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United States Department of the Interior

WATER AND POWER RESOURCES SERVICE

WASHINGTON, D.C. 20240

Z1~ REPLY

REFER TO~ 440

832. AUGi 91982

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Memorandum

To:

From:

Regional Director, PN,IhJ~’, UC, LC, SW, UM, 1=4

Attention: Code 440

Actir

Commissioner

~URtAU OF RECLAt.LAT~3W

OF~F~CiAL flLE COPY

RECEIVED rAUG2 41982

ZEfN7~U~AME

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Subject: Policy on Renegotiation of Existing Water Service and Repayment

Contracts as a Condi~.ion for Receiving New or Additional Federal

Benefits

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Ny April 28, 1981, policy memorandum suggested that we should take advantage of C~

each opportunity to renegotiate an existing contract when a contractor is seek— ~Z

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ing new Federal assistance in the form of water service, water storage, construc-r~

tion, loan funds, or other benefits. The purpose of this memorandum is to __

restate and emphasize those directives and to ensure that this policy is avail— c~

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able to and understood by any of your staff who have opportunity to contact

water user organizations, particularly when discussions concerning repayment ‘—~

obligations or water service rates are involved.

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Existing contracts, if any, must be identified in any basis of negotiation

submitted for approval, loan application report, rehabilitation and betterment

report, report transmittal, or other document which is precedent to initiating

contract negotiations. Whenever the existing contract contains terms and

conditions which are not in line with current policy and which are not now in

the best interests of the United States, your recommendations to renegotiate

such contract must be set forth along with the proposal for covering repayment

of the new Federal investment.

For example, if a contractor is seeking a rehabilitation and betterment (R&B)

loan, then an assessment should be made of the possibility to acccelerate

repayment of an existing repayment obligation by adjusting the payout schedule

to conform to the new payment capacity determination, deleting the variable

repayment formula, etc. Another example would be to seek amendment of a water

service contract that has unadjustable water rates as a condition for receiving,

say, a Small Reclamation Projects Act (SRPA) loan, or as a condition of additional

water that may be requested.
2

To ensure that repayment considerations are covered in any future proposal,

the project formulation tzam must include a Contracts and Repayment Specialist

who is thoroughly familiar with my subsidy reduction and repayment acceleration goals. Such a team shall have assembled and evaluated any proposal

(R&B, SRPA, etc.) before it is first identified as an item in the budget

cycle. If you need assistance for repayment matters from this office, please

advise.

We recognize that some contractors may refuse to renegotiate existing contracts

when it is time to begin contract negotiations. Under that circumstance,

the water user organization will be free to obtain the additional benefits

or funds from a non—Federal source.

This policy has been in effect for all contract negotiations initiated since

April 28, 1981, and affects all water service and repayment contracts unless

prior to the above date, (1) a contractor had filed a notice of intent to seek

new or additional loan funds; (2) a definite plan report or rehabilitation and

betterment report had been finalized by regional staff; or (3) a reimbursement

agreement had been executeU in connection with an R&B loan proposal. As stated

April 28, 1981, this policy is not applicable to contract negotiations involving funding under the Emergency Loan Act of June 26, 1948, or negotiations

involving the deferment of repayment obligations undertaken pursuant to section

17(b) of the Reclamation Project Act of 1939, as amended.

This memorandum should be inserted in sections II and IX A) B, C, and D of the

loose—leaf policy book on contracting sent to you on February 26, 1980.

SGD. WILLIAM C. KLOSTERMEYER

cc: Chief, Division of O&M Technical Services, E&R Center

Chief, Division of Planning Technical Services, E&R Center (Attn: D—735)