Originally published in Public Contract Law Journal, Vol. 35, No. 4 , August 01, 2006

I. INTRODUCTION

Federal appropriations law requires that agencies have specific statutory authority in order to enter into contracts in excess of one fiscal year with annual funds. By enacting such authority, Congress recognized that, in some cases, multiyear contracting can increase competition and reduce contract costs. Indeed, studies that have been conducted since the first enactment of multiyear contracting authority ("multiyear authority") reveal that the anticipated benefits of multiyear contracting are real and will likely continue to accrue.

The multiyear authority promulgated by Congress, however, imposes a five-year contract term limitation on multiyear contracts. In the early days of multiyear contracting, term limitations were understandable because, at the time, procurement rules did not allow multiyear contracting with annual funds. In addition, agencies were not likely to be prepared to manage the fiscal responsibilities associated with contracting in excess of one year. The time has come for Congress to remove the five-year term limitation placed on multiyear contracts when using annual funds. By doing so, the Government will expand its ability to reap the benefits of multiyear contracting. At the same time, Congress will encourage the Government to enter agreements commensurate with agency needs. Moreover, long-term multiyear contracting is now feasible because sufficient fiscal safeguards exist through the procurement and budgetary processes.

Accordingly, this article proposes to eliminate the five-year term limitation placed on multiyear contracting. Part II of this article explores the development of the multiyear authority and the five-year term limitation, as well as the policy considerations implicated by multiyear contracting. Part III of this article then argues for the removal of the five-year limitation on the basis that (1) doing so is consistent with the intent of the enabling multiyear legislation, (2) sufficient fiscal safeguards exist to enable agencies to enter long-term contracts, and (3) there are viable solutions to any remaining challenges to removing the five-year term limitation.

II.THE EVOLUTION OF MULTIYEAR AUTHORITY

A. The Bona Fide Need Rule, the Antideficiency Act, Wake Island, and the Limitations of Appropriations Law

Appropriations law is an obscure compilation of complex principles that govern the availability and use of federal funds.1 The Constitution grants Congress the authority to dispense public funds.2 Congress meets this responsibility by enacting appropriations statutes for a specific time (e.g., one year, multiple years, or until expended) to provide agencies the resources necessary to enter contracts for the procurement of supplies and services.3

Absent specific multiyear authority, two major aspects of appropriations law prevent agencies from entering contracts in excess of one fiscal year with annual funds. First, the "bona fide need rule" prohibits agencies from obligating4 funds, appropriated for a particular year, to meet the needs of a subsequent year without statutory authority.5 This rule, derived from language appearing in the first appropriations act, mandates that annual funds be used for the service of the present year.6 Congress has reiterated this funding principle in subsequent appropriations acts.7 Determinations of whether agency contract actions violate the bona fide need rule are decided by the Government Accountability Office8 (GAO) on a case-by-case basis.9

Second, the Antideficiency Act prohibits multiyear contracting absent specific statutory authority. Promulgated in 1870, the Antideficiency Act prohibits government agencies and employees from entering contracts for future payments of money in advance, or in excess, of an existing appropriation, unless authorized by law.10 The principle behind the Act is to compel agencies to account for contractual liabilities upfront.11

In determining whether an Antideficiency Act "in excess" or "in advance" violation has occurred, the GAO focuses on when the agency incurred the obligation, rather than the date of payment.12 Generally, an "in excess" violation occurs if, at the time of contract execution, the agency does not obligate the entire balance of the contract to the then-current appropriation.13 Conversely, an "in advance" violation occurs if the agreement creates an obligation before enactment of an appropriation to cover the costs of the obligation.14

Attempts by agencies to use annual funds to facilitate multiyear contracting appeared to violate the Antideficiency Act under both theories. According to the GAO, "the law is violated not only if there are insufficient funds in an account when a payment becomes due[;] [t]he very act of obligating the United States to make a payment when the necessary funds are not already in the account is also a violation."15 Absent multiyear authority, an agency entering a multiyear agreement with annual funds violated the "in excess" prohibition because it committed to pay the contractor more money than appropriated. At the same time, the "in advance" prohibition also was violated because the Government committed itself to funding the contract for additional years beyond the then-existing annual appropriation.

The GAO’s decision in Wake Island16 was pivotal to the development of multiyear contracting. In that case, the Air Force awarded a three-year contract to Facilities Management Corporation (FMC) to furnish "all labor, equipment, materials, and supplies for servicing [ ] aircraft" atWake Island.17 The contract was charged to the Air Force’s fiscal year 1962 appropriation, which provided for the "operation, maintenance, and administration of the Air Force."18

The Air Force argued that its agreement with FMC did not offend the bona fide need rule or the Antideficiency Act because the agreement was a requirements contract. The Air Force reasoned that funds were not obligated "unless and until orders [were] issued to the contractor."19 Therefore, the commitment could be satisfied without the expenditure of funds and did not require an appropriation.20

The GAO disagreed, holding that the contract was an "in excess" violation of the Antideficiency Act.21 The "in excess" violation occurred because the "contract went beyond the authority conferred by the appropriation."22 Consistent with fiscal law, the GAO opined that annual appropriations could not facilitate contract performance for services over a three-year period.23

In analyzing the contract, the GAO recognized the need for a legislative change to allow FMC to perform the contract as written. Absent a legislative change, the GAO recommended restructuring the agreement to a one-year contract with options for the two remaining years.24 Moreover, recognizing that the authority to set fiscal policy rests with Congress,25 the GAO directed the Air Force to seek statutory authority to allow multiyear contracting with annual appropriations.26 Adhering to the GAO’s recommendation, the DoD lobbied for legislation to allow multiyear contracting with annual funds. In response, Congress promulgated the first multiyear authority in 1968.27

