B-16349, SEPTEMBER 5, 1957, 37 COMP. GEN. 174

B-16349, SEPTEMBER 5, 1957, 37 COMP. GEN. 174

BIDS - DELIVERY PROVISIONS - F.O.B. DESTINATION REQUIREMENT A REQUIREMENT THAT BIDS FOR SUPPLIES FURNISHED IN CARLOAD AND TRUCKLOAD LOTS BE SOLICITED ON AN F.O.B. DESTINATION BASIS EXCLUSIVELY WOULD RESTRICT COMPETITION AND WOULD AFFECT ADVERSELY THE ECONOMIC INTERESTS OF THE GOVERNMENT.

TO THE SECRETARY OF THE INTERIOR, SEPTEMBER 5, 1957:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 1, 1957, WITH ENCLOSURE, CONCERNING OUR VIEWS WITH RESPECT TO A PROPOSED SUBMISSION TO THE GENERAL SERVICES ADMINISTRATION RECOMMENDING AMENDMENT OF ITS GOVERNMENT-WIDE REGULATIONS REGARDING " PURCHASES INVOLVING SHIPMENTS OF LESS THAN CARLOAD OR LESS THAN TRUCKLOAD LOTS" AND REGARDING " STANDARD CONTRACT DELIVERY TERMS.' IT IS STATED THAT THE PROPOSED AMENDMENT IS FOR THE PURPOSE OF PERMITTING SOLICITATION OF BIDS FOR SUPPLIES, MATERIALS, AND EQUIPMENT EXCLUSIVELY F.O.B. CARS AT DESTINATION, UNLESS IT APPEARS THAT AT THE TIME THE INVITATION IS ISSUED A PREFERENTIAL RATE IS AVAILABLE TO THE GOVERNMENT OR THE DESTINATION IS UNKNOWN.

BEFORE MAKING THE PROPOSED RECOMMENDATION YOU REQUEST ADVICE AS TO WHETHER OUR DECISION OF MAY 13, 1941, B-16349, 20 COMP. GEN. 761, STILL REPRESENTS THE VIEWS OF OUR OFFICE. YOU ENCLOSED WITH YOUR LETTER A COPY OF A MEMORANDUM BY THE ASSISTANT COMMISSIONER AND CHIEF ENGINEER OF THE BUREAU OF RECLAMATION, WHEREIN THE CITED DECISION, AS WELL AS OUR DECISIONS B-125656 OF OCTOBER 6, 1955, AND B-126973 OF MAY 1, 1956 (35 COMP. GEN. 603), ARE DISCUSSED.

THE PROPOSAL OF THE ASSISTANT COMMISSIONER AND CHIEF ENGINEER RAISES THE QUESTION AS TO WHETHER BIDS "MAY LAWFULLY BE LIMITED TO F.O.B. DESTINATION, EXCEPT (A) WHERE IT APPEARS IN ADVANCE OF ISSUANCE OF INVITATION TO BID THAT A PREFERENTIAL FREIGHT RATE IS AVAILABLE TO THE GOVERNMENT, AND (B) WHERE THE POINT OF DESTINATION IS NOT DEFINITELY KNOWN AT THE TIME THE INVITATION IS ISSUED.' IT IS HIS VIEW THAT THE DECISIONS DISCUSSED IN HIS MEMORANDUM SUGGEST THAT WE NOW AUTHORIZE THE LIMITATIONS OF COMPETITION TO AN F.O.B. DESTINATION BASIS, WITH THE NOTED EXCEPTIONS.

OUR DECISION OF MAY 13, 1941, B-16349, (20 COMP. GEN. 761), WAS IN RESPONSE TO A REQUEST FROM THE DIRECTOR, BUREAU OF THE BUDGET, FOR ADVICE AS TO WHETHER, BECAUSE OF THE CHANGED SITUATION RELATING TO THE COST OF TRANSPORTATION BROUGHT ABOUT BY THE ENACTMENT OF THE TRANSPORTATION ACT OF 1940, THE GOVERNMENT AGENCIES MIGHT NOT SOLICIT BIDS ON AN F.O.B. DESTINATION BASIS ONLY, WITH THE FOUR EXCEPTIONS NOTED IN THE DIRECTOR'S REQUEST.

