B-115736, AUGUST 5, 1953, 33 COMP. GEN. 57

B-115736, AUGUST 5, 1953, 33 COMP. GEN. 57

CONTRACTS - AWARDS - CONTRACTORS IN DISTRESSED LABOR AREAS WHERE BIDS FOR GAS MASKS WERE RECEIVED FROM ONLY TWO CONTRACTORS, ONE OF WHICH WAS IN A DISTRESSED LABOR AREA, AND UPON EVALUATION OF BIDS, HIGHER BIDDER IN DISTRESSED AREA WAS OFFERED OPPORTUNITY TO MEET LOWER BID IN ACCORDANCE WITH GOVERNMENT MANPOWER POLICY BUT WHOSE BID WAS NOT FINALIZED INTO A FORMAL CONTRACT UNTIL AFTER THE BIDDER LOST PREFERENTIAL STANDING, AWARD TO THAT BIDDER BECAUSE OF SUCH PREFERENCE IS UNAUTHORIZED. UNDER SECTION 1 OF THE SURPLUS FUND--- CERTIFIED CLAIMS ACT OF 1949, WHICH PROVIDES THAT BALANCES OF APPROPRIATION CONTAINED IN ANNUAL APPROPRIATION BILLS AND MADE SPECIFICALLY FOR SERVICE OF ANY FISCAL YEAR SHALL BE APPLIED ONLY TO PAYMENT OF EXPENSES PROPERLY INCURRED DURING THAT YEAR OR TO FULFILLMENT OF CONTRACTS PROPERLY MADE WITHIN THAT YEAR, AND UNDER SECTION 3732, REVISED STATUTES, WHICH PROVIDES THAT NO CONTRACT SHALL BE MADE UNLESS THE SAME IS AUTHORIZED BY LAW OR UNDER AN APPROPRIATION ADEQUATE TO FULFILLMENT, THERE IS NO AUTHORITY TO ENTER INTO A CONTRACT IN ONE FISCAL YEAR FOR GAS MASKS SCHEDULED TO BE DELIVERED IN THE FOLLOWING FISCAL YEAR.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE ARMY, AUGUST 5, 1953:

REFERENCE IS MADE TO LETTER OF JUNE 17, 1953, TO YOU, AND TO REPLY OF JULY 7, 1953, FROM THE ASSISTANT SECRETARY OF THE ARMY ( MATERIEL), RELATIVE TO A PROTEST OF THE ACTION TAKEN BY THE DEPARTMENT OF THE ARMY IN AWARDING A CONTRACT FOR GAS MASKS TO THE FIRESTONE TIRE AND RUBBER COMPANY RATHER THAN THE PENNSYLVANIA RUBBER COMPANY.

IN RESPONSE TO THE REQUEST OF THIS OFFICE FOR A FULL REPORT OF THE FACTS IN THE MATTER, THE DEPARTMENT OF THE ARMY HAS FURNISHED A COPY OF THE INVITATION ISSUED FEBRUARY 27, 1953, BY THE NEW YORK CHEMICAL PROCUREMENT DISTRICT, DEPARTMENT OF THE ARMY, COPIES OF CORRESPONDENCE, AND A REPORT SETTING FORTH THE BASIS FOR THE ACTION TAKEN IN AWARDING THE CONTRACT.

THE REPORT SHOWS THAT, AT THE TIME THE INVITATION WAS ISSUED, THERE EXISTED CONTRACTS WITH THE FIRESTONE TIRE AND RUBBER COMPANY AND WITH THE GENERAL TIRE AND RUBBER COMPANY COVERING THE MANUFACTURE OF MASKS SCHEDULED TO EXTEND INTO 1954. THE INVITATION REQUESTED THAT PROPOSALS BE SUBMITTED ON THE BASIS OF (1) A CUT-BACK, COMMENCING MAY 1953, ON THE CURRENT CONTRACTS TO A PRODUCTION RATE OF 25,000 MASKS PER MONTH AND A NEW UNIT PRICE SET UP FOR THIS CUT-BACK QUANTITY, AND (2) A UNIT PRICE FOR A NEW REQUIREMENT OF 181,666 MASKS TO BE PRODUCED FROM GOVERNMENT-FURNISHED MATERIALS, DELIVERIES TO BEGIN IN JUNE 1954 AND EXTEND THROUGH JANUARY 1955.