B. 1968 Legislation

Congress enacted the first multiyear authority in 1968 when it amended 10 U.S.C. § 2306 to allow the DoD to enter multiyear agreements with other than no-year funds.28 The 1968 authority, however, was very restrictive. It included a five-year term restriction and required that contract performance be outside the forty-eight contiguous states and the District of Columbia.29 Congress further restricted the DoD’s use of the multiyear authority to enumerated services30 and prohibited its use for the acquisition of most supplies.31

In promulgating the 1968 multiyear authority, Congress identified the anticipated benefits of multiyear contracting.32 Specifically, Congress expected multiyear authority to reduce costs, increase competition, and improve contractor performance.33

Congress relied upon three theories to substantiate its expectations for contract cost reductions. First, Congress expected cost reductions in the form of lower contract prices. Lower contract prices were anticipated to result from the ability of contractors to spread initial costs of the multiyear project over the entire contract term.34 This, in turn, allows contractors to amortize costs, which result in lower contract prices when compared to annual contracting. Second, Congress expected lower contract prices in the form of discounts due to the length of contract performance and quantity of goods and services purchased.35 Finally, Congress anticipated cost reductions to accrue because the Government, through use of a multiyear contract, could eliminate administrative costs normally associated with yearly reprocurements.36

Congress also expected multiyear contracting to promote competition. The hope was that firms that would otherwise forgo business opportunities with the Government, due to the risks of annual contracting,37 would now be encouraged to compete for federal contracts. Such is the case because multiyear contracting provides contractors with the ability to spread costs over the life of the contract, thereby reducing the upfront costs of performance.38 Moreover, multiyear contracting would provide contractors with stable business for a number of years, making a DoD multiyear contract a sound business investment.

Finally, Congress expected the multiyear authority to promote improvement in contractor performance. Congress reasoned that multiyear agreements would allow contractors to employ a stabilized workforce and thus avoid the costly disruptions associated with mobilizing a series of annual procurements. 39 A multiyear agreement creates a commitment by the Government to continue performance and, by its nature, strongly encourages contractors to employ the resources necessary to ensure the overall success of the project.40

By enacting the 1968 multiyear authority, Congress essentially waived the bona fide need rule and allowed agencies to enter into agreements that used annual funds to satisfy the needs of more than one year.41 In addition, the multiyear authority appeared to waive the Antideficiency Act as well, because the authority did not require DoD agencies to fund the total liability at the time of contract execution.42

Despite the possible issues and challenges associated with multiyear contracting, 43 Congress foresaw expanding the 1968 multiyear authority: "If it can be shown in future years that the authority contained in this bill has been beneficial, the committee will consider enlarging its scope."44 Fourteen years later, Congress did just that.

C. 1982 Legislation and the Five-Year Term Limitation

In 1982 Congress modified the DoD multiyear authority through the Defense Authorization Act (1982 Act).45 The 1982 Act expanded the use of multiyear contracting in three ways: First, it removed language requiring that performance of multiyear contracts be outside the continental United States and the District of Columbia.46 Second, the 1982 Act expanded the previous multiyear authority to include property.47 Finally, and most importantly, the 1982 Act set the parameters for defining the term "multiyear contract" as understood today.48

The 1982 Act defined the term "multiyear contract" as "a contract for the purchase of property or services for more than one, but not more than five, program years."49 The five-year term limitation originated from the DoD Five-Year Defense Plan. The DoD, as part of its annual budget process, submits to Congress a plan outlining its procurement projects for the ensuing five years.50 The multiyear authority contract term limitation was established commensurate with what was then believed to be the DoD’s procurement planning capability.

The 1982 Act did not expressly define the term "program year." However, the Armed Services Board of Contract Appeals (Board) provided an interpretation of the term "program year" in 1994. In Freightliner Corp.,51 the Board upheld the Army’s decision to exercise an option for the purchase of vehicles to satisfy the needs of a sixth year. The Board interpreted the term "program year" to mean a generic reference to twelve-month periods beginning with the award of the contract, rather than fiscal year periods.52 Therefore, the Board found that the Army validly exercised the option since it did so within sixty months of contract award.53 In accordance with this case, agencies could use a multiyear contract to meet government needs for the five years beginning after contract award.

In 1987 and 1988, the GAO conducted studies of multiyear contracts awarded pursuant to the 1982 authority. The studies revealed that multiyear contracting reduced overall procurement contract prices and had a positive effect on contractor investment decisions. Moreover, the studies lend historical support to the notion that multiyear contracting is a very cost-effective contracting method that should be expanded with the removal of the fiveyear term limitation.

In 1987, the GAO analyzed eleven multiyear contracts to determine whether the agreements resulted in contract price reductions when compared to annual procurements for similar goods and services.54 To determine whether price reductions occurred, the GAO analyzed and compared the unit prices of several annual contracts that were later procured using multiyear contracts.55 According to the study, multiyear contract unit prices were lower than the prior year’s annual contract unit prices for the same goods or services in eight of the eleven reviewed procurements.56 Moreover, the multiyear contract unit prices were lower than the average annual contract unit prices for the prior two years for nine of the eleven contracts.57 As anticipated by Congress, the study showed that multiyear contracting produced cost savings in the form of reduced contract prices.

In 1988, the GAO reviewed DoD multiyear contracts to ascertain the effect on the defense industrial base.58 The GAO analyzed six prime contractors who held DoD multiyear weapon systems contracts to determine if the multiyear contracting method (1) encouraged prime contractors and subcontractors to invest in manufacturing equipment and (2) affected the competitive environment at the subcontractor level.59 The study showed that multiyear contracting had positively influenced contractor capital investments.60 Contractors interviewed for the study claimed that their investment decisions were influenced by awards of multiyear contracts, because multiyear contracts allow the contractor to provide greater assurance of stable future business when compared to annual contracting.61 For example, upon receiving multiyear contract awards, many contractors purchased more technologically advanced manufacturing equipment sooner than they would have without a multiyear contract.62

Multiyear contracting stabilizes contractor business operations in terms of funding and quantity requirements. This occurs because the Government commits to the contractor for specific production quantities for the contract period or will pay costs associated with contract cancellation or termination.63 Moreover, multiyear contracts promote building a positive extended business relationship with the Government for the period of the contract.64

Although multiyear contracts reduce the number of opportunities for contract award when compared to annual contracts, the study showed that multiyear contracting had not reduced competition in the weapon systems in- dustry.65 In fact, the study revealed that multiyear contracting has facilitated subcontractor investment in manufacturing equipment without limiting price competition.66 Maintaining a competitive environment at the subcontractor level is important for ensuring that prime contractors and the Government obtain products at reasonable prices. Prime contractors holding multiyear contracts can facilitate very competitive negotiations with subcontractors because of the larger and more stable business base that multiyear contracts provide in comparison to annual contracts.

