B-131443, JUN. 19, 1957

B-131443, JUN. 19, 1957

TO HONORABLE FRANKLIN G. FLOETE, ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 24, 1957, IN RESPONSE TO OUR LETTER OF APRIL 16, 1957, WITH RESPECT TO AN AWARD TO OTHER THAN THE LOW BIDDER OF A CONTRACT FOR ADDITIONS AND ALTERATIONS TO THE EASTERN DISPENSARY AND CASUALTY HOSPITAL, WASHINGTON, D.C.

YOUR LETTER AND ITS ENCLOSURES SHOW THAT ON JUNE 22, 1953, YOUR AGENCY OFFERED, PURSUANT TO THE ACT OF AUGUST 7, 1946, 60 STAT. 896, AS AMENDED BY THE ACT OF OCTOBER 25, 1951, 65 STAT. 657, TO MAKE A GRANT OF $1,000,500 TO THE EASTERN DISPENSARY AND CASUALTY HOSPITAL SUBJECT TO STATED TERMS AND CONDITIONS, IN ORDER TO AID IN FINANCING THE CONSTRUCTION OF CERTAIN ADDITIONS TO THE HOSPITAL PLANT FACILITIES. THE OFFER WAS PROPERLY ACCEPTED BY THE HOSPITAL BOARD OF DIRECTORS ON JULY 2, 1953. SUBSEQUENTLY, BY OFFER OF OCTOBER 24, 1956, AND ACCEPTANCE OF NOVEMBER 1, 1956, THE GRANT WAS INCREASED TO $1,300,000 SUBJECT, AS WAS THE INITIAL OFFER, TO THE CONDITION THAT THE GRANT WOULD NOT EXCEED 50 PERCENT OF THE ACTUAL VALUE OF THE PROJECT UPON COMPLETION. THE TOTAL COST OF THE PROJECT IS ESTIMATED TO BE $3,513,504 TO BE PAID FOR BY THE GSA GRANT, A GRANT OF APPROXIMATELY $450,467 FROM THE PUBLIC HEALTH SERVICE UNDER THE HOSPITAL AND MEDICAL FACILITIES SURVEY AND CONSTRUCTION ACT, 42 U.S.C. 291, AND AN ADDITIONAL $1,763,037 TO BE PROVIDED BY THE HOSPITAL ITSELF.

THE BIDS SOLICITED BY THE HOSPITAL FOR THE CONSTRUCTION WORK IN CONNECTION WITH THE PROJECT WERE OPENED ON MARCH 20, 1957. MERANDO, INC., SUBMITTED THE LOW BID IN THE AMOUNT OF $2,584,000; THE SECOND LOW BID, $2,588,600, WAS SUBMITTED BY THE AMERICAN CONSTRUCTION COMPANY, INC.

ON APRIL 1, 1957, AT THE REQUEST OF REPRESENTATIVES OF THE HOSPITAL, A CONFERENCE WAS HELD BETWEEN GSA AND HOSPITAL OFFICIALS IN RELATION TO THE BIDS RECEIVED AND TO THE PROPRIETY OF REJECTING THE LOW BID ON THE GROUND THAT THE LOW BIDDER WAS NOT RESPONSIBLE. NO FINAL AGREEMENT APPEARS TO HAVE BEEN REACHED BY THE CONFEREES. ON APRIL 3, 1957, THE BOARD OF DIRECTORS OF THE HOSPITAL RESOLVED THAT THE LOW BIDDER WAS NOT RESPONSIBLE AND AUTHORIZED THE PRESIDENT OF THE HOSPITAL TO AWARD A CONTRACT FOR CONSTRUCTION TO THE AMERICAN CONSTRUCTION COMPANY AS THE LOWEST RESPONSIBLE BIDDER. BY LETTER OF APRIL 16, 1957, FROM THE PRESIDENT OF THE HOSPITAL, THE COMMISSIONER OF PUBLIC BUILDINGS WAS ADVISED THAT A CONTRACT FOR THE CONSTRUCTION HAD BEEN AWARDED THAT DAY BY THE HOSPITAL TO THE AMERICAN CONSTRUCTION COMPANY.

