Can agencies get credit for trade-ins?

The following topic was raised by a vendor representative: Can government agencies trade in used equipment for credit on new purchases? If so, what rules apply?

In general, federal government agencies are authorized to take advantage of the trade-in allowances that are offered by many commercial companies. However, this authority is limited by some very specific rules. Moreover, these rules will appear paradoxical to some. Agencies generally may take advantage of trade-in allowances only if the items that they are parting with are needed to accomplish their missions. However, agencies are forbidden to use as trade-ins any items they no longer need.

The statutory basis for these rules is found in the Federal Property and Administrative Services Act of 1949. As part of the FPASA, Congress stated that agencies "may exchange or sell similar items and may apply the exchange allowance or proceeds of sale in such cases in whole or in part payment for the property acquired." [40 U.S.C. & Sect; 481(c)]

At the same time, however, Congress provided that the General Services Administration shall supervise and direct the disposition of all excess or surplus property. (40 U.S.C. & Sect; 484.) The statute specifically provides that any proceeds from the disposition of excess or surplus property "shall be covered into the Treasury as miscellaneous receipts" and will not be available for use by the agency in possession of those items. (40 U.S.C. & Sect; 485.)

Pursuant to the FPASA, GSA has promulgated rules that attempt to clarify and harmonize the statutory provisions. Thus, GSA has defined "excess personal property" as all property in the possession of an agency that is not required by that agency in the discharge of its responsibilities. (41 C.F.R. & Sect; 101-43.001-6.) GSA requires agencies to report promptly all property found to be excess, with sufficient details to permit transfer or sale without further investigation. (41 C.F.R. & Sect; 101-43.304-1.)

GSA publishes this information for the use of other agencies that might have a use for the property. As directed by the FPASA, GSA encourages the transfer of property from agencies no longer requiring it to agencies that may be able to use it. (41 C.F.R. & Sect; 101-43-309-1 through -5. See also 41 C.F.R. Subpart 101-43.6.)

After 60 days, property that has been reported to GSA as excess and has not been transferred to another government agency will be declared "surplus personal property." (41 C.F.R. & Sect; 101-43.311-1.) Under certain conditions surplus property may be provided to government contractors, cooperators or grantees. (41 C.F.R. & Sect; 101-43.312 through 101-43.315.) Surplus property that is not disposed of in these ways will be sold at auction, and the receipts transferred to the miscellaneous receipts account of the general revenue fund. (See 41 C.F.R. part 101-45.)

There is a large body of case law on these issues, especially the similarity requirement, which does not mandate that the old and new items be identical, but they must be used for the same purpose. [Compare 41 Comp. Gen. 227 (1961), in which it was ruled that used ambulances may be exchanged for new station wagons that will be used as ambulances, with 27 Comp. Gen 540 (1948), in which it was ruled trucks, tractors and other machinery may not be classified together as road building equipment because they are not used in the same ways.]

In all cases, items traded in must be identified with specific replacement items. [See, for example, 27 Comp. Gen. 477 (1948).] Multiple units of equipment may be traded in toward the purchase of a single unit of new equipment, but only if the new item in fact does all of the work of the items traded in. [27 Comp. Gen. 30 (1947).] Moreover, parts of a complete item may be exchanged for other parts of the same item. However, there is no authority whereby parts may be exchanged for "any removal, modification, installation or assembly costs." [34 Comp. Gen. 452 (1955).] Recently, GSA awarded a number of Seat Management contracts under which a contractor may take over the responsibility of running an agency's computer network. The contractor would maintain the existing government-owned equipment and over time replace it with contractor-owned equipment. The contracts provide that the government, or the successor contractor, may obtain title to contractor-owned equipment at the end of the contractual period upon payment of a transfer fee, if any, reflecting the residual value of the equipment. These contracts raise interesting questions under the FPASA.

In the Seat Management contracts, GSA takes the position that agencies may exchange their present government-owned equipment for the use of contractor-owned equipment and apply the value of the exchanged equipment against the purchase of Seat Management services. According to GSA, the agencies are "acquiring" the contractor-owned equipment because they will have the exclusive right to use it even though title remains with the contractor. In all other ways, according to GSA, the agency must comply with the normal regulatory requirements governing exchanges. It will be interesting to see how this works out in practice.

--Peckinpaugh is a member of the government contracts section of the law firm Winston & Strawn, Washington, D.C. This column addresses legal topics that arise in government acquisition and management of ADP resources. Readers are encouraged to submit topics by e-mail to carl@carl.com. This column discusses legal topics of general interest only and is not intended to provide legal advice. Should you have a specific question or legal problem, consult an attorney.