Furthermore, the 1988 study revealed that the use of annual contracts discouraged contractor investment.67 Although the Government can use option provisions to extend annual contracts, the GAO study nevertheless found that the uncertainty associated with annual contracting and the use of options was a reason for the underinvestment of defense contractors.68 From the perspective of the contractor, if the series of annual contracts do not materialize, the contractor is stuck with unrecoverable investment expenses. The use of multiyear contracts, however, squarely addresses this issue by allowing the investment to be spread across the guaranteed performance period, thereby encouraging contractors to make the necessary capital investments in equipment and the workforce needed for a successful procurement. This was also a benefit anticipated by Congress in promulgating the multiyear rule.

D. 1994 Legislation

The National Defense Authorization Act for Fiscal Year 1991 established a Section 800 Panel to recommend acquisition law changes.69 At the same time, the Clinton administration was conducting a similar effort as part of Vice President Gore’s National Performance Review to Reinvent Government. 70 The combined efforts of the Section 800 Panel and the Clinton administration resulted in the promulgation of the Federal Acquisition Streamlining Act of 1994 (FASA).71

FASA amended 10 U.S.C. § 2306 to move the DoD multiyear authority for property to a newly created section at 10 U.S.C. § 2306b.72 In addition, FASA granted civilian agencies the ability to enter multiyear contracts for the first time.73

By amending the Federal Property and Administrative Services Act of 1949,74 civilian agencies were allowed to award multiyear contracts with other than no-year funds. Unlike the action taken by Congress to enact separate DoD multiyear authorities for property and services, FASA’s civilian authority applied to both.75 Finally, the civilian authority adopted the term "multiyear contract" as defined in the DoD 1982 multiyear authority.76

Congress tasked the DoD with the responsibility of implementing the 1994 multiyear authority. Moreover, FASA directed DoD policy officials to promulgate regulations to promote the use of multiyear contracting.77

The Defense Federal Acquisition Regulation Supplement (DFARS) provisions applicable to multiyear contracting generally restate and cite to the multiyear statute and do not add to language in the FASA legislation.78 The civilian regulations, however, promote multiyear contracting by articulating its benefits and providing more substantive guidance to assist contracting officers in utilizing this contracting method.79 Specifically, the Federal Acquisition Regulation (FAR) articulates the following advantages of multiyear contracting, many of which mirror the findings of the 1987 and 1988 GAO studies: (1) lower costs to the Government; (2) enhancement of standardization of goods and services; (3) reduction of administrative burden in the placement and administration of contracts; (4) substantial continuity of production or performance, thus avoiding annual startup costs, preproduction testing costs, make-ready expenses, and phase-out costs; (5) stabilization of contractor workforces; (6) reduced need for establishing quality control techniques each year; (7) expansion of competitive base; and (8) a system that provides incentives to contractors for improving productivity.80

In addition, the FAR multiyear contracting provisions contain a definitions section,81 which includes a clarification of the difference between contract cancellation and termination.82 This clarification is essential to understanding the funding responsibilities associated with multiyear contracting.83

E. Regulatory Options Provisions

As defined, contract options grant the Government a unilateral right to purchase additional supplies or services under contract or to extend the term of contract performance.84 Options incorporate easily into any type of contract, including multiyear contracts, because they do not instantly create binding commitments.85 Rather, the exercise of the option creates the obligation.86

The Government may utilize options in multiyear contracts to extend performance or order additional quantities. Exercising an option for one of these purposes most often results in continued contract performance beyond the five-year multiyear period. Accordingly, agencies can include options in their multiyear contracts to circumvent the five-year limitation rule.

Although the five-year limitation applies to options, the FAR provides an escape hatch.87 The FAR grants every agency, through supplement, the ability to authorize procedures that remove the multiyear five-year restriction.88

In the Sulfadiazine Silver Cream decision, the GAO held that a five-year contract with an option to extend performance five additional years violated the Antideficiency Act.89 The contract option provision was in direct conflict with the then-existing regulatory language that limited option periods for services and supplies to five years, "unless otherwise authorized by statute."90

The GAO found that the contract option provision violated the Antideficiency Act because there was no statutory authority to exercise the option to extend the storage agreement for five additional years beyond the base period.91 Following this decision, policy officials amended the regulation in 1989 to make clear that DoD agencies could extend a multiyear contract beyond five years if approved by the agency.92 This amended language remained intact after implementation of FASA and became the basis upon which agencies may remove the five-year term limitation placed on multiyear contracts today.93

III. REMOVE THE FIVE-YEAR MULTIYEAR TERM LIMITATION

There are three reasons why the five-year term limitation placed on annually funded multiyear contracts should be removed. First, doing so furthers Congress’s expressed intent when it enacted the enabling multiyear legislation. Second, sufficient fiscal safeguards exist to enable agencies to enter longterm contracts. Finally, each major challenge presented by removing the fiveyear term limitation is met with a viable solution.

A. Removing the Five-Year Limitation Is Consistent with the Intent of the Enabling Multiyear Legislation

Congress promulgated the first multiyear statute with the expectation that the authority would be expanded, if proven beneficial.94 Accordingly, after a sufficient showing of the benefits of multiyear contracting, the original authority was expanded in 1982 to include contract actions within the contiguous United States.95 In 1994, the multiyear authority was expanded again to extend the benefits of multiyear contracting to civilian agencies.96 Congress should further amend the multiyear authority to allow agencies to take greater advantage of the proven benefits of multiyear contracting.

