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B-130815, APR. 15, 1958

B-130815 Apr 15, 1958
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UNITED STATES ATOMIC ENERGY COMMISSION: REFERENCE IS MADE TO THE COMMISSION'S LETTER OF MARCH 12. IT WAS STATED IN OUR LETTER THAT FISCAL YEAR APPROPRIATIONS PROPERLY COULD BE CHARGED ONLY FOR BONA FIDE NEEDS OF THAT YEAR. WE STATED FURTHER THAT A NEED FOR MATERIAL REQUIRING SOME TIME FOR ITS PRODUCTION OR FABRICATION MIGHT BE CONSIDERED A BONA FIDE NEED OF THE YEAR IN WHICH INITIATION OF PRODUCTION WAS NECESSARY TO PERMIT DELIVERY AT THE TIME THE MATERIAL WOULD BE NEEDED FOR ACTUAL USE. STATES IT TO BE YOUR UNDERSTANDING: "* * * THAT THE COMMISSION IS AUTHORIZED. TO ENTER INTO A CONTRACT UNDER WHICH THE CONTRACTOR AGREES TO PROCEED WITH THE CONSTRUCTION OF THE REQUIRED FACILITY AND THE COMMISSION UNDERTAKES TO PURCHASE THE MATERIAL THAT WILL BE DELIVERED FROM THAT FACILITY DURING THAT FUTURE FISCAL YEAR IN WHICH THE COMPLETED FACILITY FIRST PRODUCES MATERIAL FOR DELIVERY TO THE COMMISSION.

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B-130815, APR. 15, 1958

TO HONORABLE LEWIS L. STRAUSS, CHAIRMAN, UNITED STATES ATOMIC ENERGY COMMISSION:

REFERENCE IS MADE TO THE COMMISSION'S LETTER OF MARCH 12, 1958, REQUESTING CLARIFICATION OF CERTAIN DETAILS OF THE POSITION STATED IN OUR LETTER B-130815, DATED SEPTEMBER 3, 1957, 37 COMP. GEN. 155, CONCERNING THE COMMISSION'S AUTHORITY TO MAKE LONG-TERM PROCUREMENT CONTRACTS CHARGEABLE TO FISCAL YEAR APPROPRIATIONS.

IT WAS STATED IN OUR LETTER THAT FISCAL YEAR APPROPRIATIONS PROPERLY COULD BE CHARGED ONLY FOR BONA FIDE NEEDS OF THAT YEAR. IN THAT CONNECTION, WE STATED FURTHER THAT A NEED FOR MATERIAL REQUIRING SOME TIME FOR ITS PRODUCTION OR FABRICATION MIGHT BE CONSIDERED A BONA FIDE NEED OF THE YEAR IN WHICH INITIATION OF PRODUCTION WAS NECESSARY TO PERMIT DELIVERY AT THE TIME THE MATERIAL WOULD BE NEEDED FOR ACTUAL USE, PROVIDED THE MATERIAL WOULD NOT THEN BE OBTAINABLE ON THE OPEN MARKET, EVEN THOUGH DELIVERY TOOK PLACE IN A SUBSEQUENT FISCAL YEAR. YOUR LETTER OF MARCH 12, 1958, STATES THAT SUCH ARRANGEMENTS SOMETIMES REQUIRE THE CONSTRUCTION OF NEW FACILITIES BY THE CONTRACTOR, AND STATES IT TO BE YOUR UNDERSTANDING:

"* * * THAT THE COMMISSION IS AUTHORIZED, UNDER THESE CIRCUMSTANCES, TO ENTER INTO A CONTRACT UNDER WHICH THE CONTRACTOR AGREES TO PROCEED WITH THE CONSTRUCTION OF THE REQUIRED FACILITY AND THE COMMISSION UNDERTAKES TO PURCHASE THE MATERIAL THAT WILL BE DELIVERED FROM THAT FACILITY DURING THAT FUTURE FISCAL YEAR IN WHICH THE COMPLETED FACILITY FIRST PRODUCES MATERIAL FOR DELIVERY TO THE COMMISSION, AND RETAINS AN OPTION TO PURCHASE MATERIAL TO BE DELIVERED IN SUBSEQUENT FISCAL YEARS.'

