TITLE: Defense Television-Audio Support Activity�Advance Payments, B-288013, December 11, 2001
BNUMBER: B-288013
DATE: December 11, 2001
**********************************************************************
Defense Television-Audio Support Activity*Advance Payments, B-288013, December
11, 2001
Decision
Matter of: Defense Television-Audio Support Activity*Advance Payments
File: B-288013
Date: December 11, 2001
Digest
Agency payment of membership fees to private fitness center at the
beginning of each option year under contract for providing fitness
facilities and services for government employees before the agency
employees use the contractor's facilities and services would violate the
advance payment provisions of 31 U.S.C. S: 3324.
DECISION
The Television-Audio Support Activity (T-ASA), Department of Defense,
requests an advance decision concerning the legality of proposed advance
payments to be made to Ballston Common Sport & Health, under contract No.
MDA112-01-D0001, for providing health and fitness facilities and related
services to employees of the American Forces Information Service
(AFIS).[1]
T-ASA awarded this commercial-item contract on March 1, 2001. As amended,
the contract provides a total of 42 full-time memberships for AFIS
employees. Under the contract, T-ASA pays the total cost of 12 full-time
memberships (i.e., memberships without co-payment) for employees who are
paid less than a specified rate of pay. T‑ASA pays only part of the
cost of the other 30 full-time memberships (i.e., memberships with
co-payment) for employees who are paid at or more than a specified rate of
pay.[2] Even though the contract uses the term *memberships,* under the
contract, T-ASA is simply paying Ballston so that AFIS employees can have
access to Ballston's fitness facilities (including equipment, lockers, and
showers) and to obtain related services (such as health assessments and
exercise prescriptions). Under the contract, AFIS officials control
(through the use of authorization forms) which employees can use the
facilities and receive the services. The primary beneficiaries of the
contract are the AFIS employees who use the facilities and receive the
services.
T-ASA asks whether it may pay the government's portion of all full-time
memberships fees at the beginning of each option year. T-ASA states that
an alternative payment method--paying in monthly increments based upon the
actual number of employees using the fitness facility in a given
month--would be *more burdensome.* We conclude that paying for full-time
memberships at the beginning of each option year, before employees have
used the fitness facilities or received related services, would violate
the advance payment provisions of 31 U.S.C. S: 3324.
Under 31 U.S.C. S: 3324, agencies may not make advance payments on
contracts unless the payments are specifically authorized by law.[3]
Under 10 U.S.C. S: 2307, agencies are authorized to make advance payments
under contracts for property or services, but they must obtain adequate
security from the contractor and the head of the agency must first
determine that the advance payments are in the public interest. 10 U.S.C.
S: 2307(d). Security may be in the form of liens in favor of the federal
government on any property being acquired, on the balance of advanced
funds held by the contractor, or on property acquired for performance of
the contract. Id. Advance payments made for commercial items may not
exceed 15 percent of the contract price in advance of any performance of
work under the contract. 10 U.S.C. S: 2307(f)(2).
Section 32.202-1 of the Federal Acquisition Regulation (FAR) sets forth
the government's financing policy and implements the advance payment
authority of 10 U.S.C. S: 2307(f)(2) for purchases of commercial items.
FAR section 32.202-1(b) provides, among other things, that advance
payments may be used as a form of contract financing for acquisitions of
commercial supplies or services where the agency determines that advance
payment financing is in the best interest of the government, adequate
security is obtained, and prior to any performance of work under the
contract the total of commercial payments shall not exceed 15 percent of
the contract price.
