GSA may have caused agencies to violate bona fide rule

The General Services Administration might have caused agencies to inadvertently break the rule restricting the use of one fiscal year's funds for services rendered in another.

In a report dated Sept. 13, the GSA inspector general says the agency's HSPD-12 managed service office set up an interagency agreement for other federal entities to purchase private sector support in implementing the homeland security presidential directive, which requires standardized identity cards for government workers.

The GSA office has treated HSPD-12 support as a "nonseverable" service, meaning that GSA said the value of the service depends on a discrete outcome, such as is the case with a research project. With a nonseverable service, the benefit of the service isn't realized until the project reaches completion.
However, the Government Accountability Office ruled (.pdf) last December that the HSPD-12 services in question are in fact "severable." That is, they are recurring in nature, which means that the value of the service doesn't depend on a single outcome as with a research report, but is realized periodically through the life of the service contract. Other examples of severable services include janitorial work and help desk support--the value of the service contract is incrementally realized every time a bathroom floor gets mopped.

The difference between "nonseverable" and "severable" matters because of something called the bona fide rule of federal spending, which is meant to uphold the part of the Constitution that prevents federal agencies from spending money without congressional approval. The bona fide rule states that a federal agency can spend money tied to a particular fiscal year only for needs which it has during that current fiscal year. That is, agencies must have a sincere (a bona fide) reason for spending current fiscal year money, the sincerity (the bona fideness) measured by its current, not future, needs.

For future needs, Congress demands the right to evaluate their legitimacy via an annual appropriations bill. The bona fide rule should make it impossible for a federal agency to use funds appropriated this fiscal year for something it won't need until the next fiscal year.

However, agencies are allowed to fully fund nonseverable service contracts with current fiscal year appropriations, even if their outcome will occur in future fiscal years. They are also allowed to fund severable service contracts with current fiscal year funds for a period of up to 12 months, even if that 12 month period crossed the federal fiscal year, which starts every Oct. 1. (We are in the final weeks of fiscal 2010.)

However, the 12 month rule for severable services also means that a contract for them cannot be open-ended with respect to the period of performance--exactly as the GSA interagency agreement was constructed, the GAO found. GSA officials told the GAO they consider HSPD-12 services to be nonseverable because each card has a life cycle consisting of a bundle of tasks, none of which would have value standing alone. However, the GAO ruled otherwise, stating that the services purchased via the GSA interagency agreement consist of two discrete undertakings--production of HSPD-12 identity cards, and maintenance of the cards. The latter is a severable service, the GAO said.

-David Perera, FierceGovernmentIT.com
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