Federal Contracts and Assistance Relationships: Models for Local Control of Base Closures

TABLE OF CONTENTS

I. INTRODUCTION TO MILITARY BASE CLOSURES

A. GOALS OF PARTNERSHIP FUNDING

B. GENERAL STATEMENT OF ISSUES

II. OVERVIEW OF MECHANISMS FOR STRUCTURING THE PARTNERSHIP

A. PRIMARY TOOLS: CONTRACTS AND ASSISTANCE RELATIONSHIPS

1. Three Legal Instruments under the FGCAA

a. Contracts (Procurement Contracts)

b. Grants

c. Cooperative Agreements

B. CONTRACTS

1. Types of Federal Contracts: Fixed-Price and Cost Reimbursement

a. Fixed-Price Contracts

b. Cost-Reimbursement Contracts

2. The Contract-Making Process

a. Competitive Acquisition

b. Noncompetitive Acquisition

3. Subcontracting

4. Multiyear Contracting And Funding

a. The Anti-Deficiency Act

b. The ADA and Multiyear Contracts: Statutory Exemption

C. ASSISTANCE RELATIONSHIPS GENERALLY

1. Grants

2. Cooperative Agreements

3. Contrasting Grants with Cooperative Agreements

D. CONTRASTING CONTRACTS AND ASSISTANCE RELATIONSHIPS

1. Potential Limitations on Assistance Relationships: Principal Purpose Test

III. CONCLUSION

I. INTRODUCTION TO MILITARY BASE CLOSURES

The closing of military bases on a nationwide scale opens up the possibility for new and innovative partnerships between the federal, state and local governments. This paper explores funding mechanisms to allow partnerships that increase participation by the state and Local Reuse Agencies (LRAs) in the closing of military bases. Currently no enabling legislation exists for this type of partnership. This paper is the first inquiry into possible funding mechanisms and serves to establish the framework for future statutory authorization effectuating the DoD-LRA partnership.

One partnership envisioned at this time is a formal relationship between the DoD and LRA with the DoD holding nominal title to the base properties while the LRAs take possession and acted as property managers.

The closing of military bases and reuse schemes will require a great deal of money over the next twenty-plus years. The DoD will have obligations to fund some of the efforts, but delegating duties to the LRA serves long-term economic benefits to the DoD and short-term benefits to the community. Consistent with the goal that the LRA function in a partnership with local, state and federal government, funding mechanisms which best serve the LRA and the DoD must be fashioned. The funding mechanism must have sufficient flexibility such that a LRA can address immediate problems without having to seek supplemental appropriations. At the same time the budgets should be project-specific and adequately monitored. This survey explores the existing funding mechanisms for structuring the DoD-LRA partnership, but as the closure of military bases on a nationwide scale is unprecedented, special legislation will be necessary to most effectively implement the goals of the DoD and the LRA.

A. GOALS OF PARTNERSHIP FUNDING

The over-arching goal of the partnership/reuse package is to have the Local Reuse Agency (LRA) take over the coordination and implementation of the reuse tasks and functions for the closing military bases. Optimally, the LRA would take possession of the closed military base as a property manager and perform the clean-up tasks. This latter goal relating to the performance of the clean-up tasks and remediation under CERCLA is not a necessary condition, however, to implementation of the partnership. Accordingly, a partnership could be established without having the LRA perform clean-up.

The purpose of having the LRA act as a property manager is to speed the reuse process. Two salient advantages of having the LRA as property manger are: (1) the LRA can negotiate with lessees, and (2) it places the LRA in a position of implementing the infrastructure necessary to transfer the base property efficiently and effectively.

As property manager, the LRA could negotiate with lessors in order to quickly stimulate the local economy and smooth the transition to civilian services. For example, the LRA could negotiate for "anchor tenants." [No. 1] The recent lease of the northern part of the Sacramento Army Depot to Packard Bell Electronics demonstrates the speed with which a local reuse group could also negotiate with lessors. [No. 2] Additionally, state and local support for the LRA in negotiating could come in the form of tax breaks for industries operating on the former bases. The arrangements would necessarily be subject to federal law, but the advantages to having the LRA stimulate the local economy and coordinate the speedy reuse of the base property coincides with the DoD's obligations to transfer the property.

Also, functioning as a property manager would allow the LRA to implement the infrastructure necessary to complete the transfer process with the benefit to the local economy. As currently exists, many bases have limited access and even those limited streets are often too narrow for non-military use. Similarly, many buildings are not in compliance with current building codes. These essential tasks for complete transfer of the bases can be organized by the LRA directly by bringing on staff or subcontracting. Either way, the LRA could focus on set-asides to benefit the local community at higher percentages than the federal government is permitted if it were doing the work itself or letting the work out to a prime contractor.

Ideally, the LRA would perform the clean-up process as one part of the reuse package. The advantage here is to facilitate the reuse and clean up standards with local oversight by the LRA. Also, resources could sometimes be allocated to clean more marketable parcels first. This function of the LRA, however, is an optimal situation and does not preclude the first goal of having the LRA act as a property manager. For example, the transfer of Oaknoll Naval Hospital in Oakland to a LRA could be effectuated without the LRA performing the clean-up tasks because Oaknoll is not a CERCLA site. This example highlights the fact that this second goal of having the LRA perform the clean-up would be base-specific. Although factors in the determination might include the degree and nature of the clean-up required and the nature of the LRA, the potential for the LRA to oversee the clean-up should not be overlooked.

