B-193005, OCT 2, 1978

B-193005, OCT 2, 1978

DIGEST: DEPARTMENT OF ENERGY HAS FUNDS AVAILABLE FOR OBLIGATION THROUGH DECEMBER 31, 1978, TO BUY CRUDE OIL, FOR STRATEGIC PETROLEUM RESERVE. ADMINISTRATOR OF GENERAL SERVICES HAS DELEGATED TO THE SECRETARY OF DEFENSE HIS AUTHORITY TO SUPPLY CRUDE OIL TO EXECUTIVE AGENCIES. BASED ON BINDING AGREEMENT BETWEEN ENERGY AND DEFENSE, FOR DEFENSE TO PROCURE CRUDE OIL FOR ENERGY, ENERGY MAY OBLIGATE APPROPRIATION. SINCE TRANSACTION IS NOT GOVERNED BY ECONOMY ACT, 31 U.S.C. SEC. 686 (1970), AND 31 U.S.C. SEC. 686-1 (1970), FUNDS REMAIN AVAILABLE FOR CONTRACTS FOR PURCHASE OF CRUDE OIL AWARDED BY DEFENSE, IN ORDER TO FILL ENERGY ORDER, AFTER DECEMBER 31, 1978.

OBLIGATION OF FUNDS FOR PURCHASE OF OIL FOR STRATEGIC PETROLEUM RESERVE:

THIS IS IN RESPONSE TO A REQUEST FROM THE DEPARTMENT OF ENERGY. THE DEPARTMENT (DOE) HAS AN APPROPRIATION OF APPROXIMATELY $1.1 BILLION TO BUY OIL FOR ITS STRATEGIC PETROLEUM RESERVE (SPR) PROGRAM. THE FUNDS ARE AVAILABLE FOR OBLIGATION THROUGH DECEMBER 31, 1978. PREFERRING NOT TO DEAL DIRECTLY WITH COMMERCIAL SUPPLIERS OF OIL, DOE HAS ARRANGED TO ACQUIRE THE OIL THROUGH THE DEFENSE FUEL SUPPLY CENTER (DFSC), AN AGENCY OF THE DEPARTMENT OF DEFENSE. DFSC DOES NOT STOCK SUFFICIENT OIL ITSELF TO MEET DOES NEEDS. DFSC INTENDS TO PROCURE ADDITIONAL OIL ON THE OPEN MARKET.

THE PROBLEM IS WHEN THE DOE FUNDS MAY BE CONSIDERED TO BE OBLIGATED. DOE'S APPROPRIATION MAY NOT BE OBLIGATED UNTIL DFSC EXECUTES CONTRACTS WITH COMMERCIAL SELLERS FOR PURCHASE OF THE OIL, THEN TO THE EXTENT SUCH CONTRACTS ARE NOT EXECUTED BY DECEMBER 31, THE APPROPRIATION WILL LAPSE. DFSC HAS ISSUED A SOLICITATION WHICH WILL ENABLE IT TO ENTER INTO CONTRACTS WITH SELLERS OBLIGATING THE FULL AMOUNT BY DECEMBER 31. HOWEVER, BOTH DOE AND DFSC CONSIDER THAT PROCEDURE TO BE DISADVANTAGEOUS TO THE GOVERNMENT, PRIMARILY BECAUSE OF THE HASTE WITH WHICH THE CONTRACTS MUST BE AWARDED AND THE EFFECT THAT COULD HAVE ON THE MARKET. IF, ON THE OTHER HAND, THE FUNDS MAY BE CONSIDERED AS HAVING BEEN OBLIGATED AT THE TIME DOE AND DFSC AGREE THAT DFSC WILL ACQUIRE THE OIL FOR DOE, THEN DFSC CAN CARRY OUT THE PURCHASE IN A MORE DELIBERATE FASHION AND POSSIBLY UPON TERMS MORE FAVORABLE TO THE UNITED STATES. (DOE IS ENJOINED TO ACQUIRE PETROLEUM PRODUCTS FOR THE SPR CONSISTENT WITH MINIMIZATION OF COST, AND MINIMIZATION OF THE IMPACT OF THE ACQUISITION UPON SUPPLY LEVELS AND MARKET FORCES. 42 U.S.C. SEC. 6240(B).

