A-38046, AUGUST 17, 1931, 11 COMP. GEN. 75

A-38046: Aug 17, 1931

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CONTRACTS - PRICE - PRISON-MADE GOODS WHERE THERE IS A DISPUTE BETWEEN THE PROCURING DEPARTMENT AND THE DEPARTMENT OF JUSTICE AS TO THE PRICE TO BE CHARGED AND PAID FOR PRISON MADE PRODUCTS. 676 PAIRS OF SERVICE SHOES TO BE MANUFACTURED BY IT IS $2.73 PER PAIR F.O.B. WILL CAUSE A LOSS TO THE WAR DEPARTMENT OF $0.285 PER PAIR OF SHOES. 297.66 AS IT WILL BE NOTED. IS EXCEEDED BY ONLY THE BIDS SUBMITTED BY THE INTERNATIONAL SHOE CO. IS FOR ONLY 14. IS SO EXCESSIVE IN COST AS TO SUGGEST ITS ELIMINATION FROM CONSIDERATION AS A FACTOR IN MAKING PRICE COMPARISON OF THE BIDS RECEIVED. IT IS INTERESTING TO OBSERVE THAT THE INTERNATIONAL SHOE COMPANY. ARE FIXED BY THE LAW OF SUPPLY AND DEMAND. THE CURRENT MARKET PRICE OF ANY PRODUCT OR COMMODITY IS BASED UPON THE LOWEST PRODUCTION COST WHICH ALL MANUFACTURERS MUST MEET OR DISCONTINUE OPERATION.

A-38046, AUGUST 17, 1931, 11 COMP. GEN. 75

CONTRACTS - PRICE - PRISON-MADE GOODS WHERE THERE IS A DISPUTE BETWEEN THE PROCURING DEPARTMENT AND THE DEPARTMENT OF JUSTICE AS TO THE PRICE TO BE CHARGED AND PAID FOR PRISON MADE PRODUCTS, SUCH DISPUTE SHOULD BE SUBMITTED TO THE BOARD OF ARBITRATION ESTABLISHED BY SECTION 7 OF THE ACT OF MAY 27, 1930, 46 STAT. 391.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF WAR, AUGUST 17, 1931:

THERE HAS BEEN RECEIVED YOUR LETTER OF AUGUST 6, 1931, TO THE EFFECT THAT THE COMMANDING OFFICER, PHILADELPHIA QUARTERMASTER DEPOT, HAD BEEN DIRECTED TO PROCURE 107, 352 PAIRS OF ARMY SERVICE SHOES TO MEET A PART OF THE ANTICIPATED REQUIREMENTS OF THE ARMY DURING THE FISCAL YEAR 1932; THAT UNDER THE ACT OF MAY 27, 1930, 46 STAT. 391, HE HAD MADE INQUIRY OF THE PURCHASING AND SALES AGENT, BUREAU OF PRISONS, DEPARTMENT OF JUSTICE, AS TO WHETHER THE SHOE FACTORY IN THE FEDERAL PENITENTIARY COULD FURNISH ANY PART OF THE 107,352 PAIRS OF SHOES; THAT THE PURCHASING AND SALES AGENT REPORTED THAT THE FEDERAL PENITENTIARY COULD FURNISH ONE-HALF OF THE QUANTITY, OR 53,676 PAIRS OF SHOES; AND THAT THE COMMANDING OFFICER, PHILADELPHIA QUARTERMASTER DEPOT, ADVERTISED FOR PROPOSALS FOR FURNISHING THE REMAINING 53,676 PAIRS OF SHOES AND HAD RECEIVED 5 PROPOSALS RANGING IN PRICE FROM $2.445 PER PAIR TO $3.37 PER PAIR FOR A PART OF THE REQUIREMENTS.

