B-170544, JAN 22, 1971, 50 COMP GEN 506

B-170544, JAN 22, 1971, 50 COMP GEN 506

CONTRACTS - REQUIREMENTS - MINIMUM QUANTITIES A REQUEST FOR PROPOSALS TO FURNISH REQUIREMENTS FOR 10 DIFFERENT TYPES OF DIESEL-ELECTRIC GENERATOR SETS, THAT STATED THE GOVERNMENT'S BEST ESTIMATE OF TOTAL QUANTITIES NEEDED BUT DID NOT, BECAUSE OF LACK OF FUNDS, GUARANTEE THE PURCHASE OF MINIMUM QUANTITIES, CONTEMPLATES A REQUIREMENTS- TYPE CONTRACT WITHIN THE MEANING OF PARAGRAPH 3-409.2(B) OF THE ARMED SERVICES PROCUREMENT REGULATION, AND THE USE OF SUCH A CONTRACT IS VALID SINCE THERE IS NO EVIDENCE THE GOVERNMENT'S ESTIMATE OF PROBABLE NEEDS WAS ARRIVED AT IN BAD FAITH, AND THE AGREEMENT TO PROCURE ALL REQUIREMENTS WITHOUT STATING MINIMUM GUARANTEES CONSTITUTES ADEQUATE CONSIDERATION. HOWEVER, WHEN FUNDS ARE AVAILABLE AND NEEDS CAN BE ASCERTAINED WITH REASONABLE CERTAINTY, USE OF A MORE DEFINITE TYPE CONTRACT WOULD BE ASSURANCE THAT FIRM MINIMUM QUANTITIES, COMMENSURATE TO THE MAXIMUM EXTENT WITH ESTIMATED REQUIREMENTS, WILL BE ORDERED.

TO THE A. G. SCHOONMAKER COMPANY, INC., JANUARY 22, 1971:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF AUGUST 8, 1970, AND SUBSEQUENT CORRESPONDENCE PROTESTING THE MANNER IN WHICH REQUEST FOR PROPOSAL NO. DSA-400-70-R-8075 WAS STRUCTURED.

THE INSTANT SOLICITATION, ISSUED BY THE DEFENSE GENERAL SUPPLY CENTER, RICHMOND, VIRGINIA, ON JUNE 30, 1970, REQUESTED OFFERS FOR DEPARTMENT OF THE AIR FORCE REQUIREMENTS FOR 10 DIFFERENT TYPES OF DIESEL-ELECTRIC GENERATOR SETS, ALL BELONGING TO THE FAMILIES OF TYPES MB-15 THROUGH MB- 19, FURNISHING 150, 100, 60, 30 AND 15 KW OF POWER, RESPECTIVELY. THE PROCUREMENT WAS UNDERTAKEN TO SATISFY THE REQUIREMENTS OF A MILITARY INTERDEPARTMENTAL PURCHASE REQUEST (MIPR) FOR THE AIR FORCE REFLECTING THAT THE REQUIREMENTS TO BE COVERED ARE BASICALLY THOSE OF FISCAL YEAR 1971, WITH THE AIR FORCE FURNISHING ITS BEST ESTIMATE FOR THE QUANTITY OF EACH OF THE GENERATOR SETS IT ANTICIPATES WILL BE REQUIRED, THE TOTAL QUANTITY IN ASSORTED SIZES AMOUNTING TO 1,176 UNITS.

