Don Mansfield

Kickstarter and the GCPC

40 posts in this topic

Do you think using the Governmentwide Commercial Purchase Card to fund a project on Kickstarter is prohibited by law (statute or case law), Executive order or regulation? If yes, please specify what you think would prohibit it.

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What goods or services are being purchased for the Government?  Kickstarter is apparently a fundraising mechanism. 

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Assume that the Government is funding the development of a widget. However, there's a possibility that development will fail and the Government won't receive anything. 

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So the government is using Kickstarter to fund the development of something for itself?

How much money are we talking about?

Have you read Kickstarter's charter? https://www.kickstarter.com/charter?ref=about_subnav

Does the money go to Kickstarter or directly to the developer?

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Quote

Does the money go to Kickstarter or directly to the developer?

According to WIKIPEDIA article (emphasis added): 

Quote

 

Kickstarter applies a 5% fee on the total amount of the funds raised.[29] Their payments processor applies an additional 3–5% fee.[30] Unlike many forums for fundraising or investment, Kickstarter claims no ownership over the projects and the work they produce. The web pages of projects launched on the site are permanently archived and accessible to the public. After funding is completed, projects and uploaded media cannot be edited or removed from the site.[31]

There is no guarantee that people who post projects on Kickstarter will deliver on their projects, use the money to implement their projects, or that the completed projects will meet backers' expectations. Kickstarter advises backers to use their own judgment on supporting a project. They also warn project leaders that they could be liable for legal damages from backers for failure to deliver on promises.[32] Projects might also fail even after a successful fundraising campaign when creators underestimate the total costs required or technical difficulties to be overcome.[33][34]

 

 

My assumptions:  The government is funding the development of a product with appropriated funds, with no contract and with supplemental funding by other donors. It is effectively a voluntary donation that is being or may be supplemented by other funding sources.  Kickstarter is effectively charging the government twice - taking a 5% portion of the donation and charging a 3-5% fee on the Purchase Card.  There are no supplies or services being purchased. 

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2 hours ago, Vern Edwards said:

So the government is using Kickstarter to fund the development of something for itself?

No. Someone is using Kickstarter to obtain funding for the development of a widget. The Government sees the project on Kickstarter and wants to acquire the widget, so it provides funds. If development is successful, the Government gets the widget. If it's not, they don't.

 

2 hours ago, Vern Edwards said:

How much money are we talking about?

Everything is below the micro-purchase threshold.

 

2 hours ago, Vern Edwards said:

Have you read Kickstarter's charter? https://www.kickstarter.com/charter?ref=about_subnav

Now I have.

 

2 hours ago, Vern Edwards said:

Does the money go to Kickstarter or directly to the developer?

See joel's post.

 

2 hours ago, joel hoffman said:

My assumptions:  The government is funding the development of a product with appropriated funds, with no contract and with supplemental funding by other donors. It is effectively a voluntary donation that is being or may be supplemented by other funding sources.  Kickstarter is effectively charging the government twice - taking a 5% portion of the donation and charging a 3-5% fee on the Purchase Card.  There are no supplies or services being purchased. 

Why assume that there's no contract? The Government gets the product if development is successful, doesn't get it if it's not.

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Crowdfunding isn’t all that new, but it didn’t really get big until recently. I’d bet there isn’t anything specific that addresses the use of government credit cards for Crowdfunding projects.

The way crowdfunding normally works is when the project meets the funding goal, all the backers will have their credit cards charged, and then the project starts. So in your scenario, the project is funded, the GCPC is charged and then work begins. Would you consider that an authorized advanced payment? 

 

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It looks like Kickstarters does follow the reach funding goal then get paid model. Below is from there website. 

 

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Funding on Kickstarter is all-or-nothing. No one will be charged for a pledge towards a project unless it reaches its funding goal. This way, creators always have the budget they scoped out before moving forward.

 

 

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 What happens if I get funded?

First, your backers' cards are charged and then after about two weeks funds will be sent to your bank account from our payments processor, Stripe. The rest is up to you.

 

 

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7 hours ago, joel hoffman said:

My assumptions:  The government is funding the development of a product with appropriated funds, with no contract and with supplemental funding by other donors. It is effectively a voluntary donation that is being or may be supplemented by other funding sources.  Kickstarter is effectively charging the government twice - taking a 5% portion of the donation and charging a 3-5% fee on the Purchase Card.  There are no supplies or services being purchased. 

joel,

Regarding the existence of a contract, here's what the site says:

 

Quote

 

Kickstarter provides a funding platform for creative projects. When a creator posts a project on Kickstarter, they’re inviting other people to form a contract with them. Anyone who backs a project is accepting the creator’s offer, and forming that contract.

Kickstarter is not a part of this contract — the contract is a direct legal agreement between creators and their backers. Here are the terms that govern that agreement:

When a project is successfully funded, the creator must complete the project and fulfill each reward. Once a creator has done so, they’ve satisfied their obligation to their backers.

