B-131115, DEC. 17, 1963

B-131115: Dec 17, 1963

Additional Materials:

Contact:

Shirley Jones
(202) 512-8156
jonessa@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

UNITED STATES ATOMIC ENERGY COMMISSION: WE HAVE A LETTER OF NOVEMBER 13. WE ARE ADVISED THAT THE SOUTHWEST ATOMIC ENERGY ASSOCIATES (SAEA) IN ASSOCIATION WITH A WEST GERMAN NONPROFIT CORPORATION GESELLSCHAFT FUR KERNFORSCHUNG M.B.H. IT IS EXPECTED THAT THE PERIOD FOR PREPARATION OF THE FACILITY WOULD BE THREE TO FOUR YEARS AND THAT OPERATIONS UNDER THE CONTRACT WOULD EXTEND FOR AN ADDITIONAL THREE OR FOUR YEARS. THE OFFER OF SAEA AND GESELLSCHAFT IS CONTINGENT UPON THE COMMISSION'S AGREEMENT TO ENTER INTO A BINDING COMMITMENT FOR THE ENTIRE PROJECT UNDER THE AUTHORITY PROVIDED IN SUBSECTION U (2) OF SECTION 161 OF THE ATOMIC ENERGY ACT OF 1954. PROVIDES THAT THE COMMISSION IS AUTHORIZED TO.

B-131115, DEC. 17, 1963

TO THE CHAIRMAN, UNITED STATES ATOMIC ENERGY COMMISSION:

WE HAVE A LETTER OF NOVEMBER 13, 1963, WITH ENCLOSURES, SIGNED BY THE GENERAL MANAGER, REQUESTING OUR VIEWS ON THE PROPRIETY OF THE PROPOSED PARTICIPATION BY THE COMMISSION IN A RESEARCH AND DEVELOPMENT PROJECT UNDER THE CIRCUMSTANCES SET OUT BELOW.

WE ARE ADVISED THAT THE SOUTHWEST ATOMIC ENERGY ASSOCIATES (SAEA) IN ASSOCIATION WITH A WEST GERMAN NONPROFIT CORPORATION GESELLSCHAFT FUR KERNFORSCHUNG M.B.H. (GESELLSCHAFT) WOULD, UNDER A PROPOSAL FOR A RESEARCH AND DEVELOPMENT PROJECT, ENTER INTO A CONTRACT WITH THE GENERAL ELECTRIC COMPANY (GE) WHEREBY THE LETTER WOULD CONSTRUCT AN EXPERIMENTAL FACILITY TO BE CALLED THE SOUTHWEST EXPERIMENTAL FAST OXIDE REACTOR (SEFOR). THE COST OF THE FACILITY UP TO A STATED CEILING WOULD BE BORNE BY SAEA AND GESELLSCHAFT; ANY COST OVER THE CEILING WOULD BE THE RESPONSIBILITY OF GE. SEFOR WOULD BE USED FOR RESEARCH AND DEVELOPMENT PURPOSES AND WOULD BE OPERATED AND MAINTAINED BY GE AT THE COMMISSION'S EXPENSE UP TO A STATED CEILING. DURING THE CONTRACT PERIOD SEFOR WOULD BE USED ONLY FOR CARRYING OUT AEC RESEARCH OBJECTIVES EXCEPT TO THE EXTENT THE COMMISSION PERMITTED OTHER USES. IT IS EXPECTED THAT THE PERIOD FOR PREPARATION OF THE FACILITY WOULD BE THREE TO FOUR YEARS AND THAT OPERATIONS UNDER THE CONTRACT WOULD EXTEND FOR AN ADDITIONAL THREE OR FOUR YEARS.

THE OFFER OF SAEA AND GESELLSCHAFT IS CONTINGENT UPON THE COMMISSION'S AGREEMENT TO ENTER INTO A BINDING COMMITMENT FOR THE ENTIRE PROJECT UNDER THE AUTHORITY PROVIDED IN SUBSECTION U (2) OF SECTION 161 OF THE ATOMIC ENERGY ACT OF 1954, AS AMENDED, AND TO FOREGO THE NORMAL TERMINATION FOR CONVENIENCE RIGHTS EXCEPT UNDER LIMITED CIRCUMSTANCES.

