B-197057.OM, AUG 22, 1980

B-197057.OM: Aug 22, 1980

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YOUR QUESTIONS AND THE ANSWERS TO THOSE QUESTIONS ARE GIVEN BELOW. AS YOU ARE AWARE. ONLY THOSE GOVERNMENT OFFICIALS WITH CONTRACTING AUTHORITY (USUALLY CONTRACTING OFFICERS) ARE ABLE TO CONTRACTUALLY BIND THE GOVERNMENT. WHEN AN AGREEMENT IS ENTERED INTO ON BEHALF OF THE GOVERNMENT BY SOMEONE WITHOUT CONTRACTING AUTHORITY SUCH AS A PROGRAM OFFICIAL. THE GOVERNMENT IS NOT BOUND BY THE TERMS OF THAT AGREEMENT. OR BY CONTRACTING OFFICERS IN EXCESS OF THE LIMITS OF THEIR DELEGATED AUTHORITY MAY BE LATER RATIFIED. *** GENERALLY SUCH RATIFICATION MAY BE MADE ONLY BY AN OFFICIAL ON WHOSE BEHALF THE CONTRACT WAS MADE AND THEN ONLY (A) IF HE COULD HAVE GIVEN AUTHORITY TO ENTER INTO THE CONTRACT BEFORE IT WAS AWARDED AND (B) IF HE STILL HAS POWER TO DO SO AT THE TIME OF THE RATIFICATION.".

B-197057.OM, AUG 22, 1980

DIGEST: THE DEPARTMENT OF ENERGY'S RATIFICATION OF INFORMAL COMMITMENTS AND USE OF PRECONTRACT COST AUTHORIZATIONS (B-197057)

DIRECTOR, EMD:

IN CONNECTION WITH YOUR CONTINUING REVIEW OF THE PROCUREMENT PRACTICES OF THE DEPARTMENT OF ENERGY (DOE), YOU ASKED SEVERAL QUESTIONS REGARDING DOE'S ROUTINE RATIFICATION OF INFORMAL COMMITMENTS MADE BY PROGRAM OFFICIALS AND DOE'S FREQUENT USE OF PRECONTRACT COST AUTHORIZATIONS. YOUR QUESTIONS AND THE ANSWERS TO THOSE QUESTIONS ARE GIVEN BELOW.

RATIFICATION OF INFORMAL COMMITMENTS MADE BY PROGRAM OFFICIALS

1. UNDER WHAT CIRCUMSTANCES MAY AN UNAUTHORIZED COMMITMENT LEGALLY BE RATIFIED BY A CONTRACTING OFFICIAL?

AS YOU ARE AWARE, ONLY THOSE GOVERNMENT OFFICIALS WITH CONTRACTING AUTHORITY (USUALLY CONTRACTING OFFICERS) ARE ABLE TO CONTRACTUALLY BIND THE GOVERNMENT. THUS, WHEN AN AGREEMENT IS ENTERED INTO ON BEHALF OF THE GOVERNMENT BY SOMEONE WITHOUT CONTRACTING AUTHORITY SUCH AS A PROGRAM OFFICIAL, THE GOVERNMENT IS NOT BOUND BY THE TERMS OF THAT AGREEMENT. NEVERTHELESS, THE GOVERNMENT MAY, DEPENDING UPON THE CIRCUMSTANCES, ELECT TO RATIFY THE INFORMAL COMMITMENT AND THEREBY BE BOUND BY THE TERMS OF THE AGREEMENT.

SECTION 1-1.405 OF THE FEDERAL PROCUREMENT REGULATIONS (FPR) (1964 ED.), 41 C.F.R. SEC. 1-1.405 (1979), PROVIDES IN PERTINENT PART:

"EXECUTION OF OTHERWISE PROPER CONTRACTS MADE BY INDIVIDUALS WITHOUT CONTRACTING AUTHORITY, OR BY CONTRACTING OFFICERS IN EXCESS OF THE LIMITS OF THEIR DELEGATED AUTHORITY MAY BE LATER RATIFIED. *** GENERALLY SUCH RATIFICATION MAY BE MADE ONLY BY AN OFFICIAL ON WHOSE BEHALF THE CONTRACT WAS MADE AND THEN ONLY (A) IF HE COULD HAVE GIVEN AUTHORITY TO ENTER INTO THE CONTRACT BEFORE IT WAS AWARDED AND (B) IF HE STILL HAS POWER TO DO SO AT THE TIME OF THE RATIFICATION."

