B-132900 June 3, 1976

B-132900 June 3, 1976

No Digest

David L. Hirsch, Esq. Senior Corporate Counsel, Norris Industries P. O. Box 58507, Vernon Branch 5215 South Boyle Avenue Los Angeles, California 90058

Dear Mr. Hirsch:

By letter of March 12, 1976, you requested our views concerning your proposal for a contract modification to ten contracts executed between Norris Industries (Norris) and the Department of the Army (DOA), under which payment has been suspended due to the overobligation of four DOA appropriations, in violation of the Antideficiency Act, 31 U.S.C. Sec. 665(a) (1970). You indicate that performance has now been completed on the subject contracts, and that the total amount now due is $2,900,00. Your concern is that Norris be recompensed for interest charge incurred on loans secured to continue its operations in light of the suspension of payment. The proposal is as follows:

"1. The Army would amend each of the ten contracts involved to reflect the amount owed, the date upon which the sum was owed to us and the amount of interest to be paid from the date the sum was owed until the funds were provided to us by the Government.

"2. Each of these separate amendments would include a clause which would say in effect that the Army's agreement to pay the sum owed plus interest is conditioned upon the Congress appropriating the funds. In the event the funds are never appropriated, then the agreement for both interest and payment would be null and void.

The subject contracts are among 1200 contracts on which payment has been suspended by DOA. We understand that the contractors involved are generally without fault in this matter. In our letter to the Chairman, House Appropriations Committee, dated February 19, 1976, B-132900, 55 Comp. Gen. 769, we presented our views on several proposals made by DOA to deal with those overobligations. DOA's proposals involved contracts on which performance had not been completed. One of DOA's proposals was to modify the existing contracts so as to recognize the Government's obligation to pay, subject to the subsequent availability of funds. Pursuant to this proposal, continued performance would be at the risk of the contractor in that he would be assuming that legislation relief would be granted. If appropriations were subsequently made available, both the amount due under similar to yours, accept to the extant that it was specifically designed to provide a means whereby DOA could obtain continued performance under the contracts. We indicated that the proposal was, at best, of dubious validity. As for the provision of interest thereunder, we indicated as follows:

"Finally, there is clearly no legal basis for the inclusion of interest payments under proposed action 2c. It is wall settled that payment of interest by the Government may not be made except when interest is provided for in legal and proper contracts or when allowance of interest is specifically directed by statute. See Angarica v. Bayard, 127 U.S. 251 (1838); United States v. North American Transportation and Trading Co., 253 U.S. 330 (1920); Seaboard Air line Railway Co. v. United States, 261 U.S. 299 (1923); Smyth v. United States, 302 U.S. 329 (1937; United States v. Hotel Co., 329 U.S. 585 1947). Certainly, therefore, no interest can be paid on any amounts already due and payable to the instant contractors, or which will become due and payable prior to any contract modification, unless the existing contracts provide therefore. See B-103315, February 14, 1972. Moreover, any contract modification providing for interest on amounts which subsequently become due and payable, would actually increase the amount of the overobligation, above the full contract amounts already recorded as obligated. Therefore, inclusion of an interest provision would constitute a new and additional violation of the Antideficiency Act and related statutes controlling the obligation of appropriations. Cf., 51 Comp Gen. 251, 252 (1971)."

As we indicated in B-132900, supra, the "* * * inclusion of an interest provision would constitute a new and additional violation of the Antideficiency Act and related statutes controlling the obligation of appropriations." This is true whether or not the contracts were completed. You argue, however, that no violation would occur under your proposal because the proposed modification would contain a clause conditioning the payment upon the appropriated, the agreement for both interest and payment would be null and void.

Basically, your proposal would provide for the execution of a contract modification subsequent to the exhaustion of available appropriations (and hence clearly in violation of the Antideficiency Act, supra), contingent upon the enactment of a deficiency appropriation to make payment therefor.

To the extent that it would have any legal effect, this modification would necessarily increase the amount of the deficiency appropriation needed to liquidate the overobligations, and thereby seriously prejudice congressional options in appropriating for the deficiency. Moreover, it would involve DOA in the augmentation rather than mitigation of the deficiency. See B-132900, supra. We believe that institution of this proposal would be inconsistent with the Antideficiency Act, and related statutes, even if it is not viewed as creating appropriation obligation in a strict sense. Cf., 42 Comp. Gen 272, 277 (1962).

The precedent cited for the modification is, in our view, inapposite. We cannot agree that the validity of your proposal is supported by incrementally funded contracts entered into by the Department of Defense or other agencies which have statutory authority to do so. Statutory authority is necessary to avoid restrictions on the obligation of funds in advance of appropriations. See 42 Comp. Gen. 272, supra. Such restrictions are applicable even where the obligation is made contingent upon the enactment of future appropriations. 48 Comp. Gen. 497 (1969); Laiter v, United States, 271 U.S. 204 (1926). But cf. 39 Comp. Gen. 340, 342 (1959) and 39 Comp. Gen. 776, 778-779 (1960. [*] Incremental funding is generally used to carry out and pay for large projects in fiscal year installments. Continued performance and payment therefor in future fiscal years is made contingent upon the enactment of future appropriations, rather than a deficiency appropriation for the year in which the contract is executed. Moreover, before additional amounts may be spent on such contracts, the contract ceiling (which is established when the contract is executed) must be increased. Also, such contracts may be terminated at any time, or options to review for future years may not be exercised. In short, many discretionary acts must be taken by the contracting agency before additional sums may be spent on incrementally funded contracts. The proposed modification would make funding contingent only upon the enactment of a deficiency appropriation.

We are also unable to agree that the provision for payment of "precontract costs" in Armed Services Procurement Regulation Sec. 15-205.30 (1975 ad.), incurred by a contractor in anticipation of the award of a cost reimbursable contract supports your proposed modification. Such payment is conditioned on subsequent award of the contract, whereas the subject modification would improperly condition payment only on the enactment of a deficiency appropriation. See Laiter v. Unites States, supra.

We understand the hardship that this situation has caused Norris, but must regretfully advise you that we find no legal basis for the contract modification you propose.

* Enclosed for your ready reference are copies of the GAO decisions cited herein.