A confusing purchase policy
- By Carl Peckinpaugh
- Oct 29, 2000
In 1998, the General Services Administration established a commercial purchase
card program called SmartPay to give federal employees the functional equivalent
of a credit card. SmartPay replaced earlier efforts, including the popular
International Merchant Purchase Authorization Card program. It has been
a success story.
Key obstacles, however, challenge its expansion. According to GSA, employees
use SmartPay cards for millions of transactions annually. But most of those
range below the $2,500 "micropurchase" threshold established by the Federal
Acquisition Streamlining Act of 1994. GSA recently has encouraged agencies
to use the cards for larger acquisitions. That presents serious problems.
Certain provisions of the Federal Acquisition Regulation make it difficult
for contractors to use their normal financing mechanisms when performing
contracts on which SmartPay card payments might be accepted. As a result,
many contractors borrow funds from a bank or other lending institution.
In return, the lender typically requires the contractor to assign it
the right to receive payments directly from the government. Such assignments
ordinarily are proper, provided they're done under the provisions of the
Assignment of Claims Act. But a recent amendment to the FAR forbids such
assignments when payments may be made with SmartPay.
In March 1999, the FAR Council unveiled a new clause, "Payment by Third
Party," which must be included in all new contracts if payment "will be
made by a charge to a government account with a third party such as a government-wide
commercial purchase card." The clause provides, in part, "If any payment
is to be made under this clause, then no payment under this contract shall
be assigned" under the Assignment of Claims Act.
The clause and accompanying instructions are ambiguous at best. The
clause appears to prohibit the assignment of payments and can be read as
declaring that the Assignment of Claims Act doesn't apply. If the latter
were correct, it would make it easier to assign such payments because there
would be no need to comply with procedural requirements of the act.
Here's another ambiguity. It appears as though the drafters expected
that this clause would be used only in situations where all contract payments
would be made with a commercial purchase card. But it can also be interpreted
as applicable any time an agency knows in advance that any payments may
be made that way, even though other payments may be made through ordinary
If the clause does ban assignments of payments, it could impede the
ability to finance their operations. If the clause affects all contracts
in which any part of the payment will be made by commercial purchase card,
the problem will grow exponentially.
If GSA wants to encourage the use of commercial purchase cards for trans-actions
over $2,500, it must straighten this out. n
Peckinpaugh is corporate counsel for DynCorp, Reston, Va.