A-34695, JANUARY 20, 1931, 10 COMP. GEN. 314

A-34695: Jan 20, 1931

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MAY REQUIRE A SHOWING OF THE FACTS TO BE SUBMITTED WITH THE BIDS TO ESTABLISH THAT THE BIDDERS ARE MANUFACTURERS OR REGULAR DEALERS IN SUCH SUPPLIES. IF A LOW BID IS TO BE REJECTED BECAUSE THERE IS BELIEF THAT THE BIDDER IS NOT SUCH A MANUFACTURER OR A REGULAR DEALER. TO THE EFFECT THAT SINCE IT WAS ESSENTIAL FOR SUPPLIES TO BE DELIVERED TO INDIAN SCHOOLS. THAT SINCE THE IMPOSITION OF LIQUIDATED DAMAGES ON DELINQUENT CONTRACTORS IS INADEQUATE TO PREVENT DELAY NECESSARILY INCURRED BY A DELINQUENT CONTRACTOR AND THE NECESSITY FOR THE PURCHASE OF THE MATERIAL IN THE OPEN MARKET. IT WAS DESIRED TO EXCLUDE THEREFROM ALL BUT LEGITIMATE DEALERS THEREIN. THE REASONS FOR THIS PROCEDURE ARE STATED IN YOUR LETTER AS FOLLOWS: PARAGRAPH 21 OF THE STANDARD GOVERNMENT INSTRUCTIONS TO BIDDERS.

A-34695, JANUARY 20, 1931, 10 COMP. GEN. 314

ADVERTISING - BIDDERS - QUALIFICATIONS - INDIAN SERVICE ADVERTISEMENTS FOR SUPPLIES FOR THE INDIAN SERVICE MAY PROPERLY LIMIT COMPETITION TO MANUFACTURERS OF, OR REGULAR DEALERS IN, SUCH SUPPLIES, AND MAY REQUIRE A SHOWING OF THE FACTS TO BE SUBMITTED WITH THE BIDS TO ESTABLISH THAT THE BIDDERS ARE MANUFACTURERS OR REGULAR DEALERS IN SUCH SUPPLIES. IF A LOW BID IS TO BE REJECTED BECAUSE THERE IS BELIEF THAT THE BIDDER IS NOT SUCH A MANUFACTURER OR A REGULAR DEALER, THE ADMINISTRATIVE STATEMENT OF REASONS SHOULD BE SUBMITTED TO THE GENERAL ACCOUNTING OFFICE FOR CONSIDERATION IN ADVANCE OF CONTRACTING FOR THE SUPPLIES.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE INTERIOR, JANUARY 20, 1931:

THERE HAS BEEN RECEIVED YOUR SUBMISSION OF DECEMBER 20, 1930, TO THE EFFECT THAT SINCE IT WAS ESSENTIAL FOR SUPPLIES TO BE DELIVERED TO INDIAN SCHOOLS, AGENCIES, AND HOSPITALS BEFORE THE SCHOOL YEAR BEGINS IN SEPTEMBER; THAT SINCE THE IMPOSITION OF LIQUIDATED DAMAGES ON DELINQUENT CONTRACTORS IS INADEQUATE TO PREVENT DELAY NECESSARILY INCURRED BY A DELINQUENT CONTRACTOR AND THE NECESSITY FOR THE PURCHASE OF THE MATERIAL IN THE OPEN MARKET; AND THAT SINCE A NUMBER OF ORGANIZATIONS OR INDIVIDUALS HAD BEEN BIDDING AND CONTRACTING FOR DELIVERY OF INDIAN SUPPLIES ON A SPECULATIVE BASIS, IT WAS DESIRED TO EXCLUDE THEREFROM ALL BUT LEGITIMATE DEALERS THEREIN.

