B-66927, SEP. 13, 1961

B-66927, SEP. 13, 1961

TO THE SECRETARY OF THE NAVY:

REFERENCE IS MADE TO LETTER DATED SEPTEMBER 5, 1961, FROM THE ACTING SECRETARY, REQUESTING OUR OPINION AS TO THE LEGALITY OF A CONTEMPLATED AWARD OF A CONTRACT FOR OPERATION OF THE ELK HILLS, CALIFORNIA, NAVAL PETROLEUM RESERVE TO STANDARD OIL COMPANY OF CALIFORNIA.

AN INVITATION FOR BIDS FOR THE OPERATING CONTRACT WAS ISSUED ON JUNE 29, 1961, CALLING FOR QUOTATION OF MONTHLY FEES TO BE CHARGED FOR THE OPERATING SERVICES, BROKEN DOWN INTO SEPARATE FIGURES FOR OVERHEAD EXPENSE AND MANAGEMENT FEE. TEN BIDS WERE RECEIVED AND PUBLICLY OPENED ON AUGUST 16. THE THREE LOWEST BIDS RECEIVED QUOTED TOTAL FEES OF $6,550, $9,000, AND $9,000. ONE OF THE TWO $9,000 BIDS WAS SUBMITTED BY THE STANDARD OIL COMPANY OF CALIFORNIA, AND IT IS UNDERSTOOD THAT NEITHER OF THE OTHER TWO LOWEST BIDDERS IS CONSIDERED ACCEPTABLE FROM THE STANDPOINT OF CAPABILITY AND RESPONSIBILITY. IT IS THEREFORE STATED THAT "IT HAS BEEN CONCLUDED TO MAKE THE AWARD TO STANDARD, IF TO DO SO IS LEGAL UNDER THE CIRCUMSTANCES.'

(E) THE CIRCUMSTANCES WHICH GIVE RISE TO YOUR DOUBT ARE (1) THAT UNIT PLAN CONTRACT (NO. NOD-4219) ENTERED INTO BETWEEN YOUR DEPARTMENT AND STANDARD OIL COMPANY OF CALIFORNIA UNDER DATE OF JUNE 19, 1944, PURSUANT TO THE AUTHORITY OF THE ACT OF JUNE 17, 1944, 58 STAT. 280, FOR THE POOLING OF CONTROL OF THE INTERESTS OF THE TWO PARTIES IN THE ELK HILLS RESERVE, CONTAINS A STIPULATION THAT IF ANY CONTRACT FOR OPERATION OF THE RESERVE IS AWARDED TO STANDARD AT ANY TIME IT SHALL PROVIDE FOR PERFORMANCE AT ACTUAL COST; AND (2) THAT IN ITS BID STANDARD INCLUDED THE FOLLOWING STATEMENT:

"THIS BID IS ALSO SUBJECT TO THE CONDITION THAT THE UNIT PLAN CONTRACT BETWEEN THE UNITED STATES AND STANDARD OIL COMPANY OF CALIFORNIA DATED JUNE 19, 1944 (NOD 4219) BE AMENDED PRIOR TO THE ACCEPTANCE OF THIS BID BY THE DELETION OF THE THIRD SENTENCE OF SECTION 3 (A) THEREOF SO THAT STANDARD WILL NOT BE PRECLUDED FROM RECEIVING THE FEES SET FORTH ABOVE IF IT BECOMES THE OPERATOR OF THE RESERVE PURSUANT TO THIS BID.'

THE QUESTIONS PRESENTED ARE WHETHER THE QUOTED "CONDITION" RENDERS THE BID NON-RESPONSIVE TO THE INVITATION; AND WHETHER THE DIFFERENCE, ESTIMATED TO BE $84,000 PER YEAR, BETWEEN STANDARD'S BID AND THE NEXT HIGHER ACCEPTABLE BID, IS ADEQUATE CONSIDERATION FOR A WAIVER OF THE RESTRICTIVE PROVISION OF THE UNIT PLAN CONTRACT FOR THE DURATION OF THE OPERATING AGREEMENT.

