B-129889, FEB. 12, 1957

B-129889: Feb 12, 1957

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

TO SHENKMAN'S INC.: REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 20. - THE ESTIMATED QUANTITIES OF WHICH WERE SET FORTH. THE CONTRACT WAS TO BE CONSIDERED AS TERMINATED EFFECTIVE WITH THE CLOSE OF BUSINESS ON AUGUST 11. YOU ADVISED THE DEPUTY ADMINISTRATOR OF VETERANS AFFAIRS THAT IT WAS YOUR UNDERSTANDING THAT. YOUR BID WAS PREFERRED ON 85 ITEMS. WAS PREFERRED ON 32 ITEMS. YOU STATED THAT IT WAS YOUR WISH TO COOPERATE IN EVERY WAY POSSIBLE WITH THE MANAGEMENT OF THE HOSPITAL AND CONCLUDED THAT THE 32 ITEMS REFERRED TO SHOULD BE AWARDED TO YOUR COMPETITOR. WAS WITHDRAWN. THE FINAL STEP IN THE MODIFICATION OF THE CONTRACT ACTUALLY WAS FORMALIZED BY YOUR EXECUTION ON JULY 25. TO PROVIDE THAT IT WILL FURNISH THOSE ITEMS OF CLOTHING WHICH WERE SELECTED BY THE AUTHORIZED VA REPRESENTATIVES ON THE BASIS OF QUALITY.

B-129889, FEB. 12, 1957

TO SHENKMAN'S INC.:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 20, 1956, PROTESTING THE CANCELLATION OF A CONTRACT AWARDED TO YOU UNDER INVITATION FOR BIDS NO. 57 -1, ISSUED BY THE VETERANS ADMINISTRATION HOSPITAL, CANANDAIGUA, NEW YORK. THE REPORT REQUESTED FROM THE ADMINISTRATOR OF VETERANS AFFAIRS, REFERRED TO IN OUR LETTER OF DECEMBER 18, 1956, TO YOU, HAS BEEN RECEIVED.

THE INVITATION REQUESTED BIDS, TO BE OPENED JUNE 1, 1956, FOR SUPPLYING AS ORDERED, ON A UNIT PRICE BASIS, 117 ITEMS OF MEN'S CLOTHING AND FOOTWEAR--- THE ESTIMATED QUANTITIES OF WHICH WERE SET FORTH--- FOR USE OF VETERANS ADMINISTRATION BENEFICIARIES AT SAID HOSPITAL DURING THE PERIOD JULY 1, 1956, TO JUNE 30, 1957. THE INVITATION RESERVED TO THE GOVERNMENT THE RIGHT TO MAKE A SINGLE AGGREGATE AWARD, A GROUP AWARD, OR TO MAKE SPLIT AWARDS FOR ANY ITEM OR ITEMS, AND IT PROVIDED, IN PERTINENT PART, AS FOLLOWS:

"CANCELLATION

"20. THIS PROPOSAL, IF AFFECTED, SHALL BECOME A CONTRACT, AND SHALL REMAIN IN FORCE DURING THE PERIOD ABOVE STATED UNLESS TERMINATED AT THE REQUEST OF EITHER PARTY AFTER THIRTY (30) DAYS NOTICE IN WRITING.'

THE RECORD SHOWS THAT THE CHIEF, SUPPLY DIVISION, VETERANS ADMINISTRATION HOSPITAL, CANANDAIGUA, NEW YORK, NOTIFIED YOU BY LETTER OF JUNE 21, 1956, THAT YOU HAD BEEN AWARDED THE CONTRACT FOR SUPPLYING ALL OF THE 117 ITEMS INVOLVED IN THE PROCUREMENT, BUT THAT THE MANAGER OF THE HOSPITAL NOTIFIED YOU BY LETTER OF JULY 12, 1956, THAT THE HOSPITAL HAD BEEN INFORMED BY THE CENTRAL OFFICE IN WASHINGTON THAT, BECAUSE OF THE TOTAL DIFFERENCE IN THE AMOUNTS CONCERNED IN THE OVERALL SUBMISSION OF BIDS FOR EACH OF THE THREE GROUPS OF ITEMS DESCRIBED IN THE INVITATION, THEY DEEMED IT ADVISABLE TO EXERCISE THE 30-DAY CANCELLATION CLAUSE IN THE CONTRACT AND READVERTISE THE PROCUREMENT. HENCE, THE LETTER ADVISED, THE CONTRACT WAS TO BE CONSIDERED AS TERMINATED EFFECTIVE WITH THE CLOSE OF BUSINESS ON AUGUST 11, 1956.

