B-174608, MAY 9, 1972

B-174608, MAY 9, 1972

BID PROTEST - CORRECTION OF ERROR IN BID - "CLEAR AND CONVINCING" EVIDENCE STANDARD - "BID SHOPPING" DECISION SUSTAINING PRIOR DENIAL OF A PROTEST OF ROBERT E. MCKEE, INC., AGAINST CORRECTION OF A BID SUBMITTED BY THE DONOVAN CONSTRUCTION COMPANY UNDER AN IFB ISSUED ON BEHALF OF THE VETERANS ADMINISTRATION (VA). IT IS THE CONTINUING VIEW OF THE COMP. GEN. THAT DONOVAN HAS SUBMITTED CLEAR AND CONVINCING EVIDENCE OF ITS MISTAKE IN BID. KIRCHGESTNER V DENVER AND RIO GRANDE WESTERN R. CO., 233 P. 2D 699, 700 (1951). ACCORDINGLY, REFORMATION OF THE BID PRIOR TO AWARD MAY BE PERMITTED PURSUANT TO ASPR 2-406.3. CHRIS BERG, INC. V UNITED STATES, 192 CT. CL. 176, 426 F. 2D 314 (1970). WITH REGARD TO MCKEE'S ALLEGATION CONCERNING "BID SHOPPING," IT SHOULD BE NOTED THAT THERE WAS NO SUBCONTRACTOR LISTING REQUIRED IN THE INVITATION AND THE VA HAS NOT ISSUED ANY REGULATIONS DESIGNED TO PREVENT "SHOPPING." IN VIEW OF THE FOREGOING, THE PRIOR DENIAL MUST BE SUSTAINED.

TO KEMP, SMITH, WHITE, DUNCAN & HAMMOND

REFERENCE IS MADE TO YOUR LETTER OF MARCH 17, 1972, REQUESTING, ON BEHALF OF ROBERT E. MCKEE, INC., RECONSIDERATION OF OUR DECISION OF FEBRUARY 11, 1972, B-174608, WHEREIN WE ADVISED THE VETERANS ADMINISTRATION (VA) THAT THE CORRECTION OF A MISTAKE IN THE BID OF THE DONOVAN CONSTRUCTION COMPANY OF MINNESOTA UNDER AN INVITATION FOR BIDS COVERING SPECIFICATION NO. 6912R -AE, PROJECT NO. 02-5140, SHOULD BE ALLOWED.

THE PRIMARY BASIS FOR YOUR REQUEST FOR RECONSIDERATION IS YOUR BELIEF THAT CLEAR AND CONVINCING EVIDENCE HAS NOT BEEN PRESENTED BY THE DONOVAN CONSTRUCTION COMPANY AS TO THE EXISTENCE OF THE MISTAKE AND THE BID ACTUALLY INTENDED. IN MCKEE'S LETTER OF MARCH 1, 1972, IT IS STATED THAT SINCE THE DECISION OF FEBRUARY 11, 1972, ADMITTED CERTAIN DISCREPANCIES IN THE EVIDENCE SUBMITTED BY THE DONOVAN CONSTRUCTION COMPANY, THERE WAS NOT CLEAR AND CONVINCING EVIDENCE OF THE AMOUNT OF DONOVAN'S ACTUALLY INTENDED BID. YOU STATE THAT, IN ORDER TO DETERMINE WHETHER DONOVAN SUBMITTED CLEAR AND CONVINCING EVIDENCE OF ITS ACTUALLY INTENDED BID PRICE, IT IS NECESSARY THAT YOU BE FURNISHED COPIES OF ALL OF DONOVAN'S ORIGINAL WORKSHEETS INCLUDING ITS FINAL SUMMARY AND ADJUSTMENT SHEET AND COPIES OF THE AFFIDAVITS OF THE 11 EMPLOYEES WHO JOINTLY PREPARED THE WORKSHEETS FOR DONOVAN.

MCKEE HAS PREVIOUSLY REQUESTED THAT IT BE PERMITTED TO EXAMINE THE WORKSHEETS SUBMITTED TO OUR OFFICE BY DONOVAN WHICH WERE USED IN REACHING OUR DECISION OF FEBRUARY 11, 1972. BY LETTER DATED MARCH 23, 1972, WE ADVISED MCKEE THAT WE COULD NOT COMPLY WITH ITS REQUEST BECAUSE DONOVAN HAD REFUSED TO GRANT SUCH PERMISSION.