THE ACT OF AUGUST 7, 1946, AS AMENDED BY THE ACT OF OCTOBER 25, 1951, SUPRA, AUTHORIZED GRANTS TO PRIVATE AGENCIES IN CASH OR OTHER PROPERTY "UPON SUCH TERMS AND IN SUCH AMOUNTS * * * AS THE ADMINISTRATOR MAY DEEM TO BE IN THE PUBLIC INTEREST TO ENABLE SUCH PRIVATE AGENCIES * * * TO PLAN, DESIGN, CONSTRUCT, REMODEL * * * RENOVATE, EXTEND, EQUIP, FURNISH OR REPAIR HOSPITAL FACILITIES IN THE DISTRICT OF COLUMBIA.' THE LEGISLATION LIMITS THE GRANT TO AN AMOUNT NOT EXCEEDING 50 PERCENT OF THE VALUE OF THE PLANT AS IMPROVED WITH THE AID OF SUCH GRANT. THE FUNCTIONS OF THE FEDERAL WORKS ADMINISTRATOR WERE TRANSFERRED TO THE ADMINISTRATOR OF GSA BY SECTION 103 (A) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, 60 STAT. 380. SECTION 2 OF THE OFFER OF JUNE 22, 1953, RESERVES TO THE GOVERNMENT THE THE RIGHT TO TERMINATE ALL OR ANY OF ITS OBLIGATIONS UNDER THE AGREEMENT IF IN ALL CASES PROPER DISPOSITION SHALL NOT HAVE BEEN MADE OF ALL LEGAL QUESTIONS AFFECTING THE PROJECT AND ITS CONSTRUCTION, OR:

"/E) IF THE APPLICANT SHALL FAIL TO SUBMIT OR CAUSE TO BE SUBMITTED TO THE GOVERNMENT SUCH RECORDS, STATEMENTS, REPORTS, DATA, PLANS, DRAWINGS, SPECIFICATIONS, CONTRACTS, WORK ORDERS, ASSIGNMENTS, BID TABULATIONS, CONTRACT AWARDS, ESTIMATES, CERTIFICATES OR OTHER DOCUMENTS AFFECTING THE PROJECT, AS MAY BE REQUESTED BY THE GOVERNMENT, OR IF THE APPLICANT SHALL PROCEED WITH THE CONSTRUCTION OF THE PROJECT, OR TAKE OTHER ACTION ON THE BASIS OF ANY OF THE FOREGOING DOCUMENTS WHICH ARE REQUIRED TO BE SUBMITTED TO THE GOVERNMENT BEFORE THE GOVERNMENT HAS ADVISED THE APPLICANT THAT, IN ITS OPINION, SUCH DOCUMENTS COMPLY WITH APPLICABLE FEDERAL STATUTES AND THE AGREEMENT.'

PARAGRAPH 10 PROVIDES THAT IN THE ABSENCE OF CIRCUMSTANCES NOT HERE PRESENT THE PROJECT SHALL BE CONSTRUCTED BY THE CONTRACT METHOD AND "ALL CONSTRUCTION MATERIAL AND EQUIPMENT CONTRACTS IN THE CONSTRUCTION OF THE PROJECT SHALL BE AWARDED BY THE APPLICANT TO THE LOWEST RESPONSIBLE BIDDER UPON FREE, OPEN AND COMPETITIVE BIDDING.'

TWO QUESTIONS ARE PRESENTED; THE FIRST IS WHETHER SECTION 2 (C) OF THE TERMS AND CONDITIONS RELATING TO THE SUBMISSION OF DOCUMENTS BY THE APPLICANT AND THE NECESSITY OF APPROVAL IN CERTAIN INSTANCES BY THE GOVERNMENT, WHICH IS SUBSTANTIALLY QUOTED ABOVE, WAS VIOLATED BY THE HOSPITAL. THE SECOND QUESTION IS WHETHER THE AWARD OF A CONSTRUCTION CONTRACT WAS MADE TO THE LOWEST RESPONSIBLE BIDDER AS REQUIRED BY SECTION 10 OF THE TERMS AND CONDITIONS.

