I'd called the office of one House member involved with the legislation some days ago with a question on the subject. This morning the staff member who worked on the legislation returned the call. His view was that imposing contractor status upon someone doing business under the $2,500 rules with credit card or cash (not applicable since the card is required) would be "a stretch." That explicitly included aggregating those purchases into a higher threshold.

He said he is unaware of any court or other decision that would support such a view. He has also not heard of any business actually troubled by someone trying to impose such an interpretation. Home Depot's action was something of which he is just now becoming aware and he felt it might be precautionary. I mentioned the views here that aggregation probably applies and the possibility Home Depot has been exposed to similar views. I got a distinct impression this office at least would consider such a stretched interpretation pretty offensive and would take corrective action.

We agreed the confusion may revolve around the word "contractor." On Tuesday, June 18, 2002 - 01:54 PM Vern's first response to me was "I'm not sure what you consider to be an "ordinary commercial retail sale," but a sale to the government is always a government contract." It is possible Congress forgot this particular view when passing the legislation dealing with $2,500 and under credit card transactions. They perhaps did not make it quite clear enough that those essentially commercial transactions were not to be construed as "government contracts" for other purposes. I think now Vern is perhaps agreeing with me on the problem -- if there is one.

Some of the stories I ran across indicate some interest groups are cheering for those regulations to apply. I would caution them that a "victory" there would likely be a Pyrrhic victory giving ammunition to those seeking to undermine needed oversight in contracts for these matters. My assessment at the moment is that anyone trying to stretch and impose contractor/subcontractor status upon businesses operating under the credit card arrangements is pushing the envelope and reaching for a slap from Congress. Actually I don't think it will go so far. I believe higher levels in the Executive will probably clarify that these interpretations are inaccurate unless there is some flaw in the law itself that needs Congressional action.

My discomfort is quite clear. It lies with the "unintended contractor" status. No merchant should be "captured" by a Federal "agent" flying a false flag of ordinary commerce by using a VISA or MasterCharge type card. I'm with Vern. Hypothetically, if the person presents a $50 PO with a page of clauses and the merchant knowingly accepts fine. Telling the "agent" to get out and not come back on official business is also an option. No merchant should have to read fine print on seemingly "civilian" credit cards. I believe the public would agree. Watching this play out may be interesting.

Some more news:

For an interesting slant on Home Depot's risk here see The Home Depot chain of stores is declining to do business with the federal government. This web site is devoted to debunking urban legends and gives status is "True." What is apparently the urban legend component is an association of the action with U.S. Iraq policy - untrue. Some of the quotes given on this site explain:

"When you do business with the federal government, you have an obligation to adopt a lot of accounting and reporting obligations," said John Simley, a Home Depot spokesman. "You have to put in place a whole lot of clerical machinery to make that happen. We are not equipped to do that."

Simley, the Home Depot spokesman, said a firm that does $50,000 worth of business in a year with the federal government automatically becomes a federal contractor and must file reams of paperwork.

That's why a Home Depot subsidiary called Maintenance Warehouse, which Home Depot acquired in late 2000, pulled out of its contract with the federal government earlier this year.

The bottom line: even though all businesses have to comply with federal equal employment and affirmative action laws, federal contractors have to file much more detailed information with the government to demonstrate their compliance with these laws. Home Depot has decided, apparently, that the encumbrances and administrative costs required of government contractors outweigh the amount of business they receive from government agencies. [underlining added]

As one businessman commented as we were discussing this yesterday, "Life's too short" [to mess with that].

Home Depot's press release also mentions the company "has always maintained a policy of not being a federal government contractor, made the decision years earlier based on administrative and systems requirements."

Criticism is unfair to Home Depot is a resonse to a news article.

By Anonymous on Wednesday, June 26, 2002 - 10:28 am:

Actually, the "EO" I was referring to is the Equal Opportunity clause in the FAR, not the Executive Order. Sorry for the confusion.

FWIW, I don't know whether an Executive Order would be considered "law" for Christian doctrine purposes although my hunch is that it would. It may be a moot point, because the FAR (and DOL regs) are certainly considered "law" for Christian purposes.

