B-180381, JUN 20, 1974

B-180381, JUN 20, 1974

1. COURT OF CLAIMS DECISION IN NATIONAL FACTORS, INCORPORATED AND THE DOUGLAS CORPORATION V. UNITED STATES, NO. 93-63, MARCH 20, 1974, HOLDING THAT TERMINATION OF CONTRACT FOR CONVENIENCE OF THE GOVERNMENT IS VALID ONLY IN ABSENCE OF BAD FAITH OR ABUSE OF DISCRETION DOES NOT REQUIRE REVERSAL OF COMPTROLLER GENERAL DECISION NOT TO CONSIDER ARMY'S TERMINATION OF CONTRACT FOR CONVENIENCE, SINCE RECORD DOES NOT ESTABLISH ANY BAD FAITH OR ABUSE OF DISCRETION INVOLVED IN DECISION TO TERMINATE CONTRACT. 2. PRIOR COMPTROLLER GENERAL DECISION HOLDING THAT ARMY COULD PROPERLY RESOLICIT PROPOSALS FOLLOWING TERMINATION FOR CONVENIENCE OF CONTRACT ORIGINALLY AWARDED, INSTEAD OF MAKING ANOTHER AWARD UNDER FIRST SOLICITATION, IS AFFIRMED, SINCE RECORD SHOWS SECOND SOLICITATION ENCOMPASSES CHANGE IN EVALUATION FACTOR AND CHANGES IN GOVERNMENT'S NEEDS WHICH MIGHT WELL HAVE EFFECT ON OFFERED PRICES, SO THAT FACT THAT PRICES OFFERED ON FIRST SOLICITATION WERE EXPOSED DOES NOT RENDER SECOND SOLICITATION AN AUCTION.

TO E. WALTERS & COMPANY, INC.:

E. WALTERS & COMPANY, INCORPORATED (WALTERS), HAS REQUESTED RECONSIDERATION OF OUR DECISION B-180381, MAY 3, 1974, IN WHICH WE DENIED A PROTEST BY WALTERS AGAINST THE ARMY'S DECISION TO RESOLICIT PROPOSALS, RATHER THAN MAKE AN AWARD TO WALTERS UNDER THE INITIAL SOLICITATION, FOLLOWING THE TERMINATION FOR CONVENIENCE BY THE GOVERNMENT OF THE CONTRACT AWARDED UNDER THAT INITIAL SOLICITATION. IN THAT DECISION WE ALSO DECLINED TO CONSIDER THE PROTEST OF DYNAMIT NOBEL A G, THE ORIGINAL CONTRACTOR, AGAINST THE CONTRACT TERMINATION.

WALTERS CONTENDS THAT OUR DECISION WAS "GROSSLY ERRONEOUS" BOTH IN LIGHT OF A RECENT DECISION OF THE UNITED STATES COURT OF CLAIMS AND BECAUSE WE VIEWED THE SECOND SOLICITATION AS ENCOMPASSING REVISED NEEDS OF THE ARMY. WALTERS URGES THAT WE ADVISE THE ARMY TO ABANDON THE SECOND SOLICITATION AND MAKE AWARD TO WALTERS UNDER THE FIRST SOLICITATION.

