B-119832, AUGUST 30, 1955, 35 COMP. GEN. 113

B-119832, AUGUST 30, 1955, 35 COMP. GEN. 113

CONTRACTS - FOOD SERVICES - RETENTION OF PERCENTAGE OF RECEIPTS FOR REPAIRS AND IMPROVEMENTS CONTRACTS FOR FOOD SERVICES IN GOVERNMENT-OWNED OR LEASED BUILDINGS LOCATED OUTSIDE THE DISTRICT OF COLUMBIA WHICH INCLUDE PROVISION FOR PAYMENT OF A PERCENTAGE OF THE GROSS RECEIPTS INTO A RESERVE AND FOR THE USE OF SUCH RESERVE FOR REPAIR AND REPLACEMENT OF GOVERNMENT-OWNED EQUIPMENT ARE CONTRARY TO SECTION 3617, R.S., AND 40 U.S.C. 303 (B), WHICH REQUIRE THE DEPOSIT OF MONEY FOR THE USE OF THE UNITED STATES, AND MONEY DERIVED FROM RENTALS, INTO THE TREASURY AS MISCELLANEOUS RECEIPTS AND PROHIBIT INCLUSION OF REPAIR AND IMPROVEMENT PROVISIONS IN LEASES. THE EVALUATION OF BIDS FOR FOOD SERVICES IN GOVERNMENT-OWNED OR LEASED BUILDINGS ON THE BASIS OF THE SALES PRICE TO BE CHARGED EMPLOYEES FOR FOOD MAY BE REGARDED AS ADVANTAGEOUS TO THE GOVERNMENT PRICE, AND OTHER FACTORS CONSIDERED, IN ACCORDANCE WITH SECTION 303 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949.

TO THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, AUGUST 30, 1955:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 23, 1954, REQUESTING THE COMMENTS OF THIS OFFICE RELATIVE TO PROPOSED STANDARD FOOD SERVICE CONTRACT FORMS FOR OPERATIONS IN GOVERNMENT-OWNED OR GOVERNMENT-LEASED BUILDINGS OUTSIDE OF THE DISTRICT OF COLUMBIA. SUBSEQUENTLY, YOU REQUESTED THAT COMMENT BE WITHHELD PENDING THE COMPLETION OF A SURVEY OF THE VIEWS OF INTERESTED PARTIES IN THE INDUSTRY. BY LETTER OF MARCH 30, 1955, YOUR ADMINISTRATION TRANSMITTED A LETTER DATED MARCH 14, 1955, FROM NATIONWIDE FOOD SERVICE, INC., AND STATED THAT NO REPORT HAD BEEN RECEIVED FROM THE NATIONAL RESTAURANT ASSOCIATION RELATIVE TO THE MATTER.

INASMUCH AS IT HAS BEEN ASCERTAINED THAT SEVERAL CONTRACTS HAVE ALREADY BEEN ENTERED INTO CONTAINING PROVISIONS SUBSTANTIALLY SIMILAR TO THOSE CONTAINED IN THE FORMS SUBMITTED, AND THE COMPLETION OF THE GENERAL ACCOUNTING OFFICE AUDIT OF SUCH EXISTING CONTRACTS IS DEPENDENT UPON THE DECISION REACHED AS TO THE LEGALITY AND PROPRIETY OF CERTAIN OF THOSE PROVISIONS, IT IS DEEMED DESIRABLE TO DISPOSE OF THE MATTER AT THIS TIME ON THE BASIS OF THE INFORMATION NOW AVAILABLE.