UNDER THE TERMS OF THE QUOTED REGULATION, AN INFORMAL COMMITMENT MAY BE RATIFIED ONLY IF THE COMMITMENT COULD HAVE BEEN PROPERLY MADE BY THE CONTRACTING OFFICER IN THE FIRST PLACE. IN OTHER WORDS, A CONTRACTING OFFICER CANNOT RATIFY AN AGREEMENT WHICH DOES NOT INCLUDE THE CLAUSES AND CONDITIONS REQUIRED BY LAW OR REGULATIONS, WHICH WOULD VIOLATE ANY SUBSTANTIVE LEGAL REQUIREMENT, OR WHICH WOULD BE IN EXCESS OF THE CONTRACTING OFFICER'S AUTHORITY. FOR EXAMPLE, A CONTRACTING OFFICER MAY NOT RATIFY A SOLE-SOURCE COMMITMENT OF A PROGRAM OFFICIAL IF A SOLE SOURCE PROCUREMENT WOULD NOT HAVE BEEN PROPER IN THE FIRST INSTANCE OR WOULD NOT BE PROPER AT THE TIME OF THE RATIFICATION.

THIS DOES NOT MEAN, HOWEVER, THAT THE GOVERNMENT WILL NOT BE LIABLE TO THE CONTRACTOR FOR THE REASONBLE VALUE OF ANY GOODS OR SERVICES PROVIDED TO THE GOVERNMENT ON A QUANTUM MERUIT OR QUANTUM VALEBAT BASIS. FOR EXAMPLE, UNDER THE IMPROPER SOLE SOURCE EXAMPLE ABOVE, THE GOVERNMENT WOULD BE LIABLE TO THE CONTRACTOR TO THE EXTENT THE CONTRACTOR CONFERRED A BENEFIT UPON THE GOVERNMENT, OR IN OTHER WORDS, TO THE EXTENT THE GOVERNMENT ACCEPTED OR UTILIZED ANY GOODS OR SERVICES PROVIDED BY THE CONTRACTOR. 33 COMP.GEN. 533, 537 (1954). THE REASON THE GOVERNMENT IS LIABLE IS THAT IT WOULD BE UNFAIR FOR THE GOVERNMENT TO RETAIN THE BENEFITS OF THE CONTRACTOR'S LABOR WITHOUT COMPENSATING THE CONTRACTOR. 40 COMP.GEN. 447, 451 (1961).

OF COURSE, PAYMENT OF CONTRACTOR CLAIMS ON A QUANTUM MERUIT OR QUANTUM VALEBAT BASIS IS AN EXTRAORDINARY PROCEDURE AND SHOULD NOT BE VIEWED AS AN ALTERNATIVE TO PROPER CONTRACTING PRACTICES. ADDITIONALLY, DOE SHOULD TAKE CARE IN DETERMINING THE REASONABLENESS OF THE VALUE OF THE SERVICES ACCEPTED AND NOT BLINDLY ACCEPT THE AMOUNT AGREED TO BY THE OFFICIAL MAKING THE UNAUTHORIZED COMMITMENT.

2. ARE DOE REGULATIONS CONCERNING RATIFICATIONS CONSISTENT WITH THE FEDERAL PROCUREMENT REGULATIONS?

SECTION 9-1.405 OF THE DEPARTMENT OF ENERGY PROCUREMENT REGULATIONS (DOE- PR), 41 C.F.R. SEC. 9-1.405 (1979), PROVIDES:

"(A) THE GOVERNMENT IS NOT GENERALLY BOUND BY AGREEMENTS OR CONTRACTUAL COMMITMENTS MADE TO CONTRACTORS OR PROSPECTIVE CONTRACTORS BY PERSONS TO WHOM PROCUREMENT AUTHORITY HAS NOT BEEN DELEGATED. SUCH UNAUTHORIZED ACTS MAY BE IN VIOLATION OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT, OTHER FEDERAL LAWS, THE FPR, THE DOE-PR AND GOOD PROCUREMENT PRACTICE, E.G., CERTAIN REQUIREMENTS OF LAW AND REGULATION NECESSARY FOR THE PROPER ESTABLISHMENT OF A CONTRACTUAL OBLIGATION MAY NOT BE MET, SUCH AS CERTIFICATION OF THE AVAILABILITY OF FUNDS, DETERMINATIONS AND FINDINGS, COMPETITION OF SOURCES, DETERMINATION OF CONTRACTOR RESPONSIBILITY, PRICE/COST ANALYSIS, ADMINISTRATIVE APPROVALS, NEGOTIATIONS OF APPROPRIATE CONTRACT CLAUSES, ETC.