Multiyear contracting has realized each of the benefits anticipated by Congress. Specifically, Congress envisioned, and multiyear contracting delivered, benefits resulting from improved contractor performance, lower contract pricing, and overall cost reduction.97 Removing language that restricts multiyear contracts to five years will enable agencies to take greater advantage of these benefits. Doing so also will allow contracting officials to make acquisition decisions based on program needs and potential cost benefits rather than term restrictions.

Expanding the multiyear authority to remove the five-year limitation also would improve contractor performance. Allowing long-term agreements encourages vendors to invest at the necessary level to ensure successful contract performance. Moreover, long-term agreements allow the Government to express the importance of the project and its commitment to the contractor. To reciprocate that level of commitment, the contractor will invest and utilize its resources to create a stable work environment, thereby ensuring successful and timely contract performance.

Expanding the multiyear authority to remove the five-year limitation will further lower contract costs. For one, the pricing of multiyear contracts relates directly to the vendor’s ability to spread costs over the life of the contract. Longer-term agreements allow vendors to spread costs over a longer period and to pass on those cost savings to the Government through lower prices. Removing the five-year limitation will further reduce reprocurement costs.

The GAO’s 1987 and 1988 studies confirmed that the expected benefits of multiyear contracting had been realized.98 Generally, the GAO studies found that multiyear contracting produced savings and motivated contractor investment decisions. Accordingly, the benefits of improved contractor performance, lower contract pricing, and overall reduction in procurement cost would continue to accrue to the Government with the removal of the fiveyear limitation.

Legislative history and studies conducted by the GAO reveal that the use of options is not a cost-effective alternative to removal of the five-year term limitation. In justifying its rationale for promulgating the enabling multiyear authority, Congress acknowledged that "single-year contracts coupled with options are relatively ineffective."99 Moreover, the 1988 GAO study found that the use of options with annual procurements was a cause of underinvestment in the defense industry.100 This is because options create uncertainty for the contractor as to whether the Government will elect to continue performance. This uncertainty compels the contractor to offer higher prices structured to recover all invested costs within the base term of the contract.101

Congress should remove the five-year term limitation and allow agencies the ability to award contract terms commensurate with procurement needs. The Government is a contractor’s best customer, and, as such, the Government should position itself to receive the best competitive price and best performance available. Removing the five-year limitation will place the Government in a better position to bargain with contractors upfront for better contract prices.

B. Sufficient Fiscal Safeguards Exist to Enable Agencies to Enter Long-Term Contracts

Second, sufficient fiscal safeguards exist through the procurement and budgetary processes to ensure the proper allocation of funds to long-term mul- tiyear contracts. Fiscal safeguards exist to prevent "coercive deficiencies,"102 which could force Congress to continue to fund contracts it no longer supports. Specifically, the DoD multiyear authorities have provisions requiring approval from Congress when the Government is exposed to certain liabilities. For example, approval from Congress must occur before (1) awarding a multiyear contract over $500 million,103 (2) awarding a multiyear contract with a cancellation ceiling in excess of $100 million,104 or (3) terminating a multiyear contract.105 The civilian authority requires congressional approval before awarding a multiyear contract with a cancellation ceiling in excess of $10 million.106

Notably, these provisions were not included as part of the original multiyear authority. Instead, they were promulgated because of increased understanding of the possible fiscal liability associated with multiyear contracting.107 The provisions ensure that the Government makes informed, fiscally responsible decisions regarding the award and administration of multiyear contracts.

In addition, the budgetary apportionment process also provides important fiscal safeguards. Apportionment is a process by which the Office of Management and Budget distributes budget authority during a fiscal year and is designed to reduce the need for supplemental or deficiency appropriations:

In other words, the apportionment requirement is designed to prevent an agency from spending its entire appropriation before the end of the fiscal year and then putting the Congress in a position in which it must either grant an additional appropriation or allow the entire activity to come to a halt.108

Apportionment can greatly assist agencies in the financial management of a long-term multiyear contract and ensure compliance with the Antideficiency Act.

C. Viable Solutions to Challenges

Finally, while removing the five-year term limitation is not without challenges, these challenges can be resolved through good acquisition planning and active contract administration. In this regard, five particular challenges and their solutions are worth discussing: (1) the potential for multiyear contracts to bind future actions of Congress; (2) the preservation of competition; (3) the enabling of contractors to accurately price the procurement; (4) the potential disenfranchising of small businesses; and (5) the challenges associated with contract administration.

With respect to the first challenge, Congress generally cannot take an action that binds a future Congress. Rather, "each session of Congress has full power to amend an original appropriation act or to direct that an appropriation is used for purposes additional to or entirely foreign to those specified in the original act."109 During the 1980s, however, Congress was reluctant to interfere with ongoing multiyear contracts for the acquisition of major systems because of the possible costs of canceling or terminating a multiyear contract.110

Therefore, Congress felt bound to continue to appropriate funds for the future years of some multiyear contracts because of the liabilities associated with payment of the cancellation ceilings, creating a "coercive deficiency."111

Removing the five-year limitation on multiyear contracts would not place Congress in the same position today. As previously discussed, sufficient safeguards currently exist that create a process to keep Congress informed and allow agencies to enter long-term agreements while remaining fiscally responsible. Second, agencies must ensure that removing the five-year limitation on multiyear contracts does not unnecessarily reduce competition, which is the cornerstone to any successful procurement system. The key to meeting the challenge of preserving competition is proper upfront acquisition planning.112 Acquisition planning is of greater importance before awarding a long-term contract because of the extensive performance period.