SINCE THE FILING OF YOUR INITIAL PROTEST, WHICH RAISED MANY ISSUES CONCERNING THE VALIDITY OF THIS PROCUREMENT, SEVERAL AMENDMENTS HAVE BEEN ISSUED UNDER THE SOLICITATION SO AS TO REMOVE ALL BUT ONE ISSUE WHICH YOU NOW FEEL IS GERMANE TO OUR CONSIDERATION OF THIS MATTER, NAMELY, "THE ABSENCE OF ANY PROVISION IN THE SOLICITATION REQUIRING THE GOVERNMENT TO PURCHASE A REALISTIC MINIMUM QUANTITY." SPECIFICALLY, YOU URGE:

THE RFP IS BASED ON AN INDEFINITE QUANTITY REQUIREMENTS TYPE CONTRACT, WITH NO GUARANTEE OF THE PURCHASE OF EVEN ONE GENERATOR, AND NO LIMIT ON THE MAXIMUM NUMBER WHICH CAN BE ORDERED. IN OUR OPINION, THIS FEATURE, COUPLED WITH THE FACT THAT THE CONTRACT RUNS FOR AN INDEFINITE PERIOD RESULTS IN AN ILLEGAL CONTRACT. IN ANY EVENT, IT IS ALMOST IMPOSSIBLE TO PRICE, WITHOUT LARGE CONTINGENCIES. THE GOVERNMENT MAY ORDER, AND THE CONTRACTOR MUST REMAIN IN A POSITION TO FURNISH AS MANY AS TEN DIFFERENT TYPES OF GENERATOR SETS EACH IN A MAXIMUM ORDER QUANTITY OF TWENTY-FIVE EACH WITHIN A THIRTY DAY PERIOD. TO REQUIRE A CONTRACTOR TO KEEP OPEN PRODUCTION CAPACITY CAPABLE OF PRODUCING 250 GENERATOR SETS IN ONE MONTH, WHICH MAY NEVER BE UTILIZED, IS WASTEFUL. IT IS EXTREMELY DIFFICULT FOR ANY OFFEROR, OTHER THAN FERMONT, TO QUOTE A REALISTIC PRICE WITH THESE REQUIREMENTS.

IN RESPONSE TO THESE OBJECTIONS, IT HAS BEEN REPORTED BY THE CONTRACTING OFFICER:

THE PROTESTANT INDICATES THAT IT APPEARS TO IT THAT NO REQUIREMENTS EXIST IF NO MINIMUM IS GUARANTEED. THE MIPR REQUESTS THAT A REQUIREMENTS CONTRACT BE ISSUED THE SECRETARIAL D & F SPEAKS IN TERMS OF REQUIREMENTS RATHER THAN FIXED QUANTITIES AND THE PROJECT MANAGER SPECIFICALLY APPROVED THE ISSUANCE OF A NEW REQUIREMENTS TYPE CONTRACT IN THE EARLY PLANNING STAGES FOR THIS PROCUREMENT *** . THERE IS A CONTINUING NEED FOR THE GENERATOR SETS WITH 5.613 SETS HAVING BEEN PURCHASED UNDER THE THREE CONTRACTS MADE SINCE COMPTROLLER GENERAL'S DECISION B-153145 (APRIL 27, 1964). HOWEVER, THE AIR FORCE HAS INFORMALLY ADVISED THAT AT THIS TIME ONLY A SMALL NUMBER OF THE GENERATOR SETS INVOLVED IN THIS PROCUREMENT HAVE BEEN FUNDED. EFFORTS ARE NOW BEING MADE BY THE AIR FORCE TO DETERMINE IF A SUFFICIENT NUMBER OF GENERATOR SETS IN ALL SIZES CAN BE FUNDED TO MAKE AN INDEFINITE QUANTITY CONTRACT MORE DESIRABLE TO PROSPECTIVE OFFERORS THAN A REQUIREMENTS CONTRACT. IF SO THIS CENTER WILL CONSIDER REISSUING THE RFP TO PROVIDE FOR OFFERS COVERING A SPECIFIED MINIMUM TO MAXIMUM QUANTITY.