The goals of the LRA as part of the partnership/total reuse package in transferring the base properties serves both the federal government and the local economies. The LRA acting as a property manager for the transfer of the military bases and optimally also taking on the clean-up responsibility provide the backdrop for the following discussion.

B. GENERAL STATEMENT OF ISSUES

In assessing funding options for the DoD-LRA relationship, two fundamental concerns are raised. First, what multi-year funding mechanisms are available to pay for the base conversion process? Second, which multi-year funding options are most appropriate?

II. OVERVIEW OF MECHANISMS FOR STRUCTURING THE PARTNERSHIP

Initially, it appears that by taking on current DoD tasks a LRA provides a direct service to the DoD and would be subject to the Federal Acquisition Regulations. [No. 3] However, this may not be the most suitable means of viewing a LRA based on the unique partnership between federal, state and local governments contemplated by the partnership goals. The Anti-Deficiency Act [No. 4] provides the most serious impediment to structuring the total reuse package under the FARs. Accordingly, funding options for LRA agreements must contemplate this partnership and the long-term relationship.

One alternative means of structuring the long-term reuse package is through the arrangements described in the Federal Grant and Cooperative Agreement Act (FGCAA). [No. 5] The FGCAA details the use of contracts, grants and cooperative agreements for relationships between the federal government and non-federal entities. The contours of the FGCAA and the distinctions between the types of arrangements provide the parameters for establishing the larger reuse package as well as certain programs pursuant to the partnership/total reuse package.

This paper surveys the funding options available as tools to structure the partnership/total reuse package and clean-up tasks of the LRAs.

A. PRIMARY TOOLS: CONTRACTS AND ASSISTANCE RELATIONSHIPS

Some agreements between the federal government and non-federal entities are governed by the Federal Grant and Cooperative Agreement Act. [No. 6] The FGCAA describes three types of legal instruments which may be used in drawing up the desired arrangements: (1) contracts (also termed procurement contracts); (2) grants; and (3) cooperative agreements. Generally, these legal instruments contemplate different projects and are subject to different requirements. For example, cooperative agreements are not subject to the Anti-Deficiency Act whereas contracts are.

Broadly speaking, contracts are used for products or services to the federal government whereas grants and cooperative agreements reflect assistance relationships intended to support or stimulate recipient activity. Additionally, grants and cooperative agreements have the salient quality of flexibility in addressing immediate goals of Congress as contrasted with contracts which are less responsive to immediate concerns.

A non-federal entity which desires to enter into an agreement with the federal government must consider several threshold issues. First, what distinctions are there between the three legal instruments described in the FGCAA? Second, what legal instrument coincides most directly with the non-federal entity's goals? Lastly, the non-federal entity must look to existing arrangements between the federal government and non-federal entities as current examples of the requirements and advantages of such relationships.

This section provides an overview of the three legal instruments as the framework for such a determination.

1. Three Legal Instruments under the FGCAA

a. Contracts (Procurement Contracts)

Pursuant to the FGCAA, a procurement contract is used whenever the principal purpose of the relationship between the agency and the awardee is the acquisition by purchase, lease, or barter of property or services for the direct benefit or use of the federal government. [No. 7]

b. Grants

A federal grant-in-aid (grant) is the appropriate legal instrument when the relationship is for the transfer of money, property, services, or anything of value to the recipient to accomplish a public purpose of support or stimulation, the federal role is passive, and no substantial agency involvement is anticipated. [No. 8] Some parts of the partnership/total reuse package may be structured through grants. For example, the Office of Economic Development Planning Grants are already in place to fund the process of developing comprehensive reuse plans, and these grants could serve as a model for others.

c. Cooperative Agreements

Cooperative agreements are appropriate in assistance relationships similar to grants except that the federal role is active or substantial agency involvement is anticipated. [No. 9] The Office of Management and Budget (OMB) has developed a list of factors that count and those which do not for determining the level of federal involvement necessary for a cooperative agreement. This list, detailed later in this paper, is used to evaluate the appropriateness of and distinguishing between grants and cooperative agreements.

Cooperative agreements were developed as a new method of structuring relationships between the federal government and non-federal entities with the passage of the FGCAA in 1977. They were developed with the primary intent of retaining the goals of assistance relationships while also permitting substantial involvement by the federal government in a program's execution.

B. CONTRACTS

1. Types of Federal Contracts: Fixed-Price and Cost Reimbursement

Generally, there are two types of federal contracts: (1) fixed-price contracts; and (2) cost-reimbursement contracts. Fixed-price contracts are defined as contracts providing for firm pricing arrangements established by the parties at the time of contracting. By contrast cost-reimbursement contracts, as their name implies, involve contracts that provide for payment to the contractor of allowable incurred costs to the extent provided in the contract. Although both types of contracts have definite cost structures, cost-reimbursement contracts are more open-ended and do not contain a pre-established completion price.