By Linda Koone on Wednesday, June 26, 2002 - 10:29 am:

Here's an argument:

Only duly appointed contracting officers are authorized (in FAR Subpart 1.6) to enter into and sign contracts on behalf of the Government.

Purchases made with the Government purchase card can be made by individuals who are not contracting officers.

Based on the definition (in FAR Subpart 2.1) of a 'contract' and the restrictions placed on entering into contracts, one could argue that purchase card transactions are not 'contracts', but rather are 'purchases' and therefore, the EEO requirement does not kick in on these 'purchases'.

By Questioner on Wednesday, June 26, 2002 - 11:17 am:

Linda, from what I'm learning I think your distinction here is much closer to Congressional intent in authorizing the card transactions. The staffer's "stretch" comment applies in several aspects.

For one, I don't think now there was any intent at the law/EO creation level to make acceptance of a commercial type credit card carry hidden contractual obligations. I'd be surprised if widespread court review would apply "Christian Doctrine" to this case. I say widespread because there are always weird stretches even in the courts. I suspect any stretching that may be worrying Home Depot is being done by entirely too mechanical or zealous lower levels.

By Kennedy How on Wednesday, June 26, 2002 - 12:37 pm:

But, I offer that a Purchase Card transaction was developed to substitute for a "contract" executed by a contracting officer. Are we comfortable in saying that one abides by one set of rules, but the other does not? I can see either side, but as an 1102, I view an IMPAC card transaction as a streamlined substitute for buying via the traditional RFQ/PO route.

The other issue, to me, is that in the absence of any clear guidance on the issue, some General Counsel could indeed opine that HD is in violation of whatever, and may try to go to court over it. HD would have to spend time and effort, most likely using outside counsel well-versed in Govt Contracting Law and Procurement regs, to fight it.

Yes, they might win, but the cost will be much more than the $50K (or whatever) in business they get by accepting the Govt VISA card.

Kennedy

By Questioner on Wednesday, June 26, 2002 - 01:12 pm:

I also ran across CIVILIAN AGENCY ACQUISITION LETTER 99-2. I think the language is a bit unclear. The memo deals with use of the cards for payment both below and above the micropurchase level. The guidance is explicitly for "proper use of the Governmentwide commercial credit card for purchases above the micro-purchase dollar threshold." It contains the comment "Although these requirements are inapplicable to micro-purchases (see FAR 13.201 (d) and Pub. L. 103-355), contracts above the micro-purchase threshold are not exempt from these requirements. Some of the FAR clauses required by statute" before listing some examples. I find the statement that "The Governmentwide commercial purchase card is to be used as a payment mechanism, not as a contracting mechanism" interesting in the context here.

I do not think these purchases were intended to be "contracts" in the sense of making sellers "contractors" for purposes of the clauses and rules we are discussing. I do see ample evidence that rule writers have muddied the waters greatly.

One explicit comment on micropurchases not being exempt is contained in guidance on JWOD (Applicability of the Javits-Wagner-O'Day Program for Micropurchases). That guidance is to the buyer. As I see it the guidance is "Do not go shopping for these items on the open market." I see no sign a seller could somehow become liable.

By Anonymous on Wednesday, June 26, 2002 - 01:33 pm:

In the agency I work for,cardholders are issued DPAs (delegation of procurement authority) therefore they are considered contracting officers.I am reminded of a similiar news story just a little while ago...the city where my office is located was building a new mall...and there was some HUD money involved. In this particular case,in order to recieve funding, HUD demanded that a major anchor retailer submit a plan that included specific minority hiring goals. The company,which has a terrific hiring system, told HUD to take a hike and continued with the project on its own nickel. I applauded them. What HD may see is that there are already so many laws to comply with, the extra (and in my opinion unnecessary)additional requirements Federal transactions may or do impose is a case where the juice ain't worth the squeeze. Especially where the corporate practices ,of their own volition,already carry out the spirit of the law.

By Vern Edwards on Wednesday, June 26, 2002 - 05:03 pm:

Linda:

In response to your argument:

First, I think that purchase card transactions are contracts. FAR § 2.101 defines "contract" in pertinent part as follows:

"'Contract' means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing."

