B-129052, AUG. 30, 1956

B-129052: Aug 30, 1956

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TO THE SECRETARY OF THE NAVY: REFERENCE IS MADE TO YOUR LETTER OF AUGUST 23. WHEN THIS PRICE WAS CHECKED ON OUR RECORDS. IT WAS DISCOVERED THAT THE PRICE ON ITEM 2 HAD BEEN ARRIVED AT WITHOUT INCLUDING GENERAL AND ADMINISTRATIVE EXPENSES. WE ARE SUBMITTING FOR YOUR EXAMINATION COPIES OF OUR WORK SHEETS IN THE PREPARATION OF THIS QUOTATION. WE HAVE NUMBERED THESE AS NO. 1 AND NO. 2. "PLEASE UNDERSTAND THAT SINCE WE HAVE MADE THIS REEL IN THE PAST. WE HAVE COMPLETE COST INFORMATION. WE ESTIMATED AT ....................... 47.13 THIS IS BROKEN DOWN ON SHEET NO. 2 . OF 10 PERCENT ........................................ $1635.75 WE INADVERTENTLY OMITTED THE ADDITION OF OUR NORMAL GENERAL AND ADMINISTRATIVE COST WHICH WE HAVE BEEN USING AT 10 PERCENT OF MANUFACTURING COST.'.

B-129052, AUG. 30, 1956

TO THE SECRETARY OF THE NAVY:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 23, 1956, WITH ENCLOSURES, REQUESTING A DECISION AS TO THE ACTION TO BE TAKEN CONCERNING AN ERROR THE COLUMBUS ENGINEERING AND MANUFACTURING COMPANY ALLEGES IT MADE INITS BID OPENED ON JUNE 27, 1956.

THE AVIATION SUPPLY OFFICE, PHILADELPHIA, PENNSYLVANIA, BY INVITATION NO. JD-IFB-383-2001-56, REQUESTED BIDS FOR FURNISHING A QUANTITY OF 35 MARK 8, MODEL O, ANTI-AIRCRAFT TARGET REELS, TO BE IN ACCORDANCE WITH MILITARY SPECIFICATION MIL-R-7172, ITEM 2. IN RESPONSE THE COLUMBUS ENGINEERING AND MANUFACTURING COMPANY SUBMITTED A BID DATED JUNE 22, 1956, OFFERING TO FURNISH THE TARGET REELS UNDER ITEM 2 AT A PRICE OF $1,635.75 EACH. THE THREE OTHER BIDDERS ON ITEM 2 QUOTED UNIT PRICES OF $2,714.44, $5,638 AND $6,750.

UPON BEING REQUESTED TO VERIFY ITS BID, THE COLUMBUS ENGINEERING AND MANUFACTURING COMPANY, BY LETTER DATED JULY 14, 1956, ADVISED AS FOLLOWS:

"ON JULY 6, WE RECEIVED YOUR WIRE REQUESTING CONFIRMATION OF PRICES ON ITEMS 2 AND 3. WHEN THIS PRICE WAS CHECKED ON OUR RECORDS, IT WAS DISCOVERED THAT THE PRICE ON ITEM 2 HAD BEEN ARRIVED AT WITHOUT INCLUDING GENERAL AND ADMINISTRATIVE EXPENSES.

"WE CONTACTED YOUR OFFICE ON MONDAY, JULY 9, POINTED OUT THAT AN ERROR HAD BEEN MADE AND REQUESTED ADVICE AS TO WHAT PROCEDURE WE COULD USE TO CORRECT IT.

"BASED ON THE ABOVE, WE ARE SUBMITTING FOR YOUR EXAMINATION COPIES OF OUR WORK SHEETS IN THE PREPARATION OF THIS QUOTATION. WE HAVE NUMBERED THESE AS NO. 1 AND NO. 2.

"PLEASE UNDERSTAND THAT SINCE WE HAVE MADE THIS REEL IN THE PAST, WE HAVE COMPLETE COST INFORMATION.

TABLE

"OUR LAST LOT OF 100 REELS COST US . ........................$1371.35

"WE ESTIMATED THAT, DUE TO THE SMALLER QUANTITY OF REELS IN QUESTION, THE MANUFACTURING COST WOULD BE AN ADDITIONAL 5 PERCENT ......................................... 68.56

"THE INCREASED COST OF MATERIAL AND PARTS WHICH WE PURCHASED FOR THIS REEL ALONG WITH ANTICIPATED INCREASED LABOR COST OF OUR OWN, WE ESTIMATED AT ....................... 47.13

THIS IS BROKEN DOWN ON SHEET NO. 2 -------

"THIS TOTALS $1487.04

"THROUGH AN OVERSIGHT, THE WRITER ARRIVED AT A SELLING PRICE BY ADDING OUR PROFIT FACTOR SHOWN ON SHEET NO. 1 (P.F.) OF 10 PERCENT ........................................ $1635.75

WE INADVERTENTLY OMITTED THE ADDITION OF OUR NORMAL GENERAL AND ADMINISTRATIVE COST WHICH WE HAVE BEEN USING AT 10 PERCENT OF MANUFACTURING COST.'

