B-130815, SEPTEMBER 3, 1957, 37 COMP. GEN. 155

B-130815, SEPTEMBER 3, 1957, 37 COMP. GEN. 155

CONTRACTS - CONTINUING SUPPLY CONTRACTS - APPROPRIATIONS - OBLIGATION - BONA FIDE NEED THE ATOMIC ENERGY ACT DOES NOT CONFER UPON THE ATOMIC ENERGY COMMISSION ANY GENERAL PROCUREMENT AUTHORITY WHICH WOULD PERMIT THE EXECUTION OF CONTRACTS WITHOUT REGARD TO THE STATUTORY REQUIREMENTS ORDINARILY APPLICABLE TO FEDERAL PROCUREMENT AND TO EXPENDITURE OF APPROPRIATED FUNDS. A PROPOSED CONTRACT WHICH PROVIDES FOR THE DELIVERY OF MATERIALS IN FUTURE FISCAL YEARS FROM A SOURCE WHICH CAN SUPPLY BOTH CURRENT AND FUTURE NEEDS AND WHICH INCLUDES A CANCELLATION PROVISION IN EFFECT OBLIGATING THE GOVERNMENT TO PAY IN ONE FISCAL YEAR A CHARGE FAR IN EXCESS OF THE NEEDS OF THAT YEAR IS NOT A CONTRACT FULFILLING A BONA FIDE NEED SO AS TO BE CONSIDERED PROPERLY MADE UNDER SECTION 1 OF THE SURPLUS FUND-CERTIFIED CLAIMS ACT OF 1949 FOR OBLIGATION OF ANNUAL APPROPRIATIONS. ALTHOUGH A CONTRACT FOR MATERIALS WHICH ARE NEEDED IN SUBSEQUENT FISCAL YEARS AND WHICH WILL NOT BE OBTAINABLE ON THE OPEN MARKET AT THE TIME REQUIRED MAY BE REGARDED AS A CONTRACT FOR A BONA FIDE NEED OF THE FISCAL YEAR IN WHICH THE CONTRACT IS MADE, SO AS TO BE CONSIDERED PROPERLY MADE UNDER SECTION 1 OF THE SURPLUS FUND-CERTIFIED CLAIMS ACT OF 1949 FOR OBLIGATION OF ANNUAL APPROPRIATIONS, THE PROCUREMENT IS SUBJECT TO THE PROHIBITION IN SECTION 3739, REVISED STATUTES, AGAINST THE MAKING OF CONTRACTS FOR TERMS IN EXCESS OF ONE YEAR SO THAT ONLY THE NEEDS OF THE FIRST FISCAL YEAR MAY BE CONSIDERED A BONA FIDE NEED OF THE YEAR IN WHICH THE CONTRACT IS MADE.

TO THE CHAIRMAN, UNITED STATES ATOMIC ENERGY COMMISSION, SEPTEMBER 3, 1957:

REFERENCE IS MADE TO YOUR LETTER OF MAY 3, 1957, REQUESTING OUR FURTHER CONSIDERATION OF THE QUESTION WHETHER THE COMMISSION HAS AUTHORITY TO ENTER INTO CONTRACTS CALLING FOR THE FURNISHING OF SUPPLIES OR SERVICES IN FISCAL YEARS SUBSEQUENT TO THE YEAR SUCH CONTRACTS ARE MADE. IN OUR LETTER TO YOU, B-130815, DATED APRIL 2, 1957, 36 COMP. GEN. 683, WE STATED THAT AN APPROPRIATION AVAILABLE TO THE COMMISSION FOR OBLIGATION DURING ONE FISCAL YEAR ONLY COULD NOT PROPERLY BE OBLIGATED FOR FUTURE CANCELLATION CHARGES UNDER A PROPOSED CONTRACT FOR FURNISHING MAGNESIUM OVER A FIVE-YEAR PERIOD. THE GENERAL RULE APPLIED WAS THAT STATED IN 33 COMP. GEN. 57, 61, AS FOLLOWS:

* * * IN ORDER TO OBLIGATE A FISCAL YEAR APPROPRIATION FOR PAYMENTS TO BE MADE IN A SUCCEEDING YEAR, THE CONTRACT IMPOSING THE OBLIGATION MUST HAVE BEEN MADE WITHIN THE FISCAL YEAR SOUGHT TO BE CHARGED AND THE CONTRACT MUST HAVE BEEN MADE TO MEET A BONA FIDE NEED OF THE FISCAL YEAR TO BE CHARGED. 20 COMP. GEN. 437; 27 ID. 764; CF. 23 ID. 370; ID. 490.

