B-164908, JUL. 6, 1970

B-164908, JUL. 6, 1970

CONTRACTS -- AUTOMATIC DATA PROCESSING EQUIPMENT -- PAYMENT PLAN DECISION TO SECRETARY OF THE NAVY, CONCERNING PROPRIETY OF PURCHASE ARRANGEMENT FOR ADP EQUIPMENT. ALTHOUGH INSTALLMENT PAYMENT PLAN FOR ADP EQUIPMENT WHICH PROVIDES FOR INSTALLATION OF EQUIPMENT WITH OPTION TO RENEW FOR FOUR ADDITIONAL FISCAL YEARS WITH PAYMENTS ON A MONTHLY SCHEDULE BASED ON THE PURCHASE PRICE PLUS INTEREST AT 10% ON THE UNRETIRED PRINCIPAL OVERCOMES PREVIOUS OBJECTION TO PLANS CONTINUING BEYOND A FISCAL YEAR CONTRARY TO 3732 AND 3679, R.S. HOWEVER THE REQUIREMENT FOR THE GOVT. TO MAKE AN ANNUAL DEPOSIT OF 2% OF THE PURCHASE PRICE FOR THE FIRST THREE YEARS TO BE APPLIED LATER AS A CREDIT AGAINST THE UNPAID PRINCIPAL IN THE FIFTH YEAR WOULD CONSTITUTE AN OBLIGATION AGAINST FISCAL YEAR APPROPRIATIONS FOR OTHER THAN A BONA FIDE NEED. THIS OBJECTION MAY BE OVERCOME BY ELIMINATING THE NEED FOR SUCH A DEPOSIT BY INCREASING THE INSTALLMENT PAYMENT OR BY ADDITIONAL PAYMENT IN THE FIFTH YEAR AS CONSIDERATION FOR CONVEYANCE OF TITLE TO THE EQUIPMENT.

TO MR. SECRETARY:

THIS CONCERNS A LETTER OF APRIL 14, 1970, FROM YOUR SPECIAL ASSISTANT, MR. JAMES G. WOODRUFF, REQUESTING OUR VIEWS AND RECOMMENDATIONS CONCERNING AN ALTERNATE PURCHASE ARRANGEMENT OFFERED BY A VENDOR IN CONNECTION WITH A CURRENT COMPUTER PROCUREMENT FOR THE AVIATION SUPPLY OFFICE, ADPESO PROJECT NO. 013-68, (ASO). WHILE IT WAS RECOGNIZED THAT THIS ARRANGEMENT DESCRIBED AS AN ALTERNATE PAYMENT PLAN COULD NOT BE CONSIDERED ACCEPTABLE FOR THE PRESENT PROCUREMENT DUE TO THE LIMITATION ON YOUR AUTHORITY AS DELEGATED BY THE GENERAL SERVICES ADMINISTRATION, A MODIFIED VERSION OF THE PLAN COULD RESULT IN POTENTIAL SAVINGS AND OUR VIEWS WERE REQUESTED IN LIGHT OF OUR PREVIOUS DECISIONS, B-164908, JANUARY 31, 1969, RESPECTING SIMILAR PLANS.

THE PROPOSED ALTERNATE PAYMENT PLAN IS ESSENTIALLY THE PURCHASE OF AUTOMATIC DATA PROCESSING EQUIPMENT THROUGH INSTALLMENT PAYMENTS. THE PLAN PROVIDES FOR INSTALLATION OF EQUIPMENT UNDER A FISCAL YEAR CONTRACT WITH AN OPTION IN THE GOVERNMENT TO RENEW THE CONTRACT AT THE END OF EACH YEAR FOR FOUR ADDITIONAL FISCAL YEAR INCREMENTS. PAYMENTS FOR THE EQUIPMENT WOULD BE MADE ON A MONTHLY SCHEDULE BASED ON THE PURCHASE PRICE PLUS INTEREST AT 10 PERCENT ON THE UNRETIRED PRINCIPAL AMOUNT EACH YEAR. IN ADDITION THE GOVERNMENT WOULD BE REQUIRED TO MAKE AN ANNUAL DEPOSIT OF 2 PERCENT OF THE PURCHASE PRICE FOR THE FIRST THREE FISCAL YEARS TO BE APPLIED LATER AS A CREDIT AGAINST THE UNPAID PRINCIPAL BALANCE IN THE FIFTH YEAR. THOSE DEPOSITS WOULD EARN SIMPLE INTEREST AT 5 PERCENT PER ANNUM. IN THE EVENT THE GOVERNMENT SHOULD TERMINATE THE PLAN BY NOT EXERCISING ITS OPTION TO RENEW, ALL MONIES PAID TO THE CONTRACTOR INCLUDING THE 2 PERCENT DEPOSIT AND INTEREST WOULD BE RETAINED BY THE VENDOR. TITLE TO THE EQUIPMENT WOULD VEST IN THE GOVERNMENT AT THE END OF THE FIFTH YEAR. THE STANDARD TERMINATION FOR CONVENIENCE PROVISION WOULD NOT BE INCLUDED IN THE CONTRACT.