THE REASONS FOR THIS PROCEDURE ARE STATED IN YOUR LETTER AS FOLLOWS:

PARAGRAPH 21 OF THE STANDARD GOVERNMENT INSTRUCTIONS TO BIDDERS--- CONSTRUCTION AND SUPPLIES (STANDARD FORM NO. 22), A COPY OF WHICH IS ATTACHED, REQUIRES BIDDERS TO STATE IN THEIR PROPOSALS WHETHER THEY ARE MANUFACTURERS OF OR REGULAR DEALERS IN THE ARTICLES. IT ALSO EXPRESSES A DESIRE THAT BIDDERS WHO ARE NOT MANUFACTURERS GIVE THE NAME OF THE MANUFACTURER FROM WHOM THE ARTICLES ARE TO BE OBTAINED, INCLUDING CATALOGUE REFERENCES. SO FAR AS WE ARE AWARE THE TERM "REGULAR DEALER" HAS NOT BEEN AUTHORITATIVELY INTERPRETED IN SUCH A WAY AS TO FIX THE STATUS OF THOSE BIDDERS WHO ARE NOT MANUFACTURERS. HOWEVER, BIDDING IS LIMITED TO THE TWO CLASSES MENTIONED, NAMELY, MANUFACTURERS AND REGULAR DEALERS. THE INDIAN SERVICE DOES NOT SEEM TO HAVE ANY SPECIFIC TROUBLE WITH THE GROUP CLASSED AS MANUFACTURERS, BUT IT DOES HAVE MANY UNSATISFACTORY DEALINGS WITH THOSE WHO CLASS THEMSELVES AS REGULAR DEALERS BUT WHO REALLY ARE NOT. THIS LATTER GROUP CONSISTS OF INDIVIDUALS WHO HAVE NO REGULAR PLACE OF BUSINESS WHERE THE COMMODITIES BID ON ARE BROUGHT AND SOLD, BUT HAVE AN OFFICE AND MORE GENERALLY MERELY DESK ROOM IN SOME OTHER OFFICE WHERE MAIL IS RECEIVED AND SENT OUT. THESE PEOPLE HAVE NO DIFFICULTY IN FURNISHING A BOND AND IN THAT MANNER BRINGING THEMSELVES WITHIN THE SCOPE OF OUR UNDERSTANDING OF YOUR INTERPRETATION OF A RESPONSIBLE BIDDER. THEIR BIDS ARE PREPARED IN THE PROPER FORM AND SUPPORTED BY THE NECESSARY GUARANTY, BUT THEY HAVE PRACTICALLY NO CONTROL OVER THE COMMODITY BID ON. IT HAS COME TO THE ATTENTION OF THE INDIAN SERVICE AT DIFFERENT TIMES THAT THIS CLASS OF BIDDERS DOES NOT ATTEMPT TO CLOSE THE DEAL FOR THE ARTICLE UNTIL AFTER THE AWARD IS MADE TO THEM BY IT. IT HAS ALSO BEEN LEARNED THAT SOME OF THESE BIDDERS HAVE AN OPENING OF BIDS PRIOR TO THE DAY AND HOUR SET BY THE INDIAN SERVICE AND MAKE A SELECTION OF THE OFFER THEY WISH TO USE AS A BASIS FOR THE BID MADE TO IT. TOO FREQUENTLY, ON ARTICLES OF SUBSISTENCE PARTICULARLY, DO THEY FAIL TO DELIVER WHAT IS CONTRACTED FOR, CAUSING DELAY AND TROUBLE FOR THE SERVICE, OR THEY FAIL TO MAKE DELIVERY ON TIME WITH THE SAME RESULTS TO THE SERVICE. FORMERLY THIS CLASS OF BIDDERS WAS DEBARRED BY THE INDIAN SERVICE, BUT AS FAST AS IT DEBARRED THEM BY ONE NAME THEY HID THEIR IDENTITY AS SUCH AND BID UNDER SOME OTHER NAME AND THROUGH SOME OTHER INDIVIDUAL. IT IS UNDERSTOOD THAT YOU HAVE LOOKED WITH DISFAVOR UPON THE MAINTENANCE OF A DEBARRED BIDDERS' LIST FOR THE INDIAN SERVICE, BUT WILL PERMIT THE DEBARMENT, FOR A LIMITED PERIOD, OF THOSE WHOSE PERFORMANCE IS UNSATISFACTORY PROVIDED YOU ARE NOTIFIED AND THE INDIAN SERVICE HAS SUFFICIENT GROUND UPON WHICH TO BASE THE DEBARMENT. THIS DEPARTMENT DOES NOT CONSIDER THE CLASS OF BIDDERS REFERRED TO AS BEING LEGITIMATE DEALERS OR SATISFACTORY BIDDERS AND CONTRACTORS, AND IT DESIRES TO ESTABLISH A DEFINITE BASIS FOR THE REJECTION OF THEIR BIDS AS FAR AS THE INDIVIDUALS OR COMPANIES CONCERNED CAN BE IDENTIFIED.