Selecting the type of contract appropriate for a specific program requires balancing of reasonable risk upon the contractor with providing for the greatest incentive for efficient and economical performance. [No. 10]

a. Fixed-Price Contracts

Fixed-price contracts are geared toward situations where the risk of cost overruns is minimal or completion costs can be predicted with an acceptable degree of certainty. This policy best utilizes the profit motive of the contractor's business because as the contractor reduces costs below the contract fixed price, the higher his profit margin. Fixed-price contracts are the primary means by which the federal government structures contracts. Other types of contracts, however, must be considered when there is no reasonable basis for establishing a firm completion price at the formation of the contract. Thus, fixed-price contracts generally are not appropriate for situations where there is an anticipated change in the cost of performance of the contract. Also, fixed-price contracts are used for specific tasks as contrasted with a stream of separate tasks.

Nonetheless, a certain degree of uncertainty does not preclude the use of fixed-price contracts. Economic adjustment clauses, for example, allow a degree of open-endedness concerning material prices or labor costs, and create room for flexibility in fixed-price contracts. Economic adjustment clauses are normally only appropriate when the contract involves significant costs to be incurred beyond one year after performance begins, the adjustment is substantial and the economic variables, such as labor or materials, are too unstable to permit a reasonable division of risk.

Economic adjustment clauses to fixed-price contracts provide for an upward of downward adjustment of the contract price according to three types of price adjustments. The first and second type of price adjustments are based on increases or decreases in material or labor costs which are incurred during performance or based on particular indices specifically identified in the contract. The third type of economic adjustment clause is based on increases or decreases from established prices of contract end items. [No. 11]

Fixed-price contracts are similar to cost-reimbursement contracts in some instances. The overall effect of economic adjustment clauses is functionally similar to cost-reimbursement contracts and shows that at times the distinctions are more apparent than real.

b. Cost-Reimbursement Contracts

In many situations the uncertainties involved preclude the use of a fixed-price contract. Cost-reimbursement contracts are used when the uncertainties involved prevent acceptable estimates of completion costs. [No. 12] For example, contracts for research and preliminary studies where the level of effort is unknown are arranged through cost-reimbursement contracts. Also, cost-reimbursement contracts are used to create a fund that allows a prime contractor to handle a series of related tasks without having to issue new contracts for each and allows for the flexibility of subcontracting.

A cost-reimbursement contract provides for payment to the contractor of allowable incurred costs to the extent provided in the contract. Cost-reimbursement contracts are to be distinguished from fixed-price contracts where payment is based on pre-established prices at the time of formation. Necessary requirements for using a cost-reimbursement contract are a showing of the adequacy of the contractor's accounting system and provisions for appropriate surveillance by the federal government. These requirements insure that performance is undertaken through efficient methods and cost effective controls are used. [No. 13]

There are many varieties of cost-reimbursement pricing arrangements including:

(1) cost contracts,

(2) cost-sharing contracts,

(3) cost-plus-incentive fee (CPIF) contracts,

(4) cost-plus award fee (CPAF) contracts, and

(5) cost-plus-fixed fee contracts.

Cost-reimbursement contracts have a number of unique limiting characteristics. Specifically, the FAR places three limits on their usage. First, the contractor's accounting system must be adequate for determining applicable costs. Second, government surveillance during performance must provide reasonable assurance that efficient methods and effective cost controls are used. Third, a determination must be made that a cost-reimbursement contract is likely to be less costly than any other type or that obtaining the needed supplies or services without the use of a cost-reimbursement contract is impracticable. [No. 14]

2. The Contract-Making Process

Generally federal statutes, with limited exceptions, require that competition be obtained in soliciting and awarding government contracts. [No. 15] The FARs require that "all responsible sources are permitted to compete." [No. 16] The following discussion describes both competitive and noncompetitive acquisition with an emphasis on distinguishing between the two types of competitive procedures: sealed bids and competitive negotiations.

There are two general forms in which government contracting occurs: competitive acquisition and noncompetitive acquisition. Competitive acquisition can be further broken down into sealed bids and competitive negotiating. In order of government preference, the government first tries to utilize sealed bids, then competitive negotiations and only uses noncompetitive acquisitions in limited contexts.

a. Competitive Acquisition

All government contracts revolve around the nature of the contract action. With sealed bids and competitive negotiations, the specification is a description of the work/service to be performed for the government and forms the basis for evaluating and awarding contracts. Specifications range from detailed descriptions to general statements of the government's objectives without required methods of accomplishment. As the LRA partnership does not yet exist, its impossible to anticipate what the specifications will be, but the framework for the acquisition process is detailed below.

Sealed Bidding

Sealed bidding is the preferred method of government contracting. The appropriateness of using sealed bidding as contrasted with competitive negotiating is determined by the exercise of "good judgment" by the government. [No. 17] Despite the flexibility of this "judgment" in making determinations, four general guidelines have been established.