BY LETTER OF JULY 24, 1956, YOU ADVISED THE DEPUTY ADMINISTRATOR OF VETERANS AFFAIRS THAT IT WAS YOUR UNDERSTANDING THAT, IN THE EVALUATION OF BIDS BY THE COMMITTEE AND HOSPITAL MANAGER, YOUR BID WAS PREFERRED ON 85 ITEMS, WHEREAS THE BID SUBMITTED BY ANOTHER QUALIFIED BIDDER (MONTESANO'S CANANDAIGUA, INC.) WAS PREFERRED ON 32 ITEMS; THAT YOU UNDERSTOOD THAT THE COMMITTEE AND MANAGER, AFTER CONSIDERING ALL THE FACTORS, FINALLY DECIDED TO MAKE A TOTAL AGGREGATE AWARD TO YOU INASMUCH AS YOU HAD BY FAR THE LARGER NUMBER OF ITEMS, AND FOR THE CONVENIENCE OF THE VETERANS. ALSO, YOU STATED THAT IT WAS YOUR WISH TO COOPERATE IN EVERY WAY POSSIBLE WITH THE MANAGEMENT OF THE HOSPITAL AND CONCLUDED THAT THE 32 ITEMS REFERRED TO SHOULD BE AWARDED TO YOUR COMPETITOR, YOU DID NOT WISH TO HINDER OR TRY TO INTERFERE WITH SUCH DECISION. HOWEVER, YOU SUGGESTED THAT THE NOTICE OF CANCELLATION OF THE CONTRACT BE WITHDRAWN, IN WHICH EVENT YOU WOULD ENTER INTO A MODIFICATION AGREEMENT DELETING THE 32 ITEMS FROM THE CONTRACT EFFECTIVE AUGUST 11, 1956.

THE MANAGER OF THE VETERANS ADMINISTRATION HOSPITAL AT CANANDAIGUA ADVISED YOU BY LETTER OF JULY 30, 1956, THAT IN VIEW OF YOUR ABOVE AGREEMENT TO MODIFY THE CONTRACT, THE LETTER OF JULY 12, 1956, CANCELLING THE CONTRACT, WAS WITHDRAWN, AND THAT WITHIN A FEW DAYS YOU WOULD RECEIVE A MODIFIED CONTRACT, WHICH WOULD BE EFFECTIVE AUGUST 1, 1956, AUTHORIZING YOU TO FURNISH THE REFERRED-TO 85 ITEMS. THE FINAL STEP IN THE MODIFICATION OF THE CONTRACT ACTUALLY WAS FORMALIZED BY YOUR EXECUTION ON JULY 25, 1956, OF A STATEMENT (REFERRED TO IN THE REPORT OF THE ADMINISTRATOR OF VETERANS AFFAIRS AS EXHIBIT C) READING AS FOLLOWS:

"THE UNDERSIGNED HAVING REVIEWED THE BID SUBMITTED BY IT IN MAY OF 1956 FOR THE FURNISHING OF CLOTHING FOR PATIENTS AT THE VA HOSPITAL, CANANDAIGUA, AND HAVING BEEN AWARDED THE CONTRACT THEREUNDER, HEREBY AGREES TO A MODIFICATION OF SUCH CONTRACT EFFECTIVE AUGUST 1, 1956, TO PROVIDE THAT IT WILL FURNISH THOSE ITEMS OF CLOTHING WHICH WERE SELECTED BY THE AUTHORIZED VA REPRESENTATIVES ON THE BASIS OF QUALITY, I.E., THE 85 ITEMS SELECTED BY THE COMMITTEE FROM ITS MAY 1956 BID. THIS AGREEMENT IS ENTERED INTO WITH THE UNDERSTANDING THAT THE CANCELLATION OF JULY 12, 1956 IS WITHDRAWN AND THAT THE CONTRACT IN ALL OTHER RESPECTS WILL REMAIN IN EFFECT UNTIL JUNE 30, 1957.'