YOUR FURTHER STATE THAT:

THE PRICE FIXED BY THE DEPARTMENT OF JUSTICE FOR THE 53,676 PAIRS OF SERVICE SHOES TO BE MANUFACTURED BY IT IS $2.73 PER PAIR F.O.B. FACTORY, WHICH, CONSIDERING THE PRICE OF $2.445 PER PAIR F.O.B. FACTORY BID BY THE BROWN SHOE CO., INC., ON THE SAME QUANTITY AND TYPE OF SERVICE SHOES, WILL CAUSE A LOSS TO THE WAR DEPARTMENT OF $0.285 PER PAIR OF SHOES, OR A TOTAL OF $15,297.66, COMPUTED AS FOLLOWS:

CHART DEPARTMENT OF JUSTICE:

53,676 PAIRS AT $2.73 -------------------------------- $146,535.48 BROWN SHOE CO., INC:

53,676 PAIRS AT $2.445-------------------------------- 131,237.82

.285 ------------------------------- 15,297.66

AS IT WILL BE NOTED, THE PRICE FIXED BY THE DEPARTMENT OF JUSTICE OF $2.73 PER PAIR EQUALS THE THIRD LOW BID RECEIVED IN RESPONSE TO INVITATION FOR BIDS NO. 669-31-311, DATED JUNE 20, 1931, AND IS EXCEEDED BY ONLY THE BIDS SUBMITTED BY THE INTERNATIONAL SHOE CO., OF ST. LOUIS, MO., AND THE CHIPPEWA SHOE MANUFACTURING CO., OF CHIPPEWA FALLS, WIS. THE BID SUBMITTED BY THE CHIPPEWA SHOE MANUFACTURING CO. IS FOR ONLY 14,226 PAIRS OF SHOES, D WIDTH, AND IS SO EXCESSIVE IN COST AS TO SUGGEST ITS ELIMINATION FROM CONSIDERATION AS A FACTOR IN MAKING PRICE COMPARISON OF THE BIDS RECEIVED.

IN CONNECTION WITH THE PRESENTATION HEREIN SUBMITTED, IT IS INTERESTING TO OBSERVE THAT THE INTERNATIONAL SHOE COMPANY, OF ST. LOUIS, MO., ON MARCH 1, 1931, ENTERED INTO CONTRACT NO. W 199-QM-5883 WITH THE WAR DEPARTMENT TO MANUFACTURE 22,992 PAIRS OF SHOES, SERVICE, U.S. ARMY SPECIFICATION NO. 9-6C, AT $2.585 PER PAIR F.O.B. FACTORY, OR $0.145 LESS PER PAIR THAN THE PRICE FIXED BY THE DEPARTMENT OF JUSTICE FOR THE 53,676 PAIRS OF SERVICE SHOES IT NOW PROPOSES TO MANUFACTURE FOR THE WAR DEPARTMENT AS PREVIOUSLY EXPLAINED IN THIS LETTER.

CURRENT MARKET PRICES IN THE USUALLY ACCEPTED SENSE REPRESENT THOSE PRICES WHICH, IN ORDERLY PROCEDURE, ARE FIXED BY THE LAW OF SUPPLY AND DEMAND. FINALLY, THE CURRENT MARKET PRICE OF ANY PRODUCT OR COMMODITY IS BASED UPON THE LOWEST PRODUCTION COST WHICH ALL MANUFACTURERS MUST MEET OR DISCONTINUE OPERATION. WHILE IT IS TRUE THAT SHOES MANUFACTURED UNDER U.S. ARMY SPECIFICATIONS ARE DESIGNED FOR MILITARY PURPOSES AND ARE THEREFORE NOT OF COMMERCIAL TYPE, THE MANNER IN WHICH THEY ARE PRODUCED DOES NOT DIFFER IN ANY ESSENTIAL PARTICULAR FROM THAT OF COMMERCIAL SHOES.

THIS DEPARTMENT SUBMITS THAT BY THE TERM "CURRENT MARKET PRICES" USED IN THE ACT IS MEANT THOSE PRICES WHICH ARE FIXED BY COMPETITION AS IS CUSTOMARY IN COMMERCIAL TRADE; AND THAT THE PRICE FIXED BY THE DEPARTMENT OF JUSTICE FOR THE 53,676 PAIRS OF SERVICE SHOES TO BE MANUFACTURED IN ITS FACTORY AT THE U.S. PENITENTIARY, LEAVENWORTH, KANSAS, SHOULD BE NO GREATER THAN THE PRICE CHARGED BY THE BROWN SHOE COMPANY, OF ST. LOUIS, MO., ON A CONCURRENT CONTRACT FOR THE SAME NUMBER OF SHOES OF THE SAME SPECIFIC KIND. UNDER THE PROVISIONS OF THE ACT QUOTED ABOVE, IT IS THEREFORE REQUESTED THAT THE PRICE FIXED BY THE DEPARTMENT OF JUSTICE BE REDUCED TO $2.445 PER PAIR.

