B-125571, MARCH 8, 1957, 36 COMP. GEN. 641

B-125571: Mar 8, 1957

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WHICH WAS AWARDED TO A PURCHASER AFTER HE HAD ALLEGED AN ERROR IN BID AND SUBMITTED EVIDENCE SHOWING THAT THE PRICES WERE QUOTED ON A UNIT RATHER THAN POUND BASIS. AFTER THE GOVERNMENT WAS ON NOTICE OF THE WIDE PRICE DISPARITY BETWEEN THE ERRONEOUS BID AND OTHERS. MAY NOT BE REGARDED AS A VALID AND BINDING AGREEMENT AND THE PURCHASER IS ENTITLED TO REFUND OF THE BID DEPOSIT. 1957: REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 17. THESE INVESTIGATIONS WERE INSTIGATED AS THE RESULT OF A CHARGE BY ONE OF THE CONTRACTOR'S COMPETITORS THAT. THE CONTRACTOR MERELY WAS SEEKING TO AVOID LIABILITY UNDER ITS CONTRACT DUE TO THE FAILURE OF CERTAIN PRIOR COMMITMENTS FOR THE CONTRACT ARTICLES TO MATERIALIZE.

B-125571, MARCH 8, 1957, 36 COMP. GEN. 641

SALES - BIDS - MISTAKES - ACTUAL AND CONSTRUCTIVE NOTICE OF ERROR REFUND A CONTRACT FOR THE SALE OF SURPLUS GOVERNMENT PROPERTY, WHICH WAS AWARDED TO A PURCHASER AFTER HE HAD ALLEGED AN ERROR IN BID AND SUBMITTED EVIDENCE SHOWING THAT THE PRICES WERE QUOTED ON A UNIT RATHER THAN POUND BASIS, AS ADVERTISED, AND AFTER THE GOVERNMENT WAS ON NOTICE OF THE WIDE PRICE DISPARITY BETWEEN THE ERRONEOUS BID AND OTHERS, MAY NOT BE REGARDED AS A VALID AND BINDING AGREEMENT AND THE PURCHASER IS ENTITLED TO REFUND OF THE BID DEPOSIT.

TO THE SECRETARY OF THE AIR FORCE, MARCH 8, 1957:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 17, 1955, FURNISHING A REPORT, AS REQUESTED BY OUR OFFICE LETTER DATED SEPTEMBER 27, 1955, RELATIVE TO THE REQUEST OF LEE MANSDORF AND COMPANY, COMPTON, CALIFORNIA, FOR RELIEF IN CONNECTION WITH CONTRACT NO. AF04/607/S-728, DATED JANUARY 11, 1955, COVERING A SALE BY THE NORTON AIR FORCE BASE, SAN BERNARDINO, CALIFORNIA, OF SEVERAL ITEMS OF AIRCRAFT ASSEMBLIES AND SPARE PARTS; ALSO TO LETTER DATED DECEMBER 21, 1955, FILE REFERENCE SBPPRS, FROM THE CONTRACTING OFFICER, REPORTING AN INDEBTEDNESS OF THE CONTRACTOR RESULTING FROM DEFAULT UNDER SAID CONTRACT.

AS GROUNDS FOR ITS REFUSAL TO PERFORM ITS CONTRACT, THE CONTRACTOR ALLEGED CERTAIN ERRORS IN THE PREPARATION OF ITS PROPOSAL OF JANUARY 3, 1955, SUBMITTED IN RESPONSE TO THE GOVERNMENT'S INVITATION NO. 104-607 S- 55-4, ISSUED DECEMBER 10, 1954.

