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Construction funding. (Special Topics).

DOD O&M Construction Ceiling Raised to $750,000 or $1.5 Million

In the fiscal year (FY) 2002 Department of Defense (DOD) Authorization Act, Congress raised the statutory thresholds for construction projects funded with Operations and Maintenance (O&M) funds from $500,000 to $75,000, and from $1 million to $1.5 million under the expanded life, health, and safety authority. (1) With the change, the secretary of a military department may use O&M funds to finance unspecified minor military construction projects costing less than $1.5 million if the project is intended solely to correct a deficiency that threatens life, health, or safety; (2) if the project has any other purpose, the limit is $750,000. The statutory change became effective on 28 December 2001. Projects approved before that date continue to carry the $500,000 or $1 million limitation. The services will need to revise their regulations to reflect this statutory change. (3)

You Want It, You Pay For It

On 4 October 2002, the Army Deputy General Counsel (Ethics & Fiscal), Mr. Matt Reres, issued an opinion stating that the Army Corps of Engineers may not provide oversight on a State Department construction project in Afghanistan without being compensated for the service. (4) Mr. Reres cited a 1984 Comptroller General opinion stating that the "DoD's use of O&M funds to finance civic/humanitarian activities during combined exercises in Honduras, in the absence of an interagency order or agreement under the Economy Act, was an improper use of funds, in violation of 31 U.S.C. [section] 1301(a)." (5)

On 22 February 2000, Mr. Reres issued an opinion stating that O&M funds were the proper funding source for construction "clearly intended to meet a temporary operational requirement to facilitate combat or contingency operations." (6) Within the Army, this memorandum has been interpreted as permitting the Army to use O&M funds to construct structures intended to meet a "temporary" need during combat or contingency operations, even where the costs exceed the statutory thresholds codified at 10 U.S.C. [section] 2805(c)(1). (7) In his 4 October 2002 memo, Mr. Reres cites to his 22 February 2000 opinion and notes that the construction envisioned by the State Department is neither "temporary" nor intended to "facilitate combat or contingency operations." (8)

You Built It, You Fix It

In addition to the new statutory ceilings for O&M construction projects, the Defense Authorization Act for FY 2002 allows the Army to experiment with the idea of making builders responsible for the upkeep of facilities they construct. This pilot program authorizes the Army to enter into three construction contracts per year for the next four years that require contractors to maintain the facilities during the first five years of operation. (9)

Given the amount of time it takes to plan and initiate government construction contracting, it will be several years before the Army will be able to determine whether the program is a success. It is also uncertain how much of the anticipated expense for maintenance and repair will be added to a contract's price. Of course, this program will not affect the huge backlog for maintenance on existing facilities. (10)

President Signs Emergency Construction Authority

On 16 November 2001, President Bush invoked his authority under the National Emergencies Act (11) to authorize the Secretary of Defense (SECDEF) to use the emergency construction authority at 10 U.S.C. [section] 2808 to carry out emergency projects that are necessary to support the American response to the 11 September terrorist attacks. (12) This is only the second time a president has invoked this authority, the first being in response to the Iraqi invasion of Kuwait. (13)

Under this authority, the SECDEF may use unobligated military construction funds to carry out construction projects necessary to support the DOD's response to the national emergency. (14) Although the SECDEF must notify the appropriate committees of Congress, (15) there is no waiting period associated with the use of this authority. (16)

Army Creating Agency to Manage Facilities

The Army is creating a new 200-person organization to better manage its aging facilities. On 30 October 2001, the Secretary of the Army approved a plan calling for the formation of the Installation Management Agency (IMA), whose task will be to ensure better management and oversight of the Army's 166,000 buildings and facilities, many of which are falling apart from lack of maintenance. The Army will house the new organization at the Pentagon. The IMA will be the single Army organization devoted to installation management. (17)

As a result of what has been termed an "only fix what's broken" (18) attitude, the Army has spent only sixty to seventy percent of the amount needed to maintain and repair its rapidly-aging inventory of buildings adequately over the last two decades, according to Major General Robert Van Antwerp, the Assistant Army Chief of Staff for Installation Management. General Antwerp noted that the Army is trying to reverse this trend, setting aside $1.8 billion in the FY 2002 budget for building maintenance and repairs. (19)

Our Barracks Are Falling Apart

A recent General Accounting Office (GAO) report confirms what many in the DOD have known for some time--many of the barracks housing basic trainees need extensive repairs. (20) Specifically, the GAO observed that DOD barracks facilities are plagued with maintenance and repair problems, such as inadequate heating and air conditioning, inadequate ventilation, and plumbing-related problems. (21) Although base officials told the GAO that they were able to accomplish their overall mission in spite of the problems, they noted that the deficiencies had an adverse impact on the quality of life for recruits and were a burden on trainers. (22)

