A confusing purchase policy

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.

Materials discussed in column

Federal Acquisition Regulation subpart 13.2 (governing use of governmentwide commercial purchase cards below the micropurchase threshold); FAR subpart 32.8 (assignments); FAR52.232-36 (contract clause to be used when payments can be made by governmentwidecommercial purchase card). See also 64 Federal Register 10538 (March 4,1999) (adoption of final rule on use of governmentwide commercial purchasecard); 63 Federal Register 36522 (July 6, 1998) (promulgation of proposedrule on use of governmentwide commercial purchase card).

BY Carl Peckinpaugh
October 30, 2000

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