A-86146, JULY 1, 1937, 17 COMP. GEN. 1

A-86146: Jul 1, 1937

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IS AS FOLLOWS: FOR THE CONSTRUCTION OF DAMS AND OTHER WORKS THE TENNESSEE VALLEY AUTHORITY PURCHASES LARGE QUANTITIES OF BASIC COMMODITIES. CEMENT IS PURCHASED AT PLANTS IN THE BIRMINGHAM DISTRICT AND AT RICHARD CITY. IN THE PREAUDIT OF CARRIERS' TRANSPORTATION BILLS BY THE GENERAL ACCOUNTING OFFICE VARYING BASES FOR THE COMPUTATION OF NET LAND GRANT RATES ARE APPLIED. WITH THE RESULT THAT THE TENNESSEE VALLEY AUTHORITY IS UNABLE TO SET UP FINAL COST FIGURES ON A PARTICULAR PURCHASE UNTIL AFTER ALL TRANSPORTATION CHARGES HAVE BEEN BILLED. IT HAS BEEN PROPOSED THAT WITH THE LETTING OF A CONTRACT UNDER WHICH A CONTINUING MOVEMENT OF A CERTAIN COMMODITY BETWEEN SPECIFIC POINTS WILL RESULT.

A-86146, JULY 1, 1937, 17 COMP. GEN. 1

TRANSPORTATION - RATES - LAND-GRANT - STIPULATION FOR FIXED PERIOD FREIGHT RATES BASED UPON LAND-GRANT DEDUCTION CURRENTLY AVAILABLE, AND SUBJECT TO CHANGE ONLY IN THE EVENT OF A CHANGE IN THE BASIC COMMERCIAL RATE, MAY NOT BE STIPULATED FOR BY THE GOVERNMENT TO REMAIN CONSTANT THROUGHOUT A FIXED PERIOD AS SUBSEQUENT TRANSPORTATION CHANGES MAY RESULT IN A LOWER NET LAND-GRANT RATE BECOMING AVAILABLE TO THE GOVERNMENT WITHOUT "AN INCREASE OR A DECREASE IN THE BASIC COMMERCIAL RATE.'

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF THE TREASURY, JULY 1, 1937:

YOUR LETTER OF MAY 7, 1937, IS AS FOLLOWS:

FOR THE CONSTRUCTION OF DAMS AND OTHER WORKS THE TENNESSEE VALLEY AUTHORITY PURCHASES LARGE QUANTITIES OF BASIC COMMODITIES, SUCH AS STRUCTURAL STEEL, CEMENT, LUMBER, ETC., WHICH MOVES FROM AND TO THE SAME POINTS OVER EXTENDED PERIODS OF TIME. AS AN INSTANCE, CEMENT IS PURCHASED AT PLANTS IN THE BIRMINGHAM DISTRICT AND AT RICHARD CITY, TENNESSEE, FOR SHIPMENT TO GUNTERSVILLE, ALABAMA, AND CHATTANOOGA, TENNESSEE. THE COMMERCIAL FREIGHT RATES ON THIS COMMODITY REMAIN STABLE, BUT IN THE PREAUDIT OF CARRIERS' TRANSPORTATION BILLS BY THE GENERAL ACCOUNTING OFFICE VARYING BASES FOR THE COMPUTATION OF NET LAND GRANT RATES ARE APPLIED, WITH THE RESULT THAT THE TENNESSEE VALLEY AUTHORITY IS UNABLE TO SET UP FINAL COST FIGURES ON A PARTICULAR PURCHASE UNTIL AFTER ALL TRANSPORTATION CHARGES HAVE BEEN BILLED, PREAUDITED, AND RETURNED TO THE AUTHORITY FOR PAYMENT.

IT HAS BEEN PROPOSED THAT WITH THE LETTING OF A CONTRACT UNDER WHICH A CONTINUING MOVEMENT OF A CERTAIN COMMODITY BETWEEN SPECIFIC POINTS WILL RESULT, THERE BE ESTABLISHED A NET RATE AGREEABLE TO THE CARRIERS CONCERNED AND CONCURRED IN BY THE GENERAL ACCOUNTING OFFICE WHICH WILL BE BILLED AND ACCEPTED AS A SPECIAL RATE DURING THE LIFE OF THAT PARTICULAR CONTRACT, SUBJECT TO CHANGE ONLY IN THE EVENT OF AN INCREASE OR A DECREASE IN THE BASIC COMMERCIAL RATE. UNDER SUCH AN ARRANGEMENT THE AUTHORITY COULD WITH ALMOST DEFINITE CERTAINTY ESTABLISH FINAL COST FIGURES, A RESULT MOST DESIRABLE TO THE AUTHORITY, AND THE PAYMENT OF CARRIERS' BILLS COULD BE EXPEDITED AS IN THE EVENT OF AN AGREED RATE PREAUDIT OF TRANSPORTATION BILLS WOULD NOT BE NECESSARY.

