A-47809, A-53420, A-61651, A-75336, A-80398, SEPTEMBER 19, 1936, 16 COMP. GEN. 272

A-47809,A-80398,A-61651,A-75336,A-53420: Sep 19, 1936

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WHERE THE WEIGHT OF THE SHIPMENT CONCERNED IS ESTIMATED TO EXCEED 100 POUNDS. THE MATTER OF EQUALIZATION OF LOWEST NET RATE AVAILABLE TO THE GOVERNMENT WHEN SUCH RATE DOES NOT INVOLVE LAND-GRANT DEDUCTION IS A MATTER PRIMARILY FOR THE DISCRETION OF THE HEAD OF THE DEPARTMENT OR ESTABLISHMENT CONCERNED WITH A VIEW TO OBTAINING THE GREATEST RETURNS TO THE PUBLIC FOR THE MONEYS EXPENDED. IS AS FOLLOWS: REFERENCE IS MADE TO THE SEVERAL DECISIONS (A-47809. IT WAS STATED THAT "NO OBJECTION WILL BE MADE BY THIS OFFICE TO THE INCORPORATING IN THE SPECIFICATIONS FOR SUPPLIES. IT IS SUGGESTED. NO CONSIDERATION WILL BE GIVEN TO OFFERS TO EQUALIZE FREIGHT CHARGES WITH OTHER SPECIFIED POINTS. WILL BE CONSIDERED.'.

A-47809, A-53420, A-61651, A-75336, A-80398, SEPTEMBER 19, 1936, 16 COMP. GEN. 272

ADVERTISING - BIDS - EQUALIZING FREIGHT RATES ADVERTISED SPECIFICATIONS FOR SUPPLIES SHOULD PERMIT A LOW BIDDER, F.O.B. SHIPPING POINT OR MILL, TO EQUALIZE LAND-GRANT RATES AVAILABLE TO THE UNITED STATES IN EVENT THERE SHOULD BE FOR ACCEPTANCE A HIGHER BID, F.O.B. SHIPPING POINT, WHICH WOULD OTHERWISE RESULT IN A LOWER AGGREGATE COST TO THE UNITED STATES FOR SUPPLIES AT GOVERNMENT DESTINATION, WHERE THE WEIGHT OF THE SHIPMENT CONCERNED IS ESTIMATED TO EXCEED 100 POUNDS, BUT THE MATTER OF EQUALIZATION OF LOWEST NET RATE AVAILABLE TO THE GOVERNMENT WHEN SUCH RATE DOES NOT INVOLVE LAND-GRANT DEDUCTION IS A MATTER PRIMARILY FOR THE DISCRETION OF THE HEAD OF THE DEPARTMENT OR ESTABLISHMENT CONCERNED WITH A VIEW TO OBTAINING THE GREATEST RETURNS TO THE PUBLIC FOR THE MONEYS EXPENDED.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF THE TREASURY, SEPTEMBER 19, 1936:

YOUR LETTER OF AUGUST 28, 1936, IS AS FOLLOWS:

REFERENCE IS MADE TO THE SEVERAL DECISIONS (A-47809, A-53420, A 61651 AND A-75336) RENDERED BY YOUR OFFICE ON THE QUESTION OF EQUALIZATION OF FREIGHT RATES BY BIDDERS QUOTING ON PROPOSALS ISSUED BY THE SEVERAL DEPARTMENTS.

IN THE FIRST OF THESE DECISIONS (A-47809, APRIL 11, 1933), IT WAS STATED THAT "NO OBJECTION WILL BE MADE BY THIS OFFICE TO THE INCORPORATING IN THE SPECIFICATIONS FOR SUPPLIES, OR IN THE INVITATIONS FOR PROPOSALS THEREFOR, OF A DISQUALIFYING PROVISION OF THE CHARACTER OF THAT MENTIONED IN YOUR LETTER. IT IS SUGGESTED, HOWEVER, THAT FOR THE PURPOSES OF CLARITY, THE PROPOSED CLAUSE BE AMENDED TO READ:

"IN MAKING AWARD FOR THE SUPPLIES HEREIN CALLED FOR, NO CONSIDERATION WILL BE GIVEN TO OFFERS TO EQUALIZE FREIGHT CHARGES WITH OTHER SPECIFIED POINTS. ONLY THE QUOTED PRICE OR PRICES INSERTED AGAINST THE VARIOUS ITEMS LISTED AND THE ACTUAL F.O.B. SHIPPING POINT OR POINTS SPECIFIED, WILL BE CONSIDERED.'