Sealed bidding is appropriate when the contract action: (1) permits time for solicitation, submission, and evaluation of sealed bids; (2) the award will be made on the basis of price and other price-related factors; (3) it is not necessary to conduct discussions with the responding offerors about their bids; and (4) there is reasonable expectation of receiving more than one bid. By contrast, competitive proposals are more appropriate when these conditions do not exist.

Sealed bidding serves to give all qualified contractors the opportunity to compete for government contracts while the government receives the benefits of competition free of favoritism, fraud or collusion. Competitive bidding for government contracts, however, has never been one in which the contract must automatically go to the lowest bidder. Other considerations may factor into the awarding of a contract specific to the nature of the contract action.

Competitive Negotiating

Competitive negotiating is another form of economic competition in government contracting which has several distinct characteristics. An award under the competitive negotiating process is appropriate when the "proposal is most advantageous to the United States, considering only cost or price and the other factors considered in the solicitation." [No. 18] Competitive negotiating for government contracts generally focuses on the development of further proposals. Thus, negotiations regarding price, technical and other features of a bidder's offer are discussed with the purpose of modification prior to the final offer. [No. 19] Only those bidders who were in the initial "competitive range" participate in the negotiations. [No. 20]

A distinction between competitive negotiating and sealed bids is in the pricing methods available. Whereas sealed bids usually require fixed-price contracts, more flexibility is permitted under competitive negotiating. Pursuant to competitive negotiating, the head of an agency may, subject to other provisions, enter into any kind of contract he considers to promote the best interest of the United States, excluding cost-plus-percentage-of-cost contracts. [No. 21] Accordingly, contract pricing through cost-reimbursement contracts is available under competitive negotiating.

b. Noncompetitive Acquisition

The preference in government contracting is for competitive acquisition through full and open competitive practices. However, "sole source" or noncompetitive acquisition is authorized in seven circumstances: [No. 22]

(1) when there is only one responsible source and no other supplies or services will satisfy agency requirements;

(2) when there is an unusual and compelling urgency;

(3) to maintain the industrial mobilization base or to achieve mobilization; and to establish and maintain essential engineering and developmental capability to be provided by educational or other profit institutions or federally funded research and development centers;

(4) when required by treaty or international agreement to which the U.S. is a party or when required by written directions of a foreign government, when that government will reimburse the U.S. government agency acquiring supplies or services for it;

(5) where authorized or required by statute;

(6) when full and open competition would result in disclosure of the agency's needs and compromise the national security; or

(7) when deemed to be in the national interest.

With reference to the DoD-LRA relationship, the provisions allowing for noncompetitive acquisition when there is an unusual urgency, statutory authorization or in the national interest might be appropriate. The provision relating to an urgency is usually used when there is a need for emergency supplies, such as after a flood or other natural disaster. The closing of military bases is not a natural disaster and the BRAC Acts do not anticipate the same type of immediacy.

The provision relating to statutory authorization is the broadest provision and envisions a range of projects from requiring acquisitions from the Federal Prisons Industries, Inc. to specific brand name commercial items authorized for resale at military commissaries. [No. 23] This provision is a particularly appropriate tool because the authorization for some subcontracting with small disadvantaged businesses is expressly provided for in FAR 6.302-(b)(5) under this provision for noncompetitive acquisitions. Indeed, the LRA partnership will probably require enabling legislation due to the uniqueness of the problem of closing military bases on a national scale.

The provision relating to activities deemed in the national interest is generally reserved for situations where no other authority in the statute [No. 24] or regulations [No. 25] apply and examples of such situations are hard to find.

3. Subcontracting

The value of using contracts as a tool to establish the LRA partnerships is the ability of LRAs to direct subcontracts to qualified local businesses. This has the effect of bolstering the local economy even before development of former base properties is complete. The preceding discussion focused on primary contracts, i.e. those between the federal government and a supplier. Prime contractors may then subcontract parts of the work. A subcontractor is generally defined as any entity having contractual relations with the prime contractor. [No. 26] Although subcontracting is pursued under the general competitive goals in making awards, the agency exercises primary oversight in the competitive process. Broadly speaking, most agencies oversee the subcontracting through consent (or approval) of individual procurement by the subcontractor and a review of the subcontractor's purchasing system.

An agency's consent is normally required when the subcontract is complex, the dollar value is substantial, or the government's interest is not adequately protected. [No. 27] Consent is typically not necessary under fixed-price prime contracts, but under cost-reimbursement contracts general agency consent is required. Consent involves insuring that the subcontractor follows procurement procedures, complies with set-asides [No. 28], and does not appear on the Consolidated List of Debarred, Suspended, and Ineligible Contractors. [No. 29] Agency consent, however, is limited by the requirement that the agency can't authorize agreements that exceed the statutory fee limitations in cost-reimbursement contracts. [No. 30] The specific drafting of subcontracting relationships is beyond the scope of the paper but generally there are standard "flow-down" clauses which can be carefully used in structuring the specific contractual relationship.

The primary advantage to structuring the partnership package with the LRA as the prime contractor is to allow greater flexibility in subcontracting to benefit the local community through set-asides. Another advantage to the use of set-asides is that the prime contractor need not itself have all the expertise or equipment required to complete the entire contract.

