from signing an agreement that a commercial entity would not hesitate to execute. Thus, fiscal law has an invisible and frequently negative impact on the ability of a federal agency to accomplish its mission, and this fact is frequently lost on the public and Congress. On the other hand, this is the Constitutionally mandated oversight of the use of public funds which is essential to the scheme of checks and balances in the Constitution. A good working relationship and robust communication between the Executive and Legislative branches is the key to avoiding problems in this area.
The teeth for fiscal law comes from the Anti-Deficiency Act. The Anti Deficiency Act provides that no one can obligate the Government to make payments for which money has not already been authorized. The ADA also prohibits the government from receiving gratuitous services without explicit statutory authority. In particular, an ADA violation occurs when a federal agency uses appropriated funds for a different purpose than is specified in the appropriations act which provided the funds to the Agency. The ADA is directly connected to several other fiscal laws, namely the Purpose Act and the Bona Fide Needs Rule.
The Purpose Act (31 U.S.C. § 1301) provides "Appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law." The annual DoD appropriations acts include approximately 100 different appropriations (otherwise known as "colors of money"). Money appropriated for one purpose cannot be used for a different purpose, e.g., operations and maintenance (O&M) funds to be used for buying weapons. Even if an expenditure might fall within the scope of one appropriation, such as repair parts for the O&M appropriation, it still may not be permissible to use the funds if there is a more specific appropriation or the agency has made a previous funds election contrary to the proposed use of funds. An example could be O&M can be used for purchasing repair parts, but if the parts are required to effect a major service life extension that is no longer repair but replacement - procurement funds must be used if the total cost is more than $250,000 (otherwise known as the Other Procurement threshold, e.g., Other Procurement Army (OPA) threshold) or another procurement appropriation is available such as the armored vehicle or weapons appropriation.
An ADA violation can also occur when a contract uses funds in a period that falls outside of the time period the funds are authorized for use under what is known as the Bona Fide Needs rule (31 USC 1502), which provides: "The balance of a fixed-term appropriation is available only for payment of expenses properly incurred during the period of availability or to complete contracts properly made within that period."
The Bona Fide Need Rule is a fundamental principle of appropriations law addressing the availability as to time of an agency's appropriation. 73 Comp. Gen. 77, 79 (1994); 64 Comp. Gen. 410, 414-15 (1985). The rule establishes that an appropriation is available for obligation only to fulfill a genuine or bona fide need of the period of availability for which it was made. 73 Comp. Gen. 77, 79 (1994). It applies to all federal government activities carried out with appropriated funds, including contract, grant, and cooperative agreement transactions.
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