B-150468, JULY 2, 1963, 43 COMP. GEN. 15

B-150468, JULY 2, 1963, 43 COMP. GEN. 15

SALES - CONDITIONS REDUCING PRICE - PROPRIETY A CONDITION IN AN ADVERTISED SALE OF SURPLUS PROPERTY THAT THE ARTICLE SOLD MUST BE SCRAPPED TO AVOID AN ADVERSE ECONOMIC IMPACT ON THE INDUSTRY WHICH CONDITION WILL REDUCE THE RETURN TO THE GOVERNMENT BELOW THE FAIR MARKET VALUE AS REQUIRED FOR ADVERTISED SURPLUS SALES UNDER SECTION 203 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, 40 U.S.C. 484, IS ILLEGAL, THERE BEING NO INDICATION OF ANY CONGRESSIONAL INTENT IN THE LEGISLATIVE HISTORY OF THE 1949 ACT OR ITS AMENDMENTS TO GRANT AGENCIES THE DISCRETION TO AVOID POSSIBLE ECONOMIC DISLOCATION BY SELLING SURPLUS PROPERTY BELOW THE ACTUAL FAIR MARKET VALUE IF SOLD BY NEGOTIATION, AND, THEREFORE, THE CONTRACT SHOULD BE CANCELED AND THE PROPERTY RETURNED TO THE GOVERNMENT OR NEGOTIATIONS CONDUCTED WITH THE CONTRACTOR TO DELETE THE SCRAPPING PROVISION PROVIDED A PRICE INCREASE IS OFFERED.

TO THE DIRECTOR, DEFENSE SUPPLY AGENCY, JULY 2, 1963:

WE HAVE RECEIVED YOUR REPORTS DATED FEBRUARY 20, 1963, AND MARCH 27, 1963, SUBMITTED IN RESPONSE TO A PROTEST BY PECK IRON AND METAL COMPANY, INC., AGAINST A CONDITION IN ITS CONTRACT DSA-25-S-157, DATED JULY 19, 1962, FOR THE PURCHASE OF 34 SURPLUS ANCHORS, AND IN INVITATION FOR BIDS 25-S-63-54, OPENED ON DECEMBER 13, 1962, ON WHICH THE COMPANY WAS THE HIGH BIDDER. THE CONDITION IN QUESTION WAS THAT THE ANCHORS SOLD UNDER THE CONTRACT AND ADVERTISED FOR SALE UNDER THE INVITATION MUST BE SCRAPPED BY THE PURCHASER.

THE RECORD ESTABLISHES THAT THE DISPUTED CONDITION WAS INSERTED INTO THE CONTRACT AND INVITATION FOR BIDS AS A RESULT OF A DIRECTIVE FROM THE DEPARTMENT OF THE NAVY, BUSANDA NOTICE 4530, DATED APRIL 25, 1961, STATING THAT ALL SURPLUS ANCHORS WEIGHING 8,000 POUNDS OR MORE WILL BE SOLD AS SCRAP FOR METAL CONTENT ONLY. THE BASIS OF THIS DIRECTIVE IS A MEMORANDUM OF UNDERSTANDING AND COOPERATION IN PROGRAM FOR THE DISPOSAL OF SURPLUS PERSONAL PROPERTY DATED JULY 19, 1954, BETWEEN THE DEPARTMENT OF DEFENSE AND THE DEPARTMENT OF COMMERCE, BUREAU OF BUSINESS AND DEFENSE SERVICES ADMINISTRATION (BDSA). UNDER THIS AGREEMENT, BDSA CONDUCTS INVESTIGATIONS ON REQUEST OR ON ITS OWN INITIATIVE IN ORDER TO ASCERTAIN THE IMPACT WHICH PLANNED DISPOSAL BY THE DEPARTMENT OF DEFENSE OF SIGNIFICANT AMOUNTS OF DOMESTIC SURPLUS PROPERTY MAY HAVE ON A GIVEN SEGMENT OF INDUSTRY. THE OBJECTIVE OF THE AGREEMENT IS TO SEE THAT SUCH PROPERTY IS DISPOSED OF IN A MANNER WHICH RESULTS IN A FAIR RATE OF RETURN TO THE GOVERNMENT BUT WITH A MINIMUM IMPACT ON CIVILIAN MARKETS.

