B-129901, FEB. 1, 1957

B-129901, FEB. 1, 1957

TO AMERICAN COAL SALES ASSOCIATION:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 27, 1956, RELATIVE TO THE PROCEDURE FOLLOWED BY THE TENNESSEE VALLEY AUTHORITY IN THE PROCUREMENT OF "SPOT COAL.' YOU REFER TO THE FACTS THAT THERE IS NO PUBLIC OPENING OF THE INVITATION TO BID, THAT NO SPECIFIC TIME LIMIT IS FIXED FOR FILING BIDS OR MAKING AWARDS, AND THAT TVA MAY PURCHASE LESS OR MORE THAN THE APPROXIMATE TONNAGE SPECIFIED IN THE INVITATION. YOU STATE THAT "SUBSTANTIAL TONNAGES HAVE BEEN PURCHASED IN THE PAST FROM THOSE WHO SUBMITTED BIDS AFTER THEY KNEW THE PRICES QUOTED BY OTHER BIDDERS.' THE SPECIFIC QUESTION PRESENTED IS WHETHER SUCH PROCEDURE "IS IN ACCORDANCE WITH FEDERAL LAWS RELATING TO MAKING OF CONTRACTS BY A GOVERNMENT AGENCY.'

THE COAL PROCUREMENT PROCEDURES OF THE TVA WERE CONSIDERED IN THE COURSE OF THE AUDIT BY THIS OFFICE OF TVA ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 1956; AND BY LETTER DATED DECEMBER 13, 1956, THE CIVIL ACCOUNTING AND AUDITING DIVISION CONVEYED TO THE TVA ITS VIEWS IN THE MATTER, INCLUDING SUGGESTIONS AS TO CERTAIN CHANGES BELIEVED TO BE DESIRABLE. LETTER DATED JANUARY 21, 1957, TVA HAS ADVISED US THAT IT HAS INITIATED ACTION TO MODIFY THE PROCEDURES IN ACCORDANCE WITH OUR SUGGESTIONS.

WITH RESPECT TO YOUR QUESTIONS CONCERNING THE APPLICABILITY OF FEDERAL LAWS RELATING TO CONTRACTS OF GOVERNMENT AGENCIES, YOU ARE ADVISED THAT BY THE ACT OF MAY 18, 1933, 48 STAT. 58, THE TVA WAS CREATED AS A CORPORATION WITH POWERS ENUMERATED IN THE ACT, AND IS THEREFORE NOT SUBJECT TO GENERAL LAWS CONTROLLING ORDINARY GOVERNMENT AGENCIES EXCEPT TO THE EXTENT THAT SUCH LAWS ARE MADE APPLICABLE EITHER BY THE TERMS OF THAT ACT OR BY SPECIFIC PROVISIONS OF SUCH OTHER GENERAL LAWS. THE TVA ACT PROVIDES THAT ALL PURCHASES AND CONTRACTS FOR SUPPLIES OR SERVICES, EXCEPT FOR PERSONAL SERVICES, SHALL BE MADE AFTER ADVERTISING, IN SUCH MANNER AND AT SUCH TIMES SUFFICIENTLY IN ADVANCE OF OPENING BIDS, AS ITS BOARD OF DIRECTORS SHOULD DETERMINE TO BE ADEQUATE. CERTAIN EXCEPTIONS WERE MADE TO THIS ADVERTISING REQUIREMENT, INCLUDING ONE IN CASES WHEN AN EMERGENCY REQUIRES IMMEDIATE DELIVERY OF THE SUPPLIES.

THE STATUTORY PROVISIONS HAVE BEEN IMPLEMENTED BY REGULATIONS OR STATEMENTS OF POLICY ADOPTED BY THE BOARD OF DIRECTORS AND INCORPORATED IN THE TVA CODE, ONE TITLE OF WHICH DEALS WITH PROCUREMENT. UNDER THE PROVISIONS OF THIS CODE, AT LEAST 75 PERCENT OF THE ESTIMATED COAL BURNING REQUIREMENTS FOR EACH FISCAL YEAR FOR POWER SYSTEM OPERATIONS IS PROCURED BY COMPETITIVE SEALED BIDDING, THE REMAINDER BEING RESERVED FOR SPOT PURCHASE. THE PERTINENT PROVISIONS, IN SECTION IV OF THE TVA CODE, ARE AS FOLLOWS:

"EXCEPT AS PROVIDED BELOW, WHEN ADVERTISING IS REQUIRED SEALED BIDS ARE SUBMITTED IN WRITING AND ARE OPENED AND READ IN PUBLIC. FULL INFORMATION AS TO DETAILS OF ALL BIDS RECEIVED ON ANY PARTICULAR ITEM OF MATERIAL OR EQUIPMENT IS MADE AVAILABLE UPON REQUEST TO ALL BIDDERS WHO SUBMITTED QUOTATIONS.

