B-141251, APR. 11, 1960

B-141251, APR. 11, 1960

TO HONORABLE FRANKLIN FLOETE, ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

ON NOVEMBER 12, 1959, YOU REQUESTED OUR DECISION CONCERNING THE PROPRIETY OF THE PROCEDURES OUTLINED BELOW.

YOU SAY THAT UNDER THE CURRENT AND PROSPECTIVE "STORES PROGRAM" OF THE FEDERAL SUPPLY SERVICE, THE GENERAL SERVICES ADMINISTRATION UNDERTAKES TO PURCHASE AND SUPPLY SPECIAL EQUIPMENT FOR VARIOUS AGENCIES OF THE GOVERNMENT; IN MANY INSTANCES, THERE ARE INSUFFICIENT DATA AVAILABLE TO GSA CONCERNING THE ANTICIPATED DEMAND OF THE AGENCIES FOR INDIVIDUAL ITEMS; AND THIS LACK OF INFORMATION IS PRESENT ON A NATIONAL BASIS, AND MORE SERIOUSLY, ON A REGIONAL BASIS.

REPORTEDLY, THE GENERAL SERVICES ADMINISTRATION HAS PURCHASE FACILITIES, WAREHOUSES AND DISTRIBUTION POINTS IN EACH OF ITS TEN REGIONS; WHERE EACH OF THE REGIONS TO PURCHASE AND STOCK NEW ITEMS ADDED TO THE STORES PROGRAM, INEFFICIENCIES AND ADDITIONAL EXPENSES WOULD RESULT BECAUSE OF THE UNCERTAIN CUSTOMER DEMANDS IN THE REGION; TO REMEDY THIS SITUATION, THE FEDERAL SUPPLY SERVICE HAS DESIGNATED CERTAIN REGIONS TO MAKE NECESSARY PURCHASES ON A VOLUME BASIS, HOLDING THE MATERIALS IN THEIR WAREHOUSES, OR PILOT DEPOTS, AND THEN SHIPPING THEM WHEN THERE IS SUFFICIENT DEMAND BY CUSTOMER AGENCIES IN ANOTHER REGION TO THE DISTRIBUTING DEPOT IN THAT REGION.

YOU STATE THAT PAYMENT OF TRANSPORTATION COSTS TO THE "FIRST STORAGE POINT" OF ITEMS PURCHASED FOR THE STORES PROGRAM IS MADE FROM THE GENERAL SUPPLY FUND UNDER AUTHORITY OF SECTION 109 (A) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 AND IT HAS BEEN THE POLICY OF THE GENERAL SERVICES ADMINISTRATION TO REGARD THE DISTRIBUTING DEPOT AS THE "FIRST STORAGE POINT," AND YOU HAVE THEREFORE CHARGED ALL TRANSPORTATION COSTS TO THAT POINT TO THE GENERAL SUPPLY FUND.

IT IS ALSO SAID THAT THE LEGISLATIVE HISTORY OF SECTION 109 (A) DOES NOT REVEAL A DEFINITION OF THE TERM "FIRST STORAGE POINT; " YOU HAVE THEREFORE ASSUMED, IN THE ABSENCE OF CONTRADICTORY INFORMATION, THAT THE "FIRST STORAGE POINT" IS THE DISTRIBUTING DEPOT; AND THE TEMPORARY STOPPAGE OF MATERIAL IN THE PILOT DEPOT DOES NOT INDICATE AN INTERRUPTION IN THE CONTINUATION OF ITS TRANSPORTATION TO THE "FIRST STORAGE POINT.'

YOUR REASONING, IT APPEARS, HAS BEEN THAT, SINCE THE ULTIMATE INTENTION IS TO PLACE THE MATERIAL IN A DISTRIBUTING DEPOT, THE TEMPORARY STOPPAGE IN THE PILOT DEPOT DOES NOT CONSTITUTE A BREAK IN THE TRANSPORTATION OF THE MATERIAL, OR A "FIRST STORAGE POINT; " AND THE TERM "STORAGE" IMPLIES A DEGREE OF PERMANENCY WHICH CANNOT BE ATTRIBUTED TO THE TRANSITORY STATUS OF THE MATERIAL IN THE PILOT DEPOT. YOU FURTHER SAY THAT YOU ARE COMPELLED TO YOUR INTERPRETATION OF "FIRST STORAGE POINT" BY GOOD PURCHASING, TRANSPORTATION AND STORAGE PRACTICE; THE PRACTICES BEING UTILIZED REPRESENT THE GREATEST ECONOMIES FOR THE GOVERNMENT UNDER THE CIRCUMSTANCES, AND PURCHASING AND STORING FOR EACH REGION COULD ONLY RESULT IN HIGHER PRICES, WHICH WOULD BE PASSED ON TO GSA CUSTOMER AGENCIES.