"(B) CONTRACTING OFFICERS SHALL NOT RATIFY CONTRACTUAL COMMITMENTS MADE BY OTHER PERSONNEL OF DOE WITHOUT THE PRIOR APPROVAL OF THE HEAD OF THE PROCURING ACTIVITY OR THE SENIOR PROCUREMENT OFFICIAL, HEADQUARTERS, AND AFTER CONSULTATION WITH COUNSEL. THIS APPROVAL AUTHORITY SHALL NOT BE REDELEGATED.

"(C) REQUESTS RECEIVED BY CONTRACTING OFFICERS FOR RATIFICATION OF COMMITMENTS MADE BY PERSONNEL LACKING CONTRACTING AUTHORITY SHALL BE PROCESSED AS FOLLOWS:

(1) THE INDIVIDUAL WHO MADE THE UNAUTHORIZED CONTRACTUAL COMMITMENT SHALL FURNISH THE CONTRACTING OFFICER ALL RECORDS AND DOCUMENTS CONCERNING THE COMMITMENT AND A COMPLETE, WRITTEN STATEMENT OF FACTS, INCLUDING, BUT NOT LIMITED TO A STATEMENT AS TO WHY THE PROCUREMENT OFFICE WAS NOT USED, WHY THE PROPOSED CONTRACTOR WAS SELECTED AND A LIST OF OTHER SOURCES CONSIDERED, DESCRIPTION OF WORK TO BE PERFORMED OR PRODUCTS TO BE FURNISHED, ESTIMATED OR AGREED CONTRACT PRICE, CITATION OF APPROPRIATION AVAILABLE, AND A STATEMENT AS TO WHETHER THE CONTRACTOR HAS COMMENCED PERFORMANCE.

(2) THE CONTRACTING OFFICER WILL REVIEW THE FILE AND FORWARD IT TO THE HEAD OF THE PROCURING ACTIVITY OR THE SENIOR PROCUREMENT OFFICIAL, HEADQUARTERS, WITH ANY COMMENTS OR INFORMATION WHICH SHOULD BE CONSIDERED IN EVALUATION OF THE REQUEST FOR RATIFICATION. THE HEAD OF THE PROCURING ACTIVITY OR THE SENIOR PROCUREMENT OFFICIAL, HEADQUARTERS WILL COORDINATE THE REQUEST FOR RATIFICATION WITH COUNSEL.

(3) IF RATIFICATION IS AUTHORIZED BY THE HEAD OF THE PROCURING ACTIVITY OR SENIOR PROCUREMENT OFFICIAL, HEADQUARTERS, THE FILE WILL BE RETURNED TO THE CONTRACTING OFFICER FOR ACTION.

AS NOTED ABOVE, FPR SEC. 1-1.405 PROVIDES THAT "OTHERWISE PROPER CONTRACTS MADE BY INDIVIDUALS WITHOUT CONTRACTING AUTHORITY" MAY BE RATIFIED. EXAMINATION OF DOE-PR SEC. 9-1.405 REVEALS THAT WHILE THE SECTION ACKNOWLEDGES COMMITMENTS MADE BY PROGRAM OFFICIALS MAY BE IN VIOLATION OF "CERTAIN REQUIREMENTS OF LAW AND REGULATION NECESSARY FOR THE PROPER ESTABLISHMENT OF A CONTRACTUAL OBLIGATION, IT DOES NOT LIMIT RATIFICATION TO THOSE SITUATIONS WHERE A COMMITMENT IS "OTHERWISE PROPER" AS DOES FPR SEC. 1-1.405. TO THE EXTENT DOE-PR SEC. 9-1.405, PURPORTS TO GIVE AUTHORITY TO RATIFY INFORMAL COMMITMENTS WHICH ARE NOT "OTHERWISE PROPER", IT IS INVALID AND WITHOUT EFFECT.

