A-92674, JULY 16, 1938, 18 COMP. GEN. 44

A-92674: Jul 16, 1938

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WHETHER A BIDDER SHOULD BE ALLOWED TO EQUALIZE FREIGHT CHARGES WHEN SUCH AN OFFICER IS INCORPORATED IN ITS BID AND QUOTATIONS ARE SUBMITTED ON A DELIVERED TO GOVERNMENT DESTINATION BASIS ONLY. PARTICULARLY WHERE BIDDER'S SHIPPING POINT IS LOCATED ON A NON LAND-GRANT- AIDED LINE. AS FOLLOWS: REFERENCE IS MADE TO THE QUESTION OF EQUALIZATION. IT IS OUR UNDERSTANDING THAT THE WORD "EQUALIZATION. WHICH ARE DESIGNATED AS FOLLOWS: TYPE 1. YOUR INDULGENCE IS RESPECTFULLY REQUESTED IN CONNECTION WITH THE ATTACHED CHARTS. CHART "A" IS ENTITLED "EQUALIZATION OF SAVINGS. " WHICH IS CONSIDERED BY THIS DEPARTMENT SYNONYMOUS TO EQUALIZATION OF THE MAXIMUM LAND GRANT DEDUCTION. THE CASE PRESENTED ON THIS CHART IS HYPOTHETICAL.

A-92674, JULY 16, 1938, 18 COMP. GEN. 44

ADVERTISING - BIDS - EVALUATION - FREIGHT EQUALIZATION GENERALLY INVOLVES THE MATTER OF BIDDERS' LAND-GRANT EQUALIZATION OFFERS IN CONNECTION WITH LOW BID DETERMINATIONS IN THE PURCHASE OF GOVERNMENT SUPPLIES; WHETHER EQUALIZING SHOULD BE PERMITTED ON THE BASIS OF EQUALIZING LAND-GRANT RATES AND NET RATES AS DISTINGUISHED FROM EQUALIZING SAVINGS; WHETHER A BIDDER SHOULD BE ALLOWED TO EQUALIZE FREIGHT CHARGES WHEN SUCH AN OFFICER IS INCORPORATED IN ITS BID AND QUOTATIONS ARE SUBMITTED ON A DELIVERED TO GOVERNMENT DESTINATION BASIS ONLY, PARTICULARLY WHERE BIDDER'S SHIPPING POINT IS LOCATED ON A NON LAND-GRANT- AIDED LINE; THE PROCEDURE FOR LAND-GRANT EQUALIZATION IN ADVERTISEMENTS FOR BIDS WHERE THE GOVERNMENT RESERVES THE RIGHT TO AWARD AS MANY CONTRACTS AS NECESSARY UNDER ONE ITEM TO OBTAIN THE DESIRED QUANTITY; AND SUGGEST FORMS OF INSTRUCTIONS FOR INCLUSION IN INVITATIONS FOR BIDS WITH A VIEW TO ELIMINATION OF THE CONFUSION AS TO FREIGHT EQUALIZATION GENERALLY.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF AGRICULTURE, JULY 16, 1938:

THERE HAS BEEN RECEIVED YOUR LETTER OF FEBRUARY 15, 1938, AS FOLLOWS:

REFERENCE IS MADE TO THE QUESTION OF EQUALIZATION, WHICH HAS RECEIVED CONSIDERABLE ATTENTION BY YOUR OFFICE AND VARIOUS BRANCHES OF THE GOVERNMENT PROCUREMENT SERVICE IN THE LAST FOUR YEARS.

IT IS OUR UNDERSTANDING THAT THE WORD "EQUALIZATION," WHEN USED IN CONNECTION WITH GOVERNMENT PROCUREMENT, UNDOUBTEDLY REFERS TO THE EQUALIZATION OF FREIGHT CHARGES AS DETERMINED BY ONE OF THREE DEFINITE FORMULAS, WHICH ARE DESIGNATED AS FOLLOWS:

TYPE 1.--- EQUALIZATION OF THE MAXIMUM LAND GRANT DEDUCTION AVAILABLE TO THE GOVERNMENT.

TYPE 2.--- EQUALIZATION OF THE LOWEST LAND GRANT FREIGHT RATE AVAILABLE TO THE GOVERNMENT.

TYPE 3.--- EQUALIZATION OF THE LOWEST NET RATE AVAILABLE TO THE GOVERNMENT, EVEN WHEN SUCH RATE DOES NOT INVOLVE A DEDUCTION BY VIRTUE OF LAND GRANT OR OTHERWISE.

IN ORDER THAT A DEFINITE MUTUAL UNDERSTANDING OF THE PHRASEOLOGY USED IN THIS SUBMISSION, AND THE REPLY, THERETO, MAY BE ACCOMPLISHED, YOUR INDULGENCE IS RESPECTFULLY REQUESTED IN CONNECTION WITH THE ATTACHED CHARTS; NAMELY, A, B, C, D, AND E.

CHART "A" IS ENTITLED "EQUALIZATION OF SAVINGS," WHICH IS CONSIDERED BY THIS DEPARTMENT SYNONYMOUS TO EQUALIZATION OF THE MAXIMUM LAND GRANT DEDUCTION. THE CASE PRESENTED ON THIS CHART IS HYPOTHETICAL, BUT VERY CLOSELY REPRESENTS NUMEROUS ACTUAL CASES HANDLED IN THE REGULAR ROUTINE OF PROCUREMENT WORK. THE VARIOUS DISCOUNTS AND DELIVERED TO DESTINATION QUOTATIONS HAVE NOT BEEN INCORPORATED, DUE TO THE FACT THAT DISCOUNT DOES NOT IN ANY WAY AFFECT EQUALIZATION, AND IS ASSUMED THAT THE GOVERNMENT BILL OF LADING DELIVERY, OFFERED BY EACH BIDDER, IS LOWER THAN ANY DELIVERED TO DESTINATION QUOTATION PREDICATED ON A COMMERCIAL BILL OF LADING. IT IS FURTHER ASSUMED THAT EACH OF THE FIVE BIDDERS LISTED OFFERS TO EQUALIZE ON THE BASIS OF WHAT IS COMMONLY TERMED BY THIS DEPARTMENT "SAVINGS.' SHIPPING POINTS ARE DESIGNATED IN COLUMN 9 BY THE LETTERS A, B, C, D, AND E. IT IS BELIEVED THAT THE CHART IS ENTIRELY SELF EXPLANATORY UP TO AND INCLUDING COLUMN 12, ENTITLED "SHIPPING POINT COST PLUS NET FREIGHT CHARGES.' THE EQUALIZATION DETERMINATION HAS BEEN MADE AS FOLLOWS:

THE NET RATE WAS SUBTRACTED FROM THE COMMERCIAL RATE TO ARRIVE AT THE LAND GRANT DEDUCTION, WHICH IS SHOWN IN COLUMN 14 ENTITLED "LAND GRANT DEDUCTION PER 100 LBS.' IT WILL BE NOTED THAT BIDDER NO. 2, SHIPPING FROM POINT "B," ENJOYS THE MAXIMUM LAND GRANT DEDUCTION OF 12 CENTS PER 100 LBS. THE LAND GRANT DEDUCTION ENJOYED BY EACH BIDDER HAS BEEN SUBTRACTED FROM THE 12 CENTS TO ARRIVE AT THE EQUALIZATION PER 100 LBS., WHICH IS LISTED IN COLUMN 15. THIS EQUALIZATION PER 100 LBS., HAS BEEN MULTIPLIED BY THE TOTAL SHIPPING WEIGHT OFFERED BY EACH BIDDER TO DETERMINE THE TOTAL EQUALIZATION DEDUCTION APPLICABLE TO EACH BIDDER'S PROPOSED CONTRACT.

