A-34050, DECEMBER 11, 1930, 10 COMP. GEN. 261

A-34050: Dec 11, 1930

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WHERE A CONTRACT IS AUTHORIZED UNDER AN ANNUAL APPROPRIATION. THE CONTRACTUAL LIABILITY MAY NOT EXCEED THE FISCAL YEAR CURRENT WHEN THE CONTRACT WAS ENTERED INTO. WHEREIN DECISION HAS BEEN REQUESTED AS TO WHICH OF THE THREE BIDS YOU ARE AUTHORIZED TO ACCEPT FOR THE INSTALLATION OF THE TELEPHONE SYSTEM. BIDDERS WERE REQUESTED TO QUOTE. - EACH BIDDER IS REQUESTED TO FURNISH ALSO A BID FOR MAINTAINING ALL OF THE SWITCHING EQUIPMENT. TELEPHONES FOR ONE YEAR AFTER THE DATE THE EXCHANGE IS PUT INTO SERVICE. PREFERENCE WILL BE GIVEN TO A BIDDER WHO FURNISHES ALSO A MAINTENANCE BID. ADDRESS OF ITS LOCAL REPRESENTATIVE TO WHOM TROUBLE AND DEFECTS ARE TO BE REPORTED. THE REPAIRS AND REPLACEMENTS MADE NECESSARY BY THESE REPORTS SHALL BE MADE WITHIN A REASONABLE TIME AFTER THE TROUBLES AND DEFECTS ARE REPORTED.

A-34050, DECEMBER 11, 1930, 10 COMP. GEN. 261

ADVERTISING - BIDS - EVALUATION - FISCAL YEAR CONTRACTS BIDS MAY NOT BE EVALUATED, OR COMPARED, ON ANY BASIS NOT PROVIDED FOR IN THE ADVERTISED SPECIFICATIONS, NOR MAY A CONTRACT BE ENTERED INTO FOR PERIODS NOT AUTHORIZED BY SPECIFIC STATUTES. WHERE A CONTRACT IS AUTHORIZED UNDER AN ANNUAL APPROPRIATION, THE CONTRACTUAL LIABILITY MAY NOT EXCEED THE FISCAL YEAR CURRENT WHEN THE CONTRACT WAS ENTERED INTO.

COMPTROLLER GENERAL MCCARL TO THE ATTORNEY GENERAL, DECEMBER 11, 1930:

THERE HAS BEEN RECEIVED YOUR SUBMISSION OF NOVEMBER 1, 1930, WITH INCLOSURES OF THE ADVERTISED SPECIFICATIONS AND BIDS RECEIVED IN RESPONSE THERETO FOR THE INSTALLATION OF A TELEPHONE SYSTEM IN THE UNITED STATES PENITENTIARY AT ATLANTA, GA., AND WHEREIN DECISION HAS BEEN REQUESTED AS TO WHICH OF THE THREE BIDS YOU ARE AUTHORIZED TO ACCEPT FOR THE INSTALLATION OF THE TELEPHONE SYSTEM.

UNDER DATE OF SEPTEMBER 9, 1930, THE DEPARTMENT OF JUSTICE ADVERTISED FOR BIDS FOR THE INSTALLATION OF A TELEPHONE SYSTEM COMPLETE, IN ACCORDANCE WITH CERTAIN SPECIFICATIONS AND BLUE PRINTS SHOWING THE LAYOUT OF THE SYSTEM. BIDDERS WERE REQUESTED TO QUOTE, ALSO, MAINTENANCE COST FOR ONE YEAR IN ACCORDANCE WITH THE SPECIFICATIONS, WHICH PROVIDED THAT---

EACH BIDDER IS REQUESTED TO FURNISH ALSO A BID FOR MAINTAINING ALL OF THE SWITCHING EQUIPMENT, POWER EQUIPMENT, AND TELEPHONES FOR ONE YEAR AFTER THE DATE THE EXCHANGE IS PUT INTO SERVICE. PREFERENCE WILL BE GIVEN TO A BIDDER WHO FURNISHES ALSO A MAINTENANCE BID.