I think the FAR definition encompasses purchase card transactions. Moreover, a purchase card transaction seems to meet all of the requirements of the common law definition of "contract."

Second, if I'm right about purchase card transactions being contracts, then purchase card holders are contracting officers. FAR § 2.101 defines "contracting officer" in pertinent part as follows:

"'Contracting officer' means a person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings."

Finally, I cannot find any indication that the FAR makes any distinction between a "contract" and a "purchase."

By Vern Edwards on Wednesday, June 26, 2002 - 05:19 pm:

Linda:

P.S.: According to GAO testimony about problems with the Navy purchase card program: "Purchase card holders are delegated limited contracting officer responsibilities, but they do not negotiate or manage contracts." It is not clear whether that remark applies only to Navy purchase card holders or to the government in general.

See: Purchase Cards: Continued Control Weaknesses Leave Two Navy Units Vulnerable Fraud and Abuse, GAO-O2-506T, March 13, 2002, p. 50.

Vern

By anonymous on Wednesday, June 26, 2002 - 07:13 pm:

Where on earth would anyone get the idea that a sale of goods between a buyer and a seller is not a contract? See the UCC, Part2.

By Vern Edwards on Wednesday, June 26, 2002 - 07:34 pm:

Anonymous:

In Linda's defense, she was talking about "contract" as defined by the FAR, not the U.C.C. FAR defines the term more narrowly than the U.C.C.

Vern

By anonymous on Wednesday, June 26, 2002 - 09:14 pm:

Excuse me, then. Where on earth would anyone get the idea that a sale of goods between a buyer and a seller is not a contract? See FAR § 2.101.

By Questioner on Wednesday, June 26, 2002 - 11:18 pm:

Anonymous, contract as used in Federal government contracting, not commercial. When you, as an individual, "contract" in a retail sale in a commercial establishment you come under custom and state laws dealing with such transactions. Relatively few Federal laws come into play.

Just try to go into your local drug store with a list of FAR clauses! If you think FAR governs the world you are indeed dreaming and need a rude shock to awake.

By Questioner on Wednesday, June 26, 2002 - 11:20 pm:

I should have said contract as used in Federal government contracting, not commercial is the issue here.

By Anonymous on Thursday, June 27, 2002 - 07:25 am:

Excuse me then. Where on earth would anyone in the Goverment get the idea that a sale of goods between an authorized Government buyer and a seller is not a contract? (See FAR § 2.101 for definition of contract and for definition of a contracting officer). My point is that several Government contracting officials, here, seemed to think that it could be debated that a credit card transaction between someone authorized to use a Government issued purchase card and a merchant is not a "contract", if the purchaser is not a warranted "1102" or something. This logic escapes me. A contract by any other name, even using "Governmenteze", is a contract. If the FAR agrees that these transactions are "contracts", for purposes of application of Executive Orders, then they do. Yes, you Feds intrude into most aspects of private or commercial life, through all sorts of frontdoors, backdoors, sidedoors and trapdoors.

By Vern Edwards on Thursday, June 27, 2002 - 08:29 am:

FAR 13.201(d) says that provisions and clauses do not apply to micro-purchases, regardless of any FAR requirement to the contrary. In light of that rule, if the aggregate of micro-purchases exceeds $10,000 in any 12-month period, but none of the micro-purchases includes any clauses, does anyone think that the EEO clause applies anyway?

By Questioner on Thursday, June 27, 2002 - 09:42 am:

Another question is whether the underlined part of the clause is being used by agencies to insert conditions that perhaps Congress did not envision:

(d) Micro-purchases do not require provisions or clauses, except as provided at 32.1110. This paragraph takes precedence over any other FAR requirement to the contrary, but does not prohibit the use of any clause.

I was tired last night when I responded to "Excuse me then" - perhaps because an airline possibly breached part of one of those commercial contracts it had with my wife to get her to South America about 20 minutes before take off. One of their better employees decided not to take the line others were ("Not my problem.") and actually made new reservations for today. Wish I'd had a FAR clause to "enforce" there!