YOUR PARTICULAR ATTENTION IS INVITED TO DECISION A-53420, ADDRESSED TO THE HONORABLE SECRETARY OF WAR AND SIGNED BY THE HONORABLE J. R. MCCARL, UNDER DATE OF MARCH 27, 1934, IN WHICH THE FOLLOWING QUOTATION APPEARS ON THE LAST PAGE:

"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 100 LBS. 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.'

AT THE TIME THIS DECISION WAS RENDERED, THE QUESTION OF EQUALIZATION WAS IN THE EMBRYONIC STAGE, AND THE TYPE OF EQUALIZATION KNOWN AS "SAVINGS" AND ILLUSTRATED ON CHART "A," WAS THE ONLY TYPE EMPLOYED BY THIS DEPARTMENT.

THIS INTERPRETATION OF THE QUOTATION JUST GIVEN WAS SUBSTANTIATED IN DECISION A-61651, ADDRESSED TO THIS OFFICE AND SIGNED BY THE HONORABLE J. R. MCCARL UNDER DATE OF JULY 19, 1935, IN WHICH THE FOLLOWING QUOTATION APPEARS IN THE PENULTIMATE PARAGRAPH:

"* * * 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.'

THE ITALICIZED PORTION OF THIS QUOTATION INDICATED TO THE DEPARTMENT THAT THE PHRASEOLOGY ,OFFERS TO EQUALIZE THE LAND-GRANT RATES" SHOULD PROPERLY BE INTERPRETED AND COMPUTED ON THE BASIS OF "SAVINGS," AS ILLUSTRATED IN CHART "A.' HOWEVER, THERE WAS FOR CONSIDERATION THE POSSIBILITY THAT EQUALIZATION ON THE BASIS OF THE LOWEST LAND-GRANT RATE AVAILABLE TO THE GOVERNMENT WAS INTENDED, AND A SUBMISSION TO YOUR OFFICE WAS PREPARED, WHICH RESULTED IN DECISION A-75336, ADDRESSED TO THIS OFFICE AND SIGNED BY THE HONORABLE J. R. MCCARL, UNDER DATE OF JUNE 1, 1936. THE FOLLOWING QUOTATION IS TAKEN FROM THE CLOSING STATEMENTS OF THIS DECISION:

"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.'

AS A RESULT OF THE STATEMENTS CONTAINED IN THIS DECISION, THE DEPARTMENT INAUGURATED TWO ENTIRELY NEW AND DIFFERENT TYPES OF EQUALIZATION, WHICH HAVE BEEN COMMONLY TERMED "LOWEST LAND-GRANT FREIGHT RATE AVAILABLE TO THE GOVERNMENT," AND "LOWEST NET FREIGHT RATE AVAILABLE TO THE GOVERNMENT," EVEN WHEN NO DEDUCTION IS INVOLVED BY VIRTUE OF LAND GRANT OR OTHERWISE. THESE TWO TYPES OF EQUALIZATION ARE ILLUSTRATED BY CHARTS "B" AND "C," RESPECTIVELY. YOU WILL NOTE THAT CHART "B" ENTITLED "LAND-GRANT RATES," IS THE SAME AS CHART "A," WITH THE EXCEPTION OF THE EQUALIZATION DETERMINATION. IN COMPUTING EQUALIZATION ON THE BASIS OF THE LOWEST LAND- GRANT RATE AVAILABLE TO THE GOVERNMENT, BIDDER NO. 1 AFFORDS A NET RATE FROM SHIPPING POINT "A" OF 50 CENTS PER CWT. THIS IS THE LOWEST LAND-GRANT RATE AVAILABLE TO THE GOVERNMENT, AND ALL OTHER NET RATES HIGHER THAN 50 CENTS PER CWT. HAVE BEEN EQUALIZED BY SUBTRACTING 50 CENTS THEREFROM, TO DETERMINE THE AMOUNT OF EQUALIZATION PER 100 LBS., AS LISTED IN COLUMN 14. THIS EQUALIZATION PER CWT. HAS BEEN MULTIPLIED BY THE TOTAL SHIPPING WEIGHT IN CONNECTION WITH EACH BIDDER, IN ORDER TO DETERMINE THE TOTAL AMOUNT OF EQUALIZATION DEDUCTIBLE. CHART "C" IS EXACTLY THE SAME AS CHARTS "A" AND ," WITH THE EXCEPTION OF THE EQUALIZATION DETERMINATION. EQUALIZATION HAS BEEN COMPUTED IN THIS CHART ON THE BASIS OF THE LOWEST NET RATE AVAILABLE TO THE GOVERNMENT, WHICH IS 40 CENTS PER CWT., APPLICABLE TO SHIPPING POINT "C" OFFERED BY BIDDER NO. 3. THE SAME FACTORY PRICES, SHIPPING WEIGHTS, SHIPPING POINTS, AND FREIGHT RATES, HAVE BEEN USED IN CONNECTION WITH ALL THREE CHARTS IN ORDER TO SHOW A DEFINITE CONTRAST BETWEEN THE TYPES OF EQUALIZATION.

IT IS CONSIDERED THAT THE EQUALIZATION BASED ON SAVINGS OR THE MAXIMUM LAND-GRANT DEDUCTION, INSURES THE GOVERNMENT THE BENEFIT OF THE MAXIMUM LAND-GRANT DEDUCTION AT ALL TIMES, AND NEVER IMPOSES A HARDSHIP ON ANY BIDDER, DUE TO THE FACT THAT THE TOTAL EQUALIZATION DEDUCTION CAN NEVER EXCEED THE AMOUNT DETERMINED BY THE MAXIMUM LAND GRANT DEDUCTION IN EFFECT AT A LEGITIMATE SHIPPING POINT. IN OTHER WORDS, THIS TYPE OF EQUALIZATION IS BASED ENTIRELY ON THE LAND-GRANT DEDUCTION FROM THE COMMERCIAL RATE WITH ABSOLUTELY NO REGARD FOR THE DISTANCE BETWEEN THE BIDDER'S SHIPPING POINT AND THE DESIGNATED GOVERNMENT DESTINATION, EXCEPT INSOFAR AS THE DISTANCE GOVERNS THE ORIGINAL DETERMINATION OF THE LAND-GRANT RATE. THIS TYPE OF EQUALIZATION CAN NEVER RESULT IN AN UNCONSCIONABLE DEDUCTION, AND DOES NOT DEPRIVE ANY BIDDER OF THE NATURAL ADVANTAGE IN CONNECTION WITH DISTANCE FROM THE GOVERNMENT DESTINATION, BUT INSURES THE BIDDER AND THE GOVERNMENT THE PRIVILEGE OF EQUALIZING LAND-GRANT DEDUCTIONS. THE LOCATION OF A BIDDER'S SHIPPING POINT IN REGARD TO DISTANCE FROM THE GOVERNMENT DESTINATION WAS NOT IN ANY WAY AFFECTED BY THE GOVERNMENT; HOWEVER, THE LAND-GRANT DEDUCTIONS IN EFFECT AT CERTAIN SHIPPING POINTS WERE DIRECTLY OR INDIRECTLY CREATED AS A RESULT OF CERTAIN ACTS OF THE FEDERAL GOVERNMENT. THE EQUALIZATION OF LAND-GRANT RATES AND NET RATES IS DEFINITELY AN EQUALIZATION OF THE DISTANCE BETWEEN THE BIDDER'S SHIPPING POINT AND THE GOVERNMENT DESTINATION, WHICH, IN NUMEROUS CASES, RESULTS IN ABNORMALLY LARGE AMOUNTS OF EQUALIZATION DEDUCTION, AND GIVES CERTAIN BIDDERS THE PRIVILEGE OF AFFECTING THE AWARD BY DESIGNATING SHIPPING POINTS A CERTAIN DISTANCE FROM THE GOVERNMENT DESTINATION, AS COMMERCIAL FREIGHT RATES ARE AVAILABLE TO THE PUBLIC IN GENERAL, AND NET FREIGHT RATES ARE ALWAYS EQUAL TO OR LESS THAN THE CORRESPONDING COMMERCIAL RATE. THE DEPARTMENT IS AWARE OF THE FACT THAT THE QUESTION OF EQUALIZING LAND- GRANT FREIGHT RATES AND NET FREIGHT RATES WAS PRESENTED TO YOUR OFFICE, AND THE RESULT OF THAT SUBMISSION IS DECISION A-80398, ADDRESSED TO THE HONORABLE SECRETARY OF THE TREASURY AND SIGNED BY YOU UNDER DATE OF SEPTEMBER 19, 1936. THIS DECISION CONTAINS A RESUME OF ALL OF THE DECISIONS PREVIOUSLY MENTIONED IN THIS SUBMISSION. YOUR PARTICULAR ATTENTION IS INVITED TO THE FOLLOWING QUOTATION WHICH IS TAKEN FROM THIS DECISION:

"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.'

IT WOULD APPEAR THAT CONSIDERABLE EMPHASIS WAS PLACED ON THE LOW BID AT THE BIDDER'S SHIPPING POINT. THE QUESTION THEN ARISES AS TO WHETHER A BIDDER NOT LOW AT THE BIDDER'S SHIPPING POINT AND NOT LOW AT THE GOVERNMENT DESTINATION, DELIVERY BEING MADE ON A GOVERNMENT BILL OF LADING, SHOULD BE ALLOWED TO EQUALIZE IF SUCH AN OFFER IS INCORPORATED IN THE PROPOSAL. THE SOIL CONSERVATION SERVICE, A BUREAU OF THIS DEPARTMENT, HAS ENCOUNTERED CONSIDERABLE DIFFICULTY IN EQUALIZING VARIOUS OFFERS ON THE BASIS OF LAND-GRANT RATES AND NET RATES, DUE TO THE FACT THAT CONSIDERABLE CONFUSION AND AMBIGUITY EXISTS AT THE PRESENT. YOU WILL NOTE THAT THE LOWEST NET COST TO THE GOVERNMENT, AS SHOWN ON CHART "A" IS $2,109.00, AND THE LOWEST NET PRICE TO THE GOVERNMENT, AS SHOWN ON CHART "C" IS $2,010.40. IT IS TRUE THAT THE EQUALIZATION DETERMINATION ON THE BASIS OF LAND-GRANT RATES OR NET RATES USUALLY RESULTS IN A LARGER EQUALIZATION DEDUCTION, AND CONSEQUENTLY, A LOWER DELIVERED COST ON A GOVERNMENT BILL OF LADING; HOWEVER, THE DIFFERENTIAL BETWEEN THE PRICE ON CHART "C" AND THE PRICE ON CHART "A" IS ONLY $98.60. IT HAS BEEN THE EXPERIENCE OF THE SOIL CONSERVATION SERVICE THAT ANY SAVING RESULTING TO THE GOVERNMENT AS A RESULT OF EQUALIZING LAND-GRANT RATES AND NET RATES, IN PREFERENCE TO EQUALIZING SAVINGS, IS DEFINITELY OFFSET AND USUALLY EXCEEDED BY THE ADMINISTRATIVE EXPENSE OF HANDLING VOLUMINOUS CORRESPONDENCE OCCASIONED THEREBY, AND DELAYS IN DELIVERIES WHICH DEFINITELY HINDERS THE PROGRESS OF THE WORK BEING DONE BY THE VARIOUS FIELD OFFICES. AS CONCRETE EVIDENCE SUBSTANTIATING THIS STATEMENT, YOUR ATTENTION IS INVITED TO CONTRACT NO. ALS-ECW-2990, (USDA-10727), WHICH WAS AWARDED TO THE BETHLEHEM STEEL COMPANY ON JUNE 30, 1937, AND AN UNNUMBERED CONTRACT AWARDED TO THE CITY SUPPLY COMPANY, MICHIGAN CITY, IND., ON NOVEMBER 10, 1937, UNDER INVITATION NO. GILA-509, USDA 829-F. THE FACTS SUPPORTING BOTH CASES WERE SUBMITTED TO YOUR OFFICE FOR DECISION. WOULD APPEAR FROM THE AMOUNT OF CONSIDERATION NECESSARILY GIVEN TO EQUALIZATION, THAT BIDDERS HAVE NEVER UNDERSTOOD THE GOVERNMENT'S EQUALIZATION OF LAND-GRANT RATES AND NET RATES, AND IT WOULD FURTHER APPEAR, THAT BIDDERS IN GENERAL ARE NOT DESIROUS OF OFFERING EQUALIZATION ON THIS BASIS. YOUR ATTENTION IS INVITED TO DECISION A-81760, ADDRESSED TO THIS DEPARTMENT AND SIGNED BY YOU UNDER DATE OF DECEMBER 10, 1936, IN WHICH THE FOLLOWING STATEMENT APPEARS:

"THE METHOD OF OFFERING EQUALIZATION IS NOT NOW ONE OF FIRST IMPRESSION, PARTICULARLY AS BETWEEN OFFERINGS TO EQUALIZE ON THE BASIS OF SAVINGS OR ON THE BASIS OF LOWEST LAND-GRANT RATES THE MATTER HAVING RECEIVED MUCH ATTENTION IN RECENT MONTHS IN CONNECTION WITH BIDS SUBMITTED FROM REPRESENTATIVES OF THE STEEL INDUSTRY ON GOVERNMENT INVITATIONS.'

YOUR ATTENTION IS ALSO INVITED TO DECISION A-88574, ADDRESSED TO THE BETHLEHEM STEEL COMPANY, BETHLEHEM, PENNSYLVANIA, AND SIGNED BY YOU UNDER DATE OF SEPTEMBER 18, 1937. IN THIS DECISION, THE BIDDER INCORPORATED THE FOLLOWING STATEMENT AS AN OFFER TO EQUALIZE:

"WILL EQUALIZE WITH ANY LAND-GRANT SAVING FROM ANY OTHER POINT.'

IT APPEARS THAT THE CONTRACTING OFFICER INTERPRETED THIS STATEMENT AS AN OFFER TO EQUALIZE ON THE BASIS OF THE LOWEST LAND-GRANT RATE AVAILABLE TO THE GOVERNMENT, AND NOT THE MAXIMUM LAND-GRANT DEDUCTION OR SAVINGS. HAS BEEN NOTED THAT THE CONTRACTING OFFICER NOTIFIED THIS BIDDER ON THE DATE OF FINAL ACCEPTANCE THE AMOUNT OF EQUALIZATION THAT WOULD RESULT, HOWEVER, THERE IS FOR CONSIDERATION THE POSSIBLE CHANGE IN A PROPOSED CONTRACT AFTER THE OPENING OF BIDS BY THE DIFFERENCE OF INTERPRETATION.