PARAGRAPH 7 (A) OF THE GENERAL CONDITIONS OF THE CONTRACT FORM PROVIDES THAT THE CONTRACTOR SHALL PAY TO THE UNITED STATES AS A FEE A PERCENTAGE OF THE GROSS REVENUE. PARAGRAPH 7 (B) PROVIDES IN PART:

RESERVE FOR EQUIPMENT ACCOUNT. NOT LATER THAN THE 10TH DAY OF EACH CALENDAR MONTH BEGINNING WITH THE 2D MONTH OF OPERATION, THE OPERATOR SHALL DEPOSIT IN A SPECIAL ACCOUNT IN A BANK DESIGNATED BY THE CONTRACTING OFFICER, A PERCENTAGE OF THE GROSS REVENUE FOR THE PRECEDING MONTH. THE PERCENTAGE TO BE DEPOSITED IS STATED IN THE SPECIFICATIONS UNDER " FINANCIAL TERMS.' THIS ACCOUNT WILL BE OPENED BY THE CONTRACTING OFFICER IN THE NAME OF THE FACILITIES TO BE OPERATED UNDER THIS CONTRACT AND SHALL BE SUBJECT TO THE STIPULATION THAT WITHDRAWALS FROM THE ACCOUNT WILL BE PERMITTED ONLY WHEN CHECKS OR WITHDRAWAL VOUCHERS ARE SIGNED BY BOTH THE OPERATOR AND THE CONTRACTING OFFICER OR THEIR DESIGNATED REPRESENTATIVES, AND THAT BANK STATEMENTS OF THE ACCOUNT FURNISHED PERIODICALLY BY THE BANK SHALL BE MAILED TO THE OPERATOR WHO SHALL HAVE CUSTODY OF THE CHECK BOOK. FUNDS IN THE ACCOUNT SHALL BE USED FOR THE REPLACEMENT OR MAJOR REPAIR OF GOVERNMENT-OWNED EQUIPMENT, THE REPLACEMENT OF MAJOR COMPONENT PARTS THEREOF, AND THE PURCHASE OF ADDITIONAL EQUIPMENT AS PROVIDED IN PARAGRAPHS 4 (A) AND (B).

DEPOSITS INTO THE SPECIAL ACCOUNT SHALL BE SUSPENDED WHEN THE BALANCE IN THE ACCOUNT EQUALS A PERCENTAGE OF THE TOTAL REPLACEMENT VALUE OF THE GOVERNMENT-OWNED EQUIPMENT, AS DETERMINED BY THE CONTRACTING OFFICER AT THE END OF EACH CONTRACT YEAR. THE AMOUNT OF SUCH PERCENTAGE IS STATED IN THE SPECIFICATIONS UNDER " FINANCIAL TERMS.' DEPOSITS SHALL BE RESUMED WHENEVER THE BALANCE IN THE SPECIAL ACCOUNT FALLS BELOW THE STATED PERCENTAGE OF REPLACEMENT VALUE. DURING PERIODS OF SUSPENDED PAYMENT, THE PERCENTAGE OF GROSS REVENUE USUALLY PAID INTO THE SPECIAL ACCOUNT SHALL BE PAID TO THE GOVERNMENT IN THE SAME MANNER AS THE FEE PROVIDED FOR IN PARAGRAPH (A).

IT IS NOTED THAT CONTRACT NO. GS-04B-1962, DATED NOVEMBER 1, 1952, WITH TRAVIS P. RODGERS, COVERING THE OPERATION OF A CAFETERIA IN THE GOVERNMENT -OWNED DON CE SAR BUILDING, PASS-A-GRILLE BEACH, FLORIDA--- PARAGRAPH 10 (B) OF WHICH IS SIMILAR TO THE ABOVE-QUOTED PARAGRAPH 7 (B) OF THE PROPOSED CONTRACT FORM--- PROVIDES THAT THE CONTRACTOR SHALL PAY A FEE OF TWO PERCENT OF THE GROSS REVENUE TO THE UNITED STATES AND ALSO SHALL DEPOSIT ONE PERCENT OF THE GROSS REVENUE IN A SPECIAL BANK ACCOUNT AS A RESERVE FOR EQUIPMENT. THAT CONTRACT ALSO PROVIDES THAT SPECIFIED EQUIPMENT SHALL BE PROVIDED BY THE GOVERNMENT AND THAT THE RESERVE ACCOUNT SHALL BE USED FOR THE REPAIR OR REPLACEMENT OF SUCH GOVERNMENT-OWNED EQUIPMENT.