THE FIRST QUESTION ARISES BECAUSE THE HOSPITAL DID NOT SUBMIT THE AWARD FOR APPROVAL NOR DID IT WITHHOLD ACTION PENDING APPROVAL OF THE AWARD. REGARD TO THIS QUESTION, THE CONTENTION HAS BEEN RAISED THAT THE DOCUMENTS DESIGNATED UNDER SECTION 2 (E) ARE REQUIRED TO BE SUBMITTED TO AND APPROVED BY THE GOVERNMENT AS COMPLYING WITH APPLICABLE STATUTES AND THE AGREEMENT WHETHER OR NOT REQUESTED BY THE GOVERNMENT AND THE PHRASE "AS MAY BE REQUESTED BY THE GOVERNMENT" APPLIES ONLY TO DOCUMENTS OTHER THAN THOSE ENUMERATED WHICH ARE INCLUDED IN THE PHRASE "OTHER DOCUMENTS AFFECTING THE PROJECT.' BOTH AS A MATTER OF GRAMMATICAL CONSTRUCTION AND AS THE INTERPRETATION APPARENTLY ADOPTED BY BOTH PARTIES, WE CONCLUDE THAT THE PROVISION IN QUESTION REQUIRES ONLY THOSE DOCUMENTS WHICH THE GOVERNMENT SPECIFICALLY REQUESTS TO BE SUBMITTED AND APPROVED BEFORE THE APPLICANT MAY TAKE ACTION ON THEM WITHOUT VIOLATING THE AGREEMENT.

WHETHER THE PROVISION WAS INVOKED BY A REQUEST ON THE PART OF GSA FOR SUBMISSION OF THE CONTRACT PRIOR TO AWARD IS, OF COURSE, A QUESTION OF FACT. IF A REQUEST FOR THE DOCUMENTS WAS MADE BY THE GOVERNMENT (WHICH WOULD HAVE MADE SUBMISSION OF THE AWARD TO, AND APPROVED BY, THE GOVERNMENT ESSENTIAL PREREQUISITES TO THE TAKING OF ANY ACTION IN RELIANCE ON THE AWARD DOCUMENT) IT APPARENTLY WAS MADE IN THE COURSE OF THE MEETING OF APRIL 1, 1957, WITH REPRESENTATIVES OF THE HOSPITAL. IN YOUR LETTER YOU STATE:

"ALTHOUGH NO SPECIFIC REQUEST WAS MADE BY OUR PEOPLE DURING THE MEETING FOR SUBMISSION BY THE HOSPITAL OF THE PROPOSED AWARD FOR GOVERNMENT APPROVAL, SUCH A REQUEST WAS IMPLICIT IN THE CONVERSATION AND THE MEETING CONCLUDED WITH AN UNDERSTANDING ON THE PART OF THE GSA REPRESENTATIVES THAT THE HOSPITAL'S PROPOSAL WOULD BE DOCUMENTED AND SUBMITTED PRIOR TO ACTION THEREON BY THE HOSPITAL.'

THE AGREEMENT DOES NOT PRESCRIBE ANY PARTICULAR PATTERN OF WORDS WHICH THE GOVERNMENT IS TO USE IN ADVISING THE HOSPITAL THAT A DOCUMENT SHOULD BE SUBMITTED FOR CONSIDERATION BEFORE ANY ACTION IS TAKEN THEREON, AND WE BELIEVE THAT AN ORAL REQUEST WOULD BE SUFFICIENT IF CLEARLY COMMUNICATED. HOWEVER, WHETHER A REQUEST MAY BE REGARDED AS "IMPLICIT" IN A CONVERSATION IS PRIMARILY A SUBJECTIVE DETERMINATION AND WHAT MAY HAVE BEEN CLEARLY IMPLICIT TO THE GSA REPRESENTATIVES MAY WELL HAVE MADE NO IMPRESSION ON THE MINDS OF THE HOSPITAL REPRESENTATIVES. THUS, WE DO NOT BELIEVE THAT THE PROVISIONS OF SECTION 2 (E) OF THE TERMS AND CONDITIONS MAY BE INVOKED EXCEPT UPON A SHOWING THAT THE REQUEST WAS COMMUNICATED TO THE APPROPRIATE HOSPITAL OFFICIAL IN SUCH MANNER THAT A REASONABLE MAN WOULD UNDERSTAND THE REQUIREMENT AND THAT THE REQUIREMENT WAS IMPOSED PURSUANT TO SECTION 2. SUCH SHOWING HAS NOT BEEN MADE IN YOUR REPORT ON THE MATTER.