Throughout the process, creators owe their backers a high standard of effort, honest communication, and a dedication to bringing the project to life. At the same time, backers must understand that when they back a project, they’re helping to create something new — not ordering something that already exists. There may be changes or delays, and there’s a chance something could happen that prevents the creator from being able to finish the project as promised.

If a creator is unable to complete their project and fulfill rewards, they’ve failed to live up to the basic obligations of this agreement. To right this, they must make every reasonable effort to find another way of bringing the project to the best possible conclusion for backers. A creator in this position has only remedied the situation and met their obligations to backers if:

  • they post an update that explains what work has been done, how funds were used, and what prevents them from finishing the project as planned;
  • they work diligently and in good faith to bring the project to the best possible conclusion in a timeframe that’s communicated to backers;
  • they’re able to demonstrate that they’ve used funds appropriately and made every reasonable effort to complete the project as promised;
  • they’ve been honest, and have made no material misrepresentations in their communication to backers; and
  • they offer to return any remaining funds to backers who have not received their reward (in proportion to the amounts pledged), or else explain how those funds will be used to complete the project in some alternate form.

The creator is solely responsible for fulfilling the promises made in their project. If they’re unable to satisfy the terms of this agreement, they may be subject to legal action by backers.

 

 

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I could see this being a very good thing.... I cant find anything that forbids it so in my mind the FAR is silent so it gives the ability to fund the project....

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I think whether it is prohibited or not is based on the purpose.  I would apply the definitions of a procurement contract versus a grant or cooperative agreement which are at 31 U.S.C. 6301 et. al.  I would also apply the appropriate GAO decisions and court opinions if it became necessary.  The GAO provided an interpretation of the Federal Grants and Cooperative Agreements Act in B-196872. 

While it may not be applicable here, the GAO has also rendered decisions regarding the use of contracts versus agreements with "intermediaries" and when each is appropriate which are available here on Wifcon under the protest section at FAR 35.003 (e.g., B-406738.8).

Also, some agencies also have an "other transaction authority" instrument type available to them based on statute that are neither procurement contracts subject to the FAR or agreements within the definition at 31 U.S.C. 6301 et. al.  One example of such an authority is 7 U.S.C. 6962a.   Also see GAO decision B-412711 related to the use of other transaction authority.

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Todd,

According to the terms and conditions (see my post above), the creator must complete the project and fulfill each reward. Assume that the Government would fund a project where the reward was the item being developed. The item would be for the direct benefit of the Government.

Wouldn't this be a procurement contract?

Note that at the time of the "pledge", there's no obligation by either party. The obligation is contingent on a future event (i.e., the creator receiving sufficient pledged funding). If this event occurs, the creator is required to perform in accordance with the terms and conditions and the GCPC is charged for the amount of the pledge.

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On 6/21/2017 at 9:06 AM, Don Mansfield said:

Why assume that there's no contract?

Okay, so I assume nothing. Where's the contract? What does it say about delivery and rights?

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19 minutes ago, Vern Edwards said:

Okay, so I assume nothing. Where's the contract? What does it say about delivery and rights?

From the Web site:

22 hours ago, Don Mansfield said:

Kickstarter provides a funding platform for creative projects. When a creator posts a project on Kickstarter, they’re inviting other people to form a contract with them. Anyone who backs a project is accepting the creator’s offer, and forming that contract.

Kickstarter is not a part of this contract — the contract is a direct legal agreement between creators and their backers. Here are the terms that govern that agreement:

When a project is successfully funded, the creator must complete the project and fulfill each reward. Once a creator has done so, they’ve satisfied their obligation to their backers.

Throughout the process, creators owe their backers a high standard of effort, honest communication, and a dedication to bringing the project to life. At the same time, backers must understand that when they back a project, they’re helping to create something new — not ordering something that already exists. There may be changes or delays, and there’s a chance something could happen that prevents the creator from being able to finish the project as promised.

If a creator is unable to complete their project and fulfill rewards, they’ve failed to live up to the basic obligations of this agreement. To right this, they must make every reasonable effort to find another way of bringing the project to the best possible conclusion for backers. A creator in this position has only remedied the situation and met their obligations to backers if:

  • they post an update that explains what work has been done, how funds were used, and what prevents them from finishing the project as planned;
  • they work diligently and in good faith to bring the project to the best possible conclusion in a timeframe that’s communicated to backers;
  • they’re able to demonstrate that they’ve used funds appropriately and made every reasonable effort to complete the project as promised;
  • they’ve been honest, and have made no material misrepresentations in their communication to backers; and
  • they offer to return any remaining funds to backers who have not received their reward (in proportion to the amounts pledged), or else explain how those funds will be used to complete the project in some alternate form.

The creator is solely responsible for fulfilling the promises made in their project. If they’re unable to satisfy the terms of this agreement, they may be subject to legal action by backers.

 

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That's not a contract. That's a description of a supposed contract. According to the site: "the contract is a direct legal agreement between creators and their backers." Then we get a third party's statement of the terms of the "direct" contract.

What law governs in the event of default? State? Whose state? Does the Disputes Act apply? If not, why not?

Come on! You're a contracts guy. Anticipate questions and challenges.

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I'm not advocating for it. I just don't see what prohibits it.