YOU STATE THAT THE DECISION OF THE UNITED STATES COURT OF CLAIMS IN THE CASE OF CHRIS BERG, INC. V UNITED STATES, U92 CT. CL. 176, 426 F. 2D 314 (1970), AND DECISION B-164886, DATED SEPTEMBER 11, 1968, BOTH OF WHICH WERE CITED TO YOU INFORMALLY, DO NOT SUPPORT OUR DECISION IN THE DONOVAN CASE. YOU STATE THAT ASIDE FROM THE DIFFERENCES IN THE EVIDENCE PRESENTED, THE AMOUNT CLAIMED IN THE BERG CASE WAS $41,121 AND THE DIFFERENCE RESULTING FROM THE MISTAKE IN THE CASE COVERED BY OUR DECISION OF SEPTEMBER 11, 1968, B-164886, WAS ONLY $8,024.26. YOU STATE THAT, IN THE INSTANT CASE, DONOVAN IS BEING ALLOWED NOT ONLY TO ADD THE VERY SUBSTANTIAL SUM OF $450,000 TO ITS BID PRICE, BUT ALSO IT IS BEING ALLOWED A MARKUP ON THAT AMOUNT IN THE SUM OF $12,449 EVEN THOUGH IT OFFERED TO WAIVE ANY CLAIM FOR MARKUP. IN THAT CONNECTION, BY OUR LETTER DATED FEBRUARY 22, 1972, VA WAS ADVISED THAT A TYPOGRAPHICAL ERROR HAD BEEN MADE IN THE LAST PARAGRAPH OF THE DECISION B-174608, DATED FEBRUARY 11, 1972, AND THAT THE AMOUNT OF $17,982,449 SHOWN IN THAT PARAGRAPH SHOULD READ $17,970,000, WHICH AMOUNT DOES NOT INCLUDE ANY MARKUP ON THE $450,000 ERROR. IN THE PENULTIMATE PARAGRAPH OF OUR DECISION B-174608 DATED FEBRUARY 11, 1972, WE POINTED OUT THE REASONS WHY WE COULD NOT ALLOW ANY MARKUPS ON THE $450,000 ERROR.

IN REGARD TO THE WORKSHEETS SUBMITTED BY DONOVAN, WE MADE THE FOLLOWING COMMENTS IN OUR DECISION OF FEBRUARY 11, 1972:

"WHILE THE DONOVAN FINAL SUMMARY AND ADJUSTMENT SHEET CONTAINS NUMEROUS ERASURES, AS INDICATED IN THE ADMINISTRATIVE REPORT, IT IS CONCEDED BY THE REPORT THAT ERASURES ON A WORKSHEET OF THIS TYPE SHOULD NOT BE CONSIDERED TO BE UNUSUAL. THE IMPORTANT CONSIDERATION IS NOT WHETHER ERASURES HAVE IN FACT BEEN MADE BUT WHETHER IT CAN BE DEMONSTRATED THAT THE ENTRIES IN THE SUBCONTRACT COLUMN OF THE FINAL SUMMARY AND ADJUSTMENT SHEET, PARTICULARLY THOSE WHICH HAVE OBVIOUSLY BEEN ERASED AND REENTERED, WERE, IN FACT, MADE BEFORE BIDS WERE SUBMITTED. IN THIS REGARD, IN ADDITION TO THE FINAL SUMMARY AND ADJUSTMENT SHEET, DONOVAN HAS SUBMITTED A RECAPITULATION OF THE LOW SUBBIDS USED IN THE FORMULATION OF ITS BID, INCLUDING CERTAIN SUBITEMS TO BE PERFORMED BY DONOVAN ITSELF RATHER THAN BY SUBCONTRACTORS. MORE IMPORTANTLY, DONOVAN HAS ALSO SUBMITTED AN EXHIBIT (EXHIBIT 5) CONSISTING OF THE ACTUAL SUBBIDS SUBMITTED BY PROSPECTIVE SUBCONTRACTORS FOR THOSE ITEMS INTENDED TO BE SUBCONTRACTED AND THE INTERNAL ESTIMATES USED TO FORMULATE PRICES FOR THOSE SUB-ITEMS TO BE SELF-PERFORMED. IN ALL BUT SIX INSTANCES THE FINAL SUBBID PRICES INDICATED ON THE FINAL SUMMARY AND ADJUSTMENT SHEET (AND ALSO ON THE SUBBID RECAPITULATION) ARE SUBSTANTIATED BY PAPERS CONTAINED IN EXHIBIT 5. THE SIX ITEMS NOT SUBSTANTIATED DO NOT REPRESENT A SIGNIFICANT DOLLAR AMOUNT WHEN COMPARED TO THE AMOUNT OF THE CLAIMED MISTAKE AND NONE OF THESE SIX ITEMS IS AMONG THE FINAL SUMMARY AND ADJUSTMENT SHEET ENTRIES WHICH WERE ERASED AND REENTERED. ACCORDINGLY, WE BELIEVE THAT THE EXISTENCE OF DOCUMENTARY EVIDENCE INDICATING THAT THE MAJORITY OF THE FIGURES INSERTED IN THE FINAL SUMMARY AND ADJUSTMENT SHEET (PARTICULARLY THOSE FIGURES WHICH HAVE BEEN ERASED AND REENTERED) REPRESENT ACTUAL SUBBIDS OR ESTIMATES IS SUFFICIENT PROOF THAT SUCH ENTRIES WERE, IN FACT, MADE BEFORE SUBMISSION OF THE DONOVAN BID."

