B-118654, AUG. 10, 1965

B-118654, AUG. 10, 1965

TO THE HONORABLE CARL TO. ROWAN, DIRECTOR, UNITED STATES INFORMATION AGENCY:

THIS IS IN REFERENCE TO LETTER OF JUNE 24, 1965, AND ENCLOSURES, FROM MR. BEN POSNER ASSISTANT DIRECTOR (ADMINISTRATION), UNITED STATES INFORMATION AGENCY, CONCERNING A DRAFT OF OUR PROPOSED REPORT TO CONGRESS ENTITLED "PRACTICES RESULTING IN THE INVALID AND OTHER QUESTIONABLE USE OF FISCAL YEAR 1964 APPROPRIATION.' YOUR AGENCY DOES NOT AGREE WITH OUR FINDING THAT SIX TRANSACTIONS WERE NOT CONSUMMATED PRIOR TO THE END OF FISCAL YEAR 1964 AND THEREFORE WERE VIOLATIONS OF SECTION 1311 OF THE SUPPLEMENTAL APPROPRIATION ACT OF 1955, AS AMENDED, 31 U.S.C. 200, AND REQUESTS FOR THE REASONS STATED IN THE LETTER AND ATTACHMENTS THERETO THAT WE REVIEW CERTAIN OF THESE TRANSACTIONS.

SECTION 1311 OF THE SUPPLEMENTAL APPROPRIATION ACT, 1955, 68 STAT. 830, 31 U.S.C. 200, PROVIDES IN PERTINENT PART AS FOLLOWS:

"/A) * * *

"AFTER AUGUST 26, 1954 NO AMOUNT SHALL BE RECORDED AS AN OBLIGATION OF THE GOVERNMENT OF THE UNITED STATES UNLESS IT IS SUPPORTED BY DOCUMENTARY EVIDENCE OF---

"/1) A BINDING AGREEMENT IN WRITING BETWEEN THE PARTIES THERETO, INCLUDING GOVERNMENT AGENCIES, IN A MANNER AND FORM AND FOR A PURPOSE AUTHORIZED BY LAW, EXECUTED BEFORE THE EXPIRATION OF THE PERIOD OF AVAILABILITY FOR OBLIGATION OF THE APPROPRIATION OR FUND CONCERNED FOR SPECIFIC GOODS TO BE DELIVERED, REAL PROPERTY TO BE PURCHASED OR LEASED, OR WORK OR SERVICES TO BE PERFORMED * * *.'

THERE IS NO DISAGREEMENT AS TO THE FACT THAT THE FORMAL CONTRACTS CONCERNING THE TRANSACTIONS QUESTIONED IN OUR REPORT WERE NOT EXECUTED UNTIL AFTER THE CLOSE OF THE FISCAL YEAR. THE QUESTION GOES TO WHETHER THE ACTIONS TAKEN BY THE PARTIES PRIOR TO THE CLOSE OF THE FISCAL YEAR MEET THE REQUIREMENTS OF SECTION 1311. PERTINENT TO CONSIDERATION OF THIS QUESTION IS THE EXPLANATORY STATEMENT OF THE LEGISLATION BY THE COMMITTEE OF CONFERENCE (PAGE 18, HOUSE REPORT NO. 2663, 83D CONGRESS) AS FOLLOWS:

"SECTION 1311 (A) (1) PRECLUDES THE RECORDING OF AN OBLIGATION UNLESS IT IS SUPPORTED BY DOCUMENTARY EVIDENCE OF A BINDING AGREEMENT BETWEEN THE PARTIES AS SPECIFIED THEREIN. IT IS NOT NECESSARY, HOWEVER, THAT THE BINDING AGREEMENT BE THE FINAL FORMAL CONTRACT ON ANY SPECIFIED FORM. THE PRIMARY PURPOSE IS TO REQUIRE THAT THERE BE AN OFFER AND AN ACCEPTANCE IMPOSING LIABILITY ON BOTH PARTIES. FOR EXAMPLE, AN AUTHORIZED ORDER BY ONE AGENCY ON ANOTHER AGENCY OF THE GOVERNMENT, IF ACCEPTED BY THE LATTER AND MEETING THE REQUIREMENT OF SPECIFICITY, ETC., IS SUFFICIENT. LIKEWISE, A LETTER OF INTENT ACCEPTED BY A CONTRACTOR, IF SUFFICIENTLY SPECIFIC AND DEFINITIVE TO SHOW THE PURPOSES AND SCOPE OF THE CONTRACT FINALLY TO BE EXECUTED, WOULD CONSTITUTE THE BINDING AGREEMENT REQUIRED.'

