ladybug108 Posted December 1, 2015 Report Share Posted December 1, 2015 Good morning, Quick question - Do I need to change my foreign currency to USD in order to do a fair and reasonable determination? Vendors are only responding in the foreign currency (Yen). I am awarding in the foreign currency (Yen). I was told - There is no way someone other than a foreign national could understand from looking at the documents if the prices are fair and reasonable and comparable if they are not converted to dollars in your supporting docs. My concern with doing this is that the changes in the rate can paint the wrong picture. Ex: Contract awarded for 10,000 Yen to JB in March 2015 exchange rate 100 = $1.00 so total is $100 Contract awarded for 10,000 Yen to BC (same item as JB) in September 2015 exchange rate 118.14 = $1.00 so total is $84.65 Contract awarded for 10,000 Yen to FG (same item as JB and BC) in December 2015 exchange rate 85 = $1.00 so total is $117.65 Does the example paint a picture of why I am concerned about showing a conversion to USD for fair and reasonable determination? I don't have a problem showing it for budget purposes. Link to comment Share on other sites More sharing options...
Jamaal Valentine Posted December 1, 2015 Report Share Posted December 1, 2015 ladybug108: Did your solicitation include FAR provision 52.225-17, Evaluation of Foreign Currency Offers? Did all vendors (to use your term) respond in the same foreign currency? If so, the rationale provided above is of limited concern in my opinion. Under normal circumstances, you need not compare this seemingly competitive procurement to prior procurements. Comparison of proposed prices received in response to the solicitation should suffice for establishing price fair and reasonableness (see FAR 15.404-1(2)(i)). If you are concerned with comparing previous prices you can explain changes in currency that account for differences in your supporting evaluation/award documents. Link to comment Share on other sites More sharing options...
ji20874 Posted December 1, 2015 Report Share Posted December 1, 2015 You can do a price analysis in a foreign currency. As measured in Yen, is the price reasonable? Do you have adequate price competition? If so, see FAR 15.404-1( b )( 2 )( i ) and 15.403-1( c )( 1 )( i ) -- stop there -- you're done. No, you do not need to convert the Yen to Dollars for price analysis purposes. If you are using something other than adequate price competition to establish price reasonableness, then you might want to convert the quoted prices in Yen to Dollars just for the sake of comparison; provided, the comparison prices are already in Dollars -- or, even in this case, you could convert the Dollars to Yen for the comparison. Link to comment Share on other sites More sharing options...
Retreadfed Posted December 1, 2015 Report Share Posted December 1, 2015 Ladybug, this is off topic from your question, but based on your example, are you using a conversion factor in the contract to prevent needing more dollars than planed to pay the contractor? Link to comment Share on other sites More sharing options...
Guest Vern Edwards Posted December 1, 2015 Report Share Posted December 1, 2015 Do I need to change my foreign currency to USD in order to do a fair and reasonable determination? Vendors are only responding in the foreign currency (Yen). I am awarding in the foreign currency (Yen). The question is not clear. If the actual question is: Given the facts, does FAR require that I covert the foreign currency offers to USD in order to determine price fairness and reasonableness, then the answer to the question is no. Why is it no? Because a search of the FAR shows that it requires conversion only if offerors or quoters propose in different currencies. See FAR 25.1002 and 52.225-17. It makes no other mention of conversion for comparative evaluation or price fairness and reasonableness determination. If the actual question is: Given the facts, does rationality dictate that I convert the foreign currency offers to USD in order to determine fairness or reasonableness, then the answer is: It depends. ji20874 gave a good example of when there would be a reason to do so in his second paragraph. It's not clear to me why you were told what you were told. Link to comment Share on other sites More sharing options...
Jamaal Valentine Posted December 1, 2015 Report Share Posted December 1, 2015 Retreadfed: What do you mean by conversion factor? The DFAS has a fund that covers fluctuations in exchange rates. Once awarded and funded any subsequent fluctuations, concerning payment, are covered by DFAS. See DoD Financial Management Regulation Vol 6A Chapter 7. Link to comment Share on other sites More sharing options...
Retreadfed Posted December 1, 2015 Report Share Posted December 1, 2015 Jamaal, by conversion factor I am referring to a constant exchange rate set forth in the contract so that more dollars will not be needed to pay for the contract as the exchange rate fluctuates. If an exchange rate is relatively stable, such a factor may not be needed, but if there are substantial historical variances in the exchange rate, such a factor can be a good means of protecting the government. I think you overstate the reach of the Foreign Currency Fluctuation account. It has only limited funds and there is no guarantee that there will be funds in the account to cover losses from an unfavorable exchange rate. Further, it is only used to cover contract expenditures for construction/family housing and procurements funded with O&M appropriations. Finally, it is only available to DoD components, not contracts awarded by other agencies. Therefore, to my way of thinking, use of a conversion factor (contractually stated exchange rate) is a good internal control despite the possible availability of the FCF account. Link to comment Share on other sites More sharing options...