ON THE OTHER HAND, IT IS POSSIBLE TO CONSTRUE DOE-PR SEC. 9-1.405 AS BEING CONSISTENT WITH FPR SEC. 1-1.405 IF THE TERM "RATIFICATION" USED IN DOE-PR SEC. 9-1.405 IS CONSTRUED TO MEAN PAYMENT OF A CONTRACTOR'S CLAIM FOR THE REASONABLE VALUE OF THE GOODS OR SERVICES PROVIDED TO THE GOVERNMENT AND UTILIZED BY THE GOVERNMENT. AS NOTED ABOVE, THE GOVERNMENT IS LIABLE TO A CONTRACTOR FOR THE REASONABLE VALUE OF ANY GOODS OR SERVICES PROVIDED TO THE GOVERNMENT UNDER A CONTRACT MADE BY AN INDIVIDUAL WITHOUT CONTRACTING AUTHORITY NOTWITHSTANDING THE FACT THAT THE CONTRACT WAS NOT IN ACCORDANCE WITH PROCUREMENT REGULATIONS. WHILE THE GOVERNMENT WOULD NOT BE BOUND BY THE ACTUAL TERMS OF THE AGREEMENT, NOR COULD IT AGREE TO BE BOUND, THE GOVERNMENT IS LIABLE TO THE CONTRACTOR FOR THE REASONABLE VALUE OF ANY GOODS OR SERVICES UTILIZED BY THE GOVERNMENT. THUS, IF THE DOE-PR USE OF THE TERM "RATIFY" IN THIS SENSE, THERE WOULD BE NO INCONSISTENCY BETWEEN THE REGULATIONS.

NONETHELESS, WE NOTE THAT THE PROVISIONS OF DOE-PR SEC. 9-1.405 TEND TO INDICATE A PERMISSIVE VIEW OF INFORMAL COMMITMENTS AND "RATIFICATION" OF SUCH COMMITMENTS. AS INDICATED ABOVE, PAYMENT OF CONTRACTOR CLAIMS ON A QUANTUM MERUIT BASIS IS AN EXTRAORDINARY PROCEDURE AND SHOULD NOT BE VIEWED AS A ROUTINE ALTERNATIVE TO PROPER CONTRACTING PROCEDURES.

DOE'S USE OF PRECONTRACT COST AUTHORIZATIONS

1. ARE PRECONTRACT COST AUTHORIZATIONS PERMITTED BY THE FEDERAL PROCUREMENT REGULATIONS OR THE DOE PROCUREMENT REGULATIONS? UNDER WHAT AUTHORITY?

ALTHOUGH NOT SPECIFICALLY REFERRED TO AS SUCH BY THE FPR AND THE DOD PR, THE USE OF "PRECONTRACT COST AUTHORIZATIONS" IS PERMITTED BY THOSE REGULATIONS. SPECIFICALLY, UNDER FPR SEC. 1-15.107 AND DOE-PR SEC. 9 15.5004, DOE IS AUTHORIZED TO ENTER INTO "ADVANCE UNDERSTANDINGS" REGARDING THE ALLOWABILITY OF CERTAIN COST ITEMS, INCLUDING PRECONTRACT COSTS AS DEFINED BY FPR SEC. 1-15.205-30 AND DOE-PR SEC. 9-15.5006-5. THIS REGARD, FPR SEC. 1-15.205-30 AND DOE-PR SEC. 9-15.5006-5 PROVIDE THAT PRECONTRACT COSTS (COSTS INCURRED PRIOR TO THE EFFECTIVE DATE OF THE CONTRACT) ARE ALLOWABLE IF INCURRED "DIRECTLY PURSUANT TO THE NEGOTIATION AND IN ANTICIPATION OF THE AWARD OF (A) CONTRACT WHERE SUCH INCURRENCE IS NECESSARY TO COMPLY WITH THE PROPOSED CONTRACT DELIVERY SCHEDULE." ALTHOUGH ADVANCE UNDERSTANDINGS ARE USUALLY ENTERED INTO PRIOR TO COSTS BEING INCURRED, THE GOVERNMENT MAY AGREE TO REIMBURSE PRECONTRACT COSTS INCURRED PRIOR TO THE DATE OF THE ADVANCE UNDERSTANDING IF OTHERWISE ALLOWABLE. THE USUAL PURPOSE OF ADVANCE UNDERSTANDINGS, SUCH AS PRECONTRACT COST AUTHORIZATIONS USED BY DOE, HOWEVER, IS TO AVOID SUBSEQUENT DISALLOWANCE OR DISPUTES REGARDING THE REASONABLENESS OR NON- ALLOCABILITY OF GIVEN COST ITEMS. SEE FPR SEC. 1 15.107 AND DOE-PR SEC. 9 -5004.