THE SECOND QUESTION PRESENTED IS WHETHER AWARD WAS MADE BY THE HOSPITAL TO THE LOWEST RESPONSIBLE BIDDER AS REQUIRED BY SECTION 10 OF THE TERMS AND CONDITIONS. IT APPEARS TO BE CLEAR THAT THE AWARD OF A CONTRACT TO OTHER THAN THE LOWEST RESPONSIBLE BIDDER WOULD CONSTITUTE A MATERIAL BREACH OF CONDITION BY THE HOSPITAL WHICH WOULD RELIEVE THE GOVERNMENT OF ITS LIABILITIES UNDER THE AGREEMENT.

SECTION 10 OF THE TERMS AND CONDITIONS IS SILENT AS TO WHICH PARTY SHALL DETERMINE WHO IS THE LOWEST RESPONSIBLE BIDDER. INASMUCH AS THE HOSPITAL AND NOT THE GOVERNMENT WOULD BE THE CONTRACTING PARTY, AND WOULD HAVE TO DEAL WITH THE CONTRACTOR DAILY AND WOULD DIRECTLY SUFFER THE CONSEQUENCES OF ANY ABERRATION OR DELINQUENCIES BY THE CONTRACTOR, IT IS MORE REASONABLE TO CONCLUDE THAT THE PARTIES CONTEMPLATED THAT THE DETERMINATION WOULD BE MADE BY THE HOSPITAL. SUCH DETERMINATION CANNOT, OF COURSE, BE MADE ARBITRARILY OR CAPRICIOUSLY OR WITHOUT A REASONABLE BASIS, OTHERWISE, THE REQUIREMENT IN THE TERMS AND CONDITIONS WOULD HAVE NO MEANING. THE FACTORS CONSIDERED IN DETERMINING RESPONSIBILITY HAVE BEEN STATED MANY TIMES BY THE COURTS AND BY THE ACCOUNTING OFFICERS OF THE GOVERNMENT. IT HAW BEEN SAID THAT IN THE SELECTION OF THE LOWEST RESPONSIBLE BIDDER, THERE SHOULD BE CONSIDERED NOT ONLY FINANCIAL RESOURCES BUT ALSO THE JUDGMENT, SKILL AND INTEGRITY OF THE BIDDER AS WELL AS HIS ABILITY TO SUCCESSFULLY CARRY OUT THE CONTRACT. OSBORN V. MITTEN, 6 F.2D 902; WILLIS V. HATHAWAY, 117 SO. 89, 94; INGE V. BOARD OF PUBLIC WORKS, 33 SO. 678, 681. STATE V. RICKARDS, 40 P. 210; 30 COMP. GEN. 235; 26 COMP. GEN. 676. SINCE THE HOSPITAL HAS THE AUTHORITY UNDER THE CONTRACT TO DETERMINE THE LOWEST RESPONSIBLE BIDDER, THE HOSPITAL MUST BE CONSIDERED TO BE INVESTED WITH A REASONABLE DEGREE OF DISCRETION IN DETERMINING THE RESPONSIBILITY OF BIDDERS. THE STATE COURTS HAVE LONG RECOGNIZED THAT THE DETERMINATION OF THE OFFICIAL INVESTED WITH THE AUTHORITY TO SELECT THE LOWEST RESPONSIBLE BIDDER SHOULD NOT BE UPSET SO LONG AS THE DETERMINATION IS BASED ON SOUND AND REASONABLE DISCRETION FOUNDED ON FACT AND EXERCISED IN GOOD FAITH, WITH NO INDICATION OF ABUSE OF DISCRETION OR FRAUDULENT INFLUENCE. SEE 38 L.R.A. (NS) 653, 665, WILSON V. CITY OF NEWCASTLE, 152 A. 102, 103; SANDERLIN V. LUKEN, 68 S.E. 225, 227, INGE V. BOARD OF PUBLIC WORKS, SUPRA.