COMMENT REGARDING THE PRACTICABILITY OF AN ARRANGEMENT SUCH AS PROPOSED WILL BE APPRECIATED.

THIS APPARENTLY ASSUMES IN THE FIRST INSTANCE THAT IT WILL BE POSSIBLE FOR THE CARRIERS AND THE GOVERNMENT TO AGREE AS TO WHAT WILL BE A PROPER NET RATE FOR APPLICATION TO CONTEMPLATED TRANSPORTATION SERVICE. THE EXPERIENCE OF THIS OFFICE IN THE SETTLEMENT OF TRANSPORTATION CLAIMS HAS BEEN SUCH AS TO GIVE RISE TO SERIOUS DOUBT WHETHER IN MANY INSTANCES SUCH A RESULT CAN BE ATTAINED, IN VIEW OF THE PROBABLE VARYING OPINIONS AS TO THE AVAILABILITY OF LAND-GRANT ROUTES AT LOWEST TARIFF RATES FOR THE SHIPMENTS CONCERNED, CONFLICTS BETWEEN THE CARRIERS AS TO THE APPLICABLE BASIS FOR DIVIDING REVENUE OVER JOINT ROUTES, AND THE OPERATION OF EQUALIZATION AGREEMENTS WHICH IN MANY INSTANCES AFFORD ONLY LIMITED EQUALIZATION OF AVAILABLE LAND-GRANT RATES. BUT EVEN ASSUMING THAT THE CARRIERS AND THE GOVERNMENT MAY BE ABLE TO CONCUR UPON A NET RATE FOR APPLICATION UNDER A GIVEN CONTRACT OF PURCHASE, IT, NEVERTHELESS, IS TRUE THAT LOWER NET RATES MAY BECOME AVAILABLE THEREAFTER DURING THE PERIOD OF SHIPMENTS AS A RESULT OF CHANGES OTHER THAN "AN INCREASE OR A DECREASE IN THE BASIC COMMERCIAL RATE.' SUCH CHANGES MAY RESULT, FOR INSTANCE, FROM ACTION INSTITUTED BY THE CARRIERS COMPRISING A JOINT LAND-GRANT ROUTE RESULTING IN DIFFERENT DISTRIBUTION OF REVENUE BETWEEN THEM, WITH CONSEQUENT CHANGE IN THE NET RATE AVAILABLE TO THE GOVERNMENT; OR TARIFFS MAY BE MODIFIED DURING THE PERIOD OF SHIPMENTS MAKING AVAILABLE OTHER LAND -GRANT ROUTES WITH LOWER NET RATES, THE BASIC COMMERCIAL RATE REMAINING THE SAME. MOREOVER, WHILE, UNDER THE PRACTICE YOU SUGGEST, EVERY REASONABLE CARE WOULD BE TAKEN AND EFFORT MADE TO ARRIVE AT THE PROPER NET RATE FOR APPLICATION, IT WOULD PROBABLY BE UNAVOIDABLE, DUE TO THE MANY COMPLICATED FACTORS INVOLVED ARISING FROM CONFLICTING TARIFF PROVISIONS, INCOMPLETE DIVISION DATA, AND VARIOUS RESTRICTIONS IN EQUALIZATION AGREEMENTS, THAT NET RATES PRODUCED UNDER THE CONDITIONS OF PRESSURE FREQUENTLY NECESSARY TO MEET ADMINISTRATIVE REQUESTS FOR PROMPT ACTION PRELIMINARY TO THE AWARD OF A CONTRACT WOULD PROVE SOMETIMES TO BE DIFFERENT FROM THOSE WHICH UPON EXAMINATION OF THE COMPLETE RECORD OF AN ACCOUNT FOR THE SERVICE AS PERFORMED WOULD BE FOUND TO BE PROPER.

ACCORDINGLY, IT DOES NOT APPEAR THAT THE INTERESTS OF THE GOVERNMENT WOULD BE SUFFICIENTLY PROTECTED THROUGH STIPULATIONS, SUCH AS SUGGESTED IN YOUR LETTER, TO THE EFFECT THAT A NET RATE AGREED UPON AS OF A CERTAIN DATE SHALL BE APPLIED THEREAFTER THROUGHOUT THE LIFE OF A CONTRACT ,SUBJECT TO CHANGE ONLY IN THE EVENT OF AN INCREASE OR DECREASE IN THE BASIC COMMERCIAL RATE.'