IN CONNECTION WITH THE EQUALIZATION OF LAND-GRANT RATES AND NET RATES, YOUR ATTENTION IS INVITED TO DECISION A-84632, ADDRESSED TO THIS FOLLOWING STATEMENT APPEARS:

"THE PROPER PROCEDURE IN SUCH CASES AS HERE PRESENTED, THAT IS, IN CASES WHERE THE CONTRACTING OFFICER IS OF THE OPINION THAT A MISTAKE WAS MADE OR WHERE THERE IS DOUBT AS TO WHETHER A BIDDER UNDERSTANDS A PROVISION IN THE BID FORM, IS TO CALL THE MATTER TO THE BIDDER'S ATTENTION, ASKING FOR VERIFICATION OF THE BID. THIS DOES NOT APPEAR TO HAVE BEEN DONE IN THIS CASE. HOWEVER, IN VIEW OF ALL THE FACTS SET FORTH IN YOUR LETTER, I AGREE WITH THE ADMINISTRATIVE CONCLUSION TO THE EFFECT THAT AN AWARD TO THE BYERLYTE CORPORATION ON THE BASIS OF THE EQUALIZATION PROVISION WOULD BE UNCONSCIONABLE. IT IS OBVIOUS THAT THE SAID BIDDER DID NOT INTEND TO FURNISH THE FIVE TONS OF ASPHALT EMULSION FOR $7.54. ACCORDINGLY, THE OFFER OF THE BYERLYTE CORPORATION TO EQUALIZE MAY BE DISREGARDED. THERE APPEARS NO OBJECTION TO AWARD TO THE BITUMULS ASPHALT SALES COMPANY AS ADMINISTRATIVELY PROPOSED.'

THE STATEMENT TO WHICH THE BIDDER ANSWERED "YES" IS AS FOLLOWS:

"WE WILL MAKE AN ADDITIONAL ALLOWANCE TO EQUALIZE THE LOWEST NET APPLICABLE GOVERNMENT FREIGHT RATE FROM THE SHIPPING POINT OF ANY BIDDER.'

IT HAS BEEN STATED THAT EQUALIZATION OFFERS ARE LIMITED IN GENERAL TO THE MANUFACTURERS OF AND DEALERS IN STEEL AND STEEL PRODUCTS, HOWEVER, THERE ARE CASES ON RECORD WHERE EQUALIZATION OFFERS HAVE BEEN MADE BY OTHER BIDDERS, FOR EXAMPLE: THE LUMBER CASE, AS DISCUSSED IN DECISION A-53420.

IT IS EXTREMELY HARD AND MIGHT BE TERMED PRACTICALLY IMPOSSIBLE TO DETERMINE WHEN AN EQUALIZATION DEDUCTION, AS COMPUTED ON THE BASIS OF LAND -GRANT RATES AND NET RATES, LEAVES THE REALM OF COMPETITIVE BUSINESS AND ASCENDS TO THE POINT OF PUTTING THE CONTRACTING OFFICER ON NOTICES OF AN OBVIOUS ERROR OR A MISUNDERSTANDING OF THE TERMS IN THE INVITATION TO BID. AS A RESULT OF THE COMPLETE STATE OF CONFUSION, AND THE ADDED EXPENSE AND INCONVENIENCE WHICH HAS RESULTED FROM THE EQUALIZATION OF LAND -GRANT RATES AND NET RATES, THE DEPARTMENT OF AGRICULTURE RESPECTFULLY REQUESTS PERMISSION TO ADVERTISE FOR ARTICLES, MATERIALS, AND SUPPLIES, OFFERED BY BIDDERS USUALLY OFFERING TO EQUALIZE BY INCORPORATING THE FOLLOWING STATEMENT IN THE SPECIFICATIONS:

IF A BIDDER DESIRES TO OFFER AN ADDITIONAL ALLOWANCE TO EQUALIZE GOVERNMENT FREIGHT CHARGES, THE FOLLOWING TYPE ONLY WILL BE CONSIDERED, AND THE BIDDER MUST SIGNIFY IN THE SPACE PROVIDED BY ,YES" OR "NO," WHETHER SUCH STATEMENT IS AGREEABLE. FAILURE TO FILL IN THE BLANK SPACE WILL BE CONSIDERED DEFINITELY THE SAME AS A NEGATIVE ANSWER.

WE WILL ALLOW AN ADDITIONAL DEDUCTION FROM OUR SHIPPING POINT PRICE TO EQUALIZE THE MAXIMUM FREIGHT RATE DEDUCTION AVAILABLE TO THE GOVERNMENT, BY VIRTUE OF LAND-GRANT OR OTHERWISE, IN CONNECTION WITH FREIGHT RATES APPLICABLE TO THE SHIPPING POINT OF ANY OTHER BIDDER OFFERING A SHIPPING POINT PRICE ON SATISFACTORY MATERIAL UNDER CORRESPONDING ITEMS OF THIS PROPOSAL. IN OTHER WORDS, THE APPLICABLE NET FREIGHT RATE AVAILABLE TO THE GOVERNMENT IN CONNECTION WITH EACH BIDDER'S PROPOSED GOVERNMENT BILL OF LADING SHIPMENT, MAY BE SUBTRACTED FROM THE CORRESPONDING COMMERCIAL RATE APPLICABLE TO THE SHIPMENT, TO DETERMINE THE DEDUCTION AVAILABLE TO THE GOVERNMENT. IF A GREATER DEDUCTION IS OBTAINED IN CONNECTION WITH THE SHIPPING POINT OF ANY OTHER BIDDER, WE WILL EQUALIZE THIS GREATER DEDUCTION.

(SPACE FOR BIDDER'S ANSWER)

THE COOPERATION OF ALL BIDDERS IS SOLICITED IN ANSWERING "YES" OR "NO" TO THE TYPE OF EQUALIZATION EXPLAINED HEREIN. IN ORDER TO AVOID CONFUSION AND MISUNDERSTANDING, BIDDERS ARE REQUESTED TO REFRAIN FROM ATTACHING RIDERS PERTINENT TO THIS QUESTION, AS SUCH RIDERS WILL NOT BE CONSIDERED.