THE FEDERAL ENERGY ADMINISTRATION (FEA) AND DFSC ENTERED INTO AN INTERAGENCY AGREEMENT IN APRIL 1977 WHICH PURPORTS TO BE THE AUTHORITY FOR THE PURCHASE OF PETROLEUM FOR THE SPR BY DFSC. (FEA'S FUNCTIONS HAVE SINCE BEEN VESTED IN THE SECRETARY OF ENERGY. PUB. L. NO. 95-91, 91 STAT. 565.) UNDER THE AGREEMENT, THE ADMINISTRATOR DELEGATED HIS STATUTORY AUTHORITY TO EXECUTE CONTRACTS FOR ACQUISITION OF PETROLEUM FOR THE SPR TO THE SECRETARY OF DEFENSE, WITH AUTHORITY TO REDELEGATE WITHIN THE DEFENSE DEPARTMENT. (THE SECRETARY OF DEFENSE HAS REDELEGATED THIS AUTHORITY TO DFSC.) DEFENSE AGREED TO ACQUIRE PETROLEUM FOR THE SPR IN ACCORDANCE WITH THE PROVISIONS OF THE ARMED SERVICES PROCUREMENT REGULATION. FEA AGREED TO PROVIDE DEFENSE WITH PURCHASE REQUESTS FOR ITS SPECIFIC REQUIREMENTS AND TO ADVANCE FUNDS TO COVER PAYMENT FOR THE PETROLEUM UNDER CONTRACTS ADMINISTERED BY DEFENSE. CONTRACT TO A SELLER OF PETROLEUM, IT DOES SO ON BEHALF OF THE SECRETARY OF ENERGY. THE INTERAGENCY AGREE AGREEMENT IS THUS ESSENTIALLY AN AGENCY AGREEMENT, WITH THE ADMINISTRATOR OF THE FEA AS PRINCIPAL AND THE SECRETARY OF DEFENSE AS AGENT. IF THE INTERAGENCY AGREEMENT GOVERNS THE PURCHASES, THEN UNTIL DFSC AWARDS A CONTRACT ON BEHALF OF DOE, THERE IS APPARENTLY NO BINDING AGREEMENT FOR THE PURCHASE OF PETROLEUM BY DOE WHICH COULD SERVE AS THE BASIS FOR AN OBLIGATION OF DOE FUNDS. (FOR PRESENT PURPOSES, WE ASSUME THAT DOE, AS IT REPRESENTS, HAS STATUTORY AUTHORITY TO DELEGATE DUTIES TO ANOTHER FEDERAL AGENCY AND THAT DEFENSE HAS AUTHORITY TO ACCEPT THE DELEGATION.)

HOWEVER, DOE ARGUES THAT IT SHOULD BE PERMITTED TO OBLIGATE FUNDS ON THE STRENGTH OF ITS PURCHASE REQUEST (TERMED BY THE AGENCIES AN OIL ACQUISITION ORDER), ISSUED TO AND ACCEPTED BY DFSC. THE ORDER, A SAMPLE COPY OF WHICH HAS BEEN PROVIDED TO US, CALLS FOR ACQUISITION OF A SPECIFIC QUANTITY OF OIL AND MAKES AVAILABLE A SPECIFIC SUM OF MONEY FOR THAT PURPOSE. IT IS SIGNED BY OFFICIALS OF DOE AND DFSC, AND APPEARS TO BE A BINDING AGREEMENT BETWEEN THEM. DOE CONTENDS, IN ESSENCE, THAT THE OIL ACQUISITION ORDER IS A BINDING AGREEMENT, NO DIFFERENT FROM THE KIND OF AGREEMENT IT COULD ENTER INTO WITH A PRIVATE BROKER OF OIL WHO, ALTHOUGH HE MIGHT NOT HAVE THE OIL STOCK, COULD CONTRACT TO DELIVER A SPECIFIC QUANTITY AT A SPECIFIC PRICE TO DOE BY AN AGREEMENT WHICH WOULD BE THE BASIS FOR A RECORDABLE OBLIGATION.