SINCE A GRANT OF $450,467 IS SCHEDULED TO BE PROVIDED FOR THE PROJECT BY THE PUBLIC HEALTH SERVICE UNDER THE HOSPITAL AND MEDICAL FACILITIES SURVEY AND CONSTRUCTION ACT, SUPRA, WE REQUESTED A REPORT FROM THE SURGEON GENERAL WITH RESPECT TO ITS ACTION IN THE MATTER. WHILE THE STATUTORY PROVISIONS AND PROCEDURES CONTROLLING PUBLIC HEALTH SERVICE GRANTS ARE IN MANY RESPECTS DIFFERENT FROM THOSE APPLICABLE TO GRANTS MADE BY GSA, SECTION 53.127 (E) OF THE PUBLIC HEALTH SERVICE REGULATIONS REQUIRES ASSURANCE THAT CONSTRUCTION WORK WILL BE PERFORMED UNDER FIXED PRICE CONTRACTS AWARDED "TO THE RESPONSIBLE BIDDER SUBMITTING THE LOWEST ACCEPTABLE BID," AND PART 24-13.5 C OF THE MANUAL OF PROCEDURES APPLICABLE TO THE PHS GRANT PROGRAM PROVIDES THAT WHERE THE CONTRACT IS NOT AWARDED TO THE LOW BIDDER, THE ACTION MUST BE JUSTIFIED TO PHS. BY LETTER OF JUNE 4, 1957, THE SURGEON GENERAL ADVISED AS FOLLOWS:

"/1) THE SPONSOR OF THE EASTERN DISPENSARY AND CASUALTY HOSPITAL PROJECT HAS SUBMITTED TO US (PHS) THE JUSTIFICATION FOR AWARDING THE CONTRACT TO THE SECOND LOW BIDDER.

"/2) THE JUSTIFICATION SUBMITTED BY THE PROJECT SPONSOR IS, IN OUR OPINION, SUFFICIENT TO INDICATE THAT THE ACTION OF AWARDING THE CONTRACT TO THE SECOND LOW BIDDER WAS REASONABLE AND NOT ARBITRARY OR CAPRICIOUS.

"/3) THE SPECIFIC PROVISIONS OF THE LEGISLATION UNDER WHICH THIS PROGRAM IS ADMINISTERED, AND THE LEGISLATIVE HISTORY INDICATE CLEARLY THAT CONGRESS INTENDED THAT STATE AGENCIES SHOULD PLAY AN IMPORTANT AND RESPONSIBLE ROLE IN THE ADMINISTRATION OF THE PROGRAM, AND THAT APPLICANTS FOR FEDERAL AID SHOULD RETAIN CONSIDERABLE LATITUDE IN THE CONSTRUCTION OF APPROVED PROJECTS. IN OUR OPINION, THIS IS A LOGICAL AND REASONABLE LEGISLATIVE APPROACH SINCE THE "MATCHING" PROVISIONS OF THE LEGISLATION REQUIRE THE INVESTMENT OF LARGE AMOUNTS OF LOCAL FUNDS IN CONSTRUCTING AND EQUIPPING SUCH PROJECTS. FOR THESE REASONS, WE HAVE CONCLUDED THAT OUR REVIEW OF AN APPLICANT'S DECISION REGARDING THE RESPONSIBILITY OF THE LOW BIDDER AND TO AWARD A CONTRACT TO A FIRM OTHER THAN THE LOW BIDDER CONSISTS OF DETERMINING THAT THE APPLICANT HAD A REASONABLE BASIS FOR HIS DECISION AND DID NOT ACT ARBITRARILY OR CAPRICIOUSLY, AND THAT SUCH DECISION HAS BEEN APPROVED BY THE STATE AGENCY. WE DO NOT BELIEVE THAT OUR RESPONSIBILITY REQUIRES THAT WE INVESTIGATE AND DETERMINE THE RESPONSIBILITY OF A BIDDER OR THE ACCEPTABILITY OF A BID IN THE SAME MANNER AND TO THE SAME EXTENT AS IF THE PUBLIC HEALTH SERVICE WERE THE CONTRACTING AGENCY.'

IN THE LIGHT OF THE REPORT ON WHICH THE ACTION OF THE HOSPITAL'S BOARD OF DIRECTORS WAS BASED, WE FIND NO BASIS FOR LEGAL OBJECTION TO THE PHS ACTION IN THE MATTER, AND WE WOULD NOT BE REQUIRED TO OBJECT TO SIMILAR ACTION BY YOUR AGENCY.