B-142810, JUL. 20, 1960

B-142810, JUL. 20, 1960

TO THE POSTMASTER GENERAL:

REFERENCE IS MADE TO LETTER DATED JUNE 14, 1960, FROM YOUR DEPUTY GENERAL COUNSEL FURNISHING A REPORT RELATIVE TO AN ERROR ALLEGED BY DANIEL HORWICH TO HAVE BEEN MADE IN HIS BID IN THE MATTER OF HIS LEASE AGREEMENT WITH THE POST OFFICE DEPARTMENT FOR A NEWLY CONSTRUCTED POSTAL FACILITY IN CHICAGO, ILLINOIS (OGDEN PARK STATION).

THE CHICAGO REGIONAL OFFICE ON DECEMBER 15, 1959, SOLICITED PROPOSALS TO BE SUBMITTED NO LATER THAN FEBRUARY 15, 1960, TO FURNISH LEASED FACILITIES ON A CERTAIN PARCEL OF LAND AT THE NORTHEAST CORNER OF ASHLAND AVENUE AND WEST 66TH STREET, SUITABLE FOR POSTAL SERVICES, FOR A BASE PERIOD OF 20 YEARS PLUS SIX RENEWAL OPTIONS OF FIVE YEARS EACH.

THE FACILITIES TO BE CONSTRUCTED WERE TO CONSIST OF A ONE STORY BRICK AND BLOCK BUILDING HAVING APPROXIMATELY 11,640 SQUARE FEET INSIDE NET, 1,335 SQUARE FOOT DOCK, AND 5,745 SQUARE FEET OF PAVED AREA IN ACCORDANCE WITH POST OFFICE DRAWING RE-489 DATED NOVEMBER 30, 1959.

THE INVITATION PROVIDED THAT THE GOVERNMENT WOULD ASSIGN TO THE SUCCESSFUL BIDDER AN OPTION TO PURCHASE THE PARTICULAR LAND INVOLVED FOR THE SUM OF $60,000. IT WAS PROVIDED THAT RENTAL WAS TO BE BASED IN PART UPON THE PAYMENT BY THE LESSOR OF GENERAL REAL ESTATE TAXES UPON THE LAND AND THE BUILDING APPURTENANCES THERETO IN THE SUM OF $5,200 PER ANNUM, AND THAT THERE WOULD BE A READJUSTMENT OF THE RENT EACH YEAR SHOULD SUCH TAXES BE MORE OR LESS THAN THIS AMOUNT.

THIS WAS A NEGOTIATED LEASE PURSUANT TO 31 U.S.C. 794F AND THE INVITATION PROVIDED THAT AN AWARD UNDER THE ADVERTISEMENT WOULD BE MADE TO THAT RESPONSIBLE BIDDER WHOSE BID WAS MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED; THE RIGHT WAS RESERVED IN THE INVITATION TO NEGOTIATE FURTHER WITH BIDDERS FOR BETTER TERMS; AND THE RIGHT WAS ALSO RESERVED, AFTER THE CLOSING DATE, TO REJECT ANY AND ALL BIDS OR TO NEGOTIATE WITH BIDDERS FOR CLARIFICATION OF AMBIGUITIES OR OTHER DESIRABLE MODIFICATIONS IN THE PROPOSALS. IT IS REPORTED THAT UNDER THE BID HANDLING PROCEDURES IN EFFECT AT THE TIME HERE INVOLVED, THE BIDS RECEIVED WERE NOT PUBLICLY OPENED, BUT INSTEAD WERE OPENED BY REGIONAL PERSONNEL, TABULATED AND SENT INTO HEADQUARTERS WITH ANALYSIS AND RECOMMENDATION FOR ACCEPTANCE. IT IS FURTHER REPORTED UNDER BID PROCEDURES PRESENTLY IN EFFECT FOR THIS TYPE OF CASE, THAT BIDS ARE PUBLICLY OPENED IN THE REGION AND THEN TABULATED AND SENT TO HEADQUARTERS.