IN THE SECOND DECISION (A-53420, MARCH 27, 1934), IT WAS STATED THAT "THE SPECIFICATIONS FOR THE PURCHASE OF LUMBER, SHOULD BE DRAWN IN SUCH A MANNER AS TO PERMIT THE BIDDERS TO EQUALIZE FREIGHT RATES AVAILABLE TO THE GOVERNMENT THROUGH ACCEPTANCE OF DELIVERY F.O.B. MILLS OR CONTRACTOR'S POINT OF SHIPMENT WITH LAND-GRANT RATES AVAILABLE TO GOVERNMENT DESTINATION. COMMERCIAL RATES ARE MATTERS OF GENERAL KNOWLEDGE TO BIDDERS AS THEY ARE DISCLOSED IN THE TARIFF FILE ACCORDING TO LAW, WHILE GOVERNMENT LAND-GRANT RATES ARE NOT MATTERS OF GENERAL INFORMATION, AND, AS INDICATED IN THIS CASE, A DIFFERENCE OF A FEW CENTS PER CWT. IN A LAND- GRANT RATE IS SUFFICIENT TO DENY AN OTHERWISE LOW BIDDER THE CONTRACT UNLESS PERMITTED TO EQUALIZE THE LAND-GRANT FREIGHT RATE WITH HIS COMPETITORS.'

IN THE THIRD DECISION (A-61651, JULY 19, 1935), IT WAS STATED THAT "AS STATED IN SAID DECISION OF MARCH 27, 1934, COMMERCIAL RATES, OR FREIGHT RATES AVAILABLE TO THE PUBLIC GENERALLY, ARE MATTERS OF GENERAL KNOWLEDGE TO BIDDERS AND ARE DISCLOSED IN THE TARIFFS FILED ACCORDING TO LAW, WHILE GOVERNMENT LAND-GRANT RATES ARE NOT MATTERS OF GENERAL INFORMATION AND A DIFFERENCE OF A FEW CENTS PER CWT. IN THE LAND-GRANT RATE IS SUFFICIENT TO DENY AN OTHERWISE LOW BIDDER A GOVERNMENT CONTRACT UNLESS PERMITTED TO EQUALIZE THE LAND-GRANT FREIGHT RATE WITH ITS COMPETITOR. IN OTHER WORDS, THERE IS A DIFFERENCE BETWEEN FREIGHT RATES GENERALLY, AS CONSIDERED IN THE DECISION OF APRIL 11, 1933, AND LAND-GRANT FREIGHT RATES AS CONSIDERED IN THE DECISION OF MARCH 27, 1934, AND WHILE IT IS ENTIRELY PROPER TO NOTIFY BIDDERS THAT NO CONSIDERATION WOULD BE GIVEN TO OFFERS TO EQUALIZE COMMERCIAL FREIGHT RATES WITH COMPETITORS, THERE IS NOT ONLY NO LEGAL OBJECTION TO THE CONSIDERATION OF OFFERS TO EQUALIZE THE LAND GRANT RATES- -- LAND-GRANT DEDUCTIONS FROM COMMERCIAL RATES--- BUT SUCH PROCEDURE IS PROPER DUE TO THE FACT THAT LAND-GRANT RAILROADS ARE LIMITED IN NUMBER AND BIDDERS LOCATED THEREON SHOULD NOT BE AT AN ADVANTAGE OVER OTHER BIDDERS NOT LOCATED ON LAND-GRANT LINES WHEN PURCHASES ARE MADE F.O.B. BIDDER'S SHIPPING POINT.

"WHILE NO FURTHER QUESTION WILL BE RAISED WITH RESPECT TO THIS PARTICULAR CONTRACT, PROPER ADMINISTRATIVE ACTION SHOULD BE TAKEN TO CORRECT THE SITUATION BY PROHIBITING, IF DEEMED DESIRABLE, BIDS OFFERING TO EQUALIZE FREIGHT RATES WITH OTHER SPECIFIED POINTS, BUT IN ALL CASES PERMITTING OFFERS TO EQUALIZE GENERALLY GOVERNMENT LAND-GRANT RATES WITH COMPETITORS.'

