B-140689.OM, FEB 1, 1980

B-140689.OM: Feb 1, 1980

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ARE CONTROLLING AND ARE NOT SUBJECT TO THE REQUIREMENTS OF THE ACT RELATING TO COVERING PROCEEDS INTO THE TREASURY AS MISCELLANEOUS RECEIPTS.". PROVIDED THE PROPERTY FURNISHED THE CONTRACTOR WAS A NECESSARY INCIDENT TO PERFORMANCE OF HIS CONTRACT. STATES THAT: "THE TERM 'CONTRACTOR INVENTORY' MEANS (1) ANY PROPERTY ACQUIRED BY AND IN THE POSSESSION OF A CONTRACTOR OR SUBCONTRACTOR UNDER A CONTRACT PURSUANT TO THE TERMS OF WHICH TITLE IS VESTED IN THE GOVERNMENT. (2) ANY PROPERTY WHICH THE GOVERNMENT IS OBLIGATED OR HAS THE OPTION TO TAKE OVER UNDER ANY TYPE OF CONTRACT AS A RESULT EITHER OF ANY CHANGES IN THE SPECIFICATIONS OR PLAN THEREUNDER OR OF THE TERMINATION OF SUCH CONTRACT (OR SUBCONTRACT THEREUNDER).

B-140689.OM, FEB 1, 1980

PRECIS-UNAVAILABLE

DIRECTOR, DEFENSE ACCOUNTING AND AUDITING DIVISION:

INDORSEMENT

SECTION 204(D) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, 63 STAT. 389 REDESIGNATED SECTION 204(E) OF THE ACT OF AUGUST 31, 1954, 68 STAT. I051, 40 U.S.C. 485(E), PROVIDES THAT:

"WHERE ANY CONTRACT ENTERED INTO BY AN EXECUTIVE AGENCY OR ANY SUBCONTRACT UNDER SUCH CONTRACT AUTHORIZES THE PROCEEDS OF ANY SALE OF PROPERTY IN THE CUSTODY OF THE CONTRACTOR OR SUBCONTRACTOR TO BE CREDITED TO THE PRICE OR COST OF THE WORK COVERED BY SUCH CONTRACT OR SUBCONTRACT, THE PROCEEDS OF ANY SUCH SALE SHALL BE CREDITED IN ACCORDANCE WITH THE CONTRACT OR SUBCONTRACT."

THE REPORTS OF THE LEGISLATIVE COMMITTEES OF BOTH HOUSES OF CONGRESS IN CONNECTION WITH THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1929 CONTAIN, WITH REFERENCE TO SECTION 204(E), THE FOLLOWING EXPLANATION:

"THIS SUBSECTION RECOGNIZES THAT THE CONTRACTUAL PROVISIONS AUTHORIZING THE PROCEEDS OF SALE OF PROPERTY TO BE CREDITED TO PRICE OR COST OF THE WORK COVERED BY THE CONTRACT, ARE CONTROLLING AND ARE NOT SUBJECT TO THE REQUIREMENTS OF THE ACT RELATING TO COVERING PROCEEDS INTO THE TREASURY AS MISCELLANEOUS RECEIPTS."

THEREFORE, AND SINCE SECTION 41(H) OF THE CONTRACT REQUIRES THE CONTRACTOR TO MAKE SUCH DISPOSAL OF GOVERNMENT FURNISHED PROPERTY AS MAY BE DIRECTED OR AUTHORIZED BY THE CONTRACTING OFFICER AND PROVIDES THAT THE NET PROCEEDS OF ANY SUCH DISPOSAL BE CREDITED TO THE CONTRACT PRICE OR PAID IN SUCH OTHER MANNER AS THE CONTRACTING OFFICER MAY DIRECT, IT MAY BE STATED THAT THE PROCEEDS INVOLVED NEED NOT BE DEPOSITED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, PROVIDED THE PROPERTY FURNISHED THE CONTRACTOR WAS A NECESSARY INCIDENT TO PERFORMANCE OF HIS CONTRACT.

SECTION 203(F) OF THE ACT, 40 U.S.C. 484(F), PROVIDES THAT EXECUTIVE AGENCIES MAY AUTHORIZE CONTRACTORS OR SUBCONTRACTORS TO RETAIN OR DISPOSE OF ANY CONTRACTOR INVENTORY, AND SECTION 3(K) OF THE ACT, 40 U.S.C. 472(K), STATES THAT:

"THE TERM 'CONTRACTOR INVENTORY' MEANS (1) ANY PROPERTY ACQUIRED BY AND IN THE POSSESSION OF A CONTRACTOR OR SUBCONTRACTOR UNDER A CONTRACT PURSUANT TO THE TERMS OF WHICH TITLE IS VESTED IN THE GOVERNMENT, AND IN EXCESS OF THE AMOUNTS NEEDED TO COMPLETE FULL PERFORMANCE UNDER THE ENTIRE CONTRACT; AND (2) ANY PROPERTY WHICH THE GOVERNMENT IS OBLIGATED OR HAS THE OPTION TO TAKE OVER UNDER ANY TYPE OF CONTRACT AS A RESULT EITHER OF ANY CHANGES IN THE SPECIFICATIONS OR PLAN THEREUNDER OR OF THE TERMINATION OF SUCH CONTRACT (OR SUBCONTRACT THEREUNDER), PRIOR TO COMPLETION OF THE WORK, FOR THE CONVENIENCE OR AT THE OPTION OF THE GOVERNMENT."

THE PROPERTY INVOLVED ORDINARILY WOULD FALL SQUARELY WITHIN THIS DEFINITION NOTWITHSTANDING THAT IT MIGHT HAVE BEEN USED UNDER SUCCESSIVE PRODUCTION CONTRACTORS; HOWEVER, IMPLICIT IN THE DEFINITION AND IN THE PROVISION OF SECTION 204(E), ABOVE, IS THAT THE PROPERTY MUST HAVE BEEN ACQUIRED IN CONNECTION WITH THE REQUIREMENTS OF THE CONTRACT. ACCORDINGLY, ONLY IF THE PROCEEDS FROM SALES OF THE SURPLUS MACHINE TOOLS REFERRED TO INCLUDE AN AMOUNT FOR ITEMS THAT WERE NEVER USED OR CONTEMPLATED FOR USE BY THE CONTRACTOR EVEN THOUGH A PART OF THE FACILITY FURNISHED, THAT AMOUNT MAY NOT BE CONSIDERED CONTRACTOR INVENTORY AND MUST BE COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS.