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With regard to existing alternatives to limiting service contracts to 1 year in duration, other than the inclusion in service contracts of appropriate option provisions, we are unable to suggest any alternatives under present laws.
We trust that the above information will be of assistance to you and your Committee. Sincerely yours,
ROBERT F. KELLER,
Acting Comptroller General of the United States, Enclosure 1.
COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, D.O., November 30, 1962. The Honorable SECRETARY OF THE AIR FORCE.
DEAR MR. SECRETARY: Reference is made to letter of March 30, 1962, from the Assistant Secretary, replying to our letter of February 7, 1962, questioning the authority for committing the Government to a contract for services and supplies incident to landings of Government aircraft at Wake Island for a period extending beyond the end of the fiscal year for which the appropriation was made.
The contract was awarded to Facilities Management Corporation for the estimated amount of $6,185,599.32, under Invitation for Bids No. 04-687-62-1, issued October 9, 1961, by the Western Transport Air Force (MATS). It obligates the contractor to furnish for a term of three years beginning January 1, 1962, through December 31, 1964, all labor, equipment, materials and supplies for servicing of such aircraft, when required, for billeting of military and civilian Government personnel, passenger and crews, and for performing a number of other related services of Air Base management on the island. The contractor commenced performance on January 1, 1962, as required by the terms of the contract and we understand that the applicable annual appropriation provided for "Operation and Maintenance, Department of the Air Force" will be charged with the services and supplies to be furnished thereunder.
In our letter we questioned the authority of the Air Force to enter into the contract extending beyond the single fiscal year period of availability of the appropriation involved and covering a period of three fiscal years citing 41 U.S.C. 11 which provides, in effect, that contracts cannot be entered into whieh will continue as binding obligations beyond the lifetime of the appropriation under which they are made. In the reply, it is stated that the contract is classed as a requirements contract of the type authorized for use in the military departments by ASPR 3405.5(b) [now 3-409(b)]. That is, the contractor has agreed to furnish, on order, the Government's requirements for supplies and services of the type specified in the schedule of the contract. The Air Force believes, for reasons hereinafter stated, that this form of contract is most appropriate for use in the circumstances of this procurement and that it complies with the terms of 31 U.S.C. 665 (a) and 41 U.S.C. 11.
In explanation of the matter, it is stated in the letter as follows: 6* * * In paragraph 27 of the General Provisions, the contract provides:
“ 'ESTIMATED REQUIREMENTS “(a) The quantities of supplies and services which the Government estimates that the Government will require at Wake Island per month during the period covered by this contract are set forth under Paragraph II. 1. of the Schedule. These quantities are estimated only and are not purchased hereby.
"'(b) The Government agrees to call on the Contractor for all requirements for such supplies and services of the Government activity designated in Paragraph (a) above. The Contractor agrees to furnish such supplies and services when called for by the Government.
"'(c) In the event that the requirements of the Government activity named in Paragraph (a) above do not materialize in the estimated quantities specified in Paragraph II. 1. of the Schedule, such failure shall not constitute grounds for equitable adjustment under this contract.'
“See also Schedule clause N. 1. :
“'ORDERS AND PAYMENT “ '1. The Contracting Officer shall issue orders for services hereunder which shall set forth the services to be performed during the period covered by the
order. The Contractor shall not perform services in excess of the amount set forth in each order.'
"Under this language, the only obligation of the Government is to order from the contractor such requirements as the Government may have that is, not to deal with another for the filling of the Government's requirements. The Government need not have requirements. Such a situation might occur if no funds were made available to the Air Force for this type of service; it might occur if the Air Force determined that the services were unnecessary for operational or other reasons; it might occur even if the Air Force had funds available for this type of service but chose not to expend them for the services covered by this contract at this base, so long as the Air Force acted in good faith in making such a decision and did not attempt to eliminate the requirement for services from this contractor just for the purpose of obtaining substantially the same services from another company.