SECTION 109 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED BY SECTION 2 OF ACT OF SEPTEMBER 5, 1950, 64 STAT. 578 (5 U.S.C. 630G), PROVIDES, IN PART, AS OLLOWS:

"SEC. 109 (A). THERE IS HEREBY AUTHORIZED TO BE SET ASIDE IN THE TREASURY A SPECIAL FUND WHICH SHALL BE KNOWN AS THE GENERAL SUPPLY FUND. * * * THE GENERAL SUPPLY FUND SHALL BE AVAILABLE FOR USE BY OR UNDER THE DIRECTION AND CONTROL OF THE ADMINISTRATOR (1) FOR PROCURING PERSONAL PROPERTY * * * AND NONPERSONAL SERVICES FOR THE USE OF FEDERAL AGENCIES IN THE PROPER DISCHARGE OF THEIR RESPONSIBILITIES, AND (2) FOR PAYING THE PURCHASE PRICE, TRANSPORTATION TO FIRST STORAGE POINT OF SUPPLIES AND SERVICES, AND THE COST OF PERSONAL SERVICES EMPLOYED DIRECTLY IN THE REPAIR, REHABILITATION, AND CONVERSION OF PERSONAL PROPERTY.

"/B) PAYMENT BY REQUISITIONING AGENCIES SHALL BE AT PRICES FIXED BY THE ADMINISTRATOR. UNTIL JULY 1, 1950, SUCH PRICES SHALL BE FIXED IN ACCORDANCE WITH LAW AND REGULATIONS APPLICABLE ON THE DATE OF ENACTMENT OF THIS ACT TO PRICES FIXED BY THE DIRECTOR OF THE BUREAU OF FEDERAL SUPPLY. ON AND AFTER SUCH DATE, SUCH PRICES SHALL BE FIXED AT LEVELS SO AS TO RECOVER SO FAR AS PRACTICABLE THE APPLICABLE PURCHASE PRICE, THE TRANSPORTATION COST TO FIRST STORAGE POINT, INVENTORY LOSSES, THE COST OF PERSONAL SERVICES EMPLOYED DIRECTLY IN THE REPAIR, REHABILITATION, AND CONVERSION OF PERSONAL PROPERTY, AND THE COST OF AMORTIZATION AND REPAIR OF EQUIPMENT UTILIZED FOR LEASE OR RENT TO EXECUTIVE AGENCIES * * * .'

AS ORIGINALLY ENACTED SECTION 109 (A) PROVIDED THAT THE GENERAL SUPPLY FUND SHOULD BE VAILABLE:

" * * * (2) FOR PAYING ALL ELEMENTS OF COST OF THE PROCUREMENT, HANDLING, AND DISTRIBUTION THEREOF, EXCEPT THAT ON AND AFTER JULY 1, 1950, THOSE ELEMENTS OF COST WHICH ARE DETERMINED BY THE ADMINISTRATOR WITH THE APPROVAL OF THE DIRECTOR OF THE BUREAU OF THE BUDGET TO BE INDIRECT OR OVERHEAD COSTS SHALL NOT BE PAID FROM THE FUND.'

SECTION 109 (B) PROVIDED WITH RESPECT TO PRICES PAID BY REQUISITIONING AGENCIES THAT ON AND AFTER JULY 1, 1950:

" * * * SUCH PRICES SHALL BE FIXED AT LEVELS SO AS TO RECOVER SO FAR AS PRACTICABLE ALL COSTS EXCEPT THOSE WHICH ARE DETERMINED BY THE ADMINISTRATOR WITH THE APPROVAL OF THE DIRECTOR OF THE BUREAU OF THE BUDGET TO BE INDIRECT OR OVERHEAD COSTS.'

THE AMENDMENTS ARE EXPLAINED IN SENATE REPORT NO. 2140, 81ST CONGRESS, ACCOMPANYING S. 3959 WHICH WAS ENACTED AS PUBLIC LAW 754, 81ST CONGRESS, ON PAGE 2 AS FOLLOWS:

"THE FIRST THREE SECTIONS OF THE PROPOSED LEGISLATION DEAL WITH AMENDMENTS TO SECTION 109 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 RELATING TO THE GENERAL SUPPLY FUND. * * * THE AMENDMENTS, AMONG OTHER THINGS, PROVIDE FOR THE SUBSTANTIAL ELIMINATION OF THE SURCHARGE WHICH IS IN LINE WITH RECOMMENDATION NO. 14 OF THE COMMISSION ON ORGANIZATION OF THE EXECUTIVE BRANCH OF THE GOVERNMENT WITH RESPECT TO SUPPLY ACTIVITIES. THE ONLY EXPENSES REMAINING FOR INCLUSION IN THE SURCHARGE WILL BE TRANSPORTATION TO THE FIRST STORAGE POINT, DIRECT LABOR ON REPAIR OR RECONVERSION OF PROPERTY, AND INVENTORY LOSSES.'

