B-125770, JAN. 5, 1956

B-125770: Jan 5, 1956

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TO THE HONORABLE SECRETARY OF DEFENSE: REFERENCE IS MADE TO LETTERS OF NOVEMBER 1 AND NOVEMBER 21. PROSPECTIVE BIDDERS WERE ADVISED THAT THE EFFECTIVE DATE OF THE CONTRACT WOULD BE THE DATE ON WHICH THE GOVERNMENT WOULD TAKE TITLE TO AND POSSESSION OF THE PETROLEUM STORAGE TERMINAL. THE GOVERNMENT MAY ACCEPT THE OFFEROR'S PROPOSAL WITHIN THE TIME SPECIFIED IN THE PROPOSAL UNLESS THE PROPOSAL IS WITHDRAWN IN WRITING PRIOR TO ACCEPTANCE. "IT IS CONTEMPLATED THAT A CONTRACT WILL BE AWARDED TO THAT RESPONSIBLE OFFEROR WHOSE PROPOSAL WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT. THE RIGHT IS RESERVED TO ACCEPT OTHER THAN THE LOWEST PROPOSAL AND TO REJECT ANY OR ALL PROPOSALS.'. PARAGRAPH 13 OF THE ADDITIONAL TERMS AND CONDITIONS PROVIDED AS FOLLOWS: "THE PROPOSAL SHALL SERVE AS A PRELIMINARY BASIS FOR NEGOTIATION OF A DEFINITIVE SERVICE CONTRACT AND A SEPARATE FACILITIES CONTRACT WITH THAT OFFEROR/S) WHOSE PROPOSAL IS CONSIDERED TO BE IN THE BEST OVERALL INTEREST OF THE GOVERNMENT.

B-125770, JAN. 5, 1956

TO THE HONORABLE SECRETARY OF DEFENSE:

REFERENCE IS MADE TO LETTERS OF NOVEMBER 1 AND NOVEMBER 21, 1955, WITH ENCLOSURES, FROM THE DIRECTOR, ARMED SERVICES PETROLEUM PURCHASING AGENCY, IN REPLY TO OUR REQUESTS FOR REPORT REGARDING THE PROTEST BY THE BAY OIL CORPORATION (LETTERS DATED OCTOBER 13 AND NOVEMBER 7, 1955) OF THE AWARD OF A CONTRACT TO ANOTHER BIDDER FOR FURNISHING THE SERVICES FOR THE OPERATION OF A PETROLEUM STORAGE TERMINAL AT TIVERTON, RHODE ISLAND.

BY REQUEST FOR PROPOSALS (NEGOTIATED FIXED PRICE CONTRACT) ISSUED JULY 20, 1955, THE ARMED SERVICES PETROLEUM PURCHASING AGENCY REQUESTED BIDS--- TO BE RECEIVED UNTIL THE CLOSE OF BUSINESS ON SEPTEMBER 5, 1955--- FOR FURNISHING THE REQUIRED SERVICES FOR A PERIOD OF ONE YEAR. PROSPECTIVE BIDDERS WERE ADVISED THAT THE EFFECTIVE DATE OF THE CONTRACT WOULD BE THE DATE ON WHICH THE GOVERNMENT WOULD TAKE TITLE TO AND POSSESSION OF THE PETROLEUM STORAGE TERMINAL, OR OCTOBER 15, 1955, WHICHEVER DATE SHOULD OCCUR LATER. PARAGRAPHS 1 (C) AND (D) OF THE TERMS AND CONDITIONS OF REQUEST FOR PROPOSALS PROVIDED, WITH RESPECT TO ACCEPTANCE, THAT---

"NEGOTIATIONS WITH ANY OR ALL OFFERORS MAY BE REQUIRED AFTER RECEIPT OF PROPOSALS. SUCH FURTHER NEGOTIATIONS SHALL NOT BE DEEMED TO BE A REJECTION OR A COUNTER-OFFER ON THE PART OF THE GOVERNMENT. NOTWITHSTANDING SUCH FURTHER NEGOTIATIONS, THE GOVERNMENT MAY ACCEPT THE OFFEROR'S PROPOSAL WITHIN THE TIME SPECIFIED IN THE PROPOSAL UNLESS THE PROPOSAL IS WITHDRAWN IN WRITING PRIOR TO ACCEPTANCE.

"IT IS CONTEMPLATED THAT A CONTRACT WILL BE AWARDED TO THAT RESPONSIBLE OFFEROR WHOSE PROPOSAL WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED. THE RIGHT IS RESERVED TO ACCEPT OTHER THAN THE LOWEST PROPOSAL AND TO REJECT ANY OR ALL PROPOSALS.'