"As indicated above, the Government does have an obligation under this contract, and this obligation is sufficient to meet the essential mutuality requirement for the existence of a contract. But the obligation is limited; it is a negative one, that the Government will not deal with another. It does not obligate the Government to procure from the contractor. This commitment can be satisfied without the expenditure of funds and thus needs no appropriation. It obligates no appropriation. Such commitments have not been construed as requiring or permitting the recording of an obligation under Section 1311, P.L. 663, 83rd Congress, 31 U.S.C. 200, until an order under the contract is issued. * * *"
"In the specific case of the contract for services at Wake Island, we are satisfied that the proper facts are present. The extremely isolated position of the facility to be operated, the difficult procurement and logistics problems thereby posed for the contractor in terms of equipment, supplies, and personnel, and the difficulties of transition of the work from one contractor to another, leading to losses in performance and money for both the contractor and the Government, weigh heavily for an extended term contract. Each new contractor must expect and provide for the amortization of substantial starting-load and learning costs, more appropriately distributed over a period longer than one year. Under a rigid one year contract system, a successful bidder in one year may be expected to amortize such costs in full in the first year; on subsequent procurements, the in-place contractor has a substantial cost advantage over the bidder who must provide anew for such costs, and little of this cost advantage may be expected to accrue to the Government."
Summarized, it is the Department's position that the contract does not obligate any funds, either for the current fiscal year or for future fiscal years; that such funds are not obligated, within the meaning of that term as defined in section 1311 of the Supplemental Appropriation Act, 1955, 68 Stat. 800, 830, 31 U.S.C. 200, unless and until orders are issued to the contractor for the furnishing of services and supplies; and that the contract does not commit the Government to accept from the contractor any services or supplies for a period beyond the current fiscal year. It is contended that the sole obligation of the Air Force under the contract is limited to ordering its requirements from the contractor, that is, not to purchase such requirements elsewhere. In further support of the contract there are cited certain decisions of the General Accounting Office as a basis for extending the contract involved beyond the availability of fiscal year appropriations. And, the view is expressed that the Department does not regard the limits placed on the use of appropriated funds in 31 U.S.C. 665 and 41 id. 11, to apply to requirements contracts in such a way as to impede the use of this form of contract for periods in excess of a year and covering more than one fiscal year.
Consideration of the propriety of the contract in question necessarily involves the provisions of sections 3732 and 3679, Revised Statutes, as amended, and section 1 of the act of July 6, 1949, derived from section 3690, Revised Statutes, codified as 41 U.S.C. 11, 31 id. 665 (a); id. 712a, respectively, in pertinent part as follows:
"No contract or purchase on behalf of the United States shall be made, unless the same is authorized by law or is under an appropriation adequate to its fulfillment ***
“No officer or employee of the United States shall make or authorize an expenditure from or create or authorize an obligation under any appropriation
or fund in excess of the amount available therein ; nor shall any such officer or employee involve the Government in any contract or other obligation, for the payment of money for any purpose, in advance of appropriations made for such purpose, unless such contract or obligation is authorized by law.
“Except as otherwise provided by law, all balances of appropriations contained in the annual appropriation bills and made specifically for the service of any fiscal year shall only be applied to the payment of expenses properly incurred during that year, or to the fulfillment of contracts properly made within that year.”
These statutes evidence a plain intent on the part of the Congress to prohibit executive officers, unless otherwise authorized by law, from making contracts involving the Government in obligations for expenditures or liabilities beyond those contemplated and authorized for the period of availability of and within the amount of the appropriation under which they are made; to keep all the departments of the Government, in the matter of incurring obligations for expenditures, within the limits and purposes of appropriations annually provided for conducting their lawful functions, and to prohibit any officer or employee of the Government from involving the Government in any contract or other obligation for the payment of money for any purpose, in advance of appropriations made for such purpose ; and to restrict the use of annual appropriations to expenditures required for the service of the particular fiscal year for which they are made.
In 21 Op. Atty. Gen. 244, 248, the Attorney General pointed out that the object of these statutes was to prevent executive officers from involving the Government in expenditures or liabilities beyond those contemplated and authorized by the law-making power. In Wilder v. United States, 16 Ct. Cl. 528, 543, the Court of Claims said that these statutes restrict in every possible way the expenditures, expenses, and liabilities of the Government, so far as executive officers are concerned, to the specific appropriation for each fiscal year. In Parshall v. United States, 147 Fed. 433, 435, the Circuit Court of Appeals for the Eighth Circuit, citing sections 3678 and 3679, Revised Statutes, stated it to be “the settled and recognized policy of Congress to keep all the departments of the Government, in the matter of incurring obligations for expenditures, within the appropriations annually made for conducting its affairs." See also, Sutton v. United States, 256 U.S. 575 ; Leiter v. United States, 271 U.S. 204; Goodyear Co. v. United States, 276 U.S. 287; Gay Street Corporation of Baltimore, Maryland v. United States, 130 Ct. Cl. 341, 347.