THERE IS INCLOSED FOR YOUR INFORMATION A COPY OF LETTER FROM THE ASSISTANT DIRECTOR BUREAU OF PRISONS, DEPARTMENT OF JUSTICE, TO THE COMMANDING OFFICER CHICAGO QUARTERMASTER DEPOT, DATED JULY 28, 1931, WHICH FIXES THE PRICE TO BE CHARGED BY THE DEPARTMENT OF JUSTICE AND WHICH WAS WRITTEN SUBSEQUENTLY TO THE OPENING OF BIDS REFERRED TO IN PARAGRAPH 3 OF THIS LETTER, AT WHICH A REPRESENTATIVE OF THE DEPARTMENT OF JUSTICE WAS PRESENT. A CONFERENCE WAS HELD IN THE OFFICE OF THE QUARTERMASTER GENERAL AT WHICH THE ASSISTANT DIRECTOR BUREAU OF PRISONS, DEPARTMENT OF JUSTICE WAS PRESENT AND AT WHICH THE PRICES BID BY THE VARIOUS MANUFACTURERS IN RESPONSE TO INVITATION FOR BIDS NO. 669-31-311 WERE DISCUSSED. THE ASSISTANT DIRECTOR AT THIS CONFERENCE STATED THAT THE DEPARTMENT OF JUSTICE WOULD BE UNABLE TO MEET THE PRICE OF $2.445 PER PAIR OF SHOES BID BY THE BROWN SHOE COMPANY, OF ST. LOUIS, MO.

THIS OFFICE IS NOT AUTHORIZED TO DECIDE THE DISPUTE, IF THERE BE ONE, BETWEEN THE WAR DEPARTMENT AND THE DEPARTMENT OF JUSTICE AS TO THE PRICE THAT SHOULD BE CHARGED AND PAID FOR THE 53,676 PAIRS OF SHOES WHICH THE DEPARTMENT OF JUSTICE REPORTS AS BEING ABLE TO MANUFACTURE IN THE FEDERAL PENITENTIARY FOR THE USE OF THE ARMY DURING THE FISCAL YEAR 1932. UNDER THE LAW THE WAR DEPARTMENT HAS NO CHOICE BUT TO OBTAIN SAID QUANTITY OF SHOES FROM THE FEDERAL PENITENTIARY, AND IF THE MATTER OF PRICE CAN NOT BE ADJUSTED BETWEEN THE TWO DEPARTMENTS, THERE SHOULD BE FOLLOWED THE PROCEDURE INDICATED IN 10 COMP. GEN. 206, 208, FOR SUBMITTING SUCH MATTERS TO THE BOARD OF ARBITRATION PROVIDED FOR IN SECTION 7 OF THE ACT OF MAY 27, 1930. IN THIS CONNECTION YOUR ATTENTION IS INVITED TO THE FINDINGS OF SAID BOARD UNDER DATE OF FEBRUARY 7, 1931, IN A SOMEWHAT SIMILAR CASE, IN WHICH IT WAS SAID:

THE ISSUE HERE RAISED IS SIMPLY WHAT IS THE CURRENT MARKET PRICE WHICH THE BUREAU OF PRISONS MAY CHARGE FOR THE BRUSHES IN QUESTION. THERE IS NO MARKET PRICE SHOWN BY THE COMPETITIVE BIDDER. A SHOWING OF BIDS OBTAINED THROUGH ADVERTISED PROPOSALS DOES NOT REQUIRE THAT THE LOWEST BID MUST BE TAKEN AS THE CURRENT MARKET PRICE BINDING ON THE BUREAU OF PRISONS AS THE PRICE IT MAY CHARGE. * * * ..END :