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Posted by on Oct 16, 2015

The “ABC’s” of Economy Act Intergovernmental Transactions

Intragovernmental Transactions (reimbursable transactions) abound in the Federal government today. But what is the primary law that allows one agency to do work for another and collect reimbursement fees? You guessed it, the Economy Act (EA)! A basic understanding of the EA by resource officials is critical to spending and accepting reimbursable funds properly.

This 1932 based law was initially intended to help expand government work and fight our way out of the Great Depression. The authority found in 31 USC 1535 specifies four conditions most notably the providing agency must be able to provide the goods or services and also there be lower overall cost to the government. The Economy Act was never intended to replace normal contracting with the private sector. As in any government transaction, proper documenting of each condition is important for many reasons including satisfying the auditors!

The Economy Act covers all branches of government and virtually all Federal-to-Federal transactions. It also is used and common when personnel are detailed, or loaned, from one agency to another. According to the GAO Principles of Appropriations Law, two components, bureaus, or offices within the same department may engage in Economy Act dealings but must be funded from separate appropriations. GAO has ruled it does not apply to separate appropriations of a single bureau or office. Payments are credited to the correct appropriation and year against which charges were made to fill the order. Costs reimbursed must only cover actual costs incurred by the performing agency, but what does that really mean? Charging too much or too little would augment either the ordering or providers appropriation.

To determine actual costs GAO says direct costs are obviously the place to begin. Indirect costs that can be proportionately ascribed to a transaction are also allowed. Depreciation is normally not recoverable nor are general and administrative costs such as security or maintenance expenses which would be paid by the performing entity regardless. The Act does not require precision in the actual cost determination as long as a reasonable method of allocation of costs is used.

It is important to note the bona fide needs rule applies to EA orders. If it did not agencies could extend the obligational life of their appropriation. To ensure this practice did not take root Congress soon enacted another provision to the original law which created the “deobligation” provision of the EA. Basically this means if the performing agency is using in-house resources to accomplish the work, it must finish the work before the ordering agency’s funds expire. Any unfinished work must be deobligated by the ordering agency rendering these funds “unusable” when they expire. Similarly, if the performing agency is using a contract to get the work done it must award that contract prior to expiration of the customers funds. Reimbursable work performed under other authorities follows the same rules as with commercial firms and does not include this EA deobligation twist.

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