DoFMR Vol2A - Budget Formulation and Presentation.pdf

DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 VOLUME 2A, CHAPTER 1: “GENERAL INFORMATION” SUMMAR...

DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 VOLUME 2A, CHAPTER 1: “GENERAL INFORMATION” SUMMARY OF MAJOR CHANGES Changes are identified in this table and also denoted by blue font. Substantive revisions are denoted by an * symbol preceding the section, paragraph, table, or figure that includes the revision. Unless otherwise noted, chapters referenced are contained in this volume. Hyperlinks are denoted by bold, italic, blue, and underlined font. The previous version dated August 2007 is archived. PARAGRAPH EXPLANATION OF CHANGE/REVISION PURPOSE Overall Formatting and room location changes Revision 1.7 Paragraph 1.7.2.28 – Expanded explanation of the full Addition (010107) funding policy 2.2 Expanded explanation of full funding of procurement Addition (010202) 2.24 Glossary of Terms – Expanded explanation of full funding Addition (010224) 3.6 Disaster Situations and Management of Addition (010306) Disaster/Contingency Supplemental funds 1-1 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 Table of Contents VOLUME 2A, CHAPTER 1: “GENERAL INFORMATION”.................................................... 1 1.0 GENERAL POLICIES (0101).......................................................................................... 7 1.1 Purpose (010101).................................................................................................... 7 1.2 Organization (010102)............................................................................................ 7 1.3 Changes to Volume 2 (010103).............................................................................. 7 1.4 Reports Control Symbol (010104).......................................................................... 7 1.5 Requests for Exceptions to OMB Circular A-11 (010105).................................... 7 1.6 Proposed Changes in Budget Structure and Appropriation Language (010106).... 8 1.7 Budget Terminology/Definitions (010107)............................................................ 9 1.8 Security Classifications (010108)......................................................................... 18 1.9 Budget and Performance Integration (010109)..................................................... 19 1.10 Combatant Command Business Rules (Joint Task Assignment Process (JTAP)) (010110) ……………………………………………………………………………………19 2.0 FUNDING POLICIES (0102)......................................................................................... 20 2.1 Criteria for Determining Expense and Investment Costs (010201)...................... 20 *2.2 Full Funding of Procurement Programs (010202)................................................ 26 2.3 Multiyear Procurement (010203).......................................................................... 29 2.4 Buy-to-Budget for Acquisition of End Items (010204)........................................ 32 2.5 Transportation (010205)....................................................................................... 32 2.6 Engineering Change Orders (010206).................................................................. 34 2.7 Factory Training (010207).................................................................................... 34 2.8 Interim Contractor Support (010208)................................................................... 34 2.9 Commercial Off-the-Shelf (COTS) and Non-Developmental Item (NDI) Procurement (010209)............................................................................................................ 34 2.10 Spares and Repair Parts (010210)......................................................................... 35 2.11 Direct and Reimbursable Budget Plans (010211)................................................. 35 2.12 Budgeting for Information Technology and Automated Information Systems (010212) ……………………………………………………………………………………37 2.13 Research, Development, Test and Evaluation (RDT&E) - Definitions and Criteria (010213) ……………………………………………………………………………………39 2.14 RDT&E - Incremental Programming and Budgeting Basis (010214).................. 50 2.15 Defense Working Capital Funds - Operating Budget (010215)........................... 52 2.16 Defense Working Capital Funds - Mobilization/Surge Costs (010216)............... 52 2.17 Defense Working Capital Funds - War Reserve Materiel (010217)..................... 52 2.18 Defense Working Capital Funds - Military Personnel Costs (010218)................ 52 2.19 Defense Working Capital Funds - Full Recovery of Costs/Setting Prices (010219) ……………………………………………………………………………………53 2.20 Defense Working Capital Funds - Capital Budgeting (010220)........................... 55 2.21 Defense Working Capital Funds - Base Support (010221).................................. 56 2.22 Defense Working Capital Funds - Dual Funded Organizations (010222)............ 56 2.23 Defense Working Capital Funds - Customer Mandated Schedule (010223)........ 57 1-2 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 Table of Contents (Continued) 2.24 Glossary of Terms – Procurement (010224)......................................................... 57 2.25 Glossary of Terms – RDT&E (010225)................................................................ 59 2.26 Prohibition on Parking of Funds (010226)........................................................... 60 2.27 Use of Operation and Maintenance Funds under Contingency Construction Authority (CCA) (010227)..................................................................................................... 61 3.0 PROGRAM AND BUDGET REVIEW SUBMISSION (0103)..................................... 61 3.1 General (010301).................................................................................................. 61 3.2 Distribution (010302)............................................................................................ 64 Table 1. Justification Material Supporting the OSD/OMB Budget Submission Summary 67 Table 2. Justification Material Supporting the OSD/OMB Budget Submission Operation and Maintenance, and Military Personnel Budget Material................................................... 68 Table 3. Justification Material Supporting the OSD/OMB Budget Submission Procurement Account Budget Material....................................................................................................... 69 Table 4. Justification Material Supporting the OSD/OMB Budget Submission Research, Development Test & Evaluation Account Budget Material.................................................. 70 Table 5. Justification Material Supporting the OSD/OMB Budget Submission Revolving and Management Fund Budget Material................................................................................ 71 Table 6. Justification Material Supporting the OSD/OMB Budget Submission Military Construction & Family Housing Account Budget Material.................................................. 72 Table 7. Justification Material Supporting the OSD/OMB Budget Submission Special Interest Requirements Budget Material.................................................................................. 73 3.3 Preparation of the Biennial Budget Estimates (010303)....................................... 74 3.4 Second Year of the Department’s Two-year Budget Review Cycle - Budget Material. (010304).................................................................................................................. 77 3.5 Budget Estimates Summaries and Transmittal (010305)...................................... 78 *3.6 Supplemental Appropriations Submissions (010306).......................................... 79 3.7 Additional Budget Submissions (ABS) (010307)................................................. 81 3.8 Major Budget Issues (MBIs) (010308)................................................................. 82 3.9 Budget Review Procedures (010309)................................................................... 82 4.0 CONGRESSIONAL JUSTIFICATION/PRESENTATION (0104)............................... 84 4.1 General (010401).................................................................................................. 84 4.2 Supplemental and Amended Appropriations Requests (010402)......................... 89 4.3 Distribution/Internet Posting of Budget Material (010403).................................. 91 Table 8. Justification Material Supporting The President’s Budget Request Military Personnel Accounts................................................................................................................ 95 Table 9. Justification Material Supporting the President’s Budget Request Operation and Maintenance Accounts........................................................................................................... 97 Table 10. Justification Material Supporting the President’s Budget Request All Military Department Procurement Accounts..................................................................................... 100 Table 11. Justification Material Supporting the President’s Budget Request Procurement Accounts - Army.................................................................................................................. 101 1-3 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 Table of Contents (Continued) Table 12. Justification Material Supporting the President’s Budget Request Classified Procurement Accounts -Navy.............................................................................................. 102 Table 13. Justification Material Supporting the President’s Budget Request Procurement Accounts - Navy................................................................................................................... 103 Table 14. Justification Material Supporting the President’s Budget Request Procurement Accounts - Air Force............................................................................................................ 104 Table 15. Justification Material Supporting The President’s Budget Request Procurement Accounts - Other.................................................................................................................. 106 Table 16. Justification Material Supporting the President’s Budget Request Procurement Accounts - Defense-Wide.................................................................................................... 107 Table 17. Justification Material Supporting the President’s Budget Request Research, Development Test & Evaluation Accounts.......................................................................... 