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Part 332--Contract Financing

HHS Acquisition Regulation (HHSAR)

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Authority: 5 U.S.C. 301; 40 U.S.C. 121(c)(2).

[Changed by APM 2010-01]

Subpart 332.4--Advance Payments for Non-Commercial Items

332.402 General.

(e) The HCA (non-delegable) shall determine whether an advance payment is in the public interest in accordance with FAR 32.402(c)(1)(iii)(A).

332.403 Applicability.

All R & D contracts with educational institutions located in the United States shall provide for financing by use of advance payments, in reasonable amounts, unless otherwise prohibited by law.

332.407 Interest.

(d) The HCA (non-delegable) shall make the determinations in FAR 32.407(d). The HCA may also approve interest-free advance payments for educational institutions and other nonprofit organizations, whether public or private, performing work under nonprofit contracts (without fee) involving health services, educational programs, or social service programs, such as the following:

(1) Community health representative services for an Indian tribe.

(2) Narcotic addict rehabilitative services.

(3) Comprehensive health care services for Model Neighborhood programs.

(4) Planning and development of health maintenance organizations.

(5) Dissemination of information derived from educational research.

(6) Surveys or demonstrations in the field of education.

(7) Producing or distributing educational media for disabled persons including captioned films for the hearing impaired.

(8) Operation of language or area centers.

(9) Biomedical research and support services.

(10) Research surveys or demonstrations involving the training and placement of health personnel and health professionals, and dissemination of related information.

(11) Surveys or demonstrations in the field of social service.

332.409 Contracting Officer action.

332.409-1 Recommendation for approval.

The Contracting Officer shall transmit the information in FAR 32.409-1 (or FAR 32.409-2) to the HCA by memorandum.

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Subpart 332.5--Progress Payments Based on Cost

332.501 General.

332.501-2 Unusual progress payments.

(a) (3) The HCA (non-delegable) shall approve an unusual progress payment.

Subpart 332.7--Contract Funding

332.702 Policy.

Departmental employees shall report any suspected violation of the Anti-Deficiency Act (31 U.S.C. 1341) immediately to the OPDIV Chief Financial Officer (CFO), who in turn will report the matter to the HHS Deputy CFO.

332.702-70 Contract funding policy.

It is HHS policy to--

(a)  Fully fund, upon execution, any contract for non-severable services, unless the   services are acquired using multi-year contracting procedures pursuant to FAR Subpart 17.1 and Subpart 317.1.

(b) Structure contracts with a base period (not to exceed 1 year) and annual options, when severable services will cover more than 1 year. This approach is preferred over the use of incremental funding.

(c) Fully fund the base period (not to exceed 1 year) and each option, when using options for any contract for severable services.

(d) Allow Contracting Officers to use incremental funding as prescribed in 332.703-1, when full funding is not possible -- notwithstanding (c) above. An incrementally funded contract is a multiple-year contract in which funds are allocated to cover specific periods or increments of performance consistent with the requirements of 332.703-1.

(e) Prohibit the use of incremental funding in contracts for non-severable services. Guidance on distinguishing between severable and non-severable services is available in the Government Accountability Office’s publication Principles of Federal Appropriations Law (“GAO Red Book”) at

332.703 Contract funding requirements.

332.703-1 General.

(b) The following requirements govern all solicitations and contracts using incremental funding, as appropriate:

(1) The Contracting Officer shall consider the estimated total cost/price of the contract, including all planned periods (including options) or other increments of performance when determining the requirements that must be met before contract execution − e.g., JOFOC, clearances, approvals.

(2) The solicitation and resultant contract shall include a SOW/PWS that describes the total project, covers the proposed multiple-year period of performance, and contains a schedule of planned periods (including options) or other increments of performance. The resultant contract shall also include the corresponding amount of funds planned for obligation for each planned period or other increment of performance. The separate periods or other increments of performance must be defined to independently meet an HHS need, such that the services rendered during each period or increment of performance provide a specific material benefit that can stand alone if the remaining effort is not funded.

(3) The Contracting Officer shall request that offerors respond to the solicitation with technical and cost/price proposals for the entire project, and shall require distinct technical and cost/price break-outs of the planned periods or other increments of performance.

(4) Proposals shall be evaluated and any discussions and negotiations shall be conducted based upon the total project, including all planned periods or other increments of performance.

332.703-70 Funding contracts during a continuing resolution.