THIS MAINTENANCE SHALL INCLUDE AT LEAST ONE COMPLETE ROUTINE TEST AND INSPECTION NEAR THE END OF EACH 3 MONTHS OF SERVICE AND ALL NORMAL REPAIRS AND REPLACEMENTS NECESSARY TO ENABLE THE EXCHANGE TO RENDER AHIGH GRADE OF SERVICE, EXCEPTING REPAIRS TO AND REPLACEMENTS OF ANY PARTS OF THE BATTERY. THE BIDDER SHALL FURNISH THE NAME, TITLE, AND ADDRESS OF ITS LOCAL REPRESENTATIVE TO WHOM TROUBLE AND DEFECTS ARE TO BE REPORTED. THE REPAIRS AND REPLACEMENTS MADE NECESSARY BY THESE REPORTS SHALL BE MADE WITHIN A REASONABLE TIME AFTER THE TROUBLES AND DEFECTS ARE REPORTED.

IT IS DESIRED THAT EACH BIDDER THAT FURNISHES A MAINTENANCE BID WILL AGREE THAT THE CONTRACT TO BE SIGNED THEREFOR SHALL BE RENEWABLE, AT THE OPTION OF THE DEPARTMENT OF JUSTICE AT THE END OF EACH YEAR AT THE SAME RATE FOR A TOTAL PERIOD OF 5 YEARS.

THREE BIDS WERE RECEIVED IN RESPONSE THERETO AS FOLLOWS:

CHART

BIDDER ITEM 1 ITEM 2 TERMS GRAYBAR ELECTRIC CO., WASHINGTON,

D.C. ----------------------------- $5,575.00 ------------ NET. AUTOMATIC ELECTRIC INC., CHICAGO,

ILL. ----------------------------- 4,854.07 $256.00 NET. THE NORTH AMERICA (ELECTRIC) MFG.

CO., GALION, OHIO --------------- 5,893.00 (1) NET.

(1) NO CHARGE FIRST YEAR; SUBSEQUENT YEARS $100 PER YEAR.

IT SEEMS THAT THE PROPOSALS WERE REFERRED TO THE BUREAU OF STANDARDS, DEPARTMENT OF COMMERCE, FOR REPORT CONCERNING THE RELATIVE MERITS OF THE OFFERINGS MADE BY THE THREE BIDDERS, AND IN LETTER DATED OCTOBER 2, 1930, THE BUREAU OF STANDARDS SUGGESTED THAT THE GRAYBAR ELECTRIC CO. BID DID NOT COMPLY WITH THE SPECIFICATIONS IN NOT QUOTING A MAINTENANCE CHARGE AND THAT AS BETWEEN THE OTHER TWO BIDS, ITS CONCLUSION WAS AS FOLLOWS:

THERE REMAIN FOR CONSIDERATION ONLY THE BIDS OF AUTOMATIC ELECTRIC, INC., AND OF THE NORTH ELECTRIC MANUFACTURING COMPANY. SINCE THE OBVIOUS INTENT OF THE DEPARTMENT IS TO CONSIDER NOT ONLY FIRST COST BUT ALSO MAINTENANCE COST, BOTH MUST BE TAKEN INTO ACCOUNT IN MAKING RECOMMENDATIONS FOR AWARD.

THE BASIS OF COMPARING THE TWO REMAINING BIDS MUST, THEREFORE, TAKE INTO ACCOUNT ANNUAL CAPITAL CARRYING CHARGES AND ANNUAL MAINTENANCE COSTS.

THE ANNUAL CAPITAL CHARGES MAY BE TAKEN IN EACH CASE AS 4 PERCENT INTEREST (IN LIEU OF RETURN ON INVESTMENT) AND 6 PERCENT STRAIGHT LINE DEPRECIATION (CORRESPONDING TO AN ESTIMATED USEFUL LIFE OF 16 2/3 YEARS) OR A COMBINED CARRYING CHARGE OF 10 PERCENT ON FIRST COST INSTALLED, TO WHICH MUST BE ADDED THE RESPECTIVE MAINTENANCE COSTS.

THE FOLLOWING TABULATION IS IN ACCORDANCE WITH THIS PROCEDURE:

CHART

AUTOMATIC NORTH ELEC. NORTH ELEC.