108 Table 18. Justification Material Supporting the President’s Budget Request Research, Development Test & Evaluation Accounts.......................................................................... 109 Table 19. Justification Material Supporting the President’s Budget Request All Military Department Working Capital Fund Accounts...................................................................... 110 Table 20. Justification Material Supporting the President’s Request Revolving and Management Funds.............................................................................................................. 111 Table 21. Justification Material Supporting the President’s Budget Request All Military Department Military Construction, Family Housing and BRAC Accounts......................... 112 Table 22. Justification Material Supporting the President’s Request Military Construction & Family Housing Accounts.................................................................................................... 113 Table 23. Justification Material Supporting the President’s Request Base Realignments And Closures (BRAC)................................................................................................................. 115 Table 24. Justification Material Supporting The President’s Request Other Account Requirements........................................................................................................................ 116 Table 25. Justification Material Supporting the President’s Request Special Interest Requirements........................................................................................................................ 117 Table 26. Justification Material Supporting The President’s Request Special Interest Requirements........................................................................................................................ 118 4.4 Witness Statements (010404)............................................................................. 120 4.5 Transcript Processing (010405).......................................................................... 121 4.6 Appeal Process on Congressional Actions (010406).......................................... 123 5.0 BUDGET AUTOMATION REQUIREMENTS (0105)............................................... 125 5.1 Automated Military Personnel Programs Database (010501)............................ 125 5.2 Automated Operation and Maintenance Programs Databases (010502)............ 126 5.3 Automated Procurement Programs Database (010503)...................................... 129 5.4 Automated RDT&E Programs Database (010504)............................................. 132 5.5 Automated Construction Program Database (010505)....................................... 133 5.6 CIS Automation Requirements for the Biennial Program and Budget Review Submission (010506)............................................................................................................ 136 5.7 CIS Budget Structure Listing (BSL) (010507)................................................... 138 1-4 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 Table of Contents (Continued) 6.0 UNIFORM BUDGET AND FISCAL ACCOUNTING CLASSIFICATIONS (0106) 141 6.1 General (010601)................................................................................................ 141 6.2 Functional Titles – Military Functions (010602)................................................ 141 6.3 Definitions of Functional Titles and Subdivisions – Military (010603)............. 142 6.4 Functional Titles and Definitions – Other Defense Civil Programs (010604)... 154 7.0 AUTOMATED FUTURE YEARS DEFENSE PROGRAM (FYDP) DATABASES (0107)....................................................................................................................................... 155 7.1 Standard Data Collection System (SDCS) (010701).......................................... 155 7.2 FYDP Resource Structure Management (RSM) System (010702).................... 158 8.0 AUTOMATED BUDGET, INTELLIGENCE, AND RELATED DATABASE (BIRD) (0108)....................................................................................................................................... 159 9.0 SELECT AND NATIVE PROGRAMMING (SNaP) DATA INPUT SYSTEM (0109) …………………………………………………………………………………………159 9.1 Select and Native Programming (SNaP) Data Collection System (010901)...... 159 10.0 GENERAL GUIDANCE SUBMISSION FORMATS (0110)................................... 161 10.1 Purpose (011001)................................................................................................ 161 10.2 Exhibits in Support of Section 3.0 – Program and Budget Review Submission (011002) …………………………………………………………………………………..161 10.3 Exhibits in Support of Section 4.0 – Congressional Justification/Presentation (011003) …………………………………………………………………………………..161 10.4 Exhibits in Support of Section 5.0 (011004)...................................................... 162 10.5 Exhibits in Support of Section 7.0 (011005)...................................................... 162 Exhibit PB-1A. Fiscal Guidance Track................................................................................ 163 Exhibit PB-3. Reprogramming/Transfers Between Appropriations..................................... 164 Exhibit PB-4. Schedule of Civilian and Military Personnel................................................. 166 Exhibit PB-8. FY 20CY. Supplemental Appropriation Requirements................................ 170 Exhibit PB-10. Additional FY 20BY Budget Estimates....................................................... 172 Major Budget Issue Format..................................................................................................... 174 Exhibit PB-37A. Justification of Supplemental Requirements............................................. 175 Exhibit PB-37R. Budget Amendment Summary.................................................................. 176 1-5 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 Table of Contents (Continued) Exhibit PB-37S. Program and Financing Schedule (Abbreviated)....................................... 177 Exhibit PB-37T. Narrative Justification............................................................................... 178 Exhibit PB-39A-1. Format - Appeal Input (Program Adjustments)..................................... 179 Exhibit PB-39A-2. Format - Appeal Input (Language Items).............................................. 180 Exhibit DD 1587. Record of Congressional Transcript Review........................................... 181 Exhibit DD 1790. Prepared Testimony Review................................................................... 182 HAC QFR................................................................................................................................ 183 HASC QFR.............................................................................................................................. 184 SAC QFR................................................................................................................................. 185 SASC QFR.............................................................................................................................. 186 INSERT - ALL COMMITTEES............................................................................................. 187 1-6 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 CHAPTER 1 GENERAL INFORMATION 1.0 GENERAL POLICIES (0101) 1.1 Purpose (010101) 1.1.1. Volume 2 of the Financial Management Regulation (FMR) provides general guidance on the formulation and submission of the budget requests to the Office of the Secretary of Defense for the program and budget review submission and the presentation and justification of the budget requests to the Congress. This volume is established under the authority of DoD Instruction 7000.14. 1.1.2. Volume 2 is intended as a comprehensive reference book on budget matters of the Department of Defense. Budget policy memoranda issued throughout the year will provide any necessary changes or revisions to this standing document, as well as special instructions and nonrecurring requirements unique to that year’s budget cycle. 1.1.3. The provisions of Volume 2 apply to all military and specified civil functions of the Department of Defense. 1.1.4. An introduction to the total Financial Management Regulation, DoD 7000.14-R can be found in Volume 1. 1.2 Organization (010102) Volume 2B is organized into 19 chapters that provide specific guidance, required budget exhibits and formats along with instructions for their preparation, and automated submission requirements. 1.3 Changes to Volume 2 (010103) 1.3.1. Changes to Volume 2 will be issued biennially, prior to the program and budget review of the initial biennial budget cycle. Pen and ink changes will not be issued. 1.3.2. Generally, significant changes on a page will be indicated by  preceding the paragraph or section containing a change and the changed material will be printed in blue ink. 1.4 Reports Control Symbol (010104) Data requirements established by this volume are exempt from the requirement for assignment of a Report Control Symbol. 1.5 Requests for Exceptions to OMB Circular A-11 (010105) 1.5.1. Each year the Office of Management and Budget (OMB) issues Circular No. A-11, which addresses the preparation and submission of budget estimates for all Federal agencies. 1-7 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.5.2. Federal agencies are allowed to request exceptions to the requirements of Circular A-11 by submitting in writing to OMB all required exceptions by August 1. Exceptions approved by OMB are valid only for 1 year. 1.5.3. Each year the USD(Comptroller) requests certain exceptions to OMB Circular A-11. Generally, these exceptions concern special situations that are unique to the Department of Defense. 1.5.3.1. Subsequent to the issuance of Circular A-11 by OMB each year, any DoD Component requiring an exception to the requirements of Circular A-11 should submit in writing the specific section for which an exception is required and provide adequate rationale to justify the exception. The memorandum addressing the requested exceptions should be submitted directly to the Office of the USD(Comptroller), Program/Budget, Program and Financial Control Directorate (Room 3C689, telephone (703) 697-0021) no later than July 15 of each year. 1.5.3.2. If the requested exception is acceptable to the USD(Comptroller), these proposals will be consolidated and forwarded to OMB for approval. Components will be advised of any exceptions approved by OMB. 1.5.3.3. All DoD Components are required to comply with any requested exceptions not approved and to properly reflect the information in the budget submissions. 