2. UNDER WHAT CIRCUMSTANCES MAY PRECONTRACT COST AUTHORIZATIONS LEGITIMATELY BE USED?

AS NOTED ABOVE, UNDER FPR SEC. 1-15.205-30 AND DOE-PR SEC. 9-15.5006 5 PRECONTRACT COSTS ARE ALLOWABLE ONLY IF INCURRED "DIRECTLY PURSUANT TO THE NEGOTIATION AND IN ANTICIPATION OF THE AWARD OF (A) CONTRACT WHERE SUCH INCURRENCE IS NECESSARY TO COMPLY WITH THE PROPOSED CONTRACT DELIVERY SCHEDULE." SINCE DISPUTES COULD ARISE BETWEEN A CONTRACTOR AND THE GOVERNMENT REGARDING WHETHER THE INCURRENCE OF COSTS DURING THE NEGOTIATION PROCESS WAS NECESSARY TO MEET THE PROPOSED CONTRACT DELIVERY SCHEDULE, A CONTRACTOR MIGHT BE UNWILLING TO START WORK WITHOUT SOME ASSURANCE REGARDING THE ALLOWABILITY OF ITS PRECONTRACT COSTS. THUS, IF CONTRACTOR COMPLIANCE WITH THE PROPOSED CONTRACT DELIVERY SCHEDULE IS ESSENTIAL TO THE GOVERNMENT, THE GOVERNMENT CAN APPROPRIATELY ENTER INTO AN ADVANCE UNDERSTANDING REGARDING PRECONTRACT COSTS.

3. DO PRECONTRACT COST AUTHORIZATIONS, AS USED BY DOE, LEGALLY BIND THE GOVERNMENT?

A REVIEW OF PRECONTRACT COST AUTHORIZATIONS PROVIDED TO US BY YOUR STAFF INDICATES THAT UPON EXECUTION OF A CONTRACT THE GOVERNMENT WOULD BE BOUND TO REIMBURSE THE CONTRACTOR FOR COSTS INCURRED PRIOR TO THE EXECUTION OF THE CONTRACT TO THE EXTENT PROVIDED BY THE ADVANCE UNDERSTANDING AND IN ACCORDANCE WITH THE COST PRINCIPLES GOVERNING COST REIMBURSABLE CONTRACTS. (FPR SEC. 1-15.000 ET SEQ. AND DOE-PR SEC. 9 15.5000 ET SEQ.)

4. IF A CONTRACT IS NOT SUBSEQUENTLY ESTABLISHED, WILL THE GOVERNMENT BE LIABLE FOR PAYMENT?

UNDER THE TERMS OF THE PRECONTRACT COST AUTHORIZATION, DOE IS OBLIGATED TO INCLUDE A CLAUSE IN THE RESULTANT CONTRACT WHICH PROVIDES FOR REIMBURSEMENT OF PRECONTRACT COSTS. HOWEVER, THE AUTHORIZATION EXPRESSLY LIMITS THE GOVERNMENT'S OBLIGATION TO REIMBURSE PRECONTRACT COSTS ONLY TO THOSE SITUATIONS WHERE A CONTRACT IS ULTIMATELY ENTERED INTO. THUS, IF A CONTRACT IS NOT ENTERED INTO, THE GOVERNMENT WOULD NOT BE OBLIGATED TO REIMBURSE THE CONTRACTOR'S COSTS.

NONETHELESS, THE CONTRACTOR MAY BE ABLE TO RECOVER ITS COSTS IF AN UNAUTHORIZED COMMITMENT WAS MADE DURING THE COURSE OF CONTRACT NEGOTIATIONS AND THE GOVERNMENT RECEIVED A BENEFIT AS A RESULT OF THE CONTRACTOR'S EFFORTS. SUCH LIABILITY ON THE PART OF THE GOVERNMENT WOULD NOT BE BASED ON THE PRECONTRACT COST AUTHORIZATION BUT ON A QUANTUM MERUIT BASIS. ACCORDINGLY, SPECIAL CARE SHOULD BE TAKEN BY DOE WHILE NEGOTIATING CONTRACTS WITH CONTRACTORS WHICH HAVE PRECONTRACT COST AUTHORIZATIONS SO THAT INFORMAL COMMITMENTS ARE NOT MADE AND GOODS OR SERVICES ACCEPTED. FURTHERMORE, IT MUST AGAIN BE STRESSED THAT PAYMENT OF CONTRACTOR CLAIMS ON A QUANTUM MERUIT SHOULD NOT BE VIEWED AS AN ALTERNATIVE TO NORMAL CONTRACTING PRACTICES.

