1311(a).180 Common to all of these criteria is the requirement that each obligation be supported by documentary evidence of the transaction involved.181 Under section 1311(a) (1), the basis of recording an obligation is "a binding agreement in writing between the parties thereto, including Government agencies." The reference to agreements between government agencies does not authorize such agreements nor does it affect any other provision of law relating thereto, except in so far as it requires them to be for specific goods or services, and in writing.182 Therefore, if such agreements are in the form of Economy Act orders, the obligations thus created against fiscal year appropriations must be deobligated at the end of each fiscal year to the extent that the requisitioned or performing agency has not incurred valid obligations thereunder.183 The reference also brings project orders within the scope of section 1311(a)(1).184

Another point worth noting under section 1311(a)(1) is that the agreement must call for "specific goods to be delivered, real property to be purchased or leased, or work or services to be performed." By reason of this requirement, the Comptroller General has ruled that indefinite obligations, such as aircraft rental contracts that contained no guaranteed minimum monthly rate but were dependent on the use of the aircraft, were not binding agreements, within the meaning

180 Section 1311 (a) reads as follows:

of

"(a) After August 26, 1954 no amount shall be recorded as an obligation of the Government of the United States unless it is supported by documentary evidence “(1) a binding agreement in writing between the parties thereto, including Government agencies, in a manner and form and for a purpose authorized by law, executed before the expiration of the period of availability for obligation of the appropriation or fund concerned for specific goods to be delivered, real property to be purchased or leased, or work or services to be performed; or

"(2) a valid loan agreement, showing the amount of the loan to be made and the terms of repayment thereof; or

"(3) an order required by law to be placed with a Government agency; or

"(4) an order issued pursuant to a law authorizing purchases without advertising when necessitated by public exigency or for perishable subsistence supplies or within specific monetary limitations; or

"(5) a grant or subsidy payable (1) from appropriations made for payment of or contributions toward, sums required to be paid in specific amounts fixed by law or in accord with formulae prescribed by law, or (11) pursuant to agreement authorized by, or plans approved in accord with and authorized by, law; or

"(6) a liability which may result from pending litigation brought under authority of law; or

"(7) employment or services of persons or expenses of travel in accord with law, and services performed by public utilities; or

"(8) any other legal liability of the United States against an appropriation or fund legally available therefor."

181 The documentary evidence requirement of section 1311(a) was held to be not satisfied by informal messages or advices that anticipated the issuance of government bills of lading, on the ground that the purpose of section 1311 was not to relax existing rules relating to the obligation of funds. 34 COMP. GEN. 459, 461 (1955). See also the discussion of the section 1311 documentary evidence requirement at 35 COMP. GEN. 319, 320, 321 (1955).

189 84 COMP. GEN. 418, 421 (1955).

183 Ibid. The limited obligating effect of Economy Act orders is discussed in par. 25 supra.

184 84 COMP. GEN. 418, 422 (1955). Project orders are discussed in par. 24 supra.

of section 1311(a)(1).185 Similarly, he has ruled that open-end material and labor contracts, which established the hourly labor rates and material costs, but under which the actual charges were determined as the result of the issuance of final work orders or purchase orders, were not recordable as obligations under section 1311(a) (1).186 Under section 1311 (a) (4), obligations may be recorded on the basis of unilateral orders issued pursuant to a law authorizing purchases without advertising "when necessitated by public exigency or for perishable subsistence supplies or within specific monetary limitations." All three categories of orders are presently authorized by law.187 Finally, under section 1311(a)(6), an obligation may be recorded on the basis of a liability which may result from pending litigation. Since the overall purpose of section 1311 was to restrict the amounts recorded as obligations, the Comptroller General has ruled that obligations may be recorded under this subsection only in those cases where there is no question as to the Government's liability and the pending litigation is for the sole purpose of determining the amount of such liability.' 188

In general, the criteria in section 1311(a) will be applied by the Comptroller General in such a manner as not to relax existing rules for determining when an obligation is incurred and which fiscal year appropriation is chargeable.189