WEBSTER'S NEW INTERNATIONAL DICTIONARY, 2D EDITION, DEFINES THE TERM "STORAGE" AS FOLLOWS: THE "ACT OF STORING, OR STATE OF BEING STORED; SPECIF., THE SAFEKEEPING OF GOODS IN A WAREHOUSE OR DEPOSITORY.' THE COURTS HAVE HELD THAT "STORAGE" IS THE SAFEKEEPING OF GOODS IN A WAREHOUSE OR OTHER DEPOSITORY. LINCOLN SAV. BANK OF BROOKLYN V. BROWN, 137 F. 2D 228; EXCHANGE LEMON PRODUCTS CO. V. HOME INSURANCE CO., 235 F. 2D 558. ALSO, THE FACT THAT GOODS MIGHT BE DESIGNATED OR CONSIDERED AS BEING IN TRANSIT HAS BEEN HELD NOT TO CHANGE THEIR POSITION WITH RESPECT TO BEING IN "STORAGE" IF THEY WERE IN FACT DEPOSITED IN A WAREHOUSE FOR SAFE KEEPING. EXCHANGE LEMON PRODUCTS CO., V. HOME INSURANCE CO., ABOVE.

THUS, THE CONCEPTS OF GOODS BEING IN STORAGE AND BEING IN TRANSIT, THAT IS, NOT AS YET HAVING REACHED THEIR ULTIMATE DESTINATION, ARE NOT MUTUALLY EXCLUSIVE. IN FACT THE PLACING OF THE TERM ,FIRST" BEFORE THE TERM "STORAGE POINT" IN SECTIONS 109 (A) AND (B) WOULD APPEAR TO CONTEMPLATE THAT SUCH FIRST STORAGE POINT WOULD NOT NECESSARILY BE THE ULTIMATE DESTINATION OF THE GOODS WHILE STILL UNDER THE CONTROL OF THE GENERAL SERVICES ADMINISTRATION. A FURTHER INDICATION IS PROVIDED IN THE LANGUAGE OF HOUSE REPORT NO. 2747, 81ST CONGRESS, ACCOMPANYING H.R. 9129, A RELATED BILL, P. 6, WHERE THE TERM "TRANSPORTATION COST TO FIRST STORAGE POINT" IS PARAPHRASED AS "INITIAL FREIGHT EXPENSE," THUS INDICATING THAT FURTHER TRANSPORTATION IS ANTICIPATED. SUCH INTERPRETATION WOULD BE IN KEEPING WITH THE SPIRIT AND INTENT OF SECTIONS 109 (A) AND (B) WHICH IS TO SUBSTANTIALLY ELIMINATE THE BURDEN OF SURCHARGES FROM BEING IMPOSED ON REQUISITIONING AGENCIES. ONE OF THE PURPOSES OF ELIMINATING THE SURCHARGES WAS TO REQUIRE THE COSTS OF TRANSPORTATION BETWEEN STORAGE WAREHOUSES TO BE FINANCED BY DIRECT APPROPRIATIONS. THERE IS NO INDICATION IN THE LEGISLATIVE HISTORY OF THE AMENDMENT, HOWEVER, THAT THE CONGRESS CONSIDERED THE POSSIBLE USE OF PILOT DEPOTS FOR STORAGE OF NEW STOCK ITEMS DURING TEMPORARY PERIODS UNTIL SUFFICIENT DATA BECOMES AVAILABLE CONCERNING THE ANTICIPATED DEMAND OF THE AGENCIES, AS DESCRIBED IN YOUR LETTER.

ACCORDINGLY IT APPEARS TO BE DOUBTFUL WHETHER SECTIONS 109 (A) AND (B) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 WERE INTENDED OR COULD BE CONSTRUED TO AUTHORIZE PRACTICES SUCH AS THE PAYING FROM THE GENERAL SUPPLY FUND OF TRANSPORTATION COSTS FROM PILOT DEPOTS TO DISTRIBUTING DEPOTS AND THE INCLUSION OF SUCH COSTS IN THE COSTS PASSED ON TO REQUISITIONING AGENCIES.

THE PRACTICES, HOWEVER, ARE UNDERSTOOD TO HAVE EXISTED FOR SOME TIME ON A LIMITED BASIS AND THEY ARE STATED TO RESULT IN THE GREATEST ECONOMIES FOR THE GOVERNMENT UNDER THE CIRCUMSTANCES, HAVING BEEN INITIATED FOR THE PURPOSE OF REDUCING TRANSPORTATION BETWEEN STORAGE WAREHOUSES. ON THAT BASIS, WE AGREE WITH REPRESENTATIVES OF YOUR ADMINISTRATION THAT AMENDING LEGISLATION IS DESIRABLE AND SHALL RAISE NO OBJECTION TO THOSE PRACTICES WITH THE UNDERSTANDING THAT YOUR AGENCY WILL MAKE TIMELY PRESENTATION OF THE MATTER TO THE CONGRESS WITH A VIEW TO SECURING CLEAR LEGISLATIVE AUTHORITY THEREFOR.