SECTION 3617, REVISED STATUTES, 31 U.S.C. 484, PROVIDES:

THE GROSS AMOUNT OF ALL MONEYS RECEIVED FROM WHATEVER SOURCE FOR THE USE OF THE UNITED STATES, EXCEPT AS OTHERWISE PROVIDED IN SECTION 487 OF THIS TITLE, SHALL BE PAID BY THE OFFICER OR AGENT RECEIVING THE SAME INTO THE TREASURY, AT AS EARLY A DAY AS PRACTICABLE, WITHOUT ANY ABATEMENT OR DEDUCTION ON ACCOUNT OF SALARY, FEES, COSTS, CHARGES, EXPENSES, OR CLAIM OF ANY DESCRIPTION WHATEVER. * * * IT IS CONTENDED IN YOUR LETTER OF APRIL 23, 1954, THAT THE COST OF REPAIR AND REPLACEMENT OF GOVERNMENT- OWNED EQUIPMENT IS "AN OPERATING EXPENSE WHICH SHOULD BE BORNE FROM THE PROCEEDS OF THE OPERATION" AND THAT THEREFORE THE RECEIPTS PROPOSED TO BE DEPOSITED AS A RESERVE FOR EQUIPMENT ARE NOT RECEIVED "FOR THE USE OF THE UNITED STATES" WITHIN THE MEANING OF 31 U.S.C. 484.

YOU SUGGEST, ALSO, THAT THE PROPOSED ESTABLISHMENT OF THE RESERVE FOR EQUIPMENT IS NOT IN CONTRAVENTION OF 40 U.S.C. 303B, WHICH PROVIDES:

EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY LAW, THE LEASING OF BUILDINGS AND PROPERTIES OF THE UNITED STATES SHALL BE FOR A MONEY CONSIDERATION ONLY, AND THERE SHALL NOT BE INCLUDED IN THE LEASE ANY PROVISION FOR THE ALTERATION, REPAIR, OR IMPROVEMENT OF SUCH BUILDINGS OR PROPERTIES AS A PART OF THE CONSIDERATION FOR THE RENTAL TO BE PAID FOR THE USE AND OCCUPATION OF THE SAME. THE MONEYS DERIVED FROM SUCH RENTALS SHALL BE DEPOSITED AND COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS. YOUR CONTENTION IN THAT RESPECT IS THAT THE CONTRACTS IN QUESTION SHOULD NOT BE REGARDED AS LEASES SINCE THE AUTHORITY OF THE GENERAL SERVICES ADMINISTRATION TO LEASE SPACE IN GOVERNMENT-OWNED OR GOVERNMENT-LEASED BUILDINGS EXISTS ONLY WITH RESPECT TO SURPLUS SPACE AND THE SPACE USED FOR FURNISHING FOOD SERVICES IS NOT REGARDED AS SURPLUS.

IN 10 COMP. GEN. 382 IT WAS STATED WITH REFERENCE TO SECTION 3617 REVISED STATUTES---

THE WORDING OF THIS SECTION OF THE STATUTES IS INCLUSIVE AND ADMITS OF BUT ONE MEANING, NAMELY, THAT THE MONEY SHALL BE DEPOSITED TO THE CREDIT OF THE TREASURER OF THE UNITED STATES FOR COVERING INTO THE TREASURY TO THE CREDIT OF AN APPROPRIATION, TRUST OR SPECIAL FUND (BY REPAY COVERING WARRANT) OR TO THE CREDIT OF THE GENERAL FUND OF THE TREASURY, AS MISCELLANEOUS RECEIPTS. THE CONGRESS IN THE ENACTMENT OF SECTION 3617, SUPRA, AND OTHER APPLICABLE LAWS CLEARLY INDICATED AN INTENTION TO CONFINE THE USE OF FUNDS BY OFFICERS OR AGENTS OF THE UNITED STATES FOR DISBURSING PURPOSES TO THE FUNDS ADVANCED ON ACCOUNTABLE WARRANT PURSUANT TO THE VARIOUS APPROPRIATION ACTS. THE REQUIREMENT OF THESE STATUTES IS NOTHING MORE THAN IN FURTHERANCE OF THE PROVISIONS OF THE CONSTITUTION, ARTICLE I, SECTION 9, PARAGRAPH 7, THAT " NO MONEY SHALL BE DRAWN FROM THE TREASURY BUT IN CONSEQUENCE OF APPROPRIATIONS MADE BY LAW.' INDEED THE INTENT CAN REASONABLY BE SAID TO APPEAR THAT ALL THE PUBLIC MONEYS SHALL GO INTO THE TREASURY; APPROPRIATIONS THEN FOLLOW.

