A-82927, FEBRUARY 4, 1937, 16 COMP. GEN. 726

A-82927: Feb 4, 1937

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

PARTICULARLY WHERE THE REPORTED QUALIFICATIONS WERE NOT QUALIFICATIONS IN FACT. WHERE THE PROVISIONS DELETED OR QUALIFIED WERE PRIMARILY FOR THE PROTECTION OF THE CONTRACTOR. IT IS NOTED THAT CERTAIN WAR DEPARTMENT CONTRACTS FOR SUBSISTENCE SUPPLIES WERE AWARDED TO OTHER THAN THE LOWEST BIDDER FOR THE STATED REASON THAT THE LOWEST BIDDER IN EACH INSTANCE QUALIFIED THE TAX CLAUSE AS STATED IN THE INVITATION FOR BIDS. THE CONTRACTS ARE AS FOLLOWS: CHART CONTRACT NO. THE INVITATION FOR BIDS IN EACH INSTANCE INCLUDED THE FOLLOWING STANDARD FEDERAL TAX CLAUSE: PRICES BID HEREIN INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE MATERIAL ON THIS BID. OR OTHER TAXES OR CHARGES ARE IMPOSED OR CHANGED BY THE CONGRESS AFTER THE DATE SET FOR THE OPENING OF THIS BID AND MADE APPLICABLE DIRECTLY UPON THE PRODUCTION.

A-82927, FEBRUARY 4, 1937, 16 COMP. GEN. 726

CONTRACTS - SPECIFICATIONS - BIDDERS' DELETION OR QUALIFICATION OF FEDERAL TAX PROVISIONS - REJECTION OF BIDS THE QUALIFICATION OR DELETION BY BIDDERS OF A PROVISION IN AN INVITATION FOR BIDS TO THE EFFECT THAT PRICES BID SHOULD INCLUDE ANY FEDERAL TAX APPLICABLE TO THE SUPPLIES INVOLVED, SUBJECT TO ADJUSTMENT IN CASE OF LEGISLATIVE CHANGE IN SAID TAX, DOES NOT REQUIRE REJECTION OF THE BIDS AND AWARD TO OTHER THAN THE LOWEST BIDDER, PARTICULARLY WHERE THE REPORTED QUALIFICATIONS WERE NOT QUALIFICATIONS IN FACT, AND WHERE THE PROVISIONS DELETED OR QUALIFIED WERE PRIMARILY FOR THE PROTECTION OF THE CONTRACTOR, AND THE ADVISABILITY OF THEIR INSERTION QUESTIONABLE, THERE BEING NO FEDERAL TAX APPLICABLE AT THE TIME TO THE SUPPLIES INVOLVED.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF WAR, FEBRUARY 4, 1937:

IN CONNECTION WITH THE EXAMINATION OF CONTRACTS FILED IN THIS OFFICE, IT IS NOTED THAT CERTAIN WAR DEPARTMENT CONTRACTS FOR SUBSISTENCE SUPPLIES WERE AWARDED TO OTHER THAN THE LOWEST BIDDER FOR THE STATED REASON THAT THE LOWEST BIDDER IN EACH INSTANCE QUALIFIED THE TAX CLAUSE AS STATED IN THE INVITATION FOR BIDS. THE CONTRACTS ARE AS FOLLOWS:

CHART

CONTRACT NO. DATE CONTRACTOR REJECTED LOW BID W626QM20975 --- 4/1/36 H.M. WAGNER AND CO.1, INC. FREY AND SON, INC. W801QM10773 --- 3/5/36 THE GODDARD GROCER CO. --- AUSTIN NICHOLS AND CO. W801QM10793 --- 3/7/36 REPUBLIC FOOD PRODUCTS CO. THE RATH PACKING CO. W928QM24117 -- 6/15/36 SWIFT AND CO. ------------ KINGAN AND CO. W928QM24169 -- 6/20/36 THE RATH PACKING CO. ----- DO. W932QM754 --- 3/26/36 SWIFT AND CO. ------------ DO. W932QM755 ---- 3/26/36 FRYE AND CO. ------------- DO.