IN REQUESTING RECONSIDERATION OF OUR DECISION IN THE MATTER, YOU REFER TO THE EXTRAORDINARY DUTIES AND RESPONSIBILITIES IMPOSED UPON THE COMMISSION BY THE ATOMIC ENERGY ACT OF 1954, 42 U.S.C. 2011, AND CONCLUDE THAT THE POWER AND AUTHORITY ESSENTIAL TO THE FULFILLMENT OF THOSE RESPONSIBILITIES MUST HAVE BEEN INTENDED TO BE CONFERRED UPON THE COMMISSION BY THE SAME ACT. IN THIS CONNECTION YOU REFER TO THE AUTHORITY GIVEN THE COMMISSION BY SECTION 161E OF THE ACT, 42 U.S.C. 2201 (E), TO

* * * ACQUIRE SUCH MATERIAL, PROPERTY, EQUIPMENT, AND FACILITIES, ESTABLISH OR CONSTRUCT SUCH BUILDINGS AND FACILITIES, AND MODIFY SUCH BUILDINGS AND FACILITIES FROM TIME TO TIME, AS IT MAY DEEM NECESSARY * *

YOU STATE IT TO BE YOUR OPINION THAT THE ATOMIC ENERGY ACT GRANTS TO THE COMMISSION A PROCUREMENT AUTHORITY OF SUFFICIENT BREADTH TO PERMIT THE ACQUISITION OF NEEDED MATERIALS, PROPERTY, OR SERVICES UPON SUCH TERMS AND CONDITIONS AS THE COMMISSION MAY FIND NECESSARY, PROVIDED ONLY THAT NO FINANCIAL COMMITMENTS IN EXCESS OF CURRENTLY AVAILABLE APPROPRIATIONS ARE MADE.

WE DO NOT AGREE THAT THERE IS ANY GENERAL PROCUREMENT AUTHORITY CONFERRED UPON THE COMMISSION BY THE ATOMIC ENERGY ACT WHICH WOULD PERMIT THE MAKING OF CONTRACTS WITHOUT REGARD TO STATUTORY REQUIREMENTS ORDINARILY APPLICABLE TO FEDERAL PROCUREMENT AND TO THE EXPENDITURE OF APPROPRIATED FUNDS. THE LEGISLATIVE HISTORY OF SECTION 161E OF THAT ACT, UPON WHICH YOUR LETTER APPEARS TO PLACE CHIEF RELIANCE FOR THE BROAD AUTHORITY ASSERTED, RAISES SERIOUS DOUBT THAT THAT SECTION WAS INTENDED TO HAVE GENERAL APPLICATION. SEE SECTION 11 (B) (6) OF S. 1717, 79TH CONGRESS, AS INTRODUCED DECEMBER 20, 1945, WHICH LATER BECAME SECTION 12 (A) (5) OF THE ATOMIC ENERGY ACT OF 1946, 42 U.S.C. 1812 (A) (5), AND PAGES 537-538, PART 5, OF THE HEARINGS BEFORE THE SPECIAL COMMITTEE ON ATOMIC ENERGY, UNITED STATES SENATE, 79TH CONGRESS. FURTHERMORE, EVEN IF THE SECTION COULD BE CONSTRUED AS CONTENDED IN YOUR LETTER, IT GIVES NO AUTHORITY TO DISREGARD STATUTORY REQUIREMENTS APPLICABLE TO THE EXPENDITURE OF APPROPRIATED FUNDS OR TO FEDERAL PROCUREMENT GENERALLY.