1.6 Proposed Changes in Budget Structure and Appropriation Language (010106) 1.6.1. Under the provisions of OMB Circular A-11, the following types of changes must be cleared with OMB: 1.6.1.1. Changes in the appropriation pattern, including proposed new accounts and changes in the titles and sequence of existing accounts. 1.6.1.2. Changes in the methods of funding a program. 1.6.1.3. Changes in program or budget activity classifications for the program and financing schedules for all appropriation accounts and funds. 1.6.2. Any proposed changes on the items listed above must be submitted by memorandum to the Office of the USD(Comptroller) that explains the proposal and the rationale for the changes. If acceptable to the USD(Comptroller), these proposals will be forwarded to OMB for approval. 1.6.3. Proposed changes in the wording of appropriation language should be submitted to the Office of the Deputy General Counsel (Fiscal) (Room 3B688, telephone (703) 697-7228) as soon as possible after the passage of the current year’s appropriations acts. ODGC(Fiscal) will coordinate changes with OMB. 1-8 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.7 Budget Terminology/Definitions (010107) 1.7.1. Standard Government-wide definitions of budget terminology are provided in the Office of Management and Budget’s issuances, most notably Circular A-11 (Section 20). 1.7.2. For the Department of Defense, some of the more common budget concepts applicable to budget formulation follow: 1.7.2.1. Accrual Basis of Accounting. A method of accounting in which revenues are recognized in the period earned and costs are recognized in the period incurred, regardless of when payment is received or made. There have been many initiatives over the years to convert the Federal Budget to an accrual accounting basis. Although the budget is on a cash basis, DoD accounting is on the accrual basis. 1.7.2.2. Advance Procurement. Authority provided in an appropriations act to obligate and disburse during a fiscal year before that in which the related end item is procured. The funds are added to the budget authority for the fiscal year and deducted from the budget authority of the succeeding fiscal year. Used in major acquisition programs for advance procurement of components whose long-lead-times require purchase early in order to reduce the overall procurement lead-time of the major end item. Advance procurement of long lead components is an exception to the DoD “full funding” policy and must be part of the President’s budget request. 1.7.2.3. Appeal. A request for reconsideration of an action taken to adjust, reduce, or delete funding for an item during the congressional review of the Defense budget (authorization and appropriation). This process is discussed in Section 4.6. 1.7.2.4. Apportionment. A distribution by the Office of Management and Budget of amounts available for obligation in appropriation or fund accounts of the Executive Branch. The distribution makes amounts available on the basis of specified time periods, programs, activities, projects, or combinations thereof. The apportionment system is intended to achieve an effective and orderly use of funds. The amounts so apportioned limit the obligations that may be incurred. 1.7.2.5. Appropriations. A provision of legal authority by an act of the Congress that permits Federal agencies to incur obligations and to make payments out of the Treasury for specified purposes. An appropriation usually follows enactment of authorizing legislation. An appropriation act is the most common means of providing budget authority (see Budget Authority). Appropriations do not represent cash actually set aside in the Treasury for purposes specified in the appropriation act; they represent limitations of amounts which agencies may obligate during the time period specified in the respective appropriation acts. 1-9 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.7.2.6. Authorization (Authorizing Legislation). Basic substantive legislation enacted by the Congress which sets up or continues the legal operation of a Federal program or agency either indefinitely or for a specific period of time or sanctions a particular type of obligation or expenditure within a program. Such legislation is normally a prerequisite for subsequent appropriations or other kinds of budget authority to be contained in appropriation acts. It may limit the amount of budget authority to be provided subsequently or may authorize the appropriation of “such sums as may be necessary.” 1.7.2.7. Biennial Budget. The FY 1986 Department of Defense Authorization Act required the submission of two-year budgets for the Department of Defense and related agencies beginning with FY 1988/FY 1989. The Department has fully institutionalized a biennial cycle for the Planning, Programming, Budgeting and Execution (PPBE) Process, including the Strategic Planning Guidance (SPG), the Program Objective Memorandum (POM), Volume 2 of the Financial Management Regulation (FMR) and budget formulation memoranda. A biennial budget, as currently structured, represents program budget estimates for a two-year period in which fiscal year requirements remain separate and distinct. 1.7.2.8. Budget Activity. Categories within each appropriation and fund account which identify the purposes, projects, or types of activities financed by the appropriation or fund. 1.7.2.9. Budget Amendment. A formal request submitted to the Congress by the President, after his formal budget transmittal but prior to completion of appropriation action by the Congress, that revises previous requests, such as the amount of budget authority. 1.7.2.10. Budget Authority. The authority becoming available during the year to enter into obligations that result in immediate or future outlays of Government funds. 1.7.2.11. Budget Deficit. The amount by which the Government’s budget outlays exceed its budget receipts for any given period. Deficits are financed primarily by Treasury borrowing from the public. 1.7.2.12. Budget Receipts. Amounts received by the Federal Government from the public that arise from the exercise of governmental or sovereign power (primarily tax revenues, but also receipts from premiums of compulsory social insurance programs, court fines, license fees, etc.); premiums from voluntary participants in Federal social insurance programs; and gifts and contributions. Excluded from budget receipts are collections resulting from business-type transactions and payments between government accounts as a result of intragovernmental transactions. 1.7.2.13. Change Proposal. Components use this mechanism to revise programs and approved budgets in the second year of the 2-year program and budget cycle, in lieu of submitting a Program Objective Memorandum and a Budget Estimate Submission with complete documentation. A format will be provided with the annual program and budget guidance. See “Two-year Program and Budget Cycle.” 1-10 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.7.2.14. Closed (Canceled) Appropriations. An appropriation that is no longer available for the adjustment or payment of obligations. Appropriation accounts are closed (canceled) after being in the expired status for five years. A Comptroller General opinion has provided the DoD with authority to make disbursement adjustments to closed appropriations to correct errors only. (See Expired Appropriation.) 1.7.2.15. Concurrent Resolution. A resolution passed by both Houses of Congress, but not requiring the signature of the President, setting forth, reaffirming, or revising the congressional budget for the United States Government for a fiscal year. A concurrent resolution on the budget, due by April 15, must be adopted before legislation providing new budget authority, new spending authority, new credit authority or changes in revenues or the public debt limit is considered. Other concurrent resolutions for a fiscal year may be adopted at any time following the first required concurrent resolution for that fiscal year. 1.7.2.16. Constant Dollars. A dollar value adjusted for changes in prices. Constant dollar series are derived by dividing current dollar estimates by appropriate price indices, a process generally known as deflating. The result is a time series as it would presumably exist if prices were the same throughout as in the base year - in other words, as if the dollar had constant purchasing power. Any changes in such a series would reflect only changes in the real (physical) volume of output. Constant dollar figures are commonly used for gross national product and its components. 1.7.2.17. Continuing Resolution. Legislation enacted by the Congress to provide budget authority for specific ongoing activities in cases where the regular fiscal year appropriation for such activities has not been enacted by the beginning of the fiscal year. The continuing resolution usually provides formulas which the agency uses to compute amounts available for continuing programs at minimum levels. Formulas typically include obligation rates of the prior year, the President’s budget request, or an appropriation bill passed by either or both Houses of the Congress. 1.7.2.18. Current Services Estimates. Estimated budget authority and outlays for the upcoming fiscal year based on continuation of existing levels of service, i.e., assuming that all programs and activities will be carried on at the same level as in the fiscal year in progress and without policy changes in such programs and activities. These estimates of budget authority and outlays, accompanied by the underlying economic and programmatic assumptions upon which they are based (such as the rate of inflation, the rate of real economic growth, pay increases, etc.), are required to be transmitted by the President to the Congress. 1.7.2.19. Deferral of Budget Authority. Any action or inaction by any officer or employee of the United States that withholds, delays, or effectively precludes the obligation or expenditure of budgetary resources, including the establishment of reserves under the Antideficiency Act, as amended by the Impoundment and Control Act. Section 1013 of the Impoundment Control Act of 1974 requires a special message from the President to the Congress reporting a proposed deferral of budget authority. Deferrals may not extend beyond the end of the fiscal year in which the message reporting the deferral is transmitted and may be overturned by the passage of an impoundment resolution by either House of Congress. 