B-238495, Apr 9, 1990
B-238495: Apr 9, 1990
1990 and have since discussed the issues with GPO officials. We also have discussed several of the issues with staff members of the Joint Committee on Printing (JCP) in response to their concerns. We have completed our evaluation of the first three practices and for the reasons discussed below. Sec. 309 (1982). /2/ The fund covers the costs of departmental printing and is replenished with the payments that GPO receives from the agencies. You stated that GPO does not have an accounting system capable of tracking costs on an individual job basis. We are unaware of any statute or regulation specifically requiring GPO to assess different prices for similar jobs based on the precise costs of individual jobs.
B-238495, Apr 9, 1990
MISCELLANEOUS TOPICS - Federal Administrative/Legislative Matters - Administrative agencies - Audits - Compliance DIGEST: Memorandum discusses several compliance issues in connection with 1989 financial audit of Government Printing Office (GPO). GPO's (1) method of determining prices for individual jobs, (2) practices of varying fees among customers under certain circumstances, and (3) assessing surcharges to recover additional costs for certain jobs do not violate any provisions of law.
To: Assistant Director, AFMD/FA - Rosemary Jellish
Thru: Assistant General Counsel, OGC/AFMD - Jeffrey Jacobson
From: Attorney-Advisor, OGC/AFMD - Helen Desaulniers
Financial Statement Audit of the Government Printing Office (Job Code 916664; B-238495):
In your memorandum of January 31, 1990, you asked that we consider four practices of the Government Printing Office (GPO) in connection with your audit of its 1989 financial statements. Specifically, you asked for our opinion on whether GPO has complied with applicable laws and regulations in its (1) method of determining prices for individual jobs, (2) practices of varying fees among its customers under certain circumstances, (3) assessing surcharges to recover additional costs associated with certain jobs, and (4) retaining prompt payment discounts offered by commercial printers.
To ensure a complete analysis, we sent a development letter to GPO on February 5, 1990. We asked for an explanation and authority for the practices on which you had requested our opinion. We received GPO's response on February 23, 1990 and have since discussed the issues with GPO officials. We also have discussed several of the issues with staff members of the Joint Committee on Printing (JCP) in response to their concerns. We have completed our evaluation of the first three practices and for the reasons discussed below, conclude that these practices do not violate any provision of law. /1/
Congress established a revolving fund of $1 million for GPO's departmental printing in the Legislative Appropriation Act of 1954, Pub.L. No. 83-178, 67 Stat. 330-331, now codified at 44 U.S.C. Sec. 309 (1982). /2/ The fund covers the costs of departmental printing and is replenished with the payments that GPO receives from the agencies. Section 309(b) provides for the adequate capitalization of the revolving fund, mandating that the fund be "reimbursed for the cost of all services and supplies furnished. ..." In addition, section 310 requires the agencies to which GPO provides services or supplies to pay "in advance or upon completion of the work all or part of the estimated or actual cost.
..." Section 310 further provides for adjustments to a cost estimate on the basis of actual cost when an agency pays for GPO's services in advance.
Neither the statute nor its legislative history define "cost" or "actual cost" for purposes of GPO's billing and pricing practices. However, section 309(b) provides that GPO shall recover indirect costs such as "overhead and related expenses, depreciation of plant and building appurtenances ... equipment, and other assets" as well as direct costs.
GPO's Determination of Prices
In your memorandum of January 31, 1990, you stated that GPO does not have an accounting system capable of tracking costs on an individual job basis. Therefore, GPO bases its price for an individual job on the historical average costs of performing the tasks comprising the job as a whole. GPO claims that it bases the price for an individual job upon the costs incurred in connection with that individual job. However, GPO acknowledges that it uses a Scale of Prices consisting of the various tasks and attendant costs that might comprise a job to arrive at its price.