WITH RESPECT TO THE FINAL SUBBID PRICES FOR THE SIX SUBITEMS IN DONOVAN'S WORKSHEETS WHICH WERE NOT FULLY SUBSTANTIATED, AS POINTED OUT IN OUR DECISION OF FEBRUARY 11, 1972, THESE SUBITEMS DO NOT REPRESENT A SIGNIFICANT DOLLAR AMOUNT WHEN COMPARED TO THE AMOUNT OF THE CLAIMED MISTAKE AND NONE OF THESE ITEMS IS AMONG THE FINAL SUMMARY AND ADJUSTMENT SHEET ENTRIES WHICH WERE ERASED AND REENTERED.

WE HAVE AGAIN REVIEWED THE EVIDENCE SUBMITTED BY DONOVAN AND WE REMAIN OF THE OPINION THAT "CLEAR AND CONVINCING EVIDENCE" HAS BEEN PRESENTED BY DONOVAN AS TO THE EXISTENCE OF THE MISTAKE AND THE BID ACTUALLY INTENDED. IN REGARD TO THE MEANING OF THE EXPRESSION "CLEAR AND CONVINCING EVIDENCE," THE SUPREME COURT FOR THE STATE OF UTAH STATED IN THE CASE OF KIRCHGESTNER V DENVER & RIO GRANDE WESTERN R. CO., 233 P. 2D 699, 700 (1951), THAT "'FOR A MATTER TO BE CLEAR AND CONVINCING TO A PARTICULAR MIND IT MUST AT LEAST HAVE REACHED THE POINT WHERE THERE REMAINS NO SERIOUS OR SUBSTANTIAL DOUBT AS TO THE CORRECTNESS OF THE CONCLUSION.'" OUR OFFICE HAS NO SERIOUS OR SUBSTANTIAL DOUBT AS TO THE CONCLUSION WE HAVE REACHED AS TO THE WEIGHT OF THE EVIDENCE SUBMITTED BY DONOVAN IN SUPPORT OF ITS ALLEGED INTENDED BID PRICE.

