B-124066, JUN. 7, 1955

B-124066, JUN. 7, 1955

TO THE HONORABLE SECRETARY OF THE INTERIOR:

REFERENCE IS MADE TO YOUR LETTER OF MAY 24, 1955, WITH ENCLOSURES, REQUESTING A DECISION AS TO THE PROPRIETY OF AWARDING A CONTRACT TODENALI CONSTRUCTION CO., INC., AND MCCRAY MARINE CONSTRUCTION CO., AS CO- VENTURERS, ON THE BASIS OF THE PRICES SPECIFIED IN THEIR BID DATED MAY 3, 1955.

BY INVITATION DATED MARCH 21, 1955, THE ALASKA RAILROAD REQUESTED BIDS FOR THE CONSTRUCTION OF A MARINE TERMINAL AT SEWARD, ALASKA. THE WORK TO BE PERFORMED WAS DIVIDED INTO SIX ITEMS AND PROSPECTIVE BIDDERS WERE ADVISED THAT AN AWARD WOULD BE BASED ON ONE OF EIGHT SPECIFIED COMBINATIONS OF THOSE ITEMS. ALSO, PROSPECTIVE BIDDERS WERE ADVISED THAT THE BIDS FOR ITEMS 3 AND 4--- DREDGING 35,000 CUBIC YARDS AND 75,000 CUBIC YARDS, RESPECTIVELY--- SHOULD BE STATED AS UNIT PRICES PER CUBIC YARD. ADDENDUM NO. 1 DATED MARCH 30, 1955, THE INVITATION WAS AMENDED TO PROVIDE FOR THE QUOTING OF TOTAL PRICES FOR EACH OF ITEMS 3 AND 4 INSTEAD OF UNIT PRICES.

IN RESPONSE TO THE INVITATION, THE DENALI CONSTRUCTION CO., INC., AND MCCRAY MARINE CONSTRUCTION CO., AS CO-VENTURERS, SUBMITTED A BID DATED MAY 3, 1955, IN WHICH THEY STATED A PRICE OF $1.25 FOR ITEM 3 (35,000 CUBIC YARDS OF DREDGING) AND $1.10 FOR ITEM 4 (75,000 CUBIC YARDS OF DREDGING, INCLUDING ALL OF THAT REQUIRED BY ITEM 3).

IN YOUR LETTER YOU STATE---

"WHEN THE BIDS WERE OPENED ON MAY 3, 1955, NINE BIDS WERE CLEARLY IN ACCORD WITH THE INSTRUCTIONS. THE TENTH BID SUBMITTED BY DENALI CONSTRUCTION COMPANY, INC. AND MCCRAY MARINE CONSTRUCTION CO., AS CO VENTURERS, HEREINAFTER REFERRED TO AS THE DENALI COMPANY, INCLUDED A BID FOR ONLY $1.25 FOR ITEM 3 AND ONLY $1.10 FOR ITEM 4. WHEN ALL OF THE BIDS HAD BEEN READ ALOUD, A REPRESENTATIVE OF ONE OF THE OTHER BIDDERS RAISED THE QUESTION WHETHER THE $1.25 AND $1.10 BIDS WERE UNIT PRICES PER CUBIC YARD OR TOTAL PRICES. THE CONTRACTING OFFICER ALLOWED AN OPPORTUNITY FOR THE REPRESENTATIVES OF THE DENALI COMPANY WHO WERE PRESENT TO OFFER AN EXPLANATION. THEY REMAINED SILENT. AFTER WAITING SOME TIME, THE CONTRACTING OFFICER STATED THAT THE MATTER WOULD BE "TAKEN UNDER ADVISEMENT.' ABOUT THREE HOURS LATER, REPRESENTATIVES OF THE DENALI COMPANY TELEPHONED THE CONTRACTING OFFICER AND STATED SPECIFICALLY THAT THE TWO BIDS IN QUESTION WERE INTENDED AS TOTAL PRICES. * * *"

BY LETTER DATED MAY 4, 1955, THE CO-VENTURERS ADVISED AS FOLLOWS:

"WITH REFERENCE TO THE BID OF DENALI-MCCRAY, A CO-VENTURE, FOR THE CONSTRUCTION OF THE MARINE TERMINAL AT SEWARD, ALASKA, SAID BID PRESENTED TO YOU AT 2 PM. 3 MAY 1955, WE WISH TO CONFIRM THE UNDERSIGNED'S CONVERSATION WITH YOU AT APPROXIMATELY 5 PM. 3 MAY 1955, THAT ACCORDING TO OUR TABULATIONS, THE BID OF DENALI-MCCRAY IS THE LOWEST BID ACCORDING TO THE PLANS AND SPECIFICATIONS AND ADDENDUMS ON THE FOLLOWING POSSIBLE COMBINATIONS:

TABLE

ITEMS NO. 1, 4, AND 5

NO. 1, 4, 5, AND 6

NO. 2, 4, AND 5

NO. 2, 4, 5, AND 6

"FURTHER, THAT IN ACCORDANCE WITH OUR BID, WE SHOULD LIKE TO CALL YOUR ATTENTION TO THE FACT THAT SHOULD WE BE GIVEN AN AWARD FOR ANY OF THE ABOVE COMBINATIONS, PARTICULARLY NO. 1,4,5, AND 6, AND NO. 2,4,5, AND 6, AN ULTIMATE SAVING TO THE GOVERNMENT IN ACCOMPLISHING THIS SCOPE OF THE PROJECT WOULD RESULT.