THE ORDERS RECITES THAT IT IS ENTERED INTO IN ACCORDANCE WITH THE INTERAGENCY AGREEMENT WHICH, AS NOTED ABOVE, CONTEMPLATES THAT DFSC WILL ACT AS DOE'S AGENT. IF THE ORDER IS GOVERNED BY THE INTERAGENCY AGREEMENT, THEN IT IS NO MORE THAN A PRINCIPAL'S INSTRUCTIONS TO HIS AGENT, RATHER THAN A BINDING AGREEMENT BETWEEN BUYER AND SELLER. HOWEVER, IF AN ORDER FOR OIL, PLACED BY DOE WITH DFSC, STANDING ALONE AND WITHOUT REFERENCE TO THE INTERAGENCY AGREEMET, CAN BE CONSTRUED TO BE A LEGALLY SUFFICIENT BINDING AGREEMENT BETWEEN GOVERNMENT AGENCIES FOR THE PURCHASE OF PETROLEUM, AND IF AUTHORITY EXISTS FOR SUCH AN AGREEMENT INDEPENDENT OF THE DELEGATION AUTHORITY RELIED ON IN THE INTERAGENCY AGREEMENT, THEN, AT LEAST ARGUABLY, SUCH AN ORDER COULD BE THE BASIS FOR RECORDING AN OBLIGATION. SEE 31 U.S.C. SEC. 200(A)(1) (1970), PROVIDING THAT AN OBLIGATION MAY BE RECORDED, BASED ON DOCUMENTARY EVIDENCE OF A BINDING AGREEMENT BETWEEN GOVERNMENT AGENCIES FOR SPECIFIC GOODS TO BE DELIVERED, IN A MANNER AND FORM AND FOR A PURPOSE AUTHORIZED BY LAW, EXECUTED BEFORE THE EXPIRATION OF THE PERIOD OF AVAILABLITY OF THE APPROPRIATION CONCERNED.

ONE BASIS FOR INTERAGENCY AGREEMENTS IS THE ECONOMY ACT, 31 U.S.C. SEC. 686 (1970). HOWEVER, AN ARRANGEMENT SUCH AS THE ONE BETWEEN DOE AND DEFENSE WOULD APPARENTLY NOT BE PERMISSIBLE UNDER THE ECONOMY ACT BECAUSE DOE, NOT BEING ONE OF THE AGENCIES NAMED IN THE ACT, MAY NOT ASK A REQUISITIONED AGENCY TO CONTRACT FOR PROCUREMENT OF A COMMODITY ON BEHALF OF DOE, BUT ONLY TO PROVIDE A COMMODITY WHICH IT IS CURRENTLY IN A POSITION TO PROVID. MOREOVER, UNDER 31 U.S.C. SEC. 686-1 (1970), FUNDS CREDITED TO THE REQUISITIONED AGENCY UNDER THE ECONOMY ACT ARE NOT AVAILABLE BEYOND THE PERIOD PROVIDED IN THE ACT APPROPRIATING THEM. HENCE, EVEN IF THIS WERE A PERMISSIBLE ECONOMY ACT TRANSACTION, THE FUNDS WOULD LAPSE AFTER DECEMBER 31 TO THE EXTENT THAT DFSC HAD NOT AWARDED CONTRACTS FOR PURCHASE OF THE OIL. DOE THEREFORE ARGUES THAT ITS TRANSACTION WITH DFSC IS NOT GOVERNED BY THE ECONOMY ACT. WE AGREE.