THE BDSA'S ROLE IN THESE DISPOSALS IS PURELY ADVISORY AND NONSTATUTORY, EXCEPT AS IT IS SAID TO FOLLOW FROM THE BASIC STATUTORY DUTY OF THE DEPARTMENT OF COMMERCE TO FOSTER, PROMOTE AND DEVELOP COMMERCE OF THE UNITED STATES. THE BDSA FURNISHES THE DEPARTMENT OF DEFENSE RECOMMENDATIONS AND ADVICE RESULTING FROM SUCH INVESTIGATIONS. THE DEPARTMENT OF DEFENSE MAY ACCEPT OR REJECT BDSA'S RECOMMENDATIONS. SIGNIFICANT AMOUNTS HAVE BEEN DEFINED AS BEING THE AGGREGATE OF SURPLUS ITEMS IN A PROPOSED SALE WHERE THE ACQUISITION COSTS EXCEED $250,000. SEE HEARINGS BEFORE THE SUBCOMMITTEE ON DEFENSE PROCUREMENT OF THE JOINT ECONOMIC COMMITTEE OF CONGRESS, 86TH CONG., 2D SESS. 70.

THE RECORD ESTABLISHES THAT AS A RESULT OF A SERIES OF ANCHOR SALES IN THE LATTER HALF OF 1958, REPRESENTATIONS WERE MADE TO BDSA BY THE ANCHOR INDUSTRY THAT THESE SURPLUS SALES HAD A SERIOUS, ADVERSE IMPACT UPON THE ANCHOR MANUFACTURING INDUSTRY. THE BDSA IMMEDIATELY SECURED THE COOPERATION OF THE DEPARTMENT OF DEFENSE TO POSTPONE ANY FURTHER SALES PENDING A MARKET IMPACT STUDY, WHICH WAS TO BE MADE PURSUANT TO THE 1954 AGREEMENT. ON JANUARY 23, 1959, THE BDSA MADE A MARKET IMPACT STUDY ON A PROPOSED SALE OF 1,500 ANCHORS BY THE DEPARTMENT OF THE NAVY. RECOMMENDED THAT SALES OF DOMESTIC ANCHORS BE POSTPONED AND SUGGESTED THAT CONSIDERATION BE GIVEN TO THE ADVISABILITY OF REDUCING THESE ANCHORS TO SCRAP, FOR DISPOSAL AS PREMIUM SCRAP. THE STUDY STATED THAT ONE OF THE FACTORS TO BE INCLUDED IN THIS CONSIDERATION WAS THE COMPARISON OF POTENTIAL YIELD FROM DISPOSAL AS PREMIUM SCRAP AGAINST THE PRICES RECEIVED IN RECENT SALES OF WHOLE ANCHORS. THEREAFTER THE DEPARTMENT OF THE NAVY DETERMINED THAT EXCEPT FOR BIDS SUBMITTED BY ANCHOR MANUFACTURERS, A RETURN OF ONLY $0.0236 PER POUND WOULD BE RECEIVED ON ANCHORS WEIGHING OVER 8,000 POUNDS. IN VIEW OF THE FACT THAT $0.016 PER POUND COULD BE RECEIVED IN THE EVENT THAT THE SCRAPPING OF THE LARGE ANCHORS WAS REQUIRED AS A CONDITION OF THE SALE, THE NAVY RECOMMENDED THAT CERTAIN ANCHORS WEIGHING OVER 8,000 POUNDS BE SOLD WITH THE REQUIREMENT THAT THEY BE SCRAPPED.

BY LETTER DATED FEBRUARY 1, 1960, BDSA RECOMMENDED TO THE DEPARTMENT OF DEFENSE THAT SOME 634 SURPLUS ANCHORS WEIGHING OVER 8,000 POUNDS BE SOLD FOR SCRAP AND SO BONDED THAT THEY WOULD NOT BE RETURNED TO THE MARKET AS ANCHORS. BY LETTER OF DECEMBER 13, 1960, THE DEPARTMENT OF NAVY WAS ADVISED OF A BDSA RECOMMENDATION THAT SOME 435 ANCHORS WEIGHING OVER 8,000 POUNDS BE SOLD AS SCRAP WITH A SCRAP WARRANTY. ON APRIL 25, 1961, BY BUSANDA NOTICE 4530, WHAT WERE FORMERLY AD HOC DETERMINATIONS APPARENTLY BECAME ACCEPTED AS A GENERAL POLICY BY THE DEPARTMENT OF THE NAVY, NOTWITHSTANDING THAT THE MEMORANDUM OF UNDERSTANDING REFERRED ONLY TO A SALE WHERE THE ACQUISITION COST EXCEEDED $250,000. AFTER THAT DATE, IT APPEARS THAT ALL ANCHORS WEIGHING 8,000 POUNDS OR MORE WERE SOLD AS SCRAP UNTIL MARCH 21, 1963, WHEN YOUR AGENCY INSTITUTED A TEST SALE OF 11 LARGE ANCHORS. AT THIS SALE YOU RECEIVED A HIGH BID OF $1,116 FOR THE 11 ANCHORS AS SCRAP, AND $14,667.10 FOR THE ANCHORS AS ANCHORS.