THE DEPARTMENT IS NOW CONFRONTED WITH THE QUESTION AS TO WHETHER OR NOT A BIDDER SHOULD BE ALLOWED TO EQUALIZE WHEN SUCH AN OFFER IS INCORPORATED IN ITS BID AND QUOTATIONS ARE SUBMITTED ON A DELIVERED TO GOVERNMENT DESTINATION BASIS ONLY, DELIVERY BEING MADE ON A COMMERCIAL BILL OF LADING AND NO BIDDER'S SHIPPING POINT QUOTATION OR COMMERCIAL FREIGHT ALLOWANCE TO ARRIVE AT THE FACTORY PRICE IS OFFERED, EVEN THOUGH QUOTATIONS ARE SOLICITED ON THE CUSTOMARY PLAN FOR SHIPMENTS EXCEEDING 100 POUNDS, THAT IS, F.O.B. THE BIDDER'S SHIPPING POINT, AND F.O.B. THE GOVERNMENT DESTINATION. CAREFUL CONSIDERATION HAS BEEN GIVEN TO ALL OF THE DECISIONS RENDERED BY YOUR OFFICE ON THE QUESTION OF EQUALIZATION, AND IT APPEARS THAT EQUALIZATION DEDUCTIONS ARE IN ORDER ONLY WHEN SHIPMENTS MOVE ON A GOVERNMENT BILL OF LADING. IN THIS CONNECTION, THAT PORTION OF DECISION A -61651, WHICH HAS PREVIOUSLY BEEN QUOTED, IS PARTICULARLY APPLICABLE. THE GOVERNMENT WOULD NOT REALIZE ANY SAVING FROM THE ALLOWANCE OF BIDDERS TO EQUALIZE COMMERCIAL FREIGHT RATES APPLICABLE IN CONNECTION WITH COMMERCIAL BILL OF LADING SHIPMENTS. INSTEAD, IT WOULD NECESSITATE DEVELOPING THE SHIPPING POINT AND SHIPPING WEIGHT AND REQUESTING THE APPLICABLE FREIGHT RATES IN CONNECTION WITH EACH QUOTATION PREDICATED ON A COMMERCIAL BILL OF LADING DELIVERY. THE GOVERNMENT HAS ABSOLUTELY NO PROPERTY IN A COMMERCIAL BILL OF LADING SHIPMENT, WHEN THE TITLE IS TAKEN BY THE GOVERNMENT AT THE DESIGNATED DESTINATION, AND THERE IS FOR CONSIDERATION THE FACT THAT SOME DELIVERIES ARE EFFECTED BY BIDDERS BY SOME SOURCE OTHER THAN FREIGHT. IN VIEW OF THE DECIDED DISADVANTAGE TO THE GOVERNMENT, AND THE GENERAL TENOR OF ALL DECISIONS PERTINENT TO THIS QUESTION, IT IS CONSIDERED IMPROPER TO ALLOW A BIDDER TO EQUALIZE WHEN A COMMERCIAL BILL OF LADING DELIVERY ONLY IS OFFERED.

YOUR ATTENTION IS INVITED TO CHART "D," WHICH ILLUSTRATES EQUALIZATION ON THE BASIS OF SAVINGS WHEN TWO BIDDERS OFFER IDENTICAL SHIPPING POINTS, EACH OFFERING MORE THAN ONE SHIPPING POINT UNDER THE SAME ITEM. YOU WILL NOTE THAT BIDDER NO. 1 OFFERS A FACTORY PRICE AT SHIPPING POINT "X," AND A DIFFERENT FACTORY PRICE AT SHIPPING POINT "Y.' BIDDER NO. 2 OFFERS DIFFERENT FACTORY PRICE APPLICABLE TO THE SAME SHIPPING POINTS, OFFERED BY BIDDER NO. 1. BIDDER NO. 3 OFFERS A FACTORY PRICE AT SHIPPING POINT "X," AND A DIFFERENT FACTORY PRICE AT SHIPPING POINT "Z.' EQUALIZATION COMPUTATIONS IN THIS CHART HAVE BEEN MADE ON THE BASIS OF SAVINGS, EXACTLY THE SAME AS THE EQUALIZATION COMPUTATIONS IN CHART "A.' THE QUESTION INVOLVED IS WHETHER OR NOT IT IS PROPER TO EQUALIZE THE FACTORY PRICE QUOTED BY BIDDER NO. 1 AT SHIPPING POINT "X" ON THE BASIS OF THE MAXIMUM DEDUCTION AVAILABLE TO THE GOVERNMENT IN CONNECTION WITH SHIPPING POINT "Y" OFFERED BY BIDDER NO. 2, INASMUCH AS BIDDER NO. 1 OFFERS A FACTORY PRICE AT SHIPPING POINT "Y," WHICH IS THE SHIPPING POINT AFFORDING THE MAXIMUM DEDUCTION USED IN THE EQUALIZATION DETERMINATION. IF IT IS NOT PROPER TO EQUALIZE THE FACTORY QUOTATION OF BIDDER NO. 1 AT SHIPPING POINT "X" ON THIS BASIS, IT WILL BE NOTED THAT BIDDER NO. 3 WOULD BE THE LOW BIDDER, AND BIDDER NO. 1 WOULD BE DENIED THE BUSINESS, AS WELL AS THE GOVERNMENT AFFORDED A HIGHER NEW COST. IF BIDDER NO. 1 HAD NOT QUOTED A PRICE AT SHIPPING POINT "Y," AS SHOWN ON THIS CHART, THEN IT WOULD BE ENTIRELY PROPER TO EQUALIZE THE FACTORY PRICE AT SHIPPING POINT "X" ON THIS BASIS. THEREFORE, IT IS FOR CONSIDERATION AS TO WHETHER OR NOT BIDDER NO. 1, OFFERING A QUOTATION AT SHIPPING POINT "Y," SHOULD BE DENIED THE BUSINESS IN CONNECTION WITH SHIPPING POINT "X" FOR THIS REASON. EQUALIZATION HAS BEEN COMPUTED ON THIS CHART ALLOWING BIDDERS NO. 1 AND NO. 2 TO EQUALIZE, WHICH AFFORDS THE GOVERNMENT THE LOWEST POSSIBLE NET COST. YOUR SPECIFIC ADVICE IS REQUESTED AS TO THE CORRECTNESS OF THIS EQUALIZATION COMPUTATION.

YOUR ATTENTION IS INVITED TO CHART "E," WHICH ILLUSTRATES THE EQUALIZATION ON THE BASIS OF SAVINGS WHEN THE GOVERNMENT RESERVES THE RIGHT TO AWARD AS MANY CONTRACTS AS NECESSARY UNDER ONE ITEM TO OBTAIN THE DESIRED QUANTITY, AWARDS ON THE UNIT PRICE BASIS, AND EXTENDS TO THE BIDDER THE PRIVILEGE OF OFFERING LESS THAN THE QUANTITY STIPULATED UNDER THE ITEM. YOU WILL NOTE THAT THE GOVERNMENT DESIRES TO BUY 400,000 POUNDS OF THIS COMMODITY, AND BIDDER NO. 5 OFFERS ONLY 50,000 POUNDS. THE FREIGHT RATES IN EFFECT AT THE SHIPPING POINT DESIGNATED BY THIS BIDDER AFFORD THE MAXIMUM DEDUCTION. THE QUESTION IN THIS PARTICULAR CASE IS WHETHER OR NOT OTHER BIDDERS OFFERING MORE THAN THE QUANTITY OFFERED BY BIDDER NO. 5, AND ENJOYING A SMALLER FREIGHT RATE DEDUCTION, SHOULD BE ALLOWED TO EQUALIZE ON THE BASIS OF THE FULL QUANTITY OFFERED BY EACH BIDDER. YOU WILL NOTE THAT THE QUOTATION OFFERED BY BIDDER NO. 2 HAS BEEN EQUALIZED BY SUBTRACTING 6 CENTS FROM 14 CENTS TO ARRIVE AT THE EQUALIZATION PER 100 POUNDS, AND THIS FIGURE HAS BEEN MULTIPLIED BY THE FULL 200,000 POUNDS OFFERED BY BIDDER NO. 2 TO ARRIVE AT THE TOTAL EQUALIZATION, EVEN THOUGH THE QUANTITY OFFERED BY BIDDER NO. 5 IS ONLY 50,000 POUNDS, AND THE FREIGHT RATES APPLICABLE TO SHIPPING POINT "E," OFFERED BY BIDDER NO. 5, AFFORDS THE MAXIMUM DEDUCTION, WHICH IS USED AS THE BASIS FOR COMPUTING EQUALIZATION. YOUR SPECIFIC ADVICE IS REQUESTED AS TO WHETHER OR NOT THE EQUALIZATION, AS COMPUTED IN CHART "E," IS CORRECT.