IN THE LAST DECISION (A-75336, JUNE 1, 1936), IT WAS STATED THAT "IN CONNECTION WITH EQUALIZATION OF TRANSPORTATION CHARGES NO OBJECTION APPEARS AT THIS TIME IF THE DEPARTMENT SHOULD CONSIDER BIDS PROPOSING TO EQUALIZE THE LOWEST NET RATE AVAILABLE TO THE GOVERNMENT EVEN WHEN SUCH RATE INVOLVES NO LAND-GRANT DEDUCTION, PROVIDED THE RESULT OF SUCH EQUALIZATION CAN BE READILY AND ACCURATELY DETERMINED BEFORE AWARD IS MADE.'

CERTAIN PRACTICAL DIFFICULTIES HAVE BEEN EXPERIENCED IN APPLYING THE PRINCIPLE OF PERMITTING BIDDERS TO OFFER TO EQUALIZE FREIGHT RATES. THERE ARE NOW UNDER THE JURISDICTION OF THIS DEPARTMENT 48 STATE PROCUREMENT OFFICERS, ALL OF WHOM ARE ISSUING NUMEROUS PROPOSALS FOR ALL KINDS OF MATERIALS AND SUPPLIES, RECEIVING HUNDREDS OF BIDS, AND MAKING AWARDS. GUARD AGAINST POSSIBLE SUSPENSION OF ACCOUNTS, WHERE THE EQUALIZATION OF FREIGHT RATES IS INVOLVED, THESE PROCUREMENT OFFICERS FEEL THAT THEY MUST HAVE AUTHORITATIVE ADVICE FROM WASHINGTON AS TO THE APPLICABLE FREIGHT RATES, PARTICULARLY WHEN LAND-GRANT DEDUCTIONS ENTER INTO THEIR CALCULATIONS. THE DELAY INCIDENT TO THE SUBMISSION OF THESE QUESTIONS TO WASHINGTON AND THE RECEIPT OF ADVICE THEREFROM NOT ONLY PREVENTS THE AWARDING OF CONTRACTS WITHIN A REASONABLE PERIOD AFTER THE OPENING OF BIDS, BUT SERIOUSLY INTERFERES WITH THE PROCUREMENT OF MATERIALS AND SUPPLIES WITHIN A REASONABLE TIME AFTER THE NEED FOR THEM HAS DEVELOPED AND BEEN COMMUNICATED TO THE PURCHASING OFFICER. EVEN WITH RESPECT TO PURCHASES TO BE MADE IN WASHINGTON SERIOUS DELAYS IN SECURING CORRECT RATES HAVE BEEN EXPERIENCED ON ACCOUNT OF THE ENORMOUS VOLUME OF RATES TO BE COMPUTED BY A COMPARATIVELY LIMITED PERSONNEL TRAINED TO MAKING SUCH COMPUTATIONS.

FURTHER, THE EFFECT OF THE DECISIONS PERMITTING EQUALIZATION OF FREIGHT RATES WOULD SEEM TO FAVOR THOSE BIDDERS WHO CAN ABSORB A LOSS ON THEIR PRODUCTS IN ORDER TO MEET THE PRICES QUOTED BY THEIR COMPETITORS WHO MAY HAPPEN TO BE MORE FAVORABLY LOCATED WITH RESPECT TO THE DELIVERY POINT NAMED IN THE GOVERNMENT'S PROPOSAL. PRESUMABLY EACH BIDDER QUOTES TO THE GOVERNMENT A PRICE WHICH INCLUDES HIS COST, PLUS PROFIT, PLUS THE TRANSPORTATION OR DELIVERY COST. IF, THEN, THE BIDDER OFFERS TO EQUALIZE THE TRANSPORTATION CHARGE WITH HIS MORE FAVORABLY LOCATED COMPETITOR, THE AMOUNT OF SUCH EQUALIZATION CAN ONLY BE TAKEN OUT OF THAT PRICE WHICH REPRESENTS HIS COST OF PRODUCTION PLUS HIS PROFIT. IT WOULD SEEM THAT SUCH A POLICY WOULD OPERATE TO THE DISADVANTAGE OF THE SMALLER CONCERNS OR THOSE WHOSE FINANCIAL STATUS WILL NOT PERMIT THEM TO ABSORB SUCH LOSSES. WHILE THE IMMEDIATE EFFECT OF SUCH A POLICY WILL BE TO SECURE FOR THE GOVERNMENT THE LOWEST POSSIBLE PRICE, THE ULTIMATE RESULT MIGHT BE THE ELIMINATION OF SMALL, THOUGH EFFICIENT, COMPETITORS FROM BIDDING TO THE GOVERNMENT, THE ENCOURAGEMENT OF MONOPOLY AND, LATER, HIGHER COSTS TO THE GOVERNMENT.

