B-206570.OM, JUN 1, 1982

B-206570.OM, JUN 1, 1982

SUBJECT: MULTIYEAR CONTRACTS (B-206570-O.M.) (CCAR NO. PLRD/GP-89 AND 99)

DIRECTOR, PLRD - DONALD J. HORAN:

THIS RESPONDS TO YOUR MARCH 16, 1982 MEMORANDUM CONCERNING PROCUREMENTS BY THE NAVY AND ARMY. YOU FIRST QUESTION THE PROPRIETY OF THE NAVY'S DECISION TO PURSUE THE "ECONOMIC ORDER QUANTITY BUYING" OF MATERIALS TO BE USED IN THE CONSTRUCTION OF THREE TANKERS INCLUDED AS OPTIONS UNDER A CONTRACT FOR TWO TANKERS. YOUR SECOND QUESTION ESSENTIALLY INVOLVES THE PROPRIETY OF THE ARMY'S INCLUSION OF TWO OPTION YEARS IN A PLANNED FIVE- YEAR MULTIYEAR CONTRACT FOR A MULTI LAUNCH ROCKET SYSTEM, SO THAT THE TOTAL OF THE BASIC CONTRACT PLUS OPTIONS COVERS SEVEN YEARS OF REQUIREMENTS.

WE BELIEVE THAT YOUR FIRST CONCERN IS ACADEMIC, BASED ON THE MATERIAL FURNISHED WITH YOUR MEMO. REGARDING THE SECOND MATTER, WE FIND THAT THE ARMY'S PLANNED ACTION WOULD APPEAR TO VIOLATE PROCUREMENT REGULATIONS.

I. THE NAVY PROCUREMENT

THE ATTACHMENT TO YOUR MEMO (ENCLOSURE XIV, ENTITLED "T-AO (FLEET OILER)"), STATES THAT THE PURCHASE IN ISSUE IS FOR FIVE SHIPS OF A PLANNED 17-SHIP PROGRAM. ALTHOUGH YOU SUGGEST THAT A MULTIYEAR CONTRACT PURSUANT TO SECTION 909 OF THE DEPARTMENT OF DEFENSE AUTHORIZATION ACT OF 1982, PUBLIC LAW NO. 97-86, WOULD BE AN APPROPRIATE WAY TO PURCHASE THE FIVE SHIPS, THE NAVY INSTEAD APPARENTLY PLANS TO CONTRACT FOR TWO OF THE SHIPS ONLY, WITH THE OTHER THREE INCLUDED AS OPTION QUANTITIES. YOU QUESTION THE FACT THAT THE BASIC TWO-SHIP CONTRACT EVIDENTLY WILL INCLUDE THE PURCHASE OF MATERIALS FOR USE IN CONNECTION WITH THE (UNEXERCISED) OPTION SHIPS. (YOUR MEMO DOES NOT INDICATE THE NATURE OF THE FUNDS THAT THE NAVY WILL USE).

THE ATTACHMENT TO YOUR MEMO INDICATES THAT PROJECT OFFICIALS ADMIT THAT AT PRESENT THERE IS NO LEGAL BASIS TO EFFECT THE PLANNED PURCHASE, AND THAT THE AUTHORIZATION AND APPROPRIATION STATUTES THEREFORE WILL PROVIDE THE NECESSARY AUTHORITY NEEDED. GIVEN THE NAVY'S POSITION AND THE EXPECTED CONGRESSIONAL AUTHORITY, THE QUESTION OF THE PROPRIETY OF THE PLANNED ECONOMIC ORDER QUANTITY BUYING UNDER EXISTING LAW AND REGULATIONS IS ACADEMIC.

II. THE ARMY PROCUREMENT

THE BASIC ISSUE HERE IS THE PROPRIETY OF INCLUDING TWO OPTION YEARS IN A FIVE-YEAR MULTIYEAR CONTRACT TO BE ENTERED INTO UNDER THE AUTHORITY OF SECTION 909 OF PUBLIC LAW NO. 97-86, TO MEET SIXTH AND SEVENTH YEAR REQUIREMENTS.

MULTIYEAR CONTRACTING IS DESIGNED TO MEET DEPARTMENT OF DEFENSE NEEDS FOR MORE THAN ONE BUT NOT MORE THAN FIVE PROGRAM YEARS. DEFENSE ACQUISITION REGULATION (DAR) SEC. 1-322.2 (DAC 76-20, SEPTEMBER 17, 1979) PERMITS THE USE OF OPTIONS IN MULTIYEAR CONTRACTS WHEN SOME FUTURE REQUIREMENTS ARE DEFINITE AND ADDITIONAL QUANTITIES OF SUPPLIES OR SERVICES ARE LIKELY THOUGH NOT DEFINITIVE AS TO AMOUNT. THE REGULATION, HOWEVER, STATES THAT AN OPTION PROVISION CANNOT EXCEED THE PERIOD DESCRIBED IN DAR SEC. 1- 1502(D), NOW DAR SEC. 1-1502(C) (DAC 76-27, MAY 15, 1981). THAT REGULATION SPECIFIES THAT THE TOTAL OF THE BASIC AND OPTION PERIODS SHALL NOT EXCEED FIVE YEARS IN THE CASE OF SERVICE CONTRACTS, AND THE TOTAL OF THE BASIC AND OPTION QUANTITIES IN SUPPLY CONTRACTS CANNOT EXCEED THE REQUIREMENT FOR FIVE YEARS. (THE LIMITATION DOES NOT APPLY TO AUTOMATIC DATA PROCESSING EQUIPMENT SOFTWARE AND MAINTENANCE SERVICES.)

THE CITED REGULATIONS IMPLEMENTED DOD MULTIYEAR CONTRACTING POLICY BEFORE THE ENACTMENT OF PUBLIC LAW NO. 97-86, USING FUNDS THAT WERE MADE AVAILABLE BY THE CONGRESS FOR TWO OR THREE YEAR PERIODS. NONETHELESS, WE HAVE NO REASON TO CONCLUDE THAT THEY DO NOT APPLY TO MULTIYEAR CONTRACTING UNDER THE SPECIFIC AUTHORITY IN PUBLIC LAW NO. 97 86. THUS, AND RECOGNIZING THAT WE HAVE NOT BEEN ADVISED OF THE RATIONALE FOR THE ARMY'S VIEW THAT IT CAN INCLUDE SIX AND SEVENTH YEAR REQUIREMENTS AS OPTIONS IN A FIVE-YEAR CONTRACT, THE CONTEMPLATED ACTION WOULD APPEAR TO BE IMPROPER, SINCE THE TOTAL PROGRAM PERIOD - SEVEN YEARS - WOULD EXCEED THAT STIPULATED IN DAR SEC. 1-1502(C).