B-231044.3, Feb 6, 1991, 70 Comp.Gen. 238

B-231044.3: Feb 6, 1991

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APPROPRIATIONS/FINANCIAL MANAGEMENT - Obligation - Payments - Estimates Communications systems/services APPROPRIATIONS/FINANCIAL MANAGEMENT - Obligation - Payments - Termination costs - Communications systems/services The General Services Administration (GSA) is authorized by 40 U.S.C. Although AAFES undertook measures that might have resulted in reduced billings had it continued to participate in FTS. GSA is also authorized to recover termination costs that arose by virtue of GSA's authorized administrative practice regarding the Federal Telecommunications (FT) Fund. Which were incurred subsequent to merger of FT Fund into the Information Technology (IT) Fund. Nothing in the submission demonstrates that the amounts assessed by GSA are unreasonable or otherwise improper.

B-231044.3, Feb 6, 1991, 70 Comp.Gen. 238

APPROPRIATIONS/FINANCIAL MANAGEMENT - Obligation - Payments - Estimates Communications systems/services APPROPRIATIONS/FINANCIAL MANAGEMENT - Obligation - Payments - Termination costs - Communications systems/services The General Services Administration (GSA) is authorized by 40 U.S.C. Sec. 757 (1988) to recover approximate costs of Federal Telecommunications System (FTS) services and facilities provided to Army and Air Force Exchange Service (AAFES) incurred as a result of AAFES withdrawal from FTS. Although AAFES undertook measures that might have resulted in reduced billings had it continued to participate in FTS, it withdrew from FTS before possible cost saving measures could be reflected in FTS billings. GSA is also authorized to recover termination costs that arose by virtue of GSA's authorized administrative practice regarding the Federal Telecommunications (FT) Fund, 40 U.S.C. Sec. 757 (1982), but which were incurred subsequent to merger of FT Fund into the Information Technology (IT) Fund, 40 U.S.C. Sec. 757 (1988).

GSA's Billing Army and Air Force Exchange Service for FTS Use and Termination Costs:

This decision responds to a request submitted by Raymond A. Fontaine, Comptroller of the General Services Administration (GSA), regarding the Army and Air Force Exchange Service's (AAFES) refusal to pay GSA's billings for AAFES usage of, and transition from, the Federal Telecommunications System (FTS). For the reasons set forth below, we concur with GSA that 40 U.S.C. Sec. 757 (1982, 1988) authorizes the charges. Nothing in the submission demonstrates that the amounts assessed by GSA are unreasonable or otherwise improper.

LEGAL AUTHORITY

In our decision on GSA's Billing Navy for FTS Use and Termination Cost, 69 Comp.Gen. 112 (1989), we held that the GSA method of computing agency billings for FTS usage, and assessing agency termination costs for leaving the FTS, was authorized by section 110 of the Federal Property and Administrative Services Act of 1949 (1949), as added by Pub.L. No. 87-847, 76 Stat. 1117 (1962) (40 U.S.C. Sec. 757 (1982)). We noted that the Federal Telecommunications (FT) Fund established in 1962 was available without fiscal year limitation for expenses, including personal services, other costs, and the procurement by lease or purchase of equipment and operating facilities necessary for authorized FT Fund purposes. GSA was required to credit the FT Fund with advances and reimbursements from available agency appropriations and funds for telecommunications services and facilities provided. The statute authorized GSA to charge agencies:

... at rates determined by the Administrator to approximate the costs thereof met by the fund (including depreciation of equipment, provision for accrued leave, and where appropriate, for terminal liability charges and for amortization of installation costs ... which expenses may be charged to the fund and covered by advances or reimbursements from such direct appropriations) ... . 40 U.S.C. Sec. 757 (1982).

Congress envisioned that the FT Fund would permit GSA to manage the FTS in a unified and businesslike manner. Under the law, GSA paid all FTS operational costs, and recovered these costs from agencies using the FTS. However, the basis of allocating FTS costs was not "actual" costs but merely "approximate" costs associated with providing agencies with FTS services. See also S. Rep. No. 2262, 87th Cong., 2d Sess. 1-2 (1962); H.R. Rep. No. 2164, 87th Cong., 2d Sess. 1-2 (1962).