IT IS ADMINISTRATIVELY REPORTED THAT NEGOTIATIONS FOR THE FURNISHING OF THE 181,666 MASKS WERE HAD ONLY WITH THE PENNSYLVANIA RUBBER COMPANY, JEANNETTE, PENNSYLVANIA, A SUBSIDIARY OF THE GENERAL TIRE AND RUBBER COMPANY, AND THE FIRESTONE INDUSTRIAL PRODUCTS COMPANY, DIVISION OF THE FIRESTONE TIRE AND RUBBER COMPANY, FALL RIVER, MASSACHUSETTS, BECAUSE ONLY THE COMPANIES WHICH HELD EXISTING CONTRACTS WERE IN A POSITION TO QUOTE UNDER THE CIRCUMSTANCES. THE FINAL PROPOSALS SUBMITTED WERE $1,442,763 BY THE FIRESTONE TIRE AND RUBBER COMPANY AND $1,335,405.45 BY THE PENNSYLVANIA RUBBER COMPANY BUT, BECAUSE THE FIRESTONE PLANT WAS LOCATED IN A GROUP IV SURPLUS LABOR AREA, THE CONTRACTING OFFICER, UNDER OFFICE OF DEFENSE MOBILIZATION DEFENSE MANPOWER POLICY NO. 4, WAS REQUIRED TO OFFER FIRESTONE THE OPPORTUNITY OF MEETING THE OTHERWISE LOW BID. ON MAY 26, 1953, FIRESTONE AGREED, IN A TELEPHONE CONVERSATION TO MEET THE CONDITIONS OFFERED AND THE CONTRACTING OFFICER VERBALLY INFORMED FIRESTONE THAT THE NECESSARY PAPERS WOULD BE PREPARED FOR IMMEDIATE ACCOMPLISHMENT. TELEGRAM DATED MAY 26, 1953, TO THE FIRESTONE INDUSTRIAL PRODUCTS COMPANY, THE BOSTON CHEMICAL PROCUREMENT DISTRICT CONFIRMED THE CUT-BACK ON THE EXISTING CONTRACT AS AGREED TO DURING THE NEGOTIATION AND SET FORTH THE NEW TARGET PRICE FOR THE CUT-BACK QUANTITY. ALSO, IT IS REPORTED THAT ON MAY 29, 1953, THE OFFICE OF DEFENSE MOBILIZATION ADVISED THE OFFICE, SECRETARY OF DEFENSE, VERBALLY AND CONFIRMED IN WRITING ON THE SAME DATE, THAT FALL RIVER, MASSACHUSETTS, HAD BEEN RECERTIFIED AS GROUP III SURPLUS LABOR AREA, EFFECTIVE MAY 28, 1953. THEREAFTER, THE DEPARTMENT OF THE ARMY CONCLUDED THAT THE NEGOTIATIONS BETWEEN FIRESTONE AND THE GOVERNMENT HAD CULMINATED IN A CONTRACT, AND NEGOTIATED CONTRACT DA-30 070-CML-384 WAS ENTERED INTO PURSUANT TO SECTION 2 (C) (1) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947, 62 STAT. 21.

THE SAID TELEGRAM IS AS FOLLOWS:

FOR MR F. L. ARMITAGE PD CONFIRMING VERBAL CONVERSATION WITH CAPT. GERSHBERG OF THE NEW YORK CHEMICAL PROCUREMENT DISTRICT CUT BACK CONTRACT DA-19-025-CML-124 STARTING 1 JUNE 1953 TO A RATE OF 25000 PER MONTH UNTIL COMPLETION OF CONTRACT PD NEW TARGET PRICE FOR QUANTITY TO BE MADE AFTER 1 JUNE IS $12.0035 PER MASK PD SUPPLEMENTAL AGREEMENT WILL BE ISSUED IMMEDIATELY INCLUDING ALL ELEMENTS AGREED TO DURING NEGOTIATION PD THE QUANTITY TO BE PRODUCED AT THE NEW CUT BACK UNIT PRICE OF $12.00353 IS 212936 UNITS REF BCPD-337

IT IS CLEAR THAT THE TELEGRAM RELATES ONLY TO THE CUT-BACK OF CONTRACT DA -19-025-CML-124. THE ADVICE THAT A SUPPLEMENTAL AGREEMENT WOULD BE ISSUED COVERING ALL ELEMENTS AGREED TO DURING NEGOTIATION EVIDENTLY HAD REFERENCE TO THE MODIFICATION OF THE SAID CONTRACT, AND THE RECORD DISCLOSES THAT THE SUPPLEMENTAL MODIFICATION WAS DRAWN ON THAT BASIS. HENCE, IT CANNOT BE CONCLUDED FROM THE LANGUAGE OF THE TELEGRAM THAT IT WAS INTENDED TO CONSTITUTE AN AWARD TO FIRESTONE FOR THE ADDITIONAL 181,666 MASKS.