Here, the contract involves the furnishing of labor, superintendence, transportation, equipment, material, and supplies for the performance of nonpersonal services incident to the operation and maintenance of an air base at Wake Island in support of MATS and other Government aircraft and personnel during the period January 1, 1962, through December 31, 1964. By the terms of the agreement, the contractor guaranteed to the Air Force, among other things, that it has assigned at Wake Island a qualified and competent work force of approximately a minimum of 400 specified positions to perform the services required under the contract. A part of the consideration for the contract is certain unit rates to be paid by the Air Force for the various services furnished certain of which are measured by the volume of operations. Such payments, it is stated, are made contingent upon the issuance of orders to the contractor for services and supplies as “called for” by the Air Force.
The authority to make the contract under consideration is derived from the appropriation “Operation and Maintenance, Air Force" contained in the Department of Defense Appropriation Act, 1962, Public Law 87-144, approved August 17, 1961, 75 Stat. 365, 369. This appropriation is made available in general terms for necessary expenses for, among other things, the operation, maintenance, and administration of the Air Force during the fiscal year 1962. In applying the quoted statutes dealing with Government contracting, the decisions of the courts and the accounting officers have consistently held that contracts executed and supported under authority of fiscal year appropriations can only be made within the period of their obligation availability and must concern a bona fide need arising within such fiscal year availability. See 32 Comp. Gen. 565; 36 id. 683; 37 id. 60; id. 155. Also, such decisions hold that contracts entered into under fiscal year appropriations purporting to bind the Government beyond the fiscal year involved, must be construed as binding upon the Government only to the end of the fiscal year; and even where the contract contains an option in the Government to renew from year to year to the end of the stated term contingent upon the availability of future available appropriations, affirmative action, in effect making a new contract and complying with the advertising requirements, is required in order to exercise the Government's option of renewal. See the Leiter and Goodyear cases cited above; 28 Comp. Gen. 553; 29 id. 91 ; 33 id. 90; 36 id. 683; and B-88974 of November 10, 1949, to the Secretary of Agriculture. This was the limit of authority of the Air Force to make contracts or purchases on behalf of the Government involving the use of this appropriation.
However, by the terms of the contract in question, it was sought to obligate the Government to pay for services and supplies, if and when ordered from the contractor, to meet not only the needs of the fiscal year 1962, but, in case of services and supplies to be ordered and furnished during the fiscal years 1963, 1964 and 1965, it also was sought to make the terms of the contract operative and the liability assumed by it binding upon anticipated future appropriations, and without affirmative renewal of the contract under the applicable appropriation from which the payments are to be made.
The Department justifies the continuing liability terms of the contract on the basis that such liability does not result in appropriation obligations within the meaning of section 1311 unless and until orders are issued under future available appropriations. Conceding that the integrity of the available appropriations would be maintained, there is to be considered the fact that the applicable restrictions if the Revised Statutes prohibit contractual agreements under fiscal year appropriations which invlove the Government beyond such period of availability not only in appropriation obligations, but any other obligation or liability which may arise thereunder and ultimately require the expenditure of funds. Also, under the holding of the Leiter case, the contract ceases to exist at the end of the fiscal year current at the time of its execution and affirmative action is required to renew the contract. Consequently, it is clear that the contract went beyond the authority conferred by the appropriation at the time of its execution and, in substance and effect, violates the above-quoted statutes.
We do not agree with the Department's position that the contract itself creates no obligation of current or future appropriations; that it does not obligate the Government to procure from the contractor; and that there is no "commitment" thereunder unless (1) funds after June 30, 1962, are made available, (2) there is an administrative determination that a requirement exists, (3) an administrative allocation of available funds to meet that requirement is made, and (4) there is an affirmative administrative act ordering services under the contract to meet such requirement.