1-11 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.7.2.20. Disbursements. In budgetary usage, gross disbursements represent the amount of checks issued, cash, or other payments made, less refunds received. Net disbursements represent gross disbursements less income collected and credited to the appropriation or fund account, such as amounts received for goods and services provided. 1.7.2.21. Discretionary Authority. Budgetary resources (except those provided to fund mandatory spending) provided in appropriations acts. 1.7.2.22. Emergency Appropriations. Appropriations that have been designated by the Congress and the President as an emergency requirement under the Balanced Budget and Emergency Deficit Control Act of 1985, as amended. 1.7.2.23. End Strength. In general, strength at the end of a fiscal year. Single point strengths for other points in time must be specified, such as end first-quarter strength. 1.7.2.24. Expenditures/Disbursements. A term generally used interchangeably with outlays (See outlays). 1.7.2.25. Expired Appropriation. An appropriation whose period of availability for incurring new obligations has expired but the appropriation is not closed (canceled). During this period, the appropriation is available for adjustment to, or payment of, existing obligations. Appropriations remain in an expired status for 5-years as shown in the table below. At the end of the five-year expiration period, the appropriation is closed (canceled) and is no longer available for the payment of unliquidated obligations. (See Closed (Canceled) Appropriations.) Normal Life Cycle of Appropriations: Years For Years For Years For New Obligation Closed Obligations Adjust. & End of Approp Unexpired Disburse. Year Expired Canceled MilPers 1 2-6 6 O&M. 1 2-6 6 RDT&E 2 3-7 7 Proc. 3 4-8 8 SCN 5 6-10 *10 Mil. Con. 5 6-10 10 * Extended to 15-years under certain circumstances. 1.7.2.26. Federal Debt. Federal debt consists of public debt and agency debt. Public debt is that portion of the Federal debt incurred when the Treasury Department or Federal Financing Bank (FFB) borrows funds directly from the public or another fund or account. Agency debt is that portion of the Federal debt incurred when a Federal agency authorized by law, other than Treasury or the Federal Financing Bank, borrows funds directly from the public or another fund or account. 1-12 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.7.2.27. Fiscal Year. Any yearly accounting period without regard to its relationship to a calendar year. The fiscal year for the Federal Government begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends. Fiscal years are further designated as follows: Past Year-1: Also referred to as Prior Year-1, the fiscal year immediately preceding the past year Past Year (PY): Also referred to as Prior Year, the fiscal year immediately preceding the current year; the last completed fiscal year. Current Year (CY): The fiscal year in progress. Immediately precedes the budget year. Budget Year (BY): The next fiscal year for which estimates are submitted if not a biennial budget. Budget Year 1 (BY1): In a biennial budget submission (Department of Defense), the first fiscal year of a 2-year period for which the budget is being considered. Budget Year 2 (BY2): In a biennial budget submission (Department of Defense), the second fiscal year of a 2-year period for which the budget is being considered. Budget Year(s)+1 (BY(s)+1): The fiscal year immediately following the budget year(s). This format continues through Budget Year +5 (BY+5), the fifth fiscal year following the budget year(s). * 1.7.2.28. Full Funding Policy. The practice of funding the total cost of major procurement and construction projects in the fiscal year in which they will be initiated. The full funding policy requires the total estimated cost of a complete, military useable end item or construction project funded in the year in which the item is procured. If a future year’s appropriation is required for delivery of an end item, the end item is not fully funded. It prevents funding programs incrementally and provides a disciplined approach for program managers to execute their programs within cost. See Section 2.2 for further information. 1.7.2.29. Full-time Equivalent (FTE). Reflects the total number of regular straight- time hours (i.e., not including overtime or holiday hours) worked by employees divided by the number of compensable hours applicable to each fiscal year. Annual leave, sick leave and compensatory time off and other approved leave categories are considered to be “hours worked” for purposes of defining full-time equivalent employment. 1-13 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.7.2.30. Future Years Defense Program (FYDP). The Future Years Defense Program is the program and financial plan for the Department of Defense as approved by the Secretary of Defense. The FYDP arrays cost data, manpower and force structure over a 6-year period (force structure for an additional 3 years), portraying this data by major force program for DoD internal review for the program and budget review submission. It is also provided to the Congress in conjunction with the President’s budget. 1.7.2.31. Impoundment. Any action or inaction by an officer or employee of the United States that precludes the obligation or expenditure of budget authority provided by the Congress. 1.7.2.32. Impoundment Resolution. A resolution of the House of Representatives or the Senate disapproving a deferral of budget authority set forth in a special message ordinarily transmitted by the President under section 1013 of the Impoundment Control Act of 1974. Passage of an impoundment resolution by either House of Congress has the effect of overturning the deferral and requires that such budget authority be made available for obligation. 1.7.2.33. Incremental Funding. The phasing of total funding of programs or projects over two or more fiscal years based upon levels and timing of obligational requirements for the funds. Differs from full funding concept where total funds for an end item, program or project are provided in the fiscal year of program or project initiation, regardless of the obligational requirement for the funds. 1.7.2.34. Mandatory Authority. (Also known as Entitlement Authority) Authority controlled by laws other than appropriations. 1.7.2.35. Management Initiative Decision (MID). A decision document similar to a Program Budget Decision, but designed to institutionalize management reform decisions. A MID may be issued at any time during the year. The Comptroller will incorporate any funding adjustments into the next President’s Budget. 1.7.2.36. Multiyear Procurement. Procurement of a particular end item or system under a multiyear contract approved by specific provision of law. For the Department of Defense, multiyear procurement contracting of military hardware or systems must generally be specifically, and individually, approved by the Congress (see 10 U.S.C. 2306b(1). 1.7.2.37. Object Classification. A uniform classification identifying the transactions of the Federal Government by the nature of the goods or services purchased without regard to the agency involved or the purpose of the programs for which they are used. 1.7.2.38. Obligations. Binding agreement that will result in outlays immediately or in the future. 1-14 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.7.2.39. Offsetting Collections. Payments to the Government that are credited directly to the expenditure account and deducted from gross budget authority and outlays of the expenditure account. They result from business-type or market oriented activities with the public and intragovernmental transactions with other government accounts (commonly called reimbursable transactions). 1.7.2.40. Outlays. The amount of checks issued or other payments made (including advances to others), net of refunds and reimbursements collected. Outlays are net of amounts that are adjustments to obligational authority. The terms “expenditure” and “net disbursement” are frequently used interchangeably with the term “outlay.” Gross outlays are disbursements and net outlays are disbursements (net of refunds) minus reimbursements collected. 1.7.2.41. President’s Budget. The budget for a particular fiscal year transmitted to the Congress by the President in accordance with the Budget and Accounting Act of 1921, as amended. Some elements of the budget, such as the estimates for the legislative branch and the judiciary, are required to be included without review by the Office of Management and Budget or approval by the President. 1.7.2.42. Program Budget Decision (PBD). A budget decision document issued during the joint review of Service budget submissions by analysts of the Office of the Secretary of Defense (OSD) and the Office of Management and Budget (OMB). PBDs reflect the decisions of the Secretary of Defense as to appropriate program and funding to be included in the annual Defense budget request which, in turn, is included in the President’s Budget. 1.7.2.43. Program Decision Memorandum (PDM). A document containing the decisions by the Secretary of Defense reflecting broad strategic trades related to the program and resource levels identified in the Program Objectives Memorandum. 1.7.2.44. Program Objectives Memorandum (POM). The final product of the programming process within the Department of Defense, the Components Program Objectives Memorandum (POM) displays the resource allocation decisions of the Military Departments in response to and in accordance with Strategic Planning Guidance (SPG) and Joint Programming Guidance (JPG). 1.7.2.45. Program Year. The fiscal year in which authorization was provided and in which funds were appropriated for a particular program, regardless of the fiscal year in which funds for that program might be obligated. 1.7.2.46. Reapportionment. A revision by the Office of Management and Budget of a previous apportionment of budgetary resources for an appropriation or fund account. A revision would ordinarily cover the same period, project, or activity covered in the original apportionment. 