7. CONTRACT MODIFICATIONS AND AMENDMENTS AFFECTING PRICE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP09K00541R001000090025-7
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 22, 2016
• Document Release Date: August 16, 2011
• Sequence Number: 25
• Content Type: MISC

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7. Contract Modifications
and Amendments
Affecting Price
Chapter 5
Availability of Appropriations: Time
Contract performance may extend over several years. During this
time, the contract may be modified or amended for a variety of rea-
sons at the instigation of either party. An amendment within the
general scope of the contract which does not increase the contract
price remains an obligation of the year in which the contract was
executed. B-68707, August 19, 1947. If the modification results in
an increase in contract price and the appropriation charged with
the original contract has expired for obligation purposes, the ques-
tion from the bona fide needs perspective is which fiscal year to
charge with the modification.
If the modification exceeds the general scope of the original con-
tract, for example, by increasing the quantity of items to be deliv-
ered, the modification amounts to a new obligation and is
chargeable to funds current at the time the modification is made. 37
Comp. Gen. 861(1958); B-207433, September 16, 1983.
In the case of a contract for services which severable, a modifi-
cation provid' or increased services must be charged to the
fiscal year or years in which the services are rendered, applying
the principles discussed in Section B.5. 61 Comp. Gen. 184 (1981),
aff'd upon reconsideration, B-202222, August 2, 1983; B-224702,
August 5, 1987. In 61 Comp~Gen. 184, for example, a contract to
provide facilities and staff to operate a project camp was modified
in the last month of FY 1980. The modification called for work to
be performed in FY 1981. Regardless of whether the contract was
viewed as a service contract or a contract to provide facilities, the
modification did not meet a bona fide need of FY 1980. The modifi-
cation amounted to a separate contract and could be charged only
to FY 1981 funds, notwithstanding that it purported to modify a
contract properly chargeable to FY 1980 funds.
For modifications within the general scope of the original contract,
the situation is a bit more complicated. Most government contracts
contain provisions which, under certain conditions, render the gov-
ernment liable to make equitable adjustments in the contract price.
Such liability may arise due to changes in specifications, govern-
ment-caused delay, changed conditions, increased overhead rates,
etc. These conditions are set out in standard contract clauses such
as the "Changes" clause, "Government Property" clause, or "Nego-
tiated Overhead Rates" clause.
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Chapter 5
Availability of Appropriations: Time
Because there is no way to know whether the government will
actually incur liability under these provisions, and if so, the amount
of such liability, until the occurrence of the specified conditions (cf.
50 Comp. Gen. 589, 591 (1971)), the appropriations charged with
the cost of the contract are not firmly obligated to cover future
price increases which arise due to the operation of these clauses.
Nevertheless, as noted, government contracts frequently contem-
plate that performance will extend into subsequent fiscal years.
When an upward price adjustment is necessitated in a subsequent
year, the general approach is to ask whether the adjustment is
attributable to "antecedent liability"-that is, whether it arises
and is enforceable. under a provision in the original contract. If the
answer to this question is yes, then a within-scope price adjustment
which is requested and approved in a subsequent fiscal year, for
example, under the "Changes" clause, will-with one important
qualification to be noted later-be charged against the appropria-
tion current at the time the contract was originally executed. Cases
supporting this proposition in various contexts are 59 Comp. Gen.
518 (1980); 23 Comp. Gen. 943 (1944); 21 Comp. Gen. 574 (1941);
18 Comp. Gen. 363 (1938); A-15225, September 24, 1926;
B- 146285-0.M., September 28, 1976.12 See also B-197344,
August 21, 1980, where supplemental work was done without issu-
ance of a formal contract modification. This principle is occasion-
ally referred to as the doctrine of "relation back." 1r.., 37 Comp.
Gen. 861, 863 (1958).
The reasoning is that a change order does not give rise to a new
liability, but instead, only renders fixed and certain the amount of
the government's pre-existing liability to adjust the contract price.
Since that liability arises at the time the original contract is exe-
cuted, the subsequent price adjustment is viewed as reflecting a
bona fide need of the same year in which funds were obligated for
payment of the original contract price. The concept was stated as
follows in 23 Comp. Gen. 943, 945 (1944):
"it is true that at the time the contract was executed it was not known that
there would, in fact, be any changes ordered ... for which the contractor
would be entitled to be paid an amount in addition to amounts otherwise pay-
able under the contract. Also, it is true that [the Changes clause] contemplates
the execution of amendments to the contract from time to time covering such
changes. However, the fact remains that the obligations and liabilities of the
=Similarly, costs incurred under a termination for convenience are chargeable to the appropri-
ation originally obligated for the contract. B-203074, August 6, 1981.