AS TO THE FIRST QUESTION, WE DO NOT FEEL THAT THE QUOTED LANGUAGE IN ANY WAY AFFECTS THE RESPONSIVENESS OF THE BID, EITHER BY IMPOSING TERMS WHICH WOULD DIFFER FROM THOSE IN A CONTRACT AWARDED TO ANY OTHER BIDDER OR BY RESERVING TO STANDARD ANY RIGHT OR OPTION AFFECTING ITS STANDING WITH RESPECT TO OTHER BIDDERS OR WORKING ANY PREJUDICE TO THEM OR TO THE GOVERNMENT. SEE 19 COMP. GEN. 450. THE STATEMENT DOES NOT CREATE A CONDITION, BUT MERELY CALLS ATTENTION TO ONE ALREADY IN EXISTENCE, THE CONTINUATION OF WHICH LIES SOLELY IN THE POWER OF THE GOVERNMENT. IN THIS RESPECT IT IS SIMILAR TO A STATEMENT OF A BIDDER'S INTERPRETATION OF A CONTRACT STIPULATION, WHICH, IF CORRECT, DOES NOT CONSTITUTE A QUALIFICATION OF HIS BID. 19 COMP. GEN. 876.

WITH RESPECT TO YOUR SECOND QUESTION, THE ACT OF JUNE 4, 1920, 41 STAT. 813, AS AMENDED--- NOW CODIFIED AS TITLE 10, CHAPTER 641, U.S. CODE--- AUTHORIZES THE SECRETARY OF THE NAVY, AFTER CONSULTATION WITH THE COMMITTEES ON ARMED SERVICES OF THE SENATE AND THE HOUSE OF REPRESENTATIVES, TO CONTRACT FOR JOINT, UNIT, OR OTHER COOPERATIVE PLANS OF EXPLORATION, PROSPECTING, CONSERVATION, DEVELOPMENT, USE, AND OPERATION OF LANDS IN NAVAL PETROLEUM RESERVE NO. 1 (THE ELK HILLS RESERVE) ON TERMS CONFORMING TO THE REQUIREMENTS OF 10 U.S.C. 7426. THE STATUTE DOES NOT REQUIRE SUCH A CONDITION OR STIPULATION AS THAT REFERRED TO IN THE STANDARD BID, AND IT IS THEREFORE SUBJECT TO MODIFICATION BY AMENDMENT TO THE SAME EXTENT AS ANY OTHER CONTRACTUAL PROVISION. WHATEVER MAY HAVE BEEN THE CONSIDERATIONS WHICH LED TO THE INCLUSION OF THIS STIPULATION IN THE ORIGINAL UNITIZING AGREEMENT, IT SEEMS THAT ITS CONTINUATION NOW WOULD, ON THE BASIS OF YOUR DETERMINATIONS, RESULT IN AN ESTIMATED INCREASE OF $84,000 PER YEAR IN THE COST OF OPERATION OF THE RESERVE DURING THE TERM OF THE PROPOSED CONTRACT. IN THE ABSENCE OF ANY OFFSETTING DETRIMENT TO THE INTERESTS OF THE GOVERNMENT, WHICH DOES NOT APPEAR FROM THE FACTS STATED IN YOUR SUBMISSION, THE SAVING OF THAT AMOUNT WOULD APPEAR TO CONSTITUTE ADEQUATE CONSIDERATION FOR THE WAIVER OR DELETION OF THE CONDITION DURING THE PERIOD OF STANDARD'S OPERATION UNDER THE NEW CONTRACT IF AWARDED TO IT UNDER THE SUBJECT INVITATION.

ON THE BASIS OF THE ABOVE WE SEE NO LEGAL OBJECTION TO THE AWARD OF THE CONTRACT TO STANDARD AS PROPOSED IN YOUR LETTER AFTER CONSULTATION WITH THE COMMITTEES ON ARMED SERVICES OF THE SENATE AND THE HOUSE OF REPRESENTATIVES.