B-201072, MAY 3, 1982

B-201072, MAY 3, 1982

DIGEST: AN FPR CLAUSE PROVIDING FOR GOVERNMENT ASSUMPTION OF CONTRACTOR LIABILITY FOR PROPERTY DAMAGE OR PHYSICAL INJURY TO THIRD PERSONS IN COST- REIMBURSEMENT SUPPLY AND RESEARCH AND DEVELOPMENT CONTRACTS VIOLATES THE ANTI-DEFICIENCY ACT, 31 U.S.C. SEC. 665(A), AND THE ADEQUACY OF APPROPRIATIONS ACT, 41 U.S.C. SEC. 11, BECAUSE IT SUBJECTS THE GOVERNMENT TO A CONTINGENT LIABILITY IN AN INDEFINITE AMOUNT.

ASSUMPTION BY GOVERNMENT OF CONTRACTOR LIABILITY TO THIRD PERSONS:

THE DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS) REQUESTS OUR OPINION REGARDING THAT AGENCY'S USE OF THE "INSURANCE - LIABILITY TO THIRD PERSONS" CLAUSE WHICH FEDERAL PROCUREMENT REGULATIONS (FPR) SECS. 1-7.204- 5 AND 1-7.404-9 ALLOW AGENCIES TO INCLUDE IN COST-REIMBURSEMENT SUPPLY AND RESEARCH AND DEVELOPMENT CONTRACTS.

THE CLAUSE, SET FORTH IN FPR SEC. 1-7.204-5, PROVIDES IN PART:

"(C) THE CONTRACTOR SHALL BE REIMBURSED *** WITHOUT REGARD TO AND AS AN EXCEPTION TO THE 'LIMITATION OF COST' OR THE 'LIMITATION OF FUNDS' CLAUSE OF THIS CONTRACT, FOR LIABILITIES TO THIRD PERSONS FOR LOSS OF OR DAMAGE TO PROPERTY *** OR FOR DEATH OR BODILY INJURY, NOT COMPENSATED BY INSURANCE OR OTHERWISE, ARISING OUT OF THE PERFORMANCE OF THIS CONTRACT, WHETHER OR NOT CAUSED BY THE NEGLIGENCE OF THE CONTRACTOR, HIS AGENTS, SERVANTS, OR EMPLOYEES ***."

USE OF THE SAME CLAUSE IN THE SAME TYPES OF CONTRACTS IS PROVIDED FOR UNDER DEFENSE ACQUISITION REGULATION SECS. 7-203.22 AND 7-402.26.

HHS BELIEVES THAT THE FPR CLAUSE MAY VIOLATE THE ANTI-DEFICIENCY ACT, 31 U.S.C. SEC. 665(A) (1976), AND THE ADEQUACY OF APPROPRIATIONS ACT, 41 U.S.C. SEC. 11 (1976). WE AGREE.

THIS OFFICE HAS CONSISTENTLY HELD THAT, UNLESS OTHERWISE AUTHORIZED BY LAW, AN INDEMNITY PROVISION IN A CONTRACT WHICH SUBJECTS THE UNITED STATES TO AN INDEFINITE AND UNCERTAIN LIABILITY CONTRAVENES THOSE ACTS. SEE, E.G., 35 COMP.GEN. 85 (1955); 7 ID. 507 (1928); B-201394, APRIL 23, 1981. THE FPR INDEMNITY CLAUSE FALLS SQUARELY WITHIN THOSE CONTRACTUAL OBLIGATIONS WHICH ARE PROHIBITED UNDER THE ACTS. IT SEEKS TO COMMIT GOVERNMENT FUNDS FOR THE PAYMENT OF LIABILITIES WHICH ARE UNDETERMINED AT THE TIME OF CONTRACTING AND WHOSE COST MAY EXCEED AVAILABLE APPROPRIATIONS. WE KNOW OF NO STATUTORY AUTHORITY WHICH WOULD EXCEPT THE CLAUSE FROM THE PROVISIONS OF 31 U.S.C. SEC. 665(A) AND 41 U.S.C. SEC. 11.

THUS, THE PRESENT FPR CLAUSE SHOULD NOT BE USED. WE HAVE SUGGESTED REVISED LANGUAGE IN OUR PRIOR DECISIONS, HOWEVER, WHICH WOULD MAKE AN INDEMNIFICATION CLAUSE ACCEPTABLE. SEE, E.G., B-202518, JANUARY 8, 1982. THE CLAUSE SHOULD LIMIT THE EXTENT OF THE GOVERNMENT'S LIABILITY TO APPROPRIATIONS AVAILABLE AT THE TIME A CONTINGENCY ARISES AND SHOULD EXPLICITLY PROVIDE THAT NOTHING MAY BE CONSTRUED AS IMPLYING THAT THE CONGRESS WILL, AT A LATER DATE, APPROPRIATE FUNDS SUFFICIENT TO MEET DEFICIENCIES.