"WE SHOULD LIKE THE OPPORTUNITY OF DISCUSSING A MEANS OF MAKING AN AWARD ON THE ABOVE BASIS, EVEN THOUGH THERE MIGHT BE SOME QUESTION OF FUNDING AT THIS TIME.'

IN A SUBSEQUENT LETTER DATED MAY 11, 1955, THE CO-VENTURERS POINTED OUT THE ADVANTAGES OF AWARDING A CONTRACT FOR THE ENTIRE PROJECT RATHER THAN FOR A PORTION OF THE PROJECT AT THIS TIME AND URGED THAT THE CONTRACT BE AWARDED TO THEM. WHILE NEITHER LETTER CONTAINS A DEFINITE STATEMENT THAT THE PRICES OF $1.25 AND $1.10 WERE ACTUALLY INTENDED AS TOTAL PRICES FOR ITEMS 3 AND 4, IT IS ONLY ON THAT BASIS THAT THEIR BID WOULD BE LOW ON ANY COMBINATION. ON ITEM 3, NINE OF THE OTHER BIDDERS QUOTED TOTAL PRICES RANGING FROM $24,500 TO $175,000 AND, ON ITEM 4, THE SAME BIDDERS QUOTED TOTAL PRICES RANGING FROM $70,000 TO $300,000. THE GOVERNMENT'S ESTIMATE FOR THE WORK COVERED BY ITEMS 3 AND 4 WAS $21,000 AND $45,000, RESPECTIVELY. ALTHOUGH IT IS REPORTED THAT THE CO-VENTURERS STATED IN A TELEPHONE CONVERSATION THAT THEIR PRICES OF $1.25 AND $1.10 ON THESE ITEMS WERE INTENDED AS TOTAL PRICES, SUCH STATEMENT APPEARS HIGHLY QUESTIONABLE. IN ADDITION TO THE OTHER STRONG INDICATIONS OF ERROR PRESENT IN THE CASE, THERE IS NO LOGICAL BASIS FOR ASSUMING THAT A BIDDER WOULD INTENTIONALLY QUOTE A HIGHER PRICE FOR DREDGING 35,000 CUBIC YARDS OF MATERIAL THAN FOR DREDGING THAT VERY SAME MATERIAL PLUS 40,000 CUBIC YARDS OF ADDITIONAL MATERIAL.

FURTHERMORE, IT IS TO BE NOTED THAT, IF THE PRICES OF $1.25 AND $1.10 ARE TO BE REGARDED AS TOTAL PRICES, THE CO-VENTURERS WILL BE LOW ON FOUR OF THE EIGHT SPECIFIED COMBINATIONS; WHEREAS, IF THOSE PRICES ARE REGARDED AS UNIT PRICES, WHICH APPEAR TO BE THE LOGICAL CONCLUSION, THE CO-VENTURERS WOULD NOT BE LOW ON ANY OF THE EIGHT SPECIFIED COMBINATIONS. THIS BEING THE CASE, AND SINCE THE ITEMS INVOLVED WERE COMPARATIVELY SMALL IN RELATION TO THE PERMISSIBLE AWARDS, THE FACT THAT THE BIDDER DID NOT EXPLAIN AND VERIFY ITS BID AT THE TIME OF OPENING WHEN IT WAS AFFORDED AN OPPORTUNITY TO DO SO ASSUMES CONSIDERABLE SIGNIFICANCE. IN ANY EVENT, AFTER OPENING THE BIDDER HAD THE OPTION OF WITHDRAWING ITS BID BECAUSE OF ITS APPARENTLY OBVIOUS ERROR IN QUOTING UNIT PRICES. HAD IT ELECTED TO TAKE THAT COURSE, ITS RIGHT TO DO SO COULD NOT HAVE BEEN QUESTIONED UNDER THE LAW. THE BIDDER, THEREFORE, MAY NOT BE PERMITTED TO STAND ON ITS APPARENTLY ERRONEOUS BID AND MAKE A CONTRACT TO WHICH IT WOULD NOT HAVE BEEN ENTITLED BUT FOR THE ERROR. THE PRESERVATION OF FAIRNESS IN THE COMPETITIVE BIDDING SYSTEM PRECLUDES GIVING A BIDDER THE RIGHT TO MAKE SUCH AN ELECTION AFTER THE RESULTS OF THE BIDDING ARE KNOWN.

ACCORDINGLY, THE PRICES OF $1.25 AND $1.10 QUOTED BY THE CO VENTURERS FOR ITEMS 3 AND 4, RESPECTIVELY, MAY NOT BE REGARDED AS LUMP SUM PRICES FOR PURPOSES OF AWARD.