The reason I posted this in the Section 809 forum is because I was a fly on the wall at the Panel's meeting on Tuesday and this issue was discussed. The speaker, a CCO from a Federal research lab, related a story about how one of the scientists at the lab had asked if they could use the GCPC to purchase items (i.e., the creator's rewards) on Kickstarter. She assumed that this was improper use of the GCPC. When one of the panelists asked why she thought it was improper, she deferred to another panelist (who happened to be the senior procurement executive of the speaker's agency). That panelist explained that it would violate the Anti-Deficiency Act, because the Government would not be guaranteed a deliverable. Everyone else on the panel seemed to buy that explanation and the discussion that followed was how appropriation laws would need to be changed to accommodate that particular use of the GCPC.

I don't see how not being guaranteed a deliverable would violate the ADA. The government awards a lot of contracts for R&D where there is no guarantee of a deliverable. The SPE believed that because R&D contracts require a final report, they meet the requirement for having a "deliverable" and thus, there would be no ADA violation. The SPE also thought that the Government could fund a Kickstarter project under grant authority.

The argument seemed half-baked. I was disappointed how the rest of the panelists accepted it with little debate. It may be prohibited to use the GCPC on Kickstarter, but it should take more convincing than it did.

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25 minutes ago, Don Mansfield said:

That panelist explained that it would violate the Anti-Deficiency Act, because the Government would not be guaranteed a deliverable.

Huh? :lol: That panel is in big trouble.

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1 hour ago, Don Mansfield said:

The reason I posted this in the Section 809 forum is because I was a fly on the wall at the Panel's meeting on Tuesday

I was there with the SMC team that morning, we must have just missed each other.

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28 minutes ago, Matthew Fleharty said:

I was there with the SMC team that morning, we must have just missed each other.

Well, now you know where I work. Let me know the next time you come down.

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I want to know who it was who gave that Anti-deficiency Act answer.

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Don - Prohibited by regulation.  It is a form of contract financing.   Reference FAR 32.003 but as stated unless agency regulation otherwise permits.

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C Culham has made a good point. Kickstarter is expressly a financing platform. Its use would be an advance payment.

If the item being purchased is a commercial item, see FAR 32.202-2, "commercial advance payment." But I don't think that will do the trick.

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2 hours ago, C Culham said:

Don - Prohibited by regulation.  It is a form of contract financing.   Reference FAR 32.003 but as stated unless agency regulation otherwise permits.

That's a good reason.

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Hmm...maybe there's still a way...

In DoD depending on department or agency notable exceptions to the advance payment using GPC are training and subscriptions. Those don't seem to get the job done.  Chapel GPC programs fall entirely outside of the FAR...could Kickstarter be compatible with it? Could it fit their mission? I doubt it, but I don't know. I don't like to give up on an opportunity to do the government's business; So on to appropriated fund GPC...

I say, why fret about ADA before we have thiroughly considered what we are buying? What is our requirement? And what authority exists that allows advance payment? The DoD FMR is okay with advance payment on Copyrights and Patents (DoD FMR Vol 10, Ch. 4 , paragraph 040305). Isn't that what this is? We get lifetime rights to use? Is it an ADA violation if we buy a patent and it does not work as hoped? Or is it an ADA violation if we buy a patent that we never use?  How is this different? At a fundamental level is not our requirement the permanent right to an opportunity, whatever that opportunity affords us? I think commercial transactions in the government's interest should be viewed with a strong bias toward commerciality, whatever that might mean.  Sometimes we just don't know how not to act like a monopsony. 

Now about using the card, the Air Force GPC, for example; some of the advance payment exceptions at DoD FMR Ch 4 are already permitted in the Air Force appropriated fund GPC guide (AFI 64-117).  Their general prohibition on GPC advance payments is at paragraph 4.5.1.15.  So, I say Ask. There is a waiver process near the beginning of the guide,; use it. The authority to make advance payments for copyrights and patents is already stated in FMR, so if I wanted to do it, I'd send a request above my operational unit through my MAJCOM Contracting Division to SAF/AQC for approval. I'd cite the FMR authority and describe the requirement and include any required functional area approvals required (I can't think of any for this one).  If approved, I would also expect to have to elevate a request via eMail to adjust the merchant category code on the card account to allow the transaction to go through at the bank; my MAJCOM GPC Level 3 should be able to do that.  From cardholder to SAF/AQC, the GPC waiver request could have eyes on by as few as 4 and as many as 7 or 8 levels of government, when a final decision is made...which kind of validates the original questioner's concern....

Or if GPC is not accepted by the vendor, which is a real possibility, a micro-purchase can be done via contract, which in DoD, unless in exceptional circumstances, requires a written determination by a general or flag officer or member of the SES IAW DFARS 213.370 (b) (1).  Also, kind of validates the original questioner's concern, doesn't it? 

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On 6/21/2017 at 6:21 AM, Don Mansfield said:

Assume that the Government is funding the development of a widget.

Then why not just fund the widget through normal Part 13 procedures? What's up with going through Kickstarter? How does that make anything better?

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