TO SUMMARIZE, THIS OFFICE FEELS THE PRINCIPLE OF EQUALIZATION OF FREIGHT RATES IS UNSOUND FOR THE FOLLOWING REASONS: THAT IT RESULTS IN INDEFINITE BIDS; THAT IT PLACES UPON THE GOVERNMENT THE BURDEN OF DETERMINING HOW MUCH THE SUCCESSFUL BIDDER WILL RECEIVE FOR HIS PRODUCT; THAT IT CAUSES UNDUE DELAY IN AWARDING CONTRACTS; THAT IT DENIES TO BIDDERS THE NATURAL ADVANTAGE OF LOCATION; THAT IT MAY RESULT IN AWARD BEING MADE TO A BIDDER WHOSE SHIPPING POINT IS LOCATED A LONG DISTANCE FROM THE DESTINATION, RESULTING IN DELAY IN DELIVERY OF MATERIALS; AND THAT ANY PRICE ADVANTAGE THAT MAY ACCRUE TO THE GOVERNMENT IS MORE THAN OFFSET BY THE INCREASED ADMINISTRATIVE COSTS TO THE GOVERNMENT.

IN VIEW OF THE FOREGOING, IT IS PROPOSED TO ISSUE A CIRCULAR TO THE SEVERAL DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT TO THE EFFECT THAT IN ALL FUTURE ADVERTISEMENTS COVERING THE PURCHASE OF SUPPLIES, MATERIALS, AND EQUIPMENT, PROSPECTIVE BIDDERS SHOULD BE ADVISED THAT PROPOSALS FOR EQUALIZATION OR FREIGHT RATES WILL NOT BE CONSIDERED IN EVALUATING BIDS FOR THE PURPOSE OF MAKING AWARD. HOWEVER, BEFORE SUCH CIRCULAR IS ISSUED THE DEPARTMENT WILL BE GLAD TO RECEIVE ANY COMMENT YOU MAY DESIRE TO MAKE RELATIVE THERETO.

THE ACCEPTED REQUIREMENT IN THE USES OF APPROPRIATED MONEYS IS THAT THE AMOUNT CHARGED THERETO SHOULD NOT BE IN EXCESS OF THE LOWEST DELIVERED COST OF THE SUPPLIES MEETING THE NEEDS OF THE UNITED STATES WHICH ARE TO BE STATED IN THE ADVERTISED SPECIFICATIONS SO AS TO PERMIT OF FULL AND FREE COMPETITION. AS PART OF THIS REQUIREMENT SPECIFICATIONS GENERALLY REQUIRE THE SUBMISSION OF BIDS F.O.B. BIDDER'S SHIPPING POINT AND F.O.B. GOVERNMENT DESTINATION, AND THERE IS FOR ACCEPTANCE THAT BID MEETING THE TERMS OF THE SPECIFICATIONS WHICH WILL RESULT IN THE LOWEST AGGREGATE COST TO THE GOVERNMENT OF THE MATERIALS OR SUPPLIES AT DESTINATION. HOWEVER, SUCH REQUIREMENT FOR BIDS ON THE BASIS OF F.O.B. BIDDER'S SHIPPING POINT AND F.O.B. GOVERNMENT DESTINATION DOES NOT NECESSARILY APPLY WHERE THE TOTAL SHIPMENTS AGGREGATE 100 POUNDS OR LESS. SEE DECISIONS OF OCTOBER 31, 1935, AND FEBRUARY 17, 1936, A-66668. IN SUCH INSTANCES WHERE THE SHIPMENT WEIGHS 100 POUNDS OR LESS, THE SPECIFICATIONS MAY PROPERLY REQUIRE QUOTATIONS ON THE BASIS OF F.O.B. GOVERNMENT DESTINATION DELIVERIES, ONLY.