1-15 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.7.2.47. Reappropriation. Congressional action to restore the obligational availability, whether for the same or different purposes, of all or part of the unobligated portion of budget authority that has expired or would otherwise expire in an annual or multi-year account. Obligational authority in a current appropriation may also be extended by a subsequent appropriation act. 1.7.2.48. Reconciliation Process. A process used by the Congress to reconcile amounts determined by tax, spending, and debt legislation for a given fiscal year with the ceilings enacted in the second and required concurrent resolution on the budget for that year. Section 310 of the Congressional Budget and Impoundment Control Act of 1974 provides that the second required concurrent resolution on the budget, which sets binding totals for the budget, may direct committees to determine and recommend changes to laws, bills, and resolutions, as required to conform with the binding totals for budget authority, revenues, and the public debt. 1.7.2.49. Recovery of Prior Year Obligations. Amounts made available for obligation in no-year and unexpired multi-year accounts through downward adjustment of prior year obligations. 1.7.2.50. Reimbursable Obligation. Obligation financed by offsetting collections credited to an expenditure account in payment for goods and services provided by that account. See Offsetting Collection. 1.7.2.51. Reprogramming. Utilization of funds in an appropriation account for purposes other than those contemplated at the time of appropriation. Reprogramming is generally accomplished pursuant to consultation with and approval by appropriate congressional committees. Instructions are contained in Volume 3. 1.7.2.52. Rescission. The consequence of enacted legislation which cancels budgetary resources previously provided by the Congress prior to the time when the authority would otherwise lapse. Section 1012 of the Impoundment Control Act of 1974 requires a special message from the President to the Congress reporting any proposed rescission of budgetary resources. These proposals may be accepted in whole or in part through the passage of a rescission bill by both Houses of the Congress. 1.7.2.53. Rescission Bill. A bill or joint resolution that provides for cancellation, in whole or in part, of budgetary resources previously granted by the Congress. Under Section 1012 of the Impoundment Control Act of 1974, unless Congress approves a rescission bill within 45 days of continuous session after receipt of the proposal, the budgetary resources must be made available for obligation. 1.7.2.54. Revolving Fund. A fund established to finance a cycle of operations through amounts received by the fund. Within the Department of Defense, such funds include the Defense Working Capital Fund, as well as other working capital funds. 1-16 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.7.2.55. Sequestration. The reduction or cancellation of new budget authority; unobligated balances, new loan guarantee commitments or limitations; new direct loan obligations, commitments, or limitations; spending authority; and obligation limitations. OMB Circular A-11, section 20 provides additional information on sequestration rules of the Budget Enforcement Act of 1990 (BEA). 1.7.2.56. Supplemental Appropriation. An act appropriating funds in addition to those in an annual appropriation act. Supplemental appropriations provide additional budget authority beyond original estimates for programs or activities (including new programs authorized after the date of the original appropriation act) for which the need for funds is too urgent to be postponed until enactment of the next regular appropriation act. 1.7.2.57. Total Obligational Authority (TOA) Availability. The sum of (1) all budget authority granted (or requested) from the Congress in a given year, (2) amounts authorized to be credited to a specific fund, (3) budget authority transferred from another appropriation, and (4) unobligated balances of budget authority from previous years which remain available for obligation. In practice, this term is used primarily in discussing the Department of Defense budget, and most often refers to TOA as “direct program” which equates to only (1) and (2) above. 1.7.2.58. Transfer Authorities. Annual authorities provided by the Congress via annual appropriations and authorization acts to transfer budget authority from one appropriation or fund account to another. 1.7.2.59. Two-year Program and Budget Cycle. For the budget review, this cycle coincides with the biennial budget process required by law. It is part of the Department’s internal 2-year Planning, Programming, Budgeting, and Execution (PPBE) process. The first year of the cycle includes a full review of the budget for the following two years. Full budget documentation is required. The end result is a budget baseline for the next two years. The second year of the cycle limits changes to the baseline program. It focuses on fact-of-life changes to include congressional action and program execution. Components will request adjustments to the baseline through Change Proposals (CP). However, while the second year of the process will require only limited budget documentation for the internal review, full budget documentation is still required for the President’s budget submission. 1.7.2.60. User Fee. A fee, charge, or assessment levied on those directly benefiting from, or subject to regulation by, a Federal government program or activity, to be utilized solely to support the program or activity. Collections from other Federal accounts are not user fees. (See OMB Circular A-11, section 20.7) 1-17 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.8 Security Classifications (010108) 1.8.1. General 1.8.1.1. Instructions concerning premature disclosure of budget information prior to presentation to the Congress are contained in OMB Circular A-11. 1.8.1.2. Instructions concerning security classification of the program and budget review submissions to OSD are contained in Section 3.5. 1.8.1.3. Paper copies of the P-1 and R-1 exhibits must be submitted by DoD Components with a certification signed by the Security Office confirming that all line items are classified properly. 1.8.1.4. Instructions concerning security classification of congressional justification material are contained in Section 4.1. 1.8.2. Classification of Military Personnel M-1 line items, Operation and Maintenance O-1 line items, Procurement Exhibit P-1 line items, RDT&E Exhibit R-1 line items, and the Construction Programs (C-1): 1.8.2.1. The Military Personnel Programs (M-1) is designed to be an unclassified document. See Section 5.1 for instructions. 1.8.2.2. The Operation and Maintenance Exhibit O-1 line items will be unclassified to the maximum extent possible. Classify only those line items for which the program’s Security Classification Guide so dictates or when conditions in paragraph C. (below) apply. 1.8.2.3. Procurement Exhibit P-1 line items: P-1 line items will be unclassified to the maximum extent possible. Classify only those line items for which the program’s Security Classification Guide so dictates or when conditions in paragraph C. (below) apply. 1.8.2.4. RDT&E Exhibit R-1 line items: R-1 line items will be unclassified to the maximum extent possible. Classify only those line items for which the program’s Security Classification Guide so dictates or when conditions in paragraph C. (below) apply. 1.8.2.5. The Construction Programs (C-1) is designed to be an unclassified document. See Section 5.5 for instructions. 1.8.3. Security classification instructions for Intelligence Programs/Activities Resource Information are contained in Chapter 16. 1-18 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.9 Budget and Performance Integration (010109) 1.9.1. The President’s Management Agenda (PMA) targets the most apparent deficiencies in the government where the opportunity to improve performance is the greatest. The Office of Management and Budget (OMB) developed standards for success in the government-wide Budget and Performance Integration Initiative of the PMA. As a result, the OMB requires federal agencies to use performance measures in managing and justifying program resources. 1.9.2. Components shall use performance measures to justify 100 percent of the resources requested in the Budget Year. The Components shall comply with the performance measure requirements that are included in other chapters. Additionally, OMB has directed the use of the Program Assessment Rating Tool (PART) for some programs. The PART is a diagnostic tool that formalizes performance evaluation. The Components shall comply with PART taskings and suspense dates. For those programs that have been assessed using the PART, the Components shall include OMB’s PART Summary (published in February each year) in congressional budget justification materials, press releases, testimony, and briefings to congressional committee staffs. OMB Circular A-11, section 26 – Summary of Performance Information Requirements, and the OMB PART Web site (www.whitehouse.gov/omb/part), provide additional information about the PART and the PART process. Absent a PART or performance measures prescribed in other chapters, the Components may use existing, or create new, performance measures. 1.10 Combatant Command Business Rules (Joint Task Assignment Process (JTAP)) (010110) 1.10.1. The following business rules will be followed to govern the financial management arrangements between Combatant Command Support Agents (CCSAs) and Combatant Commands (COCOM). The CCSA assignments are as follows: 1.10.1.1. Initial funding for new COCOM missions will be established by OSD. Funding for new missions assigned by the Secretary or Deputy Secretary will be established and provided for by OSD as part of the JTAP process and in conjunction with the Planning, Programming, Budgeting and Execution (PPBE) processes. 1.10.1.2. It is the responsibility of the Combatant Command Support Agent (CCSA) to maintain funding for the directed COCOM missions. 1.10.1.2.1. CCSAs will adjust COCOM accounts across the FYDP consistent with the OSD/OMB approved inflation indices. 1.10.1.2.2. COCOMs will be subjected to a proportionate share (on a percentage basis) of total CCSA reductions from undistributed congressional and/or OSD general reductions. 1-19 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 1.10.1.3. All Service business and efficiency reductions require prior COCOM or OSD approval to ensure they do not impede the conduct of directed missions. CCSAs will pre-coordinate any Service-initiated reductions to COCOM resources with the COCOMs during each phase of the PPBE process for all years in the FYDP, and Service- initiated reductions will not be applied to any COCOM funds without the prior approval of the COCOM or the OSD staff. 