THE INVITATION FOR BIDS IN EACH INSTANCE INCLUDED THE FOLLOWING STANDARD FEDERAL TAX CLAUSE:

PRICES BID HEREIN INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE MATERIAL ON THIS BID. IF ANY SALES TAX, PROCESSING TAX, ADJUSTMENT CHARGE, OR OTHER TAXES OR CHARGES ARE IMPOSED OR CHANGED BY THE CONGRESS AFTER THE DATE SET FOR THE OPENING OF THIS BID AND MADE APPLICABLE DIRECTLY UPON THE PRODUCTION, MANUFACTURE OR SALE OF THE SUPPLIES COVERED BY THIS BID, AND ARE PAID TO THE GOVERNMENT BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES HEREIN CONTRACTED FOR, THEN THE PRICES NAMED IN THIS BID WILL BE INCREASED OR DECREASED ACCORDINGLY, AND ANY AMOUNT DUE THE CONTRACTOR AS A RESULT OF SUCH CHANGE WILL BE CHARGED TO THE GOVERNMENT AND ENTERED ON VOUCHERS (OR INVOICES) AS SEPARATE ITEMS. AND IN SOME INSTANCES THE FOLLOWING ADDITIONAL PARAGRAPH:

BIDS CONTAINING CONDITIONS MODIFYING THIS PARAGRAPH IN ANY MANNER WILL NOT BE CONSIDERED.

SINCE THE REASONS, GIVEN ON THE CERTIFICATES OF AWARD ACCOMPANYING THESE CONTRACTS, FOR REJECTING THE LOWEST BID APPEARED INSUFFICIENT, THE QUARTERMASTER GENERAL, WAR DEPARTMENT, WAS REQUESTED, WITH RESPECT TO EACH CASE, TO FURNISH THIS OFFICE A DETAILED EXPLANATION TOGETHER WITH THE REJECTED LOW BID. THE REPLIES RECEIVED INDICATE THAT THE ACTION TAKEN WAS PURSUANT TO LETTER OF THE QUARTERMASTER GENERAL DATED MARCH 13, 1936, REFERENCE QM 012.2 S-EP (2ND CORPS AREA), AND THAT THE QUALIFICATIONS OF THE TAX CLAUSE SUBMITTED BY THE LOW BIDDERS UNDER THE RESPECTIVE CONTRACTS ARE AS FOLLOWS:

CONTRACT W 626 QM 20975. IN THE LOW BID ON ITEM 17 SUBMITTED BY FREY AND SON, INC., THERE WAS INSERTED THE FOLLOWING PROVISION:

IF THE UNITED STATES, OR ANY CONSTITUTED AUTHORITY THEREOF HEREAFTER IMPOSES, OR REQUIRES THE PAYMENT OF, ANY TAX OR OTHER EXACTION ON ANY OF THE PRODUCTS INCLUDED IN THE ITEMS LISTED IN THIS REQUEST FOR QUOTATIONS ON WHICH WE HAVE SUBMITTED PRICES, IT IS UNDERSTOOD AND AGREED THAT THE AMOUNT OF SUCH TAX OR OTHER EXACTIONS APPLICABLE TO ANY OF THESE ITEMS SHALL BE ADDED TO THE PRICES HEREIN QUOTED, WHICH SHALL THEREON BE INCREASED BY THE AMOUNT OF SUCH TAX OR OTHER EXACTIONS.

CONTRACT W 801 QM 10773. IN THE LOW BID ON ITEM 679 SUBMITTED BY AUSTIN, NICHOLS AND CO., THERE WAS INSERTED THE FOLLOWING PROVISION:

IF ANY SALES TAX, PROCESSING TAX, EXCISE TAX, ADJUSTMENT CHARGES, OR ANY OTHER TAX OF WHATEVER NATURE, ARE IMPOSED, CHANGE, OR MADE RETROACTIVELY BY THE CONGRESS ON OR AFTER THE DATE SET FOR THE OPENING OF THIS BID, AND MADE APPLICABLE DIRECTLY OR INDIRECTLY UPON THE PRODUCTION, MANUFACTURE, FLOOR STOCKS, OR SALE OF THE SUPPLIES COVERED BY THIS BID, THEN THE PRICES NAMED IN THIS BID WILL BE INCREASED ACCORDINGLY AND ANY AMOUNT DUE THE CONTRACTOR HEREIN AS A RESULT OF SUCH CHANGE WILL BE CHARGED TO THE GOVERNMENT AND ENTERED ON VOUCHERS (OR INVOICE) AS SEPARATE ITEMS.

CONTRACT W 801 QM 10793. IN THE LOW BID ON ITEMS 156, 157, AND 161, SUBMITTED BY THE RATH PACKING CO., THE WORDS "PROCESSING TAX" WERE DELETED FROM THE TAX CLAUSE CONTAINED IN THE INVITATION FOR BIDS.

