B-82529, FEBRUARY 7, 1949, 28 COMP. GEN. 447

B-82529: Feb 7, 1949

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ARE APPLICABLE TO SUCH PURCHASES BY THE DEPARTMENT OF THE ARMY FROM SOURCES WITHIN THE UNITED STATES. WHERE COMMODITIES ARE PURCHASED IN BULK UNDER NEGOTIATED CONTRACTS ENTERED INTO BY THE DEPARTMENT OF THE ARMY WITH FUNDS MADE AVAILABLE BY THE FOREIGN AID APPROPRIATION ACT. OR CONTRACTING OFFICER THAT THE MARKET PRICE PROVISIONS OF SECTION 202 HAVE NOT BEEN VIOLATED. WHERE SUCH COMMODITIES ARE PURCHASED AS A RESULT OF ADVERTISING FOR COMPETITIVE BIDS. EVIDENCE OF THAT PROCEDURE WILL BE ACCEPTED AS ESTABLISHING PRIMA FACIE COMPLIANCE WITH SAID SECTION 202. 1949: REFERENCE IS MADE TO LETTER DATED DECEMBER 24. IT WAS HELD THAT. THE PRICE CHARGED FOR COMMODITIES WAS NO HIGHER THAN THE PRICE SPECIFIED IN SECTION 202.

B-82529, FEBRUARY 7, 1949, 28 COMP. GEN. 447

FOREIGN AID PURCHASES - COMMODITIES PROCURED WITHIN U.S. - COST LIMITATION EVIDENCE REQUIREMENTS THE PROVISIONS OF SECTION 202 OF THE FOREIGN AID APPROPRIATION ACT, 1949, PROHIBITING THE PURCHASE IN BULK OF ANY COMMODITIES AT PRICES HIGHER THAN THE MARKET PRICE PREVAILING IN THE UNITED STATES AT THE TIME OF THE PURCHASE ADJUSTED FOR DIFFERENCES IN THE COST OF TRANSPORTATION TO DESTINATION, QUALITY AND TERMS OF PAYMENT, ARE APPLICABLE TO SUCH PURCHASES BY THE DEPARTMENT OF THE ARMY FROM SOURCES WITHIN THE UNITED STATES. WHERE COMMODITIES ARE PURCHASED IN BULK UNDER NEGOTIATED CONTRACTS ENTERED INTO BY THE DEPARTMENT OF THE ARMY WITH FUNDS MADE AVAILABLE BY THE FOREIGN AID APPROPRIATION ACT, 1949, THERE SHOULD BE FURNISHED PRIMA FACIE EVIDENCE AS TO COMPLIANCE WITH THE MARKET PRICE PROVISIONS OF SECTION 202 OF SAID ACT, SUCH AS A CERTIFICATE EXECUTED BY THE SUPPLIER, CERTIFYING OFFICER, DISBURSING OFFICER, OR CONTRACTING OFFICER THAT THE MARKET PRICE PROVISIONS OF SECTION 202 HAVE NOT BEEN VIOLATED; HOWEVER, WHERE SUCH COMMODITIES ARE PURCHASED AS A RESULT OF ADVERTISING FOR COMPETITIVE BIDS, EVIDENCE OF THAT PROCEDURE WILL BE ACCEPTED AS ESTABLISHING PRIMA FACIE COMPLIANCE WITH SAID SECTION 202. PAYMENTS FROM FUNDS MADE AVAILABLE BY THE FOREIGN AID APPROPRIATION ACT, 1949, TO COST-PLUS-A-FIXED-FEE CONTRACTORS OPERATING DEPARTMENT OF THE ARMY PLANTS PRODUCING AMMONIUM NITRATE FERTILIZER, AND TO FIXED PRICE CONTRACTORS PRODUCING NITROGENOUS FERTILIZER FROM ANHYDROUS AMMONIA FURNISHED FREE OF CHARGE BY THE GOVERNMENT--- BEING FOR RAW MATERIALS, LABOR, AND SERVICES IN OPERATING THE PLANTS, OR IN THE NATURE OF PROCESSING CHARGES, RATHER THAN FOR PURCHASES OF COMMODITIES IN BULK--- NEED NOT BE SUPPORTED BY EVIDENCE OF COMPLIANCE WITH SECTION 202 OF SAID ACT PROHIBITING THE PURCHASE IN BULK OF ANY COMMODITIES AT PRICES IN EXCESS OF THE PREVAILING UNITED STATES MARKET PRICE.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE ARMY, FEBRUARY 7, 1949:

