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DoD Financial Management Regulation Volume 3, …-dfas tri annual review guide

DoD Financial Management Regulation__________________________ Volume 3, Chapter 8
+ November 2000
CHAPTER 8
STANDARDS FOR RECORDING AND REVIEWING
COMMITMENTS AND OBLIGATIONS
+0801 PURPOSE
This chapter sets forth the basis for determining the amount and accounting period in
which commitments and obligations shall be recorded under various circumstances.
Departmental standards for recording transactions in the execution-level budgetary accounts are
in Chapter 15 of this volume. Priorities for researching and correcting disbursement transactions
are in Chapter 11 of this volume.
0802 COMMITMENTS
080201. General. The term "commitment" is defined in Chapter 15, subparagraph
150202.A, of this volume. The amount to be recorded as a commitment is the estimated
procurement cost set forth in the commitment document. The date the commitment document is
signed by an authorized official determines the accounting period in which the commitment is to
be recorded.
080202. Special Provisions for Determining the Amounts of Commitments
A. Contingent Liabilities Remaining under Outstanding Contracts. There are
contingent liabilities for price or quantity increases or other variables that cannot be recorded as
valid obligations in the cases of (1) outstanding fixed-price contracts containing escalation, price
redetermination, or incentive clauses, or (2) contracts authorizing variations in quantities to be
delivered, or (3) contracts where allowable interest may become payable by the U.S.
Government on contractor claims supported by written appeals pursuant to the "Disputes" clause
contained in the contract (see subparagraph 080202.D, below). Amounts to cover these
contingent liabilities should be carried as outstanding commitments pending determination of
actual obligations. The amounts of such contingent liabilities, however, need not be recorded at
the maximum or ceiling prices under the contracts. Rather, amounts should be committed that
are estimated conservatively to be sufficient to cover the additional obligations that probably will
materialize, based upon judgment and experience. In determining the amount to be committed,
allowances may be made for the possibility of downward price revisions and quantity underruns.
Each contingent liability shall be supported by sufficient detail to facilitate audit.
B. Letter Contracts and Letters of Intent. When accepted, a letter contract or
letter of intent shall be recorded as an obligation, but only in the amount of the maximum
liability stated. The maximum liability amount may be required by other regulations to be
limited to the costs that the contractor may incur pending execution of a definitive contract. In
that case, the estimated amount of the definitive contract, over and above the obligation recorded
under the letter contract or letter of intent, shall be carried as an outstanding commitment,
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DoD Financial Management Regulation__________________________ Volume 3, Chapter 8
+ November 2000
pending execution of the definitive contract. If the letter stipulates that awarding of the
definitive contract is dependent upon a congressional appropriation, then no funds are available
to commit and no commitment may be recorded.
C. Open-end Contacts and Option Agreements. An authorization to incur an
obligation under an open-end contract or option agreement (when neither the items nor quantities
are specified, but are to be the subject of subsequent orders) shall be recorded as a commitment
only when the amount estimated is reasonably firm. The existence of a specific dollar amount in
the procurement directive or request does not make the dollar amount reasonably firm. Rather,
the required quantities and the quality specification must have been determined by competent
authorized personnel so that reasonable prices may be estimated. An example is a planning
estimate for spare parts. While it is known that an initial complement of spare parts will be
acquired, the specification and quantity still shall be determined. Experienced personnel can
estimate an amount useful in planning, but this amount is not reasonably firm. The amount is
recordable as a memorandum "initiation" (see Chapter 15), but not as a commitment.
D. Contract Amendments or Engineering Changes. An authorization to
execute engineering change orders during the course of performance of a contract may be
recorded as a commitment upon the basis of a stated cost limitation even though the scope and
amount of such changes are not yet defined and require specific approval of the person
authorizing the procurement (or another designee) before the execution of the change orders. In
such circumstances, however, it may be necessary to revise the authorization (and the recorded
commitment) in the light of subsequent events, including change orders actually placed.