THE GRAVAMEN OF THE COMPLAINT BY PECK IRON AND METAL COMPANY IS THAT YOUR OFFICE HAS NO STATUTORY OR OTHER LEGAL AUTHORITY TO REQUIRE LARGE MARINE ANCHORS TO BE SOLD WITH A SCRAP WARRANTY, AND THAT PECK AND OTHER COMPANIES WOULD OFFER A SUBSTANTIALLY HIGHER RETURN TO THE GOVERNMENT IF SUCH CONDITION WERE NOT INCLUDED IN SURPLUS SALES CONTRACTS. WE HAVE HELD THAT GENERALLY CONDITIONS IN GOVERNMENT PROCUREMENT CONTRACTS WHICH MAY INCREASE THE COST OF PERFORMANCE ARE IMPROPER UNLESS AUTHORIZED BY STATUTE. 20 COMP. GEN. 836, 845, AND CASES CITED THEREIN. WE BELIEVE THIS PRINCIPLE APPLIES WITH EQUAL FORCE TO CONTRACT STIPULATIONS OR CONDITIONS WHICH TEND TO REDUCE THE RETURN TO THE GOVERNMENT IN SALES OF SURPLUS PROPERTY.

YOU SAY THE STATUTORY AUTHORITY FOR THE POLICY ADOPTED BY THE DEPARTMENT OF THE NAVY IS FOUND IN THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, APPROVED JUNE 30, 1949, CH. 288, 63 STAT. 385, 40 U.S.C. 484. SECTION 203 (C) OF THAT ACT, 40 U.S.C. 484 (C), PROVIDES AS OLLOWS:

ANY EXECUTIVE AGENCY DESIGNATED OR AUTHORIZED BY THE ADMINISTRATOR TO DISPOSE OF SURPLUS PROPERTY MAY DO SO BY SALE, EXCHANGE, LEASE, PERMIT, OR TRANSFER, FOR CASH, CREDIT, OR OTHER PROPERTY, WITH OR WITHOUT WARRANTY, AND UPON SUCH OTHER TERMS AND CONDITIONS AS THE ADMINISTRATOR DEEMS PROPER, AND IT MAY EXECUTE SUCH DOCUMENTS FOR THE TRANSFER OF TITLE OR OTHER INTEREST IN PROPERTY AND TAKE SUCH OTHER ACTION AS IT DEEMS NECESSARY OR PROPER TO DISPOSE OF SUCH PROPERTY UNDER THE PROVISIONS OF THIS TITLE.

THE LANGUAGE OF THE QUOTED SECTION EXPLICITLY PERMITTING AN AUTHORIZED EXECUTIVE AGENCY TO ,TAKE SUCH OTHER ACTION AS IT DEEMS NECESSARY OR PROPER TO DISPOSE OF SUCH PROPERTY," IS QUALIFIED BY THE PHRASE, "UNDER THE PROVISIONS OF THIS TITLE.' MOREOVER, AN ADMINISTRATIVE AGENCY HAS NO AUTHORITY TO ISSUE REGULATIONS WHICH ALTER OR EXTEND THE STATUTE BEING ADMINISTERED. 41 COMP. GEN. 213, 217. THEREFORE, SINCE THE REGULATION REQUIRES A CONTRACTURAL CONDITION WHICH DOES REDUCE THE GOVERNMENT'S RETURN ON CERTAIN SURPLUS SALES, IT MAY NOT BE CONSIDERED "NECESSARY OR PROPER" UNLESS THE LANGUAGE OF THE STATUTE INDICATES A COGNIZANCE OF AND ACQUIESCENCE IN THE ALLEGED NECESSITY OR PROPRIETY OF THE CONDITION. IS SUGGESTED THAT THIS INDICATION MAY BE FOUND IN THE 1958 AMENDMENT TO THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, APPROVED JULY 2, 1958, PUBLIC LAW 85-486, 72 STAT. 288, 40 U.S.C. 484 (E), WHICH, IN PART, PROVIDES:

(E) BIDS FOR DISPOSAL; ADVERTISING; PROCEDURE; DISPOSAL BY NEGOTIATION; EXPLANATORY STATEMENT.

(E) (1) ALL DISPOSALS OR CONTRACTS FOR DISPOSAL OF SURPLUS PROPERTY (OTHER THAN BY ABANDONMENT, DESTRUCTION, DONATION, OR THROUGH CONTRACT BROKERS) MADE OR AUTHORIZED BY THE ADMINISTRATOR SHALL BE MADE AFTER PUBLICLY ADVERTISING FOR BIDS, UNDER REGULATIONS PRESCRIBED BY THE ADMINISTRATOR, EXCEPT AS PROVIDED IN PARAGRAPHS (3) AND (5) OF THIS SUBSECTION.