IT MAY BE NOTED, ALSO, THAT IF THE COMMISSION HAS AS BROAD AUTHORITY AS IS CONTENDED, MANY PROVISIONS OF THE ATOMIC ENERGY ACT OF 1954 WHICH CONFER SPECIAL AUTHORITY UPON THE COMMISSION WOULD HAVE BEEN UNNECESSARY. FOR EXAMPLE, SECTION 31B OF THE ACT, 42 U.S.C. 2051B, AUTHORIZES THE COMMISSION TO MAKE ARRANGEMENTS (INCLUDING CONTRACTS, AGREEMENTS, AND LOANS) FOR RESEARCH ASSISTANCE "WITHOUT REGARD TO THE PROVISIONS OF SECTION 3709 OF THE REVISED STATUTES," BUT THIS MAY BE DONE ONLY.

* * * UPON CERTIFICATION BY THE COMMISSION THAT SUCH ACTION IS NECESSARY IN THE INTEREST OF THE COMMON DEFENSE AND SECURITY, OR UPON A SHOWING BY THE COMMISSION THAT ADVERTISING IS NOT REASONABLY PRACTICABLE.

SIMILAR LIMITED EXEMPTION FROM THE REQUIREMENTS OF SECTION 3709, REVISED STATUTES, 41 U.S.C. 5, IS GIVEN THE COMMISSION IN CONNECTION WITH THE ACQUISITION OF FACILITIES FOR THE PRODUCTION OF SPECIAL NUCLEAR MATERIALS BY SECTION 43, 42 U.S.C. 2063; IN CONNECTION WITH THE ACQUISITION OF SPECIAL NUCLEAR MATERIAL OUTSIDE THE UNITED STATES BY SECTION 55, 42 U.S.C. 2075; AND IN CONNECTION WITH THE ACQUISITION OF SOURCE MATERIAL BY SECTION 66, 42 U.S.C. 2096. THE EXEMPTIONS FROM STATUTORY ADVERTISING REQUIREMENTS THUS GRANTED ARE NOT GRANTED TO THE COMMISSION FOR ITS PROCUREMENT ACTIVITIES GENERALLY, BUT ARE LIMITED TO SITUATIONS INVOLVING RESEARCH, PRODUCTION FACILITIES, SPECIAL NUCLEAR MATERIAL, AND SOURCE MATERIAL. THE LANGUAGE USED DERIVES FROM SIMILAR SECTIONS IN THE 1946 ACT, AND WAS DRAFTED BY THE GENERAL ACCOUNTING OFFICE AS A SUBSTITUTE FOR BROADER LANGUAGE IN S. 1717. EXAMINATION OF THE HEARINGS ON THAT BILL, PART 5, PREVIOUSLY REFERRED TO, DISCLOSES CONCLUSIVELY, WE THINK, THAT THERE WAS NO INTENTION ON THE PART OF THE CONGRESS TO PERMIT GENERAL DISREGARD BY THE COMMISSION OF STATUTORY ADVERTISING REQUIREMENTS.

REFERENCE MAY ALSO BE MADE TO SECTION 162 OF THE ACT, 42 U.S.C. 2202, WHICH PROVIDES THAT THE PRESIDENT MAY, IN ADVANCE,

* * * EXEMPT ANY SPECIFIC ACTION OF THE COMMISSION IN A PARTICULAR MATTER FROM THE PROVISIONS OF LAW RELATING TO CONTRACTS, WHENEVER HE DETERMINES THAT SUCH ACTION IS ESSENTIAL IN THE INTEREST OF THE COMMON DEFENSE AND SECURITY. ( ITALICS SUPPLIED.)

THE LANGUAGE OF THIS SECTION, TOO, WAS SUGGESTED BY THE GENERAL ACCOUNTING OFFICE, AND THE REASONABLE INFERENCE TO BE DRAWN THEREFROM IS THAT, EXCEPT WHERE SPECIFICALLY EXEMPTED BY OTHER PROVISIONS OF THE ACT, THE COMMISSION IS SUBJECT TO THE GENERAL PROVISIONS OF LAW RELATING TO CONTRACTS UNLESS THE PRESIDENT DETERMINES OTHERWISE IN ADVANCE.

