B-223827, OCT 21, 1986, OFFICE OF THE GENERAL COUNSEL

B-223827, OCT 21, 1986, OFFICE OF THE GENERAL COUNSEL

PROCUREMENT - CONTRACT MANAGEMENT - FEDERAL PROCUREMENT REGULATIONS/LAWS - REVISION - PAYMENT PROCEDURES DIGEST: 1. GAO COMMENTS ON FEDERAL ACQUISITION REGULATION (FAR) CASE NO. 84 30, A PROPOSAL TO AMEND SECTIONS OF FAR SUBPART 32.5 AND TO ADD SUBPART 32.9 AND A CLAUSE AT FAR SEC. 52.232-25 TO IMPLEMENT THE REQUIREMENTS OF THE PROMPT PAYMENT ACT, 31 U.S.C. SEC. 3901 ET SEQ. (1982), AND THE POLICIES AND PROCEDURES OF OFFICE AND MANAGEMENT BUDGET CIRCULAR NO. A 125. PROCUREMENT - SMALL PURCHASE METHOD - FEDERAL PROCUREMENT REGULATIONS/LAWS - REVISION - SMALL BUSINESS SET-ASIDES - DOMESTIC PRODUCTS 2. GAO HAS NO OBJECTION TO A PROPOSAL TO AMEND THE CLAUSE AT FAR SEC. 52.219-4 TO CLARIFY THAT SMALL BUSINESS-SMALL PURCHASE ACQUISITIONS SHALL BE MADE ONLY FROM A SMALL BUSINESS CONCERN FURNISHING A DOMESTIC PRODUCT.

MS. MARGARET A. WILLIS:

FAR SECRETARIAT

GENERAL SERVICES ADMINISTRATION

THIS RESPONDS TO YOUR LETTER OF JULY 31, 1986, REQUESTING OUR COMMENTS ON FEDERAL ACQUISITION REGULATION (FAR) CASE NOS. 84-30 AND 86 24.

FAR CASE NO. 84-30 IS A PROPOSAL TO AMEND SECTIONS OF FAR SUBPART 32.5 AND TO ADD SUBPART 32.9 AND A CLAUSE AT FAR SEC. 52.232-25 TO IMPLEMENT THE REQUIREMENTS OF THE PROMPT PAYMENT ACT, 31 U.S.C. SEC. 3901 ET SEQ. (1982), AND THE POLICIES AND PROCEDURES OF OFFICE OF MANAGEMENT AND BUDGET (OMB) CIRCULAR NO. A-125. THE PURPOSE OF BOTH THE ACT AND THE CIRCULAR IS TO ENSURE THAT THE GOVERNMENT PAYS ITS BILLS ON TIME. WE SUGGEST THE FOLLOWING CHANGES TO THE FAR PROPOSAL.

PROPOSED FAR SEC. 32.906(A) AND THE PROPOSED PROMPT PAYMENT CLAUSE AT FAR SEC. 52.232-25(C)(3) PROVIDE THAT GENERALLY THE DUE DATE FOR AN INVOICE PAYMENT SHALL BE THE 30TH DAY FROM (1) THE DATE THE DESIGNATED PAYMENT OFFICE RECEIVES A PROPER INVOICE OR (2) THE DATE THE SUPPLIES OR SERVICES ARE ACCEPTED BY THE GOVERNMENT, WHICHEVER IS LATER. THE CLAUSE PROVIDES FURTHER THAT UNLESS OTHERWISE SPECIFIED IN THE CONTRACT, AND UNLESS ACCEPTANCE ACTUALLY OCCURS EARLIER, THE ACCEPTANCE DATE FOR PURPOSES OF DETERMINING INTEREST PENALTIES SHALL BE DEEMED TO BE THE 30TH DAY FOLLOWING DELIVERY, PROVIDED THERE IS NO DISPUTE OVER THE CONTRACTOR'S COMPLIANCE WITH THE TERMS OF THE CONTRACT. WE ARE CONCERNED THAT THE LATTER PROVISION COULD BE READ AS IMPLYING THAT THE 30TH DAY AFTER DELIVERY IS NORMALLY THE APPROPRIATE TIME FOR ACCEPTANCE. SEE OUR REPORT, PROMPT PAYMENT ACT: AGENCIES HAVE NOT FULLY ACHIEVED AVAILABLE BENEFITS, AFMD-86-69, AUG. 28, 1986, P. 46 (COPY ENCLOSED). IN ADDITION, ALTHOUGH SECTION 6(C) OF OMB CIRCULAR A 125 REQUIRES AGENCIES TO ENSURE THAT ACCEPTANCE OCCURS "AS PROMPTLY AS POSSIBLE," PROPOSED FAR SEC. 32.906(B) STATES ONLY THAT ACCEPTANCE SHOULD OCCUR WITHIN 30 DAYS OF DELIVERY. BELIEVE THAT IN ORDER TO CLARIFY THE FAR AND TO HAVE IT COMPLY WITH THE OMB CIRCULAR, BOTH PROPOSED FAR SEC. 32.906 AND THE PROMPT PAYMENT CLAUSE SHOULD PROVIDE THAT ACCEPTANCE SHOULD OCCUR AS PROMPTLY AS POSSIBLE.

