HHS Reference Tool for Contract Funding, Formation and Appropriations Law Compliance

Non-severable Services — Modifications

A modification that extends the contract performance period without an obligation of additional funds is commonly referred to as a "no-cost extension." Generally, a no-cost extension may be used to extend the performance period of a contract for non-severable services. This assumes that the original obligation represented a bona fide need of the fiscal year in which the contract was executed. If the completion of the end product(s) will require more time than originally established, a no-cost extension may be granted if it is determined to be in the Government's best interests.

Consider the example of a 36-month contract for a research study (non-severable services). During month 30, the contractor’s project manager notifies the Contracting Officer’s Technical Representative (COTR) that a three-month extension is needed to address the full range of issues that HHS had included in the contract. After careful consideration, the COTR submits a request for a no-cost extension to the Contracting Officer. In granting the request, the Contracting Officer includes language in the modification to recognize that the parties agree to the new 39-month term with no change in the total contract value.

While the limitations applicable to no-cost extensions under contracts for severable services do not apply to those for non-severable services, there are rules of reason that must be employed. If the above research contract required an 18-month extension, concerns may include: the program office may have been "banking" money for later use; or, the original award may have contained very limited details and, with the contractor, the COTR and program office only recently decided on a more specific research design. At a minimum, a prolonged extension, i.e., one that would increase the original period of performance by a quarter or more from the original duration (in this case, a request of 9 months or more), raises questions about whether the original obligation represented a bona fide need of the year of contract award. These issues must be considered when granting long-term no-cost extensions. Lastly, once granted, a no-cost extension of any duration must be monitored to ensure that the required deliverable(s) are completed at the requisite level of quality.

A modification within the general scope of the original contract that involves an adjustment to the contract price requires careful consideration when determining the proper appropriation chargeable. Most government contracts contain clauses which, under certain conditions, allow the contractor to assert a claim and make the government liable for possible adjustments in the contract price. Such liability may arise due to changes in specifications, government-caused delay, changed conditions, or other circumstances.

When an upward price adjustment is requested in a subsequent year for other than a cost-reimbursement contract, and is attributable to an "antecedent liability" (i.e., the government's liability arises and is enforceable under a provision in the original contract), the modification must be funded from the appropriation current at the time the contract was originally executed. (See GAO-04-261SP, Principles of Federal Appropriations Law-Volume I, pp. 5-34 - 5-35). Under a cost-reimbursement contract, any increase in the contract cost ceiling (i.e., total estimated cost) that is a matter of Government discretion (not an antecedent liability enforceable by the contractor) must be charged to an appropriation current at the time of the contract modification. (See GAO Decision B-195732, September 23, 1982, 61 Comp. Gen. 609.)

A contract modification that is beyond the general scope of the original contract or is not made pursuant to a provision of the original contract is not based on an antecedent liability and is, therefore, chargeable to an appropriation current at the time the modification is executed. (See GAO Decision B-219829, July 22, 1986, 65 Comp Gen 741.) Further, this type of modification requires: compliance with the provisions of FAR Subpart 6.3 concerning other than full and open competition, and the signature of both parties.

The above information provides a general discussion of the appropriations law concepts applicable when modifying contracts for non-severable services. Given the variety of contract types, applicable clauses, and services, HHS contracting, program and budget/finance staff are encouraged to consult with legal counsel concerning the specifics of their requirement.