TITLE:  Army--Availability of Army Procurement Appropriation for Logistical Support Contractors, B-303170, April 22, 2005
BNUMBER:  B-303170
DATE:  April 22, 2005
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   Matter of: Army--Availability of Army Procurement Appropriation for
Logistical Support Contractors

   File: B-303170

   Date: April 22, 2005

   DIGEST

   The Other Procurement, Army (Procurement) appropriation is not available
to pay for logistical planning and plan implementation services related to
medical equipment items acquired using the Procurement appropriation.
    Because the activities are not procurement activities, and consistent
with its past practice and guidance, the Army should charge the Army's
Operation and Maintenance appropriation for such services.

   DECISION

   The U.S. Medical Research and Materiel Command (Command) has requested our
decision concerning the availability of the Other Procurement, Army
(Procurement) appropriation to hire contractors to provide logistical
support for medical equipment items acquired using the Procurement
appropriation.  Memorandum from Colonel Denise M. McCollum, Deputy,
Resource Management, U. S. Army Medical Research and Materiel Command, to
Anthony H. Gamboa, General Counsel, GAO, May 14, 2004.  (McCollum
Memorandum).  As explained below, the Command should use the Army
Operation and Maintenance (O&M) appropriation, and not the procurement
appropriation, to fund the logistical support of the acquisitions at issue
here.

   BACKGROUND

   The Command is responsible for, among other things, the acquisition and
logistics management of medical equipment.  A subordinate agency of the
Command, the U.S. Army Medical Materiel Agency, is responsible for
purchasing medical equipment; the agency uses the "Other Procurement,
Army" appropriation for this purpose. When Congress enacted the Army's
fiscal year 2004 Other Procurement, Army appropriation, the conference
report identified three combat medical support equipment items for
acquisition that the Army had not listed in its budget request.[1]  The
Command has acquired these three items, and has hired two contractors to
provide logistical support for the three items that it had not planned to
purchase. 

   Under the terms of their logistical support contracts, the two contractors
will develop Integrated Logistics Support Plans for this equipment,
implement these plans, and assist Command project managers in day-to-day
operation of the equipment.  Statement of Work for Integrated Logistics
Support of U.S. Army Medical Research and Materiel Command (April 28,
2004).  An Integrated Logistics Support Plan explains the proper use of
equipment, the required operating supplies, proper maintenance procedures,
and training requirements for maintenance personnel, among other things. 
McCollum Memorandum.  The two contractors also will assist the project
manager and staff in writing, developing, revising, organizing,
distributing, filing, and maintaining documentation; obtaining
manufacturer literature from various sources; and developing and
maintaining a product reference file and library.

   To cover the costs of these logistical support contracts the Command
obligated its O&M appropriation.  The Command's use of its O&M
appropriation is consistent with its use of this account to pay the
civilian government employees who provide support services for its other
medical equipment programs.    

   ANALYSIS

   The Command asks whether the procurement appropriation is available for
integrated logistics support contract services for the equipment acquired
using the procurement appropriation. [2]   The procurement appropriation
at issue, entitled "Other Procurement, Army," was enacted as part of the
Department of Defense Appropriations Act for fiscal year 2004.  The
appropriation provides $4,774,452,000 for procurement and a number of
other purposes not relevant here.  The provision reads, in part, as
follows:

   "Other Procurement, Army

   "For construction, procurement, production, and modification of vehicles,
.A .A . communications and electronic equipment; other support equipment;
. . . and other expenses necessary for the foregoing purposes,
$4,774,452,000, to remain available for obligation until September 30,
2006."  

   Department of Defense Appropriations Act, 2004, Pub. L. No. 108-87, 117
Stat. 1054, 1063 (Sept. 30, 2003).  Clearly, this appropriation, by its
own terms, is available for the costs of acquiring the three items of
medical support equipment.[3]  The question the Command raises is whether
the phrase "other expenses necessary for the foregoing purposes" includes
the costs of operating and maintaining the equipment once procured.

   The basic rule is that appropriated funds may be used only for purposes
for which they were appropriated.  31 U.S.C. S 1301(a).  As a corollary to
this basic rule, charging authorized items to the wrong appropriation is
prohibited.  An appropriation available for a particular purpose is also
available for any expenses that are reasonably necessary for the
accomplishment of that purpose.  71 Comp. Gen. 527, 528 (1992). 

   We apply three tests to determine whether an expenditure is a "necessary
expense" of a particular appropriation. First, the expenditure must be
reasonably related to the purposes that Congress intended the
appropriation to fulfill; second, the expenditure must not be prohibited
by law; and third, the expenditure must not fall within the scope of
another appropriation or funding source.  63 Comp. Gen. 422, 427-428
(1984); B-251887, July 22, 1993.