WITH REFERENCE TO THE VERBAL CONVERSATION WITH CAPTAIN GERSHBERG OF THE NEW YORK PROCUREMENT DISTRICT, REFERRED TO IN THE TELEGRAM, REPORT DATED JUNE 1, 1953, OF THE SAID CONTRACTING OFFICER IS, IN PERTINENT PART, AS FOLLOWS:

10. ON 26 MAY 1953, FIRESTONE WAS INFORMED OF THE PRICE THAT THEY WOULD HAVE TO MEET IN ORDER TO RECEIVE THE CONTRACT, DUE TO THE FACT THAT THEY WERE SITUATED IN A GROUP IV LABOR AREA. THIS TELEPHONE CALL WAS TRANSMITTED WITH THE UNDERSIGNED AND CAPTAIN LAVERTY AT ONE END OF THE PHONE AND MESSRS. ARMITAGE AND ANDERSON OF FIRESTONE AT THE OTHER END. ON THE AFTERNOON OF 26 MAY, WITH THE SAME INDIVIDUALS ON THE PHONE, FIRESTONE AGREED TO MEET THE CONDITIONS OFFERED. IT WAS INDICATED TO THE COMPANY AT THAT TIME THAT THE NECESSARY PAPERS WOULD BE PREPARED FOR IMMEDIATE ACCOMPLISHMENT, INASMUCH AS THE FIRESTONE DELIVERY RATE WAS BASED ON COMMENCING A NEW SCHEDULE DURING THE MONTH OF JUNE 1953. ARMITAGE INDICATED THAT DUE TO UNION REGULATIONS, THREE DAYS ADVANCE NOTICE WOULD BE NECESSARY TO NOTIFY HIS PERSONNEL IN ORDER TO MEET THE REDUCED PRODUCTION REQUIREMENTS. MR. ARMITAGE REQUESTED SOME INDICATION IN WRITING OF THE CONTEMPLATED AWARD, IN ORDER TO TAKE THE NECESSARY ADVANCE STEPS FOR THE LABOR REDUCTION. BASED ON THE ABOVE, AND DUE TO THE URGENCY OF ANTICIPATING THE UNION NOTIFICATION REQUIREMENTS, CAPT. LAVERTY NOTIFIED THE BOSTON DISTRICT OF THE ANTICIPATED AWARD TO FIRESTONE, WHICH NECESSARILY WOULD RESULT IN AN ALTERATION OF CONTRACT 124 FOR REDUCED PRODUCTION RATE. IT WAS NECESSARY THAT BOSTON NOTIFY THE CONTRACTOR, INASMUCH AS THE 124 CONTRACT WAS UNDER THE JURISDICTION OF THE BOSTON DISTRICT. THEREFORE, BOSTON, ON 27 MAY 1953, CONFIRMED THE 124 CUT-BACK IN THE TELETYPE, IN ORDER TO PERMIT THE MEETING OF THE UNION REQUIREMENTS.

11. ON THE MORNING OF 27 MAY, THE UNDERSIGNED RECEIVED A TELEPHONE CALL FROM MR. GURTNER OF GENERAL TIRE AND RUBBER CO. MR. GURTNER EVIDENCED INTEREST IN THE PROGRESS BEING MADE IN THE AWARD OF THE CONTEMPLATED CONTRACTS. OSTENSIBLY, MR. GURTNER'S INTEREST WAS NECESSITATED BY THE FACT THAT HE WOULD HAVE TO KNOW WHETHER OR NOT GENERAL WOULD BE IN THE GAS MASK BUSINESS, IN ORDER TO INSERT PROPER OVERHEAD RATES IN THE NAVY GAS MASK BID, WHICH WAS DUE BACK AT THIS OFFICE ON 8 JUNE 1953. INASMUCH AS THE FORMAL DOCUMENTATION AT THE TIME OF MR. GURTNER'S CALL HAD NOT BEEN ACCOMPLISHED, THE UNDERSIGNED INDICATED THAT HE WAS IN NO POSITION TO REVEAL THE CURRENT STATUS OF THE AWARD, BUT THAT MR. GURTNER WOULD BE NOTIFIED ON 1 JUNE 1953 AS TO THE AWARD, AND THAT WOULD GIVE HIM SUFFICIENT TIME TO MAKE THE NECESSARY ADJUSTMENTS IN THE NAVY GAS MASK BID.