YOUR COMMENTS AND DEFINITE INSTRUCTIONS ARE REQUESTED IN CONNECTION WITH THE POINTS MENTIONED HEREIN, NAMELY:

A--- PROPOSED STATEMENT TO BE INCORPORATED IN INVITATIONS TO BID COVERING THE PROPOSED PURCHASE OF ARTICLES, MATERIALS, AND SUPPLIES, OFFERED BY BIDDERS USUALLY SUBMITTING EQUALIZATION OFFERS.

B--- PROPER DISPOSITION OF EQUALIZATION OFFERS WHEN QUOTATIONS ARE SUBMITTED ON A DELIVERED TO GOVERNMENT DESTINATION BASIS ONLY, DELIVERY ON A COMMERCIAL BILL OF LADING.

C--- COMPUTATION OF EQUALIZATION, AS SHOWN ON CHART "D.'

D--- COMPUTATION OF EQUALIZATION, AS SHOWN ON CHART "E.'

AS POINTED OUT IN YOUR SUBMISSION AND IN A-80398 OF SEPTEMBER 19, 1936, FROM WHICH YOU QUOTE, IT MAY BE POSSIBLE THAT ONE WHO IS NOT THE LOW BIDDER ON EITHER A SHIPPING POINT OR DESTINATION BASIS MAY BECOME THE LOW BIDDER WHEN DELIVERY IS ACCEPTED BY THE GOVERNMENT AT THE SHIPPING POINT AND SHIPMENT MADE BY GOVERNMENT BILL OF LADING AT LAND GRANT RATES. SUCH CASES THE BID WHICH IS FOR ACCEPTANCE IS LOW ONLY BECAUSE OF THE CIRCUMSTANCE OF A FAVORABLE LOCATION ON A LAND GRANT LINE. IT HAS BEEN DEEMED PROPER, THEREFORE, IN THE CASE OF GOVERNMENT CONTRACT INVITATIONS INVOLVING SHIPMENTS IN EXCESS OF 100 POUNDS, TO AFFORD AN OPPORTUNITY TO BIDDERS TO EQUALIZE LAND-GRANT DIFFERENTIALS IN ORDER THAT THE GOVERNMENT MAY BE ASSURED OF SECURING SUPPLIES AT THE LOWEST NET COST AND, FURTHER, BECAUSE IT SEEMS INEQUITABLE THAT AN OTHERWISE LOW BIDDER SHOULD BE DENIED GOVERNMENT BUSINESS WITHOUT AT LEAST BEING GIVEN AN OPPORTUNITY TO REMOVE THIS UNNATURAL BARRIER WHICH STANDS IN THE WAY OF AWARD. ACCORDINGLY, IT WAS DETERMINED IN A-53420 OF MARCH 27, 1934, THAT SPECIFICATIONS FOR PURCHASE OF SUPPLIES SHOULD BE DRAWN IN SUCH A MANNER AS TO PERMIT 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. IN A-61651 OF JULY 19, 1935, THIS RULE WAS REAFFIRMED WITH THE STATEMENT THAT:

* * * 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. THE INSERTION OF THE ITALICIZED PHRASE "LAND-GRANT DEDUCTIONS FROM COMMERCIAL RATES" APPEARS TO HAVE BEEN UNFORTUNATE AND APPARENTLY WAS INTERPRETED BY YOUR DEPARTMENT AS A DETERMINATION THAT EQUALIZATION ON THE BASIS OF LAND-GRANT DEDUCTIONS OR SAVINGS IS TO BE CONSIDERED THE SAME AS EQUALIZATION ON THE BASIS OF LAND- GRANT RATES. IN A-80398 OF SEPTEMBER 19, 1936, LANGUAGE WAS USED WHICH SHOULD HAVE CLARIFIED THIS MISUNDERSTANDING, IT BEING THERE STATED THAT:

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.

THIS STATEMENT IN EFFECT AMOUNTED TO A DELETION OF THE PHRASE "LAND GRANT DEDUCTIONS FROM COMMERCIAL RATES" IN THE ABOVE QUOTED LANGUAGE FROM A- 61651 OF JULY 19, 1935.

YOUR PRESENT LETTER MAKES OBJECTION TO THIS REQUIREMENT THAT BIDDERS BE GIVEN AN OPPORTUNITY TO EQUALIZE ON THE BASIS OF LAND-GRANT RATES AND THE VIEW IS EXPRESSED THAT ONLY EQUALIZATION OFFERS ON THE BASIS OF LAND-GRANT SAVINGS SHOULD BE CONSIDERED. THE PRIMARY CONCERN OF THIS OFFICE AS RELATES TO THIS MATTER IS THAT APPROPRIATED MONEYS SHALL ONLY BE USED FOR THE PURCHASE OF SUPPLIES ON THE BASIS OF LOWEST ULTIMATE NET COST TO THE GOVERNMENT. THE EXPERIENCE OF THE VARIOUS DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT WITH REFERENCE TO FREIGHT EQUALIZATION IS OF COURSE VERY VALUABLE IN THE DEVELOPMENT OF RULES WHICH CONFORM TO BOTH PRACTICAL AND LEGAL NECESSITIES. IN THIS CONNECTION ATTENTION IS INVITED TO THE FACT THAT THE VIEWPOINT OF YOUR DEPARTMENT WAS REQUESTED BY LETTER OF JUNE 12, 1936, RESPECTING THE MERITS OF A PROTEST RECEIVED FROM THE AMERICAN STEEL AND WIRE COMPANY RELATIVE TO PROPOSAL U.S.D.A. NO. 4528 WHICH INVOLVED THIS PRECISE MATTER OF EQUALIZATION ON THE BASIS OF LOWEST NET APPLICABLE LAND-GRANT FREIGHT RATES FROM THE SHIPPING POINT OF ANY BIDDER, AND YOUR REPLY OF JUNE 26, 1936, INCLUDES THE FOLLOWING STATEMENTS:

THE BENEFITS SOUGHT IN THIS METHOD OF EQUALIZATION ARE NET SAVINGS TO THE GOVERNMENT IN ALL PURCHASES OF THIS COMMODITY AND ALSO A UNIFORM EQUALIZATION OFFER BY BIDDERS. THIS SAVINGS IS CLEARLY DEMONSTRATED IN THE PARAGRAPH OF THE AMERICAN STEEL AND WIRE COMPANY'S PROTEST WHICH READS:

"THUS IT WILL BE SEEN EQUALIZATION ACCORDING TO AGRICULTURE AND INTERIOR DEPARTMENTS' METHOD AMOUNTS TO $275.68 COMPARED WITH $16.16 RESULTING FROM THE METHOD GENERALLY USED.'

THIS CASE, AS ALL OTHER CASES AWARDED BY THIS DEPARTMENT UNDER THIS METHOD OF EQUALIZATION, SHOWS A MONETARY SAVING TO THE GOVERNMENT.

IT WILL BE NOTED THAT THE AMERICAN STEEL AND WIRE COMPANY HAS SELECTED AN EXTREME CASE AS AN EXAMPLE, PRESUMABLY IN AN ATTEMPT TO PROVE THAT THE METHOD OF EQUALIZATION SET UP UNDER U.S.D.A. NO. 4528 WILL NECESSITATE OFFERS BY BIDDERS OF EXCESSIVE AMOUNTS FOR EQUALIZATION. THIS IS NOT TRUE AS MAY BE READILY SEEN IN THE CASE OF AWARD BY THE DEPARTMENT OF AGRICULTURE UNDER U.S.D.A. NO. 4528.