   Here, the expenditure fails the first test since the activities at issue
(operating and maintaining equipment) are not procurement activities.  We
read the appropriation's phrase "other expenses necessary for the
foregoing purposes" to cover expenses incurred in acquiring, or procuring,
equipment.  The activities at issue have nothing to do with the
acquisition of the equipment.  Rather, they are operational in
nature*activities necessary to render the equipment useful to the Army and
to maximize the usefulness of the equipment for the life of the
equipment.  The activities enumerated in the Statement of Work consist of
providing general assistance to project managers and other staff, as
necessary, for day-to-day Command operations.  Accordingly, we conclude
that the first test under the necessary expense rule is not met.

   Expenditures from the procurement appropriation to fund the activities
enumerated in the Statement of Work also fail the third test because they
fall within the scope of another appropriation, Operation and Maintenance,
Army.  For fiscal year 2005, it provides in pertinent part: "For expenses, 
not otherwise provided for, necessary for the operation and maintenance of
the Army, as authorized by law . . . $25,764,634,000."[4]

   The two contractors assist in day-to-day operations.  In the development
and implementation of Integrated Logistics Support Plans for the medical
equipment, they assist project managers in day-to-day operations for
achieving and maintaining efficient program operations.  Activities of an
operational nature, like these, should be funded from an O&M
appropriation.  See also H.R. Rep. No. 108-187, at 55, 57 (2003) (the
Report identifies "Logistical Support Activities" as an item to be covered
by the O&M appropriation).

   Many agencies do not have to make the distinction between procurement
activities and operational activities that the Army must make, because the
appropriations structure for those agencies differs from that of the
Army.  Instead of receiving separate appropriations, one for procurement
and one for operations, those agencies may receive only one appropriation
to cover all of the agency's expenses;  often, those appropriations are
entitled "salaries and expenses."  For example, the Bureau of Alcohol,
Tobacco, Firearms and Explosives receives only a "salaries and expenses"
appropriation which funds the agency's acquisitions as well as its
operations.  Departments of Commerce, Justice, and State, the Judiciary,
and Related Agencies Appropriations Act, 2005, Pub. L. No. 108-447, div.
B, title I, 118 Stat. 2809, 2853, 2859 (Dec. 8, 2004).  In that case, the
same appropriation that financed the acquisition of an item would finance
the costs of operating and maintaining that item.  The Army's
appropriations structure compels it to make distinctions between
procurement and operational activities, and the Army, as reflected in DOD
Financial Management Regulation P 010201, has developed, we think, a
rational basis for distinguishing between procurement and operational
activities.

   In its Financial Management Regulation (FMR), for purposes of allocating
costs between O&M and procurement appropriations, the Department of
Defense classifies costs as either expenses or investments.  FMR P
010201.  The Financial Management Regulation defines "expenses" as "the
costs incurred to operate and maintain the organization, such as personal
services, supplies, and utilities."  FMR PA 010201 B.1. As an example, the
Regulation provides "labor of civilian, military, or contractor
personnel."  FMR P 010201 D.1.  "Expenses" are to be charged to O&M
appropriations. FMR P 010201 C.3.  The Regulation defines "investments" as
"the costs that result in the acquisition of . . . end items.  These costs
benefit future periods and generally are of a long-term character such as
real property and personal property."  FMR PA 010201 B.2.  It provides as
an example, "all items of equipment, including . . . spares and repair
parts" and "support elements such as data, factory training, support
equipment."  FMR P 010201 D.2.  "Investments" are to be charged to
procurement appropriations.  Given the Army's appropriation structure,
this distinction, focusing on the nature and character of the costs, is a
reasonable one.

   Conclusion

   The Other Procurement, Army appropriation is not available to pay
contractors for logistical planning and plan implementation services
related to the medical equipment items acquired using that appropriation
because such services are not procurement activities.  The Army's
Operation and Maintenance appropriation is available for such services. 
Accordingly, we conclude that it is the proper appropriation to charge for
funding the contract personnel to perform the activities specified in the
Statement of Work for Integrated Logistics Support.

   /signed/

   Anthony H. Gamboa

   General Counsel

   ------------------------

   [1] H.R. Conf. Rep. No. 108-283, at 165 (2003).  See also H.R. Rep. No.
108-187, at 120, 123 (2003).  The three items were Life Support for Trauma
and Transport, portable low-power blood cooling and storage, and portable
rapid intravenous infusion pump.

   [2] The Command notes that the applicable Defense Finance and Accounting
Service (DFAS) guidance provides that activities in direct support of
procurement are payable with procurement appropriations*whether performed
by civilian government employees or by contract employees.  DFAS-IN Manual
37-100-04, Chapter A0-2035, Appendix A, paragraph 4.C.3.j.  The guidance,
the Command says, is silent as to whether procurement funds may be used to
pay for support provided by contractors for the items, once procured.  

   [3] See also H.R. Rep. No. 108-187, at 120 (2003) ("This appropriation
finances the acquisition of:  (a) tactical and commercial vehicles, . . .
to provide mobility and utility support to field forces and the worldwide
logistical systems; . . . (c) other support equipment, generators and
power units, material handling equipment, medical support equipment,
special equipment for user testing, and non-system training devices.")
(emphasis added.)

   [4] Pub. L. No. 108-287, 118 Stat. 951, 953 (Aug. 5, 2004).