AT THAT TIME WE CONSIDERED THE CIRCUMSTANCES SURROUNDING THE CHANGED SITUATION DUE TO THE ELIMINATION OF LAND-GRANT DEDUCTIONS ON SHIPMENTS OF OTHER THAN MILITARY OR NAVAL PROPERTY MOVING FOR MILITARY OR NAVAL USE BY REASON OF THE PROVISIONS OF SECTION 321 OF THE TRANSPORTATION ACT OF 1940, 54 STAT. 954, 49 U.S.C. 65. THE CONCLUSION REACHED IN THAT DECISION, THAT GENERALLY THE BEST INTERESTS OF THE GOVERNMENT WOULD BE BETTER SERVED THROUGH SOLICITATION OF BIDS ON AN F.O.B. DESTINATION BASIS (WITH NOTED EXCEPTIONS), WAS PREMISED UPON THE UNDERSTANDING THAT, WITH THE ELIMINATION OF THE LAND-GRANT DEDUCTION FACTOR, CHARGES FOR TRANSPORTATION WOULD ORDINARILY BE THE SAME, WHETHER PAID TO THE CARRIER BY THE VENDOR, OR BY THE GOVERNMENT, IN THE ABSENCE OF A REDUCED RATE WHICH MIGHT BE MADE AVAILABLE TO THE GOVERNMENT UNDER SECTION 22 OF THE INTERSTATE COMMERCE ACT, 49 U.S.C. 314. IT WAS RECOGNIZED THAT IN THE ABSENCE OF SUCH PREFERENTIAL RATE CHARGES PAID BY EITHER THE VENDOR OR THE GOVERNMENT WOULD BE DERIVED FROM THE USE OF RATES PUBLISHED IN TARIFFS ON FILE WITH THE INTERSTATE COMMERCE COMMISSION OR THE VARIOUS STATE COMMISSIONS. HOWEVER, IT WAS STATED IN OUR DECISION OF MAY 13, 1941, THAT---

* * * IT IS ASSUMED, OF COURSE, THAT WHERE, IN THE COURSE OF EXPERIENCE IT MAY APPEAR THAT GREATER COMPETITION, WITH ANY MATERIAL RESULTANT SAVING IN DELIVERED COST, WOULD BE PRODUCED THROUGH THE SOLICITATION OF BIDS FOR DELIVERY F.O.B. ORIGIN, AS WELL AS F.O.B. DESTINATION, WHETHER THAT REDUCTION BE DUE TO THE INCREASED NUMBER OF BIDDERS PARTICIPATING OR TO DISCLOSURES THAT F.O.B. DESTINATION BIDS INCLUDE EXCESSIVE TRANSPORTATION COSTS, THE INTERESTS OF THE GOVERNMENT WILL REQUIRE THAT BIDS BE SOLICITED ON SAID BASIS. ON THIS ASSUMPTION, YOU ARE INFORMED THAT WHERE IT IS ADMINISTRATIVELY DETERMINED THAT THE BEST INTERESTS OF THE GOVERNMENT IN THE PROCUREMENT OF MATERIALS AND SUPPLIES NOT SUBJECT TO DEDUCTION FOR LAND GRANT WILL BE SERVED THROUGH THE SOLICITATION OF BIDS F.O.B. DESTINATION, ONLY, THE AWARD OF CONTRACTS ON BIDS SOLICITED ON THAT BASIS WILL NOT BE QUESTIONED BY THIS OFFICE IN THE AUDIT OF ACCOUNTS, IF OTHERWISE LEGAL AND PROPER.

OUR VIEW WAS, AT THE TIME THAT DECISION WAS WRITTEN, AND NOW IS, THAT THE DUE PROTECTION OF THE GOVERNMENT'S INTEREST IS PARAMOUNT.