ON JANUARY 2, 1974, A CONTRACT FOR A MORTAR TRAINING SYSTEM WAS AWARDED TO DYNAMIT NOBEL. WALTERS AND ANOTHER COMPANY PROTESTED, CLAIMING THAT THE AWARD RESULTED FROM AN IMPROPER EVALUATION. THE ARMY TERMINATED THE CONTRACT ON JANUARY 25, 1974, AND SUBSEQUENTLY ISSUED A REVISED SOLICITATION. IN DECLINING TO CONSIDER DYNAMIT NOBEL'S PROTEST AGAINST THE TERMINATION OF ITS CONTRACT, WE STATED THAT "THE AUTHORITY TO ENTER INTO A GOVERNMENT CONTRACT INCLUDES THE AUTHORITY TO TERMINATE IT WHEN TO DO SO WOULD BE IN THE PUBLIC INTEREST" AND THAT "THE DETERMINATION WHETHER A CONTRACT SHOULD BE TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT IS A MATTER OF ADMINISTRATIVE DECISION WHICH DOES NOT REST WITH OUR OFFICE." WALTERS URGES THAT WE RECONSIDER THIS POSITION IN VIEW OF THE COURT OF CLAIMS DECISION IN NATIONAL FACTORS, INCORPORATED AND THE DOUGLAS CORPORATION V. UNITED STATES, NO. 93-63, MARCH 20, 1974, IN WHICH IT WAS HELD THAT "TERMINATION OF A CONTRACT FOR THE CONVENIENCE OF THE GOVERNMENT IS VALID ONLY IN THE ABSENCE OF BAD FAITH OR A CLEAR ABUSE OF DISCRETION" AND THAT THE PLAINTIFF WAS ENTITLED TO INTRODUCE EVIDENCE SHOWING SUCH BAD FAITH OR ABUSE OF DISCRETION.

WE FAIL TO SEE HOW OUR CONSIDERATION OF DYNAMIT NOBEL'S PROTEST AGAINST THE TERMINATION OF ITS CONTRACT WOULD AID WALTERS IN OBTAINING THE RELIEF IT SEEKS, SINCE A FINDING THAT THE TERMINATION WAS A RESULT OF BAD FAITH WOULD ENTITLE DYNAMIT NOBEL TO REINSTATEMENT OF THE CONTRACT OR TO POSSIBLE DAMAGES FOR BREACH OF CONTRACT. NEVERTHELESS, WE DO NOT AGREE THAT THE NATIONAL FACTORS CASE MANDATES THAT WE RECONSIDER OUR POSITION ON THIS POINT. DESPITE WALTERS' ASSERTION THAT "THE EVIDENCE IN THIS CASE DOES SHOW BAD FAITH AND/OR A CLEAR ABUSE OF DISCRETION IN CONNECTION WITH THE PROCESSING AND EVALUATION OF THE PROPOSALS RECEIVED," WE SEE NOTHING IN THE RECORD WHICH SUGGESTS BAD FAITH OR ABUSE OF DISCRETION IN THE DECISION TO TERMINATE THE CONTRACT THAT WAS AWARDED AS A RESULT OF THE ALLEGED BAD FAITH EVALUATION OF PROPOSALS. IN FACT, ALTHOUGH OUR RECORD IS SILENT ON THIS POINT, IT MAY WELL BE THAT THE ARMY DECIDED TO TERMINATE THE CONTRACT BECAUSE OF THE EVALUATION IMPROPRIETIES THAT WERE ALLEGED BY WALTERS AND OTHER PROTESTERS. IN ANY EVENT, THE COURT OF CLAIMS, IN A CASE DECIDED SUBSEQUENT TO THE NATIONAL FACTORS CASE, HAS RECOGNIZED THAT BAD FAITH OR ABUSE OF DISCRETION IS NOT ESTABLISHED BY EVIDENCE THAT A CONTRACTING OFFICER TERMINATED A CONTRACT FOR CONVENIENCE ON THE BASIS OF REASONS KNOWN AT THE TIME OF AWARD. COLONIAL METALS COMPANY V. UNITED STATES, NO. 387-72, APRIL 17, 1974. AS THE COURT SAID:

"THE ADDED ELEMENT THAT THE CONTRACTING OFFICER KNEW (OF REASONS TO TERMINATE) WHEN HE AWARDED THE CONTRACT TO PLAINTIFF-IN THE ABSENCE OF SOME PROOF OF MALICE OR CONSPIRACY AGAINST THE PLAINTIFF *** MEANS ONLY THAT THE CONTRACT WAS AWARDED IMPROVIDENTLY AND DOES NOT NARROW THE RIGHT TO TERMINATE. THE CLAUSE IS NOT DESIGNED TO PERPETUATE ERROR, BUT TO PERMIT ITS RECTIFICATION."