REFERENCE IS MADE TO LETTER DATED DECEMBER 24, 1948, FROM THE ASSISTANT SECRETARY OF THE ARMY, REQUESTING TO BE ADVISED WITH RESPECT TO THE APPLICABILITY OF SECTION 202 OF THE FOREIGN AID APPROPRIATION ACT, 1949, PUBLIC LAW 793, APPROVED JUNE 28, 1948, 62 STAT. 1059, TO CERTAIN EXPENDITURES MADE BY THE DEPARTMENT OF THE ARMY FROM FUNDS APPROPRIATED BY THAT ACT.

SECTION 202 OF THE FOREIGN AID APPROPRIATION ACT, 1949, PROVIDES THAT NO FUNDS MADE AVAILABLE THEREUNDER SHALL BE USED FOR THE PURCHASE OF COMMODITIES "AT PRICES HIGHER THAN THE MARKET PRICE PREVAILING IN THE UNITED STATES AT THE TIME OF THE PURCHASE ADJUSTED FOR DIFFERENCES IN THE COST OF TRANSPORTATION TO DESTINATION, QUALITY AND TERMS OF PAYMENT.' DECISION OF THIS OFFICE DATED AUGUST 4, 1948, B-78649, TO THE ADMINISTRATOR, ECONOMIC COOPERATION ADMINISTRATION, IT WAS HELD THAT, IN CONNECTION WITH THE ADMINISTRATION OF SECTION 202 AND THE AUDIT OF VOUCHERS BY THIS OFFICE, CERTIFICATES FROM SUPPLIERS--- STATING THAT, TO THE BEST OF THEIR KNOWLEDGE AND BELIEF AND ON THE BASIS OF INFORMATION OBTAINED FROM SOURCES AVAILABLE TO THEM, THE PRICE CHARGED FOR COMMODITIES WAS NO HIGHER THAN THE PRICE SPECIFIED IN SECTION 202--- WOULD BE ACCEPTED AS SUFFICIENT TO RELIEVE SUCH SUPPLIERS, AMONG OTHERS, FROM LIABILITY FOR VIOLATIONS OF THAT SECTION IN THE ABSENCE OF FRAUD OR BAD FAITH. THE ASSISTANT SECRETARY OF THE ARMY, IN HIS LETTER OF DECEMBER 24, 1948, REQUESTS TO BE ADVISED WHETHER SUCH CERTIFICATE IS REQUIRED TO BE FURNISHED IN THE CASE OF PURCHASES BY THE DEPARTMENT OF THE ARMY FROM SOURCES IN THE UNITED STATES. IN CONNECTION THEREWITH, IT IS STATED THAT PURCHASES BY THE DEPARTMENT OF THE ARMY ARE BY FORMAL ADVERTISING OR NEGOTIATION UNDER THE PROVISIONS OF PUBLIC LAW 403, APPROVED FEBRUARY 19, 1948, 62 STAT. 21.

IT IS SUGGESTED IN THE ASSISTANT SECRETARY'S LETTER THAT THE LANGUAGE OF SECTION 202 INDICATES IT WAS INTENDED TO APPLY ONLY TO PURCHASES IN FOREIGN COUNTRIES, OR BY FOREIGN GOVERNMENTS IN THE UNITED STATES, AND, CONSEQUENTLY, WOULD NOT BE APPLICABLE TO PURCHASES IN THE UNITED STATES BY THE DEPARTMENT OF THE ARMY. THE QUESTION AS TO THE APPLICABILITY OF SECTION 202 OF THE FOREIGN AID APPROPRIATION ACT, 1949, TO PURCHASES MADE WITHIN THE UNITED STATES WAS NOT CONSIDERED DIRECTLY IN THE DECISION B- 78649 OF AUGUST 4, 1948. HOWEVER, IT WAS STATED IN SAID DECISION THAT IT WAS EVIDENT FROM THE LEGISLATIVE HISTORY OF THE FOREIGN AID APPROPRIATION ACT, 1949, THAT THE PROHIBITION IN SECTION 202 THEREOF WAS INTENDED AS A GENERAL PRICE LIMITATION TO PREVENT EXTRAVAGANT SPENDING OF MONEY APPROPRIATED BY THE ACT, AND IT SEEMS EVIDENT THAT, IF PURCHASES WITH THE UNITED STATES--- EITHER BY AGENCIES OF THE UNITED STATES OR BY FOREIGN GOVERNMENTS--- WERE TO BE MADE WITHOUT REGARD TO PREVAILING UNITED STATES MARKET PRICES, THE GENERAL PURPOSE OF THE SECTION MIGHT WELL BE DEFEATED. ACCORDINGLY, IT IS MY OPINION THAT THE PROVISIONS OF SECTION 202 OF THE FOREIGN AID APPROPRIATION ACT, 1949, ARE APPLICABLE TO PURCHASES BY THE DEPARTMENT OF THE ARMY FROM SOURCES WITHIN THE UNITED STATES.