Our review of the record reveals that T-ASA has not satisfied the
requirements of either 10 U.S.C. S: 2307 or FAR S: 32.202-1(b). First,
there has been no determination that advance payments are in the
government's best interest. In fact, the only reason T-ASA has given for
wanting to make payment at the beginning of the option periods is that
paying for these services in monthly increments is *more burdensome.* We
fail to see how obtaining a schedule of monthly rates, or having the
contractor submit monthly invoices, and then making payment on a monthly
basis is so burdensome as to justify a determination that advance payments
are in the government's best interest. Second, there is no indication
that adequate security has been obtained from the contractor. In this
connection, T-ASA states that the advance payments would be safeguarded
because, if an employee fails to use the fitness facilities for any reason
during the membership period, the contract permits the government to
transfer the membership to another employee upon payment of a $30
administrative fee. However, such membership transfers will not protect
the government if the contractor goes out of business or otherwise fails
to provide the required services and facilities after the memberships fees
are paid by the government. In any event, the types of security
envisioned by 10 U.S.C. S: 2307(d) and the implementing regulations
include the contractor's financial condition, liens, irrevocable letters
of credit, bonds, guarantees supported by demonstrated liquid net worth,
and title to identified contractor assets, but do not include the
membership transfers set forth in the present contract. FAR
S:S: 32.202-1(b)(5), 32.202-4. Third, payment of the government's share
of the price for all full-time memberships at the beginning of the year
will result in advance payments that far exceed 15 percent of the total
contract price. For example, according to the contract's payment schedule
for the first option period, the government's share of the cost of all
full-time memberships will be $30,132, or roughly 80 percent of the total
contract price of $37,819. Accordingly, we conclude that paying the
government's portion of all full-time membership fees at the beginning of
the contract option periods, before AFIS employees have used the fitness
facilities and related services, would violate the prohibition against
advance payments. 31 U.S.C. S: 3324; Federal Aviation Admin. Negotiations
with Pacific Gas and Electric Co., to Provide Elec. Utility Serv. to a
Remote Air Route Surveillance Radar Facility, B-260063, June 30, 1995,
96-1 CPD P: 122 at 4; see also National Park Serv. Cable Television
Subscription, B-254295, Nov. 24, 1993.
Counsel for T-ASA cites a prior decision of this Office, Coast Guard
Membership Fees, B-221569, June 2, 1986, as offering support for its
paying the government's portion of all full-time membership fees at the
beginning of the contract option periods. However, the cited case is
inapposite to the present situation.
In the Coast Guard Membership Fees case, the Coast Guard had determined
that memberships in certain unspecified private organizations (not
physical fitness facilities) would benefit the agency and was purchasing
the memberships in its own name. We held that the Coast Guard could
properly use its funds to pay the membership fees at the beginning of the
membership period and that the advance payment prohibition was not
applicable because *the Government gets the benefit of what it has
purchased upon payment.* That the Coast Guard received the benefit of
membership upon enrollment established that the payment, in fact, was not
an advance payment as that term is used in the advance payment
prohibition.
We think that the facts presented by T-ASA here are readily
distinguishable from the facts that were presented by the Coast Guard.
While the T-ASA contract, like the Coast Guard arrangement, purchases
*membership* in the agency's name, that is not the determining factor for
purposes of the advance payment prohibition. The determining factor,
rather, is when the agency receives the benefit of membership. The
purpose of the advance payment prohibition is to protect the government
from the possibility of not receiving services for which it has already
paid. With some organizations, the Rotary Club or Chamber of Commerce,
for example, the benefits of membership accrue upon enrollment, and
payment upon enrollment does not constitute a prohibited advance payment.
Here, neither AFIS nor its employees receive the benefits of the contract
until the employees actually access Ballston's facilities and avail
themselves of related health fitness services. Thus, any payment to the
contractor before the employees receive the benefits of the contract
(i.e., access and services) would be an advance payment and would violate
the prohibition of 31 U.S.C. S: 3324.
Accordingly, T-ASA may not make advance payments to Ballston Common Sport
& Health Club under the contract. To the extent that any of the
contract's provisions require the agency to make unauthorized advance
payments, the contract should be modified to conform to this decision.[4]
Anthony H. Gamboa
General Counsel
------------------------
[1]Under the authority of 5 U.S.C. S: 7901 to establish health service
programs *by contract or otherwise,* an agency may properly use
appropriated funds to provide its employees access to private health and
fitness exercise facilities as part of its health service program. 70
Comp. Gen. 190 (1991).
[2]For example, during option period one, the government will pay an
annual fee of $906 for each of the 12 memberships without co-payments.
The government will pay an annual fee of just $642, while the using
employee will be required to make a $264 co-payment, for each of the 30
memberships that require co-payments.
[3] Section 3324 itself authorizes certain advance payments, but none of
those authorizations is applicable here.
[4] For example, the contract provides at paragraph 4.10.1: *Advance
payment is authorized for the annual membership portion of the contract
only.*