Set-asides are a tool in government contracting where participation is reserved exclusively or partially for a special class of contractors. The determination to make a particular set-aside is exercised by the contracting authority which is then documented as to its appropriateness. The use of set-asides to favor local minority business enterprises and disadvantaged business enterprises serve the goal of stimulating the local economy and implementing the reuse plan in a manner in which local participation is increased.

4. Multiyear Contracting And Funding

a. The Anti-Deficiency Act

Generally, federal contracts are limited to one fiscal year. The one year limitation is the result of the Anti-Deficiency Act (ADA) which prohibits obligations or expenditures of funds in excess of the amount in an appropriation and the obligation or expenditure of funds before an appropriation is made, unless authorized by law.

The Anti-Deficiency Act provides that:

An officer or employee of the United States Government . . .may not:

(1) make or authorize an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation; or

(2) involve [the] government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law. [No. 31]

The purpose of the ADA is to prevent government officials and employees from obligating Congress to spend more money than it has appropriated. [No. 32] Thus, agents of the United States cannot enter into express or implied [No. 33] contracts binding the United States for which they do not have the requisite legal authority. [No. 34] Unlike traditional contract laws, government contracting is unique in that the ability to bind the United States government is limited to the officer's actual and not simply apparent authority.

b. The ADA and Multiyear Contracts: Statutory Exemption

The ADA is violated by attempting to apply a one-year appropriation to a multiyear contract. However, there are some narrow exceptions in the FARs allowing for multi-year contracts. [No. 35] The LRA partnership will require specific statutory authorization waiving the ADA limitations in the enabling legislation.

C. ASSISTANCE RELATIONSHIPS GENERALLY

The types of arrangements described in the FGCAA can be split into two generally distinct categories based on whether the transaction is for government use, where contracts are appropriate and a transaction for assistance to the recipient, where grants or cooperative agreements are appropriate. The following discussion pertains to assistance relationships.

Federal assistance serves the broad goals of support and stimulation. Specifically, grants and cooperative agreements provide one means of delivering benefits and services in the national interest. The basic theory behind these forms of assistance is to promote the national welfare through federal spending. The general structure of these arrangements is such that the primary beneficiary and "immediate object of Congressional beneficence is the aid recipient and service provider." [No. 36] States and local governments constitute the bulk of the recipients. Grants and cooperative agreements have been described as "cooperative federalism." [No. 37]

Grants and cooperative agreements are popular tools for structuring relationships with federal entities when there is consensus between the Congress and President. There are four policy reasons favoring assistance relationships. First, when a state or local institution already exists to provide the services, parallel federal institutions are deemed "senseless." [No. 38] Second, while independent federal programs is perceived as "intervention," implementation of programs by state and local agencies promotes widespread political support. Third, national priorities can receive enhanced funding through the use of matching grants. Fourth, federal values and goals can be enforced through the use of assistance relationships that condition the receipt of funds upon established criterion.

1. Grants

Federal grants are generally described by the following four broad characteristics. First, Congressional authorization establishes a grant program for a specific number of years or on a continuing basis. Second, annual appropriations, which may be less than authorized amounts, provide funds for distribution among states or their subdivisions: (a) usually in accordance with a legislatively proscribed formula, (b) generally contingent on state or local matching funds, and (c) based on conditions that the Congress, President, or executive agencies specify and that are agreed to by the recipient. Third, allocation, supervision, review, approval, and audit responsibilities over the receiving units are performed by a federal administrative agency. Finally, funds are generally allocated to units of government rather than to individuals, nonprofit groups, or private firms. [No. 39]

Grants are subject to the standard federal limitations. For example, the requirements include that the recipient is prohibited from discriminating on the basis of race, color, national origin, gender, age or handicap. [No. 40] In addition, the recipient must comply with the Due Process requirements of notice and a hearing before the governmental unit can terminate the benefits once they are established.

Federal grants are an attractive form of federal funding primarily based on political reasons. Four political factors contributing to the value of grants have been identified: (1) the continued preference for local or state control over federal intervention; (2) the noncentralized character of the United States political system; (3) the fact that presidents see grants as important instruments in achieving policy and political aims; and (4) the politically potent "triple alliance" of interest group, congressional subcommittee, and administrative agency. [No. 41]

2. Cooperative Agreements

As cooperative agreements are simply another form of assistance relationships, all the same rationales and uses of grants discussed previously are equally applicable to cooperative agreements.

3. Contrasting Grants with Cooperative Agreements

The main distinction between grants and cooperative agreements is the level of federal involvement. The FGCAA provides for the use of a grant when "substantial involvement is not expected" [No. 42] while a cooperative agreement is appropriate when "substantial involvement is expected between the executive agency and the State, local government, or other recipient . . . ." [No. 43]

The factors not signaling "substantiality", thus favoring the use of grant, include:

(1) a right to suspend payments for noncompliance;

(2) agency approval of recipient plans prior to award;

(3) normal report requirements, site visits and audits;

(4) unanticipated agency involvement to correct deficiencies which violate the agreement;

(5) standard federal mandates incorporated in the agreement at the time of award;

(6) technical assistance requested by the recipient;

(7) unrequested technical assistance which the recipient may ignore; and

(8) mandatory technical assistance incorporated into the agreement at the time of the award.

