Comptroller Fiscal Year Memo Letter Head

To:                   Chief Fiscal Officers 

From:               Martin J. Benison, Comptroller 

Date:                December 5, 2012 

Re:                   CONTRACT REDUCTION PLAN RECOMMENDATIONS

Comptroller Memo FY#2013-12

Executive Summary

Due to announced 9C reductions to Fiscal Year 2013 budgetary accounts, most Departments are evaluating the impact and considering adjustments to previously executed contracts.  This memo provides Departments with the procedures for suspending, amending or terminating contract actions that will be necessary to stay within their authorized spending limits. Departments may not request or accept performance or otherwise incur obligation in excess of Department appropriations and allotments (M.G.L. c. 29, §26 and §27).


On December 4, 2012 the Governor authorized emergency spending reductions to appropriations.  Attached is CTR guidance which outlines recommendations for suspending, terminating or amending contracts to meet the 9C reductions.  Departments should consult with their Legal Staff prior to implementing any action to terminate or reduce a contract due to budget reductions.

Contract amendments should be made using the Standard Contract Form, Interdepartmental Service Agreement (ISA) Form (or other appropriate amendment forms for construction, leases, etc.), attaching the details of the amendment (date change, change in scope, costs, etc.).  The Department may provide a proposed adjusted scope of services and budget or enable the Contractor to propose these adjustments.  The Amendment Form must be executed by both parties contemporaneously with the need for the amendment (and in time to enable the Department to manage within its appropriations).

In the majority of cases, amendments are mutually agreed to by both parties.  However, when faced with budget or allotment cuts, Departments may be faced with situations in which, even after diligent efforts to negotiate an amendment, a Contractor refuses to agree to a contract amendment reducing the contract performance and maximum obligation of a contract.  In addition due to these reductions, some Departments may have no choice but to immediately terminate or suspend existing contracts.  In these instances, Departments may not allow Contractors to incur obligations in excess of the Department’s appropriations or allotments.  Under these limited circumstances, the attached Notice of Amendment operated as an automatic reduction to enable the Department to modify its existing MMARS contract encumbrances.

A notice of contract suspension or termination must be reasonable, depending upon the complexity of the contract, in accordance with any notice provisions agreed to as part of the contract (e.g., Human Service Contracts require a longer notice period).  The notice must also identify the authorized performance and maximum amount of costs which may be incurred prior to the termination or suspension date.  For all notices, Departments must document a Contractor’s actual receipt of the notice.

A contract termination is a permanent cancellation of the contract and should be used only in situations when the Department does not foresee continuing business with a Contractor.  A contract suspension is appropriate for multi-fiscal year contracts requiring a temporary halt to performance (for a period of days, weeks, months, on a certain date or upon completion of a specific amount of performance) with anticipated continued performance at a future date.  For contract suspensions, the notice of suspension should identify whether the amount of the reduction for the period of the suspension will be deducted from the overall maximum obligation of the Contract or moved into subsequent fiscal years of the Contract.

In all situations, Departments are obligated to demonstrate good faith and fair dealing in all contract actions.  Therefore, justifications for business decisions related to 9C contract reductions should be documented to support rationale for decisions.

Full guidance is offered through the document “Policy Guidance for Contract Reductions in Response to M.G.L. c. 29, s. 9C Reductions (included as Attachment in the Amendments, Suspensions and Termination Policy)”.

If you have any questions on this process, please contact Michael Weld Eyob at (617) 973-2310, Donna Roux at (617) 973-2314, or Jenny Hedderman at (617) 973-2656.

cc:           
MMARS Liaisons
Legal Counsels
Payroll Directors
Internal Distribution

Attachments: 

Policy Guidance for Contract Reductions in Response to M.G.L. c. 29, s. 9C Reductions (Included as Attachment in the Amendments, Suspensions and Termination Policy)

Policy Guidance Chart