DOE HAS AUTHORITY, TO THE EXTENT NECESSARY TO IMPLEMENT A SPR PLAN APPROVED BY THE CONGRESS, TO ACQUIRE PETROLEUM PRODUCTS FOR STORAGE IN THE SPR BY PURCHASE, EXCHANGE, OR OTHERWISE, AND TO EXECUTE ANY CONTRACTS NECESSARY TO CARRY OUT THE PROVISIONS OF THE SPR PLAN. 42 U.S.C. SEC. 6239(F) (SUPP. V 1975). THE AUTHORITY DOES NOT SPECIFICALLY COVER CONTRACTS WITH OTHER GOVERNMENT AGENCIES. HOWEVER, UNDER SECTION 201(A) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED, 40 U.S.C. SEC. 481(A), THE ADMINSTRATOR OF GENERAL SERVICES, TO THE EXTENT THAT HE DETERMINES THAT DOING SO IS ADVANTAGEOUS TO THE GOVERNMENT, IS AUTHORIZED TO PROCURE AND SUPPLY PERSONAL PROPERTY FOR THE USE OF EXECUTIVE AGENCIES IN THE PROPER DISCHARGE OF THEIR RESPONSIBILITIES. THE ADMINISTRATOR IS TO PROVIDE THE SERVICES SPECIFIED IN SUBSECTION 201(A) TO ANY OTHER FEDERAL AGENCY UPON ITS REQUEST. SECTION 201(B), 40 U.S.C. SEC 481(B). IT THEREFORE APPEARS THAT DOE MAY REQUEST THE ADMINISTRATOR TO SUPPLY ITS OIL NEEDS. PAYMENT MAY BE IN ADVANCE OR BY REIMBURSEMENT. SECTION 109(B), 40 U.S.C. SEC. 756(B).

MOREOVER, THE ADMINISTRATOR IS AUTHORIZED TO DELEGATE HIS FUNCTIONS UNDER THE ACT TO OTHER EXECUTIVE AGENCIES. SECTION 205(E), 40 U.S.C. SEC. 486(E). THE ADMINISTRATOR HAS DELEGATED TO THE SECRETARY OF DEFENSE HIS AUTHORITY TO PROCURE AND SUPPLY FUEL COMMODITIES, INCLUDING PETROLEUM. UNDER THE DELEGATION, DFSC, EXERCISING GSA'S GENERAL PROCUREMENT AUTHORITY, MAY PROCURE CRUDE OIL FOR DOE. BASED ON THESE AUTHORITIES, DOE MAY PURCHASE, AND DFSC MAY SELL, CRUDE OIL WITHOUT RELIANCE ON THE EXISTING INTERAGENCY AGREEMENT BETWEEN THEM.

AS TO THE REMAINING QUESTION - WHETHER, IF DOE CONTRACTS WITH DFSC FOR THE PURCHASE OF PETROLEUM, IT MAY THEN OBLIGATE ITS APPROPRIATION - THE ANSWER DEPENDS ON WHETHER A BINDING AGREEMENT EXISTS. WE HAVE HELD THAT, IN THE CASE OF INTERAGENCY ORDERS, AN ORDER FOR AN ITEM NOT STOCKED BY THE REQUISITIONED AGENCY (OR NOT ROUTINELY ON ORDER, IF OUT OF STOCK) MAY NOT BE RECORDED AS AN OBLIGATION UNTIL A CONTRACT FOR THE ITEM IS EXECUTED BY THE REQUISITIONED AGENCY OR UNTIL IT PURCHASES THE ITEM. 34 COMP.GEN. 705 (1955). IN THOSE INSTANCES, THERE IS GENERALLY NO BINDING AGREEMENT BETWEEN THE AGENCIES; THE ORDER, IN TERMS OF CONTRACT LAW, IS AN OFFER WHICH IS ACCEPTED BY THE REQUISTIONED AGENCY'S PERFORMANCE.