IN A LETTER DATED AUGUST 9, 1956, THE COMPANY REQUESTED THAT THE UNIT PRICE OF ITEM 2 BE INCREASED FROM $1,635.75 TO $1,799.33 TO COVER THE OMITTED ITEM OF GENERAL AND ADMINISTRATIVE EXPENSE. IN SUPPORT OF ITS ALLEGATION OF ERROR, THE COMPANY SUBMITTED ITS WORKSHEETS WHICH SHOWS VARIOUS ITEMS OF COST TOTALING $1,635.75, ITS UNIT PRICE FOR THE TARGET REELS COVERED BY ITEM 2. NONE OF THE VARIOUS ITEMS OF COST APPEARS TO COVER THE ITEM OF GENERAL AND ADMINISTRATIVE EXPENSE. THE COMPANY ALSO SUBMITTED PHOTOSTATIC COPIES OF WORKSHEETS COVERING THE MANUFACTURE UNDER A PREVIOUS CONTRACT, OF 100 OF THE SAME TYPE OF TARGET REELS AS REQUIRED UNDER ITEM 2, WHICH WORKSHEETS, THE COMPANY STATES, WERE PREPARED IN 1954. AN EXAMINATION OF THESE WORKSHEETS INDICATES THAT THE COMPANY ARRIVED AT A TOTAL MANUFACTURING COST OF $1,371.35 PER REEL--- THE BASE PRICE USED BY THE COMPANY ON ITS WORKSHEET FOR ITEM 2 OF THIS PROCUREMENT- -- AND THAT ON EACH INDIVIDUAL ITEM OF MANUFACTURING COST, IT ADDED 10 PERCENT TO COVER THE ITEM OF GENERAL AND ADMINISTRATIVE EXPENSE. IN THAT REGARD, THE CONTRACTING OFFICER STATES IN HIS REPORT OF AUGUST 2, 1956, AS FOLLOWS:

"6. ASO HAS ON RECORD AN ACCUMULATION OF COST BREAKDOWNS WHICH THE LOW BIDDER HAS SUBMITTED FROM TIME TO TIME THROUGHOUT THE YEARS IN SUPPORT OF QUOTATIONS HE HAS MADE. THE RECORD DATED BACK TO JANUARY 1951. THE LAST COST BREAKDOWN ON FILE WAS SUBMITTED IN 1954. THESE COST BREAKDOWNS COVER QUOTATIONS WHICH WERE MADE ON COMPETITIVE NEGOTIATIONS, AS WELL AS SOLE SOURCE NEGOTIATIONS. IN EACH COST BREAKDOWN ON FILE, THE LOW BIDDER HAS INCLUDED A CHARGE FOR GENERAL AND ADMINISTRATIVE EXPENSE. IN NO INSTANCE ON RECORD HAS G AND A EVER BEEN OMITTED. EXCEPT FOR THE FIRST COST BREAKDOWN ON RECORD DATED IN JANUARY 1951, IN WHICH THE LOW BIDDER USED A G AND A RATE OF 12.3 PERCENT, ALL OTHER COST BREAKDOWNS ON FILE SHOW A CONSISTENT PATTERN FOR G AND A AT 10 PERCENT OF MANUFACTURING COST. PROFIT AND LOSS STATEMENTS FOR VARIOUS PERIODS (AVAILABLE AT ASO) SHOW THAT THE LOW BIDDER'S G AND A EXPERIENCE HAS VARIED FROM 8.8 PERCENT TO 15 PERCENT; YET DESPITE WHAT HE WAS EXPERIENCING, THE LOW BIDDER APPARENTLY ELECTED TO CONTINUE USING A G AND A RATE OF 10 PERCENT.'

ON THE BASIS OF THE FACTS AND EVIDENCE OF RECORD, THERE APPEARS NO ROOM FOR DOUBT THAT THE COMPANY MADE AN ERROR IN ITS BID, AS ALLEGED, AND IT IS APPARENT THAT THE INTENDED BID PRICE FOR ITEM 2 WAS $1,799.33, WHICH AMOUNT IS STILL LOWER THAN THE AMOUNT OF THE NEXT LOWEST BID RECEIVED ON THAT ITEM.

ACCORDINGLY, SINCE IT WAS BELIEVED THAT THE BID AS TO ITEM 2 WAS ERRONEOUS AND SUCH BELIEF WAS CONFIRMED PRIOR TO AWARD, THE BID OF THE COLUMBUS ENGINEERING AND MANUFACTURING COMPANY MAY BE CORRECTED TO PROVIDE FOR A UNIT PRICE OF $1,799.33 FOR ITEM 2, AND THE BID, AS SO CORRECTED, MAY BE CONSIDERED WITH THE OTHER BIDS IN MAKING THE AWARD.

IN THE EVENT OF AWARD TO THE COLUMBUS ENGINEERING AND MANUFACTURING COMPANY, REFERENCE TO THIS DECISION SHOULD BE MADE ON THE CONTRACT.

THE PAPERS, WITH THE EXCEPTION OF THE CONTRACTOR'S WORKSHEETS AND THE CONTRACTING OFFICER'S REPORT OF AUGUST 2, 1956, ARE RETURNED.