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  • Question

    How does the 51/49% rule apply on the Economy Act Order when the majority of funds are for parts/supplies procurement? Request clarification of the 51/49% rule in regards to Economy Act Order Reimbursable Funding.


    Answer

    Comptroller perspective-
      The question revolves around the 51/49% rule in regards to the Economy Act.  The only guidance is found on Project Orders which is addressed in the Financial Management Regulation (FMR) 7000.14-R Volume 11A Chapter 2 and the paragraphs provided discuss the need for the receiving activity to perform not less than 51% of the total work and the receiving activity must be a DoD Owned Establishment.  There is no definition provided in the FMR for what constitutes in-house work, but generally in-house refers to the production of some commodity or service, using a Command's own staff and/or resources.  If funding must be placed on contract to procure the equipment, it would not be considered as part of the in-house costs and would not be part of the 51% of the work required to be done by the receiving activity.
     
    020515. Ability to Perform. Project orders shall be issued only to those DoD owned establishments that are capable of substantially performing the work ordered.  "Substantially," as used in this paragraph, means that the project order recipient should incur DoD Financial Management Regulation Volume 11A, Chapter 2 2-7 costs of not less than 51 percent of the total costs attributable to rendering the work or services ordered. Total costs to render the work or services ordered include the costs of goods or services obtained from/provided by contractors.
     
    020303. DoD Owned Establishment. A "DoD owned establishment" for the purpose of this chapter is any DoD owned and operated activity (i.e., not contractor owned or operated). Such activities include working capital fund activities; other revolving fund activities; and appropriated fund activities provided the appropriated funded activity engages in reimbursable operations that are not reasonably severable into fiscal year segments and those reimbursable operations can be forecasted with reasonable accuracy. Examples of such activities include equipment overhaul or maintenance shops, manufacturing or processing plants or shops, research and development laboratories, computer software design activities, testing facilities, and proving grounds owned and operated by the Department.
     
    There is no reference to the 51/49% rule in the FMR Vol 11A Chapter 3 on Economy Act Orders.  I strongly suggest that you contact your Comptroller to ensure that there is not specific guidance within your Agency that refers to the 51/49% rule for Economy Act Orders.
     
    Contracting perspective-
      The Economy Act intends among other things that an agency not transfer funds to another as a method of avoiding internal rules.
    FAR subpart 17.5 and DAFARS subpart 217.5 address the Economy Act.  Neither speak to a 51/49% rule.  The point to understand is what are your unit's requirements with regard to the 51/49% rule?  If the agency making the acquisition (the servicing agency) has rules different--less onerous--than yours (the requesting agency), then it is probably not appropriate to use the other agency. 

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