In federal government contracting, as in most public works contracts, contractors are required to comply with Contracting Officers’ decisions. Contract clauses mandate that pending resolution of disputes, the contractor must proceed with the performance of the contract, the dispute notwithstanding.[i] Thus, even if a contractor suspects that the Contracting Officer directing the extra work does not have appropriate funds to pay for the changed work, the contractor has little choice but to perform the extra work. This is a trap for unwary contractors that expend their own funds only to find out that there is no appropriation to pay for the extra work. The Federal Anti-Deficiency Act was passed to prevent this very issue from occurring, but as contractors have learned, this Act has not precluded government employees from directing extra work for which they have no funds.[ii]
The Federal Anti-Deficiency Act prohibits employees from:
- making or authorizing an expenditure from, or creating or authorizing an obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund unless authorized by law;
- involving the government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law;
- accepting voluntary services for the United States, or employing personal services not authorized by law, except in cases of emergency involving the safety of human life or the protection of property; and
- making obligations or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted by agency regulations.
Federal employees who violate the Anti-Deficiency Act are subject to two types of sanctions: administrative and penal. Employees may be subject to appropriate administrative discipline including, when circumstances warrant, suspension from duty without pay or removal from office. In addition, employees may also be subject to fines, imprisonment, or both.
The Constitution provides that no money may be withdrawn from the Treasury unless appropriated by law passed by Congress.[iii] This clause has been interpreted as giving Congress the “power of the purse” to control activities in spending of the Executive Branch. It did not take long after the Constitution was drafted for the Executive Branch (the President) to seek ways to break free of Congressional spending constraints. Tactics employed by the Executive Branch include contractually obligating the government from amounts in excess of appropriations, spending appropriated funds quickly and thereby threatening a government shut-down if new funds are not appropriated, and by using unexpended funds in the following year for a purpose not previously appropriated.[iv]
Early Congressional attempts to put an end to these practices were stymied by the advent of the Civil War, when President Lincoln authorized the expenditure of $2M that had not been appropriated. Rather than chastise the President, Congress responded by ratifying his actions and, in addition, provided him with even more flexibility in order to support the needs of the war conflict. Following the Civil War in 1868 and 1870, Congress reasserted its prerogative and attempted to control government spending by prohibiting the transfer of appropriated funds from one account to another, prohibiting the expenditure of funds in excess of the amount appropriated, and prohibiting contracts for future payments in excess of appropriations. These statutes became the basis of the “Anti-Deficiency Act” that was codified into law in 1905.
Recently eight construction contractor associations[v] petitioned the Office of Federal Procurement Policy to modify the Federal Acquisition Regulations to make explicit that before ordering a change to a construction contract, the Contracting Officer must assure that funds are available to pay for additional work being ordered. “Our members are facing increasing numbers of instances in which a Contracting Officer will direct a change in the Scope of Work on a construction project, lacking funds available to pay for increased cost being imposed upon the Contractor,” the Associations wrote in a March 18th letter to the OFPP Administrator, Anne Rung.
In testimony delivered in May 2014, the General Accountability Office (“GAO”) reported that it had identified 77 instances of violation of the Anti-Deficiency Act by the Department of Defense between 2007 and 2013, totaling $1.24B. The GAO noted that “the number of violations and dollar amounts reported may not be complete because of weakness in DOD’s control and monitoring process that may not have allowed all violations to be identified or reported.” The associations recommended modifications to the Federal Acquisition Regulations (“FARs”), including a new provision under FAR Part 36.5 that would require the Contracting Officer to take actions required by FAR Part 43.105 (Availability of Funds), as well as the requirements of the Anti-Deficiency Act. The group also recommended an amendment to FAR Part 52.243.4 (Changes) that would allow the Contracting Officer to continue to make changes in the work within the general scope of the contract, at any time and without notice to sureties, “but only if funds are available to pay the costs of such changes.”
Comment: The associations have identified an issue that is becoming of greater and greater concern to contractors who are understandably reluctant to perform extra work and wait months until the appropriation is passed by Congress to get paid. These changes to the FARs may eventually prompt state governments to take similar action.
[i] See FAR 52.233-1(i)
[ii] 31 USC § 13.41 and § 13.42
[iii] Constitution Article I, § 9, Clause 7
[iv] L. Wilmerding, Jr., The Spending Power, A History of Efforts of Congress to Control Expenditure, Ch. V, “The Law and Practice: 1820-1868 (1943).”
[v] Associated General Contractors of America (“AGC”), American Subcontractors Association (“ASA”), The Design Build Institute of America (“DBIA”), The Mechanical Contractors Association of America (“MCAA”), The National Association of Surety and Bond Producers (“NASP”), The National Electrical Contractors Association (“NECA”), The Sheet Metal and Air Conditioning Contractors National Association (“SMACCNA”) and The Surety and Fidelity Association of America (“SFAA”).