"A PARTIAL EXCEPTION TO THE ABOVE POLICY IS MADE WITH RESPECT TO PROCUREMENT OF COAL FOR TVA POWER SYSTEM OPERATIONS, IN ORDER TO GEAR PROCUREMENT OF COAL MORE CLOSELY TO ACTUAL BURNING REQUIREMENTS AND TO TAKE ADVANTAGE OF SUDDEN OR BRIEF FLUCTUATIONS IN THE PRICE OF COAL. AMOUNT OF COAL NOT LESS THAN 75 PERCENT OF THE ESTIMATED COAL BURNING REQUIREMENTS FOR EACH FISCAL YEAR FOR TVA'S POWER SYSTEM OPERATIONS IS PROCURED BY COMPETITIVE BIDDING UNDER WRITTEN AND SEALED BIDS WHICH ARE OPENED AND READ IN PUBLIC. THE BALANCE OF COAL PURCHASED MAY BE PROCURED UNDER SUCH ADVERTISING AND UNDER SUCH CONDITIONS AS INSURE ADEQUATE NOTICE TO THE SOURCES OF SUPPLY AND FREE AND FAIR COMPETITION, WITHOUT THE REQUIREMENT THAT THE BIDS BE SEALED, IN WRITING, OR READ IN PUBLIC. INFORMATION AS TO BIDS RECEIVED UNDER ANY SUCH INVITATION IS MADE AVAILABLE TO THE BIDDERS AFTER ALL AWARDS THEREUNDER HAVE BEEN MADE.'

THE REASONS FOR SPOT PURCHASING ADVANCED IN THE ABOVE-QUOTED PROVISIONS WELL MAY BE REGARDED AS VALID FROM A PRACTICAL STANDPOINT; AND SUCH CONSIDERATIONS APPEAR APPLICABLE ALSO TO THE TVA PRACTICE OF PURCHASING LESS OR MORE THAN THE APPROXIMATE TONNAGE SPECIFIED IN THE INVITATIONS, SINCE CONSIDERABLE ELASTICITY SEEMS DESIRABLE IN THE PROCUREMENT OF SPOT COAL.

16 U.S.C. 831H/B) PROVIDES IN PART:

"* * * NOTHING IN THIS CHAPTER SHALL BE CONSTRUED TO RELIEVE THE TREASURER OR OTHER ACCOUNTABLE OFFICERS OR EMPLOYEES OF THE CORPORATION FROM COMPLIANCE WITH THE PROVISIONS OF EXISTING LAW REQUIRING THE RENDITION OF ACCOUNTS FOR ADJUSTMENT AND SETTLEMENT PURSUANT TO SECTION 71 OF TITLE 31, AS AMENDED BY SECTION 305 OF THE BUDGET AND ACCOUNTING ACT, 1921 (42 STAT. 24), AND ACCOUNTS FOR ALL RECEIPTS AND DISBURSEMENTS BY OR FOR THE CORPORATION SHALL BE RENDERED ACCORDINGLY: PROVIDED, THAT, SUBJECT ONLY TO THE PROVISIONS OF THIS CHAPTER, THE CORPORATION IS AUTHORIZED TO MAKE SUCH EXPENDITURES AND TO ENTER INTO SUCH CONTRACTS, AGREEMENTS, AND ARRANGEMENTS, UPON SUCH TERMS AND CONDITIONS AND IN SUCH MANNER AS IT MAY DEEM NECESSARY, INCLUDING THE FINAL SETTLEMENT OF ALL CLAIMS AND LITIGATION BY OR AGAINST THE CORPORATION; AND, NOTWITHSTANDING THE PROVISIONS OF ANY OTHER LAW GOVERNING THE EXPENDITURE OF PUBLIC FUNDS, THE GENERAL ACCOUNTING OFFICE, IN THE SETTLEMENT OF THE ACCOUNTS OF THE TREASURER OR OTHER ACCOUNTABLE OFFICER OR EMPLOYEE OF THE CORPORATION, SHALL NOT DISALLOW CREDIT FOR, NOR WITHHOLD FUNDS BECAUSE OF, ANY EXPENDITURE WHICH THE BOARD SHALL DETERMINE TO HAVE BEEN NECESSARY TO CARRY OUT THE PROVISIONS OF SAID CHAPTER.

"THE CORPORATION SHALL DETERMINE ITS OWN SYSTEM OF ADMINISTRATIVE ACCOUNTS AND THE FORMS AND CONTENTS OF ITS CONTRACTS AND OTHER BUSINESS DOCUMENTS EXCEPT AS OTHERWISE PROVIDED IN THIS CHAPTER.'

IN VIEW OF THE BROAD AUTHORITY GIVEN TO TVA BY STATUTE, IT IS NOT BELIEVED THAT THIS OFFICE WOULD BE JUSTIFIED IN REGARDING AS LEGALLY OBJECTIONABLE THE POLICIES OF TVA PERTAINING TO THE PROCUREMENT OF SPOT COAL. WE ARE CURRENTLY PREPARING OUR TVA AUDIT REPORT FOR THE FISCAL YEAR 1956 AND WILL SEND YOU A COPY WHEN IT IS RELEASED.