PARAGRAPH 13 OF THE ADDITIONAL TERMS AND CONDITIONS PROVIDED AS FOLLOWS:

"THE PROPOSAL SHALL SERVE AS A PRELIMINARY BASIS FOR NEGOTIATION OF A DEFINITIVE SERVICE CONTRACT AND A SEPARATE FACILITIES CONTRACT WITH THAT OFFEROR/S) WHOSE PROPOSAL IS CONSIDERED TO BE IN THE BEST OVERALL INTEREST OF THE GOVERNMENT. YOUR PROPOSAL SHOULD BE SUBMITTED BY FILLING IN THE BLANK SPACES IN THE ATTACHED SCHEDULE. HOWEVER, ALTERNATE PROPOSALS OF ANY TYPE, THAT CAN BE EVALUATED ON A COMMON BASIS WITH OTHER PROPOSALS WILL BE CONSIDERED ONLY IF IN THE BEST INTEREST OF THE GOVERNMENT SO TO DO.'

THE RECORD SHOWS THAT SIX COMPANIES, INCLUDING THE BAY OIL CORPORATION, THE PROTESTING BIDDER, SUBMITTED OFFERS, FOUR OF THE OFFERS RECEIVED BEING AT A TOTAL COST BELOW THAT OF BAY OIL. THE CONTRACT REVIEW COMMITTEE OF THE CONTRACTING AGENCY CONSIDERED THE PROPOSALS AND UNANIMOUSLY RECOMMENDED THAT THE LOW OFFER SUBMITTED BY BOYINGTON OPERATING COMPANY BE ACCEPTED WITHOUT FURTHER NEGOTIATION ON THE BASES THAT THERE HAD BEEN ADEQUATE COMPETITION AND THAT THE LOWER BID WAS FROM A RESPONSIBLE SOURCE AND WAS REASONABLE. THIS RECOMMENDATION OF THE COMMITTEE WAS ADOPTED BY THE CONTRACTING OFFICER WHO ACCEPTED THE BID ON SEPTEMBER 15, 1955, WITHOUT FURTHER NEGOTIATION OR BARGAINING WITH BOYINGTON OR ANY OTHER BIDDER.

AS A RESULT OF THE FOREGOING, THE BAY OIL CORPORATION PROTESTED THE AWARD OF THE CONTRACT, CONTENDING THAT, PURSUANT TO THE LANGUAGE OF PARAGRAPH 13 OF THE ADDITIONAL TERMS AND CONDITIONS, QUOTED ABOVE, THE PROPOSALS RECEIVED WERE TO SERVE ONLY AS A PRELIMINARY BASIS FOR NEGOTIATION WITH THOSE OFFERORS WHOSE PROPOSALS WERE CONSIDERED TO BE IN THE BEST INTERESTS OF THE GOVERNMENT. IT IS CONTENDED FURTHER BY THE PROTESTING BIDDER THAT THE CONTRACTING OFFICER WAS IN NO POSITION TO DETERMINE WHAT WAS THE "BEST INTEREST" OF THE GOVERNMENT UNTIL QUALIFIED BIDDERS SHOULD HAVE HAD AN OPPORTUNITY TO NEGOTIATE.

IT IS REPORTED BY THE CONTRACTING AGENCY THAT THE BOYINGTON OFFER WAS CONSIDERED FAIR AND REASONABLE, BASED UPON COMPARISON WITH OTHER OFFERS RECEIVED, COMPARISON WITH THE COST OF OPERATION OF OTHER GOVERNMENT-OWNED PETROLEUM STORAGE TERMINALS, AND EVALUATION OF THE SUBSTANTIATING COST DATA SUBMITTED BY BOYINGTON. ALSO, IT IS STATED THAT THE WORDING OF THE PERTINENT PROVISIONS OF THE TERMS AND CONDITIONS AND THE ADDITIONAL TERMS AND CONDITIONS OF THE CONTRACT CONSTITUTED NO REPRESENTATION THAT FURTHER NEGOTIATIONS WOULD BE CONDUCTED WITH ALL OFFERORS. IT IS REPORTED FURTHER THAT THE COST DATA SUBMITTED BY BOYINGTON REVEALED THAT A FURTHER REDUCTION IN PRICE WOULD NOT BENEFIT THE GOVERNMENT, IN THAT THE QUALITY OF THE SERVICES TO BE PERFORMED WOULD BE ADVERSELY AFFECTED. FINALLY, IT IS STATED BY THE CONTRACTING AGENCY THAT IT FOLLOWS THE PROCUREMENT PROCEDURES OF THE DEPARTMENT OF THE NAVY, AND THAT THE RECOMMENDATION OF THE CONTRACT REVIEW COMMITTEE THAT WAS FOLLOWED IN THIS CASE IS CONSISTENT WITH THE POLICY AS ENUNCIATED IN SECTION 3-002 OF NAVY PROCUREMENT DIRECTIVES, WHICH IS AS FOLLOWS:

"3-002 CONDUCT OF NEGOTIATIONS IN COMPETITIVE FIXED-PRICE PROCUREMENT SOURCE: NCPD 44-55 14 MAR -55

"3-002.1 THE FOLLOWING POLICIES AND PRACTICES ARE ESTABLISHED THROUGHOUT THE NAVY FOR THE CONDUCT OF NEGOTIATIONS WHICH ARE TO RESULT IN FIXED- PRICE TYPES OF CONTRACTS AWARDED ON THE BASIS OF PRICE COMPETITION.

"A. WHERE THE NEGOTIATOR IS SATISFIED FROM THE PROPOSALS SUBMITTED THAT THERE HAS BEEN ADEQUATE COMPETITION AND THAT THE LOW PRICE OR PRICES ARE REASONABLE, AWARD SHOULD BE MADE WITHOUT FURTHER NEGOTIATION AS TO PRICE TO THAT RESPONSIBLE FIRM SUBMITTING THE PROPOSAL WHICH IS MOST ADVANTAGEOUS TO THE GOVERNMENT. IN SUCH CASES IT IS THE POLICY OF THE NAVY NOT TO ATTEMPT TO REDUCE THE INITIAL QUOTATIONS BY FURTHER NEGOTIATION.

"B. WHERE THE NEGOTIATOR CONSIDERS THAT THE INITIAL QUOTATIONS ARE TOO HIGH OR WHERE THERE IS INADEQUATE PRICING KNOWLEDGE TO JUSTIFY AN AWARD ON THE BASIS OF THE INITIAL QUOTATIONS, FURTHER NEGOTIATIONS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FOLLOWING POLICIES:

"/1) WHERE A RESPONSIBLE FIRM SUBMITS A QUOTATION WHICH IS SUBSTANTIALLY LOWER THAN THOSE SUBMITTED IN ALL OTHER PROPOSALS, NEGOTIATIONS MAY BE CONDUCTED ONLY WITH THAT FIRM.

"/2) WHERE SEVERAL FIRMS SUBMIT QUOTATIONS WHICH ARE SO GROUPED THAT A MODERATE REDUCTION IN PRICE MIGHT MAKE ANY ONE OF THE GROUP LOW, NEGOTIATIONS WILL NORMALLY BE CONFINED TO FIRMS WITHIN SUCH GROUPING. WHENEVER NEGOTIATIONS ARE CONDUCTED WITH MORE THAN ONE FIRM THERE SHALL BE A STRICT AVOIDANCE OF "AUCTION" TECHNIQUES. NO INFORMATION REGARDING THE NUMBER OR IDENTITY OF THE FIRMS PARTICIPATING IN THE NEGOTIATIONS SHALL BE MADE AVAILABLE TO ANYONE WHOSE OFFICIAL DUTIES DO NOT REQUIRE SUCH KNOWLEDGE. FURTHERMORE, NO INDICATION SHALL BE MADE TO ANY FIRM OF A PRICE WHICH MUST BE MET TO OBTAIN FURTHER CONSIDERATION. TO THIS END, WHENEVER NEGOTIATIONS ARE BEING CONDUCTED SUCCESSIVELY, ALL FIRMS PARTICIPATING IN SUCH NEGOTIATIONS SHALL BE OFFERED THE OPPORTUNITY TO SUBMIT SUCH REVISIONS IN THEIR QUOTATIONS AS MAY RESULT FROM THE NEGOTIATIONS UP TO A TIME DESIGNATED BY THE NEGOTIATOR. THE DESIGNATED TIME SHALL BE THE SAME FOR ALL FIRMS INVOLVED IN THE NEGOTIATION AND SHALL PROVIDE ADEQUATE OPPORTUNITY FOR ALL SUCH FIRMS TO SUBMIT REVISED PROPOSALS.

"/3) ALL FIRMS SHALL BE INFORMED THAT AFTER THE SUBMISSION OF SUCH FINAL PRICES, NO FURTHER UNSOLICITED REVISED QUOTATIONS WILL BE CONSIDERED AND NO INFORMATION WILL BE FURNISHED TO ANY OF THE FIRMS WHICH SUBMITTED QUOTATIONS UNTIL AWARD HAS BEEN MADE.'