FURTHER, NEITHER PROPOSED FAR SEC. 32.906 NOR THE PROPOSED PROMPT PAYMENT CLAUSE STATES THAT THE RULE DESCRIBED ABOVE FOR DETERMINING THE PAYMENT DUE DATE ONLY APPLIES WHERE THE CONTRACT DOES NOT OTHERWISE PROVIDE FOR A SPECIFIC PAYMENT DATE. BY CONTRAST, BOTH THE PROMPT PAYMENT ACT, 31 U.S.C. SEC. 3903(1)(B), AND OMB CIRCULAR A-125, SEC. 7, PROVIDE THAT THE PAYMENT DUE DATE IS DETERMINED IN THE FIRST INSTANCE BY REFERENCE TO THE SPECIFIC TERMS OF THE CONTRACT. WE SUGGEST THAT LANGUAGE BE ADDED TO BOTH FAR SEC. 32.906 AND THE PROMPT PAYMENT CLAUSE TO INDICATE THAT THE RULE FOR DETERMINING THE PAYMENT DUE DATE APPLIES ONLY IN THE ABSENCE OF A SPECIFIC PAYMENT DUE DATE IN THE CONTRACT. IN THIS CONNECTION, HOWEVER, THE PROPOSED FAR PROVISIONS ALSO SHOULD PROVIDE THAT DEVIATIONS FROM STANDARD PAYMENT TERMS SHOULD BE KEPT TO A MINIMUM, SINCE WE FOUND IN PREPARING THE REPORT CITED ABOVE THAT VARYING PAYMENT TERMS OFTEN LED TO PAYMENT-TIMING ERRORS.

FINALLY, THE PROPOSED PROMPT PAYMENT CLAUSE, FAR SEC. 52.232-2, PROVIDES AT PARAGRAPH (D) THAT "CONTRACT FINANCING PAYMENTS WILL BE MADE AS EXPEDITIOUSLY AS POSSIBLE, NORMALLY WITHIN 5 TO 10 DAYS BUT NOT LATER THAN 30 DAYS AFTER RECEIPT OF AN APPROVED CONTRACT FINANCING PAYMENT REQUEST. ..." WE UNDERSTAND THAT THIS PROVISION IS CONSISTENT WITH THE CURRENT PRACTICE OF DEPARTMENT OF DEFENSE AGENCIES CONCERNING CONTRACT FINANCING PAYMENTS, WHICH ARE DEFINED IN PROPOSED FAR SEC. 32.902 AS INCLUDING PROGRESS PAYMENTS, ADVANCE PAYMENTS, AND INTERIM COST REIMBURSEMENTS. NOTE WITH RESPECT TO PROGRESS PAYMENTS, HOWEVER, THAT ATTACHMENT NO. 1 TO OMB CIRCULAR A-125 PROVIDES THAT THE RECEIPT OF A PROGRESS PAYMENT REQUEST SHALL BE CONSIDERED THE RECEIPT OF AN INVOICE AND THAT SECTION 7 OF THE CIRCULAR REQUIRES PAYMENT OF AN INVOICE AS CLOSE TO BUT NOT LATER THAN 30 DAYS AFTER RECEIPT OF THE INVOICE, UNLESS A SPECIFIC PAYMENT DATE IS PROVIDED FOR IN THE CONTRACT. THUS, UNDER OMB CIRCULAR A-125, A PROGRESS PAYMENT WOULD BE REQUIRED TO BE MADE 30 DAYS AFTER RECEIPT OF THE REQUEST, RATHER THAN CONSIDERABLY EARLIER (NORMALLY WITHIN 5 TO 10 DAYS) AS THE PROPOSED CLAUSE CONTEMPLATES. AS WE STATED IN OUR REPORT, P. 52, THE ISSUE OF WHAT PAYMENT-TIMING POLICY WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT NEEDS TO BE RESOLVED. WE HAVE NO OTHER COMMENTS ON FAR CASE NO. 84-30.

FAR CASE NO. 86-24 IS A PROPOSAL TO AMEND THE CLAUSE AT FAR SEC. 52.219- 4, NOTICE OF SMALL BUSINESS-SMALL PURCHASE SET ASIDE, TO STATE THAT SUCH ACQUISITIONS SHALL BE MADE ONLY FROM A SMALL BUSINESS CONCERN FURNISHING A DOMESTIC PRODUCT. THE CHANGE IS INTENDED MERELY AS CLARIFICATION OF THE POLICY STATED IN FAR SEC. 19.501(F)(2). A MINOR REVISION TO FAR SEC. 19.508(A)(I) ALSO IS PROPOSED. WE HAVE NO OBJECTION TO THESE PROPOSED CHANGES.