30. Special problems. The adoption of section 1311 has necessarily demanded certain adjustments in the matter of recording obligations.190 The most significant of the problem areas are as follows:

a. Fixed-price contracts with escalation, price redetermination or incentive provisions. When a fixed-price contract contains escalation, price redetermination or incentive provisions, obligations are recorded under section 1311(a)(1) in the amount of the fixed price stated in the contract, or the target or billing price in the case of a contract with an incentive clause.191 The amount so recorded is increased or decreased to reflect price revisions at the time such revisions are made or determined pursuant to provisions of the contract. The practice of recording the target or billing price in incentive contracts, rather than the maximum estimated cost, is intended to show the most realistic appraisal of the liability of the Government under the contract.

189 See 34 COMP. GEN. 459, 461 (1955). In 35 COMP. GEN. 319 (1955), the Comptroller General applied the bona fide needs test to deny the recording of an obligation against fiscal year 1954 funds for services extending for one year from June 27, 1954. See par. 15 supra.

190 See DOD Directive 7220.6 (April 28, 1955), which was issued after the discussion of a preliminary draft by the Comptroller General in 34 COMP. GEN. 418 (1955). 191 34 COMP. GEN. 418, 420 (1955).

b. Contracts authorizing variations in quantity. In the case of a contract authorizing variations in the quantity of supplies to be delivered thereunder, the obligation to be recorded under section 1311(a)(1) is the price of the quantity specified for delivery, exclusive of the permitted variations.192 The problem here is analogous to that involving fixed-price contracts which provide for contingent liabilities such as escalation or price redetermination. In either case, because of the possibility of an increase of the obligation, the Navy avoids an overobligation of its appropriations and discharges its responsibility for meeting its ultimate liability by means of administrative reservations of funds in amounts sufficient to cover the contingencies involved.

c. Spare parts. In view of the requirement of section 1311 (a) (1) that an agreement must be for specific goods before it may be recorded as an obligation, a contract calling for spare parts may be recorded only where a spare parts list is incorporated in the contract or where the contract contains a formula which permits a spare parts list to be worked out without further action by either of the parties. Otherwise, obligations are recorded only after the Navy's requirements of spare parts are determined by provisioning teams and specific orders are placed on the contractor.

d. Change orders. Orders for contract or engineering changes involving increased costs may be recorded as obligations under section 1311(a) (1) at the time of their issuance, if the Government has the right unilaterally to issue such change orders under the contract. In the absence of such a provision, the increase in the amount of the obligation may be recorded only after a bilateral amendment is executed, in view of the requirement of a binding agreement in writing between the parties thereto. If there is no change in the scope of the contract, any increase in the contract price resulting from the issuance of such change orders may be recorded as an obligation against the fiscal year appropriation charged by the original contract, even though that appropriation has expired.193

e. Letter contracts and letters of intent. The maximum liability of the Government shown in a letter contract or letter of intent is that amount necessary to cover expenses to be incurred by the contractor prior to the execution of a definitive contract. If the letter contract or letter of intent is accepted in writing by the contractor, and if it is sufficiently specific to show the purposes and scope of the contract finally to be executed, this maximum liability, rather than the predicted ultimate costs of the definitive contract, may be recorded as an obligation under section 1311(a)(1).194 The

19 Id. at 421. But see 34 COMP. GEN. 596 (1955).

193 See par. 16 supra.

194 34 COMP. GEN. 418, 421 (1955).

difference between that amount and the predicted ultimate costs of the contract may be recorded for administrative purposes as a commitment under the letter contract or letter of intent is converted to a definitive contract.

f. Authorizations to proceed pending contract execution. The pre-existing practice of recording obligations based solely on authorizations to proceed with the work under an unexecuted contract was in effect prohibited by section 1311 (a) (1), which provides that before an obligation may be recorded it must be supported by a binding agreement in writing by the parties, in a manner and form authorized by law. However, an authorization to proceed, when accepted by performance, would give rise to a unilateral contract. Such a contract would presumably satisfy the requirement of section 1311(a) (8), which permits the recording of any legal liability of the United States against an appropriation legally available therefor.

