Bona fide need obligation rule

The Bona Fide Need Rule (31 USC, Section 1502) requires appropriated funds to be used only for goods and services for which a need arises during the period of that appropriation’s availability for obligation.

Definition: The bona fide needs rule is a rule of appropriations law. It mandates that a fiscal year’s appropriations only be obligated to meet a legitimate—or bona fide—need arising in (or sometimes before) the fiscal year for which the appropriation was made

The three (3) major legal provisions that concern funds execution are the: [1]

31 USC Section 1502 – Bona Fide Need

(a) The balance of an appropriation or fund limited for obligation to a definite period is available only for payment of expenses properly incurred during the period of availability or to complete contracts properly made within that period of availability and obligated consistent with section 1501 of this title. However, the appropriation or fund is not available for expenditure for a period beyond the period otherwise authorized by law.
(b) A provision of law requiring that the balance of an appropriation or fund be returned to the general fund of the Treasury at the end of a definite period does not affect the status of lawsuits or rights of action involving the right to an amount payable from the balance.

Appropriation Availability

The requirement may occur at any moment throughout the time period that the appropriation act specifies the funds are available (e.g., two years for RDT&E or three years for most procurement accounts), according to strict interpretation of this law and the text of the appropriation act. The duration of the appropriation’s availability may, at the option of a Service or Defense Agency, be further restricted by policy, for example, to the first year of that appropriation’s availability.

For RDT&E funds, and specifically for that portion of the budget intended for activity operations (e.g., travel, office supplies, salaries, etc.) rather than for real R&D efforts, the most frequent Service restriction on the use of an appropriation beyond the first year applies. Although this might be viewed as being more stringent than what Congress intended, it is within the Service or Agency’s discretion to adopt policies that are more restrictive than what is permitted by U.S. Code.

Bona Fide Need Rule Key Details for a Government Program Manager

The Bona Fide Need Rule is a fundamental principle in federal government procurement in the United States. It is intended to ensure that appropriated funds are used for their designated purposes and are not wasted or misused. Government program managers should be aware of the following key details about the Bona Fide Need Rule:

  1. Purpose and Intent: The Bona Fide Need Rule stipulates that appropriated funds should be used only for the bona fide, legitimate fiscal year’s needs. This means that funds should be spent on goods, services, and activities that directly relate to the goals and objectives of the specific fiscal year.
  2. Time Frame: Appropriated funds are generally available for obligation and expenditure during the fiscal year for which they were appropriated. In most cases, this fiscal year runs from October 1st to September 30th. However, some funds might have multi-year availability or be available until expended (e.g., for construction projects), allowing for greater spending flexibility over time.
  3. No-Carryover of Funds: The Bona Fide Need Rule discourages carrying over unspent funds from one fiscal year to the next. Unused funds from a fiscal year usually revert to the Treasury, and agencies are generally not allowed to use these expired funds for new obligations in the following fiscal year.
  4. Use-It-or-Lose-It: In some cases, agencies might feel pressure to spend remaining funds at the end of the fiscal year to avoid losing those funds in the next fiscal year’s budget allocation. This phenomenon is commonly referred to as the “use-it-or-lose-it” mentality. The Bona Fide Need Rule aims to counteract this behavior by promoting more careful planning and allocation of funds.
  5. Limited Exceptions: There are certain exceptions to the strict application of the Bona Fide Need Rule. For example, the rule might not apply if the agency’s specific statutory authority allows for multi-year obligations or for funds to be carried over to the next fiscal year. Also, emergencies or unforeseen circumstances might justify using funds for needs that arise after the end of the fiscal year.
  6. Overlap and Proration: Program managers should prorate the funding to allocate expenses across the appropriate years if a requirement spans multiple fiscal years. Overlapping expenses that straddle fiscal years should be budgeted and justified accordingly.
  7. Documentation and Accountability: Program managers are responsible for documenting and justifying the allocation of funds in accordance with the Bona Fide Need Rule. Clear records of the funds’ use, expenditure dates, and their relationship to the fiscal year’s goals are crucial for transparency and accountability.
  8. Communication and Planning: Effective communication between program managers and budget personnel is essential to ensure that funds are allocated appropriately and in line with the Bona Fide Need Rule. Long-term planning and forecasting of resource requirements help avoid last-minute rush and suboptimal resource allocation.

In summary, the Bona Fide Need Rule is a guiding principle that government program managers must adhere to when managing funds to ensure the responsible and efficient use of taxpayer money for the intended purposes.

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