SEVEN PROPOSALS WERE RECEIVED IN RESPONSE TO THE ADVERTISEMENT. FOR PURPOSES HERE INVOLVED, IT IS NECESSARY TO REFER ONLY TO THE QUOTATIONS RECEIVED FOR THE BASE OR 20-YEAR PERIOD. DANIEL HORWICH AND RUTH HORWICH, AS TENANTS IN COMMON, SUBMITTED A BID QUOTING AN ANNUAL RENTAL OF $18,830. THE SIX OTHER BIDS RECEIVED QUOTED ANNUAL RENTALS OF $24,317, $24,480, $24,840, $25,250, $25,750, AND $27,435. IN CONNECTION WITH THE BIDS RECEIVED, IT WAS STATED IN A MEMORANDUM DATED FEBRUARY 29, 1960, FROM THE REGIONAL REAL ESTATE MANAGER, CHICAGO, ILLINOIS, TO THE DIVISION OF REAL ESTATE, BUREAU OF FACILITIES, WASHINGTON, D.C., AS FOLLOWS:

"THIS OGDEN PARK STATION OF 11,640 SQUARE FEET INSIDE NET, WITH 1320 SQUARE FOOT DOCK AND 5745 SQUARE FEET OF PAVED AREA IS AN IMPORTANT CHICAGO STATION.

"THE LAND COST OF $60,000. SEEMED HIGH AS COMPARED TO TOTAL INVESTMENT BUT WAS REASONABLE AS COMPARED WITH RELATIVE PROPERTIES.

"WE WERE SOMEWHAT CONCERNED THAT BIDDER NO. 7 MIGHT HAVE MADE A MATHEMATICAL MISCALCULATION AND IT WAS DECIDED THAT I WOULD CALL HORWICH ON ANOTHER MATTER AND SUGGEST THAT IF HE CARED TO RE-CHECK HIS FIGURES OVER THE WEEK END THAT HE DO SO BEFORE I MADE AN EVALUATION. HE DID SO, AND, EXCEPT FOR MINOR CHANGE IN OPTION PERIOD RENTALS, WAS SATISFIED TO STAND BY HIS BID AS SUBMITTED.

"COMPETITION WAS VERY GOOD, AS IT USUALLY IS IN THESE LARGER FACILITIES IN METROPOLITAN AREAS. BID NO. 7, HORWICH, AT $18,830. OR $1.61 PER SQUARE FOOT IS VERY FAVORABLE TO THE GOVERNMENT; THE OTHER BIDS BY RESPONSIBLE AND EXPERIENCED BIDDERS WERE GROUPED IN THE $24,000. AND $25,000. RANGE.

"I BELIEVE THAT HORWICH'S BOND OF $170,000 IS ADEQUATE. I DO NOT FEEL THAT I SHOULD SUGGEST TO HIM THAT HIS COST WILL BE GREATER. AS A MATTER OF FACT, HE WOULD BE FINANCIALLY RESPONSIBLE EVEN WITHOUT A BOND. BUILDS MINIMUM CONSTRUCTION, BUT WITH ENGINEERS' PLANS AND SPECIFICATIONS HE WILL BUILD A VERY ACCEPTABLE BUILDING.

"I RECOMMEND ACCEPTANCE OF BID NO. 7 (HORWICH), BEARING IN MIND THAT THE LAND OPTION EXPIRES MAY 10, 1960.'

APPARENTLY ON THE BASIS OF THE MEMORANDUM, THE POST OFFICE DEPARTMENT ACCEPTED MR. HORWICH'S BID ON MARCH 10, 1960, AND ON THE SAME DAY THE SITE OPTION WAS ASSIGNED TO MR. HORWICH.