1.10.1.4. OUSD(C), PA&E, Joint Staff, Combatant Commands and Combatant Command Support Agents will meet annually to validate, and adjudicate as necessary, all adjustments to COCOM resources. OUSD(C) will review and coordinate CCSA budget exhibits that specifically pertain to COCOM resources with COCOMS prior to approval and publication to ensure that CCSA’s have fully complied with Program Budget Decision or Program Decision Memorandum direction. 1.10.2. Combatant Command Support Agents must ensure adequate visibility of COCOM directed missions and other costs for each O&M funded COCOM. A minimum of two Sub Activity Groups (SAG)s within each Military Department’s active components’ Operation and Maintenance Appropriation will be established as follows: 1.10.2.1. Mission Funding (one or more SAGs); 1.10.2.2. Headquarters (HQ) and Headquarters Support Funding: (single SAG) 1.10.3. Budget and execution structure for USTRANSCOM will continue to follow the normal Working Capital Fund business area structure. 1.10.4. USSOCOM budget structure is not governed by this guidance as USSOCOM resources are already visible in Major Force Program-11 (MPF-11). 2.0 FUNDING POLICIES (0102) 2.1 Criteria for Determining Expense and Investment Costs (010201) 2.1.1. Appropriation accounts form the structure for the President’s budget request and are the basis for congressional action. The appropriations are further organized into budget activities of appropriations with programs, projects or activities of similar purposes. To support management of the Department of Defense’s programs, projects or activities, resource requirements should be organized and categorized consistently within the appropriation and budget activity structure. The following sections provide guidance for categorizing resource requirements into the various appropriations. 1-20 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 2.1.2. Basic Distinctions Between Expense and Investment Costs. The criteria for cost definitions consider the intrinsic or innate qualities of the item such as durability in the case of an investment cost or consumability in the case of an operating cost and the conditional circumstances under which an item is used or the way it is managed. In all cases where the definitions appear to conflict, the conditional circumstances will prevail. The following guidance is provided to determine whether a cost is either an expense or an investment. All costs are classified as either an expense or an investment. 2.1.2.1. Expenses are the costs incurred to operate and maintain the organization, such as personal services, supplies, and utilities. 2.1.2.2. Investments are the costs that result in the acquisition of, or an addition to, end items. These costs benefit future periods and generally are of a long-term character such as real property and personal property. 2.1.3. Policy for Expense and Investment Costs 2.1.3.1. DoD policy requires cost definition criteria that can be used in determining the content of the programs and activities that comprise the Defense budget. The primary reasons for these distinctions are to allow for more informed resource allocation decisions and to establish criteria for determining which costs are appropriate to the various defense appropriations. 2.1.3.2. The cost definition criteria contained in this policy are only applicable to the determination of the appropriation to be used for budgeting and execution. Cost definitions for accounting purposes are contained in Volume 1. 2.1.3.3. Costs budgeted in the Operation and Maintenance (O&M) and Military Personnel appropriations are considered expenses. Costs budgeted in the Procurement and Military Construction appropriations are considered investments. Costs budgeted in the Research, Development, Test and Evaluation (RDT&E), Base Realignment and Closure (BRAC), and Family Housing appropriations include both expenses and investments. Definitions for costs within the Defense Working Capital Funds are provided in Chapter 9 and in Section 2.14. 2.1.3.4. Items procured from the Defense Working Capital Funds will be treated as expenses in all cases except when intended for use in weapon system outfitting, government furnished material (GFM) on new procurement contracts, or for installation as part of a weapon system modification, major reactivation, or major service life extension. 1-21 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 2.1.4. Procedures for Determining Expenses Versus Investments. The following criteria will be used to distinguish those types of costs to be classified as expenses from those to be classified as investments for budgeting purposes: 2.1.4.1. Expenses. Expenses are costs of resources consumed in operating and maintaining the Department of Defense. When costs generally considered as expenses are included in the production or construction of an investment item, they shall be classified as investment costs. Military personnel costs are an exception to this rule. The following guidelines shall be used to determine expense costs: 2.1.4.1.1. Labor of civilian, military, or contractor personnel. 2.1.4.1.2. Rental charges for equipment and facilities. 2.1.4.1.3. Food, clothing, and fuel. 2.1.4.1.4. Supplies and materials designated for supply management of the Defense Working Capital Funds. 2.1.4.1.5. Maintenance, repair, overhaul, rework of equipment. 2.1.4.1.6. Assemblies, spares and repair parts, and other items of equipment that are not designated for centralized item management and asset control and which have a system unit cost less than the currently approved dollar threshold of $250,000 for expense and investment determinations. This criterion is applied on the basis of the unit cost of a complete system rather than on individual items of equipment or components that, when aggregated, become a system. The concept of a system must be considered in evaluating the procurement of an individual end item. A system is comprised of a number of components that are part of and function within the context of a whole to satisfy a documented requirement. In this case, system unit cost applies to the aggregate cost of all components being acquired as a new system. 2.1.4.1.7. Cost of incidental material and items that are not known until the end item is being modified are conditional requirements and are considered expenses because the material is needed to sustain or repair the end item. 2.1.4.1.8. Engineering efforts to determine what a modification will ultimately be or to determine how to satisfy a deficiency are expenses. 2.1.4.1.9. Facilities sustainment, O&M-funded restoration and modernization projects. Planning and design costs are excluded from the cost determination for purposes of determining compliance with the amounts established in 10 U.S.C. 2805 for minor construction projects; however, design costs are not excluded from capitalization. 1-22 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 2.1.4.2. Investments. Investments are costs to acquire capital assets such as real property and equipment. The following criteria shall be used to determine those costs to be classified as investments: 2.1.4.2.1. All items of equipment, including assemblies, ammunition and explosives, modification kits (the components of which are known at the outset of the modification), spares and repair parts not managed by the Defense Working Capital Funds, that are subject to centralized item management and asset control. 2.1.4.2.2. All equipment items that are not subject to centralized item management and asset control and have a system unit cost equal to or greater than the currently approved expense and investment dollar threshold of $250,000 (for working capital funds investment criteria see Volume 2B, Chapter 9, Section 090103C). The validated requirement may not be fragmented or acquired in a piecemeal fashion in order to circumvent the expense and investment criteria policy. 2.1.4.2.3. Construction, including the cost of land and rights therein (other than leasehold). Construction includes real property equipment installed and made an integral part of such facilities, related site preparation, and other land improvements. (See paragraph 2.1.4.2.6 below for special guidance concerning real property facilities.) 2.1.4.2.4. The costs of modification kits, assemblies, equipment, and material for modernization programs, ship conversions, major reactivations, major remanufacture programs, major service life extension programs, and the labor associated with incorporating these efforts into or as part of the end item are considered investments. All items included in the modification kit are considered investment even though some of the individual items may otherwise be considered as an expense. Components that were not part of the modification content at the outset and which are subsequently needed for repair are expenses. The cost of labor for the installation of modification kits and assemblies is an investment. 2.1.4.2.5. Supply management items of the Defense Working Capital Funds designated for weapon system outfitting, government-furnished material on new procurement contracts, or for installation as part of a weapon system modification or modernization, major reactivation or major service life extension. 2.1.4.2.6. Also considered as investments are support elements such as data, factory training, support equipment and interim contractor support (ICS), which are required to support the procurement of a new weapon system or modification. 2.1.4.3. Conditional Cases. The following are conditional cases that take precedence over the criteria contained in paragraphs 2.1.4.1 and 2.1.4.2 above: 2.1.4.3.1. A major service-life extension program, financed in procurement, extends the life of a weapon system beyond its designed service life through large-scale redesign or other alteration of the weapon system. 1-23 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 2.1.4.3.2. Depot and field level maintenance is the routine, recurring effort conducted to sustain the operational availability of an end item. Depot and field level maintenance includes refurbishment and overhaul of end items, removal and replacement of secondary items and components, as well as repair and remanufacturing of reparable components. The maintenance effort may be performed by a depot maintenance activity in the Defense Working Capital Fund, by a direct funded DoD activity, by another government agency, or by a contractor. 