Proceeds of Sale of CAP

[Acquisition Policy Analyst]

I am researching a question about the use of proceeds from the sale of Contractor Acquired Property. The offer included a requirement for the contractor to move the equipment to the buying party's truck (est $15K). The contract team asked if they can use some of the proceeds to pay the expenses of moving the equipment to the buyer and if they could put the remainder on the contract for services.

FAR45.604-3: 'Proceeds of any sale are to be credited to the Treasury of the United States as miscellaneous receipts, unless otherwise authorized by statute or the contract or any subcontract thereunder authorizes the proceeds to be credited to the price or cost of the work (40 U.S.C. 571 and 574).'

My draft answer says that Yes, they can use the proceeds to pay expenses of the sale (moving). 40 USC 571 allows expenses of sale of supplies may be paid from proceeds of sale...

As for the remainder of proceeds be used on contract for services, 40 USC 574 says if contract authorizes (i.e. FAR clause 52.245-1) the proceeds of sale of property to be credited to contract, then they may do so in this case.

My remaining question is does it matter with what FY funding the equipment was bought? If it was bought with FY12 funding, can they now put the proceeds on the contract (if 52.245-1 was incorporated) on the service CLIN to cover FY13 services?

[Retreadfed]

A couple of questions: Did the government obtain title to the CAP? Is procurement of property and services funded by different appropriations such as procurement funds for the property and O&M funds for services

[Acquisition Policy Analyst]

I should have mentioned, it is a cost reimbursable contract - the government has title to the CAP.

It was purchased by the same funds used for services.

[Guest Vern Edwards]

Do yourself a favor: ask your legal office or finance office.

[Acquisition Policy Analyst]

Finance policy and OGC referred it to this office... just wondering if any one had experience in this area. Thanks.

[Guest Vern Edwards]

Here is a thought: Reduce the sale price by $15,000 and make the sale purchase in place. Then have the buyer arrange with the contractor to put it on the truck for the $15,000.

[C Culham]

In reading through this thread I was surprised by the lack of one reference. Maybe it has been turned to already and that is why it was not mentioned but an assist to an answer to the question may well lie within the discussion of "Augmentation of Appropriations" part of the GAO "Principles of Federal Appropriation Law" also know as The Redbook. See Volume II, Chapter 6E

[Don Mansfield]

Carl,

That's where I looked, but couldn't find anything more instructive than the FAR citation initially provided. Let us know if you find something.

[Guest Vern Edwards]

They won't have to worry about it if they do as I suggested.

[C Culham]

Don - I did not find anything specific either so I reached this conclusion.

Questions - Does it matter with what FY funding the equipment was bought? If it was bought with FY12 funding, can they now put the proceeds on the contract (if 52.245-1 was incorporated) on the service CLIN to cover FY13 services?

My Conclusion - No it does not matter put the proceeds on the service CLIN to cover FY13 services. Basis for my conclusion is that there is no direction otherwise in the FAR or guidance of the Redbook. Do what makes the mose sense, sold the equipment this year, credit the proceeds to the price or cost of the work for this year. Done!

[Guest Vern Edwards]

Carl:

Why do you think they can use the proceeds from the sale to fund the contract? Consider this from the Redbook, Ch. 6:

“It is difficult to see,” said an early decision, “how a legislative prohibition could be more clearly expressed.” 10 Comp. Gen. 382, 384 (1931). Simply stated, any money an agency receives for the government from a source outside of the agency must be deposited into the Treasury. This means deposited into the general fund (“miscellaneous receipts”) of the Treasury, not into the agency's own appropriations, even though the agency's appropriations may be technically still “in the Treasury” until the agency actually spends them.

[C Culham]

Vern – Good question. In my first response I just went with the research and statements of the initial poster Acquisition Policy Analyst. Prompted by your question I have now read the USC references provided in that initial post, 40 USC 571/574, and your reference from the Red Book. I still reach the same conclusion as I posted. Here is how I get there.

40 USC 571 and 574 are both part of Subchapter VI of Title 40, Subtitle I, Chapter 5 of the USC.

40 USC 571 is “General Rules for Deposit and Use of Proceeds” and part (a) of this reference states that “Except as otherwise provided this subchapter” proceeds go to “miscellaneous receipts”. This statement seems to fit perfectly with the Red Book reference you have provided as it is stated in Subchapter 2a of Chapter 6 which is called “General Principles”.

40 USC 572 through 574 then go on to cover specific areas of proceeds and 574 is the final part of Subchapter IV.

40 USC 574 “Other rules regarding proceeds” at paragraph © states the following :

“Credit to Cost of Contractor’s Work.— If a contract made by an executive agency, or a subcontract under that contract, authorizes the proceeds of a sale of property in the custody of a contractor or subcontractor to be credited to the price or cost of work covered by the contract or subcontract, then the proceeds of the sale shall be credited in accordance with the contract or subcontract.”

Further as I noted in my previous post there is no direct discussion regarding credit to cost of contractors work in the Red Book which I interpret that GAO has never encountered any issues regarding the application of the credit back to a contract.

So it would seem clear that the proceeds, if so stated in the contract, can be credited back to the price or cost of the work.

Finally, while I cannot provide reference it would seem that the crediting the proceeds back to the fiscal year in which the property was bought does not make sense. By common sense example- If the contract did not allow the proceeds to be credited back to the price or cost of the work then the monies would be deposited in miscellaneous receipts of the current fiscal year, you would not push them back to a previous fiscal year. So same concept when using as credit to the contract they go to the current fiscal.

Overall conclusion I am still with my first response. Do you see any flaws?

[Guest Vern Edwards]

I haven't found a flaw. And I agree that the funding year does not matter.