IT CANNOT BE CONCLUDED FROM THE ABOVE-QUOTED REPORT THAT THERE WAS A CLEAR INTENTION ON THE PART OF THE CONTRACTING OFFICER THAT EITHER THE VERBAL CONVERSATION WITH OFFICIALS OF FIRESTONE, OR THE TELEGRAM OF MAY 26 WAS TO CONSTITUTE THE FORMAL AWARD TO FIRESTONE OF A CONTRACT WHICH WOULD BE BINDING ON THE UNITED STATES. IN SUCH CONNECTION IT IS TO BE NOTED FROM THE REPORT THAT THE CONTRACTING OFFICER MERELY "INDICATED" TO THE COMPANY DURING THE VERBAL CONVERSATION THAT THE NECESSARY PAPERS WOULD BE PREPARED FOR IMMEDIATE ACCOMPLISHMENT. ALSO, IT SHOULD BE POINTED OUT THAT ACCEPTANCE BY TELEPHONE WAS NOT CONTEMPLATED BY THE INVITATION FOR PROPOSALS. MOREOVER, IT SEEMS APPARENT THAT THE PURPOSE OF THE TELEGRAM OF MAY 26 WAS ONLY TO GIVE THE FIRESTONE COMPANY SOME INDICATION IN WRITING OF THE "CONTEMPLATED AWARD" IN ORDER THAT THE COMPANY MIGHT TAKE THE NECESSARY STEPS TO REDUCE ITS LABOR FORCE AS A RESULT OF THE REDUCED PRODUCTION RATE ON CONTRACT 124. FURTHERMORE, THE REPORT DISCLOSES THAT, AS OF MAY 27, THE CONTRACTING OFFICER ADVISED AN OFFICIAL OF THE GENERAL TIRE AND RUBBER COMPANY THAT FORMAL DOCUMENTATION OF THE AWARD HAD NOT BEEN MADE AND, AS A CONSEQUENCE, HE WAS IN NO POSITION TO REVEAL THE CURRENT STATUS OF THE AWARD. IN OTHER WORDS, THE AFORESAID REPORT INDICATES RATHER CLEARLY THAT THE CONTRACTING OFFICER INTENDED THAT SOME FORMAL DOCUMENT WOULD HAVE TO BE EXECUTED BY HIM BEFORE ANY BINDING AWARD COULD BE CONSIDERED AS HAVING BEEN MADE TO THE FIRESTONE COMPANY.

IN ADDITION, THE RECORD DISCLOSES THAT THE TELEGRAM OF MAY 26 WAS SUPERSEDED BY ONE DATED JUNE 1, 1953, FROM THE BOSTON CHEMICAL PROCUREMENT DISTRICT TO THE FIRESTONE COMPANY WHICH TELEGRAM ADVISED FURTHER THAT THE DELIVERY RATE OF 50,000 MASKS PER MONTH WAS TO BE CONTINUED AT FIRESTONE ON CONTRACT DA-19-025-CML-124. THEREAFTER, WHEN IT WAS DECIDED ON JUNE 5 TO FINALIZE THE CONTRACTING ARRANGEMENTS WITH THE FIRESTONE COMPANY, THE LATTER COMPANY REQUIRED AN ADDITIONAL TELEGRAM RELATING TO THE CUT-BACK ON THE EXISTING CONTRACT IN ORDER THAT ADVICE COULD BE GIVEN TO ITS EMPLOYEES UNDER UNION RULES. SUCH TELEGRAM WAS ISSUED ON JUNE 5.

FOR THE FOREGOING REASONS, IT CANNOT BE CONCLUDED THAT A BINDING CONTRACT FOR THE MANUFACTURE OF THE ADDITIONAL QUANTITY OF 181,666 MASKS HAD BEEN MADE WITH THE FIRESTONE COMPANY AT THE TIME OF RECEIPT OF ADVICE ON MAY 29 THAT FALL RIVER, MASSACHUSETTS, HAD BEEN RECLASSIFIED TO GROUP III SURPLUS LABOR AREA.