THE PROPOSED INSTALLMENT PAYMENT PLAN HAS OVERCOME ONE OF OUR PREVIOUS OBJECTIONS IN THAT THE GOVERNMENT'S OBLIGATION TERMINATES AT THE END OF EACH FISCAL YEAR AND IS RENEWED ONLY BY EXERCISE OF THE OPTION BY THE GOVERNMENT. SEE 48 COMP. GEN. 497,501 (1969). HOWEVER, THE GOVERNMENT'S OBLIGATION TO MAKE DEPOSITS OF 2 PERCENT OF THE PURCHASE PRICE IN EACH OF THE FIRST THREE YEARS TO BE APPLIED LATER IN THE FORM OF CREDITS AGAINST THE UNPAID PRINCIPAL BALANCE IN THE FIFTH YEAR WOULD CONSTITUTE AN OBLIGATION AGAINST FISCAL YEAR APPROPRIATIONS FOR OTHER THAN A BONA FIDE NEED ARISING WITHIN THE FISCAL YEAR AVAILABILITY OF THE APPROPRIATIONS. SEE 42 COMP. GEN. 272 (1962).

THIS OBJECTION TO THE ALTERNATE PAYMENT PLAN MAY BE OVERCOME BY ELIMINATING THE NEED FOR SUCH A DEPOSIT EITHER BY INCREASING THE FISCAL YEAR INSTALLMENT PAYMENT OR THROUGH THE FORM OF AN ADDITIONAL PAYMENT BY THE GOVERNMENT IN THE FIFTH FISCAL YEAR AS CONSIDERATION FOR CONVEYANCE OF TITLE TO THE COMPUTER. WITH EITHER OF THESE MODIFICATIONS THE ALTERNATE PAYMENT PLAN WOULD BECOME ESSENTIALLY AN ANNUAL CONTRACT FOR COMPUTER SERVICES WITH THE OPTION TO RENEW AT SPECIFIED RATES FOR FOUR ADDITIONAL ONE-YEAR PERIODS AND IF THE OPTION IS EXERCISED EACH YEAR TITLE TO THE COMPUTER WOULD THEN PASS TO THE GOVERNMENT. ORDINARILY, THE COST TO THE GOVERNMENT IN ANY YEAR COULD NOT EXCEED THE PRICE FOR WHICH THE ANNUAL SERVICE WOULD OTHERWISE BE AVAILABLE. HOWEVER, WE HAVE PREVIOUSLY APPROVED THE EVALUATION OF SUCH OPTIONS AND AWARD ON SUCH A BASIS WHERE THERE ARE KNOWN FUTURE REQUIREMENTS FOR WHICH IT WOULD BE IMPRACTICABLE TO OBTAIN FUTURE COMPETITION AND AS A RESULT IT MAY BE CONSIDERED THE GOVERNMENT HAS A NEED FOR THE OPTION AT THE TIME THE CONTRACT IS AWARDED. SEE B-162839, DECEMBER 13, 1968. THIS POSITION IS CURRENTLY REFLECTED IN ASPR 1 1504(D). IF THE CRITERIA IN ASPR FOR THE EVALUATION OF OPTIONS ARE MET, AWARD WOULD NOT BE REQUIRED ON THE BASIS OF THE LOWEST PRICE FOR THE QUANTITY TO BE INCLUDED IN THE INITIAL AWARD.

THEREFORE, IF SUCH A PLAN IS ACCEPTABLE TO THE PROSPECTIVE CONTRACTOR AND CAN BE CONTRACTED FOR BY YOUR DEPARTMENT WITHIN THE LIMITS OF YOUR AUTHORITY AS DELEGATED BY GSA, THIS OFFICE WOULD HAVE NO LEGAL OBJECTION TO SUCH A CONTRACT.