Agencies can meet this challenge by structuring the procurement to incorporate an intense competitive process. Because a long-term contract likely provides fewer competitive opportunities, more contractors will participate in the process to win the multiyear contract. An intense upfront competition will cause vendors to put their best foot forward with regard to price and quality. Upon selection, the Government will obtain the overall best value from the most qualified and capable vendor.

Third, removing the five-year limitation on multiyear contracts must preserve contractors’ ability to accurately price procurements. Again, the key to establishing the contract term will be thorough acquisition planning. Under- standing the capabilities of the vendors in the marketplace will prevent contracting officials from proposing a contract term that is excessive. The ability of the vendor to accurately price a long-term agreement is essential to the success of the project because an inaccurate calculation of future costs can result in poor contract performance. If the contractor performs poorly, the Government will miss its opportunity to reap the benefits of the multiyear arrangement. Therefore, agencies must use market research to identify commercial practices for determining the proper contract length for acquiring the particular good or service.

Fourth, long-term agreements must not disenfranchise small businesses from procurement opportunities. As a general policy, agencies should provide procurement opportunities to small businesses to the maximum extent practicable. 113 However, long-term multiyear contracting may present a challenge to this aim.

Thorough acquisition planning is essential to ensuring small businesses are considered and have an opportunity to compete for long-term, multiyear agreements. During acquisition planning, contracting officials must make the decision as to whether small business participation can be obtained by separating the work, creating several small procurements, or whether the project can be wholly or partially set aside for small businesses.114 As another viable alternative, agencies should consider encouraging small businesses to team or enter joint venture agreements with other vendors to take advantage of additional resources, thereby making them more competitive.115 By teaming or entering joint venture agreements, small businesses can compete for contracts for which they individually would not otherwise be able to compete.116

Finally, removing the five-year term limitation presents contract administration challenges. In this regard, policymakers have suggested that "the principal problem is contracting officials often allocate more time to awarding contracts rather than administering existing contracts."117 Failure to emphasize contract administration often results in the project incurring problems with poor contractor performance, cost overruns, and delays in receiving goods and services.118 However, improving contract administration practices assists in achieving solid contractor performance, minimizing cost overruns, and reducing delays in the delivery of goods and services.

While the specific nature and extent of contract administration vary per contract, a multiyear contract with extended performance terms will likely require the highest level of attention. Moreover, because longer-term contracts require less frequent contract awards, more time and resources are available for contract administration.

To meet the challenges presented by removing the five-year limitation on multiyear contracts, contracting officials must exercise proper contract administration techniques to ensure the contractor meets performance goals and controls the contract price. The first step of proper contract administration is to develop a plan. The contract administration plan provides a roadmap of performance outputs and describes the methodology for conducting inspections. 119 Once developed and implemented, the contract administration plan for the long-term multiyear contract provides contracting officials with the proper tool to ensure the contractor is meeting performance milestones on time and within budget.

IV.CONCLUSION

Almost every decade since its enactment, policymakers have taken steps to amend the multiyear rule. As we pass the ten-year anniversary of FASA, which last amended the multiyear authority, it is time to consider removing the fiveyear limitation. FASA established the necessary fiscal safeguards to allow agencies to decide contract performance terms per procurement. After adhering to FASA’s fiscal safeguards for over ten years, agencies are in a better position to understand the fiscal ramifications of entering long-term agreements. Furthermore, the removal of the five-year limitation will enable agencies to award contract performance terms commensurate with the particular procurement need, while taking greater advantage of the proven benefits of multiyear contracting.

Footnotes

1. U.S. Gen. Accounting Office, Principles of Federal Appropriations Law 1-2 (2d ed. 1991) [hereinafter Red Book].

2. U.S. Const. art. I, § 9, cl. 7; United States v. MacCollum, 426 U.S. 317, 321 (1976) ("The established rule is that the expenditure of public funds is proper only when authorized by Congress . . .").

3. Annual appropriations are the most common type and provide funding for expenditure over the course of a fiscal year. See Red Book, supra note 1, at 5-3. Multiple-year appropriations provide funding to incur obligations for a definite period in excess of one year. See id. at 2-12. However, this appropriation type did not relax the applicability of the bona fide need rule. See Def. Technical Info. Ctr., 68 Comp. Gen. 170, 172 (1989) (holding that two-year appropriation was available for any need arising within that two-year period); The Honorable Beverly R. Byron, House of Representatives, Comp. Gen. B-235678, 1990 WL 278336, at *5 (C.G. July 30, 1990) (finding that a two-year research and development appropriation could be used to meet need arising within the two-year period). No-year appropriations provide funding for expenditures without fiscal year limitation. See Red Book, supra note 1, at 2-12. Agencies rarely receive this type of appropriation from Congress. The bona fide need rule was not applicable to acquisitions funded by this appropriation type and represented the only means by which an agency could facilitate a multiyear contract absent specific authority. To the Adm’r, Small Bus. Admin., 43 Comp. Gen. 657, 661, 1964 CPD ¶ 10 (1964) (stating that where no-year funds are involved, the discussion of whether cancellation costs should be considered needs of the first year or future requirements is immaterial).

4. Office of Mgmt. & Budget, Circular No. A-11, Transmittal Memorandum No. 75, at 20-6 (rev. June 27, 2002) ("Obligation means a binding agreement that will result in outlays, immediately or in the future. Budgetary resources must be available before obligations can be incurred legally.").

5. See Red Book, supra note 1, at 5-9.

6. See Act of July 12, 1870, 16 Stat. 251, amended by Act of March 3, 1905, 33 Stat. 1257, amended by Act of Feb. 27, 1906, 34 Stat. 49 (1906) (previously codified at Rev. Stat. § 3679 and 31 U.S.C. § 665).

7. See, e.g., Pub. L. No. 97-258, § 1502(a), 96 Stat. 877, 928 (1982) (codified at 31 U.S.C. § 1502(a) (2000)).

8. On July 7, 2004, the General Accounting Office became known as the Government Accountability Office. Pub. L. No. 108-271, 118 Stat. 811 (2004). As part of its responsibilities, GAO issues decisions regarding fiscal law questions raised by agencies or by GAO. See 31 U.S.C. § 3529 (2000).