2.1.4.3.3. Maintenance, repair, overhaul, and rework of equipment are funded in the operation and maintenance appropriations. However, maintenance of equipment used exclusively for research, development, test, and evaluation efforts will be funded by the RDT&E appropriations. Continuous technology refreshment is the intentional, incremental insertion of newer technology to improve reliability, improve maintainability, reduce cost, and/or add minor performance enhancement, typically in conjunction with depot or field level maintenance. The insertion of such technology into end items as part of maintenance is funded by the operation and maintenance appropriations. However, technology refreshment that significantly changes the performance envelope of the end item is considered a modification and, therefore, an investment (See section on “Product Improvement” 2.13.3.7). This definition applies equally to technology insertion by commercial firms as part of contractor logistics support, prime vendor, and similar arrangements and to technology insertion that is performed internally by the Department. 2.1.4.3.4. Initial outfitting of an end item of investment equipment, such as a ship or aircraft, with the furnishings, fixtures, and equipment necessary to make it complete and ready to operate is a part of the initial investment cost. Material procured through the Defense Working Capital Funds for initial outfitting will be financed by procurement appropriations when drawn from the supply system. This concept includes changes to the allowance lists of ships, vehicles, and other equipment. Changes to allowance lists will be budgeted as investment costs. Procurement appropriations are not required to satisfy initial outfitting requirements if assets are available for issue through reuse/redistribution programs, such as the Navy's Consumable Asset Reutilization Program. 2.1.4.3.5. Initial outfitting of a facility construction project financed by a Military Construction appropriation is financed as either expense or investment based on the general criteria. Collateral equipment and furnishings are not considered construction costs since these items are movable and are not installed as an integral part of the facility. 2.1.4.3.6. When family housing is initially outfitted with kitchen equipment to include refrigerator, shades, carpeting, etc., these items are considered part of the construction costs. 2.1.4.3.7. Construction program costs, associated with construction management in general, as distinguished from supervision of specific construction projects, are expenses. Costs incident to the acquisition (i.e., design, direct engineering, technical specifications) and construction of a specific project are investments. The cost of administering the facilities sustainment program is an expense at all levels. 1-24 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 2.1.4.3.8. Costs of facilities restoration and modernization projects, not financed by Military Construction appropriations, meeting the current criterion for funding from appropriations available for operation and maintenance are considered expenses. However, this definition does not abrogate the prohibition against the planned acquisition of, or improvements to, a real property facility through a series of minor construction projects (i.e., incremental construction). 2.1.4.3.9. The cost of civilian personnel compensation and other direct costs (i.e., travel, office equipment leasing, maintenance, printing and reproduction) incurred in support of procurement and/or production programs by departmental headquarters staff, contracting offices, contract audit offices, system project offices, and acquisition managers are expenses. Procurement and/or production direct support costs such as production testing, quality assurance, production engineering, and equipment assembly, whether performed under contract or by in-house personnel funded on a reimbursable basis are investments. 2.1.4.3.10. When investment equipment is to be installed in a real property facility, the costs of both the equipment and its installation are considered investments. 2.1.5. Special Guidance Concerning Real Property Facilities 2.1.5.1. Construction includes real property equipment (often called installed equipment) which is affixed and built into a facility as an integral part of a facility. The cost of this equipment and its installation is part of the construction cost. 2.1.5.2. Items of equipment that are movable in nature and not affixed as an integral part of a facility are not normally considered construction costs, except for initial outfitting of family housing, as detailed in paragraph D3 above. This equipment includes all types of production, processing, technical, information systems, communications, training, servicing and RDT&E equipment. The cost of this equipment is an expense or an investment according to the policy criteria above. In addition, modifications to an existing facility required to support the installation of movable equipment, such as the installation of false floors or platforms, prefabricated clean rooms, or utilities, will be considered an integral part of the equipment costs. As such, the costs are either expense or investment, as long as the modifications do not include structural changes to the building. If the modifications include structural changes, they will be considered investment costs and budgeted as construction. 1-25 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 2.1.6. Expense/Investment Cost Determination Expense/Investment Cost Determination Is the item a If Then If Then If Then Centrally Yes Is the item Yes Is the item part of Yes Classify as Managed/Asset purchased from a full funding Investment Controlled DWCF? effort? * Item? Centrally Yes Is the item Yes Is the item part of No Classify as Managed/Asset purchased from a full funding Expense Controlled DWCF? effort? * Item? Centrally Yes Is the item No Classify as Blank Blank Managed/Asset purchased from Investment Controlled DWCF? Item? Centrally No Is the unit cost Yes Classify as Blank Blank Managed/Asset more than Investment Controlled $250,000? Item? Centrally No Is the unit cost No Classify as Blank Blank Managed/Asset more than Expense Controlled $250,000? Item? * When intended for use in weapon system outfitting, government furnished material on new procurement contracts or for installation as part of a weapon as part of a weapon system modification, major reactivation or major service life extension. *2.2 Full Funding of Procurement Programs (010202) 2.2.1. General. A budgeting rule that requires the total estimated cost of a, military useable end item, be funded in the fiscal year in which the item is procured. Under the full funding policy, the entire procurement cost of a weapon or piece of military equipment is to be funded in the year in which the item is budgeted. An end item budgeted in a fiscal year cannot depend upon a future years funding to complete the procurement. Regulations governing the full funding policy are found in Office of Management and Budget (OMB) Circular A-11 and DoD Directive 7000.14-R. 2.2.1.1. The full funding policy is intended to prevent the use of incremental funding, under which the cost of a weapon system is divided into two or more annual portions or increments. Thus, full funding provides disciplined approach for program managers to execute their programs within cost and available funding. 2.2.1.2. There are two general exceptions to the full funding policy: one permits the use of Advance Procurement (AP) funding for components or parts of an item that have long production lead times; the other permits advance procurement funding for economic order quantity (EOQ) procurement, which normally occurs in programs that have been approved for multiyear 1-26 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 procurements (MYP). Advance Procurement funding is used routinely and extensively in the procurement of components for major end items due to manufacturing and production lead times. The use of MYP has to be approved by the Congress on a program-by-program basis. Congressional approval permits DoD to use a single contract to procure multiple copies of a given item that are scheduled to be procured across a series of years. MYP arrangements are governed by 10 USC 2306(b). EOQ procurement involves procuring multiple copies of a key component of a weapon covered by an MYP at the start of the MYP period in order to achieve significantly reduced costs on that component. 2.2.2. Policy for Full Funding. The total estimated cost of a complete, military useable end item or construction project must be fully funded in the year it is procured. There are 2 basic policies concerning full funding. 2.2.2.1. To provide funds in the budget for the total estimated cost of a complete, military usable end item to document the dimensions and cost of a program. 2.2.2.2. Exceptions to this policy are advance procurement for long lead-time items and advance economic order quantity (EOQ) procurement. EOQ may be used only in connection with multiyear procurements. Both efforts must be identified in an Exhibit P-10, Advance Procurement, for the Budget Estimate Submission and the President’s Budget request. 2.2.3. Procedures for Full Funding 2.2.3.1. Cost Estimates. Full funding applies to an initial estimate and can exist only at a point in time because estimates change. However, the Future Years Defense Program (FYDP) shall be a consistently reliable foundation for stating the total cost of acquiring defense systems. Thus, the FYDP shall reflect a DoD Component’s best estimate at completion of the program. The estimate should reflect the most likely cost of a procurement. Program estimates shall be kept current and fully financed through the Planning, Programming, Budgeting and Execution (PPBE) System process and established reprogramming procedures. 2.2.3.2. Time-Phased Procurement. Within defense system acquisition programs, nonrecurring costs and costs of certain production items related to, but not integral to, the end item of equipment are considered part of the overall acquisition cost. DoD Components shall plan and budget in a manner to ensure completion of the nonrecurring effort or delivery of such production items consistent with the planned delivery of the associated end items. That is, the programming and budgeting shall be on a time-phased "lead-time away" or "need to commit" basis. The Funded Delivery Period is part of the process to determine the quantities required to be budgeted in a particular fiscal year. DoD Components may not budget funds for obligation for items such as support, trainers, or data before the design or specifications of such items are essentially complete. These items shall be budgeted on an "ability to contract" basis as well as on a "lead-time away" basis. 