This list has been described as "federal involvement in a typical, nonconstruction grant-aided program or project." [No. 44]

By contrast, the factors which indicate federal involvement and signal "substantiality" favoring the use of cooperative agreements include:

(1) provisions allowing the federal agency to stop work which fails to meet detailed performance specifications, this is typical in federally-aided construction agreements;

(2) agency power to approve the project's development in stages during its course, also common in federal construction planning;

(3) federal power to disapprove subcontracts and subgrants beyond normal federal supervision of subcontracting activity;

(4) involvement in the selection of recipient personnel;

(5) agency and recipient collaboration or joint participation;

(6) monitoring, beyond the normal review of reports and standard site visits, in order to permit redirection of the work because of its relationship with other projects;

(7) substantial, direct agency involvement anticipated prior to award, in order to assure compliance with one or more federal mandates; and

(8) highly prospective terms in the agreement coupled with abnormal agency monitoring or involvement during performance.

These lists of factors are instructive, but the Office of Management and Budget (OMB) has not specified the required combination of factors necessary to find that a cooperative agreement is appropriate. Rather, the OMB states that the standard of substantial anticipated involvement as the terms used in the FGCAA are not absolute concepts, but are relative to each program.

The policy behind the OMB's flexible approach is that each agency can best use these guidelines in the context of its particular mission and projects. For example, if an agency decides that it wants a cooperative agreement, the agency need only add more controls to indicate to the recipient that there is a cooperative effort in implementing the program. As a result of this flexibility in structuring a relationship through a grant or cooperative agreement, the primary means of distinguishing between the two is by reference to the statute authorizing the particular program and evaluating the degree of federal participation.

D. CONTRASTING CONTRACTS AND ASSISTANCE RELATIONSHIPS

As between the contract and the cooperative agreement, the distinctions described in the FGCAA are not always clear. [No. 45] In fact, the legislative history surrounding the 1982 amendment to the original 1977 Act stated that the OMB as the reviewing body of such arrangements, needed to "clarify its guidelines, step up implementation efforts and take steps to assure that meaningful differences between contracts, grants and cooperative agreements are established." [No. 46] Likewise, the Comptroller General has struggled with the question of which was the appropriate legal instrument under various circumstances.

In analyzing the distinctions between assistance relationships and contracts, it is important to note that the Comptroller General will only hear two kinds of disputes relating to the appropriateness of contracts or assistance relationships. The GAO declines to hear complaints protesting the award of an assistance relationship (grant or cooperative agreement) instead of a contract unless the complaint alleges: (1) that an agency awarded grants instead of contracts to circumvent requirements of procurement statutes and regulations; or (2) that serious conflict of interest was involved. [No. 47] The general appropriateness and fairness of an award of a grant or cooperative agreement will not be heard. Consequently, most of the Comptroller General's decisions stem from complaints of circumventing contract regulations and do not address the overall use of assistance relationships.

1. Potential Limitations on Assistance Relationships: Principal Purpose Test

With the above background, several guidelines have been established in analyzing the propriety of relationships pursuant to the FGCAA, as contrasted with contracts. In analyzing the criteria established in the FGCAA, the inquiry turns on whether "the principal purpose is to serve the immediate needs of the federal government, or . . . to provide assistance to a non-federal interest in serving a public purpose." [No. 48] The purpose of the agreement will be evaluated "on the basis of all the surrounding circumstances." [No. 49] Additionally, the legislative history surrounding the 1982 amendment states that the degree of anticipated involvement by the federal government is of no consequence. [No. 50] Only after the principal purpose of the federal government in entering the relationship is determined is an inquiry into the degree of federal involvement relevant. [No. 51]

Consequently, the Comptroller General has interpreted the principal purpose test to require that any functions which the federal government has a pre-existing duty to undertake are deemed to be of primary benefit to the federal government. Under existing law, if a non-federal entity enters a relationship with the federal government to perform tasks which the federal government was already obligated to perform, a contract is required.

Although the principal purpose test is phrased so as to imply a weighing and balancing of purposes--benefit to the government against benefit to the recipient or others-- this is not the way the test has been applied by the Comptroller General. Under current law, the Comptroller General will not uphold an assistance relationship even though the benefit to the community outweighs the benefit to the government if the function is one which the federal government was under an obligation to perform.