9. To the Chairman, Atomic Energy Comm’n, 36 Comp. Gen. 683, 684 (1957) (finding that when a continuing supply of materials is needed over a period of time, only the needs of the first fiscal year are a bona fide need of the year in which the contract is made); To the Adm’r, Small Bus. Admin., 44 Comp. Gen. 399, 402, 1965 CPD ¶ 4 (1965) (finding no authority to issue change order to replacement contract for study in following fiscal year where requirements for previous contract were satisfied); Comptroller Gen.Warren to the Sec’y of the Army, 33 Comp. Gen. 57, 57, 61 (1953) (finding no authority to enter a contract in one fiscal year for gas masks scheduled to be delivered in the following fiscal year); Bureau of Alcohol, Tobacco & Firearm—Payments Under Interagency Agreement, 58 Comp. Gen. 471, 471, 474 (1979) (concluding that work done by contractor during fiscal year 1979 may not be paid for from fiscal year 1978 funds); To the Honorable Lowell Weicker Jr., Subcomm. on Labor, Health & Human Servs., & Educ., Comm. on Appropriations, U.S. Senate, 64 Comp. Gen. 359 (1985) (legislation authorizing grant program contained no express authority to obligate one-year appropriations for the funding needs of subsequent years).

10. 31 U.S.C. § 1341 (2000).

11. See Red Book, supra note 1, at 6-9. This principle is called "pay as you go," see id. at 6-11, or "paygo." The "pay as you go" philosophy strongly encourages agencies to only make payments or enter commitments to make future payments when it possesses the funds to cover the costs in full at the time of contracting. See id.

12. See id. at 6-28.

13. 31 U.S.C. § 1341(a)(1)(A); The Honorable Glenn English, Chairman, Subcomm. on Gov’t Info., Justice, & Agric., Comm. on Gov’t Operations, House of Representatives, Comp. Gen. B-223857, 1987 WL 101593 (C.G. Feb. 27, 1987) (excess violation occurred once the borrowing authority of the Commodity Credit Corporation was depleted and it had no funds available to pay for meat it had ordered).

14. Prior to enactment of specific multiyear authority, contracting officials violated the Antideficiency Act whenever they entered a multiyear agreement for the procurement of goods and services with annual funds. The analysis of when the obligation occurred usually revealed whether the contract action was an "in excess" or "in advance" violation. See Red Book, supra note 1, at 6-13.

15. See id.

16. To the Sec’y of the Air Force, 42 Comp. Gen. 272, 1962 CPD ¶ 63 (1962).

17. Id. at 272.

18. Id. at 276.

19. Id. at 274.

20. Id. at 276.

21. Id. at 277–78. The GAO based its recommendation on the application of fiscal law principles to the contract. The GAO focused its analysis on a clause that obligated the Air Force to purchase certain services for three years without an affirmative renewal of the contract. Id. at 276–77. Although the clause apportioned the monthly payment for the maintenance of supplies and equipment, if less than the full month’s services were required, no contract clause eliminated the requirement. Id. at 277–78. These services could only be terminated for the convenience of the Government. Id. Therefore, the GAO interpreted this clause to bind the Government in excess of one year and held that the contract violated the Antideficiency Act and the bona fide need rule. Id.

22. Id. at 277.

23. The GAO also held that the contract violated the bona fide need rule because the contract purchased the needs of more than one fiscal year without an affirmative renewal of the contract. Id. at 277–78. The language in the contract seemingly required FMC to perform services "automatically" upon use of the airfield. Id. As such, the GAO found the Air Force contract inconsistent with the principles of the bona fide need rule. Id.

24. See id. at 272, 278.

25. Id. at 278 ("[S]uch action is a matter for consideration by the Congress . . ."); cf. supra note 2 and accompanying text.

26. To the Sec’y of the Air Force, 42 Comp. Gen. 272, 278, 1962 CPD ¶ 63 (1962).

27. See Pub. L. No. 90-378, 82 Stat. 289 (1968) (codified as amended at 10 U.S.C. § 2306(g) (1968)).

28. Id.

29. Id.

30. The 1968 Act was limited to the following services:

A) operation, maintenance, and support of facilities and installations;
B) maintenance or modification of aircraft, ships, vehicles, and other highly complex military equipment;
C) specialized training necessitating high quality instructor skills (for example, pilot and other aircrew members; foreign language training); and
D) base services (for example, ground maintenance; inplane refueling; bus transportation; refuse collection and disposal).

Id. (codified as amended at 10 U.S.C. § 2306(g)(1)(A)–(D))

31. See S. Rep. No. 90-1313, at 2 (1968), as reprinted in 1968 U.S.C.C.A.N. 2480, 2482 (stating that the authority excluded multiyear "contracts for supplies, except for items of supply related to service contracts").

32. Id. at 2481.

33. Id.

34. Id.

35. Id.

36. Id.

37. Id. at 2483 ("[I]f a contractor is operating on a 1-year contract, he must either write off all his expenses in the first year of operations or take the risk of never recovering his unamortized investment if he loses the contract for the ensuing year or years.").

38. Id. at 2481.

39. Id.

40. Id.

41. Multiyear language was later interpreted by the GAO to make clear that the multiyear authority is a statutory exception to the bona fide need rule. Army’s Multiple Launch Rocket Sys. Multiyear Contract, 64 Comp. Gen. 163, 167 (1984).

42. According to the 1968 multiyear rule, the DoD could obtain the requisite funds from those (1) originally available for performance of the contract; (2) then available for the same type of services; or (3) appropriated for cancellation or termination. See Pub. L. No. 90-378, 82 Stat. 289 (codified as amended at 10 U.S.C. § 2306(g)(3)(A)–(C) (1968)).