WALTERS' OTHER POINT CONCERNS THE ARMY'S REVISED NEEDS AS REFLECTED IN THE SECOND SOLICITATION. THIS SECOND REQUEST FOR PROPOSALS (RFP) CONTAINED CHANGED PROVISIONS WITH RESPECT TO INSPECTION REQUIREMENTS, TEST SAMPLES, PACKAGING AND PACKING REQUIREMENTS, AND ESCALATION, ALONG WITH A PROVISION INDICATING THE PERMISSIBILITY OF PROPOSALS FROM QUALIFIED LICENSEES OF FOREIGN COMPANIES. AN ORIGINAL EVALUATION FACTOR, CALLING FOR ADDITION TO THE UNIT PRICES PROPOSED BY OFFERORS OF AN AMOUNT ESTIMATED BY THE ARMY TO REPRESENT THE ADDED COST TO MANUFACTURE AMMUNITION IN THE UNITED STATES (ONLY PROPOSALS FROM FOREIGN COMPANIES WERE ANTICIPATED), WAS NOT INCLUDED IN THE SECOND RFP. WALTERS MAINTAINS, HOWEVER, THAT THESE CHANGES ARE MORE FORM THAN SUBSTANCE AND THAT IN FACT THE REVISED GOVERNMENT REQUIREMENTS "WERE PART OF THE SPECIFICATION REQUIREMENTS OF THE FIRST PROCUREMENT." WALTERS FURTHER ASSERTS THAT THE DELETED EVALUATION FACTOR WAS NOT INCLUDED IN THE ORIGINAL SOLICITATION THAT IT RECEIVED SO THAT IN OUR EARLIER DECISION WE "MADE A GROSS ERROR IN PLACING ANY EMPHASIS ON THE FACT THAT THE SECOND SOLICITATION DID NOT CONTAIN SUCH A FACTOR."

ALTHOUGH IT IS NOT APPARENT FROM THE RECORD THAT EACH REVISION REPRESENTS, BY ITSELF, A SUBSTANTIAL CHANGE IN THE ARMY'S NEEDS, IT DOES APPEAR THAT SOME OF THE CHANGES COULD HAVE AN EFFECT ON PRICE OR WOULD INCREASE THE RIGHTS OF THE GOVERNMENT TO ASSURE THAT ITS SPECIFICATION REQUIREMENTS WOULD BE MET. FOR EXAMPLE, WHILE WALTERS CLAIMS THAT THE ORIGINAL SOLICITATION ADEQUATELY PROVIDED FOR INSPECTION BY THE CONTRACTOR, UNDER THE SECOND SOLICITATION FIRST ARTICLE TESTING AND APPROVAL IS REQUIRED AND THE GOVERNMENT CAN CONDUCT ADDITIONAL TESTING AND INSPECTION. FURTHERMORE, THE ADDITION OF THE ESCALATION PROVISION, ALLOWING A 20 PERCENT ANNUAL INCREASE FOR LABOR AND MATERIAL DURING THE LIFE OF THE CONTRACT, IS THE TYPE OF PROVISION THAT COULD SIGNIFICANTLY IMPACT OFFERORS' PRICING STRUCTURE, NOTWITHSTANDING WALTERS' CLAIM THAT RECENT PRICE INCREASES OF MORE THAN 100 PERCENT IN SOME MATERIALS INDICATE THAT THE 20 PERCENT ESCALATION CLAUSE "IS TOO UNREALISTICALLY LOW TO HAVE ANY IMPACT ON THE MATERIAL COSTS" FOR THE FIXED PRICE CONTRACT TO RESULT FROM THIS PROCUREMENT. IN OUR VIEW, THE VARIOUS CHANGES IN THE SECOND SOLICITATION, WHEN CONSIDERED CUMULATIVELY, CANNOT BE REGARDED AS INCONSEQUENTIAL OR AS HAVING NO SIGNIFICANT EFFECT AT ALL ON THE OFFERED PRICES.