YOUR LETTER CONCEDES THAT THE ATOMIC ENERGY ACT GIVES THE COMMISSION NO GENERAL AUTHORITY TO IGNORE THE PROHIBITION IN SECTION 3679 OF THE REVISED STATUTES, 31 U.S.C. 665, AGAINST INVOLVING THE GOVERNMENT IN CONTRACTS FOR THE FUTURE PAYMENT OF MONEY IN EXCESS OF APPROPRIATIONS CURRENTLY AVAILABLE FOR OBLIGATION. SECTION 3679, REVISED STATUTES, IS BUT ONE OF A GROUP OF STATUTES ENACTED BY THE CONGRESS FOR CONTROL OVER EXPENDITURES AND LIABILITIES OF THE GOVERNMENT, SO FAR AS THE EXECUTIVE BRANCH IS CONCERNED. THERE ALSO ARE CONTROLLING IN THE MATTER THE OTHER STATUTES CITED IN OUR LETTER OF APRIL 2, 1957, AND, IN ADDITION THERE IS FOR SPECIAL CONSIDERATION SECTION 1 OF THE SURPLUS FUND CERTIFIED CLAIMS ACT OF 1949, 63 STAT. 407, 31 U.S.C. 712A, FORMERLY SECTION 3690 OF THE REVISED STATUTES. THAT SECTION PROVIDES AS FOLLOWS:

EXCEPT AS OTHERWISE PROVIDED BY LAW, ALL BALANCES OF APPROPRIATIONS CONTAINED IN THE ANNUAL APPROPRIATION BILLS AND MADE SPECIFICALLY FOR THE SERVICE OF ANY FISCAL YEAR SHALL ONLY BE APPLIED TO THE PAYMENT OF EXPENSES PROPERLY INCURRED DURING THAT YEAR, OR TO THE FULFILLMENT OF CONTRACTS PROPERLY MADE WITHIN THAT YEAR.

THUS, AN APPROPRIATION MADE SPECIFICALLY FOR THE SERVICE OF A PARTICULAR FISCAL YEAR, SUCH AS THE USUAL ANNUAL APPROPRIATION BILL FOR OPERATING EXPENSES OF THE ATOMIC ENERGY COMMISSION, MAY BE USED, IN THE ABSENCE OF STATUTORY AUTHORIZATION OTHERWISE, ONLY FOR PAYMENT OF EXPENSES PROPERLY INCURRED DURING THE FISCAL YEAR OR FOR PAYMENTS UNDER CONTRACTS PROPERLY MADE WITHIN THAT YEAR.

THE QUESTION AS TO WHAT CONSTITUTES A CONTRACT "PROPERLY MADE" WITHIN A PARTICULAR FISCAL YEAR HAS BEEN BEFORE THE ATTORNEY GENERAL, THE ACCOUNTING OFFICERS, AND THE COURTS MANY TIMES. THE BASIC PRINCIPLE TO BE OBSERVED IN DETERMINING THE QUESTION IN INDIVIDUAL CASES WAS STATED IN 1870 BY THE ATTORNEY GENERAL AS FOLLOWS:

* * * CONGRESS HAS THE RIGHT TO LIMIT ITS APPROPRIATIONS TO PARTICULAR TIMES AS WELL AS TO PARTICULAR OBJECTS, AND WHEN IT HAS CLEARLY DONE SO, ITS WILL EXPRESSED IN THE LAW SHOULD BE IMPLICITLY FOLLOWED. (13 OPS. ATTY. GEN. 289, 292)

IN 1880 THE COURT OF CLAIMS CONSIDERED THE QUESTION IN THE CASE OF WILDER V. UNITED STATES, 16 C.1CLS. 528. THE CASE INVOLVED A CONTRACT FOR THE TRANSPORTATION OF ALL SUPPLIES TURNED OVER TO THE CONTRACTOR DURING THE FISCAL YEAR ENDING JUNE 30, 1877, AND THE QUESTION WAS WHETHER THAT CONTRACT OR THE SUCCEEDING CONTRACT APPLIED TO SUPPLIES FOR THE NEXT FISCAL YEAR WHICH WERE TURNED OVER TO THE CONTRACTOR BEFORE JUNE 30, 1877. IN HOLDING THAT SUPPLIES FOR THE USE OF THE SUBSEQUENT YEAR WERE NOT INCLUDED UNDER PLAINTIFF'S CONTRACT THE COURT SAID:

FORMERLY, AS WE HAVE SAID, BUT SLIGHT ATTEMPTS WERE MADE TO KEEP THESE ACCOUNTS OF THE GOVERNMENT BY FISCAL YEARS. * * * BUT THE RECENT POLICY OF CONGRESS HAS BEEN TO KEEP THE PUBLIC ACCOUNTS BY THE FISCAL YEAR; AND NOW A DEPARTMENT IS CREDITED WITH NO BALANCE OVER, AND EVERY EXPENDITURE IS CHARGED, NOT TO TRANSPORTATION GENERALLY, BUT TO THE TRANSPORTATION OF THAT SPECIFIC FISCAL YEAR FOR WHICH THAT SPECIFIC APPROPRIATION WAS MADE.

THE PROVISIONS OF LAW WHICH EXPRESS THE LEGISLATIVE POLICY ARE GATHERED TOGETHER IN THE TITLE ON APPROPRIATIONS (TITLE XLI, REV. STAT.), AND PARTICULARLY IN SECS. 3660, 3664, 3665, 3675, 3678, 3679, 3690. A READING OF THOSE PROVISIONS WILL SHOW CONCLUSIVELY, WE THINK, THAT CONGRESS HAS RESTRICTED IN EVERY POSSIBLE WAY THE EXPENDITURES AND EXPENSES AND LIABILITIES OF THE GOVERNMENT, SO FAR AS EXECUTIVE OFFICES ARE CONCERNED, TO THE SPECIFIC APPROPRIATIONS FOR EACH FISCAL YEAR. IF THE COMMISSIONER * * * COULD HAVE COMPELLED THE CLAIMANT (AS THE CLAIMANT CONTENDS HE MIGHT) TO CARRY THE SUPPLIES FOR THE ENSUING YEAR UNDER HIS, THE CLAIMANT- S, CONTRACT FOR THE TRANSPORTATION OF THE CURRENT FISCAL YEAR, THE COMMISSIONER COULD PREVENT BY SUCH MEANS BALANCES OF APPROPRIATIONS FROM LAPSING AND BEING CARRIED BACK INTO THE SURPLUS FUND OF THE TREASURY, AND THEREBY EVADE THE PURPOSE AND DEFY THE TERMS OF THE STATUTES.

IN 1898 THE COMPTROLLER OF THE TREASURY RULED SPECIFICALLY ON THE MEANING OF THE PHRASE ,CONTRACTS PROPERLY MADE WITHIN" A PARTICULAR FISCAL YEAR. HE STATED, 4 COMP. DEC. 553, 555, THAT:

* * * CONTRACTS ARE FREQUENTLY ENTERED INTO FOR THE PERFORMANCE OF SOME SPECIFIC WORK UNDER ANNUAL APPROPRIATIONS, BUT THE WORK IS NOT COMPLETED WITHIN THE FISCAL YEAR. IF SUCH WORK IS ACTUALLY BEGUN WITHIN THE FISCAL YEAR FOR WHICH THE ANNUAL APPROPRIATION APPLICABLE THERETO WAS MADE, IT MAY ORDINARILY BE FAIRLY HELD THAT THE WORK WAS FOR THE SERVICE OF THAT FISCAL YEAR. AND PROVISION FOR PAYMENT FOR THE WORK FROM THE UNEXPENDED BALANCE OF THE APPROPRIATION IS THEREFORE MADE BY THE CLAUSE, "FOR THE FULFILLMENT OF CONTRACTS PROPERLY MADE WITHIN THAT YEAR.'