43. See discussion infra Part III.C.

44. S. Rep. No. 90-1313, at 2 (1968), as reprinted in 1968 U.S.C.C.A.N. 2480, 2482.

45. Department of Defense Authorization Act of 1982, Pub. L. No. 97-86, § 909, 95 Stat. 1099, 1118–20 (1981) (codified as amended in scattered sections of 10 U.S.C.).

46. Id. § 909(b)(1), 95 Stat. at 1118 (codified as amended at 10 U.S.C. § 2306(g) (1981)).

47. Id. § 909(b)(2), 95 Stat. at 1118 (codified as amended at 10 U.S.C. § 2306(h)(1)).

48. Id., 95 Stat. at 1118–20 (codified as amended at 10 U.S.C. § 2306(h)).

49. Id., 95 Stat. at 1120 (codified as amended at 10 U.S.C. § 2306(h)(8)); see also FAR 17.103.

50. Mark Shwartz, Note, The Not-So-New Antitrust Environment for Consolidation in the Defense Industry: The Martin Marietta-Lockheed Merger, 96 Colum. Bus. L. Rev. 329, 342 n.55 (1996); Raymond M. Saunders, Multiyear Contracts 32 (1989) (unpublished LL.M. thesis, The George Washington University Law School) (on file with Jacob Burns Law Library, The GeorgeWashington University Law School).

51. ASBCA No. 42982, 94-1 BCA ¶ 26,538 (1993) [hereinafter Freightliner I].

52. Id. at 132,087.

53. Id. Moreover, when the issue of the definition of the term "program year" was raised again on motion for summary judgment in Freightliner Corp., ASBCA No. 42982, 98-2 BCA ¶ 30,026 (1998) [hereinafter Freightliner III], the Board decided not to revisit its interpretation of the term, stating its earlier interpretation in Freightliner I was still the law. Id. at 148,579 n.13.

54. U.S. Gen. Accounting Office, GAO/NSIAD-88-5, DOD Procurement: Multiyear and Annual Contract Costs 1 (1987). The GAO reviewed the following DoD contracts: Bradley Turret Drive, Bradley TOW Subsystem, Bradley Power Control Unit, BradleyTransmission, M-1 Gunner’s Auxiliary Sight, M-1 Laser Range Finder, T-700 Engine, UH-60A Helicopter, An/SSQ-36 Sonobuoy, MK-46 Torpedo, and F-16 Airframe. See id. at 2.

55. Id. at 1.

56. Id. at 6. Specifically, the GAO found an overall cost savings of 7.8 percent from prior annual contracts. Id. at 2. The GAO acknowledged the difficulty of quantifying the savings because of "quantity changes, schedule changes, engineering or design differences, the differences in the competitive environment when the contracts were awarded, and cost reductions resulting from ‘learning’ during earlier production." Id. at 1.

57. Id.

58. U.S. Gen. Accounting Office, GAO/NSAID-88-125, Procurement: Multiyear Contracting and Its Impact on Investment Decisions 1 (1988).

59. Id. The contractors were General Dynamics (FortWorth), General Dynamics (Land Systems), Grumman Aerospace, LTV Missiles Division, Rockwell Satellite Systems, and Sikorsky. Id. at 11.

60. Id. at 2.

61. Id. Specifically, two out of the six prime contractors studied and 213 out of the 263 subcontractors reviewed said that the benefits derived from multiyear contracting influenced their investment decisions. Id. at 17.

62. Id.

63. Id. at 18.

64. Id.

65. Id.

66. Id.

67. Id. at 14.

68. Id.

69. National Defense Authorization Act for Fiscal Year 1991, Pub. L. No. 101-510, § 800, 104 Stat. 1485, 1587 (1990). S. Rep. No. 101-384, at 194 (1990).

70. See Vice President Al Gore, National Performance Review, The Best Kept Secrets in Government: A Report to President Bill Clinton 15 (1996).

71. See Federal Acquisition Streamlining Act of 1994, Pub. L. No. 103-355, 108 Stat. 3243 (1994).

72. Id. § 1022, 108 Stat. at 3257–60 (codified at 10 U.S.C. § 2306(h) (2000)).

73. Id. § 1072, 108 Stat. at 3270 (codified at 41 U.S.C. § 254c(a) (2000)).

74. Pub. L. No. 81-288, 63 Stat. 377 (codified at 41 U.S.C. § 251 et seq. (1949)).

75. Pub. L. No. 103-355, § 1072, 108 Stat. 3243, 3270 (codified at 41 U.S.C. § 254c(a) (2000)).

76. Id., 108 Stat. at 3270 (codified at 41 U.S.C. § 254c(d) (1994)).

77. Id. § 1022, 108 Stat. at 3258 (codified at 10 U.S.C. § 2306b(b) (1994)) (directing the Secretaries of Defense and Transportation and the Administrator of National Aeronautics and Space Administration to promulgate regulations to promote the most efficient use of multiyear contracting).

78. See generally DFARS 217.171–.174.

79. FAR 17.105-2(a)–(h).

80. Id.

81. See generally FAR 17.103.

82. FAR 17.104(d) ("[T]ermination can be effected at any time during the life of the contract (cancellation is effected between fiscal years).").

83. Executive agencies have the ability to supplement the FAR with additional guidance. FAR 1.301(a)(1). For the purposes of this article, the author also analyzed fourteen agency FAR supplements (AGAR, AIDAR, VAAR, DEAR, DTAR, TAR, DIAR, NFS, NRC, DOLAR, EDAR, AFARS, NAPS, and AFFARS). Of the fourteen supplements, only four agency supplements contain provisions that speak to multiyear contracting: the VAAR, AFARS, NAPS, and AFFARS. Until recently, the NFS contained provisions regarding multiyear contracting, but this language was deleted in 2004. Re-Issuance of NASA FAR Supplement Parts 1813 Through 1817, 69 Fed. Reg. 21,763 (Apr. 22, 2004). These supplements, however, do not provide additional guidance but simply restate multiyear language already articulated in the FAR. They either request that contracting officers review current multiyear statutory language, see AFARS 5117.103-1(a)(i) and AFFARS 5317.102-2; review current multiyear regulatory language, see NAPS 5217.105-1(b); or describe the agency-specific process for approval of a multiyear contract, see NFS 1817.105-1(b) (removed).