IT IS IMPORTANT IN THE SOLICITATION OF BIDS THAT QUALIFIED BIDDERS BE AFFORDED AN EQUAL OPPORTUNITY TO QUOTE THE GOVERNMENT PRICES ON NEEDED SUPPLIES, EQUIPMENT, ETC., TO THE END THAT THEY BE NOT DISCOURAGED FROM BIDDING BY REASON OF THE REQUIREMENT FOR AN ADVANCE OUTLAY OF CONSIDERABLE TRANSPORTATION COSTS FREQUENTLY ASSESSABLE, PARTICULARLY ON CARLOAD OR TRUCKLOAD LOTS, FOR THE MOVEMENT OF GOVERNMENT-PURCHASED GOODS TO SPECIFIED DESTINATIONS. AN ATMOSPHERE OF FREE COMPETITION IN PURCHASES AND CONTRACTS FOR SUPPLIES SUCH AS IS SOUGHT TO BE MAINTAINED UNDER THE PROVISIONS OF THE SMALL BUSINESS ACT OF 1953 (15 U.S.C. 631) PRESUMABLY IS INVIGORATED BY THE INCLUSION IN GOVERNMENT INVITATIONS AND CONTRACTS OF CONDITIONS TENDING TO STIMULATE THE INTEREST AND ABILITY OF SMALL BUSINESSES TO FURNISH THE GOVERNMENT ARTICLES AND SUPPLIES USEFUL TO ITS FUNCTIONS AND PURPOSES. PROVISION FOR THE QUOTATION OF PRICES ON AN F.O.B. ORIGIN BASIS FREQUENTLY WOULD SEEM TO SERVE THE CONVENIENCE AND ABILITY OF A LARGER NUMBER OF BIDDERS WHO OTHERWISE MIGHT BE RELUCTANT TO ASSUME, EVEN FOR A SHORT PERIOD, THE BURDEN OF TRANSPORTATION COSTS AND THE TASK OF ADJUSTING WITH CARRIERS LOSS OR DAMAGE LIABILITIES AS THEY MIGHT ARISE.

INSOFAR AS OUR EXPERIENCE HAS DISCLOSED IN THE AUDIT OF TRANSPORTATION ACCOUNTS AND FROM OUR STUDY OF THE PROBLEMS INVOLVED, WE FAVOR THE CONTINUED GENERAL APPLICATION OF THE INSTRUCTIONS CONTAINED IN GENERAL SERVICES ADMINISTRATION REGULATIONS I-II-209.03C. 1. TO THE EFFECT THAT SUPPLY CONTRACTS SHALL BE F.O.B. DESTINATION WHENEVER IT IS ESTIMATED THAT NO SHIPMENT TO A SINGLE DESTINATION WILL EQUAL A CARLOAD OR A TRUCKLOAD LOT (ESTIMATED TO WEIGH APPROXIMATELY 20,000 POUNDS), AND THAT THE PURCHASING AGENCY SHALL INCORPORATE IN ALL SUPPLY CONTRACTS FOR LESS-THAN- CARLOAD OR LESS-THAN-TRUCKLOAD LOTS FOR DELIVERY WITHIN THE CONTINENTAL UNITED STATES A PROVISION THAT DELIVERY TERMS SHALL BE F.O.B. DESTINATION, PROVIDED THAT "DELIVERY TERMS MAY BE OTHERWISE DESIGNATED WHENEVER THERE ARE VALID REASONS TO THE CONTRARY, SUCH AS, BUT NOT RESTRICTED TO, INDUSTRY PRACTICE OR DESTINATION UNKNOWN.' WE ALSO BELIEVE IT DESIRABLE TO PRESERVE THE GENERAL SENSE OF THE REGULATIONS (I-II-209.03D. 4.) OF THE GENERAL SERVICES ADMINISTRATION REQUIRING THE INVITATION OF BIDS ON AN F.O.B. DESTINATION BASIS WHEN THE ULTIMATE DESTINATION IS KNOWN AND WHEN THE QUANTITY TO BE PURCHASED IS ESTIMATED TO BE LESS-THAN-CARLOAD OR LESS THAN-TRUCKLOAD LOT OR WHEN THE QUANTITY TO BE PURCHASE IS 100,000 POUNDS OR LESS, IF THE COMMODITY INVOLVED IS OF A FRAGILE NATURE OR OTHERWISE EXCEPTIONALLY SUSCEPTIBLE TO DAMAGE IN TRANSIT.