(2) WHENEVER PUBLIC ADVERTISING FOR BIDS IS REQUIRED UNDER PARAGRAPH (1) OF THIS SUBSECTION---

(A) THE ADVERTISEMENT FOR BIDS SHALL BE MADE AT SUCH TIME PREVIOUS TO THE DISPOSAL OR CONTRACT, THROUGH SUCH METHODS, AND ON SUCH TERMS AND CONDITIONS AS SHALL PERMIT THAT FULL AND FREE COMPETITION WHICH IS CONSISTENT WITH THE VALUE AND NATURE OF THE PROPERTY INVOLVED;

(B) ALL BIDS SHALL BE PUBLICLY DISCLOSED AT THE TIME AND PLACE STATED IN THE ADVERTISEMENT;

(C) AWARD SHALL BE MADE WITH REASONABLE PROMPTNESS BY NOTICE TO THE RESPONSIBLE BIDDER WHOSE BID, CONFORMING TO THE INVITATION FOR BIDS, WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED: PROVIDED, THAT ALL BIDS MAY BE REJECTED WHEN IT IS IN THE PUBLIC INTEREST TO DO SO.

(3) DISPOSALS AND CONTRACTS FOR DISPOSAL MAY BE NEGOTIATED, UNDER REGULATIONS PRESCRIBED BY THE ADMINISTRATOR, WITHOUT REGARD TO PARAGRAPHS (1) AND (2) OF THIS SUBSECTION BUT SUBJECT TO OBTAINING SUCH COMPETITION AS IS FEASIBLE UNDER THE CIRCUMSTANCES, IF---

(A) NECESSARY IN THE PUBLIC INTEREST DURING THE PERIOD OF A NATIONAL EMERGENCY DECLARED BY THE PRESIDENT OR THE CONGRESS, WITH RESPECT TO A PARTICULAR LOT OR LOTS OF PERSONAL PROPERTY OR, FOR A PERIOD NOT EXCEEDING THREE MONTHS, WITH RESPECT TO A SPECIFICALLY DESCRIBED CATEGORY OR CATEGORIES OF PERSONAL PROPERTY AS DETERMINED BY THE ADMINISTRATOR;

(B) THE PUBLIC HEALTH, SAFETY, OR NATIONAL SECURITY WILL THEREBY BE PROMOTED BY A PARTICULAR DISPOSAL OF PERSONAL PROPERTY;

(C) PUBLIC EXIGENCY WILL NOT ADMIT OF THE DELAY INCIDENT TO ADVERTISING CERTAIN PERSONAL PROPERTY;

(D) THE PERSONAL PROPERTY INVOLVED IS OF A NATURE AND QUANTITY WHICH, IF DISPOSED OF UNDER PARAGRAPHS (1) AND (2) OF THIS SUBSECTION, WOULD CAUSE SUCH AN IMPACT ON AN INDUSTRY OR INDUSTRIES AS ADVERSELY TO AFFECT THE NATIONAL ECONOMY, AND THE ESTIMATED FAIR MARKET VALUE OF SUCH PROPERTY AND OTHER SATISFACTORY TERMS OF DISPOSAL CAN BE OBTAINED BY NEGOTIATION;

THE ESSENCE OF YOUR VIEW SEEMS TO BE THAT, WHILE SUBSECTION 3 (D) DOES NOT EXPRESSLY PERMIT A SCRAPPING CONDITION IN NEGOTIATED SALES, SUCH AUTHORITY IS IN HARMONY WITH THE GENERAL INTENT OF THE LANGUAGE AND NECESSARY TO EXECUTE THE DUTIES IMPOSED ON YOUR OFFICE BY THAT SUBSECTION. APPARENTLY, YOU BELIEVE IT WOULD FOLLOW THAT IF CONGRESS INTENDED TO PERMIT AGENCIES TO INCLUDE IN NEGOTIATED CONTRACTS A CONTRACT STIPULATION WHICH CHANGED THE NATURE OF THE PROPERTY AND DEPRESSED ITS PRICE, THERE IS NO REASON TO CONSIDER THE REQUIRING OF SUCH CONDITION IN ADVERTISED SALES AS AN IMPROPER EXERCISE OF THE BROAD DISCRETION GIVEN BY CONGRESS TO AN AUTHORIZED EXECUTIVE AGENCY. THEREFORE, IN CONSIDERING THIS VIEW, THE FIRST QUESTION TO ANSWER IS WHETHER CONGRESS HAS IN FACT IMPLIED THAT A POSSIBLE ECONOMIC DISLOCATION JUSTIFIES THE INCLUSION IN A NEGOTIATED CONTRACT OF THE CONDITION THAT THE PROPERTY SOLD BE SCRAPPED.