THE PROTEST ALSO QUESTIONS AGAIN THE FACT THAT A REQUIREMENT CONTRACT IS BEING SOUGHT *** AS STATED IN PARAGRAPH 8 OF THE ORIGINAL REPORT THE AIR FORCE WAS ATTEMPTING TO ASCERTAIN WHETHER A SUFFICIENT QUANTITY OF THE ANTICIPATED REQUIREMENTS COULD BE FUNDED AT THIS TIME TO MAKE AN INDEFINITE QUANTITY CONTRACT WHICH STATED MINIMUM AND MAXIMUM QUANTITIES MORE ATTRACTIVE TO POTENTIAL OFFERORS THAN A REQUIREMENTS CONTRACT. REPRESENTATIVE OF THE PROJECT MANAGER'S OFFICE ADVISED THE UNDERSIGNED IN A MEETING HELD AT THIS CENTER ON 9, 10 AND 11 SEPTEMBER 1970 THAT THE REQUIREMENTS WERE CONSIDERED FIRM AND THAT SEVERAL REVIEWS HAD NOT RESULTED IN THE BELIEF THAT ANY CHANGE SHOULD BE MADE IN THE QUANTITIES BEING USED AS THE ESTIMATED REQUIREMENT. HOWEVER, SINCE ONLY SEVENTY UNITS IN ASSORTED SIZES WERE CONSIDERED FUNDED AT THIS TIME, IT WAS BELIEVED THAT ANY ATTEMPT TO CHANGE THE PROCUREMENT TO SEEK AN INDEFINITE QUANTITY CONTRACT RATHER THAN A REQUIREMENTS CONTRACT WOULD SERVE NO USEFUL PURPOSE.

THE REQUIREMENTS CONTRACT HAS NO SPECIFIC MAXIMUM ON THE QUANTITY THAT CAN BE ORDERED BUT IT DOES HAVE A MAXIMUM DELIVERY ORDER LIMITATION (AS SHOWN ON THE PAGE NUMBERED 43 IN AMENDMENT NO. 6) WHICH PROTECTS A CONTRACTOR FROM NEEDING TO KEEP AN UNLIMITED CAPACITY OPEN TO MEET THE GOVERNMENT'S REQUIREMENTS WHATEVER THEY MAY BE. THE CONTRACT WOULD NOT HAVE BEEN FOR AN INDEFINITE PERIOD, BUT THE PERIOD WOULD HAVE BEEN DIFFICULT TO ASCERTAIN WITH PRECISENESS PRIOR TO THE APPROVAL OF INITIAL PRODUCTION UNITS. TO OBVIATE THIS OBJECTION THE ORDERING PERIOD HAS BEEN CHANGED IN AMENDMENT NO. 6 TO END ON 28 FEBRUARY 1972. IT IS ANTICIPATED THAT THIS CALENDAR DATE WILL GIVE THE GOVERNMENT BASICALLY A YEAR TO ORDER PRODUCTION GENERATOR SETS BUT GIVE THE CONTRACTOR AN ADDITIONAL NUMBER OF DAYS (APPROXIMATELY 90 DAYS) TO DO A PORTION OF THE REQUIRED FIRST ARTICLE TESTING.

CONCERNING YOUR ARGUMENT THAT A CONTRACTOR WILL BE REQUIRED TO KEEP AN OPEN PRODUCTION CAPACITY OF 250 GENERATOR SETS IN 1 MONTH, WE THINK IT SUFFICIENT TO OBSERVE THAT PAGE 43, AS AMENDED, OF THE SOLICITATION LIMITS THE 30 DAY MAXIMUM TO 125 UNITS, AND A LEAD TIME OF 150 DAYS IS GIVEN ON ALL ORDERS. THUS WE FAIL TO SEE WHERE A POTENTIAL CONTRACTOR WOULD BE REQUIRED TO KEEP AN OPEN PRODUCTION CAPACITY TO THE EXTENT ALLEGED. ALSO, THE SAME AMENDMENT PROVIDES FOR A DEFINITE CONTRACT PERIOD; NAMELY, NOVEMBER 30, 1970, OR DATE OF AWARD, WHICHEVER IS LATER, AND WILL CONTINUE IN EFFECT FOR ORDERING PURPOSES UNTIL FEBRUARY 28, 1972.