ACTION UPON THE CONTRACTOR'S CLAIM FOR REMISSION OF ITS BID DEPOSIT OF $50,000 FURNISHED IN CONNECTION WITH ITS PROPOSAL OF JANUARY 3, 1955, HAS BEEN WITHHELD BY US AWAITING ADVICE FROM THE DEPARTMENT OF JUSTICE AS TO THE OUTCOME OF INVESTIGATIONS CONDUCTED INTO CERTAIN REPORTED FRAUD ASPECTS OF THE CASE. THESE INVESTIGATIONS WERE INSTIGATED AS THE RESULT OF A CHARGE BY ONE OF THE CONTRACTOR'S COMPETITORS THAT, BY ALLEGING ERROR IN ITS BID, THE CONTRACTOR MERELY WAS SEEKING TO AVOID LIABILITY UNDER ITS CONTRACT DUE TO THE FAILURE OF CERTAIN PRIOR COMMITMENTS FOR THE CONTRACT ARTICLES TO MATERIALIZE. WE HAVE BEEN ADVISED BY THE CHIEFS OF THE CRIMINAL AND CIVIL FRAUDS SECTIONS OF THE DEPARTMENT OF JUSTICE THAT THE AFORESAID CHARGES OF FRAUD WERE FOUND TO BE UNSUBSTANTIATED BY THE FACTS AS DISCLOSED BY THE INVESTIGATIONS AND THAT, AS A CONSEQUENCE, IT HAS BEEN CONCLUDED BY THE DEPARTMENT THAT ACTION FOR FRAUD UNDER THE FALSE CLAIMS STATUTES, 31 U.S.C. 231, ET SEQ., OR OTHERWISE, IS NOT WARRANTED.

CONCERNING THE MISTAKE IN BID ASPECTS OF THE CASE, THE RECORD SHOWS THAT BY INVITATION NO. 104-607-S-55-4, ISSUED BY THE NORTON AIR FORCE BASE UNDER DATE OF DECEMBER 10, 1954, PROPOSALS WERE SOLICITED ON 24 ITEMS OF AIRCRAFT PARTS AND RELATED EQUIPMENT, AS THEREIN DESCRIBED. IN RESPONSE THERETO, THE CONTRACTOR, LEE MANSDORF AND COMPANY, AND TWO OTHER UNDISCLOSED ASSOCIATES, ACTING BY AND THROUGH THE SAID COMPANY, SUBMITTED BIDS ON 19 ITEMS AND, BY VIRTUE OF THEIR HIGH BID PRICES, WERE AWARDED ITEMS NOS. 1, 6, 7, 8, 9, 17 AND 19 OF THE INVITATION ON JANUARY 11, 1955.

THE TIME SCHEDULED FOR THE OPENING OF THE BIDS WAS 1:00 P.M. PST ON JANUARY 3, 1955, AND THE CONTRACTOR'S PROPOSAL WAS SUBMITTED ON THAT DATE. AT THE TIME OF OPENING, THE CONTRACTOR NOTICED THE WIDE DISCREPANCY BETWEEN THE AMOUNTS OF HIS BID PRICES OF $1.188, $1.362 AND $0.503 PER POUND ON ITEMS NOS. 1, 8 AND 9, RESPECTIVELY, AS COMPARED TO THE AMOUNTS OF THE OTHER BIDS ON THOSE ITEMS, WHICH WERE:

ITEM NO. 1--- TEN BIDS RANGING FROM $0.369 TO $0.0029 PER POUND

ITEM NO. 8--- EIGHT BIDS RANGING FROM $0.713 TO $0.0109 PER POUND

ITEM NO. 9--- TEN BIDS RANGING FROM $0.1561 TO $0.001 PER POUND

ACCORDING TO THE STATEMENTS MADE IN AN AFFIDAVIT EXECUTED BY THE CONTRACTOR ON FEBRUARY 14, 1955, HE WAS NOT FAMILIAR WITH THE VALUES OF THE ITEMS OF AIRCRAFT ASSEMBLIES AND SPARE PARTS UPON WHICH HE HAD BID UNDER ITEMS NOS. 1, 8 AND 9, AND CONSEQUENTLY HE PREPARED HIS PROPOSAL SHORTLY PRIOR TO THE TIME OF OPENING UPON THE BASIS OF THE UNIT PRICES PREPARED BY ONE OF HIS ASSOCIATES, WHO HAD ASSUMED THAT THE GOVERNMENT WAS OFFERING THE ITEMS UPON A PIECE OR UNIT PRICE BASIS, INSTEAD OF BY THE POUND, AS SET FORTH IN THE INVITATION FOR THOSE ITEMS. THE RECORD CONTAINS WHAT PURPORTS TO BE THE ORIGINAL WORKSHEET UPON WHICH THE CONTRACTOR APPARENTLY HAD RELIED, WHICH SHOWS MERELY THE UNIT PRICE APPLICABLE TO EACH ITEM, AND DOES NOT DISCLOSE WHETHER SUCH PRICE RELATED TO THE ITEM OR TO THE POUND, AS ADVERTISED. IN THIS CONNECTION, IT IS OBSERVED THAT THE INVITATION LISTED BOTH THE NUMBER OF UNITS AND POUNDAGE OF ITEMS NOS. 1, 8 AND 9, BUT THAT QUOTATIONS WERE SOLICITED ON MANY OTHER ITEMS ON A UNIT BASIS, PER EACH RATHER THAN PER POUND.

AFTER CONSULTATION WITH HIS ASSOCIATES IN THIS ENTERPRISE, THE CONTRACTOR LEARNED THAT THE UNIT PRICES FURNISHED HIM FOR USE IN THE PREPARATION OF HIS BID WERE INTENDED FOR APPLICATION TO EACH PIECE OF EQUIPMENT OFFERED, INSTEAD OF TO THE POUND. PARTICULARLY WAS THIS SO WITH RESPECT TO ITEMS NOS. 1 AND 9, AS TO WHICH THERE WERE DIFFERENTIALS OF OVER 300 AND 200 PERCENT BETWEEN THE NUMBER OF PIECES AND THE POUNDAGE SHOWN FOR THESE ITEMS. UPON LEARNING OF HIS ERROR, THE CONTRACTOR, ON JANUARY 7, 1955, FOUR DAYS AFTER OPENING AND FOUR DAYS BEFORE THE AWARD, PERSONALLY PRESENTED HIMSELF AT THE OFFICE OF THE CONTRACTING AGENCY, WHERE HE INFORMED THE CONTRACTING OFFICER THAT THROUGH MISUNDERSTANDING UPON HIS PART HE ERRONEOUSLY HAD QUOTED ON A PRICE PER PIECE OR UNIT AS TO ITEMS 1, 8 AND 9, INSTEAD OF UPON A POUNDAGE BASIS, AS ADVERTISED, IN VIEW OF WHICH HE REQUESTED EITHER THAT HIS BID PRICES ON THOSE ITEMS BE REVISED TO CONFORM TO HIS INTENTIONS IN THE MATTER, OR THAT HE BE ALLOWED TO REVOKE HIS OFFER. FURTHERMORE, HE ADVISED THE CONTRACTING OFFICER THAT BY REASON OF HIS MISTAKE, HIS ASSOCIATES HAD WITHDRAWN THEIR FINANCIAL SUPPORT IN THIS JOINT ENTERPRISE, AND, AS A CONSEQUENCE, HE WOULD BE UNABLE TO PERFORM THE CONTRACT IF IT WERE AWARDED HIM. DURING THE COURSE OF THE INTERVIEW, THE CONTRACTING OFFICER ADVISED THE CONTRACTOR TO CONFIRM HIS ALLEGATIONS IN WRITING, WHICH THE CONTRACTOR DID BY LETTERS DATED JANUARY 10 AND 11, 1955, DIRECTED TO THE SAID OFFICIAL, IN WHICH ALL THE CIRCUMSTANCES GIVING RISE TO THE ALLEGED ERRORS WERE FORMALLY CONFIRMED. IT IS REPRESENTED BY THE CONTRACTOR THAT HE PERSONALLY DELIVERED HIS LETTER OF JANUARY 10, 1955, TO THE CONTRACTING AGENCY.