IT APPEARS TO BE THE VIEW OF THE DEPARTMENT OF THE ARMY THAT, ON MAY 26, PRIOR TO RECEIPT OF ANY ADVICE THAT FALL RIVER, MASSACHUSETTS, THE SITE OF THE FIRESTONE PLANT HAD BEEN RECLASSIFIED TO A GROUP III SURPLUS LABOR AREA, THE OFFER OF THE FIRESTONE COMPANY HAD BEEN ACCEPTED IN ITS ENTIRETY BY THE GOVERNMENT AS A RESULT OF THE TELEGRAM OF MAY 26 FROM THE BOSTON CHEMICAL PROCUREMENT DISTRICT OFFICE.

IN ADDITION TO THE FOREGOING, THE RECORD IN THIS CASE INDICATES AN INTENTION TO CHARGE FISCAL YEAR 1953 APPROPRIATIONS WITH CONTRACT DELIVERIES SCHEDULED BY THE GOVERNMENT IN THE INVITATION FOR PROPOSALS TO BE MADE FROM JUNE 1954 THROUGH JANUARY 1955. SECTION 1 OF THE SURPLUS FUND--- CERTIFIED CLAIMS ACT OF 1949, 63 STAT. 407, 31 U.S.C. 712A--- PROVIDES THAT "EXCEPT AS OTHERWISE PROVIDED BY LAW, ALL BALANCES OF APPROPRIATIONS CONTAINED IN THE ANNUAL APPROPRIATION BILLS AND MADE SPECIFICALLY FOR THE SERVICE OF ANY FISCAL YEAR SHALL ONLY BE APPLIED TO THE PAYMENT OF EXPENSES PROPERLY INCURRED DURING THAT YEAR, OR TO THE FULFILLMENT OF CONTRACTS PROPERLY MADE WITHIN THAT YEAR.'

THIS AND SIMILAR PRIOR PROVISIONS OF LAW HAVE BEEN CONSTRUED BY THE ACCOUNTING OFFICERS MANY TIMES, AND THE GENERAL RULE HAS BEEN STATED THAT, IN ORDER TO OBLIGATE A FISCAL YEAR APPROPRIATION FOR PAYMENTS TO BE MADE IN A SUCCEEDING YEAR, THE CONTRACT IMPOSING THE OBLIGATION MUST HAVE BEEN MADE WITHIN THE FISCAL YEAR SOUGHT TO BE CHARGED AND THE CONTRACT MUST HAVE BEEN MADE TO MEET A BONA FIDE NEED OF THE FISCAL YEAR TO BE CHARGED. 20 COMP. GEN. 437; 27 ID. 764; OF. 23 ID. 370; 29 ID. 490. IN VIEW OF THE SCHEDULE OF DELIVERIES SPECIFIED BY THE GOVERNMENT--- EXTENDING FROM JUNE 1954 THROUGH JANUARY 1955--- IT MUST BE PRESUMED THAT THE REQUIREMENTS COVERED BY CONTRACT DA-30-070-CML-384 WERE NOT BONA FIDE REQUIREMENTS OF THE FISCAL YEAR 1953. HENCE, IT ALSO IS CONCLUDED THAT THE ENTERING INTO OF SUCH CONTRACT WAS NOT AUTHORIZED IN VIEW OF THE LANGUAGE OF SECTION 3732, REVISED STATUTES, 41 U.S.C. 11, WHICH PROVIDES THAT:

NO CONTRACT OR PURCHASE ON BEHALF OF THE UNITED STATES SHALL BE MADE, UNLESS THE SAME IS AUTHORIZED BY LAW OR IS UNDER AN APPROPRIATION ADEQUATE TO ITS FULFILLMENT, EXCEPT IN THE ARMY, NAVY AND AIR FORCE DEPARTMENTS, FOR CLOTHING, SUBSISTENCE, FORAGE, FUEL, QUARTERS, TRANSPORTATION, OR MEDICAL AND HOSPITAL SUPPLIES, WHICH, HOWEVER, SHALL NOT EXCEED THE NECESSITIES OF THE CURRENT FISCAL YEAR.