BUT IF THAT PROVISION SHOULD BE CONSTRUED TO AUTHORIZE THE USE OF UNEXPENDED BALANCES OF APPROPRIATIONS SPECIFICALLY MADE FOR THE SERVICE OF A PARTICULAR FISCAL YEAR FOR THE PURCHASE OF SUPPLIES, ETC., FOR THE SERVICE OF A SUBSEQUENT FISCAL YEAR, PROVIDED THAT A CONTRACT THEREFOR SHOULD BE ENTERED INTO DURING THE FISCAL YEAR FOR WHICH THE APPROPRIATION WAS MADE, THE EFFECT WOULD BE TO PRACTICALLY NULLIFY THE OBJECT OF THE STATUTE. UNDER SUCH A CONSTRUCTION IT WOULD BE WITHIN THE POWER OF EXECUTIVE OFFICERS, BY ENTERING INTO CONTRACTS NEAR THE CLOSE OF THE FISCAL YEAR, TO EXPEND ALL SUMS APPROPRIATED FOR ANY FISCAL YEAR, ALTHOUGH NOT REQUIRED FOR THE SERVICE OF THAT YEAR, AND THUS LEAVE NO BALANCES TO BE CARRIED TO THE SURPLUS FUND. IT CAN HARDLY BE CONTENDED THAT IT WAS THE INTENTION OF CONGRESS TO GIVE SUCH EFFICACY TO THE MERE FORMALITIES OF A CONTRACT AND THUS TO AUTHORIZE THAT TO BE DONE INDIRECTLY WHICH IT HAS EXPRESSLY PROHIBITED BEING DONE DIRECTLY.

I THINK THE BETTER CONSTRUCTION IS THAT THE CLAUSE PROVIDING FOR THE FULFILLMENT OF CONTRACTS MEANS CONTRACTS MADE FOR THE SERVICE OF THE FISCAL YEAR TO WHICH THE APPROPRIATION IS APPLICABLE. THERE IS NO AUTHORITY IN AN APPROPRIATION MADE SPECIFICALLY FOR THE SERVICE OF A PARTICULAR FISCAL YEAR TO ENTER INTO CONTRACTS FOR SUPPLIES, ETC., FOR THE SERVICE OF A SUBSEQUENT FISCAL YEAR, AND THEREFORE AS TO THAT APPROPRIATION SUCH A CONTRACT IS NOT "PROPERLY MADE WITHIN THAT YEAR.'

SEE, ALSO, 8 COMP. DEC. 346; 21 COMP. DEC. 822, 823-24; 1 COMP. GEN. 115, 118; 2 COMP. GEN. 825; 16 ID. 37, 38; 20 ID. 436; GENERAL ACCOUNTING OFFICE CIRCULAR LETTER DATED SEPTEMBER 3, 1941, 21 COMP. GEN. 1159; 23 ID. 82.

DETERMINATION OF WHAT CONSTITUTES A BONA FIDE NEED OF THE SERVICE OF A PARTICULAR FISCAL YEAR DEPENDS IN LARGE MEASURE UPON THE FACTS AND CIRCUMSTANCES OF THE PARTICULAR CASE. NO GENERAL RULE CAN BE STATED FOR APPLICATION TO ALL SITUATIONS WHICH MAY ARISE. WE RECOGNIZE, AS STATED ON PAGES 3 AND 4 OF YOUR LETTER, THAT CERTAIN MATERIAL MAY BE NEEDED IN THE FUTURE WHEN RELATED WORK OR PROCESSES CURRENTLY UNDER WAY MAY BE COMPLETED. IF SUCH MATERIAL WILL NOT BE OBTAINABLE ON THE OPEN MARKET AT THE TIME NEEDED FOR USE, A CONTRACT FOR ITS DELIVERY WHEN NEEDED MAY BE CONSIDERED A BONA FIDE NEED OF THE FISCAL YEAR IN WHICH THE CONTRACT IS MADE, PROVIDED THE TIME INTERVENING BETWEEN CONTRACTING AND DELIVERY IS NECESSARY FOR PRODUCTION OR FABRICATION OF THE MATERIAL. IN CONNECTION WITH THE PROCUREMENT OF SUPPLIES, HOWEVER, CONSIDERATION MUST BE GIVEN TO THE PROHIBITION IN SECTION 3735 OF THE REVISED STATUTES, 41 U.S.C. 13, AGAINST THE MAKING OF CONTRACTS FOR TERMS IN EXCESS OF ONE YEAR. SEE, IN THIS CONNECTION, 21 OPS. ATTY. GEN. 304; 12 COMP. DEC. 553; AND DECISION OF THE COMPTROLLER GENERAL, A 60589, JULY 12, 1935, IN WHICH IT WAS HELD THAT WHAT ARE NOW GENERAL SCHEDULE SUPPLY CONTRACTS COULD NOT EXCEED ONE YEAR. WHEN A CONTINUING SUPPLY OF MATERIALS IS NEEDED OVER A PERIOD OF TIME, THE CONTRACT TERM MAY NOT EXCEED ONE YEAR, AND ONLY THE NEEDS OF THE FIRST FISCAL YEAR MAY BE CONSIDERED A BONA FIDE NEED OF THE YEAR IN WHICH THE CONTRACT IS MADE.