IN LETTERS DATED MARCH 14 AND MAY 4, 1960, MR. HORWICH STATES THAT HE RECEIVED NOTICE OF THE ACCEPTANCE OF HIS BID BY TELEGRAM FROM WASHINGTON, D.C., ON MARCH 11, 1960 (FRIDAY), BUT THAT HE DID NOT OPEN THE TELEGRAM UNTIL MARCH 14, (MONDAY), AS HE WAS OUT OF TOWN WHEN THE TELEGRAM WAS RECEIVED. HE COMMENCED AT ONCE TO WORK ON HIS FIGURES IN ORDER TO SECURE THE NECESSARY FINANCING TO BUILD THE POST OFFICE IN ACCORDANCE WITH HIS BID. IN THE PROCESS HE DISCOVERED THAT ALTHOUGH HE HAD FIGURED ON A MORTGAGE IN THE SUM OF $170,000 HE HAD COMPUTED THE MORTGAGE AMORTIZATION ON THE BASIS OF $120,000 AT SIX PERCENT FOR 20 YEARS. THE ERROR RESULTED IN HIS BID FOR AN ANNUAL RENTAL OF $18,830 BEING $4,299 LESS THAN ACTUALLY INTENDED. UPON DISCOVERING THE ERROR HE IMMEDIATELY NOTIFIED THE CHICAGO REGIONAL REAL ESTATE MANAGER BY TELEPHONE AND LETTER OF MARCH 14. IN SAID LETTER MR. HORWICH STATES THAT IN REEVALUATING THE ENTIRE MATTER AND DUE TO THE UNFORTUNATE ERROR HE WAS REQUESTING THAT HIS BID BE CONSIDERED FOR THE 20-YEAR BASE PERIOD AT AN ANNUAL RENTAL OF $22,100.

IN LETTER OF MAY 13, 1960, MR. HORWICH SET FORTH THE BASIS OF HIS BID OF $18,830 AS FOLLOWS:

TABLE

"RENTAL ANALYSIS OGDEN PARK STATION, CHICAGO, ILLINOIS

12,184 SQ.FT OF BUILDING AREA AT UNIT

PRICE OF $11.00 COST $134,020.00

LAND COST 60,000.00

INTEREST ON LAND COST FOR ESTIMATED

9 MONTHS PERIOD $60,000.00 AT 6 PERCENT

FOR 9 MONTHS 2,700.00

BOND FEE (PERFORMANCE BOND) 1,700.00

INTEREST OF CONSTRUCTION PAYOUTS BASED

ON $120,000.00 PAYOUTS PRIOR TO COMPLETION

AT 6 PERCENT AVERAGED OVER CONSTRUCTION

PERIOD OF THE FULL AMOUNT FOR A 3 MONTH

PERIOD 1,800.00

COMMISSION ON MORTGAGE (1 PERCENT) 1,700.00

TOTAL COST OF LAND, IMPROVEMENT AND

EXPENSES $201,920.00

OPERATING EXPENSES; (PER ANNUM)

TAX STOP $5,200.00

AIR CONDITIONING

MAINTENANCE 350.00

ELECTRICAL 160.00

PLUMBING 100.00

PAINTING 150.00

HEATING MAINTENANCE 125.00

INSURANCE 300.00

MISCELLANEOUS

EXPENSES 210.00

$6,595.00

RENTAL SCHEDULE FOR TWENTY YEAR BASE PERIOD;

PAYMENTS ON $170,000.00 MORTGAGE AT 6 PERCENT

20 YR SCHEDULE $10,317.00

EXPENSES TO OPERATE PER YEAR 6,595.00

6 PERCENT RETURN ON $32,000.00 CASH REQUIRED

OVER MORTGAGE 1,920.00

$18,832.00

BID $18,830.00"

IN YOUR DEPUTY GENERAL COUNSEL'S LETTER OF JUNE 14, IT IS STATED THAT THE CHICAGO REGIONAL REAL ESTATE MANAGER, BEING CONCERNED WITH THE PROBABILITY THAT MR. HORWICH MIGHT HAVE ERRED IN HIS BID COMPUTATIONS, AFFORDED HIM AN OPPORTUNITY TO RE-CHECK HIS BID FIGURES. IT IS ADMITTED HOWEVER, THAT MR. HORWICH WAS NOT ADVISED OF THE REASON WHY HE WAS BEING ASKED TO RE-CHECK HIS FIGURES. IT IS FURTHER STATED THAT INSOFAR AS THE CONTRACTOR'S ALLEGATION OF BEING EXCESSIVELY LOW IS CONCERNED, IT IS THE POST OFFICE DEPARTMENT'S EXPERIENCE THAT THE RANGE FROM LOW TO HIGH IN THE INSTANT CASE IS NOT SO FAR OUT OF LINE AS NECESSARILY TO PLACE THE CONTRACTING OFFICER ON NOTICE OF THE POSSIBILITY OF ERROR IN THE LOW BID AND THAT THE LEASE BIDDER'S TAX POSITION, LOCAL PRICE, SENSE OF COMPETITIVENESS AND OTHER MATTERS MAY HAVE INFLUENCED HIS BID. IT IS STATED THAT THE POST OFFICE DEPARTMENT HAS NEVER HAD AN OCCASION TO QUESTION MR. HORWICH'S GOOD FAITH OR INTEGRITY RESPECTING THE MANY LEASED BUILDINGS HE HAS SUPPLIED TO THE POST OFFICE IN THE PAST YEARS, BUT THAT SINCE THE BID WAS ACCEPTED IN GOOD FAITH WITHOUT NOTICE OF PROBABILITY OF ERROR AND AFTER AFFORDING THE BIDDER AN OPPORTUNITY TO RE-CHECK HIS BID, THE ACCEPTANCE OF THE BID CONSTITUTED A VALID AND BINDING CONTRACT, CITING 20 COMP. GEN. 286; 23 ID. 589; AND 31 ID. 384. IT IS ALSO STATED THAT:

"IF THIS DEPARTMENT TOOK A CONTRARY POSITION WE FEEL IT WOULD ENCOURAGE LOW BIDDERS IN SIMILAR TYPE CASES TO TAKE A SECOND LOOK AT THEIR BIDS AND THE PROPRIETY OF LEAVING IT AT THE ORIGINALLY BID RENTALS. ANY BIDDER COULD SET UP A "HINDSIGHT" TYPE OF MISTAKE OF THE NATURE ALLEGED IN THE PRESENT CASE. I REPEAT THERE IS EVERY CONFIDENCE IN MR. HORWICH'S INTEGRITY BUT WE ARE APPREHENSIVE OF "OPENING THE DOOR" TO "CORRECTIONS" IN THIS TYPE OF CASE.'

WE AGREE THAT THE GENERAL RULE IS AS STATED IN THE LETTER OF JUNE 14, THAT WHERE THE SURROUNDING CIRCUMSTANCES ARE SUCH THAT THERE WAS NOTHING TO PLACE THE CONTRACTING OFFICER ON NOTICE OF THE PROBABILITY OF ERROR IN A BID, THE ACCEPTANCE THEREOF CONSUMMATES A VALID AND BINDING CONTRACT. ALSO, THE RESPONSIBILITY FOR THE PREPARATION OF THE BID IS UPON THE BIDDER AND A BIDDER MAY NOT SET UP HIS OWN NEGLIGENCES AND CALL IT A MUTUAL MISTAKE. HOWEVER, WHERE THE FACTS AND CIRCUMSTANCES ARE SUCH THAT THE CONTRACTING OFFICER WAS, OR SHOULD HAVE BEEN, ON NOTICE OF THE PROBABILITY OF ERROR IN THE BID ACCEPTANCE WILL NOT CREATE A VALID AND BINDING CONTRACT. SEE MOFFETT, HODGKINS AND CLARKE CO. V. ROCHESTER, 178 U.S. 373; EDMUND J. RAPPOLI CO., INC. V. UNITED STATES, 98 C.CLS. 499; ALTA ELECTRIC AND MECHANICAL CO., INC. V. UNITED STATES, 90 C.CLS. 466; NASON COAL CO. V. UNITED STATES, 64 C.CLS. 526; C. N. MONROE MANUFACTURING CO. V. UNITED STATES, 143 F.SUPP. 449; KEMP V. UNITED STATES, 38 F.SUPP. 568.