THE PARTICULAR GROUP IN MIND STARTED WITH THE TERMINAL SUPPLY COMPANY, DIRECTED AND CONTROLLED, IT IS UNDERSTOOD, BY A MAN NAMED HOFFMAN. IT WAS DISCOVERED THAT OUT OF THE SAME OFFICE BIDS WERE ISSUED UNDER THE NAME OF THE ARCADIA TEXTILE COMPANY FOR TEXTILES, THE FEDERAL SUPPLY COMPANY FOR FOOD SUPPLIES, THE EXPLOSIVE CHEMICAL COMPANY FOR CHEMICALS AND DRUGS, WHILE THE TERMINAL SUPPLY COMPANY BID ON OTHER ARTICLES. THE NAVY DEPARTMENT, THE WAR DEPARTMENT AND OTHERS EXPERIENCED THE SAME DIFFICULTY WITH THEM THAT THE INDIAN SERVICE DID AND DEBARRED THEM BEFORE THAT SERVICE HAD AN OPPORTUNITY TO DO SO. AT THAT TIME THE NAVY DEPARTMENT AND THE INDIAN SERVICE WERE EXCHANGING LISTS OF DEBARRED BIDDERS AND, BASED UPON THEIR DEBARMENT AND THE TREATMENT RECEIVED BY THOSE COMPANIES, THEY WERE DEBARRED BY THE INDIAN SERVICE. THE NEXT YEAR A BID WAS RECEIVED FROM THE H-P MERCANTILE COMPANY AND, THROUGH SOME DIFFICULTY IN HAVING A TELEGRAM AND MAIL DELIVERED TO THEM FROM THE INDIAN SERVICE, IT WAS FOUND THAT THE H-P MERCANTILE COMPANY WAS NONE OTHER THAN HARRY PINCUS, A BROTHER IN-LAW OF HOFFMAN, AND, THAT HE WAS ACTING AS AN AGENT FOR THE TERMINAL SUPPLY COMPANY. THE SERVICE NEXT HAD TROUBLE WITH THE ARDLEY FOOD SUPPLY COMPANY AND FOUND THAT ORGANIZATION CONNECTED WITH THE TERMINAL SUPPLY COMPANY. ANOTHER BIDDER IS THE RARITAN GROCERY COMPANY, WHICH IS CONNECTED WITH THE SAME GROUP. THE H. D. LEHDS COMPANY, IT IS UNDERSTOOD, IS AN OFFSHOOT THEREOF.