THE SITUATION NOT INFREQUENTLY ARISES IN THE CASE OF REQUIREMENTS FOR WATER, GAS, ELECTRICITY, OR OTHER UTILITIES THAT THERE IS ONLY ONE REASONABLE SOURCE OF SUPPLY AND THE FURNISHING OF THE SERVICE NEEDED REQUIRES THE CONSTRUCTION OF A NEW LINE TO THE GOVERNMENT PROJECT. THIS APPEARS TO HAVE BEEN THE SITUATION INVOLVED IN THE CASE OF THE EAST TENNESSEE NATURAL GAS COMPANY CONTRACT MENTIONED IN YOUR LETTER. UNDER SUCH CIRCUMSTANCES, AND WHERE THE CONTRACTOR IS UNWILLING TO BUILD THE REQUIRED NEW LINE AT ITS OWN EXPENSE WITHOUT ASSURANCES THAT IT WILL BE ABLE TO RECOVER THE CAPITAL COST INVOLVED, WE HAVE APPROVED ARRANGEMENTS SIMILAR TO THOSE IN THE CONTRACT PROPOSED IN THE PRESENT CASE. SEE, FOR EXAMPLE, 8 COMP. GEN. 655. IN SUCH CASES, THE ALTERNATIVES OPEN TO THE GOVERNMENT ASIDE FROM CONSTRUCTION AND OWNERSHIP OF THE NEW FACILITY BY THE GOVERNMENT OFTEN ARE (1) PAYMENT TO THE CONTRACTOR OF THE COST THEREOF AT THE BEGINNING OF THE CONTRACT, WITH OR WITHOUT REBATES FROM SUBSEQUENT BILLS FOR SERVICES, OR (2) CONTRACT PROVISIONS FOR CANCELLATION CHARGES CONTINGENT UPON FAILURE TO RENEW THE CONTRACT FROM YEAR TO YEAR. WHERE ONLY THESE ALTERNATIVES ARE AVAILABLE TO THE GOVERNMENT, THE COURSE MOST ADVANTAGEOUS TO THE GOVERNMENT ORDINARILY SHOULD BE CHOSEN, SUBJECT, OF COURSE, TO THE CONDITION THAT AN AMOUNT EQUAL TO THE MAXIMUM CONTINGENT LIABILITY OF THE GOVERNMENT IS ALWAYS AVAILABLE FOR OBLIGATION FROM APPROPRIATIONS CURRENT AT THE TIME THE CONTRACT IS MADE AND AT THE TIME RENEWALS THEREOF ARE MADE. AND IF BASED ON AN ANNUAL APPROPRIATION, ANY CONTRACT MADE MUST CONFORM TO THE PRINCIPLES STATED BY THE SUPREME COURT IN THE CASE OF LEITER V. UNITED STATES, 271 U.S. 204.

IN VIEW OF THE FOREGOING, WE BELIEVE THAT THE EXECUTION OF THE PROPOSED CONTRACT WITH THE ALABAMA METALLURGICAL CORPORATION WOULD BE CONTRARY TO APPLICABLE STATUTORY RESTRICTIONS. THE FACTS STATED IN YOUR LETTER OF FEBRUARY 19, 1957, SHOW THAT THE CURRENT NEEDS OF THE COMMISSION FOR MAGNESIUM ARE BEING MET AND THAT FUTURE NEEDS CAN BE MET FROM THE SAME SOURCE. THE BONA FIDE NEED OF THE COMMISSION FOR ANY PARTICULAR FISCAL YEAR APPARENTLY DOES NOT EXCEED 7,000,000 POUNDS OF MAGNESIUM, THE COST OF WHICH UNDER THE ALABAMA PROPOSAL, INCLUDING THE CANCELLATION CHARGE APPLICABLE TO SUCH YEAR, IS FAR IN EXCESS OF THE COST FROM THE EXISTING SOURCE.