Thus, we held that GSA's practice of billing agencies under 40 U.S.C. Sec. 757 (1982) for FTS service one quarter in advance based upon a statistical sampling of usage data provided by vendors to GSA for the last available quarter, was not unreasonable under the law. 69 Comp.Gen. at 113-116. This billing method had generally resulted in a two-quarter lag from the time the agency locations began using FTS to the time the agency received its first billing for FTS usage.

Additionally, we held that 40 U.S.C. Sec. 757 (1982) authorized GSA to assess an agency termination costs for large scale disconnects from the FTS, rather than requiring GSA to recover these costs through usage rates charged to the remaining agency FTS users. These termination charges are designed to recover the direct cost to FTS associated with disconnecting the serving access lines without disrupting service to other users and the direct cost of carrying surplus capacity during the downsizing of the FTS backbone network. The measures of costs associated with large scale withdrawals is computed by a formula generated by GSA from its experience in handling the first large scale withdrawal from FTS by the Postal Service and has been the basis for computing transition costs for other large scale withdrawals from FTS. We approved this approach for assessing termination costs as a reasonable approximation of such costs and authorized under 40 U.S.C. Sec. 757. 69 Comp.Gen. 116-118.

Though not at issue in 69 Comp.Gen. 112, our decision reflected tacit agreement with GSA's view that its authority to allocate costs based upon approximations of costs incurred in providing FTS service to individual agencies continued following creation of the Information Technology Fund on January 1, 1987, and applied to billings that arose shortly after this date.

Effective January 1, 1987, Congress amended section 110 of the 1949 Act and merged the FT Fund and the Automatic Data Processing Fund to establish the Information Technology (IT) Fund, which assumed all liabilities, obligations and commitments of the merged funds. Pub.L. No. 99-591, Sec. 101(m), 100 Stat. 3341, 3341-345 (1986); Pub.L. No. 99 500, Sec. 100(m), 100 Stat. 1783, 1783-345 (1986) (codified at 40 U.S.C. Sec. 757 (1988). The IT Fund is made available for "expenses, including personal services and other costs, and for procurement (by lease, purchase, transfer, or otherwise) for efficiently providing information technology resources to Federal agencies and for efficient management, coordination, operation, and utilization of such resources." 40 U.S.C. Sec. 757(b)(2) (1988).

The law provides that the Administrator shall determine the costs and capital requirements of the IT Fund for each fiscal year and shall obtain Office of Management and Budget (OMB) approval for the Fund's cost and capital requirements. Once approved, the Administrator is authorized to establish conforming rates for agencies provided, or to be provided, information technology resources through the IT Fund. 40 U.S.C. Sec. 757(a)(2) (1988). /1/ However, nothing in the law or its legislative history supports the conclusion that the Congress by amending the law was requiring that GSA change the way in which it allocated costs to FTS users (by formula based on statistical sampling), or that allocations based upon approximate costs were no longer authorized. See also H.R. Rep. No. 99-1005, 99th Cong., 2d Sess. 772, 776 (1986); S. Rep. No. 99-374, 99th Cong., Sess. 57-58 (1986). Thus GSA continued to allocate costs after January 1, 1987, in the same manner it had done prior to the amendments taking effect.

Finally the IT Fund can continue to recover termination costs even though the amended legislation does not specifically mention such costs. In our opinion, a specific statutory identification is not a prerequisite to the recovery of termination costs from the responsible agency, as long as the cost may reasonably be characterized as a cost to the Fund. See 69 Comp.Gen. at 117 n.6 (1989). The FT Fund contained no reserves to pay for extraordinary costs associated with large scale withdrawals from the FTS. /2/ This situation remained unchanged upon the creation of the IT Fund even though GSA continued to be responsible for paying such costs if and when they arose. Even if GSA changes its policy under the amended law to include large scale termination costs in the rates assessed users, the change would not become effective until GSA obtains OMB approval and adequate reserves are established to cover these costs. /3/ Thus, GSA's decision to continue to apply its prior administrative practice of recovering termination costs from agencies leaving the system appears reasonable and consistent with existing statutory authority. See, GSA's Billing National Trust for Historic Preservation For FTS Use and Termination Costs, B-238181, Jan. 9, 1991.