YOU STATE THAT YOU HAVE BEEN FURNISHING THE 85 ITEMS OF SUPPLIES TO THE HOSPITAL SINCE AUGUST 1, BUT THAT YOU FEEL AT THIS TIME THAT THE ORIGINAL CONTRACT WAS CANCELLED ILLEGALLY AND THAT IT SHOULD BE REINSTATED, OR YOU SHOULD BE COMPENSATED FOR THE LOSSES RESULTING FROM YOUR INITIAL PREPARATION TO FURNISH THE ORIGINAL 117 ITEMS OF SUPPLIES FOR WHICH THE GOVERNMENT HAD CONTRACTED.

SINCE THE CONTRACT WAS CANCELLED IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH 20 OF THE TERMS AND CONDITIONS OF THE INVITATION FOR BIDS, MADE A PART OF THE CONTRACT, WE PERCEIVE NO BASIS FOR YOUR CONTENTION THAT IT WAS CANCELLED ILLEGALLY. HOWEVER, IN VIEW OF CERTAIN OF YOUR CONTENTIONS, WE FELT THAT THE MATTER SHOULD BE REFERRED TO THE ADMINISTRATOR OF VETERANS AFFAIRS FOR A REPORT AS TO THE REASON FOR THE CANCELLATION. HIS REPORT, MADE UNDER DATE OF JANUARY 8, 1957, IS AS FOLLOWS:

"THE MATTER OF THIS CONTRACT WAS FIRST CALLED TO THE ATTENTION OF MY OFFICE BY A MEMBER OF CONGRESS ON BEHALF OF THE MONTESANO'S EARLY IN JULY. A CENTRAL OFFICE EMPLOYEE WAS SENT TO CANANDAIGUA TO LOOK INTO THE MATTER AND A COPY OF THE REPORT OF HIS SUPERIOR TO THE DEPUTY ADMINISTRATOR IS ATTACHED MARKED EXHIBIT "A" FOR YOUR INFORMATION. BASED ON THIS REPORT, DATED JULY 13, 1956, THE DEPUTY ADMINISTRATOR CONCLUDED THAT THE PROCEDURE FOLLOWED IN MAKING CONTRACTS FOR CLOTHING FOR INCOMPETENT PATIENTS IN VETERANS ADMINISTRATION HOSPITALS FROM PATIENTS' FUNDS WAS FAULTY FOR THE FOLLOWING REASONS:

"/1) A COMMITTEE COMPOSED OF HOSPITAL EMPLOYEES IS SELDOM QUALIFIED TO SELECT CLOTHING ON THE BASIS OF QUALITY.

"/2) THERE IS USUALLY NO INCENTIVE FOR THE VENDOR TO BID LESS THAN THE MAXIMUM STATED PRICE SINCE, WITHIN THAT PRICE, QUALITY AND DESIRABILITY ARE THE DETERMINING FACTORS, AND

"/3) THE USE OF THE AGGREGATE AWARD AS AGAINST A SPLIT AWARD INVARIABLY RESULTS IN A GREATER OVER-ALL AMOUNT OF PATIENTS' FUNDS BEING EXPENDED FOR CLOTHING.

ACCORDINGLY, IT WAS DETERMINED THAT WE SHOULD TAKE ADVANTAGE OF PARAGRAPH 20 OF THE CONTRACT (STANDARD FORM 33 REVISED) AND CANCEL THE CONTRACT AFTER GIVING THE CONTRACTOR THE REQUIRED 30 DAYS NOTICE.

"THE DEPUTY ADMINISTRATOR INSTRUCTED THAT A RE-STUDY OF THE WHOLE MATTER OF MAKING SUCH CONTRACTS BE INITIATED. THIS STUDY IS NOW BEING CONDUCTED.

"IN VIEW OF THE CIRCUMSTANCES IN THIS CASE IT WAS DEEMED APPROPRIATE TO SUGGEST THAT EACH OF THE BIDDERS BE GIVEN AN OPPORTUNITY TO CONFIRM THEIR FORMER BID AND ACCEPT A CONTRACT FOR THE BALANCE OF THE FISCAL YEAR ON THE BASIS OF THE CLOTHING COMMITTEE'S EVALUATION OF QUALITY, NAMELY, SHENKMAN- S, INC. TO FURNISH 85 ITEMS AND MONTESANO TO FURNISH 32 ITEMS. THE MANAGER OF THE HOSPITAL WAS REQUESTED TO CALL THE PARTIES TOGETHER FOR THAT PURPOSE. A COPY OF REPORT OF THE MEETING AT THE VETERANS ADMINISTRATION HOSPITAL, CANANDAIGUA, NEW YORK, ON JULY 18, 1956, IS ATTACHED MARKED EXHIBIT "B.'