THE CONTRACTS AND CONTRACT FORMS NOW UNDER CONSIDERATION PROVIDE THAT A SPECIFIED PERCENTAGE OF THE GROSS REVENUE SHALL BE DEPOSITED AS A RESERVE FOR EQUIPMENT AND THAT ALL OF SUCH RESERVE SHALL EITHER BE USED TO REPAIR OR REPLACE GOVERNMENT-OWNED EQUIPMENT OR BE PAID TO THE GOVERNMENT AT THE TERMINATION OF THE CONTRACT. IT SEEMS OBVIOUS, THEREFORE, THAT THE ENTIRE AMOUNT OF SUCH RESERVE IS "FOR THE USE OF THE UNITED STATES" WITHIN THE MEANING OF SECTION 3617, REVISED STATUTES, AND SHOULD BE DEPOSITED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS IRRESPECTIVE OF WHETHER THE CONTRACTS PROPERLY MAY BE REGARDED AS LEASES SO AS TO BE GOVERNED BY THE REQUIREMENT OF SECTION 321 OF THE ACT OF JUNE 30, 1932, 47 STAT. 412, 40 U.S.C. 303 (B), THAT MONEYS DERIVED FROM RENTALS ARISING FROM THE LEASING OF BUILDINGS AND PROPERTIES OF THE UNITED STATES SHALL BE DEPOSITED AND COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS. MOREOVER, WHETHER THE CONTRACTS ARE LEASES OR NOT, THEY PARTAKE OF THE NATURE OF LEASES TO SUCH AN EXTENT THAT THE PROVISIONS OF 40 U.S.C. 303 (B) PROPERLY MAY BE REGARDED AS AT LEAST PERSUASIVE THAT ALL AMOUNTS RECEIVED FOR THE BENEFIT OF THE GOVERNMENT UNDER THESE CONTRACTS SHOULD NOT BE INCLUDED IN THE CONSIDERATION ANY PROVISION FOR REPAIR OR IMPROVEMENT OF THE PROPERTIES INVOLVED. ACCORDINGLY, IT MUST BE HELD THAT THE CONTRACT PROVISIONS FOR THE ESTABLISHMENT OF THE RESERVE FOR EQUIPMENT AND THE PAYMENT OF A PORTION OF THE GROSS REVENUE INTO SUCH RESERVE ARE UNAUTHORIZED. ACTION SHOULD BE TAKEN IN YOUR ADMINISTRATION TO REVISE THE CONTRACTS AND CONTRACT FORMS ACCORDINGLY AND TO DEPOSIT INTO THE TREASURY AS MISCELLANEOUS RECEIPTS ANY AMOUNTS NOW HELD IN THE RESERVE FUNDS.