IN CONSIDERING OFFERS BY THE VARIOUS BIDDERS TO EQUALIZE GENERALLY, IT IS THE EXPERIENCE OF THIS DEPARTMENT THAT BIDDERS ARE VERY INCONSISTENT IN THEIR OFFERS. PROCURING OFFICERS OF THIS DEPARTMENT ARE AT TIMES UNABLE EVEN TO INTERPRET SUCH OFFERS DEFINITELY, AND FIND THEMSELVES UNDER THE NECESSITY OF REQUESTING BIDDERS TO CLARIFY SUCH OFFERS BEFORE AWARDS CAN BE MADE.

SUMMARIZING, IT WOULD APPEAR THAT A UNIFORM SYSTEM OF EQUALIZATION OF FREIGHT RATES SHOULD BE PRESCRIBED FOR ALL FEDERAL AGENCIES, AND THAT SERIOUS CONSIDERATION SHOULD BE GIVEN IN THIS CONNECTION TO THE METHOD FOLLOWED UNDER U.S.D.A. NO. 4528, WHICH, AS INDICATED ABOVE, RESULTS IN A MONETARY SAVING TO THE GOVERNMENT AND DOES NOT REQUIRE BIDDERS TO OFFER EXCESSIVE AMOUNTS FOR EQUALIZATION.

THE EXPERIENCE OF YOUR DEPARTMENT, AS THUS REPORTED, WAS TAKEN INTO CONSIDERATION WHEN THE DECISION OF SEPTEMBER 19, 1936, WAS WRITTEN AFFIRMING AND CLARIFYING THE RULE THAT INVITATIONS SHOULD CONTAIN A CLAUSE PERMITTING BIDDERS TO MAKE OFFERS OF EQUALIZATION ON THE BASIS OF LAND- GRANT RATES. IN SHARP CONTRAST TO THE CONCLUSION REACHED IN YOUR LETTER OF JUNE 26, 1936, THAT EQUALIZATION ON THE BASIS OF LOWEST NET APPLICABLE LAND-GRANT RATE FROM THE SHIPPING POINT OF ANY BIDDER "RESULTS IN A MONETARY SAVING TO THE GOVERNMENT AND DOES NOT REQUIRE BIDDERS TO OFFER EXCESSIVE AMOUNTS FOR EQUALIZATION," AND THAT STATEMENTS OF THE AMERICAN STEEL AND WIRE COMPANY TO THE CONTRARY ARE "NOT TRUE," YOU NOW STATE THAT EQUALIZATION OF LAND-GRANT RATES "IN NUMEROUS CASES, RESULTS IN ABNORMALLY LARGE AMOUNTS OF EQUALIZATION DEDUCTION" AND THAT "IT HAS BEEN THE EXPERIENCE OF THE SOIL CONSERVATION SERVICE THAT ANY SAVING RESULTING TO THE GOVERNMENT AS A RESULT OF EQUALIZING LAND-GRANT RATES AND NET RATES, IN PREFERENCE TO EQUALIZING SAVINGS, IS DEFINITELY OFFSET AND USUALLY EXCEEDED BY THE ADMINISTRATIVE EXPENSE OF HANDLING VOLUMINOUS CORRESPONDENCE OCCASIONED THEREBY, AND DELAYS IN DELIVERIES WHICH DEFINITELY HINDER THE PROGRESS OF THE WORK BEING DONE BY THE VARIOUS FIELD OFFICES.'

WHILE IT IS NOT THE PURPOSE OF THIS OFFICE TO DICTATE OR PRESCRIBE A SET FREIGHT EQUALIZATION FORMULA, IT WOULD SEEM THAT A CONSIDERABLE PORTION OF THE CONFUSION WHICH NOW EXISTS WOULD BE ELIMINATED BY INCORPORATION IN INVITATIONS FOR BIDS, COVERING SHIPMENTS IN EXCESS OF 100 POUNDS, OF INSTRUCTIONS SUBSTANTIALLY AS FOLLOWS:

IF A BIDDER DESIRES TO OFFER AN ADDITIONAL ALLOWANCE TO EQUALIZE GOVERNMENT FREIGHT CHARGES THE FOLLOWING TYPES ONLY WILL BE CONSIDERED AND THE BIDDER MUST SIGNIFY IN THE SPACES PROVIDED BY YES" OR "NO" IF ANY ONE OF THE THREE CLASSES IS AGREEABLE:

1. WE WILL MAKE AN ADDITIONAL ALLOWANCE TO EQUALIZE THE MAXIMUM FREIGHT SAVING AVAILABLE TO THE GOVERNMENT BY THE USE OF GOVERNMENT LAND-GRANT RATES (AS CONTRASTED WITH COMMERCIAL FREIGHT RATES) FROM THE SHIPPING POINT OF ANY BIDDER OFFERING A SHIPPING POINT PRICE ON ADDITIONAL ALLOWANCE SHALL NOT EXCEED IN THE AGGREGATE MORE THAN $ --- -------------

(STATE AMOUNT)

(YES) (NO)

2. WE WILL MAKE AN ADDITIONAL ALLOWANCE TO EQUALIZE THE LOWEST APPLICABLE LAND-GRANT FREIGHT RATE FROM THE SHIPPING POINT OF ANY BIDDER OFFERING A SHIPPING POINT PRICE ON CORRESPONDING ITEMS OF THIS PROPOSAL: PROVIDED, HOWEVER, THAT THIS ADDITIONAL ALLOWANCE SHALL NOT EXCEED IN THE AGGREGATE MORE THAN $ -------------- .

(STATE AMOUNT)

(YES) (NO)

3. WE WILL MAKE AN ADDITIONAL ALLOWANCE TO EQUALIZE THE LOWEST APPLICABLE NET GOVERNMENT FREIGHT RATE, WHETHER LAND-GRANT OR OTHERWISE, FROM THE SHIPPING POINT OF ANY BIDDER OFFERING A SHIPPING POINT PRICE ON CORRESPONDING ITEMS OF THIS PROPOSAL: PROVIDED HOWEVER, THAT THIS ADDITIONAL ALLOWANCE SHALL NOT EXCEED IN THE AGGREGATE MORE THAN $ -------

(STATE AMOUNT)

(YES) (NO)

FAILURE TO INSERT "YES" OR "NO" IN ANY SPACE PROVIDED FOR FREIGHT EQUALIZATION OFFERS WILL BE CONSIDERED AS A NEGATIVE ANSWER. WHERE THE WORD "YES" IS INSERTED AND NO LIMITATION IS PLACED UPON THE AMOUNT OF SUCH ALLOWANCE IT WILL BE CONSIDERED THAT NO LIMITATION IS INTENDED AND THAT FULL EQUALIZATION IS OFFERED. BIDDERS ARE CAUTIONED TO REFRAIN FROM ATTACHING RIDERS PERTINENT TO THIS QUESTION AS SUCH RIDERS WILL NOT BE CONSIDERED.