THE LEGISLATIVE HISTORY OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, ITS AMENDMENTS AND ITS PREDECESSOR, DEMONSTRATES A CONTINUING CONGRESSIONAL CONCERN FOR THE NEED TO ACCOMMODATE THE DESIRE OF THE GOVERNMENT TO OBTAIN THE BEST TERMS IN THE SALE OF ITS SURPLUS PROPERTY AND THE SOMETIMES COMPETING OBJECTIVE OF AVOIDING UNDUE ECONOMIC DISLOCATION GENERATED BY THE GOVERNMENT'S ENORMOUS DISPOSAL ACTIVITIES. THIS HISTORY IS INSTRUCTIVE AS TO THE PARTICULAR MEANS BY WHICH CONGRESS HAS ATTEMPTED TO BALANCE THESE 2 GOALS.

SECTION 203 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 ESTABLISHED PROCEDURES FOR DISPOSAL OF SURPLUS PROPERTY, AND SECTION 502 (A) (1), 63 STAT. 399, REPEALED IN RELEVANT PART THOSE PROCEDURES FORMERLY ESTABLISHED BY THE SURPLUS PROPERTY ACT OF 1944, APPROVED OCTOBER 3, 1944, CH. 479, 58 STAT. 765, 50 U.S.C. APP. 1611 NOTE. THE NEED FOR THE SURPLUS PROPERTY ACT OF 1944 HAD ARISEN FROM THE UNUSUAL CIRCUMSTANCES CREATED BY WORLD WAR II. CONGRESS THEN CONSIDERED THE LARGE AMOUNTS OF PROPERTY MANUFACTURED DURING THE WAR EFFORT TO BE A POTENTIAL THREAT TO THE DOMESTIC ECONOMY. SEE STATEMENT OF JESS LARSON, ADMINISTRATOR OF THE WAR ASSETS ADMINISTRATION, HEARINGS BEFORE THE SENATE COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMENTS, ON A DRAFT BILL OF THE FEDERAL PROPERTY ACT OF 1948, 80TH CONG., 2D SESS. 24. ACCORDINGLY, THE 78TH CONGRESS DID NOT STATE A DESIRE TO ALWAYS OBTAIN THE FAIR MARKET VALUE FOR THE SURPLUS SOLD, BUT INSTEAD DIRECTED THAT THE DISPOSITIONS NOT "UNDULY" DISTURB THE ECONOMY AND BE AT "FAIR PRICES," GIVING "DUE REGARD FOR THE PROTECTION OF FREE MARKETS AND COMPETITIVE PRICES FROM DISLOCATION RESULTING FROM UNCONTROLLED DUMPING.' SEE SECTION 2 (R) AND (M), 50 U.S.C. APP. 1611 (R) AND (M) (1946 ED.). THE SELLING ACTIVITY WAS EXPRESSLY AUTHORIZED TO DISPOSE OF PROPERTY WITHOUT REGARD TO ANY PROVISION IN EXISTING LAW FOR COMPETITIVE BIDDING. SEE SECTION 29, 50 U.S.C. APP. 1638 (1946 ED.).

ALTHOUGH THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 SUPERSEDED THE SURPLUS PROPERTY ACT OF 1944 AND TERMINATED THE SUSPENSION OF ADVERTISED BIDDING RULES ON DECEMBER 31, 1950, SECTION (I) OF THE 1952 AMENDMENT TO THE CURRENT ACT, APPROVED JULY 12, 1952, CH. 703, 66 STAT. 593, 40 U.S.C. 484 (E) (1952 ED.), RESTORED FOR APPROXIMATELY 1 YEAR THE AUTHORITY TO NEGOTIATE. ESSENTIALLY, THE RESTORED AUTHORITY WAS AS BROAD AS THAT CONTAINED IN THE SURPLUS PROPERTY ACT OF 1944, AS NO RESTRICTIONS WERE PLACED UPON THE AUTHORITY, AND ALL SALES WERE TO BE MADE BY NEGOTIATION EXCEPT WHERE THE ADMINISTRATOR DETERMINED THAT DISPOSAL BY ADVERTISING WOULD BETTER PROTECT THE PUBLIC INTEREST. WHILE THE COMMITTEE WHICH REPORTED H.R. 5350, THE BILL WHICH BECAME THE 1952 AMENDMENT, BELIEVED THAT GREATER FREEDOM IN NEGOTIATING SALES WOULD BENEFIT THE PUBLIC INTEREST, IT STATED THAT THE NEGOTIATION AUTHORITY UNDER THE PROPOSED AMENDMENT WAS TOO BROAD. ANTICIPATING THAT BEFORE LONG THE COUNTRY MIGHT AGAIN BE PRESENTED, AS IT WAS AFTER WORLD WAR II, WITH A VAST SURPLUS PROPERTY DISPOSAL PROBLEM, IT DIRECTED THAT STUDIES BE UNDERTAKEN TO PROVIDE PERMANENT BUT MORE RESTRICTIVE LEGISLATION WHICH WOULD ESTABLISH AN ORDERLY MEANS OF HANDLING THE PROBLEM. H.REPT. 1524, 82D CONG., 2D SESS. 5. PENDING THE COMPLETION OF THESE STUDIES, THE NEGOTIATION AUTHORITY WAS AGAIN TEMPORARILY EXTENDED BY THE 1953, 1954 AND 1956 AMENDMENTS TO THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, APPROVED AUGUST 8, 1953, JULY 14, 1954, AND AUGUST 3, 1956, CHS. 399, 481 AND 971, 67, 68 AND 70 STAT. 521, 474 AND 1020, RESPECTIVELY, 40 U.S.C. 484 (E).