To compile the report, the GAO visited all ten basic training installations (five Army, three Marine Corps, one Navy, and one Air Force), and after examining the condition of these facilities, concluded that most needed significant repairs in varying degrees. The GAO observed that most barracks' exteriors presented a good appearance. Most of the buildings' infrastructures, however, had repair problems that had persisted over time, primarily because of inadequate maintenance. (23)

Although inadequate spending is one obvious culprit, the GAO reserved judgment on whether Congress should allocate greater military construction for barracks repair, pending completion of its broader, ongoing examination of the physical condition and maintenance of all DOD facilities. (24)

GAO Busy on the Property Management Front

In addition to the barracks report, two other GAO reports requested by the House Subcommittee on Economic Development--Public Buildings, and Emergency Management--warrant passing mention. (25) In the first report, the Subcommittee tasked the GAO with examining whether district judges should be making greater use of shared courtroom facilities, considering the mounting cost of courthouse construction. (26) On 12 April 2002, the GAO reported that given the judiciary's belief "in the strong relationship between ensured courtroom availability and the administration of justice," significant courtroom sharing is unlikely in the foreseeable future. (27)

A few days after releasing its courtroom report, the GAO issued a second report citing serious deficiencies in the way the GSA and other government agencies manage federal property. (28) For about fifty years the GSA maintained the government's worldwide inventory of real property. This inventory covers over thirty federal agencies (including the DOD) and encompasses hundreds of thousands of real property assets worth billions of dollars. (29) In its investigation, the GAO found that the worldwide inventory for FY 2000 was not current for twelve of thirty-one real property-holding agencies, and that the data for nine agencies had not been updated since 1997. (30) The report notes that the GSA recognizes the problems and is taking action, such as developing a real-time database, to resolve these deficiencies. (31)

You Want Drachmas, I'll Give You Drachmas

The Armed Services Board of Contract Appeals (ASBCA) recently held that, absent a currency fluctuation clause, the U.S. Navy's denial of a claim resulting from currency fluctuations was not unreasonable. In Elter S.A., (32) the appellant contracted with the Navy to build a bowling alley in Greece. The government awarded Elter a firm-fixed price contract for 567,000,000 Greek drachmas, which equaled about $2,362,500 at the time of the award. (33) Approximately half the contract costs consisted of procuring bowling center equipment from American firms. The contract did not have a currency fluctuation clause. At the time of the award, the exchange rate was about 240 drachmas per dollar. (34) By the beginning of contract performance, the drachma had plummeted to 323 per dollar. This left the appellant unable to purchase the bowling equipment from the American suppliers. (35)

At the hearing, the appellant argued that the American government had reaped a windfall by paying with devalued drachmas and it was unconscionable to make Elter bear the loss resulting from the currency fluctuation. (36) The board rejected this argument. Specifically, the board noted that by signing the contract, Elter entered into a "conscious gamble with known risks." (37) Because the defense of unconscionability is not available where a loss results from an error in business judgment, the board denied Elter's appeal. (38) Major Dorn.

(1.) See National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-107, [section] 2801, 115 Stat. 1012, 1305 (2001) (codified at 10 U.S.C. [section] 2805(c)(1) (2000)).

(2.) The Authorization Act and its legislative history provide no guidance about what constitutes a "deficiency that threatens life, health, or safety." The DOD regulations and the Service regulations do not answer this question, either. At least one Army Major Command (MACOM), U.S. Army Forces Command (FORSCOM), has issued guidance that installations must document life, health, and safety deficiencies and verbally discuss proposed projects with FORSCOM prior to using this authority. See Memorandum, Deputy Chief of Staff for Personnel and Installation Management, AFEN-ENO, to Subordinate Commanders, subject: Funding and Approval Authority (6 Mar. 2000). The Air Force requires prior approval by the Deputy Assistant Secretary of the Air Force (Installations) and congressional notification for projects solely to correct a life, health, or safety deficiency that exceed $500,000. See U.S. DEP'T OF AIR FORCE, INSTR. 32-1032, PLANNING AND PROGRAMMING APPROPRIATED FUND MAINTENANCE, REPAIR, AND CONSTRUCTION PROJECTS para. (25 Sept. 2001).

(3.) At the time of publication, the Army had not updated its governing regulation to reflect the new statutory dollar limits. See U.S. DEP'T OF ARMY, REG. 420-10, MANAGEMENT OF INSTALLATION DIRECTORATES OF PUBLIC WORKS (15 Apr. 1997). Pursuant to a memorandum issued 18 January 2002 by the Army Assistant Chief of Staff for Installation Management, however, MACOM commanders may approve projects for up to the new statutory limits at their level. Memorandum, Army Assistant Chief of Staff for Installation Management, to MACOM Commanders, subject: MACOM Maintenance and Repair Project Approval Authority (18 Jan. 2002).

(4.) Memorandum, Army Deputy General Counsel (Ethics & Fiscal), to Under Secretary of the Army, subject: Availability of Defense Appropriations for Construction in Afghanistan (4 Oct. 2002) [hereinafter Reres Memo].