E. Intra-Governmental Requisitions and Orders. Intragovernmental
requisitions and orders (such as DD Form 448, "Military Interdepartmental Purchase Request")
shall be considered as commitments until validly obligated under the guidelines in section 0807,
below.
F. Multiyear Contracts. Contingent liabilities for multiyear contracts that
provide for cancellation charges, when it is necessary for the government to cancel the contract
for reasons other than contractor liability, are not recorded as commitments. Any such
cancellation charge shall must be recorded as an obligation when it becomes necessary to cancel
the contract and the contractor is so notified.
0803 OBLIGATIONS
+ 080301. General. This chapter pertains to recording obligations when no
obligation is found in the official accounting records prior to making individual disbursements.
When specific criteria are met, the accounting office, either under the Defense Finance and
Accounting Service (DFAS) or another Department of Defense (DoD) (non-DFAS) Component,
is permitted to record an obligation. The term "obligation" is defined in Chapter 15 of this
volume. No amount shall be incurred as an obligation by any DoD Component except in
accordance with the provisions of Chapter 15 of this volume. The recording of obligations
related to unmatched disbursements and negative unliquidated obligations are specified in
Chapter 11 of this volume. Unless otherwise specified, primary responsibility for recording
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DoD Financial Management Regulation__________________________ Volume 3, Chapter 8
+ November 2000
obligations remains with the DoD Components. The guidance for recording obligations by the
accounting office, when it does not have the primary responsibility for such recording, is
contained in this chapter.
+ A. Ten-Day Rule. Obligations shall be recorded in the official accounting
records at the time a legal obligation is incurred, or as close to the time of incurrence as is
feasible. In no instance shall obligations be recorded any later than 10 calendar days following
the day that an obligation is incurred (to include obligations incurred when invoices are overpaid
or duplicate payments are made). Every effort shall be made to record an obligation in the
month incurred. Notwithstanding the 10-day rule, obligations of $100,000 or more--per fund
citation or accounting line on the obligation document--shall be recorded and included in the
official accounting records in the same month in which the obligation is incurred. If an
obligation is not recorded within the specified timeframe, the guidance in section 0814 of this
chapter shall be followed.
+ B. Responsibilities. The office that incurs an obligation shall provide, within
6 calendar days of the date the obligation is incurred, a copy of the obligating document(s), via
electronic mail, fax, or other documented means, to the office responsible for recording the
obligation. The office that is responsible for recording the obligation shall record the obligation
in the official accounting records within 3 calendar days of receipt of such documentation,
information, or data. Timely and accurate recording of obligations facilitates the disbursing
officer's (DO) ability to verify fund availability before authorizing a payment (a process called
prevalidation) and, consequently, promptly pay the associated invoice.
080302. An amount shall be recorded as an obligation only when supported by
documentary evidence of the transaction. A verbal order or agreement shall be reduced to
writing and conform to the applicable provisions of this section before the obligation may be
recorded. When the amount is not known or cannot be ascertained feasibly at the time that it is
to be recorded, the best estimate shall be used. The best estimate should be based on a thorough
analysis of the transaction that actually occurred.
080303. When recording obligations under this section, utilize the principles
specified below.
A. Contracts or Orders for Goods, Supplies, or Services to Meet Bona Fide
Need. DoD Components shall determine that the goods, supplies, or services required under
contracts entered into, or orders placed obligating an annual or multiple-year appropriation, are
intended to meet a bona fide need of the period for which funds were appropriated. Such
determinations shall consider estimated current consumption, the requirements that may be
foreseen for future years based upon the procurement lead time, authorized stock levels, and
authorized mobilization reserves. If the Appropriation Act, however, makes such appropriations
available for payments under contracts for specified services for periods beyond the period for
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How are DFAs claims paid? Settlement authorities at all levels will pay claims by the most efficient means. Sometimes this means forwarding a voucher to DFAS or using another electronic system. Sometimes emergency cash payments are made. Claims approved by other designees are for-