IN THE INSTANT CASE FIVE OF THE SIX OTHER BIDS RANGED FROM $24,317 TO $25,750 AND THE SIXTH BID WAS IN THE AMOUNT OF $27,435 AS AGAINST A BID OF $18,830 SUBMITTED BY MR. HORWICH. SEVERAL OF THE ITEMS OF COST INVOLVED WERE KNOWN OR DISCLOSED IN THE BIDS, NAMELY, LAND COST, $60,000; TAXES, $5,200; AND COST OF BOND, $1,700. ALSO, AMORTIZATION, INCLUDING INTEREST, ON THE TOTAL ESTIMATED INVESTMENT IN THE PROJECT WAS SUBJECT TO EASY COMPUTATION. WHILE THERE MAY HAVE BEEN SOME LATITUDE IN THE COST OF CONSTRUCTION OF THE BUILDING ITSELF, IN VIEW OF THE POST OFFICE REQUIREMENTS AS SET FORTH IN THE DRAWING, WHICH CONSTITUTED A PART OF THE BID, AND THE FACT THAT THE BUILDING WAS TO BE CONSTRUCTED ON A PARTICULAR SITE, ANY SUCH LATITUDE IN CONSTRUCTION COSTS WAS SEVERELY LIMITED. FURTHERMORE, MR. HORWICH WAS KNOWN TO BE AN INVESTOR, HAVING FURNISHED SEVERAL SUCH PROJECTS FOR THE POST OFFICE DEPARTMENT IN THE PAST, AND IT IS NOT REASONABLE TO BELIEVE THAT HIS TAX POSITION, LOCAL PRIDE, OR SENSE OF COMPETITIVENESS WOULD ACCOUNT FOR HIS LOW BID ON THE PROJECT HERE INVOLVED, A LOCAL SUBSTATION IN THE CITY OF CHICAGO.

AS HERETOFORE STATED, THE BIDS WERE NOT PUBLICLY OPENED AND, THEREFORE, THERE WAS NO MEANS BY WHICH MR. HORWICH COULD HAVE BECOME AWARE OF THE PRICE QUOTED BY OTHER BIDDERS AND THEREBY BEEN PLACED ON NOTICE OF THE ERROR IN HIS BID. MR. HORWICH WAS CALLED ON ANOTHER MATTER AND DURING THIS CALL IT WAS SUGGESTED IF HE CARED TO RE-CHECK HIS FIGURES ON HIS PROJECT OVER THE WEEKEND, THAT HE DO SO BEFORE AN EVALUATION WAS MADE OF THE BIDS RECEIVED. NO INDICATION WAS GIVEN MR. HORWICH THAT THERE WAS DOUBT AS TO THE CORRECTNESS OF HIS BID. MR. HORWICH EXPLAINS THAT FROM PRIOR DEALINGS HE UNDERSTOOD THE SUGGESTION TO RE-CHECK HIS FIGURES AS A REQUEST AS TO WHETHER OR NOT HE COULD LOWER HIS BID AND THAT HE DID NOT RE -FIGURE THE BID SINCE HE FELT THAT THE BID WHICH HAD BEEN SUBMITTED WAS AT A MINIMUM. IN THE CIRCUMSTANCES, IT IS NOT BELIEVED THAT SUCH REQUEST CAN PROPERLY BE CONSIDERED AS A REQUEST FOR VERIFICATION OF THE BID. SEE UNITED STATES V. METRO NOVELTY MANUFACTURING COMPANY, INC., 125 F.SUPP. 713. THE FACTS AND EVIDENCE OF RECORD REASONABLY ESTABLISHES THAT AN ERROR WAS MADE BY MR. HORWICH IN HIS BID AS ALLEGED AND THAT EXCEPT FOR THE ERROR THE BID WOULD HAVE QUOTED AN ANNUAL RENTAL OF 23,100 FOR THE 20 YEAR BASE PERIOD, WHICH WOULD STILL BE LOWER THAN THE NEXT LOWEST BID RECEIVED. HOWEVER, MR. HORWICH HAS OFFERED A RENTAL OF $22,100 FOR THE 20 -YEAR BASE PERIOD. IN THE CIRCUMSTANCES, THE AGREEMENT TO LEASE WHICH WAS AWARDED TO DANIEL HORWICH AND RUTH HORWICH ON MARCH 10, 1960, SHOULD BE AMENDED TO PROVIDE FOR AN ANNUAL RENTAL OF $22,100 SUBJECT TO ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT. SEE MOFFETT, HODGKINS AND CLARKE CO. V. ROCHESTER, SUPRA.

A REFERENCE TO THIS DECISION SHOULD BE MADE IN THE AMENDMENT TO THE AGREEMENT TO LEASE.

THE AGREEMENT TO LEASE, COPY OF ASSIGNMENT OF OPTION TO PURCHASE LAND, AND THE INVITATION FOR BIDS ARE RETURNED HEREWITH.