ANOTHER QUESTION PRESENTED IN YOUR LETTER ARISES FROM THE FACT THAT THE CONTRACT FORMS PROVIDE THAT THE GOVERNMENT SHALL RECEIVE A PREDETERMINED PERCENTAGE OF GROSS REVENUE SUFFICIENT TO RECOVER THE COST OF SERVICES PROVIDED BY THE GOVERNMENT AND THE BIDDING BASIS BECOMES THE SALES PRICES WHICH BIDDERS PROPOSE TO CHARGE FOR FOOD SERVICES. IT IS STATED IN THE LETTER THAT THE NEW BIDDING BASIS IS PROPOSED IN ORDER TO CORRECT CERTAIN UNSATISFACTORY FEATURES OF EARLIER GENERAL SERVICES ADMINISTRATION FOOD SERVICE CONTRACTS; THAT UNDER ONE EARLIER TYPE OF CONTRACT--- AWARDED TO THE QUALIFIED BIDDER OFFERING TO PROVIDE THE SERVICE FOR THE LOWEST PERCENTAGE OF GROSS REVENUE, THE GOVERNMENT TO RECEIVE ANY BALANCE REMAINING AFTER PAYMENT OF THIS PERCENTAGE PLUS OPERATION EXPENSES--- THE GOVERNMENT SELDOM RECEIVED ANY PAYMENTS TO OFFSET ITS EXPENSES; AND THAT UNDER A LATER TYPE OF CONTRACT--- AWARDED TO THE QUALIFIED BIDDER OFFERING TO PAY THE HIGHEST PERCENTAGE OF GROSS REVENUE TO THE GOVERNMENT--- THERE WAS A TENDENCY TO DECREASE THE THE QUALITY OF FOOD AND SERVICE WHILE THE GOVERNMENT RECEIVED MORE THAN NECESSARY TO OFFSET ITS COSTS. THE PROPOSED NEW BIDDING BASIS IS INTENDED TO ASSURE THE GOVERNMENT OF RECOVERY OF ITS COSTS, WHILE ALSO ASSURING GOVERNMENT EMPLOYEES OF OBTAINING FOOD SERVICES AT A MINIMUM COST.

SECTION 303 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, 63 STAT. 395, 41 U.S.C. 253, PROVIDES IN PART AS FOLLOWS:

WHENEVER ADVERTISING IS REQUIRED---

(B) * * * AWARD SHALL BE MADE WITH REASONABLE PROMPTNESS BY WRITTEN NOTICE TO THAT RESPONSIBLE BIDDER WHOSE BID, CONFORMING TO THE INVITATION FOR BIDS, WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED * * *. THE PROPOSED BIDDING BASIS MIGHT BE REGARDED AS POSSIBLY NOT BEING MOST ADVANTAGEOUS TO THE GOVERNMENT FROM A FINANCIAL STANDPOINT. HOWEVER, THERE IS FOR CONSIDERATION THE FACT THAT THE CHIEF PURPOSE OF CONTRACTING FOR FOOD SERVICE IN GOVERNMENT BUILDINGS IS NOT TO OBTAIN THE GREATEST POSSIBLE DIRECT FINANCIAL RETURN BUT TO SERVE THE INTERESTS OF THE GOVERNMENT INDIRECTLY BY PROVIDING SUITABLE FACILITIES FOR GOVERNMENT EMPLOYEES AND ADVANCING THEIR WELFARE IN ORDER THAT THE GOVERNMENT MAY BE ENABLED TO EMPLOY AND RETAIN THE NUMBER AND TYPE OF EMPLOYEES NECESSARY FOR CONDUCTING ITS BUSINESS IN A SATISFACTORY MANNER. ON THIS BASIS, THERE IS NOT PERCEIVED ANY VALID OBJECTION TO THE PROPOSED BIDDING BASIS, SINCE IT PROPERLY MAY BE REGARDED AS FOR THE BENEFIT OF THE GOVERNMENT,"PRICE AND OTHER FACTORS CONSIDERED.' IT IS SUGGESTED, HOWEVER, THAT YOUR ADMINISTRATION MAINTAIN AS A PART OF ITS PERMANENT CONTRACT FILES A DETAILED RECORD SHOWING THE BASIS UPON WHICH THE PREDETERMINED PERCENTAGE OF GROSS REVENUE TO BE PAID TO THE GOVERNMENT IS ESTABLISHED. IT SEEMS THAT SUCH PERCENTAGE MIGHT VARY IN DIFFERENT CONTRACTS IN ORDER TO ASSURE THE RECOVERY BY THE GOVERNMENT OF ITS PERTINENT COSTS.