For example, a HUD official's determination that benefit to the community outweighed benefit to the federal government when HUD was under a duty to evaluate a federal research program was not a proper application of the principal purpose test. [No. 52] The Comptroller General rejected HUD's balancing approach because it added an additional criterion (benefit to the recipient or others) to those established by Congress. Congress limited the inquiry to focus solely on the federal government and stated that an assessment of relative benefit to the parties affected by a transaction needlessly complicated the task of determining whether a contract or some other instrument should be used. [No. 53]

Additionally, the most recent Comptroller General opinion applying the principal purpose test of the FGCAA concluded that the use of a cooperative agreement in support of an agency's statutory obligations was inappropriate. [No. 54] This opinion stemmed from a question over the propriety of a Memorandum of Understanding (MOU) between the Office of Personnel Management (OPM) and the Center for Study of Services (CSS). The MOU called for CSS to conduct a customer satisfaction survey and study of the Federal Employee Health Benefit Plan. This study assisted the OPM in fulfilling its statutory obligations to make continuing evaluations of the Benefit Plan. Although the MOU did not obligate the CSS, nor was any payment made from the OPM to CSS, the Comptroller General focused on the role of the OPM in influencing CSS' survey agreements and the fact that OPM would later make extensive use of CSS' information to conclude that a contract would have been more appropriate. In rejecting the argument that the federal government received only "incidental" benefits, the Comptroller General concluded that the agency exercised significant influence over the recipient's arrangements in order to aid the statutory obligations of the agency, and thus, a contract was the appropriate instrument.

This 1994 decision relied on a 1989 Comptroller General decision which found that the GSA's grant of licenses for public phones in GSA-controlled buildings was an acquisition for GSA's specific needs and should have been structured under a contract. [No. 55] This decision was based on the finding that GSA had the responsibility arranging for telephone services, and thus the arrangement was a procurement for services on GSA-controlled property. The Comptroller General also relied on an earlier decision that a bankruptcy court's arrangement with a firm to provide services for the court constituted a contract despite the fact that the actual "buyers" of the services were individuals and entities other than the court. [No. 56]

In sum, functions which the federal government has an obligation to perform are deemed to benefit the federal government and must be acquired by contract. Under current law, when the LRA takes on functions that the federal government is obligated to perform, e.g. clean-up in compliance with CERCLA, the principal purpose will be deemed to be to the benefit of the DoD and a contract is required. Consequently, exceptions would need to be written into the enabling legislation or contracts would have to be used as the tool for structuring the LRA partnership.

III. CONCLUSION

Although no simple solution exists in determining the most appropriate mechanisms for structuring the DoD-LRA relationship, several considerations must be made. Initially it is important to note that the instruments described in the FGCAA are not mutually exclusive. Accordingly, it is completely consistent with the FGCAA to structure some programs under a contract and others under a grant or cooperative agreement. An overly simplified example would be to structure the clean-up under a contract and planning and economic development through cooperative agreements or grants.

If a contract were chosen as the appropriate mechanism for structuring the DoD-LRA relationship, an obvious advantage is that the LRA could subcontract and use set-asides to local minority and disadvantaged businesses. Also, there are well-established precedents and government contract lawyers who can draft the necessary arrangements.

The primary drawback of using a contract, however, is their rigidity. Each base closure has specific concerns which would have to be addressed by each LRA on an individual basis. Moreover, competitive acquisitions are the preferred method of contracting and this requirement may harm the ability of LRAs to implement the partnership goals. Special legislation favoring LRAs or in the alternative allowing for noncompetitive acquisitions pursuant to the provision allowing for specific statutory authorization could eliminate this potential drawback.

The potential legal hurdle to using a contract is the ADA. The ADA thwarts the goal of long-term economic stability necessary to make the property marketable. Nonetheless, the ADA can be waived statutorily or multi-year funding pools of a guaranteed amounts, such as allocated for the CLEAN contract [No. 57], could be used.

On the other hand, if an assistance relationship were chosen as the mechanism for structuring the DoD-LRA relationship, the obvious salient advantage would be flexibility. While retaining a partnership between federal and state governments, the LRA could speed up the reuse process, consistent with the policies behind assistance relationships, with the primary benefit going to the local community. Indeed, the LRA partnership coincides with the basic theory of promoting the national welfare through federal spending. The base property must be taken off the DoD budgets and since the federal government is obligated to spend some of this money anyway as part of the BRAC Acts, the LRA partnerships can facilitate these goals. Another advantage to the use of assistance relationships is their individualized nature, each LRA could address its specific concerns within the guidelines of federal relationships. Finally, the LRA as one part of the partnership package, could coordinate the clean-up process and avoid parallel institutions at the federal and local level.

The drawback to using an assistance relationship is the lack of suitable analogies to military base closures on a nationwide scale. Yet the framework for assistance relationships is established and could provide the broad guidelines for the necessary arrangements.

The potential legal impediment to using an assistance relationship is the principal purpose test which precludes the use of an assistance relationship if the LRA takes on the DoD's CERCLA or other statutory obligations.

Despite these advantages and disadvantages, it is important to note again that the mechanisms described in the FGCAA: contracts, grants and cooperative agreements are not mutually exclusive. Indeed, the unprecedented nature of the nationwide military base closures will require innovative extensions and adaptations to all the existing mechanisms. Thus, the enabling statute for the LRA-DoD partnership could specifically authorize the DoD to enter cooperative agreements or grants with LRAs in order to obviate challenges that a contract is more appropriate. Alternatively, the enabling statute could waive several of the government contracting limitations, such as the ADA requirement, to make the contracts better suited to the task at hand.

Notes

[No. 1] "Anchor tenants" is a term borrowed from commercial real estate -- "anchors" are large tenants that draw customers for smaller stores or otherwise improve the economic viability of a development.