IT IS BELIEVED THAT IF THESE THREE FREIGHT EQUALIZATION CLAUSES OR OTHERS OF SUBSTANTIALLY SIMILAR IMPORT, ARE INCORPORATED IN INVITATIONS COVERING SHIPMENTS IN EXCESS OF 100 POUNDS, AND THE PROHIBITION AGAINST ALTERNATIVE EQUALIZATION OFFERS IS RIGIDLY ENFORCED, MUCH OF THE CONFUSION AND DELAY WHICH IS NOW COMPLAINED OF WILL BE ELIMINATED AND A WORKABLE AND UNDERSTANDABLE EQUALIZATION SYSTEM PROVIDED. THE CLAUSE PERMITTING BIDDERS TO LIMIT THE AMOUNT OF EQUALIZATION ALLOWANCE WOULD, IT IS BELIEVED, TEND TO OBVIATE SITUATIONS SUCH AS THAT CONFRONTED IN A-84632 OF MARCH 30, 1937, FROM WHICH YOU QUOTE IN YOUR LETTER, AND WOULD ALSO ENCOURAGE EQUALIZATION OFFERS BY BIDDERS WHO MIGHT OTHERWISE MAKE NO SUCH OFFERS DUE TO UNCERTAINTY AS TO THE AMOUNT OF THE EQUALIZATION AND THE POSSIBILITY THAT IT WOULD PROVE EXCESSIVE.

YOUR SECOND POINT OF INQUIRY IS AS TO WHETHER A BIDDER SHOULD BE ALLOWED TO EQUALIZE FREIGHT CHARGES WHEN SUCH AN OFFER IS INCORPORATED IN ITS BID AND QUOTATIONS ARE SUBMITTED ON A DELIVERED TO GOVERNMENT DESTINATION BASIS ONLY. THE ANSWER TO THIS INQUIRY WOULD SEEM TO DEPEND LARGELY UPON THE FACTS AND CIRCUMSTANCES OF THE PARTICULAR CASE AND THE PRECISE WORDING OF THE EQUALIZATION OFFER. IF THE INVITATION FOR BIDS STIPULATED THAT THE ONLY OFFERS OF EQUALIZATION WHICH WOULD BE CONSIDERED WERE THOSE ON THE BASIS OF LAND GRANT RATES OR ON THE BASIS OF LAND-GRANT SAVINGS, THEN AN OFFER TO EQUALIZE ON THE BASIS OF NET FREIGHT COSTS WOULD NOT BE CONSIDERED. SEE A-88445 OF JUNE 23, 1938. IT IS NOT UNDERSTOOD THE QUESTION ON THIS POINT CONTEMPLATED A SITUATION OF THE GOVERNMENT BEING DEPRIVED IN ANY CASE OF THE BENEFIT OF HAVING SHIPMENT MADE ON GOVERNMENT BILL OF LADING IF THAT WILL RESULT IN A LOWER NET DELIVERED COST.

YOUR SUGGESTION THAT EQUALIZATION DEDUCTIONS ARE IN ORDER ONLY WHEN SHIPMENTS MOVE ON A GOVERNMENT BILL OF LADING IS NOT ENTIRELY ACCURATE. THERE SEEMS NO REASON, FOR INSTANCE, WHY A BIDDER NOT LOCATED ON A LAND- GRANT LINE, AND WHO COULD THEREFORE OFFER THE UNITED STATES NO BENEFITS FROM GOVERNMENT BILL OF LADING SHIPMENT, SHOULD LOSE HIS EQUALIZATION STATUS MERELY BECAUSE SHIPMENT ON A GOVERNMENT BILL OF LADING IS NOT OFFERED. IF A BIDDER ON A DESTINATION BASIS SUBMITS A RESPONSIVE OFFER TO EQUALIZE LAND-GRANT RATES OR LAND-GRANT SAVINGS FROM THE SHIPPING POINT OF ANY OTHER BIDDER THAN EQUALIZATION IS IN ORDER. IT MIGHT WELL BE THAT THE DESTINATION BID IS FOR ACCEPTANCE MERELY BECAUSE THE OFFER TO EQUALIZE IS TAKEN INTO CONSIDERATION, AND IT WOULD BE ENTIRELY IMPROPER TO INVITE OFFERS TO EQUALIZE AND THEN REFUSE TO CONSIDER THEM MERELY BECAUSE SHIPMENT WAS TO MOVE ON A COMMERCIAL BILL OF LADING. THE METHOD OF SHIPMENT PROPOSED BY A BIDDER HAS NO NECESSARY CONNECTION WITH HIS OFFERS OF EQUALIZATION.

THE SUGGESTION THAT NO SAVING COULD RESULT TO THE GOVERNMENT FROM EQUALIZATION OF A DELIVERY OFFERED ON A COMMERCIAL BILL OF LADING IS NOT NECESSARILY CORRECT. THAT A DEFINITE SAVING TO THE GOVERNMENT COULD RESULT FROM SUCH EQUALIZATION MAY BE ILLUSTRATED AS FOLLOWS:

ASSUME THAT A BIDDER OFFERS DESTINATION DELIVERY AT $1,000 AND ALSO OFFERS TO EQUALIZE ON THE BASIS OF LAND-GRANT SAVINGS, AND THAT ANOTHER BIDDER OFFERS A SHIPPING POINT PRICE OF $800 WITH SHIPMENT ON A GOVERNMENT BILL OF LADING. IF THE COMMERCIAL BILL OF LADING FREIGHT COST IS $210 ON THE LATTER OFFER AND THE LAND GRANT IS $180--- OR A $30 LAND-GRANT SAVING- -- THEN IT FOLLOWS THAT THE $1,000 BID IS LOW ONLY IF THE LAND-GRANT EQUALIZATION OFFER IS ACCEPTED, IN WHICH EVENT THE GOVERNMENT WOULD PAY A NET AMOUNT OF $970 FOR THE SUPPLIES AS COMPARED WITH $980 UNDER THE OTHER BID. IN OTHER WORDS, ALTHOUGH DELIVERY IS OFFERED ON A COMMERCIAL BILL OF LADING THERE IS A DEFINITE SAVING TO THE GOVERNMENT FROM EQUALIZATION OF LAND-GRANT SAVINGS IN THIS CASE.

IN RESPONSE TO YOUR THIRD QUESTION RELATIVE TO THE ACCURACY OF THE EQUALIZATION FIGURES SHOWN ON CHART "D" WHICH YOU INCLOSE, YOU ARE INFORMED THAT THESE EQUALIZATION COMPUTATIONS APPEAR TO BE CORRECT.

THE ANSWER TO YOUR FOURTH QUESTION, AS IN THE CASE OF THE SECOND ONE, DEPENDS LARGELY UPON THE PRECISE WORDING OF THE EQUALIZATION OFFER. THE BID OF "E" UNDER CHART "E," WHICH YOU SUBMIT, IS SHOWN TO HAVE PROVIDED A LAND-GRANT EQUALIZATION DEDUCTION OF 14 CENTS PER CWT. ON 50,000 POUNDS. IF THE EQUALIZATION CLAUSE UNDER WHICH THE BIDS WERE ENTERED STIPULATED EQUALIZATION OF THE MAXIMUM FREIGHT SAVING AVAILABLE TO THE GOVERNMENT BY THE USE OF GOVERNMENT LAND-GRANT RATES FROM THE SHIPPING POINT OF ANY OTHER BIDDER, THEN THE OTHER BIDDERS, IN EFFECT, AGREED TO EQUALIZE A SAVING OF 14 CENTS PER CWT. ON 50,000 POUNDS SINCE THAT WAS THE GREATEST DEDUCTION OR SAVING AVAILABLE TO THE GOVERNMENT BY "E-S" BID. EQUALIZATION COMPUTATION AS TO THE BALANCE OF THE PURCHASE SHOULD BE MADE WITHOUT REFERENCE TO THE BID OF "E.'