IT MAY BE SEEN FROM THE ABOVE THAT CONGRESS ACCEPTED THE VIEW THAT NEGOTIATION WOULD SOMETIMES BE DESIRABLE, BUT CONSIDERED THAT THE AUTHORITY TO NEGOTIATE SHOULD NOT PERMANENTLY REMAIN AS BROAD AS THAT FORMERLY CONTAINED IN THE SURPLUS PROPERTY ACT OF 1944. CONSEQUENTLY, THE 1958 AMENDMENTS TO THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, QUOTED IN RELEVANT PART ON PAGES 3 AND 4, SET FORTH AS PERMANENT LEGISLATION THE SPECIFIC EXCEPTIONS TO THE GENERAL PROCEDURE OF ADVERTISED BIDDING, THUS RESTRICTING THE BROADER LATITUDE FOR NEGOTIATION IN EFFECT UNDER THE TEMPORARY LEGISLATION. SEE S.REPT. 1284, 85TH CONG., 2D SESS. 3. SALES OF PERSONAL PROPERTY OTHER THAN THOSE EXCEPTED WERE REQUIRED TO BE CONDUCTED BY ADVERTISED BIDDING ON SUCH TERMS AND CONDITIONS AS SHALL PERMIT THAT FULL AND FREE COMPETITION WHICH IS CONSISTENT WITH THE VALUE AND NATURE OF THE PROPERTY INVOLVED. SEE SUBSECTIONS (E) (1) AND (2), 40 U.S.C. 484 (E) (1) AND (2). ONE SUCH SPECIFIC EXCEPTION IS SUBSECTION (E) (3) (D), 40 U.S.C. 484 (E) (3) (D), WHICH WAS INTENDED TO ENABLE STEPS TO BE TAKEN IN DISPOSALS WHICH INVOLVED PROPERTY OF SUCH A NATURE THAT ITS SALE WOULD HAVE SUCH A DISRUPTIVE IMPACT ON AN INDUSTRY AS TO CAUSE A DISLOCATION OF THE NATIONAL ECONOMY. S.REPT.NO. 1284, ID. 5. THIS SUBSECTION AUTHORIZES NEGOTIATION IN ANY SALE WHICH, IF CONDUCTED UNDER THE RULES OF COMPETITIVE ADVERTISING,"WOULD CAUSE SUCH AN IMPACT ON AN INDUSTRY OR INDUSTRIES AS ADVERSELY TO AFFECT THE NATIONAL ECONOMY, AND THE ESTIMATED FAIR MARKET VALUE OF SUCH PROPERTY AND OTHER SATISFACTORY TERMS OF DISPOSAL CAN BE OBTAINED BY NEGOTIATION.'

IT IS SIGNIFICANT THAT ONE OF THE CONDITIONS ATTACHED TO THE AUTHORITY TO NEGOTIATE SALES OF PERSONAL PROPERTY WHICH MIGHT OTHERWISE CAUSE ECONOMIC DISLOCATIONS WAS THAT THE GOVERNMENT RECEIVE THE ESTIMATED FAIR MARKET VALUE. THIS CONDITION WAS NOT REQUIRED WHERE THE PERSONAL PROPERTY BEING SOLD WAS OF SUCH A NATURE THAT NEGOTIATION WAS NECESSARY IN THE PUBLIC INTEREST DURING A NATIONAL EMERGENCY, OR PROMOTED THE PUBLIC HEALTH, SAFETY OR NATIONAL SECURITY, OR COULD NOT BE DELAYED BECAUSE OF THE PUBLIC EXIGENCY. SEE SUBSECTION (E) (3) (A), (B) AND (C), 40 U.S.C. 484 (E) (3) (A), (B) AND (C). IT IS CLEAR THAT CONGRESS CONTEMPLATED SITUATIONS WHERE CERTAIN SOCIAL VALUES MIGHT TAKE PRECEDENCE OVER THE DESIRE TO GUARANTEE BY PUBLIC ADVERTISING A RETURN ON A SALE EQUAL TO THE FAIR MARKET VALUE, E.G., STEERING CERTAIN SURPLUS DRUGS AND MILITARY ITEMS AWAY FROM ILLICIT TRAFFIC. SEE HEARINGS BEFORE THE SUBCOMMITTEE ON REORGANIZATION OF THE SENATE COMMITTEE ON GOVERNMENT OPERATION, S. 2224, ET AL., 85TH CONG., 1ST SESS. 18. IT IS EQUALLY CLEAR THAT CONGRESS HAS DETERMINED THAT A POSSIBLE ECONOMIC DISLOCATION DOES NOT BY ITSELF JUSTIFY A NEGOTIATED SALE AT OTHER THAN THE ESTIMATED FAIR MARKET VALUE.

