B-207412 L/M, JUL 26, 1982, OFFICE OF GENERAL COUNSEL
Highlights
ACQUISITION OF UTILITY SERVICES PROPOSED FAR SEC. 8.307-1 REQUIRES THE GENERAL SERVICES ADMINISTRATION OR THE ACQUIRING AGENCY TO REVIEW PROPOSED UTILITY SERVICES ACQUISITIONS WHICH ARE ESTIMATED TO COST MORE THAN $150. REVIEWS ARE REQUIRED WHERE A PROPOSED CONNECTION CHARGE. TERMINATION LIABILITY OR OTHER FACILITIES CHARGE IS ESTIMATED TO EXCEED $75. ALTHOUGH WE HAVE NO SPECIFIC DATA AVAILABLE. A SIGNIFICANT NUMBER OF SUBSTANTIAL CONTRACTS WILL NOT BE SUBJECT TO HIGH-LEVEL REVIEW. WE UNDERSTAND THAT DOD AGREED THAT INDUSTRY CONCERNS WERE VALID AND DETERMINED THAT LIBERALIZATION OF PROGRESS PAYMENTS WOULD BOTH STRENGTHEN THE INDUSTRIAL BASE AND BENEFIT THE GOVERNMENT. THERE IS NO INDICATION THAT DOD HAS DONE MUCH IN THE WAY OF GOVERNMENT BENEFIT OR COST IMPACT ANALYSIS OR THAT DOD SOUGHT COMMENTS ON THE CHANGE FROM THE DEPARTMENT OF THE TREASURY OR OUR OFFICE PRIOR TO MAKING THE CHANGE.
B-207412 L/M, JUL 26, 1982, OFFICE OF GENERAL COUNSEL
PRECIS-UNAVAILABLE
MR. WILLIAM J. MARAIST, OFFICE OF MANAGEMENT AND BUDGET:
BY LETTER OF MAY 4, 1982, YOU REQUESTED OUR COMMENTS ON A DRAFT SEGMENT OF THE FEDERAL ACQUISITION REGULATION (FAR). THE DRAFT SEGMENT COVERS SUBPART 8.3 - ACQUISITION OF UTILITY SERVICES AND SUBPART 32.5 - PROGRESS PAYMENTS BASED ON COSTS.
ACQUISITION OF UTILITY SERVICES
PROPOSED FAR SEC. 8.307-1 REQUIRES THE GENERAL SERVICES ADMINISTRATION OR THE ACQUIRING AGENCY TO REVIEW PROPOSED UTILITY SERVICES ACQUISITIONS WHICH ARE ESTIMATED TO COST MORE THAN $150,000 FOR SEPARATE CONTRACTS, OR $250,000 FOR AUTHORIZATIONS UNDER EFFECTIVE AREAWIDE CONTRACTS. ADDITIONALLY, REVIEWS ARE REQUIRED WHERE A PROPOSED CONNECTION CHARGE, TERMINATION LIABILITY OR OTHER FACILITIES CHARGE IS ESTIMATED TO EXCEED $75,000 FOR SEPARATE CONTRACTS OR $125,000 FOR AUTHORIZATIONS UNDER EFFECTIVE AREAWIDE CONTRACTS. FEDERAL PROCUREMENT REGULATIONS SEC. 1- 4.411 CURRENTLY ESTABLISHES THE SUBSTANTIALLY LOWER REVIEW THRESHHOLDS OF $50,000 FOR UTILITY SERVICES ACQUISITIONS AND $10,000 FOR PROPOSED CONNECTION CHARGES, TERMINATION LIABILITIES OR OTHER FACILITY CHARGES. ALTHOUGH WE HAVE NO SPECIFIC DATA AVAILABLE, IT WOULD APPEAR THAT THE REVIEW THRESHHOLD LEVELS IN THE PROPOSED FAR MAY BE TOO HIGH AND, CONSEQUENTLY, A SIGNIFICANT NUMBER OF SUBSTANTIAL CONTRACTS WILL NOT BE SUBJECT TO HIGH-LEVEL REVIEW.
PROGRESS PAYMENTS BASED ON COSTS
PROPOSED FAR SEC. 32.501-1(A) ESTABLISHES A CUSTOMARY PROGRESS PAYMENT RATE OF 95 PERCENT FOR SMALL BUSINESS CONCERNS AND 90 PERCENT FOR OTHER CONCERNS. THIS PROVISION IN EFFECT ADOPTS THE RECENT CHANGE TO THE DEFENSE ACQUISITION REGULATION (DAR) WHICH INCREASED TOTAL PROGRESS PAYMENT RATES FROM 90 TO 95 PERCENT FOR SMALL BUSINESS CONCERNS AND 85 TO 90 PERCENT FOR OTHER CONCERNS.
THE DAR CHANGE STEMS FROM A DEFENSE INDUSTRY CONCERN THAT PREVIOUS DEPARTMENT OF DEFENSE (DOD) CONTRACT FINANCING POLICIES AND PRACTICES ADVERSELY AFFECTED INDUSTRY'S REALIZED PROFIT, CREDIT CAPACITY, AND ABILITY TO REINVEST IN PLANT AND EQUIPMENT IN THE CURRENT ENVIRONMENT OF GREATLY INCREASED INTEREST RATES. WE UNDERSTAND THAT DOD AGREED THAT INDUSTRY CONCERNS WERE VALID AND DETERMINED THAT LIBERALIZATION OF PROGRESS PAYMENTS WOULD BOTH STRENGTHEN THE INDUSTRIAL BASE AND BENEFIT THE GOVERNMENT.
THERE IS NO INDICATION THAT DOD HAS DONE MUCH IN THE WAY OF GOVERNMENT BENEFIT OR COST IMPACT ANALYSIS OR THAT DOD SOUGHT COMMENTS ON THE CHANGE FROM THE DEPARTMENT OF THE TREASURY OR OUR OFFICE PRIOR TO MAKING THE CHANGE. WE BELIEVE THAT MORE CAREFUL CONSIDERATION OF THE COSTS AND ASSUMED BENEFITS IS NEEDED TO ASSURE THAT INFORMED JUDGMENTS CAN BE MADE REGARDING THE LIKELY RESULTS OF THESE CHANGES.
WE HAVE NO FURTHER COMMENTS.