THE COMMISSION PROPOSES TO ENTER INTO THE ARRANGEMENT UNDER THE AUTHORITY OF SECTION 31 AND THE CITED SUBSECTION OF THE ACT. THE SUBSECTION, AS AMENDED, 42 U.S.C. 2201 (U) (2), PROVIDES THAT THE COMMISSION IS AUTHORIZED TO---

"/2) (A) ENTER INTO CONTRACTS FOR SUCH PERIODS OF TIME AS THE COMMISSION MAY DEEM NECESSARY OR DESIRABLE FOR THE PURCHASE OR ACQUISITION OF ANY SUPPLIES, EQUIPMENT, MATERIALS, OR SERVICES REQUIRED BY THE COMMISSION WHENEVER THE COMMISSION DETERMINES THAT: (I) IT IS ADVANTAGEOUS TO THE GOVERNMENT TO MAKE SUCH PURCHASE OR ACQUISITION FROM COMMERCIAL SOURCES; (II) THE FURNISHING OF SUCH SUPPLIES, EQUIPMENT, MATERIALS, OR SERVICES WILL REQUIRE THE CONSTRUCTION OR ACQUISITION OF SPECIAL FACILITIES BY THE VENDORS OR SUPPLIERS THEREOF; (III) THE AMORTIZATION CHARGEABLE TO THE COMMISSION CONSTITUTES AN APPRECIABLE PORTION OF THE COST OF CONTRACT PERFORMANCE, EXCLUDING COST OF MATERIALS; AND (IV) THE CONTRACT FOR SUCH PERIOD IS MORE ADVANTAGEOUS TO THE GOVERNMENT THAN A SIMILAR CONTRACT NOT EXECUTED UNDER THE AUTHORITY OF THIS SUBSECTION. SUCH CONTRACTS SHALL BE ENTERED INTO FOR PERIODS NOT TO EXCEED FIVE YEARS EACH FROM THE DATE OF INITIAL DELIVERY OF SUCH SUPPLIES, EQUIPMENT, MATERIALS, OR SERVICES OR TEN YEARS FROM THE DATE OF EXECUTION OF THE CONTRACTS EXCLUDING PERIODS OF RENEWAL UNDER OPTION.

"/B) IN ENTERING INTO SUCH CONTRACTS THE COMMISSION SHALL BE GUIDED BY THE FOLLOWING PRINCIPLES: (I) THE PERCENTAGE OF THE TOTAL COST OF SPECIAL FACILITIES DEVOTED TO CONTRACT PERFORMANCE AND CHARGEABLE TO THE COMMISSION SHOULD NOT EXCEED THE RATIO BETWEEN THE PERIOD OF CONTRACT DELIVERIES AND THE ANTICIPATED USEFUL LIFE OF SUCH FACILITIES; (II) THE DESIRABILITY OF OBTAINING OPTIONS TO RENEW THE CONTRACT FOR REASONABLE PERIODS AT PRICES NOT TO INCLUDE CHARGES FOR SPECIAL FACILITIES ALREADY AMORTIZED; AND (III) THE DESIRABILITY OF RESERVING IN THE COMMISSION THE RIGHT TO TAKE TITLE TO THE SPECIAL FACILITIES UNDER APPROPRIATE CIRCUMSTANCES; * * *"

THE SPECIFIC QUESTION RAISED IS WHETHER THE PROPOSED UNDERTAKING IS PROPER UNDER SECTION 161 U (2) (A) (III) IN VIEW OF THE FACT THAT NO AMORTIZATION IS CHARGEABLE TO THE COMMISSION UNDER THE TENTATIVE AGREEMENT.