TWO SITUATIONS ARE EXPLAINED IN THE ENCLOSURES FORWARDED WITH THE ASSISTANT DIRECTOR'S LETTER. IT IS STATED THAT THESE ARE REPRESENTATIVE ONES FOR THE MOTION PICTURE SERVICE (IMS) OF THE GENCY; THAT IMS ITSELF DOES BASIC RESEARCH DEVELOPMENT OF FILMS CARRYING OUT THE AGENCY'S PROGRAMS AND THAT AN INDEPENDENT CONTRACTOR, ORDINARILY A FILM PRODUCER, IS CHOSEN TO PROVIDE A ,TREATMENT" BASED ON THE IMS DEVELOPMENT; IF THE "TREATMENT" IS SATISFACTORY, THAT SAME CONTRACTOR IS THEN CHOSEN TO PRODUCE THE FILM BASED THEREON; THAT THIS SAME CONTRACTOR MAY DO BOTH "PHASES" OF WORK, IN WHICH CASE THE AGENCY PROVIDES AN INITIAL CONTRACT FOR THE "TREATMENT" PHASE, AND AN AMENDMENT TO SAID CONTRACT FOR THE "PRODUCTION" PHASE. THIS PROCEDURE IS INVOLVED IN CONTRACT NO. IA-10141 IN WHICH THE INITIAL CONTRACT FOR PHASE 1 FOR "TREATMENT" WAS SIGNED EARLY IN JUNE. THE ASSISTANT DIRECTOR STATES THAT PHASE 2 FOR THE PRODUCTION WAS NEGOTIATED, AGREED UPON, AND AWARD NOTICE ISSUED, ALL ON JUNE 23, 1964, AND IT IS THE POSITION OF YOUR AGENCY THAT THE AGREEMENT REACHED ON THAT DATE BETWEEN THE AGENCY AND THE CONTRACTOR, AS EVIDENCED BY THE CONTRACTOR'S SIGNED ESTIMATE AND THE ISSUANCE BY THE AGENCY OF THE AWARD NOTICE CONSTITUTED DOCUMENTARY EVIDENCE WITHIN THE REQUIREMENT OF SECTION 1311. IT IS STATED THAT THIS WAS THE "FOURTH CONTRACT WITH THIS CONTRACTOR IN TWO YEARS; NEGOTIATIONS, NOTICES OF AWARD, FORMAL CONTRACTUAL DOCUMENT TERMS WERE NOT NEW. THE DEAL WAS MADE, THE PARTIES BOUND ON JUNE 23.' THE FORMAL AMENDMENT TO THE CONTRACT WAS SENT OUT ON JUNE 25 BUT NOT SIGNED UNTIL AFTER JUNE 30, 1964.

THE SECOND TRANSACTION ON WHICH OUR REVIEW IS REQUESTED IS CONTRACT IA- 10228, AND THE FACTS RELATING THERETO ARE SUMMARIZED IN THE LETTER OF JUNE 24 AS FOLLOWS:

"THE SECOND SITUATION IS CONTRACT IA-10228, A SINGLE CONTRACT, WHICH IS REPRESENTATIVE OF EMERGENCY NEEDS ARISING AND BEING SATISFIED AT THE END OF A FISCAL YEAR. THE NEED TO MAKE A FILM ABOUT THE NATO "MULTILATERAL FORCE" BECAME APPARENT IN MAY, WAS CONTRACTED FOR EARLY IN JUNE, REQUIRED EXTENSIVE WORK BY THE CONTRACTOR BEFORE SHOOTING IN AUGUST, WITH DELIVERY ON OCTOBER 2. THE CONTRACTOR WAS CONTACTED ON JUNE 8, HE SUBMITTED HIS OFFER ON JUNE 17, EXTENSIVE NEGOTIATIONS WERE HELD ON JUNE 24, FOLLOWED BY THE AWARD NOTICE ISSUED THAT DAY PURSUANT TO THE BINDING AGREEMENT BETWEEN THE PARTIES. COMMENCEMENT OF ONE WEEK OF PHOTOGRAPHY WAS PROJECTED FOR AUGUST 7, THE EARLIEST POSSIBLE DATE, DUE TO THE NEED FOR OBTAINING COORDINATED APPROVALS FROM THE NAVY, STATE DEPARTMENT, AND NATO, AND TO ACCOMMODATE THE ARRIVAL OF GROUPS OF FOREIGN SEAMEN PLUS DOCKSIDE ACTIVITY AND ACTIVITY AT SEA WHICH WERE SCHEDULED FOR PHOTOGRAPHY. THE CONTRACTOR'S WORK OF COORDINATION, RESEARCH, FILM PLANNING, WRITING, AND LIAISON OCCURRED BETWEEN JUNE 24 AND AUGUST 7, AN EXTREMELY SHORT PERIOD. CLEARLY IT WAS A FY 1964 NEED. THIS WAS THE SECOND MOTION PICTURE PRODUCTION CONTRACT WITH MR. WEBSTER WITHIN A YEAR, SO HE WAS THOROUGHLY FAMILIAR WITH OUR FORMAL CONTRACTING PROCEDURE.'