IN THE CHRIS BERG CASE, SUPRA, THE COURT STATED THAT WHERE A MISTAKE IN PLAINTIFF'S BID ON A CONTRACT AND THE AMOUNT ACTUALLY INTENDED ARE BOTH ESTABLISHED BY CLEAR AND CONVINCING EVIDENCE, AND CORRECTION OF THE BID WOULD NOT RESULT IN DISPLACING ONE OR MORE LOWER BIDS, ASPR 2 406.3 (FPR 1 -2.406.3) PERMITS REFORMATION OF THE BID PRIOR TO AWARD AT THE BIDDER'S OPTION, BUT DOES NOT GIVE THE GOVERNMENT THE OPTION TO REFUSE REFORMATION AND DEMAND WITHDRAWAL OF THE BID. THE COURT POINTED OUT THAT UNCERTAINTY WITHIN A RELATIVELY NARROW RANGE AS TO THE AMOUNT OF THE INTENDED BID IS NOT INCONSISTENT WITH "CLEAR AND CONVINCING" EVIDENCE, REQUIRED BY THE REGULATION. THE COURT FURTHER STATED THAT A CHARACTERISTIC OF MISTAKEN BID CASES WHEREIN RELIEF IS GRANTED IS THAT ABOUT ALL BIDDERS WERE "GUILTY OF EGREGIOUS BLUNDERS."

WE SHARE YOUR CONCERN THAT UNSCRUPULOUS BIDDERS NOT BE ALLOWED TO USE THE MISTAKE IN BID PROCEDURES TO OBTAIN AN UNDUE ADVANTAGE OVER THE GOVERNMENT OR THE OTHER BIDDERS. ON THE OTHER HAND, WE DO NOT BELIEVE THAT THE COURTS WOULD ENFORCE A CONTRACT AWARDED ON THE BASIS OF A BID KNOWN BY THE CONTRACTING OFFICER TO BE ERRONEOUS PRIOR TO AWARD; AND BID CORRECTION, WE BELIEVE, IS AN APPROPRIATE AND NECESSARY AVENUE OF RELIEF WHEREBY THE GOVERNMENT MIGHT RETAIN THE BENEFITS OF A LOW PRICE.

YOU ALLEGE THAT ONE OF THE QUOTATIONS UPON WHICH DONOVAN'S BID PRICE WAS BASED WAS THAT RECEIVED FROM THE CLIMATE CONDITIONING CORPORATION. YOU STATE THAT CLIMATE CONDITIONING HAS NOW ADVISED THAT, AFTER CONFIRMING ITS QUOTATION OF $5,435,000, DONOVAN ADVISED CLIMATE CONDITIONING THAT ITS COMMITMENT TO USE THAT FIRM AS ITS MECHANICAL SUBCONTRACTOR WAS BEING REVOKED AND THAT IT WAS GOING TO SUBCONTRACT WITH ANOTHER FIRM. YOU MAINTAIN THAT THE FOREGOING ACTION BY DONOVAN IS IMPROPER AND THAT THE CONTRACT AWARDED TO DONOVAN SHOULD BE RESCINDED AND THE CONTRACT REAWARDED TO MCKEE.

THIS ALLEGED PRACTICE IS COMMONLY KNOWN AS "BID SHOPPING." SINCE THERE WAS NO SUBCONTRACTOR LISTING REQUIREMENT IN THE INVITATION, THE VA WOULD HAVE NO MEANS UNDER THE CONTRACT TO COMPEL DONOVAN TO EMPLOY CLIMATE CONDITIONING AS ITS MECHANICAL SUBCONTRACTOR. THE GENERAL SERVICES ADMINISTRATION AND THE DEPARTMENT OF THE INTERIOR HAVE ISSUED DETAILED DIRECTIVES DESIGNED TO PREVENT "SHOPPING" FOR SUBCONTRACTORS WHO WILL PERFORM AT LOWER PRICES THAN THE SUBCONTRACT PRICES ON WHICH PRIME CONTRACTORS HAVE BASED THEIR BIDS TO THOSE AGENCIES. SEE, FOR EXAMPLE, 41 CFR 5B-2.202-70, PROVIDING FOR THE LISTING OF SUBCONTRACTORS IN BIDS FOR CERTAIN CONSTRUCTION OR ALTERATION WORK AND PRECLUDING THE SUBSTITUTION OF LISTED FIRMS EXCEPT IN UNUSUAL SITUATIONS AND THEN ONLY UPON WRITTEN APPROVAL OF THE CONTRACTING OFFICER. HOWEVER, THE VETERANS ADMINISTRATION HAS NOT ISSUED SIMILAR REGULATIONS RESPECTING BID SHOPPING.

ACCORDINGLY, UPON REVIEW, OUR DECISION OF FEBRUARY 11, 1972, IS AFFIRMED.