B-227084.5, Oct 15, 1987, 67 Comp.Gen. 13

B-227084.5, Oct 15, 1987, 67 Comp.Gen. 13

Appropriations/Financial Management - Federal Assistance - Grants - Cooperative Agreements - Use - Criteria DIGEST: Maritime Administration (MARAD) awarded cooperative agreement for the operation of its Computer Aided Operations Research Facility (CAORF). The CAORF will be operated for MARAD to principally serve its needs and other government agencies. Accordingly, under the Federal Grant and Cooperative Agreement Act, the proper instrument for this type of relationship is a contract and not a cooperative agreement. See cited cases.

The Honorable Jack Brooks:

This is in partial response to your May 11, 1987 letter concerning the award of a cooperative agreement by the Maritime Administration (MARAD) of the Department of Transportation for the privatization of a ship simulator facility, the Computer Aided Operations Research Facility (CAORF), located at the U.S. Merchant Marine Academy, Kings Point, New York. You are concerned that the award to Marine Safety International (MSI) may have violated the provisions of the Federal Grant and Cooperative Agreement Act of 1977, and that MARAD's actions may have circumvented Federal Acquisition Regulation (FAR) competition requirements during the evaluation process.

As explained below, it is our opinion that MARAD should have used a procurement contract and not a cooperative agreement for the operation of the CAORF. In response to our request for the views of the Secretary of Transportation, we received a reply from the Maritime Administrator. copy is enclosed. Our Resources, Community, and Economic Development Division is dealing with your questions about the evaluation process.

BACKGROUND

The CAORF is a government facility located on the grounds of the U.S. Merchant Marine Academy. It is funded through MARAD's research and development (R&D) appropriations. The facility is used for research and training. The research includes simulated ship maneuvering and navigation as well as waterway and harbor design.

On August 8, 1986, MARAD issued Solicitation Number MA-11973 requesting proposals for the operation of the CAORF under a cooperative agreement. MARAD explained to prospective proposers that, in keeping with the Administration policy to transfer the operation of government facilities to the private sector, it would competitively select a qualified organization to enter into a 5-year renewable assistance arrangement for the continued operation of a program of maritime research and training at the facility. The stated purpose of the agreement was to assist the recipient in utilizing and further developing the facility as a national resource to accomplish maritime research goals and objectives. Prior to the decision to privatize the CAORF, two requests for proposals had been prepared for the competitive procurement of research and maintenance contractor support.

MARAD noted that major current users of the facility included the U.S. Army Corps of Engineers, U.S. Naval Training Systems Center, Strategic Systems Programs Office of the Navy, the Panama Canal Commission, MARAD, port authorities and private vessel operating companies. The continuity of operations was to be maintained and services would continue to be provided to the same government users. The training of Maritime Academy cadets and the emergency preparedness training of master mariners was likely to continue under separate contracts. The successful proposer was to obtain funds to operate the simulator through reimbursements from its various clients, both government and non-government, but with no direct MARAD support provided. Also, capital improvement funds would be partially generated through a user charge assessed each funded project.

Title to the facilities would remain with MARAD, including capital improvements made by the operator (including the simulator system, computer equipment, and computer programs). However, to the maximum extent possible, freedom and operational flexibility would be provided to the "privatized operator" in the use of the facility for commercial business activities. The operator would plan, design, and implement capital improvements, subject to MARAD approval, and would contribute a minimum percentage of revenues to a capital improvement fund. Also, the operator would maintain the facilities and equipment in a neat, clean and working condition and observe the requirements of OMB property management standards. MARAD would retain the right to inspect any CAORF equipment and facilities. A quarterly report on operations also was required.

An amendment to the solicitation was issued on September 15, 1986. included a draft cooperative agreement and, for information purposes, a previously developed marketing plan which had assumed continued MARAD operation of the CAORF. Later, in January 1987 the contending offerors were informed that MARAD could provide $1.7 million in "seed money" for the capital investment program.

The Federal Grant and Cooperative Agreement Act of 1977, 31 U.S.C. Secs. 6301-08 (1982), established the criteria which agencies must follow in deciding which legal instrument to use when entering into a funding relationship with a state, locality, or other recipient for an authorized purpose. Under these criteria, a contract is the proper funding vehicle when the services being acquired are for "the direct benefit or use of the United States." 31 U.S.C. Sec. 6303.

On the other hand, a grant or cooperative agreement reflects a relationship between the United States Government and a state, a local government, or other recipient when --

"(1) the principal purpose of the relationship is to transfer a thing of value to the State, local government, or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government." 31 U.S.C. Secs. 6304(1) and 6305(1).

If there is no substantial agency involvement, a grant is the proper form of assistance arrangement. If substantial involvement is expected, a cooperative agreement is to be used. 31 U.S.C. Secs. 4304(2) and 6305(2).

As indicated above, the Act directs agencies to choose among three kinds of instruments when entering into a transaction covered by it, assuming that the agency has independent statutory authority to enter into an assistance relationship. For the purpose of this opinion, we are assuming that there is specific statutory authority for the use of a grant or cooperative agreement, if otherwise appropriate.

DISCUSSION

The decision as to the instrument to be selected turns on the primary purpose of the transaction. The key question is this: Is the principal purpose to serve the immediate needs of the federal government, or is it to provide assistance to a non-federal entity in serving a public purpose? See 61 Comp.Gen. 637, 640 (1982).

The solicitation for the cooperative agreement issued August 8, 1986, contemplates continuing management services for the CAORF and the principal users of these services would continue to be government agencies, including MARAD itself. According to MARAD, it anticipates that eventually, there will be a substantial increase in facility use by the non-government entities as a result of the winner's marketing efforts. This is consistent with the Administration policy of transferring federal facilities to the private sector, and MSI's activities appear to be a first step towards privatization. However, there is no indication of when this process will be completed. For present purposes, the fundamental nature of the relationship between MARAD and MSI is that the facility will be operated for MARAD by the company to principally serve the needs of MARAD and other government agencies. The Grant and Cooperative Agreement Act states that the proper instrument for this type of relationship is a contract and not a grant or cooperative agreement.

CONCLUSION

We conclude that MARAD used an inappropriate funding mechanism for operation of the CAORF. Instead, the solicitation should have been for a contract. We reached a similar conclusion in B-218816, June 2, 1986, where we held that a contract was the proper funding vehicle for a proposed study, the results of which were intended primarily for the direct benefit of the Environmental Protection Agency as well as other regulatory agencies.

We recognize that it is often difficult to draw fine lines between the available funding vehicles in a particular factual situation. Nevertheless, on the record before us, we conclude that MARAD's use of the cooperative agreement is not in accord with the Federal Grant and Cooperative Agreement Act.