IN EACH OF THE FOREGOING TRANSACTIONS THE REPORTED FACTS INDICATE THAT AN OFFER IN WRITING HAD BEEN RECEIVED, MODIFICATIONS OF SUCH OFFER ALLEGEDLY WERE AGREED TO ORALLY DURING NEGOTIATIONS, AND AN AWARD NOTICE HAD BEEN ISSUED BEFORE THE EXPIRATION OF THE FISCAL YEAR. THE QUESTION FOR DECISION IS WHETHER THE AWARD NOTICE SIGNED BY THE CONTRACTING OFFICER IS DOCUMENTARY EVIDENCE OF A BINDING AGREEMENT IN WRITING BETWEEN THE PARTIES TO PERMIT THE OBLIGATION OF FUNDS UNDER THE REQUIREMENTS OF SECTION 1311 IN THE ABSENCE OF ANY EVIDENCE IN WRITING THAT THE CONTRACTOR HAS AGREED TO THE PRICE AND TERMS CONTAINED THEREIN AS WELLAS TO THE USUAL GENERAL PROVISIONS REQUIRED TO BE INCLUDED IN GOVERNMENT CONTRACTS. AS A GENERAL PROPOSITION, WE THINK NOT.

DURING ENACTMENT OF SECTION 1311, THE DEPARTMENT OF DEFENSE PROPOSED THE FOLLOWING AMENDMENT:

"PROVIDED, THAT FOR THE PURPOSE OF PROCUREMENT WITHOUT ADVERTISING, WHERE NEGOTIATIONS BETWEEN THE PARTIES ARE COMPLETE, A NOTICE EXECUTED IN BEHALF OF THE GOVERNMENT AUTHORIZING THE CONTRACTOR TO PROCEED WITH PERFORMANCE, SHALL CONSTITUTE AN OBLIGATION FOR THE PURPOSE OF THIS SECTION.' SEE THE HEARINGS BEFORE THE COMMITTEE ON APPROPRIATIONS, UNITED STATES SENATE ON H.R. 9936, 83D CONGRESS, PP. 985-6. THIS AMENDMENT WAS NOT APPROVED. MOREOVER, THE LANGUAGE QUOTED ABOVE FROM THE CONFERENCE REPORT CONTEMPLATES DOCUMENTARY EVIDENCE OF BOTH AN OFFER AND AN ACCEPTANCE IMPOSING LIABILITY ON BOTH PARTIES EVEN THOUGH THE DEFINITIVE CONTRACT WILL BE EXECUTED LATER.

WE REALIZE HOWEVER THAT ASSUMING THE ORAL AGREEMENT AS TO PRICES AND TERMS CAN BE ESTABLISHED, YOUR CONTENTION THAT THERE IS DOCUMENTARY EVIDENCE OF A BINDING AGREEMENT FOR SECTION 1311 PURPOSES IS NOT WHOLLY WITHOUT MERIT. IN VIEW THEREOF AND SINCE WE UNDERSTAND THAT YOUR CONTRACTING PROCEDURES ARE BEING REVISED TO ASSURE ADEQUATE DOCUMENTARY EVIDENCE OF BOTH THE OFFER AND ACCEPTANCE IN THE FUTURE, WE WILL NOT INSIST UPON ANY APPROPRIATION ADJUSTMENTS IN THESE CASES.

IT IS STATED IN THE NEXT TO THE LAST PARAGRAPH OF THE ASSISTANT DIRECTOR'S LETTER THAT IT "IS OUR BELIEF THAT THE AGENCY'S NEEDS, NOT FORM, SHOULD CONTINUE TO DICTATE PROCEDURES, SO LONG AS THESE REFLECT A CLEAR OBLIGATIONAL NEED OF THAT FISCAL YEAR AND A BONA FIDE LIABILITY ON BOTH PARTIES.' IN THIS CONNECTION WE WISH TO EMPHASIZE THAT SUCH BELIEF IS CORRECT WITH RESPECT TO SECTION 1311 OF THE CITED ACT ONLY INSOFAR AS SUCH BONA FIDE LIABILITY ON BOTH PARTIES IS SUPPORTED BY DOCUMENTARY EVIDENCE OF A BINDING AGREEMENT IN WRITING BETWEEN THE PARTIES THERETO SETTING FORTH SUCH LIABILITY.