5. COULD A PRECONTRACT COST AUTHORIZATION BE CONSIDERED AN UNDUE RESTRICTION OF COMPETITION? UNDER WHAT CIRCUMSTANCES?

WE ARE UNAWARE OF ANY CIRCUMSTANCES UNDER WHICH A PRECONTRACT COST AUTHORIZATION COULD RESULT IN AN UNDUE RESTRICTION OF COMPETITION. HOWEVER, FREQUENT AND ROUTINE USE OF PRECONTRACT COST AUTHORIZATIONS MAY INDICATE POOR PLANNING ON THE PART OF DOE PROGRAM AND PROCUREMENT OFFICIALS AND MAY UNDERMINE DOE'S ATTEMPTS TO NEGOTIATE THE OVERALL LOWEST PRICE POSSIBLE SINCE SUBSTANTIAL PORTIONS OF A CONTRACT MAY BE COMPLETED AND CONTRACTOR COSTS INCURRED PRIOR TO EXECUTION OF A FORMAL CONTRACT. WHAT ARE THE DIFFERENCES BETWEEN A PRECONTRACT COST AUTHORIZATION AND A LETTER CONTRACT? WHICH IS PREFERABLE FOR GOVERNMENT USE?

UNLIKE A PRECONTRACT COST AUTHORIZATION WHICH OBLIGATES THE GOVERNMENT TO REIMBURSE A CONTRACTOR FOR COSTS INCURRED PRIOR TO THE EXECUTION OF A CONTRACT ONCE A CONTRACT IS EXECUTED, A LETTER CONTRACT IS A PRELIMINARY CONTRACTUAL INSTRUMENT WHICH AUTHORIZES A CONTRACTOR TO COMMENCE PERFORMANCE OF WORK REQUIRED BY THE GOVERNMENT AND PROVIDES FOR REIMBURSEMENT OF CONTRACTOR COSTS UP TO A SPECIFIED AMOUNT. SEE FPR SEC. 103.408(A). A LETTER CONTRACT MAY BE ENTERED INTO WHEN THE INTERESTS OF THE GOVERNMENT DEMAND THAT THE CONTRACTOR BE GIVEN A BINDING COMMITMENT SO THAT WORK CAN BE COMMENCED IMMEDIATELY AND NEGOTIATION OF A DEFINITIVE CONTRACT IN SUFFICIENT TIME TO MEET THE GOVERNMENT NEEDS IS NOT POSSIBLE, AS, FOR EXAMPLE, WHEN THE NATURE OF THE WORK PREVENTS THE PREPARATION OF DEFINITIVE REQUIREMENTS, SPECIFICATIONS, OR COST DATA. SEE FPR SEC. 1- 3.408(B). HOWEVER, IN ORDER TO PROTECT THE INTERESTS OF THE GOVERNMENT, THE REGULATIONS REQUIRE THAT THE TERMS OF THE LETTER CONTRACT BE "DEFINITIZED" AS SOON AS POSSIBLE.

THE USE OF LETTER CONTRACTS HAS THE FOLLOWING ADVANTAGES: THERE IS A BINDING AGREEMENT BETWEEN THE GOVERNMENT AND THE CONTRACTOR SETTING FORTH THE MAJOR RESPONSIBILITIES OF BOTH PARTIES; THE GOVERNMENT HAS A GREATER CONTROL OVER CONTRACTOR COSTS; AND GOVERNMENT FUNDS ARE OBLIGATED UP TO AN AMOUNT SPECIFIED IN THE LETTER CONTRACT WHEN THE LETTER CONTRACT IS SIGNED.

ON THE OTHER HAND, THE USE OF PRECONTRACT COST AUTHORIZATIONS ALSO HAS SEVERAL ADVANTAGES. THESE ARE: THE CONTRACTOR PERFORMS AT HIS OWN RISK; THE GOVERNMENT IS UNDER NO OBLIGATION IF NEGOTIATIONS BREAK DOWN OR GOVERNMENT NEEDS CHANGE; AND TREATMENT OF PRECONTRACT COSTS IS AGREED TO IN ADVANCE.

WE DO NOT BELIEVE IT IS POSSIBLE TO STATE THAT THE USE OF PRECONTRACT COST AUTHORIZATIONS IS PREFERABLE TO THE USE OF LETTER CONTRACTS OR VICE VERSA. THE PROPRIETY OF USING EITHER INSTRUMENT WOULD DEPEND ON THE INDIVIDUAL FACTS AND CIRCUMSTANCES OF EACH CASE. HOWEVER, IN MAKING A DECISION THE GOVERNMENT SHOULD CONSIDER THE ADVANTAGES OF EACH INSTRUMENT AND MAKE ITS DECISION ACCORDINGLY.