WE CANNOT AVOID THE CONCLUSION THAT, SINCE THE INVITATION IN THIS CASE DID NOT DEFINITELY PROVIDE THAT ALL BIDDERS WOULD BE GIVEN AN OPPORTUNITY TO NEGOTIATE, SINCE THERE WAS LEGAL AUTHORIZATION FOR MAKING THE CONTRACT BY NEGOTIATION AS DISTINGUISHED FROM FORMAL ADVERTISING, AND SINCE THE AWARD WAS WITHIN THE SCOPE OF THE DISCRETIONARY AUTHORITY DELEGATED TO THE CONTRACTING OFFICER AND THE CONTRACT REVIEW COMMITTEE, THE CONTRACT ENTERED INTO WITH BOYINGTON OPERATING COMPANY IS VALID AND BINDING ON THE GOVERNMENT AND SUBJECT TO TERMINATION ONLY IN ACCORDANCE WITH THE PROVISIONS OF CLAUSE 29, ASPPA FORM TC 400, INCORPORATED INTO THE CONTRACT BY REFERENCE.

IT HAS BEEN NOTED, HOWEVER, THAT HOUSE REPORT NO. 109, 80TH CONGRESS, ON H.R. 1366, WHICH BECAME THE ARMED SERVICES PROCUREMENT ACT OF 1947, CONTAINS THE FOLLOWING STATEMENT AT PAGE 6:

"PROCUREMENT BY NEGOTIATION AS PRACTICED BY THE SERVICES AND INDUSTRY CONSISTS OF FIRST SECURING INFORMAL QUOTATIONS FROM AS MANY SOURCES AS PRACTICABLE, USUALLY ACCOMPANIED BY BREAK-DOWNS OF ELEMENTS OF COST. SEPARATE NEGOTIATIONS THEN USUALLY BEGIN WITH THE LOWER BIDDERS, IN ORDER TO REDUCE THE PRICE BY ELIMINATING UNNECESSARY OR UNJUSTIFIED CHARGES. WHEN THE BEST POSSIBLE AGREEMENT HAS BEEN REACHED, AN APPROPRIATE CONTRACT IS AWARDED THE SUCCESSFUL FIRM. EXPERIENCE HAS SHOWN THAT BY CAREFUL NEGOTIATION AND BY DRAFTING A SUITABLE CONTRACT IT IS FREQUENTLY POSSIBLE TO SECURE SUBSTANTIAL SAVINGS FOR THE GOVERNMENT. NEGOTIATION, PROPERLY EMPLOYED, CAN PROMOTE AND INTENSIFY COMPETITION.'

IT HAS BEEN NOTED ALSO THAT SECTION III, PART 1, PARAGRAPH 3-101 OF THE ARMED SERVICES PROCUREMENT REGULATION, ENTITLED "NEGOTIATION AS DISTINGUISHED FROM FORMAL ADVERTISING," PROVIDES THAT WHENEVER SUPPLIES OR SERVICES ARE TO BE PROCURED BY NEGOTIATION PRICE QUOTATIONS SHALL BE SOLICITED FROM ALL SUCH QUALIFIED SOURCES OF SUPPLIES OR SERVICES AS ARE DEEMED NECESSARY BY THE CONTRACTING OFFICER TO ASSURE "FULL AND FREE COMPETITION" TO THE END THAT THE PROCUREMENT WILL BE MADE TO THE BEST ADVANTAGE OF THE GOVERNMENT AND THAT NEGOTIATION SHALL THEREUPON BE CONDUCTED WITH DUE ATTENTION BEING GIVEN TO NUMEROUS DESIGNATED FACTORS, ONE OF WHICH (G) IS "INDIVIDUAL BARGAINING, BY MAIL OR BY CONFERENCE.'

A REPORT IS, THEREFORE, REQUESTED AS TO WHETHER IT IS THE VIEW OF YOUR DEPARTMENT THAT THE NEGOTIATION PROCEDURES PRESCRIBED BY THE NAVY DIRECTIVE ABOVE-QUOTED ARE SUFFICIENT TO SECURE FOR THE GOVERNMENT "THE BEST POSSIBLE AGREEMENT," AS APPARENTLY CONTEMPLATED BY THE CONGRESS, AND THE "FULL AND FREE COMPETITION" PROVIDED FOR BY THE APPLICABLE PROVISION OF THE ARMED SERVICES PROCUREMENT REGULATION.