g. Purchase orders. Before a purchase order may be recorded as an obligation under section 1311(a) (4), it must be (i) necessitated by public exigency, (ii) for perishable subsistence supplies, or (iii) for services or supplies in an aggregate amount of not more than $2,500.195 A unilateral order other than those described above may qualify as an obligation under section 1311(a) (8), to the extent that it has been accepted by performance; but if the order is to be charged against fiscal year funds and performance is not expected to be completed before the end of that fiscal year, timely obligation may be assured by requesting the written acceptance of the order by the contractor while the fiscal year appropriation is still available for obligation. This written acceptance, of course, would satisfy all the requirements for a recordable obligation under section 1311(a)(1).19

h. Termination costs. The fiscal year appropriation obligated by a contract is available for all costs incident to that contract, including costs under termination agreements whether executed before or after the expiration of the appropriation.197 When a contract is terminated for the convenience of the Government, the obligation may be reduced only to the extent that the funds originally obligated are not required for the termination costs. Furthermore, this reduction should be supported by an estimate made by the contracting officer of the amount due the contractor as a result of the termination. i. Military interdepartmental procurement requests. When the responsibility for the procurement of certain supplies has been assigned to one of the military departments,198 a Military Interdepart

198 See n. 187 supra.

196 See 34 COMP. GEN. 418, 424 (1955).

197 23 COMP. GEN. 862 (1944).

198 For the policies and principles governing the single procurement of supplies pursuant to assignments of procurement responsibility, see ASPR 5-1102 through 5-1116 (1 July 1960).

mental Procurement Request (MIPR) is used by one of the other military departments which has a requirement for those supplies either to request the procurement of the supplies by the procuring department or to permit the procuring department to authorize the manufacture of the necessary supplies.199 In such cases, contracts made or orders issued by the procuring department are required to cite the appropriations or funds of the requiring department unless it is not considered feasible and economical to relate payments directly to the end item and ultimate use of the material under procurement.200 Where citation of the funds of the requiring department is not feasible, funds of the procuring department are cited and used to pay the contractor, subject to reimbursement by the requiring department upon delivery of the supplies under procurement.2 In this event, the MIPR may be recorded as an obligation of the appropriation of the requiring department at the time of its acceptance in writing by the procuring department.202 On the other hand, if the contracts made or orders issued by the procuring department cite the funds of the requiring department, the MIPR may be recorded as an obligation by the latter only after copies of the executed contract or project order are received by the requiring department, and in the amount stated in such contract or project order.208

III. Collection of Debts 2038

A. The Priority of the United States as Creditor

201

31. The statutory priority of the United States: purpose. An important function that grows out of the Navy's procurement program is the collection of debts due the Government. The prosecution and settlement of such claims entails all the enforcement remedies available to the Government, including administrative setoff, assertion of priorities in bankruptcy or receivership, litigation, and compromise. The position of the United States as creditor has been governed for more than 150 years by a statute that provides for the prior satisfaction of claims of the United States against an insolvent debtor.204 As the Supreme Court said, in an early decision involving this statute:

100 ASPR 16-601 (1 July 1960). 200 ASPR 5-1108.1 (1 July 1960).

201 ASPR 5-1108.21 (1 July 1960).

202 Par. 4A (2) (c)(1) of DOD Directive 7220.6 (April 28, 1955).

203 Id. at par. 4A (2) (c) (2).

203 All principles in this Section III which are stated herein to be applicable to the Navy are equally applicable to the Army.

204 "Whenever any person indebted to the United States is insolvent . . . the debts due to the United States should be first satisfied; and the priority established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed." Rev. Stat. § 3466 (1875), 31 U.S.C. § 191 (1958). For a full discussion of the questions presented by this section, see A. B. Holman, the United States-Creditor, 9 Fed. B. J. 261 (1948), and the authorities collected therein.