THE GENESIS OF EXCEPTIONS TO THE REQUIREMENT FOR COMPETITIVE ADVERTISING IS THAT IN SOME INSTANCES THE BEST INTERESTS OF THE GOVERNMENT REQUIRE A WIDER LATITUDE IN THE CHOICE OF PURPOSES TO BE SERVED THAN THAT PERMITTED BY ADVERTISED BIDDING. AS WE HAVE ALREADY NOTED, THE SURPLUS PROPERTY ACT OF 1944 PROVIDED FOR UNRESTRICTED SALES BY NEGOTIATION IN ORDER TO PERMIT THE WIDER LATITUDE OF TERMS ASSOCIATED WITH NEGOTIATION AND CONSIDERED NECESSARY TO AVOID WHOLESALE DUMPING OF SURPLUS WAR GOODS WHICH WOULD DISRUPT ELEMENTS OF THE ECONOMY. AGENCIES WERE ONLY DIRECTED TO SELL AT A FAIR PRICE,"FAIR" BEING INTERPRETED IN THE LIGHT OF THE ECONOMIC IMPACTS OF THE SALE. THE FACT THAT THE LANGUAGE OF THE DEPARTMENT OF DEFENSE AGREEMENT ALSO REFERRED TO "FAIR" PRICES, WHILE THE 1958 AMENDMENTS TO THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 REFER TO "ESTIMATED FAIR MARKET VALUE," INDICATES THAT THE 1954 AGREEMENT WAS BASED UPON THE UNRESTRICTED NEGOTIATION AUTHORITY CONTAINED IN THE SAID ACT PRIOR TO THE 1958 AMENDMENTS.

WE BELIEVE THAT A REQUIREMENT IN A NEGOTIATED GOVERNMENT CONTRACT TO SCRAP SURPLUS PROPERTY, FOR THE PURPOSE OF AVOIDING AN ADVERSE ECONOMIC IMPACT, IF THIS REQUIREMENT WILL DEPRECIATE THE PROPERTY BEING SOLD AND CONSEQUENTLY DEPRESS THE PRICE OBTAINED, CANNOT BE RECONCILED WITH THOSE PARTS OF THE 1958 AMENDMENT WHICH REQUIRE SUCH PROPERTY TO BE SOLD ONLY FOR THE ESTIMATED FAIR MARKET VALUE. WE BELIEVE THE SELECTIVE INCLUSION OF THIS MANDATE IN PARTICULAR SUBSECTIONS OF THE 1958 AMENDMENT INDICATES A CONSIDERED JUDGMENT BY THE CONGRESS, AND ATTENUATES ANY SUGGESTION THAT THE REQUIREMENT COULD PROPERLY BE CIRCUMVENTED BY DELIBERATELY DEVALUATING THE PROPERTY BEFORE SELLING IT FOR ITS REDUCED MARKET VALUE.

BY THE TIME THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 WAS PASSED, THE FEAR OF HUGE WAR DISPOSALS HAD BEEN SUBSTANTIALLY ABATED. SEE, E.G., HEARINGS BEFORE THE SURPLUS PROPERTY SUBCOMMITTEE OF THE COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMENTS ON H.RES. 90 AND H.RES. 100, 80TH CONG., 2D SESS. 2350-51. ALSO, SEE H.DOC.NO. 558, 80TH CONG., 2D SESS., MESSAGE FROM THE PRESIDENT OF THE UNITED STATES TRANSMITTING RECOMMENDATION THAT THE CONGRESS NOW PROVIDE FOR THE LIQUIDATION OF THE TEMPORARY ARRANGEMENTS FOR DISPOSING OF SURPLUS WAR PROPERTY AND FOR THE COMPLETION OF THE REMAINING DISPOSAL ACTIVITIES WITHIN THE PERMANENT FEDERAL ESTABLISHMENT, DATED MARCH 5, 1948; AND H.REPT. 670, 81ST CONG., 1ST SESS. 5. NONETHELESS, IN 1958, CONGRESS AUTHORIZED THE SALE OF SURPLUS PERSONAL PROPERTY BY NEGOTIATION FOR ITS ESTIMATED RATHER THAT ITS ACTUAL FAIR MARKET VALUE. SEE SUBSECTIONS (E) (3) (D) AND (E) (6), 40 U.S.C. 484 (E) (6). THIS SPECIAL AUTHORITY WAS NECESSARY, SINCE FAIR AND REASONABLE PRICES ARE NORMALLY ASSURED BY THE FORCES OF FULL AND FREE COMPETITION, BUT MAY NOT ALWAYS BE OBTAINED WHEN BASED UPON ESTIMATED VALUE. SEE STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES BEFORE THE SUBCOMMITTEE ON DEFENSE PROCUREMENT OF THE JOINT ECONOMIC COMMITTEE, HEARINGS ON IMPACT OF DEFENSE PROCUREMENT, 86TH CONG., 2D SESS. 3.