SHIPMENTS IN CARLOAD OR TRUCKLOAD LOTS OFTEN INVOLVE THE EXPENDITURE OF APPROPRIATED FUNDS FOR TRANSPORTATION COSTS IN CONSIDERABLE AMOUNTS, AND THESE COSTS ARE BORNE BY THE GOVERNMENT WHETHER CONCEALED AS AN UNSEGREGATED PART OF AN F.O.B. DESTINATION PRICE, OR AS SPECIFIC TRANSPORTATION CHARGES ON SEPARATE BILLS STATED BY AND PAID DIRECTLY TO THE CARRIER BY THE GOVERNMENT. AS TO SHIPMENTS MOVING ON GOVERNMENT BILLS OF LADING, OR ON COMMERCIAL BILLING CONVERTED TO GOVERNMENT BILLS OF LADING AT DESTINATION, THE BILLS FOR THE TRANSPORTATION CHARGES THEREON ARE PAID UPON PRESENTATION AND SUBSEQUENTLY AUDITED IN THE GENERAL ACCOUNTING OFFICE. THIS PROCEDURE AFFORDS THE GOVERNMENT AN OPPORTUNITY TO PROTECT ITSELF AGAINST TRANSPORTATION COSTS IN EXCESS OF THE LOWEST CHARGE LAWFULLY AVAILABLE THROUGH THE UTILIZATION OF THE TECHNICAL KNOWLEDGE AND EXPERIENCE OF HIGHLY QUALIFIED TRANSPORTATION PERSONNEL. THIS CONNECTION, WE HAVE REPORTED TO CONGRESS THAT FOR THE FISCAL YEAR 1956, AS A RESULT OF OUR AUDIT OF TRANSPORTATION PAYMENTS, THERE WAS COLLECTED FROM CARRIERS DUE TO OVERPAYMENTS MADE IN PAYMENT OF THEIR BILLS, THE SUM OF $52,097,000. SEE PAGE 8 OF THE ANNUAL REPORT OF THE COMPTROLLER GENERAL OF THE UNITED STATES FOR THE FISCAL YEAR 1956.

IT MAY BE NOTED THAT UNDER A PRACTICE OF SOLICITING BIDS ON AN F.O.B. DESTINATION BASIS ONLY, THE OPPORTUNITY TO EVALUATE THE BIDS FROM THE VIEWPOINT OF THE TRANSPORTATION COSTS WOULD BE PRECLUDED SINCE THE TRANSPORTATION CHARGES ORDINARILY WOULD NOT BE STATED. IT OFTEN HAPPENS THAT THERE IS A DIFFERENCE OF OPINION AMONG BIDDERS AS TO THE PROPER TRANSPORTATION COSTS TO BE INCLUDED IN THE PRICE AT DESTINATION DUE TO A DIFFERENT UNDERSTANDING AS TO THE APPLICABLE RATES AND RULES, AND UNLESS THE TRANSPORTATION COSTS HAVE BEEN CONSIDERED IN THE EVALUATION OF THE BID, AN AWARD CAN CONCEIVABLY BE MADE TO A BIDDER WHO IS NOT IN FACT THE LOWEST BIDDER WHEN THE COST OF MATERIAL AT POINT OF ORIGIN AND PROPERLY APPLICABLE TRANSPORTATION COSTS ARE CONSIDERED. SEE OUR DECISION B-127917 OF JULY 17, 1956, WHERE TWO BIDS WERE RECEIVED HAVING DIFFERENT TRANSPORTATION COST FACTORS STATED ON THE ARTICLE TO BE PURCHASED BY THE GOVERNMENT. THE CONTRACTING OFFICER IN THAT CASE ACCEPTED THE BID IN WHICH THE LOWEST TRANSPORTATION COST FACTOR WAS SPECIFIED, AND IN SUSTAINING THE REJECTION OF THE UNSUCCESSFUL BIDDER'S BID WE STATED THAT:

IN THE (PROTESTING BIDDER-S) MEMORANDUM OF POINTS AND AUTHORITIES SUBMITTED IT IS STATED THAT IT IS ASSUMED THAT IF THE RAILROADS ARE CHARGING SHIPPERS ACCORDING TO 85 PERCENT OF THE FIRST CLASS RATE THEN THE SHIPPERS ARE PAYING ON THAT BASIS. WHILE IT IS POSSIBLE THAT THE ARMY MAY HAVE MADE PAYMENTS TO THE CARRIERS ON RATINGS APPLICABLE TO LIFT VANS, SUCH FACT WAS NOT CONTROLLING UPON THE DEPARTMENT OF THE ARMY IN THE AWARD OF THE CONTRACT IN THIS PARTICULAR INSTANCE. SEE SECTION 322 OF THE TRANSPORTATION ACT OF 1940, AS AMENDED, 49 U.S.C.A. 66, WHICH PERMITS PAYMENT OF CARRIER'S BILLS UPON PRESENTATION, PRIOR TO AUDIT AND SETTLEMENT IN THE GENERAL ACCOUNTING OFFICE. IN MAKING EVALUATION OF BIDS PRELIMINARY TO THE AWARD OF A CONTRACT BY THE GOVERNMENT THERE ARE FOR CONSIDERATION NOT ONLY THE RIGHTS OF THE GOVERNMENT AS SHIPPER AND THE CARRIERS BUT ALSO THE RIGHTS OF INTERESTED THIRD PARTIES SUCH AS BIDDERS AND PROSPECTIVE CONTRACTORS UNDER STATUTES WHICH REQUIRE THAT AWARDS BE MADE IN EACH CASE TO THAT RESPONSIBLE BIDDER WHOSE BID CONFORMS TO THE INVITATION FOR BIDS.

IT MAY BE NOTED THAT AS TO THE POTENTIAL BURDENSOME AND EXPENSIVE COMPLICATIONS GROWING OUT OF LOSSES AND DAMAGE IN TRANSIT IN CONNECTION WITH SHIPMENTS OF GOVERNMENT PROPERTY, IT SEEMS CLEAR THAT WHERE PRICES ARE SUBMITTED ON AN F.O.B. DESTINATION BASIS A PRUDENT AND RELIABLE BIDDER PRESUMABLY WOULD INCLUDE IN HIS TOTAL PRICE A FACTOR ESTIMATED TO BE SUFFICIENT TO COMPENSATE HIM FOR THE DIRECT AND INCIDENTAL COSTS ATTRIBUTABLE TO ADJUSTMENTS THAT REASONABLY MIGHT BE ANTICIPATED AS EVENTUATING BECAUSE OF LOSSES OR DAMAGE IN TRANSIT. CONSEQUENTLY, IT IS DIFFICULT TO CONCLUDE THAT ESCAPE FROM LOSS AND DAMAGE COMPLICATIONS SHOULD BE OF PREDOMINANT IMPORTANCE IN A DETERMINATION OF THE APPROPRIATE METHOD TO BE USED IN INVITING BIDS.

IN SUMMARY, THEREFORE, WE BELIEVE THAT THE MENTIONED PROVISIONS OF THE GENERAL SERVICES ADMINISTRATION REGULATIONS, WHICH DO NOT AUTHORIZE THE PROCUREMENT OR PURCHASE OF SUPPLIES, EQUIPMENT, ETC., IN CARLOAD OR TRUCKLOAD LOTS, ON AN F.O.B. DESTINATION BASIS ONLY, ARE BEST DESIGNED TO PROMOTE ECONOMY TO THE GOVERNMENT AND FAIRNESS IN THE MAINTENANCE OF THE BIDDING SYSTEM. WE RECOGNIZE THAT THIS IS A MATTER PRIMARILY FOR DETERMINATION BY THE ADMINISTRATOR OF THE GENERAL SERVICES ADMINISTRATION UNDER THE PROVISIONS OF SECTION 201 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, 63 STAT. 383, 40 U.S.C. 471. HOWEVER, IN THE ABSENCE OF INFORMATION OR FACTS NOT NOW AVAILABLE TO US THERE MIGHT BE SOME QUESTION AS TO WHETHER THE ADMINISTRATOR PROPERLY WAS EXERCISING THE AUTHORITY AND RESPONSIBILITY PLACED UPON HIM BY THAT ACT WERE HE TO ADOPT YOUR PROPOSED RECOMMENDATION.