IN THE LETTER OF DECEMBER 24, 1948, IT IS REQUESTED FURTHER THAT, IN THE EVENT SECTION 202 OF THE FOREIGN AID APPROPRIATION ACT, 1949, BE HELD APPLICABLE TO PURCHASES FROM SOURCES WITHIN THE UNITED STATES, A DECISION BE RENDERED ON THE FOLLOWING SPECIFIC QUESTIONS:

A. WOULD THE CERTIFICATE BE REQUIRED ON VOUCHERS PRESENTED BY COST 1PLUS- A-1FIXED FEE CONTRACTORS, OPERATING DEPARTMENT OF THE ARMY PLANTS PRODUCING AMMONIUM NITRATE FERTILIZER; THAT IS, ON COST CONTRACTS?

B. WOULD THE CERTIFICATE BE REQUIRED ON VOUCHERS PRESENTED IN CONNECTION WITH THE PROCUREMENT OF NITROGENOUS FERTILIZER BY THE DEPARTMENT OF THE ARMY? THESE CONTRACTS ARE FIXED PRICE CONTRACTS UNDER WHICH THE GOVERNMENT SUPPLIES ANHYDROUS AMMONIA ON A "FREE-ISSUE" BASIS AND IN RETURN RECEIVES END ITEMS SUCH AS AMMONIUM SULPHATE OR AMMONIUM PHOSPHATE SULPHITE. IN THESE CASES IT WOULD BE DIFFICULT, IF NOT IMPOSSIBLE, TO PROPERLY COMPARE THE PRICE THE DEPARTMENT OF THE ARMY IS PAYING FOR THESE END ITEMS WITH PREVAILING MARKET PRICES.

C. WOULD THE CERTIFICATE BE REQUIRED ON VOUCHERS PRESENTED BY FIXED PRICE CONTRACTORS, OPERATING UNDER CONTRACTS ENTERED INTO AS A RESULT OF FORMAL ADVERTISING OR NEGOTIATIONS?

WITH RESPECT TO SAID QUESTIONS, IT MAY BE STATED GENERALLY THAT, SINCE SECTION 202 OF THE FOREIGN AID APPROPRIATION ACT, 1949, REQUIRES THAT FUNDS MADE AVAILABLE THEREUNDER SHALL NOT BE USED FOR THE PURCHASE IN BULK OF ANY COMMODITIES AT PRICES IN EXCESS OF THE PREVAILING UNITED STATES MARKET PRICE, THE CERTIFICATE HEREINBEFORE MENTIONED WAS AUTHORIZED TO BE USED FOR AUDIT PURPOSES AS PRIMA FACIE EVIDENCE OF COMPLIANCE WITH SECTION 202 OF THE ACT. OTHER EVIDENCE ESTABLISHING PRIMA FACIE COMPLIANCE WITH SECTION 202 WOULD EQUALLY BE ACCEPTABLE TO THIS OFFICE. FOR EXAMPLE, IN THE CASE OF A PURCHASE BY THE DEPARTMENT OF THE ARMY THIS OFFICE WOULD ACCEPT A STATEMENT BY THE CERTIFYING OFFICER, DISBURSING OFFICER, OR CONTRACTING OFFICER INVOLVED THAT THE PRICE PAID WAS NOT IN EXCESS OF THE PREVAILING UNITED STATES MARKET PRICE AS PRIMA FACIE EVIDENCE, FOR AUDIT PURPOSES OF COMPLIANCE WITH THE STATUTORY REQUIREMENT.