HOWEVER, WHERE THE REQUISITIONING AGENCY AND THE REQUISITIONED AGENCY ENTER INTO A BINDING AGREEMENT, FUNDS WOULD BE OBLIGATED AT TIME THE AGREEMENT BECAME BINDING, EVEN THOUGH A COMMODITY OR SERVICE WHICH THE AGREEMENT REQUIRED THE REQUISITIONED AGENCY TO PROVIDE WAS NOT CONTRACTED FOR BY IT UNTIL LATER. THUS, IN HUD-CORPS OF ENGINEERS FLOOD INSURANCE STUDIES, B-167790, SEPTEMBER 22, 1977, THE CORPS OF ENGINEERS AND THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) ENTERED INTO AN AGREEMENT, NOT GOVERNED BY THE ECONOMY ACT, UNDER WHICH HUD ISSUED ORDERS TO THE CORPS FOR CERTAIN STUDIES. IN SOME CASES, THE CORPS COULD NOT PERFORM THE STUDIES ITSELF BUT HAD TO ENTER INTO CONTRACTS FOR THEIR PERFORMANCE. WE HELD THAT, ASSUMING THAT THE HUD CORPS AGREEMENT REQUIRED PERFORMANCE BY THE CORPS AS ORDERS WERE PLACED BY HUD - THAT IS, THAT THE ORDERS WERE BINDING UPON THE CORPS - HUD FUNDS COULD BE OBLIGATED AT THE TIME THE ORDERS WERE PLACED. BECAUSE THE DEOBLIGATION REQUIREMENT OF 31 U.S.C. SEC. 686-1 IS UNIQUE TO ECONOMY ACT TRANSACTIONS, THE FUNDS SO OBLIGATED REMAINED AVAILABLE FOR CONTRACTS AWARDED BY THE CORPS AFTER THE FUNDS WOULD OTHERWISE HAVE LAPSED. SEE ALSO 51 COMP.GEN. 766 (1972); 55 COMP.GEN. 1497 (1976).

THUS, IN AN INTERAGENCY TRANSACTION NOT GOVERNED BY THE ECONOMY ACT, IF AN ORDER IS ACCEPTED BY THE REQUISITIONED AGENCY (OR IF, PURSUANT TO AN AGREEMENT BETWEEN THE AGENCIES, ORDERS PLACED UNDER THE AGREEMENT WILL REQUIRE PERFORMANCE BY THE REQUISITIONED AGENCY), A VALID OBLIGATION MAY BE RECORDED. WE SEE NO OBJECTION TO SUCH A PROCEDURE IN THIS INSTANCE.

THIS IS NOT A CASE WHERE DOE IS PROCURING OIL THROUGH DFSC FOR THE SOLE PURPOSE OF EVADING THE LAPSE OF FUNDS. AS NOTED ABOVE, THE FUNDS WILL NOT BE ALLOWED TO LAPSE EVEN SHOULD OUR DECISION BE THAT THE OBLIGATION MUST AWAIT AWARD OF CONTRACTS TO SELLERS OF CRUDE OIL. MOREOVER, THERE ARE SOUND OPERATIONAL REASONS, ACCORDING TO DOE, WHY THE PROCUREMENT SHOULD BE CARRIED OUT BY DFSC, IN TERMS OF ITS EXPERIENCE AND KNOWLEDGE OF THE MARKET. SEE 42 U.S.C. SEC. 6240(B), SUPRA, REQUIRING DOE TO MINIMIZE COST AND MARKET IMPACT IN ACQURING OIL FOR THE SPR.

DOE AND DFSC HAVE ADVISED US INFORMALLY THAT FOR PRESENT PURPOSES, THEY ARE WILLING TO MODIFY THEIR EXISTING INTERAGENCY AGREEMENT TO THE EXTENT THAT IT IS INCONSISTENT WITH OUR UNDERSTANDING THAT DFSC IS HERE EXERCISING THE PROCUREMENT AUTHORITY OF THE ADMINISTRATOR OF GENERAL SERVICES, RATHER THAN ACTING AS AN AGENT FOR DOE. WE WOULD INTERPOSE NO OBJECTION TO A NEW AGREEMENT BETWEEN THE PARTIES REFLECTING THAT UNDERSTANDING. MOREOVER, PENDING EXECUTION OF A NEW AGREEMET, WE AGREE THAT AN ORDER BY DOE FOR CRUDE OIL TO BE PROCURED FOR IT BY DFSC, IF ACCEPTED BY DFSC AS A BINDING COMMITMENT, MAY BE REGARDED AS THE BASIS FOR OBLIGATION OF THE FUNDS IN QUESTION, TO BE RECORDED AS SUCH, PURSUANT TO 31 U.S.C. SEC. 200(A)(1).