84. FAR 17.201.

85. Gov’t Sys. Advisors, Inc. v. United States, 13 Cl. Ct. 470, 473 (1987), aff ’d, 847 F.2d 811, 813 (Fed. Cir. 1988).

86. See Acting Comptroller Gen. Elliott to the Chairman, Civil Aeronautics Auth., 19 Comp. Gen. 980, 983 (1940).

87. FAR 17.204(e).

88. Id. ("Unless otherwise approved in accordance with agency procedures, the total of the basic and option periods shall not exceed 5 years in the case of services, and the total of the basic and option quantities shall not exceed the requirement for 5 years in the case of supplies.").

89. Def. Logistics Agency Multiyear Contract for Storage & Rotation of Sulfadiazine Silver Cream, 67 Comp Gen 190, 191 (1988). The contract called for the contractor to supply and store cream so that DoD would have a constant, fresh supply. Id. The DoD expected to fund the entire contract using annual appropriations. Id. The supply portion of the contract was for one year only, while the storage portion was for five years with an option to extend performance for five additional years. Id. The DoD awarded the multiyear contract pursuant to the 1982 multiyear authority. Id.

90. See FAR 17.102-2.

91. The supplies and services contracted were not included within the DoD’s multiyear authorities at 10 U.S.C. § 2306(g)–(h). Sulfadiazine Silver Cream, 67 Comp Gen at 192–93. Therefore, without specific statutory authority, the DoD could not enter a multiyear agreement. Id.

92. Federal Acquisition Circular 84-42, 54 Fed. Reg. 5,052 ( Jan. 31, 1989) ("FAR 17.204(e) is revised to clarify that the 5-year limitation on contracts containing options is not based on statute. The authority to waive the requirements in FAR 17.204(e) shall be approved in accordance with agency procedures.").

93. Protest of Blue Cross & Blue Shield of S.C. Mut. Ins. Co., GSBCA No. 10480-P, 90-2 BCA ¶ 22,670, at 10 n.1 (1990) (holding that agency could extend contract performance through transition period when changing contractors even though such action would result in performance in excess of five years).

94. S. Rep. No. 90-1313, at 2 (1968), as reprinted in 1968 U.S.C.C.A.N. 2480, 2482.

95. Department of Defense Authorization Act of 1982, Pub. L. No. 97-86, 95 Stat. 1099 (codified as amended in scattered sections of 10 U.S.C.).

96. See S. Rep. No. 103-258, at 5 (1994), as reprinted in 1994 U.S.C.C.A.N. 2561, 2572.

97. S. Rep. No. 90-1313, at 2.

98. See supra Part II.C.

99. S. Rep. No. 90-1313, at 2.

100. See U.S. Gen. Accounting Office, supra note 58, at 14.

101. S. Rep. No. 90-1313, at 2.

102. Red Book, supra note 1, at 6-9. Coercive deficiency is described as a situation in which agencies "spend their entire appropriations during the first few months of the fiscal year, continue to incur obligations, and then return to Congress for" supplemental appropriations. See id.

103. 10 U.S.C. §§ 2306b(i)(3), 2306c(d)(2) (2000).

104. Id. §§ 2306b(g), 2306c(d)(4).

105. Id. §§ 2306b(l)(6), 2306c(d)(3).

106. 41 U.S.C. § 254c(c).

107. National Defense Authorization Act for Fiscal Year 1998, Pub. L. No. 105-85, div. A, tit. VIII, § 806(b)(1)–(2), 111 Stat. 1629, 1834–1835 (1997) (codified as amended at 10 U.S.C. § 2306b(l) (2000)); Act of Oct. 30, 2000, Pub. L. No. 106-398, § 802, 114 Stat. 1654, 1654A-203.

108. Red Book, supra note 1, at 6-73; see also id. at 1-19.

109. To Honorable Robert E. McLaughlin, President, Bd. of Comm’rs of D.C., Comp. Gen. B-125404, 1956 WL 1914, at *2 (C.G. Aug. 31, 1956).

110. Dennis L. Phillips & Raymond M. Saunders, Multiyear Contracts for Major Systems, 22 Pub. Cont. L.J. 161, 182 (1993).

111. Ralph C. Nash, Stabilizing Program Funding: The Alternatives, 13 Nash & Cibinic Rep. ¶ 28, May 1999.

112. According to the FAR, "[t]he purpose of [acquisition planning] is to ensure that the Government meets its needs in the most effective, economical, and timely manner." FAR 7.102(b). As part of acquisition planning, agencies must collect and analyze extensive information about capabilities within the marketplace of the good or service to be procured. This market research provides the agency with a better understanding of how to match commercial practices with its needs. FAR 2.101. Therefore, prior to entering a long-term agreement, agencies should conduct extensive market research to understand the marketplace for the particular good or service to be procured and to make an informed, justifiable decision as to the proper contract term to meet the need.

113. FAR 19.201(a).

114. FAR 19.502-2(b). This provision is often referred to as "the Rule of Two." According to the FAR, "partial set-asides may be used in conjunction with multiyear procedures." FAR19.502-3(a)(5).

115. FAR 19.1007(d).

116. Id.

117. Office of Mgmt & Budget, Office of Fed. Procurement Policy, A Guide to Best Practices for Contract Administration 4 (1994). Contract administration "encompasses all dealings between the Government and the contractor from the time the contract is awarded until the work has been completed and accepted or the contract terminated, payment has been made, and disputes have been resolved." Id.

118. Id.

119. Id.

This article is presented for informational purposes only and is not intended to constitute legal advice.