IN SPECIFIC ANSWER TO QUESTION (C), QUOTED ABOVE, YOU ARE ADVISED THAT, IN THE CASE OF NEGOTIATED CONTRACTS FOR THE THE PURCHASE IN BULK OF COMMODITIES, PRIMA FACIE EVIDENCE AS TO COMPLIANCE WITH SECTION 202 OF THE FOREIGN AID APPROPRIATION ACT, 1949, SHOULD BE FURNISHED. HOWEVER, IN THOSE CASES WHERE COMMODITIES ARE PURCHASED BY THE DEPARTMENT OF THE ARMY AS A RESULT OF ADVERTISING FOR COMPETITIVE BIDS, EVIDENCE OF SUCH PROCEDURE WILL BE ACCEPTED BY THIS OFFICE AS ESTABLISHING PRIMA FACIE COMPLIANCE WITH SECTION 202 OF THE ACT.

WITH RESPECT TO QUESTION (A), INVOLVING PAYMENTS UNDER COST-PLUS-A FIXED- FEE CONTRACTS FOR THE PRODUCTION OF AMMONIUM NITRATE FERTILIZER, AND QUESTION (B), INVOLVING PAYMENTS UNDER FIXED PRICE CONTRACTS FOR THE PRODUCTION OF NITROGENOUS FERTILIZER FROM ANHYDROUS AMMONIA FURNISHED FREE OF CHARGE BY THE GOVERNMENT TO THE CONTRACTORS, IT MAY BE NOTED THAT SECTION 205 OF THE FOREIGN AID APPROPRIATION ACT, 1949, 62 STAT. 1059, SPECIFICALLY RECOGNIZES THE AUTHORITY OF THE DEPARTMENT OF THE ARMY TO OPERATE PLANTS FOR THE PRODUCTION OF NITROGENOUS FERTILIZER, BOTH FOR OCCUPIED AND NONOCCUPIED AREAS, AND REQUIRES THAT NOT LESS THAN 50 PERCENTUM OF THE UNITED STATES EXPORT REQUIREMENTS OF SUCH FERTILIZER FOR NONOCCUPIED AREAS SHALL COME FROM SUCH PLANTS. SO FAR AS CONCERNS PLANTS OPERATED BY THE DEPARTMENT OF THE ARMY FOR THE PRODUCTION OF FERTILIZER UNDER COST-PLUS CONTRACTS, IT APPEARS THAT PAYMENTS UNDER SUCH CONTRACTS ARE FOR RAW MATERIALS, LABOR, AND SERVICES IN OPERATING THE PLANTS, RATHER THAN FOR THE "PURCHASE IN BULK OF ANY COMMODITIES" TO BE USED IN CONNECTION WITH THE PROGRAMS APPROPRIATED FOR BY THE FOREIGN AID APPROPRIATION ACT, 1949. HENCE, PAYMENTS UNDER SUCH COST-PLUS CONTRACTS WOULD NOT APPEAR TO COME WITHIN THE PURVIEW OF SECTION 202 OF THE ACT. SIMILAR CONSIDERATIONS WOULD APPEAR TO APPLY IN THE CASE OF FERTILIZER PRODUCED BY CONTRACTORS UNDER FIXED PRICE CONTRACTS FROM RAW MATERIAL SUPPLIED BY THE GOVERNMENT. PAYMENTS UNDER SUCH CONTRACTS, EVEN THOUGH MADE ON THE BASIS OF A FIXED PRICE PER TON, APPEAR TO BE ESSENTIALLY IN THE NATURE OF PROCESSING CHARGES FOR CONVERTING THE GOVERNMENT-FURNISHED RAW MATERIAL INTO A FINISHED PRODUCT, AND NOT AMOUNTS PAID ON ACCOUNT OF THE PURCHASES OF COMMODITIES AS SUCH. ACCORDINGLY, YOU ARE ADVISED THAT PAYMENTS UNDER THE TWO TYPES OF CONTRACTS MENTIONED NEED NOT BE SUPPORTED BY EVIDENCE OF COMPLIANCE WITH SECTION 202 OF THE FOREIGN AID APPROPRIATION ACT, 1949.