ALL OF THE CONTRACTOR'S ALLEGATIONS AS TO HOW THE ALLEGED ERRORS WERE MADE, AND HIS REPRESENTATIONS AS TO THE CO-PARTNER RELATIONSHIP WHICH HAD EXISTED BETWEEN MR. LEE MANSDORF AND HIS ASSOCIATES IN THIS TRANSACTION, HAVE BEEN CONFIRMED BY AFFIDAVITS EXECUTED AND FURNISHED BY EACH OF THE INTERESTED PARTIES.

NOTWITHSTANDING THE CONTRACTOR'S PRIOR ALLEGATION OF ERROR, THE CONTRACTING AGENCY, ON JANUARY 11, 1955, PROCESSED AND AWARDED CONTRACT NO. AF04/607/S-728 TO LEE MANSDORF AND COMPANY.

THE ITEMS AWARDED THE CONTRACTOR UNDER THE CONTRACT HAVE SINCE BEEN SOLD BY THE CONTRACTING AGENCY AT A REPORTED LOSS TO THE GOVERNMENT, INCLUDING $50 STORAGE, OF $102,184.30, AND THE QUESTION HERE ARISES AS TO THE CONTRACTOR'S LIABILITY, IF ANY, FOR SUCH LOSS. IN THIS CONNECTION IT IS NOTED THAT IN COMPUTING THE REPORTED LOSS THE CONTRACTING OFFICER APPARENTLY HAS CONSIDERED ONLY THE ITEMS WHICH WERE SOLD AT LESS THAN THE ORIGINAL CONTRACT PRICE AND HAS FAILED TO INCLUDE CERTAIN ITEMS SOLD AT HIGHER PRICES, WHICH SHOULD PROPERLY OPERATE TO REDUCE THE LOSS.

AS TO THE CONTRACTOR'S LIABILITY FOR LOSSES RESULTING FROM ITS REPORTED DEFAULT, IT HAS LONG BEEN THE GENERAL RULE THAT PROPOSALS SUBMITTED IN RESPONSE TO GOVERNMENT INVITATIONS MAY NOT ORDINARILY BE WITHDRAWN AFTER OPENING, EVEN BEFORE AWARD, AND THAT THE BIDDER IS BOUND TO ACCEPT THE AWARD. THE LAW IS EQUALLY WELL SETTLED, HOWEVER, THAT THE GOVERNMENT MUST BE HELD TO THE SAME GENERAL PRINCIPLES OF EQUITY AND FAIR PLAY IN DEALING WITH THOSE WHO CONTRACT WITH IT AS ARE THE CONTRACTORS THEMSELVES. SEE KEMP V. UNITED STATES, 38 F.1SUPP. 568, 570. IN OTHER WORDS, THE COURTS HAVE RECOGNIZED THAT THE SOVEREIGN IS NOT ENTITLED TO TAKE AN UNCONSCIONABLE ADVANTAGE OF ITS SPECIAL STATUS AS A GOVERNING BODY. SEE CONNECTICUT V. F. H. MC1GRAW AND COMPANY, 41 F.1SUPP. 369.

WHILE MUTUAL MISTAKE AFFORDS THE ONLY GROUND FOR REFORMATION OF A CONTRACT--- SEE OGDEN AND DOUGHERTY V. UNITED STATES, 102 C.1CLS. 249, 259; SALIGMAN, ET AL. V. UNITED STATES, 56 F.1SUPP. 505, 507--- RESCISSION MAY BE ALLOWED FOR MISTAKE OF ONLY ONE PARTY. AS WAS STATED BY THE COURT IN THE KEMP CASE, SUPRA, AT PAGE 573 (QUOTING, WITH APPROVAL, FROM WILLISTON ON CONTRACTS, SECTION 1578): * * * SOME CASES AFFORD COUNTENANCE FOR THE DOCTRINE THAT UNILATERAL MISTAKE, WHILE THE CONTRACT IS STILL EXECUTORY, AND THE PARTIES CAN BE PUT IN STATUS QUO, MAY AFFORD GROUND FOR RESCISSION, AND DOUBTLESS THE DISCRETIONARY REMEDY OF SPECIFIC PERFORMANCE MAY BE DENIED. * * * IN SOME OF THEM, AT LEAST, IT WOULD SEEM THAT THE PARTY NOT IN ERROR SHOULD HAVE SUSPECTED THE EXISTENCE OF A MISTAKE, IN WHICH CASE CLEARLY RESCISSION AND RESTITUTION SHOULD BE ALLOWED.