"AT THE SUGGESTION OF MEMBERS OF CONGRESS REPRESENTING BOTH BIDDERS A MEETING WAS CALLED IN CENTRAL OFFICE ON JULY 23. THIS CONFERENCE WAS ATTENDED BY MR. SHENKMAN AND HIS ATTORNEY, AMONG OTHERS. AS THE RESULT OF THIS CONFERENCE MR. SHENKMAN SIGNED THE AGREEMENT, COPY OF WHICH IS ATTACHED MARKED EXHIBIT "C.' AT THE CONFERENCE HELD IN CENTRAL OFFICE BOTH MR. SHENKMAN AND HIS ATTORNEY AGREED THAT THE VETERANS ADMINISTRATION HAD LEGAL AUTHORITY TO CANCEL THE CONTRACT AS IT DID ON JULY 11, EFFECTIVE 30 DAYS FROM THE DATE OF NOTICE OF SUCH ACTION. NEITHER THE DEPUTY ADMINISTRATOR NOR ANY OTHER VETERANS ADMINISTRATION OFFICER OR EMPLOYEE PARTICIPATING IN THE CONFERENCE ON JULY 22, 1956, EXERCISED ANY DURESS OR COMPULSION TO REQUIRE THE SHENKMAN'S "TO SUBMIT" TO THE MODIFIED CONTRACT. ON THE CONTRARY, MR. SHENKMAN AND HIS ATTORNEY LEFT WASHINGTON AFTER THE CONFERENCE EXPRESSING SATISFACTION WITH THE RESULTS AND COMPLIMENTING THE VETERANS ADMINISTRATION PERSONNEL FOR THEIR COOPERATION.

"WITH REGARD TO MR. SHENKMAN'S CONTENTION THAT HE WAS INFORMED BY THE MANAGER OF THE VETERANS ADMINISTRATION HOSPITAL THAT THE CANCELLATION WAS BROUGHT ABOUT BY CONGRESSIONAL INTERFERENCE AND THAT HE WAS ADVISED "TO FIGHT THE CANCELLATION," THERE IS NOTHING IN THE VETERANS ADMINISTRATION'S RECORDS TO WARRANT ANY SUCH CONTENTIONS. IT IS MY UNDERSTANDING THAT THE MANAGER DENIES ANY SUCH STATEMENTS.'

THUS, IT APPEARS THAT THE VETERANS ADMINISTRATION CANCELLED THE ORIGINAL CONTRACT BECAUSE OF ITS CONSIDERED DECISION THAT IT WOULD NOT BE IN THE BEST INTERESTS OF THE VETERANS ADMINISTRATION BENEFICIARIES (INCOMPETENT PATIENTS) AT THE HOSPITAL IF YOU WERE ALLOWED TO RETAIN THE RIGHT TO FURNISH THE ENTIRE 117 ITEMS OF MEN'S CLOTHING AND FOOTWEAR INVOLVED IN THE PROCUREMENT, SINCE 32 OF THE ITEMS WERE OBTAINABLE FROM ANOTHER QUALIFIED SOURCE. IN OTHER WORDS, THE VETERANS ADMINISTRATION DETERMINED THAT AN ERROR OF JUDGMENT HAD BEEN MADE IN NOT SPLITTING THE AWARD BETWEEN YOU AND MONTESANO'S CANANDAIGUA, INC., IN THE FIRST INSTANCE.

ORDINARILY, THE FACT THAT THE GOVERNMENT HAS MADE AN ERROR OF JUDGMENT WITH RESPECT TO THE AWARD OF A CONTRACT WOULD AFFORD NO BASIS FOR CANCELLATION OR REFORMATION THEREOF. HOWEVER, IN THE PRESENT INSTANCE, EITHER PARTY HAD THE UNQUALIFIED RIGHT TO CANCEL THE CONTRACT AFTER 30 DAYS NOTICE WITHOUT SUBJECTING THEMSELVES TO LIABILITY FOR DAMAGES FOR SUCH ACTION, AND THE GOVERNMENT SIMPLY EXERCISED ITS PRIVILEGE TO DO SO.

ACCORDINGLY, YOU ARE ADVISED THAT WE FIND NO BASIS FOR FURTHER QUESTIONING THE ACTION OF THE VETERANS ADMINISTRATION IN TERMINATING THE CONTRACT, OR ITS SUBSEQUENT "MODIFICATION" THEREOF, WHICH WAS FULLY AGREED TO BY YOU.