THE PURPOSE OF THE CITED STATUTORY PROVISION IS TO PERMIT AEC TO ENTER INTO LONG-TERM CONTRACTS IN INSTANCES WHERE THE PROCUREMENT ENTAILS A SIGNIFICANT CAPITAL INVESTMENT WITH LITTLE OR NO CONCURRENT OR SUBSEQUENT APPLICATION OR VALUE FOR OTHER PURPOSES WHICH WOULD ENABLE SUCH INVESTMENT TO BE CAPITALIZED OVER A PERIOD OF YEARS. IN THE USUAL INSTANCES, WHERE THE CONTRACT CONTEMPLATES THE PURCHASE OF AN END PRODUCT, THE PRICE PER UNIT IS THEREBY BROUGHT DOWN BECAUSE THE AMORTIZATION FACTOR INCLUDED IN THE UNIT PRICE IS LESS THAN WOULD BE POSSIBLE UNDER A ONE-YEAR CONTRACT BY VIRTUE OF THE LONGER CONTRACT AND THE GREATER QUANTITY.

HERE, THE UNDERTAKING WOULD REQUIRE A SUBSTANTIAL CAPITAL INVESTMENT WHICH, WE ASSUME, WOULD HAVE LITTLE RESIDUAL VALUE. THE END PRODUCT IS KNOWLEDGE TO BE GAINED FROM THE RESEARCH AND DEVELOPMENT ACTIVITIES CARRIED ON IN THE FACILITY. THE ENTITIES MAKING THE SIGNIFICANT CAPITAL INVESTMENT REQUIRED WOULD BE COMPENSATED IN TERMS OF THE KNOWLEDGE GAINED RATHER THAN BY PAYMENT FOR AN END ITEM PRODUCED. HOWEVER, IN EITHER CASE, THE NATURE AND SIZE OF THE CAPITAL INVESTMENT WOULD BE SUCH AS TO RENDER A SHORT-TERM UNDERTAKING INFEASIBLE.

WE THINK THAT THE LANGUAGE OF SECTION 161 U (2) (A) (III) IS SUFFICIENTLY BROAD TO COVER AMORTIZATION CHARGEABLE TO THE COMMISSION WHETHER IN THE USUAL TERMS OF A SEGMENT OF AN ITEM PRICE OR IN TERMS OF SOME OTHER QUID PRO QUO. IN THIS INSTANCE IT APPEARS APPROPRIATE TO CONSIDER THE COST OF THE CONTRACT TO BE THE SUM OF THE ANTICIPATED COST OF THE FACILITY LESS THE VALUE AT THE END OF THE CONTRACT PERIOD PLUS THE ANTICIPATED COST OF OPERATION AND MAINTENANCE DURING THE CONTRACT PERIOD. THIS RESULT WOULD ALSO REPRESENT THE COST OF THE END PRODUCT. THE COMMISSION WILL OBTAIN THE END PRODUCT, THE COST OF WHICH IS EXPRESSED ABOVE. WHILE THE CONTRIBUTIONS TO THE COMMON ENDEAVOR ARE IN TERMS OF SPECIFIC COST ITEMS, I.E., PLANT CONSTRUCTION AND MAINTENANCE AND OPERATION, WE ASSUME THIS IS FOR PURPOSES OF ACCOUNTING CONVENIENCE, AND EACH CONTRIBUTION COULD AS VALIDLY, IF NOT AS READILY, HAVE BEEN PRORATED AMONG THE INDIVIDUAL COSTS. ACCORDINGLY, THE REQUIREMENTS OF SECTION 161 U (2) (A) (III) WILL, IN OUR VIEW, BE MET IF THE CAPITAL EXPENDITURE LESS RESIDUAL VALUE IF FOUND BY THE COMMISSION TO REPRESENT AN APPRECIABLE PORTION OF THE TOTAL CONTRACT COST AS DEFINED ABOVE, EXCLUDING COST OF MATERIALS.

Jan 19, 2021

Jan 14, 2021

Looking for more? Browse all our products here