FAR 41.201—Policy.
Plain-English Summary
FAR 41.201 sets the core policy framework for acquiring utility services, especially electric utility services, under the Federal Acquisition Regulation. It explains the Government’s preference for obtaining utility services from the source that is most advantageous in terms of economy, efficiency, reliability, or service, while also requiring bilateral written contracts for most utility acquisitions and mandating inclusion of the clauses required by FAR 41.501. The section also addresses the limits on using a supplier’s own forms, the ability of agencies to prescribe internal operating and management procedures, and special statutory restrictions and exceptions for electricity purchases under section 8093 of the Department of Defense Appropriations Act of 1988. In addition, it identifies when agencies may still contract for electricity under shared energy savings authority, military energy/fuel authority, FERC authority, interagency arrangements, or from non-utility providers, and it requires a legal and market-based check before using competitive acquisition for electric utility services. In practice, this section is about balancing competition and flexibility with legal compliance, state utility law, franchise territory rules, and mandatory contract protections.
Key Rules
Best source for utility services
Agencies must obtain required utility services from sources of supply that are most advantageous to the Government in economy, efficiency, reliability, or service. This is the basic policy standard, but it is subject to the special electricity restrictions in paragraph (d).
Written bilateral contracts required
Except for acquisitions at or below the simplified acquisition threshold, agencies must acquire utility services by a bilateral written contract. The contract must include all clauses required by FAR 41.501, even if the utility’s rates or terms are set by a regulator.
Supplier forms cannot replace required clauses
Agencies may not rely on the utility supplier’s forms or clauses to avoid including provisions required by FAR 41.501 or by statute. If the supplier’s paperwork omits required terms, the Government must still ensure those terms are included.
Agency procedures may be set internally
Individual agencies may prescribe operating and management details such as internal review procedures, delegations of authority, and approval thresholds. Those internal rules must still comply with applicable statutes and regulations.
Electricity purchases must follow state law
For electricity, appropriated funds may not be used in a way that is inconsistent with state law governing electric utility service, including state commission rulings and franchise or service territory arrangements. This is a major limitation on federal electricity procurement.
Specific statutory exceptions for electricity
The state-law restriction does not bar certain authorities, including shared energy savings contracts under 42 U.S.C. 8287, military energy or fuel contracts under 10 U.S.C. 2922a, or military purchases from another provider when the franchised utility cannot meet unusual national defense reliability needs.
Other lawful electricity acquisition methods
A Federal agency may also purchase or transfer electricity from a non-utility consistent with state law, use interagency agreements with a Federal power marketing agency or TVA, or contract under FERC authority or tariffs.
Competition requires legal review
Before acquiring electric utility services competitively, the contracting officer must determine, with legal counsel’s advice and through a market survey or other appropriate means, that competition would not conflict with state law or utility franchise/service territory rules. Alternative suppliers must represent that they can provide service consistently with section 8093.
Responsibilities
Contracting Officer
Determine the proper acquisition approach for utility services, ensure required clauses are included in bilateral written contracts, avoid reliance on supplier forms that omit mandatory terms, and follow any agency-specific procedures. For electric utility services, the contracting officer must also work with legal counsel and use a market survey or other appropriate means to confirm that competitive acquisition would not violate state law or utility franchise/service territory restrictions.
Agency
Obtain utility services from the most advantageous source consistent with economy, efficiency, reliability, and service, while complying with the special electricity restrictions and exceptions. Agencies may establish internal operating procedures, review chains, delegations, and approval thresholds, but those procedures must remain consistent with law and regulation.
Legal Counsel
Advise the contracting officer on whether a proposed competitive acquisition of electric utility services is consistent with state law and applicable utility regulation. Counsel should help assess franchise territory issues, state commission rulings, and any legal constraints on alternative suppliers.
Utility Supplier
Provide service under a bilateral written contract when required and cannot use its own forms to eliminate mandatory Government clauses. For competitive electric utility acquisitions, alternative suppliers must represent that they can provide service in a manner consistent with section 8093 of Public Law 100-202.