Nobody is disputing that even the insertion of coins into a vending machine is technically a contract (For fun sometime try enforcing the contract to perform delivery if the machine doesn't!). The discussion here is specific to a particular application in which federal contractor status, with all its reporting requirements, are imposed on an ordinary business when it accepts a credit card in what it considers a routine sale as if to any citizen.

My impression from comments here is that there is enough fire in the smoke that Home Depot is not being foolish.

By Anonymous on Thursday, June 27, 2002 - 01:37 pm:

To answer Vern's question, I personally don't think the FAR EO clause would apply, but that doesn't mean that OFCCP/DOL would concede that the EO requirements arising from the Executive Order and reflected in the EO clause would not apply.

By Anon on Friday, June 28, 2002 - 02:08 pm:

Looking at FAR 22.807(b) I'm getting the impression that purchases under $10,000 are exempt but if a number of singularly exempt purchases exceed, in the aggregate, $10,000 in a 12 month period each of those purchases would then be considered nonexempt.

By Vern Edwards on Friday, June 28, 2002 - 02:46 pm:

This problem just goes to show how unclear the FAR can be.

Suppose that a company sells $9,900 worth of goods to the government between January 1 and October 31. Most of the sales were less than $2,500 and were made via purchase card without a written purchase order, but two exceeded $2,500 and were made by written purchase orders which included the EEO clause, FAR § 52.222-26. However, in accordance with FAR § 22.807(b)(1), the clause had no legal effect because the company's total sales were less than $10,000. By November 31, all of the sales were fully executed and the company had been paid.

Now suppose that on December 31 the company sells $105 worth of supplies to the government in an across-the-counter purchase card transction, bringing the total sales within the 12-month period to $10,005.

Does the clause now take effect? If so, then according to the clause it is only effective "during the performance of this contract," a performance which began and ended in about two minutes, the time it took to process the purchase card and hand over the supplies.

Suppose that the December 31 purchase card sale is for services and that performance will last six hours. During those six hours must the contractor file the required reports and open its doors to OFCCP? Must it include the clause in all subcontracts and purchase orders that it issues during the two hours?

By Questioner on Wednesday, July 03, 2002 - 11:26 pm:

The Record Searchlight newspaper quotes "Washington attorney Lawrence Lorber, former director of the Labor Department's Office of Federal Contract Compliance Programs" in Home Depot shuns federal government shedding light on at least one specialized legal view. Lorber is quoted as stating "The thing is, in the world of federal contractors, you may be one and didn't even know about it."

.By Vern Edwards on Friday, July 05, 2002 - 12:17 pm:

According to an FPDS search, The Home Depot, Inc. sold more than $6 million worth of supplies to government agencies in FY2001, including more than $5 million under what appears to be a GSA schedule contract. It looks like what The Home Depot, Inc. has done is set up a subsidiary named Maintenance Warehouse, Inc. to do business with the government under a GSA schedule. This may have been done to put a legal barrier between the subsidiary devoted to government sales and the other company operations, such as The Home Depot retail outlets. Other commercial firms have done this kind of thing, too.

By Questioner on Monday, July 08, 2002 - 02:58 pm:

One report indicated it was the acquisition of Maintenance Warehouse with those loaded contracts that prompted Home Depot to restate its policy. The indication was that Maintenance Warehouse had existing contracts and would follow the Home Depot policy from now on.

An acquisition of this type, if that is what happened, also raises interesting questions. What happens if a company without Federal contracts acquires one with them? If not kept as an independent subsidiary until the contracts ended I'd bet someone would try to apply the rules to the entire company.

By Anonymous on Tuesday, July 09, 2002 - 05:46 pm:

Questioner said:

"What happens if a company without Federal contracts acquires one with them? If not kept as an independent subsidiary until the contracts ended I'd bet someone would try to apply the rules to the entire company."

Actually, if you're talking about an asset purchase or merger (i.e., the acquired entity is not set up as a separate corporation after the acquisition but is part of the buying entity) I can't imagine how or why the rules would NOT apply to the company. This is one reason why companies do due diligence before an acquisition.