DoD Issues Contract Clause Regarding Obligations in Advance of FY14 Funding

In an effort to facilitate procurement of supplies and services necessary to support those activities that are excepted from the shutdown, on October 9, DoD  issued a contract clause that contracting officers are required to use when entering into contracts or issuing modifications or task/delivery orders, or exercising options for such excepted activities. Notably, the clause does not apply to any contract actions using existing appropriations (e.g., prior year funds) or to actions under the Pay Our Military Act, which was the authority relied upon by DoD on October 5 to reinstate the majority of furloughed DoD civilian employees as required to support members of the Armed Forces, and to authorize the payment of “allowances” to contractors who DoD determines are providing support to members of the Armed Forces in active service. The new contract provision, DFARS 252.232-7998 (Obligations in Advance of Fiscal Year 2014 Funding), provides that the DoD has authority to enter into the contractual action and to obligate the Government in advance of appropriations, and that payment will be made when appropriated funds become available. One may question the constitutionality of this clause, as it purports to commit both Congress and the Executive Branches to financial obligations in advance of any appropriations of funds. Nonetheless, any contractor performing “excepted” activities under a contract that was not fully funded at the time of the shutdown would be prudent to make sure that the new provision is added to the contract by modification. By doing so, contractors can best position themselves to recover their performance costs and avoid a limitation of funds defense to recovery.