IN VIEW OF THE TROUBLE THE INDIAN SERVICE HAS EXPERIENCE WITH THIS GROUP AND OTHERS OF SOMEWHAT LIKE CHARACTER AND IN VIEW OF YOUR DECISION THAT DEBARMENTS MAY FOLLOW ONLY AFTER YOU ARE SATISFIED THAT THE CAUSE JUSTIFIES THE ACTION, IT IS BELIEVED THAT SOME CONDITION SHOULD BE IMPOSED IN INDIAN SERVICE ADVERTISEMENTS, WHICH WILL EXCLUDE THAT CLASS OF BIDDERS. THE INDIAN SERVICE HAS PLENTY OF LEGITIMATE BIDDERS WHO WANT THE BUSINESS AND TAKE ALL REASONABLE PRECAUTIONS TO SEE THAT THE CONTRACTS ENTERED INTO ARE CARRIED OUT, WHICH SEEMINGLY CAN NOT BE SAID OF THE OTHER GROUP. COMPETITION IS KEEN ON THE REQUIREMENTS OF THE INDIAN SERVICE AND THESE MORE OR LESS UNSATISFACTORY BIDDERS AND CONTRACTORS ARE NOT ESSENTIAL TO THE ECONOMICAL PURCHASING OF SUPPLIES FOR THAT SERVICE. THERE IS NOTHING TO BE GAINED AND MUCH TO LOSE BY DEALING WITH A CLASS OF BIDDERS THAT IS NOW BEING CRITICIZED, FOR LEGITIMATE BIDDERS ARGUE THAT THEY CAN NOT COMPETE WITH THAT CLASS AND IT IS OFTEN FOUND THAT THE LOW BIDS OFFERED BY OTHER THAN REGULAR DEALERS AND MANUFACTURERS REPRESENT IN THE DELIVERIES SOMETHING OTHER THAN THAT FOR WHICH THE INDIAN SERVICE HAS ADVERTISED AND CONTRACTED FOR. THIS MEANS THE ULTIMATE BUYING AGAINST THE ACCOUNT OF THE DELINQUENT CONTRACTOR. THE INDIAN SERVICE PROPOSES, WITH YOUR CONSENT, TO DEBAR THAT CLASS OF CONTRACTORS IN THE FUTURE AS THE OPPORTUNITY PRESENTS ITSELF, BUT IT SHOULD HAVE THE RIGHT TO AVOID THAT CONTINGENCY BY ELIMINATING FROM CONSIDERATION IN AWARDING ANY CONTRACT THE BIDS OF THOSE OF THAT CLASS WHEN THEY BECOME IDENTIFIED AS SUCH AND HAVE NOT AS YET BEEN DEBARRED. IT IS, THEREFORE, PROPOSED TO ADD, WITH YOUR APPROVAL, THE FOLLOWING CLAUSE TO THE STANDARD INDIAN SERVICE INSTRUCTIONS:

THE TERM "REGULAR DEALER" INCLUDES THOSE INDIVIDUALS OR FIRMS WHO REGULARLY CARRY A STOCK OF THE MERCHANDISE BID ON AND WHO HAVE A WAREHOUSE OR SHOP FROM WHICH SALES ARE MADE TO THE PUBLIC, AS WELL AS TO THE GOVERNMENT. THE TERM "REGULAR DEALER" INCLUDES MANUFACTURERS' AGENTS WHO ARE REGULARLY EMPLOYED ON A SALARY OR COMMISSION BASIS AND WHO HOLD PROPER CREDENTIALS FROM MANUFACTURERS OF THE GOODS BID ON, WHICH ESTABLISH THOSE FACTS.

THE TERM "REGULAR DEALER" DOES NOT INCLUDE INDIVIDUALS OR FIRMS WHO DO NOT REGULARLY CARRY A STOCK OF THE MERCHANDISE BID ON, NOR HAVE A WAREHOUSE OR SHOP FROM WHICH SALES ARE MADE TO THE PUBLIC AS WELL AS TO THE GOVERNMENT; NOR DOES IT INCLUDE THOSE WHO CAN NOT QUALIFY AS BONA FIDE MANUFACTURERS' AGENTS UNDER THE FOREGOING RULE.