YOU ARE ADVISED THAT YOUR UNDERSTANDING ON THIS POINT IS CORRECT, AND THAT THE CONTRACT MAY BE CONSIDERED A BONA FIDE NEED OF THE FISCAL YEAR IN WHICH MADE.

YOUR SECOND QUESTION IS WHETHER THE COMMISSION PROPERLY MAY ENTER INTO CONTRACTS CALLING FOR ,CANCELLATION" OR "TERMINAL" PAYMENTS IN THE EVENT OF FAILURE BY THE COMMISSION TO EXERCISE AN OPTION TO RENEW THE CONTRACT AT THE END OF ANY FISCAL YEAR. IN OUR LETTER OF SEPTEMBER 3, 1957, WE CONCLUDED THAT SUCH CONTRACTS WERE PROPER IN CASES WHERE BETTER TERMS COULD NOT BE SECURED BY THE GOVERNMENT. THE EXAMPLE GIVEN, WHERE CONSTRUCTION OF A NEW LINE IS NECESSARY TO BRING UTILITY SERVICES TO A GOVERNMENT PROJECT, WAS INTENDED TO BE ILLUSTRATIVE AND NOT EXCLUSIVE. YOU STATE IT TO BE YOUR UNDERSTANDING THAT SIMILAR CONTRACTS MAY BE EXECUTED IN CASES WHERE THE FURNISHING OF ANY SUPPLIES, MATERIALS, EQUIPMENT, OR SERVICES NEEDED BY THE COMMISSION REQUIRES THE ACQUISITION OR CONSTRUCTION OF NEW FACILITIES AND THE COMMISSION DETERMINES THAT NO POTENTIAL SUPPLIER IS WILLING TO ACQUIRE OR CONSTRUCT THE REQUIRED FACILITIES AT ITS OWN EXPENSE WITHOUT ASSURANCES THAT IT WILL BE ABLE TO RECOVER ALL OR PART OF THE CAPITAL COSTS INVOLVED. YOUR UNDERSTANDING IS CORRECT.

THE FINAL QUESTION PRESENTED IN YOUR LETTER CONCERNS THE FORMS OF "TERMINAL" OR "CANCELLATION" PAYMENTS WHICH MIGHT BE MADE UNDER SUCH CONTRACTS IN THE EVENT OF FAILURE TO RENEW AT THE END OF ANY FISCAL YEAR. YOU STATE IT TO BE YOUR BELIEF THAT ANY OF THE FOLLOWING FORMS OF PAYMENT WOULD BE PROPER:

(A) A FIXED AMOUNT, OR A FIXED AMOUNT TO BE COMPUTED ON THE BASIS OF AN AGREED FORMULA, WITH THE PURPOSE OF PROVIDING COMPENSATION TO THE CONTRACTOR FOR COSTS NOT OTHERWISE COMPENSATED FOR BY PAYMENTS PREVIOUSLY MADE UNDER THE CONTRACT.

(B) REIMBURSEMENT FOR SPECIFIC ITEMS OF COST INCURRED UNDER THE CONTRACT TO THE EXTENT THAT THEY HAVE NOT BEEN COMPENSATED FOR BY PAYMENTS PREVIOUSLY MADE UNDER THE CONTRACT, SUCH AS THE COST OF SPECIAL FACILITIES CONSTRUCTED OR ACQUIRED SPECIALLY FOR THE PERFORMANCE OF THE CONTRACT, BUT NOT TO EXCEED A MAXIMUM AMOUNT STATED IN THE CONTRACT.

(C) SOME COMBINATION OF (A) AND (B), AS FOR EXAMPLE, A FIXED AMOUNT ON ACCOUNT OF THE UNAMORTIZED COST OF FACILITIES CONSTRUCTED OR ACQUIRED SPECIALLY FOR THE PERFORMANCE OF THE CONTRACT AND IN ADDITION COMPENSATION FOR OTHER SPECIFIC ITEMS OF COST, SUBJECT TO A MAXIMUM PROVIDED IN THE CONTRACT.

YOU ARE ADVISED THAT WE SEE NO OBJECTION TO THE FORMS OF TERMINAL PAYMENTS DESCRIBED ABOVE.

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