[No. 2] "Cleanup Plan for Sacramento Army Depot Agreed to by State and Federal Agencies", Federal Contracts Daily, Feb. 13, 1995.

[No. 3] Federal Acquisitions Regulations, 48 CFR Ch. 1. The FAR serves to provide "uniform policies and procedures for acquisition by all executive agencies." FAR 1.101. A significant limitation on the FAR in relation to multi-year funding is the Anti-Deficiency Act which restricts expenditures to one year appropriations. Exceptions exist, however, for such programs as long-term weapons procurement programs. The ADA is discussed further in the section pertaining to funding for multiyear contracting.

[No. 4] Anti-deficiency Act, 31 U.S.C. 1341. The ADA basically forbids agents of the government from obligating the Federal government beyond the extent for which appropriations then exist. This is discussed in more detail below.

[No. 5] Federal Grant and Cooperative Agreement Act, 31 U.S.C. 6301-08.

[No. 6] Federal Grant and Cooperative Agreement Act, 31 U.S.C. 6301-08.

[No. 7] Federal Grant and Cooperative Agreement Act: Using procurement contracts, 31 U.S.C. 6303.

[No. 8] Federal Grant and Cooperative Agreement Act: Using grant agreements, 31 U.S.C. 6304.

[No. 9] Federal Grant and Cooperative Agreement Act: Using cooperative agreements, 31 U.S.C. 6305.

[No. 10] FAR 16.103.

[No. 11] FAR 16.203-1.

[No. 12] FAR 16.301-2.

[No. 13] FAR 16.301-3.

[No. 14] FAR 16.301-3.

[No. 15] See Contracts: competition requirements, 10 U.S.C. 2304.

[No. 16] FAR 6.003.

[No. 17] FAR 6.401.

[No. 18] Contracts: planning, solicitation, evaluation and award procedures, 10 U.S.C. 2305(b)(4)(B).

[No. 19] Contracts: planning, solicitation, evaluation and award procedures, 10 U.S.C. 2305(b)(4)(A).

[No. 20] Contracts: planning, solicitation, evaluation and award procedures, 10 U.S.C. 2305(b)(4)(A).

[No. 21] Kinds of contracts, 10 U.S.C. 2306(a).

[No. 22] See FAR 6.302 et seq.

[No. 23] Contracts: planning, solicitation, evaluation and award procedures, 10 U.S.C. 2304(c)(5).

[No. 24] Contracts: planning, solicitation, evaluation and award procedures, 10 U.S.C. 2304(c).

[No. 25] FAR 6.302.

[No. 26] FAR 44.101.

[No. 27] FAR 44.102.

[No. 28] A set-aside is a portion of the contract work that is to be given to certain kinds of designated subcontractors, such as Disadvantaged Business Enterprises (DBEs) and Minority-owned Business Enterprises (MBEs).

[No. 29] FAR 44.202-2.

[No. 30] FARs 15.903(d) and 44.203.

[No. 31] Anti-deficiency Act, 31 U.S.C. 1341.

[No. 32] See 21 Op.Atty.Gen. 244, 248 (1895).

[No. 33] Sutton v. United States, 256 U.S. 575, 580 (1921).

[No. 34] Federal Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947).

[No. 35] DFAR 217.103-1(a) allows four year contracts under 10 U.S.C. 2829 (enacted in 1968 and relating to multiyear service contracts) and 10 U.S.C. 2306(h) (enacted in 1981 and relating to multiyear contracts for certain supplies and services).

[No. 36] Cappalli, Federal Grants and Cooperative Agreements, 1:05, 9.

[No. 37] Id.

[No. 38] Id. at 8.

[No. 39] D. Wright, Understanding Intergovernmental Relation 10 (1982).

[No. 40] See generally 42 U.S.C. 200d.

[No. 41] D. Wright, Understanding Intergovernmental Relation 10, 102-06 (1982)

[No. 42] Federal Grant and Cooperative Agreement Act: Using grant agreements, 31 U.S.C. 6304.

[No. 43] Federal Grant and Cooperative Agreement Act: Using cooperative agreements, 31 U.S.C. 6305.

[No. 44] Cappalli, Federal Grants and Cooperative Agreements, 1:31.

[No. 45] 1994 Comp. Gen. 887 (1994).

[No. 46] S. Rep. 97-180 (Sen. Roth).

[No. 47] Matter of: Johnson Products, Inc., 1981 Comp. Gen. 208

[No. 48] 67 Comp. Gen. __ (1988); 1988 WL 228372.

[No. 49] Id.

[No. 50] This clarification was in response to agency determination which considered anticipated involvement of the federal government in the program or activities in determining whether to use a contract or cooperative agreement.

[No. 51] S. Rep. 97-180 (Sen. Roth).

[No. 52] This decision is described in S. Rep 97-180. (Sen. Roth).

[No. 53] S. Rep. 97-180 (Sen. Roth).

[No. 54] 1994 Comp. Gen. 887

[No. 55] Matter of: New York Telephone Co, 69 Comp. Gen 61 (1989).

[No. 56] Matter of: West Coast Copy, Inc.; Pacific Photocopy and Research, 1993 Comp. Gen. 1031.