THE INSTANT PROCUREMENT CONTEMPLATES A REQUIREMENTS-TYPE CONTRACT, AND THE COURTS AND OUR OFFICE HAVE CONSIDERED SUCH CONTRACTS VALID PROVIDED THE ESTIMATE OF THE PROBABLE AMOUNT OF GOODS OR SERVICES TO BE GENERATED WAS DETERMINED IN GOOD FAITH. SEE SHADER CONTRACTORS, INC. V UNITED STATES, 149 CT. CL. 539 (1960), 276 F. 2D 1; 47 COMP. GEN. 365 (1968); 37 ID. 688 (1958). SHADER ALSO STANDS FOR THE PROPOSITION THAT THERE NEED BE NO MINIMUM GUARANTEES, AND THAT AN AGREEMENT TO PROCURE ALL OF AN AGENCY'S REQUIREMENTS, WITHOUT MINIMUM GUARANTEES, CONSTITUTES ADEQUATE CONSIDERATION. THERE IS NO EVIDENCE HERE THAT THE ESTIMATE OF THE PROBABLE NEEDS (BEQ) OF THE GOVERNMENT WAS ARRIVED AT IN BAD FAITH.

SECTION 3-409.2(B) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), AS PRESENTLY STRUCTURED, STATES:

(B) APPLICABILITY. A REQUIREMENTS CONTRACT MAY BE USED FOR PROCUREMENTS WHERE IT IS IMPOSSIBLE TO DETERMINE IN ADVANCE THE PRECISE QUANTITIES OF THE SUPPLIES OR SERVICES THAT WILL BE NEEDED BY DESIGNATED ACTIVITIES DURING A DEFINITE PERIOD OF TIME. ***

GENERALLY, THE REQUIREMENTS CONTRACT IS APPROPRIATE FOR USE WHEN THE ITEM OR SERVICE *** IS COMMERCIAL OR MODIFIED COMMERCIAL IN TYPE AND WHEN A RECURRING NEED IS ANTICIPATED.

WE HAVE PREVIOUSLY ACCEPTED THE ADMINISTRATIVE CONCLUSION THAT GENERATOR SETS IN THE 15 TO 150 KW SIZES MAY BE REGARDED AS MODIFIED COMMERCIAL ITEMS WITHIN THE MEANING OF ASPR 3-409.2(B), AND THAT THE LANGUAGE OF THAT PROVISION IS PERMISSIVE IN NATURE AND SHOULD NOT BE CONSTRUED AS AN ABSOLUTE PROHIBITION AGAINST THE PURCHASE OF THESE ITEMS THROUGH A REQUIREMENTS-TYPE CONTRACT. B-154594, SEPTEMBER 22, 1964, DECEMBER 18, 1964. CONSEQUENTLY, WE CAN FIND NO LEGAL OBJECTION TO THE PROCUREMENT PROCEDURES HEREIN EMPLOYED, AND YOUR PROTEST MUST BE DENIED.

WE ARE, HOWEVER, SUGGESTING TO THE SECRETARY OF DEFENSE AND THE DIRECTOR OF THE DEFENSE SUPPLY AGENCY THAT CONSIDERATION BE GIVEN TO AMENDING THE APPLICABLE REGULATIONS SO AS TO REQUIRE, WHERE FUNDS ARE AVAILABLE AND THE AGENCY'S NEEDS HAVE BEEN ASCERTAINED WITH REASONABLE CERTAINTY, USE OF A MORE DEFINITIVE TYPE OF CONTRACT WHICH WOULD OPERATE TO GIVE ASSURANCE TO THE CONTRACTOR THAT FIRM MINIMUM QUANTITIES, COMMENSURATE TO THE MAXIMUM EXTENT WITH ESTIMATED REQUIREMENTS, WILL BE ORDERED.