IN THE INSTANT MATTER, THE RECORD CONTAINS A MEMORANDUM, PREPARED BY THE CONTRACTING OFFICER, OF THE CONVERSATION HAD BETWEEN THE LATTER OFFICIAL AND THE CONTRACTOR ON JANUARY 7, 1955, OR FOUR DAYS BEFORE AWARD, DURING THE COURSE OF WHICH THE CONTRACTOR ALLEGED ERRORS IN ITS PROPOSAL AND EXPLAINED EXACTLY HOW THEY OCCURRED. THEREFORE, THERE CAN BE NO DOUBT OF THE CONTRACTING OFFICER'S AWARENESS OF THE CONTRACTOR'S CLAIM OF ERROR PRIOR TO THE AWARD OF THE DEFAULTED CONTRACT, THERE HAVING BEEN LEFT FOR LATER SUBMISSION BY THE CONTRACTOR ONLY THE MATTER OF WRITTEN PROOF OF THE ERRORS ALLEGED. THIS WAS PROMPTLY FURNISHED IN THE FORM OF WRITTEN COMMUNICATIONS AND AFFIDAVITS, EACH OF WHICH APPEARS TO CONFIRM THE CONTRACTOR'S CONTENTIONS IN THE MATTER, AND IS CONSISTENT WITH THE DISCLOSURES MADE BY THE CONTRACTOR AT THE CONFERENCE HELD ON JANUARY 7, 1955. THUS, THERE APPEARS TO HAVE BEEN A SUBSTANTIAL COMPLIANCE WITH THE RULE THAT THE PARTY ALLEGING A MISTAKE MUST SHOW EXACTLY IN WHAT IT CONSISTS AND THE CORRECTION THAT SHOULD BE MADE. SEE MOFFETT, HODGKINS AND CLARKE COMPANY V. ROCHESTER, 178 U.S. 373.

HERE, ASIDE FROM ANY CONSIDERATION OF CONSTRUCTIVE NOTICE OF ERROR WHICH MIGHT BE IMPUTED FROM THE WIDE DISPARITY BETWEEN THE AMOUNT OF THE CONTRACTOR'S BIDS ON ITEMS NOS. 1, 8 AND 9 AND THE AMOUNTS OF THE OTHER BIDS RECEIVED ON THOSE ITEMS--- THERE APPEARING TO BE LITTLE, IF ANY, DOUBT CONCERNING THE EXISTENCE OF BONA FIDE ERRORS IN THE PREPARATION OF THE CONTRACTOR'S PROPOSAL--- IT CANNOT PROPERLY BE MAINTAINED THAT THE GOVERNMENT WAS NOT ON NOTICE OF ERROR AT THE TIME OF THE AWARD. SEE MONROE MANUFACTURING COMPANY V. UNITED STATES, 143 F.1SUPP. 449, 451.

ACCORDINGLY, IT MUST BE CONCLUDED, AS A MATTER OF LAW, THAT NO VALID CONTRACT RESULTED FROM THE PROPOSED AWARD. SEE ALTA ELECTRIC AND MECHANICAL COMPANY, INC. V. UNITED STATES, 90 C.1CLS. 466, 476; UNITED STATES V. JONES, 176 F.2D 278, 285; GERENIA V. BOYARSKY, 140 A. 749.

IN THE CIRCUMSTANCES, THE BID DEPOSIT OF $50,000 WHICH ACCOMPANIED THE CONTRACTOR'S PROPOSAL OF JANUARY 3, 1955, SHOULD BE REFUNDED.