B-206861 L/M, JUN 22, 1982, OFFICE OF GENERAL COUNSEL
Highlights
WHICH WERE MADE WITHOUT GAO'S KNOWLEDGE OR REVIEW BY OMB OR THE TREASURY DEPARTMENT. ARE BASED ON AN INADEQUATE COST BENEFIT/COST IMPACT ANALYSIS. 2.GAO HAS NO OBJECTION TO AMENDING THE FPR TO ESTABLISH A NEW OPTIONAL FORM FOR PROGRESS PAYMENTS TO REPLACE THE FORMAT SET FORTH IN FPR SEC. 1- 30.529. WE ALSO UNDERSTAND THAT DOD AGREED THAT INDUSTRY CONCERNS WERE VALID AND DETERMINED THAT LIBERALIZATION OF PROGRESS PAYMENTS WOULD BOTH STRENGTHEN THE INDUSTRIAL BASE AND BENEFIT THE GOVERNMENT. THERE IS NO INDICATION THAT DOD HAS DONE MUCH IN THE WAY OF GOVERNMENT BENEFIT OR COST IMPACT ANALYSIS. WE BELIEVE THAT MORE CAREFUL CONSIDERATION OF THE COSTS AND ASSUMED BENEFITS IS NEEDED TO ASSURE THAT INFORMED JUDGMENTS CAN BE MADE REGARDING THE LIKELY RESULTS OF THESE CHANGES.
B-206861 L/M, JUN 22, 1982, OFFICE OF GENERAL COUNSEL
DIGEST: 1. GAO OBJECTS TO A PROPOSAL TO INCREASE THE TOTAL COST PROGRESS PAYMENT RATES SET FORTH IN THE FPR SEC. 1-30.510-1 FOR SMALL BUSINESS TO 95 PERCENT AND FOR OTHER CONCERNS TO 90 PERCENT TO BE CONSISTENT WITH RECENT CHANGES TO THE DEFENSE ACQUISITION REGULATION (DAR). GAO BELIEVES THAT THE DAR CHANGES, WHICH WERE MADE WITHOUT GAO'S KNOWLEDGE OR REVIEW BY OMB OR THE TREASURY DEPARTMENT, ARE BASED ON AN INADEQUATE COST BENEFIT/COST IMPACT ANALYSIS. 2.GAO HAS NO OBJECTION TO AMENDING THE FPR TO ESTABLISH A NEW OPTIONAL FORM FOR PROGRESS PAYMENTS TO REPLACE THE FORMAT SET FORTH IN FPR SEC. 1- 30.529, TO MAKE CHANGES IN THE LETTER OF CREDIT METHOD OF FINANCING ADVANCED PAYMENTS SET FORTH IN FPR SEC. 1-30.408-1 OR TO RAISE AUDIT THRESHOLDS IN FPR SEC. 1-3.809 FOR MOST COST-TYPE PROPOSALS FROM $250,000 TO $500,000.
MR. PHILIP G. READ, GENERAL SERVICES ADMINISTRATION:
BY LETTER OF MAY 24, 1982, YOU REQUESTED OUR COMMENTS ON PROPOSED CHANGES TO FEDERAL PROCUREMENT REGULATIONS (FPR) SEC. 1-30.510-1, INCREASING TOTAL PROGRESS PAYMENT RATES TO 95 PERCENT FOR SMALL BUSINESSES AND 90 PERCENT FOR OTHER CONCERNS TO MAKE FPR CONSISTENT WITH THE DEFENSE ACQUISITION REGULATION (DAR). YOU ALSO REQUESTED OUR COMMENTS ON THE PROPOSED CHANGES ESTABLISHING A NEW OPTIONAL FORM FOR PROGRESS PAYMENTS TO REPLACE THE FORMAT SET FORTH IN SEC. 1-30.529, ALTERING THE LETTER OF CREDIT METHOD OF FINANCING ADVANCE PAYMENTS SET FORTH IN FPR SEC. 1-30.408-1, AND INCREASING THE AUDIT THRESHOLD IN FPR SEC. 1-3.809 FOR CONTRACT PROPOSALS FOR MOST COST-TYPE CONTRACTS FROM $250,000 TO $500,000.
WE UNDERSTAND THAT THE PROGRESS PAYMENT RATE CHANGES MADE BY THE DEPARTMENT OF DEFENSE (DOD) STEM FROM A DEFENSE INDUSTRY CONCERN THAT PREVIOUS DOD CONTRACT FINANCING POLICIES AND PRACTICES ADVERSELY AFFECTED INDUSTRY'S REALIZED PROFIT, CREDIT CAPACITY, AND ABILITY TO REINVEST IN PLANT AND EQUIPMENT IN THE CURRENT ENVIRONMENT OF GREATLY INCREASED INTEREST RATES. WE ALSO UNDERSTAND THAT DOD AGREED THAT INDUSTRY CONCERNS WERE VALID AND DETERMINED THAT LIBERALIZATION OF PROGRESS PAYMENTS WOULD BOTH STRENGTHEN THE INDUSTRIAL BASE AND BENEFIT THE GOVERNMENT.
THERE IS NO INDICATION THAT DOD HAS DONE MUCH IN THE WAY OF GOVERNMENT BENEFIT OR COST IMPACT ANALYSIS. WE BELIEVE THAT MORE CAREFUL CONSIDERATION OF THE COSTS AND ASSUMED BENEFITS IS NEEDED TO ASSURE THAT INFORMED JUDGMENTS CAN BE MADE REGARDING THE LIKELY RESULTS OF THESE CHANGES. AS FAR AS WE KNOW, DOD ACTED INDEPENDENTLY IN ITS PROGRESS PAYMENT ACTIONS AND DID NOT SEEK COMMENTS ON, OR APPROVAL OF, ITS CHANGES BY THE OFFICE OF MANAGEMENT AND BUDGET (OMB), THE DEPARTMENT OF THE TREASURY OR OUR OFFICE.
ALTHOUGH WE STRONGLY SUPPORT CONSISTENCY IN REGULATIONS AND SEE NO COMPELLING REASON FOR A DIFFERENCE IN PROGRESS PAYMENT RATES UNDER THE DAR AND THE FPR, WE BELIEVE THAT IN VIEW OF THE MATTERS AND CONCERNS DISCUSSED ABOVE, IT WOULD BE PREMATURE AND INADVISABLE TO INCORPORATE DAR PROGRESS PAYMENT CHANGES BEFORE THE CHANGES HAVE BEEN REVIEWED BY OMB AND TREASURY. WE ARE SENDING A COPY OF THIS LETTER TO THE DAR COUNCIL.
WE DO NOT OBJECT TO THE PROPOSED CHANGES RELATING TO THE LETTER OF CREDIT METHOD OF FINANCING ADVANCED PAYMENTS, THE OPTIONAL FORM FOR PROGRESS PAYMENTS OR THE RAISING OF THE AUDIT THRESHOLD FOR MOST COST TYPE CONTRACTS.
WE HAVE NO FURTHER COMMENTS TO OFFER.