Utility Privatization (UP) Contracts and Use of Annual Appropriations Accross Fiscal Years

[AWUSACE]

I have a question regarding utility privatization (UP) contracts meeting the conditions placed in the 10 U.S.C. § 2410a exception? 10 U.S.C. § 2410a permits the express exception only for severable service contracts with a period no longer than one year. UP contracts, at up to 50 years in length (10 U.S.C § 2688), far exceed this one year limitation.

[Navy_Contracting_4]

I have a question regarding utility privatization (UP) contracts meeting the conditions placed in the 10 U.S.C. § 2410a exception? 10 U.S.C. § 2410a permits the express exception only for severable service contracts with a period no longer than one year. UP contracts, at up to 50 years in length (10 U.S.C § 2688), far exceed this one year limitation.

Aren't 10 U.S.C. § 2410a and 10 U.S.C. § 2688 separate and unique authorities? When you award a contract pursuant to the authority of the latter, you will not be exercising the authority of the former, so are not constrained by any limitations on contracts awarded under the former's authority.

[AWUSACE]

Excellent point Navy_Contracting_4 and makes perfect sense from a legal/contractual perspective. Thank you!!!

[AWUSACE]

Navy_Contracting_4 - for the benefit of my colleagues can you please clarify further why exactly you would not need a Congressional exception added to 10 U.S.C. § 2688 to grant DOD authority to cross fiscal years for severable items with appropriated funds for UP contracts? My colleagues contend that all funding from Congress is limited to use during the period identified in the respective appropriations and the Executive branch cannot deviate from these time limits without express statutory authority from Congress. They further contend that 10 U.S.C. § 2688 does not create any exception which grants DOD the ability to ignore Congressionally-mandated appropriations limits.

[Navy_Contracting_4]

Navy_Contracting_4 - for the benefit of my colleagues can you please clarify further why exactly you would not need a Congressional exception added to 10 U.S.C. § 2688 to grant DOD authority to cross fiscal years for severable items with appropriated funds for UP contracts? My colleagues contend that all funding from Congress is limited to use during the period identified in the respective appropriations and the Executive branch cannot deviate from these time limits without express statutory authority from Congress. They further contend that 10 U.S.C. § 2688 does not create any exception which grants DOD the ability to ignore Congressionally-mandated appropriations limits.

My comment had nothing to do with appropriate use of funds; it merely pointed out that 10 U.S.C. § 2688 provides a separate authority that may be exercised independently from the authority of 10 U.S.C. § 2410a. I don't think 10 U.S.C. § 2688 grants DOD the authority to ignore Congressionally-mandated appropriations limits.

[AWUSACE]

OK. I’m back to my initial question (if you or anyone else would like to try and answer) is a Congressional exception required to be added to 10 U.S.C. § 2688 to grant DOD authority to cross fiscal years for severable items with appropriated funds for UP contracts? Several of my colleagues contend that such an exception is required even though at present we are currently handling the annual funding and crossing of fiscal years for these UP contracts in compliance with the rules under 10 U.S.C. § 2410a. Thoughts/comments?

[Larry Edwards]

Funding of utilities privatization is an interesting question. I’ve worked on utilities privatization solicitations and contracts off and on for 12 years and have heard several variations on answers to this. While there is nothing explicit on funding mentioned in 10 U.S.C. § 2688, Congress clearly intended to grant authority to DOD to do utilities privatization and that law implicitly allows those contracts to be funded. Since Congress did not specifically appropriate either multiyear or no year funds for utilities privatization, the only practical source left to pay for them is annual appropriations out of construction and/or utilities accounts. If you interpret 10 U.S.C. § 2410a to be applicable and prohibit funding, why have 10 U.S.C. § 2688 authorizing utilities privatization at all? The more pragmatic interpretation is to say 10 U.S.C. § 2410a does not apply to utilities privatization because it is not a severable service. Utilities Privatization efforts are very different from other types of contracts. There are two actions, a real estate transaction where DOD divests itself of utility ownership and an unusual 50 year contract with no option years. That 50 year, no options, period means it is not severable by fiscal year. Further, DFARS 241.103(1) establishes it as a utility service rather than a standard service contract under Part 37. Utility service contracts don’t go by the same funding rules. Utility service contracts for the commodity can go up to 10 years with no option years and still use annual appropriations. I’ve heard it argued that 50 year utilities privatization contracts should be funded upfront in their entirety if they are not severable. Even in the unlikely event that 50 years of funding was available at the contract beginning, the period of availability for those annual funds to make payments would end a few years after award. The only practical way to fund it is on an annual basis for the expenses incurred that year even if utilities privatization is a non-severable contract.