(5.) See generally Hon. Bill Alexander, 63 Comp. Gen. 422 (1984) (concluding that the Purpose Statute applies to OCONUS military exercises) and (discussing the DOD's failure to apply existing construction funding restrictions to construction projects undertaken during a series of joint and combined exercises in Honduras in the 1980s).

(6.) See Memorandum, Army Deputy General Counsel (Ethics & Fiscal), to Assistant Secretary of the Army (Financial Management), subject: Construction and Contingency Facility Requirements (22 Feb. 2000).

(7.) See 10 U.S.C. [section] 2805(c)(1) (2000).

(8.) See Reres Memo, supra note 4. Reading between the lines of the 4 October 2002 memo, it appears that the guidance Mr. Reres issued on 22 February 2000 is still alive and well.

(9.) See National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-107, [section] 2814, 115 Stat. 1012, 2710 (2001).

(10). See Rick Maze, Builders Responsible for Upkeep Under Army Test, FED. TIMES, Jan. 21, 2002.

(11). 50 U.S.C. [section] 1631 (2000).

(12). Exec. Order No. 13,235, 66 Fed. Reg. 58,343 (Nov. 9, 2001).

(13). See Exec. Order No. 12,734, 55 Fed. Reg. 48,099 (Nov. 14, 1990).

(14.) The Secretary of a military department must forward construction requests to the SECDEF through the Under Secretary of Defense for Acquisition, Technology, and Logistics. U.S. DEP'T OF DEFENSE, DIR. 4270.36, DOD EMERGENCY, CONTINGENCY, AND OTHER UNPROGRAMMED CONSTRUCTION para. 4.2.3 (17 May 1997).

(15.) 10 U.S.C. [section] 2808(b) (2000). Before exercising this authority, the SECDEF must notify the appropriate committees of Congress of: (1) the decision to use this authority; and (2) the estimated cost of the construction projects. Id.

(16.) Given the fact Congress gave the DOD a $4 billion supplemental emergency appropriation almost immediately after the 11 September attack, there has been little need to tap into this authority. See 2001 Emergency Supplemental Act, Pub. L. No. 107-I 17, div. B, 115 Stat. 2230 (2002); see also Major John J. Siemietkowski et al., Contract and Fiscal Law Developments of 2001--The Year in Review, ARMY LAW., Jan./Feb. 2002, at 151-53.

(17.) George Cahlink, New Army Agency to Focus on Fixing Old Buildings, GOV'T EXEC. COM., Apr. 23, 2002, at 042302g1.htm.

(18.) Id.

(19.) Id.

(20.) GEN. ACCT. OFF., REP. NO. GAO-02-782, Defense Infrastructure: Most Recruit Training Barracks Have Significant Deficiencies (June 13, 2002) [hereinafter GAO-02-782].

(21.) Id. at 1-2.

(22.) Id. at 6-7.

(23.) Id. at 9-10. In general, the GAO found the conditions of the Air Force and Marine Corps San Diego barracks to be the best, while many Army and Navy barracks, along with the Marine Corps barracks at Parris Island, South Carolina, were among the worst. Id.

(24.) Id. at 1-2.

(25.) GEN. ACCT. OFF., REP. NO. GAO-02-341, Courthouse Construction, Information on Courtroom Sharing (April 12, 2002) [hereinafter GAO-02-341]; GEN. ACCT. OFF., REP. NO. GAO-02-342, Federal Real Property, Better Government Wide Data Needed for Strategic Decision Making (Apr. 16, 2002) [hereinafter GAO-02-342].

(26.) GAO-02-341, supra note 26 at 1, 3. The judiciary's most recent five-year construction plan calls for the construction of forty-five courthouses at a cost of approximately $2.6 billion. Id.

(27). Id at 2.

(28). See GAO-02-342, supra note 26, at 2.

(29). Id. at 2-3.

(30.) Id. at 3. Besides containing obsolete data, the GAO also determined that the inventory did not contain certain key information, such as data concerning space utilization, facility condition, security, and age. In the GAO's opinion, this data would be very useful for budgeting and strategic management of these assets. Id. at 5-7. The GAO cited several factors that contributed to the problems, including poor communication between the GSA and other federal agencies, technical difficulties with agency data, resource constraints, and the GSA's lack of specific statutory authority to require agencies to submit data. Id. at 3.

(31). Id. at 31-32.

(32). ASBCA Nos. 52792, 53082, 02-1 BCA [paragraph] 31,667.

(33). Id. at 156,483.

(34). Id at 156,484.

(35.) Id. at 156,484-85. By the time of contract performance, the award price devalued to the equivalent of $1,755,400, leaving Elter about $600,000 in the hole. Id.

(36). Id at 156,485.

(37). Id. at 156,486.

(38). Id.
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Publication:Army Lawyer
Date:Jan 1, 2003
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