2.2.3.3. Advance Procurement (Long Lead-time Items). Advance procurement requests for long lead-time items shall be limited to the end items in major procurement appropriations. Long lead-time procurements shall be for components, parts, and material whose 1-27 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 lead-times are greater than the life of the appropriation (3-5 years). In some circumstances, Advance Procurement is also warranted when items have significantly longer lead-times than other components, parts, and material of the same end item or when efforts must be funded in an advance procurement timeframe in order to maintain a planned production schedule. For new development programs, the planned production schedule should be based on a full funding basis without the use of long lead material. Planning the program content this way provides additional flexibility should development delays arise. When advance procurement is part of the program, however, the cost of components, material, parts, and effort budgeted for advance procurement shall be relatively low compared to the remaining portion of the cost of the end item. Each budget request for advance procurement shall represent, at a minimum, the termination liability associated with the total cost of the long lead-time components, material, parts, and effort for which the advance procurement request is being made. The termination liability should not cover the cost of the end item budgeted in the following fiscal year(s). The full cost of components, material, parts, and effort included in the advance procurement request should be budgeted in the FYDP consistent with full funding procedures. The budget requests will properly debit and credit advance procurement budget requests as defined in Exhibits P-1, P-5, P-10 and P-40 instructions. 2.2.3.4. Economic Order Quantity (EOQ) Procurement. EOQ may be used only in connection with multiyear procurement. It is the general policy of the Department of Defense not to create unfunded contract liabilities for EOQ procurements. Rather, funding for EOQ procurements shall be included in advance procurement budget requests unless an exception to the general policy is granted by the USD(Comptroller). The EOQ procurement may satisfy procurement requirements for no more than the number of program years covered by the multiyear procurement contract. Unless it would be more effective to fully fund the EOQ, or the USD(Comptroller) has granted an exception to the general policy to allow inclusion of EOQ costs in a cancellation clause, the advance procurement funding for an EOQ procurement shall cover, at a minimum, the estimated termination liability of the EOQ procurement. 2.2.3.5. Relationship of Budgeting and Contracting. An end item is fully funded only when funds are budgeted, programmed and available to cover the total estimated cost of the item at the time the procurement action is begun. Contracting, on the other hand, is a part of the execution phase or acquisition process within the framework of a program. The number of contracts required to procure a defense system, the type of contract awarded, and the timing of the award have no bearing upon whether or not an item is fully funded. In executing a program, no procurement of material or equipment, or work or services, therefore, shall be directed or implemented unless the full program amount is available, except for authorized economical order quantity (EOQ) and advance procurement. Similarly, the value of existing contracts for the procurement of material or equipment shall not be increased (through contract modifications) unless the funds are available to fully fund the new contract price. Limitations of funds clauses shall not be used as a mean of avoiding the requirement to fully fund procurement programs. (Note that this guidance does not affect the proper use of limitations of funds clauses in incrementally funded development contracts.) For multiyear contracts, the test of full funding does not include the cancellation ceiling associated with items in the FYDP to be procured in fiscal years not yet funded (that is, beyond the budget year). Multiyear contracts may not be awarded unless the contract and the multiyear program are fully funded within the approved FYDP funding. 1-28 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 2.3 Multiyear Procurement (010203) 2.3.1. Multiyear procurement (MYP). This is a generic term describing the process, planning, and contract under which the government may contract for the purchase of supplies or services for more than one, but not more than five, program years. Such a contract may provide that performance during the second and subsequent years of the contract is contingent upon the appropriation of funds, and may provide for a cancellation payment to be made to the contractor if such appropriations are not made. Multiyear procurements are budgeted and funded annually. 2.3.2. Statutory Requirements. Section 2306b of title 10 of the United States Code and section 8008 of the annual DoD Appropriations Act, require that approval, initiation, and execution of a multiyear contract follow certain guidelines. 2.3.2.1. MYP approval is predicated on: 2.3.2.1.1. Substantial Savings. The use of a multiyear contract will result in substantial savings of the total anticipated costs of carrying out the program through annual contracts. 2.3.2.1.2. Stability of Requirement. The minimum need for the property to be purchased is expected to remain substantially unchanged during the contemplated contract period in terms of production rate, procurement rate, and total quantities. 2.3.2.1.3. Stability of Funding. There is a reasonable expectation that throughout the contemplated contract period, the head of the agency will request funding for the contract at the level required to avoid contract cancellation. 2.3.2.1.4. Stable Design. There is a stable design for the property to be acquired and the technical risks associated with such property are not excessive. 2.3.2.1.5. Realistic Cost Estimates. The estimates of the cost of the contract and the anticipated cost avoidance through the use of a multiyear contract are realistic. 2.3.2.1.6. National Security. Use of a multiyear contract will promote the national security of the United States. 2.3.2.2. In addition to the approval criteria, Congress requires that: 2.3.2.2.1. MYP contracts cannot be initiated for any system or component thereof if the value of the MYP contract would exceed $500.0 million unless specifically provided for in an Appropriations Act and an Act other than an Appropriations Act. 2.3.2.2.2. Proposed legislation and funding must accompany the MYP request in the President's budget submission; or the MYP request must be formally submitted as a budget amendment. 1-29 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 2.3.2.2.3. Funds appropriated for the purchase of an end item under a multi-year contract may only be used for a complete and usable end item. 2.3.2.2.4. Funds appropriated for advanced procurement under a multi-year contract may only be used to fund the long lead items necessary for a complete and usable end item planned and budgeted for a subsequent fiscal year. Advanced procurement funds may also be used for economic order quantity procurements in connection with a multi-year contract when authorized by law. 2.3.2.2.5. Congressional defense committees must be notified at least 30 days in advance of a proposed contract award that: employs economic order quantity procurements in excess of $20.0 million in any one year of the contract; employs advance procurement leading to a multi-year procurement contract that employs economic order quantity procurement in excess of $20.0 million in any one year; or includes an unfunded contingent liability in excess of $20.0 million. 2.3.2.2.6. A multi-year procurement contract cannot be initiated for which the economic order quantity advance procurement is not funded at least to the limits of the government’s liability. 2.3.2.2.7. A multi-year procurement contract must provide for production at not less than the minimum economic rate given the existing tooling and facilities. 2.3.2.2.8. A present value analysis must be used to determine the present value, or real worth, of the multi-year savings. Comparing the multi-year contracting approach to a conventional annual-buy approach derives the savings (see section 8008 for additional (new) requirements. 2.3.2.2.9. The Secretary of Defense must certify to the Congress that the support costs associated with the multiyear procurement with a value greater than $500 million are fully funded within the Future Years Defense Program (FYDP). The Secretary of Defense in a March 23, 1998 memorandum delegated this certification to the USD Comptroller. Components must submit the certification letter to the USD Comptroller at least 30 days prior to the anticipated contract award for approval, signature, and transmittal to the congressional defense committees. 2.3.2.2.10. Multi-year procurement contracts may provide for cancellation provisions to the extent that such provisions are necessary and in the best interests of the United States. The cancellation provisions may include consideration of both recurring and nonrecurring costs of the contractor associated with the production of the items to be delivered under the contract, but may not include recurring costs associated with unfunded units. The Agency Head and the USD(C) must approve the inclusion of recurring costs in a cancellation ceiling (see paragraph 2.2.3 below). 2.3.2.2.11. Before any multiyear procurement contract that contains a clause setting forth a cancellation ceiling in excess of $100.0 million may be awarded, the head of the agency concerned shall give written notification of the proposed contract and of the proposed 1-30 DoD 7000.14-R 2B Financial Management Regulation Volume 2A, Chapter 1 *October 2008 cancellation ceiling for that contract to the congressional defense committees. The contract may not be awarded until the end of a 30-day waiting period beginning on the date of such notification. 2.3.2.2.11.l. MYP contracts cannot be terminated without a 10-day prior notification to the congressional defense committees. 2.3.3. DoD Requirements. 2.3.3.1. The item should be technically mature, normally having completed RDT&E (including development testing, or equivalent) and Initial Operational, Test and Evaluation (IOT&E), with relatively few changes in item design anticipated. Deliveries of production items will indicate that the underlying technology is stable. This does not mean that changes will not occur but that the estimated cost of such changes is not anticipated to drive total costs beyond the proposed funding profile. 2.3.3.2. Estimat