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Library of Congress—Obligation of Guaranteed Minimums for Indefinite-Delivery, Indefinite-Quantity Contracts under the FEDLINK Program, B-318046, July 7, 2009

  • By GCPC GovCon Legal Team
  • July 7, 2009
  • ID/IQ

Link:   GAO Opinion

Agency:          Library of Congress

Disposition:

__________________________________________________________________________________________________________________

GAO Digest:

The Library of Congress uses indefinite-delivery, indefinite-quantity (IDIQ) contracts, against which agencies place orders for library and information products and services, in support of its Federal Library and Information Network (FEDLINK). FEDLINK is a voluntary program, and the Library states that it cannot accurately anticipate use of an IDIQ contract. The Library proposes using a standard amount of $500 as the guaranteed minimum for these contracts regardless of the maximum ordering limitations or total contract value, which amount would be obligated at the time it awards the IDIQ contract. To provide adequate consideration for a binding IDIQ contract, an agency must establish a guaranteed minimum that is more than a nominal amount and reflects the amount the agency is fairly certain to order. In the absence of reliable historical data indicating that a $500 guaranteed minimum for a particular IDIQ contract is too high or too low, we have no basis to object to the use of $500 as a guaranteed minimum.

General Counsel P.C. Highlight:

The General Counsel of the Library of Congress (Library) requested a decision on the proper obligation of funds for indefinite-delivery, indefinite-quantity (ID/IQ) contracts for use by federal agencies participating in the Library’s Federal Library and Information Network (FEDLINK) revolving fund program. Specifically, the Library seeks guidance on the proper estimation of amounts to be obligated as the guaranteed minimums under centralized ID/IQ contracts against which various federal organizations place orders. The Library asks whether a standard amount of $500 could be used as the guaranteed minimum for these contracts regardless of the maximum ordering limitations or total contract value. Also, the Library seeks GAO’s views on the use of other contract vehicles—such as basic ordering agreements and requirements contracts—in the context of the FEDLINK program.

To provide adequate consideration for a binding ID/IQ contract, an agency must establish a guaranteed minimum that is more than a nominal amount and reflects the amount the agency is fairly certain to order. The Library should review available historical usage data for the item or service being purchased to ensure that $500 is a reasonable estimate of the amount that is fairly certain to be purchased through each ID/IQ contract. However, in the absence of reliable historical data, GAO has no basis to object to the use of $500 as the guaranteed minimum. Although GAO is not stating views on the use of the different contract vehicles, GAO is providing some information on the three types of vehicles raised in the request letter.

In the information the Library has presented, the Library uses FEDLINK ID/IQ contracts in those situations where there is some historical data, although the range of use varies depending on the particular contract. The total amount purchased through each ID/IQ contract ranges from $1,000 to $15.8 million. Some ID/IQ contracts had no orders. In setting guaranteed minimums, the Library should evaluate the historical usage data for each category of items and services purchased, such as online databases or book repair services, and take into consideration any other factors for estimating the next year’s use. GAO recognizes that it is difficult for the Library to rely on historical data since it is serving the needs of other agencies. In the absence of reliable historical data, GAO has no basis to object to the use of $500 as a guaranteed minimum amount.

The Library also inquired into the use of a requirements contract, which differs from an ID/IQ contract. A requirements contract provides for filling all purchase requirements of designated government activities for supplies or services during a specified contract period, with deliveries or performance to be scheduled by placing orders with the contractor. The promise by the buyer to purchase the subject matter of the contract exclusively from the seller is an essential element of a requirements contract. A solicitation will not result in the award of an enforceable requirements contract where a solicitation provision disclaims the government’s obligation to order its requirements from the contractor and therefore renders illusory the consideration necessary to enforce the contract. The applicable regulation requires that the solicitation and resulting contract state the estimated total quantity of goods or services needed. GAO has held that requirements contracts are valid if the estimate of the probable amount of goods or services to be generated was determined in good faith and based on the best information available. In addition, if feasible, the contract must include “the maximum limit of the contractor’s obligation to deliver and the Government’s obligation to order.”

Unlike the ID/IQ contract, no minimum guarantees are required for a requirements contract because the agreement to procure all of the agency’s requirements constitutes adequate consideration for the contract. Since there is no guaranteed minimum, the government does not incur an obligation until an order for goods or services is placed against the requirements contract. If, in the exercise of good faith, the anticipated requirements simply do not materialize, the government is not obligated to purchase the stated estimate or to place any orders with the contractor. The contractor assumes the risk that nonguaranteed requirements may fall short of expectations, and has no claim for a price adjustment if they do. If, however, the government attempts to meet its requirements elsewhere, including the development of in-house capability, or if failure to place orders with the contractor for valid needs is otherwise found to evidence lack of good faith, liability on the part of the government will result.

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