BIDS FROM ANY INDIVIDUAL OR FIRM WHO DOES NOT MEET THE CONDITIONS HEREIN IMPOSED AS TO WHO IS A "REGULAR DEALER" WILL BE REJECTED.

THERE IS NO BASIS FOR THE MAINTENANCE OF A DEBARRED BIDDERS' LIST AND, AS YOU REPORT, ANY ATTEMPT TO MAINTAIN ONE IS DOOMED IN ADVANCE BECAUSE THE DEBARRED BIDDER MAY, AND FREQUENTLY DOES, IMMEDIATELY ORGANIZE A COMPANY OR CORPORATION UNDER SOME OTHER NAME WHICH IS NOT ON THE DEBARRED BIDDERS' LIST. WHILE THE UNITED STATES MAY LOOK THROUGH THE CORPORATE ENTITIES TO THE INDIVIDUALS BEHIND THEM TO DETERMINE A RESPONSIBLE BIDDER, SUCH PROCEDURE APPEARS NOT PRACTICAL IN CONTRACTING FOR SUPPLIES WHICH MAY BE PROCURED IN THE OPEN MARKET. THE PROPER PROCEDURE IS TO STATE IN THE ADVERTISED SPECIFICATIONS THE MINIMUM REQUIREMENTS THE PROSPECTIVE CONTRACTOR MUST HAVE AND A REQUIREMENT FOR A REASONABLE SHOWING OF FACTS TO ESTABLISH SUCH QUALIFICATIONS, AND THEN DISREGARD THE PROPOSALS OF ALL THOSE WHO DO NOT POSSESS SUCH REQUIREMENTS. THE UNITED STATES IS NOT REQUIRED TO TEMPORIZE WITH SUCH INDIVIDUALS OR ORGANIZATIONS AS YOU HAVE MENTIONED IN YOUR SUBMISSION AND INCUR EXPENSE AND DELAY BECAUSE THEY FOUND IT IMPOSSIBLE OR UNPROFITABLE TO CONFORM TO THE TERMS OF THEIR CONTRACTS.

THERE APPEARS NO LEGAL OBJECTION TO THE DEFINITION OF REGULAR DEALER WHICH YOU PROPOSE FOR INCORPORATION IN THE STANDARD INDIAN SERVICE INSTRUCTIONS, BUT THERE IS SUGGESTED FOR INCLUSION THE FOLLOWING PARAGRAPH BETWEEN YOUR PROPOSED SECOND AND THIRD PARAGRAPHS:

IF THE BIDDER IS NOT A MANUFACTURER OF THE MERCHANDISE BID UPON, HE MUST SUBMIT WITH HIS BID FACTS SHOWING THAT HE IS A REGULAR DEALER IN THE MERCHANDISE BID UPON--- SUCH AS THE NAME OF THE MANUFACTURER OR MANUFACTURERS OR AGENCY FROM WHOM HE PURCHASES AND A STATEMENT OF THE PERIOD OF TIME HE HAS DEALT WITH SUCH MANUFACTURER AND/OR AGENCY.

IF THE CONCLUSION IS REACHED AFTER THE BIDS ARE SUBMITTED THAT A LOW BID SHOULD BE REJECTED BECAUSE THE LOW BIDDER WAS NOT THE MANUFACTURER OR REGULAR DEALER IN THE SUPPLIES BID UPON, A COPY OF THE ADVERTISEMENT, SPECIFICATIONS, AND BIDS SHOULD BE SUBMITTED TO THIS OFFICE, UNTIL OTHERWISE ADVISED, SO THAT THERE MAY BE CONSIDERED IN ADVANCE OF CONTRACTING THE ADMINISTRATIVE STATEMENT OF REASONS WHY IT MAY BE BELIEVED THAT THE LOW BID SHOULD BE REJECTED. EXTREME CARE MUST BE EXERCISED TO SEE THAT IN FOLLOWING THIS PROCEDURE THERE BE NO JUST CAUSE FOR COMPLAINT.