GPO's prices for departmental printing must correspond to its costs in order for the GPO to recover those costs as section 309 and 310 require. GPO considers the number of hours spent and the historical cost of each task as indicated on a predetermined Scale of Prices to satisfy the requirement that GPO's prices equal its costs. GPO contends that the system provides a fair method for recovery of GPO's costs without requiring the calculation of the costs on a daily basis. We do not find GPO's position to be unreasonable. Further, we are unaware of any statute or regulation specifically requiring GPO to assess different prices for similar jobs based on the precise costs of individual jobs. Similarly, we find no basis for limiting GPO's calculation of actual costs to computing the number of hours spent on the printing tasks and the cost of each task for each individual job. However, we agree with you that GPO might improve the accuracy of its prices by revising its Scale of Prices more frequently than once a year.
In its response to our development letter, GPO explained that it bills customers less than the full standard price under certain circumstances. For example, GPO bills its customers less than the full standard price when it fails to meet an established delivery schedule or when it delivers less than full quantity. GPO's reduction of its price under such circumstances reflects reasonable business judgement. It corresponds to GPO's failure to complete some portion of a job, and incur a cost, according to the agency's specifications. Further, GPO's practice of factoring any unrecovered costs borne by the revolving fund into the computation of its overall rates is consistent with the provision of section 309 that requires reimbursement of the fund for the indirect as well as direct costs that it bears.
Occasionally, GPO personnel and machinery are idle due to unforeseen circumstances that reduce GPO's workload, for example, an unexpected Congressional recess. To increase the workload and mitigate the fixed costs associated with idle time, GPO brings jobs originally scheduled for procurement to its in-house plant operation. /3/ When GPO diverts a job scheduled for procurement, it negotiates a price that is lower than the usual GPO price but higher than the procured price. GPO also negotiates prices with its customers for massive, though easily completed, jobs that are ideal for the in-house plant operation. The costs that GPO does not recover from the customer do not go unrecovered. GPO accumulates these costs and allocates them as overhead to the other jobs it performs so that they are borne by all of GPO's customers.
By negotiating a price with a customer, GPO increases the workload in its in-house plant operation, reduces the amount of idle time, and recovers some portion of its fixed costs from that customer. All of GPO's customers would appropriately bear some portion of the cost of idle employees were GPO to procure the job as scheduled. All of GPO's customers similarly bear some portion of GPO's unrecovered costs when GPO negotiates a price. However, under those circumstances, GPO reduces the amount that each customer must contribute via overhead to compensate for GPO's unrecovered costs.
Under 44 U.S.C. Sec. 309(b), GPO is to be reimbursed for the cost of all services and supplies that it provides to agencies. When it negotiates prices with customers, GPO does, in fact, recover its costs- some portion from the particular customer and those that remain from all of its customers. Although section 310 contemplates agencies paying the actual cost of the work that GPO delivers, neither the statute nor its legislative history provide clear guidance on the practice at issue. Accordingly, we cannot say that GPO violates the law. We will be available to discuss whether and how you should address this issue in your report.
Surcharges Added to Regular Prices
GPO adds a surcharge to its regular prices to cover additional costs associated with rush or classified jobs. In your memorandum, you stated that because GPO computes its prices using historical costs, these additional costs are already incorporated in GPO's Scale of Prices. response to our development letter, GPO agreed that it calculates a surcharge for rush or classified jobs and adds it to the price when the job is completed. However, GPO explained that it does not recover the additional costs associated with these jobs twice because these additional costs are accounted for separately and are not included in the historical costs used to determine the Scale of Prices. We understand that you have considered GPO's response and agree with GPO's characterization of the facts. Accordingly, GPO's practice of adding surcharges to its regular prices poses no legal problem.
/1/ We will address the prompt payment discount issue separately. Prior to 1954, GPO received an annual working capital appropriation to cover the costs of departmental printing until agencies paid GPO for its services. The appropriation was essentially an annual loan from Treasury to GPO. the close of each fiscal year, GPO returned the appropriated amount to the Treasury.
/2/ Absent the approval of the JCP, all printing for government offices is to be done by the GPO. 44 U.S.C. Sec. 501, 502, 504. Section 502 allows the GPO to procure services that it is unable or unequipped to perform, usually at a significantly lower price than the price GPO would charge. As the statute vests discretion in the Public Printer, we assume that GPO properly schedules jobs for procurement.
/3/ GPO and the agency occasionally agree during the negotiation process on a deviation from the agency's specifications. However, we understand that such an agreement is not a part of every negotiated price job.