ANALYSIS

GSA billed AAFES $543,642 for the fourth quarter of fiscal year 1987 (July 1 - September 30) for FTS usage. /4/ AAFES refused to pay the bill. Instead, AAFES alleged it overpaid during the first three quarters of fiscal year 1987 due to a reduction in FTS lines used leading to its disconnect from FTS. AAFES believes that the reduction in lines should have resulted in a pro rata decline in its billings and that the fourth quarter bill should be applied to the overpayment with the remainder being refunded to AAFES.

As we noted above, FTS billings are made in advance based on a statistical sampling of the last available quarter of usage. Consequently, even though the AAFES had taken action during the quarter billed which it expected would reduce its billing (for example, circuit disconnects or other potential cost saving actions), the fact that its billing was not reduced in the amount anticipated is not a basis for withholding payment. 69 Comp.Gen. 113-116. While potential cost saving actions taken during fiscal year 1987 may have resulted in some savings on future billings, AAFES withdrawal from the system during the first quarter of fiscal year 1988 prevented the assumed savings from being realized.

GSA also assessed AAFES $401,447.26 as termination costs of which $283,769.43 is attributable to disconnects during the third quarter of fiscal year 1987 and $117,677.83 is attributable to disconnects during the fourth quarter of fiscal year 1987. While the quarters covered by the final FTS billings to AAFES for usage overlap with the quarters during which GSA began its computation of termination costs, this does not provide a basis for withholding payments. The usage billings based on prior quarter usage reflect the two-quarter lag between use and billing which has existed since most locations joined the FTS system. The termination costs reflect the excess costs incurred by FTS during the 5- month period following large scale disconnects which GSA has determined is necessary in order to downsize the system. Thus AAFES is not paying billings that represent duplicate costs.

The AAFES also argues that since it began line disconnects prior to the third quarter of fiscal year 1987 (the date that GSA first began to compute such cost), GSA's billings for such costs are improper and should be adjusted to reflect the earlier dates when disconnect actions took place. GSA has pointed out that AAFES disconnect action was unilateral and that the first notice it received of these disconnects was when AAFES by letter dated October 14, 1987, disputed its fourth quarter fiscal year 1987 billing. Once it received notification of the disconnect action, GSA computed and assessed termination costs at the earliest point practicable based on the data available to it under the existing operating system (that is, the third quarter of fiscal year 1987). An official of GSA has informally stated that determination of termination costs prior to this date was not possible under their system. In view of the foregoing, GSA's computation of termination costs appears reasonable.

As we noted above, GSA is authorized to recover the total costs it incurs in operating FTS, through usage and termination charges that reflect the approximate costs (1) incurred by GSA in providing FTS service to an individual agency or (2) incurred by GSA as a result of an individual agency's withdrawal from FTS. While funding FTS in such a manner may at times work to the advantage or disadvantage of a particular agency, this does not provide a basis for invalidating individual billings since the overall approach used by GSA is reasonable and, therefore, authorized by 40 U.S.C. 757. Therefore, we find no basis for AAFES to withhold payment of GSA billings for FTS usage and termination costs.

/1/ Even in the best of all possible circumstances, the earliest practical implementation of the amendment could not have taken place prior to the start of fiscal year 1988. However, a GSA official has advised this Office that OMB's first approval under this provision is applicable to FTS 2000 which became effective January 1, 1990. GSA continued to bill agencies based on prior practices in the absence of any OMB approval of costs or capital requirements.

/2/ GSA pointed out that reserves were not established to cover termination costs associated with large scale withdrawals from FTS since assessing such costs through FTS usage charges would have resulted in unnecessarily high rates to all system users. GSA contended that this would not have been businesslike since the FT Fund would be accumulating large amounts of moneys, the use of which would be contingent on a later event that might never occur.

/3/ We have been informally advised by an official of GSA that the IT Fund currently is not accumulating reserves.

/4/ In addition, AAFES was initially billed $518,397 for first quarter of fiscal year 1988 (October 1 December 31) for FTS usage, but GSA subsequently canceled this bill because AAFES terminated FTS services during the first quarter of fiscal year 1988.