There are times, when a government employee may ask a contractor to provide supplies or services without a contract; to provide supplies and services for free; or to start performance before a contract is signed.
Most contractors will do so since they are relying on the guidance of those in the government on how this should be done.
It sounds a-okay but, there is a law that regulates the government asking for free work or asking for work without a contract: the Anti-Deficiency Act (“ADA”). Having some awareness about how the ADA works will help your business make decisions about requests from the government for free work or work without a contract. It will also help you help the federal government customer stay on the right side of this law.
The Anti-Deficiency Act is housed in the section of the federal laws that deal with how the government budgets, manages its finances and spends government money. Even though it’s not housed in the criminal section of federal laws, it carries criminal penalties. To date though, no criminal prosecutions for violating the ADA. However, Federal employees have gotten in administrative trouble for violations.
In addition to the Anti-Deficiency Act, Federal Acquisitions Regulations (FAR) also prohibit such spending. The FAR goes a bit further and says that if a government official or employee even encourages a contractor to perform or continue work without proper funding, they violate the FAR and the Anti-Deficiency Act.
Understanding the Anti-Deficiency Act
To understand why a law that deals with government budgets and government spending carries criminal penalties requires a visit back to high school government class, to include reviewing the U.S. Constitution.
The Constitution creates three equal branches of government:
- The executive branch (all the federal agencies for the most part)
- Federal Courts.
Each branch has some way of checking the power of the other branches. Congress controls the executive branch by controlling the money it gives to the executive branch. Remember, the executive branch includes all the agencies that buy the supplies and services that contractors sell. So, unless Congress gives the executive branch money to buy stuff, the executive branch cannot buy stuff. Further, when Congress gives money to the executive branch to buy stuff, Congress “appropriates” the money which essentially means it tells the executive branch what it can buy with the money that Congress gave it.
The Constitution does not say what the penalty would be if the executive branch spends money Congress did not give it; but the Anti-Deficiency Act does and it has since 1870. Essentially the Anti-Deficiency Act states that unless Congress has appropriated money for the US Government to buy something, the US government cannot spend the money to buy it.
The Anti-Deficiency Act prohibits federal government employees from:
- Spending money or promising to spend money, whether with a contract or not, when Congress has not appropriated the money for the spend or has not funded the spend
- Spending money or promising to spend money for a different purpose then what Congress earmarked the money for, whether with a contract or not
- Spending money or promising to spend money in excess of the money Congress appropriated or funded for the spend, whether with a contract or not
- Accepting voluntary services to essentially get a good or service that Congress did not authorize payment for
- Working without a contract or before a contract is signed
An Interesting Example of An ADA Violation
Some followers of the Department of Defense may recall when DoD traded five persons detained at Guantanamo Bay in exchange for US Army Sergeant Bowe Bergdahl who the Taliban was holding as a prisoner. When this happened Congress asked the Government Accountability Office, which is a legislative branch entity that audits and investigates for Congress, to determine the source of the funds that DoD used to pay for this exchange. The GAO looked into and told Congress that DoD appropriated funds for that year prohibited DoD from using its funds to pay for transferring prisoners unless it gave Congress 30 days advance notice of the exchange. DoD did not notify Congress 30 days before expending funds to make the Bergdahl transfer. As a result, the DoD expenditures, which were at least $988,400 in excess of available funds for the transfer, violated the ADA.
How to Identify an Anti-Deficiency Act Issue
As a contractor you may be facing an ADA situation if a government employee asks you:
- For supplies or services for free
- For performance to provide the supplies or services before the contract is signed
- To accept delayed payment because it does not have the funds
- To perform without a contract
What Does This All Mean for a Federal Government Contractor?
- Although you and your employees will likely not get prosecuted, you sure don’t want to get caught up in an OIG, GAO or agency investigation into a possible ADA violation because it will cost time, money and may damage your reputation.
- You should be a good business partner to the government client by helping them help themselves by letting your client know that free work, work without a contract or delayed payment may not be the way to go.
- The best defense is making sure it is clear that your contracts are funded before you start performing the contract. If it’s not clear, ask your contracting officer about funding.
- If your organization has reasons to perform the government work for free make sure:
- Your organization has articulable reasons for doing so
- You HAVE A CONTRACT
- The contract includes language stating that your company will perform without payment and that you will not seek compensation in the future either.
A great quote from Albert Einstein that captures the ADA:
“Sometimes one pays most for the things one gets for nothing.”