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Chapter 5
Avallabitity of Appropriations: Time
parties respecting such changes are fixed by the terms of the original contract,
and the various amendments merely render definite and liquidated the extent
of the Government's liability in connection with such changes."
In order to avoid over-obligating the original appropriation, the
contracting officer must estimate the expected net additional obli-
gations to insure that available appropriations are not committed to
other purposes. E .g., 61 Comp. Gen. 609, 612 (1982); B-192036,
September 11, 1978. It is also true, however, that estimated liabili-
ties of this type require constant review to insure that appropria-
tions do not remain encumbered in excess of the amounts which
will actually be needed to meet the total liability under the
contract.
For contracts spanning lengthy periods of time, funding of within-
scope modifications involves the use of expired appropriations. As
discussed later in this chapter, the balances in expired accounts
prior to closing are available without further congressional action.
Thus, within-scope modifications can result in significant cost esca-
lation with minimal congressional oversight.
Not all price adjustments arising from contract modifications or
amendments represent a bona fide need of the year in which the
agreement was made. If, as no above, the change or amendment
exceeds the general scope of the contract, or is not made pursuant
to a provision in the original contract, then it is not based on any
antecedent liability, in which event it may obligate only appropria-
tions current at the time it is issued. 56 Comp. Gen. 414 (1977). See
also 25 Comp. Gen. 332 (1945) (purported change order issued
after completion of contract, covering work contractor was not
legally bound to do under original contract, amounted to new
contract).
As noted above, there is an important exception or qualification to
the antecedent liability rule. In cost reimbursement contracts, dis-
cretionary cost increases (i.e., increases which are not enforceable
by the co etor) which exceed funding ceilings established by the
cont ma charged to funds currently available when the dis-
cretionary increase is granted by the contracting officer. 61 Comp.
Gen. 609 (1982). It would be unreasonable, the decision pointed out,
to require the contracting officer to reserve funds in anticipation of
increases beyond the contract's ceiling. Id. at 612. Changes which
do not exceed the stipulated ceilinst continue to be chargeable to
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8. Multi-Year Contracts
Chapter 5
Availability of Appropriations: Time
funds available when the contract was originally made (id. at 611),
as do amounts for final overhead in excess of the ceiling where the
contractor has an enforceable right to those amounts (id. at 612).
Since prior decisions such as 59 Comp. Gen. 518 had not drawn the
below-ceiling/above-ceiling distinction, 61 Comp. Gen. 609 modified
them to that extent. A more recent case applying 61 Comp. Gen.
609 is 65 Comp. Gen. 741 (1986).
Once an account has been closed (generally five fiscal years after
the expiration of obligational availability), questions of antecedent
liability or relation back are no longer relevant since account bal-
ances upon closing cease to be available for any purpose and only
current funds may be used, up to specified limits, for such obliga-
tions. 31 us.c. $S 1552 and 1553, as amended by Pub. L.1\ No. 101-
510, ? 1405(a), 104 Stat. 1485, 1676 (1990).
For contract changes which would require the contractor to per-
form additional work, as opposed to increases under an escalation
clause or to pay claims, the use of expired fixed-year appropria-
tions is subject to two approval requirements. If a proposed con-
tract change chargeable to an expired account would cause a
cumulative increase of more than $4 million during a fiscal year for
contract changes for the relevant program, project, or activity, the
obligation must be approved by the agency head or by an official
within the agency head's immediate office to whom the authority
has been delegated. If the cumulative increase would exceed $25
million, the agency head must report the proposed obligation to the
relevant authorizing committees and the appropriations committees
of the Senate and House of Representatives, and must defer making
the obligation for 30 days after submitting the report. 31 u.s.c.
? 1553(c), as amended by Pub. L. No. 101-510, ? 1405(a), 104 Stat.
at 1677 (1990).
Any discussion of multi-year contracting must inevitably combine
the bona fide needs rule with material from Chapter 6 on the
Antideficiency Act and from Chapter 7 on obligations.
The term "multi-year contract" has been used in a variety of situa-
tions to describe a variety of contracts touching more than one
fiscal year. To prevent confusion, we think it is important to start
by establishing a working definition. A multi-year contract, as we
will use the term in this discussion, is a contract covering the
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