(a) Continuing resolutions. A continuing resolution (CR) is a legislative measure enacted to keep existing federal programs functioning, generally at minimal levels, after the expiration of prior fiscal year budget authority and until passage of regular appropriation acts by Congress.

(b) Operating guidance. Because the terms of CRs may vary, for each CR, specific operating guidance will be issued by the Office of the Assistant Secretary for Financial Resources (ASFR). This guidance will—

(1) Establish the availability of funds for existing and new projects or activities (consistent with the language of the CR);

(2) Identify any specific limits or constraints imposed; and

(3) Establish the authorized level and timing of obligations permitted.

(c) Contracting activities, in concert with program, budget and finance personnel, must carefully assess contract funding decisions to—

(1) Ensure compliance with HHS guidance regarding the specific terms of a CR;

(2) Maintain essential operations and activities; and

(3) Guard against violations of the Anti-Deficiency Act – see FAR 32.702

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332.703-71 Incrementally funded cost-reimbursement contracts.

Incremental funding may be used in cost-reimbursement contracts only as provided in 332.702-70(d) and when all of the following circumstances are present:

(a) Funding of future periods beyond the initial year or increment of performance is provided from the appropriation account available for obligation at that time;

(b) The project represents a bona fide need of the fiscal year in which the contract is awarded and initially funded (i.e., the initial period or increment of performance) and is also a bona fide need of each subsequent fiscal year whose appropriation will be used; and

(c) The project’s significance provides reasonable assurance that subsequent year appropriations will be made available to fund the project’s continuation and completion.

332.703-72 Incrementally funded fixed-price, time and materials, and labor-hour contracts.

(a) Fixed-price, time and materials, and labor-hour contracts may be incrementally funded only if—

(1) The contract is not for commercial items as defined in FAR 2.101; and

(2) The contract base period or any option period—

(i) Is for severable services;

(ii) Does not exceed 1 year; and

(iii) Is funded using the appropriation in effect on the date the funds are obligated.

(b) Upon receipt of the contractor’s notice under paragraph (c) of the clause at 352.232-72, Limitation of Government’s Obligation, the Contracting Officer shall promptly provide written notice to the contractor that the Government is taking one of the following actions:

(1) Allotting additional funds for continued performance and increasing the Government’s limitation of obligation in a specified amount;

(2) Terminating the contract for convenience; or

(3) Considering whether to allot additional funds. In this case the written notice shall further state that, in the interim: the contractor is entitled by the contract terms to stop work when the Government’s limitation of obligation is reached; and any costs expended beyond the Government’s limitation of obligation are at the contractor’s risk.

(c) If the contract will receive no further funds, the Contracting Officer shall promptly give the contractor written notice of the Government’s decision and terminate the contract for convenience.

(d) The Contracting Officer shall ensure that, in accordance with paragraph (b) of the clause at 352.232-72, Limitation of Government’s Obligation, sufficient funds are allotted to the contract to cover the total amount payable to the contractor in the event of termination for the convenience of the Government.

(e) Although incremental funding may be used as outlined above, the Department’s preference is to provide full funding when awarding fixed-price, time and materials and labor-hour contracts. If incremental funding is used, full funding is required as soon as funds become available.

332.704 Limitation of cost or funds.

See subpart 342.71, ‘‘Administrative Actions for Cost Overruns,’’ for procedures for handling anticipated cost overruns.

332.705 Solicitation provision and contract clauses.

332.705-2 Provision and clauses for limitation of cost or funds.

(b) In addition to the clause at FAR 52.232-22, Limitation of Funds, the Contracting Officer shall insert:

(1) The provision provided at 352.232-70, “Incremental Funding, in all solicitations when a cost-reimbursement contract for severable services using incremental funding is contemplated. The provision provides a means for the Contracting Officer to insert a specific period or increment of performance that the initial funding is expected to cover.

(2) The clause provided at 352.232-71, “Estimated Cost – Incrementally Funded Contract, in all cost-reimbursement contracts for severable services using incremental funding. The clause provides a means for the Contracting Officer to:  (i) insert the initial funding obligated by the award; (ii) identify the period or increment of performance covered by the funding provided; and (iii) specify the start and end dates for such period or increment of performance, as required by the “Limitation of Funds” clause at FAR 52.232-22.

(3) The clause at 352.232-72, “Limitation of Government’s Obligation, in all solicitations and resultant incrementally funded fixed-price, time and materials or labor-hour contracts for severable services. The Contracting Officer may revise the contractor’s notification period, in paragraph (c) of the clause, from “90” to “60” or “30” days, as appropriate.

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