Military Department Secretary
May enter into energy or fuel contracts under 10 U.S.C. 2922a and may purchase electricity from another provider when the franchised utility is unwilling or unable to meet unusual reliability standards needed for national defense.
Head of Federal Agency
May enter into shared energy savings contracts under 42 U.S.C. 8287, may contract with non-utilities for electricity consistent with state law, and may use interagency agreements with a Federal power marketing agency or TVA for electric power transfers.
Practical Implications
This section makes utility procurement highly legal-structure dependent: the contracting officer cannot treat utility buys like ordinary commercial buys, especially for electricity.
A common pitfall is assuming the utility’s standard service agreement is enough; if required FAR 41.501 clauses are missing, the Government still has a compliance problem.
For electric utility services, state law and franchise territory rules can block competition even when a lower-cost alternative supplier exists, so market research must include legal/regulatory review, not just price analysis.
Alternative electric suppliers should be asked early to confirm, in writing, that they can lawfully provide service under section 8093 and applicable state rules; otherwise proposals may be nonviable.
Agency-specific utility procedures matter, but they do not override FAR or statute, so internal approval thresholds and review steps should be checked before solicitation or award.
Official Regulatory Text
(a) Subject to paragraph (d) of this section, it is the policy of the Federal Government that agencies obtain required utility services from sources of supply which are most advantageous to the Government in terms of economy, efficiency, reliability, or service. (b) Except for acquisitions at or below the simplified acquisition threshold, agencies shall acquire utility services by a bilateral written contract, which must include the clauses required by 41.501 , regardless of whether rates or terms and conditions of service are fixed or adjusted by a regulatory body. Agencies may not use the utility supplier’s forms and clauses to avoid the inclusion of provisions and clauses required by 41.501 or by statute. (See 41.202 (c) for procedures to be used when the supplier refuses to execute a written contract.) (c) Specific operating and management details, such as procedures for internal agency contract assistance and review, delegations of authority, and approval thresholds, may be prescribed by an individual agency subject to compliance with applicable statutes and regulations. (d) (1) Section 8093 of the Department of Defense Appropriations Act of1988, Pub.L.100-202, provides that none of the funds appropriated by that Act or any other Act with respect to any fiscal year by any department, agency, or instrumentality of the United States, may be used for the purchase of electricity by the Government in any manner that is inconsistent with state law governing the providing of electric utility service, including state utility commission rulings and electric utility franchises or service territories established pursuant to state statute, state regulation, or state-approved territorial agreements. (2) The Act does not preclude- (i) The head of a Federal agency from entering into a contract pursuant to 42 U.S.C.8287 (which pertains to the subject of shared energy savings including cogeneration); (ii) The Secretary of a military department from entering into a contract pursuant to 10 U.S.C. 2922a (which pertains to contracts for energy or fuel for military installations including the provision and operation of energy production facilities); or (iii) The Secretary of a military department from purchasing electricity from any provider when the utility or utilities having applicable state-approved franchise or other service authorizations are found by the Secretary to be unwilling or unable to meet unusual standards for service reliability that are necessary for purposes of national defense. (3) Additionally, the head of a Federal agency may- (i) Consistent with applicable state law, enter into contracts for the purchase or transfer of electricity to the agency by a non-utility, including a qualifying facility under the Public Utility Regulatory Policies Act of1978; (ii) Enter into an interagency agreement, pursuant to 41.206 and 17.5 , with a Federal power marketing agency or the Tennessee Valley Authority for the transfer of electric power to the agency; and (iii) Enter into a contract with an electric utility under the authority or tariffs of the Federal Energy Regulatory Com-mission. (e) Prior to acquiring electric utility services on a competitive basis, the contracting officer shall determine, with the advice of legal counsel, by a market survey or any other appropriate means, e.g., consultation with the state agency responsible for regulating public utilities, that such competition would not be inconsistent with state law governing the provision of electric utility service, including state utility commission rulings and electric utility franchises or service territories established pursuant to state statute, state regulation, or state-approved territorial agreements. Proposals from alternative electric suppliers shall provide a representation that service can be provided in a manner consistent with section 8093 of Public Law100-202 (see 41.201 (d)).