While paragraph 27 of the General Conditions purports to protect the Government against liability in the event its “requirements” are less than the stated estimates, and to limit its obligations to payment for such services and supplies as are "called for," reference to the schedule of items covered by the contract shows that the majority of them are automatically required of the contractor whenever a Government aircraft lands at Wake Island. One, item 11, appears to create a complete and outright obligation for provisioning and maintenance of a large stock of specified supplies and for keeping operational a substantial quantity of operating equipment, and although provision is made for apportioning the monthly payment for these services in the event less than the full month's services are required, we see no provision in the contract for eliminating the requirement except by termination of that part of the contract for the conveience of the Government.
In these circumstances, since the services covered by the contract are for the most part automatic incidents of the use of the air field, their furnishing does not in fact involve any "administrative determination that a requirement exists," or "an affirmative administrative act ordering services under the contract." The only determination which could eliminate the requirement for services under the contract would be a determination to discontinue use of the air field, which would seem to be a remote possibility. Hence, we doubt that the entire contract is such a "requirements" contract as contemplated by ASPR 3-409(b) nor is it similar to any of the "requirements” contracts heretofore considered in our decisions.
With reference to A-60589, dated July 12, 1935, and other decisions of our Office cited in the letter to support the propriety of the instant contract, our study thereof discloses that the facts and circumstances considered therein are dissimilar from those involved here, and, therefore, may not be regarded as precedent or controlling in this case. We recognize that the statutory restrictions imposed on contracts entered into under authority of fiscal year appropriations may give rise to difficult procurement problems, with reference to activities conducted by the Air Force in isolated areas, and that the making of extended term contracts in such areas could produce more favorable bid prices to the Government. However, the authority for such action is a matter for consideration by the Congress and may not be accomplished indirectly by a pattern of contracting which seeks to make use of requirements contracts extending beyond the current fiscal year to meet such situations. In this connection, see 10 U.S. Code 2388 authorizing the Secretaries of the Military Departments to contract for the storage, handling and distribution of liquid fuels for five-year periods with options to renew for additional long-term periods. Also, see section 202 (b) of the Act for International Development of 1961, approved September 4, 1961, Public Law 87-195, 75 Stat. 426, authorizing the President to execute longterm agreements committing funds to be appropriated, subject only to annual appropriation of such funds, and 43 U.S.C. 388, 48 id. 50d, and id. 50d-1, authorizing the Secretary of the Interior, under certain conditions, to incur obligations for the purchase of materials, supplies, and equipment in advance of and in excess of appropriations provided for such purposes.
For the foregoing reasons, it is our view that the contract in question contravenes the requirements of the statutes quoted above. However, in view of the circumstances of the award, we will not object to completion of the contract term subject to the understanding that if the Department's requirements for this type of service cannot be met on an annual basis with renewal options from year to year, specific statutory authority for long-term contracts should be requested of the Congress.
The contract AF 04(687)-4 transmitted with the letter of March 30, is returned herewith. Sincerely yours,
Comptroller General of the United States. Enclosure.
COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, D.C., June 13, 1967. THE HONORABLE, THE SECRETARY OF DEFENSE
DEAR MR. SECRETARY: Forwarded herewith are copies of our decision of today to Metropolitan Security Services, Inc., concerning its protest against award by the Air Force of a multi-year contract for security guard and related services, and of our letter to the Secretary of the Air Force expressing our doubts as to the propriety of the use of the multi-year type of contract for the procurement of such services.
The matter is brought to your attention with the suggestion that consideraion be given to discontinuing use of multi-year type contracts for domestic serv. ices until a study can be made by your Department of the desirability of using such contracts for all types of domestic services, and until appropriate regulations governing such use have been promulgated. In this connection, it is also suggested that consideration be given to the establishment of uniform policies with respect to the use of long-term contracts, renewal options, and escalation provi. sions, in procuring services under contracts subject to the provisions of the Service Contract Act of 1965. Sincerely yours,
FRANK H. WEITZEL,
of the United States.
COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, D.C., June 13, 1967. THE HONORABLE, THE SECRETARY OF THE AIR FORCE
DEAR MR. SECRETARY: Enclosed is a copy of our decision of today on a protest by Metropolitan Security Services, Inc., against the award of a multi-year contract to Industrial Security Systems, Inc., under IFB No. 04-693-66–19, for security guard and related services. The decision questions the adequacy of the