FURTHERMORE, WITH RESPECT TO THE EVALUATION FACTOR, THE ARMY REPORTS THAT THE ORIGINAL RFP WAS PREPARED WITH A BLANK IN THE PROVISION DEALING WITH THE COST TO MANUFACTURE IN THE UNITED STATES, AND THAT BEFORE COPIES OF THE RFP WERE FURNISHED TO PROSPECTIVE OFFERORS THE BLANK WAS FILLED IN WITH THE PARTICULAR COST FACTOR DETERMINED TO BE APPLICABLE TO THE SYSTEM TO BE SUPPLIED BY THE OFFEROR. THUS, THE ARMY REPORTS THAT THE SOLICITATIONS SENT TO DYNAMIT NOBEL AND ANOTHER FOREIGN SUPPLIER CONTAINED THE FACTOR APPLICABLE TO EACH (THE ARMY HAD PREVIOUSLY EVALUATED THE SYSTEMS OF BOTH COMPANIES), BUT THAT THE RFP FURNISHED TO WALTERS WAS LEFT BLANK BECAUSE IT WAS NOT KNOWN WHICH SYSTEM WOULD BE PROVIDED BY WALTERS. AFTER WALTERS SUBMITTED A PROPOSAL WHICH INDICATED IT WAS COMPETING AS A LICENSEE OF NICO PYROTECHNIK K G, THE ARMY ADVISED WALTERS THAT THE FACTOR APPLICABLE TO THE NICO SYSTEM WOULD BE APPLIED TO ITS OFFER. ACCORDING TO THE ARMY, WALTERS WAS VERBALLY INFORMED OF THIS DURING A NEGOTIATING SESSION ON NOVEMBER 8, 1973 AND WAS ALSO INFORMED IN WRITING BY LETTER OF THE SAME DATE. THE ARMY REPORTS THAT THE ORIGINAL DATE FOR CLOSING OF NEGOTIATIONS WAS EXTENDED, AT WALTERS' REQUEST, FROM NOVEMBER 9 TO NOVEMBER 14, 1973, AND THEN TO NOVEMBER 16, 1973. WALTERS "RESPONDED" WITH ITS FINAL OFFER ON NOVEMBER 15. UNDER THESE CIRCUMSTANCES, WE CANNOT AGREE THAT THE ORIGINAL SOLICITATION DID NOT CONTAIN THE EVALUATION FACTOR OR THAT ITS DELETION FROM THE SUBSEQUENT RFP WAS MEANINGLESS. WE THINK IT IS CLEAR THAT THE ARMY ORIGINALLY ATTEMPTED TO APPLY THIS PARTICULAR FACTOR TO THE PROCUREMENT BUT NOW CONSIDERS THE FACTOR TO BE AN INAPPROPRIATE ONE FOR EVALUATING PROPOSALS AND THEREFORE DID NOT INCLUDE IT IN THE LATER RFP. THE FACT THAT THE ARMY MAY HAVE IMPROPERLY APPLIED THE FACTOR TO WALTERS, AS WALTERS CONTENDS, DOES NOT ALTER THE CONCLUSION THAT AN EVALUATION FACTOR TO BE USED FOR THE EVALUATION OF PROPOSALS UNDER THE FIRST RFP WAS NOT INCLUDED IN THE SECOND RFP AND THEREFORE THE BASIS FOR EVALUATION HAS CHANGED.

THUS, IN LIGHT OF THE ABOVE CIRCUMSTANCES, WE REMAIN OF THE VIEW THAT THE ARMY IS NOT REQUIRED TO MAKE AN AWARD TO WALTERS UNDER THE FIRST SOLICITATION AND THAT THE RESOLICITATION IS A PROPER EXERCISE OF ADMINISTRATIVE DISCRETION. ACCORDINGLY, OUR PRIOR DECISION IN THIS MATTER IS AFFIRMED.