ELECTRIC, MFG. CO., MFG. CO.,

INC. 1ST YEAR SUC. YEARS FIRST COST ----------------------- $4,854.07 $5,893.00 $5,893.00 ANNUAL CAPITAL CHARGES 10 PERCENT

485.41 589.30 589.30 ANNUAL MAINTENANCE --------------- 256.00 ---------

100.00

TOTAL ANNUAL CHARGES ---------- 741.41 589.30 689.30

DIFFERENCE PER ANNUM IN FAVOR

OF NORTH CO. ---------------- ---------- 152.11 52.11

IF THE ANNUAL CAPITAL CHARGES ARE NOT TAKEN INTO ACCOUNT AS THEY SHOULD BE, BUT ARE DISREGARDED AS IS OFTEN DONE BY THE GOVERNMENT, THE DIFFERENCE IN ANNUAL MAINTENANCE COSTS IN FAVOR OF THE NORTH ELECTRIC MFG. CO. WILL WIPE OUT THE DIFFERENCE IN FIRST COST IN SLIGHTLY MORE THAN 6 YEARS, THOUGH THE USEFUL LIFE OF THE EQUIPMENT MAY BE CONSERVATIVELY PUT AT 16 2/3 YEARS.

THE LOW BIDDER MEETING THE SPECIFICATIONS PROPOSED TO FURNISH THE EQUIPMENT FOR $4,854.07, WITH A MAINTENANCE CHARGE OF $256 A YEAR TO BE RENEWED EACH YEAR FOR FIVE YEARS. AT THE END OF THE 5-YEAR PERIOD THE EQUIPMENT OF THIS BIDDER WOULD COST THE GOVERNMENT $6,134.07. THE OTHER BIDDER OFFERED TO FURNISH THE EQUIPMENT AT $5,893, WITH NO CHARGE FOR MAINTENANCE FOR THE FIRST YEAR AND $100 A YEAR THEREAFTER FOR FOUR YEARS. AT THE END OF FIVE YEARS THIS EQUIPMENT WOULD COST THE GOVERNMENT $6,293. IN OTHER WORDS, THE LOW PROPOSAL WOULD REMAIN THE LOWEST PROPOSAL AT THE END OF THE 5-YEAR PERIOD.

IT IS UNNECESSARY TO ANALYZE THE ESTIMATE OF THE BUREAU OF STANDARDS, WHICH APPEARS TO BE BASED ON THE LIFE OF THE EQUIPMENT FOR A PERIOD OF 16 2/3 YEARS. IT IS SUFFICIENT TO SAY THAT THE SPECIFICATIONS GAVE NO NOTICE TO BIDDERS THAT THERE WOULD BE TAKEN INTO CONSIDERATION THE MAINTENANCE COST OVER A PERIOD OF 16 2/3 YEARS, OR THE LIFE OF THE EQUIPMENT. IT IS DEEMED WELL, HOWEVER, TO CALL ADMINISTRATIVE ATTENTION TO THE FACT THAT THERE IS NO AUTHORITY TO CONTRACT ON A BASIS OF IMPOSING AN OBLIGATION TO MAKE PAYMENTS FOR A PERIOD BEYOND THE FISCAL YEAR FOR WHICH THE APPROPRIATION IS AVAILABLE UNDER WHICH THE CONTRACT IS PROPOSED TO BE MADE. SEE SECTION 3679 OF THE REVISED STATUTES, AS AMENDED BY THE ACT OF FEBRUARY 27, 1906, 34 STAT. 49, WHICH PROHIBITS THE EXPENDITURE "IN ANY ONE FISCAL YEAR OF ANY SUM IN EXCESS OF APPROPRIATIONS MADE BY CONGRESS FOR THAT FISCAL YEAR, OR INVOLVE THE GOVERNMENT IN ANY CONTRACT FOR THE FUTURE PAYMENT OF MONEY IN EXCESS OF SUCH APPROPRIATIONS.'

THERE CAN BE ENTERED INTO NO CONTRACT UNDER THE BIDS PRESENTED FOR THE MAINTENANCE OF THE EQUIPMENT AFTER THE EXPIRATION OF THE FISCAL YEAR OF THE APPROPRIATION. THE MAINTENANCE DATA OBTAINED MAY BE USED FOR THE PURPOSE OF ASCERTAINING THE LOW BIDDER, AND, AS SHOWN IN THAT RESPECT, THE LOW BIDDER UNDER THE TERMS OF THE SPECIFICATIONS IS THE AUTOMATIC ELECTRIC (INC.). ANY MAINTENANCE OF THE EQUIPMENT AFTER EXPIRATION OF THE GUARANTEE PERIOD WOULD BE FOR CONTRACTING FOR UPON COMPETITIVE BIDS OBTAINED WHEN THE NEED ARISES.