WHILE CONGRESS PROVIDED CERTAIN CONDITIONS UNDER WHICH SALES COULD BE NEGOTIATED IN ORDER TO PREVENT CERTAIN ECONOMIC IMPACTS, IT IS CLEAR THAT IT CHOSE NOT TO PERMIT SALES, NEGOTIATED OR ADVERTISED, AT A SUBSTANTIAL LOSS TO THE GOVERNMENT IN ORDER TO PROTECT AN ADVERSELY AFFECTED INDUSTRY. IT WOULD REQUIRE A STRAINED INTERPRETATION OF THE STATUTE TO CONCLUDE THAT WHILE CONGRESS INTENDED TO PROHIBIT THE NEGOTIATED SALE OF PROPERTY OF THIS NATURE AT OTHER THAN THE ESTIMATED FAIR MARKET VALUE, IT HAD NO OBJECTION TO REQUIRING THE DEVALUATION OF SUCH PERSONAL PROPERTY AS A CONDITION OF ADVERTISED BIDDING.

FROM THE FOREGOING, WE MUST CONCLUDE THAT CONGRESS INTENDED TO PERMIT GSA AND AUTHORIZED EXECUTIVE AGENCIES TO CONTRACT BY NEGOTIATION FOR THE SALE OF SURPLUS GOODS WHICH, IF CONTRACTED FOR BY ADVERTISED BIDDING, MIGHT HAVE AN ADVERSE ECONOMIC IMPACT ON THE NATIONAL ECONOMY, BUT DID NOT GRANT ANY AGENCY THE DISCRETION TO AVOID POSSIBLE ECONOMIC DISLOCATIONS BY SELLING SURPLUS BELOW THE ACTUAL FAIR MARKET VALUE, IF SOLD BY ADVERTISED BIDDING, OR BELOW THE ESTIMATED FAIR MARKET VALUE IF SOLD BY NEGOTIATION. AS A RESULT OF THE SALE OF 11 LARGE ANCHORS ON MARCH 21, 1963, THERE APPEARS TO BE LITTLE DOUBT THAT THE MONETARY RETURN TO THE GOVERNMENT IS REDUCED BELOW THE FAIR MARKET VALUE BY THE CONDITION REQUIRING THE ANCHORS TO BE SCRAPPED. THEREFORE, WE MUST HOLD THAT THE CONDITION WAS INCLUDED IN THE SUBJECT CONTRACT AND INVITATION FOR BIDS WITHOUT LEGAL AUTHORITY.

YOU HAVE ADVISED US THAT INVITATION FOR BIDS 25-S-63-54 HAS BEEN CANCELED IN ORDER TO FIRST DETERMINE THE RESULTS OF THE "TEST SALES" OF WHOLE ANCHORS, AND TO REEVALUATE THE POLICY OF CONDUCTING SURPLUS ANCHOR SALES WITH THE SCRAPPING CONDITION. WE BELIEVE THIS ACTION WAS PROPER SINCE THE INVITATION CONTAINED AN UNAUTHORIZED PROVISION WHICH WOULD TEND TO REDUCE THE MONETARY RETURN TO THE GOVERNMENT.

IN REGARD TO THE CONTRACT ALREADY MADE WITH PECK IRON AND METAL COMPANY, INC., YOU ADVISE THAT YOU ARE ATTEMPTING TO NEGOTIATE A NO COST CANCELLATION. IN VIEW OF THE FACT THAT YOUR AGENCY HAD NO AUTHORITY TO ENTER INTO THIS CONTRACT ON THE TERMS INCLUDED THEREIN, CANCELLATION OF THE CONTRACT AND REPLEVY OF THE ANCHORS WOULD NOT BE IMPROPER IF CONSIDERED TO BE IN THE BEST INTERESTS OF THE GOVERNMENT. HOWEVER, UNDER THE CIRCUMSTANCES, WE WOULD HAVE NO OBJECTION TO YOUR NEGOTIATING A DELETION FROM THE CONTRACT OF THE SCRAPPING CONDITION, PROVIDED YOU RECEIVED A PRICE INCREASE WHICH IN YOUR JUDGMENT OF ALL THE FACTORS INVOLVED IS COMPATIBLE WITH THE RETURN RECEIVED ON THE MARCH 21, 1963, SALE OF 11 ANCHORS.