CONTRACTS W 928 QM 24117 AND W 928 QM 24169. IN THE LOW BIDS SUBMITTED BY KINGAN AND CO., THERE WAS ELIMINATED THE ENTIRE TAX CLAUSE.

CONTRACTS W 932 QM 754 AND W 932 QM 755. IN THE LOW BIDS SUBMITTED BY ARMOUR AND CO., THERE WAS INSERTED A PROVISION, THE EFFECT OF WHICH APPEARS TO BE THE ELIMINATION OF THE TAX CLAUSE. THE SAID PROVISION READS AS FOLLOWS:

PRICES QUOTED HEREIN ARE SUBJECT TO NO ADJUSTMENT AND IF ACCEPTED MUST BE PAID IN FULL TO ARMOUR AND COMPANY. NO CLAIM FOR REFUND OR ABATEMENT WILL BE ACCEPTED, AND ALL REFERENCE TO PROCESSING TAX IN THIS TENDER OR BID SHALL BE CONSIDERED AS ELIMINATED.

INASMUCH AS THERE APPEARS TO HAVE BEEN NO FEDERAL TAXES APPLICABLE TO THE ARTICLES PURCHASED UNDER THE SEVERAL CONTRACTS, IT WOULD SEEM THAT THE TAX CLAUSE CONTAINED IN THE INVITATIONS FOR BIDS IN SUCH CASES WAS PRIMARILY FOR THE BENEFIT OF THE CONTRACTOR. THEREFORE, IS IT NOT UNDERSTOOD HOW THE DELETION, IN WHOLE OR IN PART, OF THE TAX CLAUSE AS CONTAINED IN THE INVITATIONS FOR BIDS BY THE LOW BIDDERS IN THE LAST FIVE CONTRACTS ABOVE MENTIONED, MAY BE CONSIDERED AS LESS FAVORABLE TO THE GOVERNMENT. IN THIS CONNECTION SEE A-66872 DATED NOVEMBER 4, 1935 (15 COMP. GEN. 368), WHEREIN IT WAS HELD THAT THE DELETION BY A BIDDER OF A PROVISION IN AN INVITATION FOR BIDS TO THE EFFECT THAT PRICES BID SHOULD INCLUDE ANY FEDERAL TAX APPLICABLE TO THE SUPPLIES INVOLVED, SUBJECT TO ADJUSTMENT IN CASE OF LEGISLATIVE CHANGE IN SAID TAX, DOES NOT REQUIRE REJECTION OF THE BIDS.

THE INDISCRIMINATE USE IN ADVERTISED SPECIFICATIONS OF PROPOSED STIPULATIONS TO BE AGREED TO BY BIDDERS APPARENTLY WITHOUT REFERENCE TO THE CHARACTER OF THE MATERIAL ON WHICH THE BIDS ARE REQUESTED NOT INFREQUENTLY RESULTS IN SUCH SITUATIONS AS HERE INVOLVED. THE PROCESSING TAX ON SUBSISTENCE SUPPLIES WAS HELD INVALID BY THE SUPREME COURT OF THE UNITED STATES IN ITS DECISION OF JANUARY 6, 1936, IN THE BUTLER CASE WHICH DECISION WAS PRIOR TO ADVERTISEMENT FOR BIDS IN THESE SPECIFIC CASES AND, AS STATED, THERE WAS APPARENTLY NO OTHER FEDERAL TAX APPLICABLE TO SUCH SUBSISTENCE SUPPLIES. FURTHERMORE, THE REPORTED QUALIFICATIONS OF THE RATH PACKING CO. AND KINGAN AND CO. WERE NOT, IN FACT, QUALIFICATIONS AND, AS ABOVE STATED, THE STANDARD FEDERAL TAX CLAUSE WAS PRIMARILY FOR THE PROTECTION OF THE CONTRACTOR. IF THE CONTRACTOR DOES NOT DESIRE SUCH PROTECTION, THERE IS NO BASIS FOR THE UNITED STATES TO OBJECT EVEN IN THOSE CASES WHERE FEDERAL TAXES ARE OR MAY BECOME APPLICABLE TO THE MATERIALS FOR DELIVERY IN EVENT THE BIDS ARE ACCEPTED.

WHILE NO FURTHER QUESTION WILL BE RAISED WITH RESPECT TO THESE PARTICULAR CONTRACTS, IF OTHERWISE CORRECT, THE PROPER ADMINISTRATIVE ACTION SHOULD BE TAKEN TO CORRECT THE PROCEDURE FOLLOWED IN THESE CASES.