Jamaal Valentine Posted December 1, 2015 Report Share Posted December 1, 2015 Ah, yes, great points, which is why I asked. Not sure how a conversion factor helps achieve your stated goals if the contract is awarded in the foreign currency though. Are you saying for a simple example: A contract, with a single payment, awarded for ¥100 with a conversion factor/contractual ¥ rate of ¥1 = $1 would commit $100 at the time of award? and would make payment pay ¥1 to $1 despite any currency fluctuations? If the market ¥ rate at the time of payment was ¥.50 = $1 or ¥2 = $1, the contract would still pay ¥1 to $1? Would the payment office follow that contractual requirement? I know DFAS doesn't. FAR 25.1002 provides if a contract is priced in foreign currency, the agency must ensure that adequate funds are available to cover currency fluctuations to avoid a violation of the Anti-Deficiency Act. In the end, no matter what we say the dollar is worth, when you award in the foreign currency you still have to have enough dollars at the time of payment to pay the awarded foreign currency amount (¥100). My thinking is that $100 may have been enough at award and not enough or too much at time of payment. If the ¥ rate dipped to ¥.50 = $1 you would need $200 to pay the contracted amount of ¥100. I'm not clear on how the conversion factor helps, unless you are suggesting that at payment you disburse whatever amount of ¥ $100 will get you at that time. Link to comment Share on other sites More sharing options...
ladybug108 Posted December 1, 2015 Author Report Share Posted December 1, 2015 Jamaal, thanks. Honestly, I don't remember including that clause because we use only local sources. Ji that makes total sense and that's what I did (your second paragraph). There was no competition so I used my IGE (supplied in Yen and USD), previous purchase (Yen) and catalog searches of a random sample of the items (USD). All of that is listed in my award documentation. I'm buying a lot of items approx 150-200 in one buy. The kicker to is that this conversion is not just award document info I have to do it on all supporting docs to include but not limited to market surveys. Retread no conversion factor. Our agency uses the current rate in the LOA when we award for budgetary/information only. We really don't know actual until DFAS pays. I use a currency converter to make sure there is enough money to make the award. I haven't been asked for additional funds yet to cover any fluctuations. Vern, thanks. The only reason I'm being told to do this is so someone who doesn't operate in foreign currency can see my price is fair and reasonable in USD. Thanks everyone for their responses. Link to comment Share on other sites More sharing options...
joel hoffman Posted December 2, 2015 Report Share Posted December 2, 2015 ...I think you overstate the reach of the Foreign Currency Fluctuation account. It has only limited funds and there is no guarantee that there will be funds in the account to cover losses from an unfavorable exchange rate. Further, it is only used to cover contract expenditures for construction/family housing and procurements funded with O&M appropriations... Actually, according to the version of the DoD Finanancial Management Regulation that is found at http://comptroller.defense.gov/Portals/45/documents/fmr/archive/06aarch/06_07b.pdf , there are separate Foreign Currency Fluctuation Accounts for O&M funded activities and for those programs funded by appropriations for Military Family Housing, Military Construction and NATO Infrastructure. When I was stationed in Gernmany in the late 1980's with the Army Corps of Engineers, all of our construction contracts for NATO, MFH (Army and Air Force) and MCP (Army and Air Force) projects were awarded in the West German Deutsche Mark Currency. The contracts were funded at the official exchange rate at the time the budget requests were made for the projects. I don't know what rate was used for O&M funded minor construction projects. Payments were made in DM. The FCF Account funded any overruns due to an unfavorable change in the current exchange rate and any appropriations left over due to a favorable change in the exchange rate went into the FCF Accounts. See under CHAPTER 7 FOREIGN CURRENCY REPORTS: "070103 Foreign Currency Fluctuation,Operation and Maintenance" and "070104 Foreign Currency Fluctuation, Military Construction, Family Housing and NATO Infrastructure" From 1987-1989, there were wide discrepancies between DM currency rates at the time of budget submission and when the contracts were awarded and executed due to huge devaluations of the US Dollar vs. the DM during that period. Link to comment Share on other sites More sharing options...
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