WHERE THE SHIPMENTS ARE ESTIMATED TO EXCEED 100 POUNDS AND BIDS ARE REQUIRED ON THE BASIS OF DELIVERY F.O.B. BIDDER'S SHIPPING POINT OR F.O.B. GOVERNMENT DESTINATION, IT MAY BE POSSIBLE THAT THE UNITED STATES ACCEPT DELIVERY F.O.B. BIDDER'S SHIPPING POINT AND HAVE DELIVERY ON A GOVERNMENT BILL OF LADING AT LESS COST THAN WOULD RESULT IN DELIVERY F.O.B. GOVERNMENT DESTINATION. THIS SITUATION MAY ARISE DUE TO THE FACT OF MORE FAVORABLE LOCATION ON A LAND-GRANT LINE OF ONE NOT THE LOW BIDDER, SUCH LOCATION ACTUALLY RESULTING IN LESS COST TO THE GOVERNMENT THROUGH ACCEPTANCE OF A HIGHER BID F.O.B. BIDDER'S SHIPPING POINT OR MILL AND SHIPMENT ON A GOVERNMENT BILL OF LADING THAN WOULD BE CHARGEABLE TO PUBLIC FUNDS IN EVENT THE LOW BID ON THE BASIS F.O.B. DESTINATION BE ACCEPTED. IN SUCH EVENT THE SPECIFICATIONS SHOULD PERMIT THE LOW BIDDER TO EQUALIZE LAND-GRANT RATES WITH SUCH HIGHER BIDDER.

BOTH FROM THE STANDPOINT OF PREVENTING CHARGES AGAINST APPROPRIATED MONEYS IN EXCESS OF THE LOWEST AGGREGATE AMOUNT NECESSARY TO SECURE DELIVERY OF MATERIALS AND SUPPLIES TO GOVERNMENT DESTINATION AND FROM THE STANDPOINT OF EQUALITY OF BIDDERS, THE SPECIFICATIONS SHOULD PERMIT THE LOW BIDDER F.O.B. HIS SHIPPING POINT OR MILL TO EQUALIZE LAND-GRANT RATES AVAILABLE TO THE UNITED STATES IN EVENT THERE SHOULD BE FOR ACCEPTANCE THE BID OF A HIGHER BIDDER F.O.B. THAT BIDDER'S SHIPPING POINT WHICH WOULD OTHERWISE RESULT IN A LOWER AGGREGATE COST TO THE UNITED STATES FOR THE SUPPLIES AT GOVERNMENT DESTINATION AND WHERE THE WEIGHT OF THE SHIPMENT IS ESTIMATED TO EXCEED 100 POUNDS.

EQUALIZATION OF LAND-GRANT RATES IN SUCH CASES DOES NOT RESULT IN INDEFINITE BIDS FOR THE REASON THAT BIDS ARE NOT INDEFINITE WHEN THEY MAY BE MADE DEFINITE BY THE APPLICATION OF AN ESTABLISHED FORMULA, AND SUCH AN ESTABLISHED FORMULA IS AVAILABLE FOR THE COMPUTATION OF LAND GRANT RATES. IT IS APPRECIATED THAT SUCH COMPUTATION REQUIRES SOME TIME WHICH, TO THAT EXTENT, DELAYS THE AWARD OF CONTRACTS, BUT IT IS BELIEVED THAT THE EXEMPTION OF CONTRACTS WHERE THE SHIPMENT IS ESTIMATED TO WEIGH 100 POUNDS OR LESS WILL OPERATE TO ENABLE THE FEDERAL TRAFFIC BOARD TO MORE PROMPTLY DETERMINE THE APPLICABLE RATES IN THE REMAINING CASES. THE BALANCING OF CONVENIENCES AND INCONVENIENCES OF SUCH COURSE OF PROCEDURE AS AGAINST THE NECESSITY FOR ECONOMY IN THE EXPENDITURE OF PUBLIC FUNDS SEEMS TO REQUIRE, IN THE PUBLIC INTEREST, THAT THE PROCEDURE HEREIN INDICATED SHOULD BE FOLLOWED IN MAKING PURCHASES ON BEHALF OF THE UNITED STATES AND ANY CIRCULARS OF INFORMATION SENT TO THE DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT SHOULD SO PROVIDE.

RESPECTING THE CONCLUSION QUOTED FROM A-75336 OF JUNE 1, 1936, 15 COMP. GEN. 1045, AS TO CONSIDERATION OF BIDS PROPOSING TO EQUALIZE THE LOWEST NET RATE AVAILABLE TO THE GOVERNMENT EVEN WHEN SUCH RATE DOES NOT INVOLVE LAND-GRANT DEDUCTION, THAT IS A MATTER PRIMARILY FOR ADMINISTRATIVE DISCRETION IN THE HEAD OF A DEPARTMENT OR ESTABLISHMENT WITH A VIEW TO OBTAINING THE GREATEST RETURNS TO THE PUBLIC IN THE EXPENDITURE OF APPROPRIATED MONEYS FOR HIS DEPARTMENT OR ESTABLISHMENT.