B-132403, SEPTEMBER 3, 1957, 37 COMP. GEN. 162

B-132403: Sep 3, 1957

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ORIGIN WITH SHIPMENTS TO MULTIPLE DESTINATION POINTS AND REQUIRES FINAL ACCEPTANCE AS PROMPTLY AS PRACTICABLE AFTER DELIVERY DOES NOT REQUIRE AN ASSUMPTION THAT FINAL INSPECTION AND ACCEPTANCE WILL ONLY BE MADE AFTER SHIPMENT TO THE FINAL DESTINATIONS SO AS TO PRECLUDE CONSIDERATION OF A TWENTY-DAY PROMPT PAYMENT DISCOUNT ON THE BASIS OF PARAGRAPH 2.406.6 OF THE NAVAL PROCUREMENT DIRECTIVE WHICH PROHIBITS CONSIDERATION OF DISCOUNTS FOR PAYMENT WITHIN LESS THAN THIRTY DAYS WHEN DELIVERY. FINAL INSPECTION AND ACCEPTANCE ARE TO BE AT MULTIPLE DESTINATIONS. AWARD WAS LIMITED TO BIDDERS WHOSE PRODUCT HAD BEEN TESTED AND APPROVED FOR INCLUSION IN THE APPLICABLE QUALIFIED PRODUCTS LIST. TWO BIDS WERE RECEIVED: YOUR BID AT $266.

B-132403, SEPTEMBER 3, 1957, 37 COMP. GEN. 162

BIDS - EVALUATION - DISCOUNT PROVISIONS - MULTIPLE DESTINATION - DELIVERY PROVISIONS - SUPPLIER AS MANUFACTURER AN INVITATION WHICH PROVIDES FOR DELIVERY F.O.B. ORIGIN WITH SHIPMENTS TO MULTIPLE DESTINATION POINTS AND REQUIRES FINAL ACCEPTANCE AS PROMPTLY AS PRACTICABLE AFTER DELIVERY DOES NOT REQUIRE AN ASSUMPTION THAT FINAL INSPECTION AND ACCEPTANCE WILL ONLY BE MADE AFTER SHIPMENT TO THE FINAL DESTINATIONS SO AS TO PRECLUDE CONSIDERATION OF A TWENTY-DAY PROMPT PAYMENT DISCOUNT ON THE BASIS OF PARAGRAPH 2.406.6 OF THE NAVAL PROCUREMENT DIRECTIVE WHICH PROHIBITS CONSIDERATION OF DISCOUNTS FOR PAYMENT WITHIN LESS THAN THIRTY DAYS WHEN DELIVERY, FINAL INSPECTION AND ACCEPTANCE ARE TO BE AT MULTIPLE DESTINATIONS. UNDER AN INVITATION WHICH REQUIRES DELIVERY F.O.B. CONTRACTOR'S PLANT, THE TRANSPORTATION COSTS BEYOND THE DELIVERY POINT MAY BE CONSIDERED IN THE EVALUATION OF BIDS AND THE FAILURE OF INVITATION TO REQUIRE GUARANTEED SHIPPING WEIGHTS FOR A PRODUCT WHICH DOES NOT VARY SIGNIFICANTLY IN WEIGHT DOES NOT PRECLUDE COMPUTATION OF SUCH TRANSPORTATION COSTS. A HYDRAULIC FLUID SUPPLIER WHO, ACCORDING TO ADMINISTRATIVE REPORT, CONTROLS THE CHEMICAL MIXING PROCESS AND THE FINAL STEPS OF MANUFACTURE, WHICH INCLUDE ADDITION OF ADDITIVES AND LABORATORY TESTING, QUALIFIES AS A MANUFACTURER OR PRODUCER FOR PLACEMENT ON THE QUALIFIED PRODUCTS LIST.

TO CELANESE CORPORATION OF AMERICA, SEPTEMBER 3, 1957:

YOUR LETTER OF JUNE 28, 1957, REFERENCE JAW-57-399, WITH ENCLOSURES, PROTESTS THE AWARD OF A CONTRACT FOR HYDRAULIC FLUID BY THE UNITED STATES NAVY PURCHASING OFFICE PURSUANT TO INVITATION FOR BIDS NO. 600 1445-57'S TO THE E. F. HOUGHTON COMPANY, PHILADELPHIA, PENNSYLVANIA.

THE INVITATION ISSUED APRIL 3, 1957, REQUESTED BIDS ON 91,795 GALLONS OF THE FLUID IN DRUMS, EACH DRUM TO CONTAIN 55 GALLONS. THE INVITATION PROVIDED FOR DELIVERY F.O.B. CARRIER'S EQUIPMENT, WHARF OR FREIGHT STATION AT OR NEAR CONTRACTOR'S PLANT FOR SHIPMENT TO DESIGNATED LOCATIONS. AWARD WAS LIMITED TO BIDDERS WHOSE PRODUCT HAD BEEN TESTED AND APPROVED FOR INCLUSION IN THE APPLICABLE QUALIFIED PRODUCTS LIST. TWO BIDS WERE RECEIVED: YOUR BID AT $266,939.86 NET AND THE HOUGHTON BID AT $267,582.43 WITH ONE PERCENT DISCOUNT FOR PAYMENT WITHIN 20 CALENDAR DAYS. APPLICATION OF THE DISCOUNT REDUCED THE HOUGHTON BID TO $264,906.61. THE BASIS OF THE DISCOUNT AND OF THE GOVERNMENT'S COST OF SHIPMENT TO THE DESIGNATED LOCATIONS, IT WAS DETERMINED THAT THE HOUGHTON BID WAS LOW AND, ACCORDINGLY, A CONTRACT FOR THE PROCUREMENT WAS AWARDED THAT COMPANY.

YOU PROTEST THE AWARD FOR THE REASONS WHICH ARE CONSIDERED INDIVIDUALLY BELOW:

THE FIRST REASON IS THAT UNDER THE TERMS OF THE BID IT IS NOT FEASIBLE FOR THE GOVERNMENT TO TAKE ADVANTAGE OF THE PROMPT PAYMENT DISCOUNT OFFERED BY HOUGHTON. IN SUPPORT OF THIS CONTENTION, YOU NOTE THAT PARAGRAPH 2.406.2 OF THE ARMED SERVICES PROCUREMENT REGULATION PROVIDES THAT DISCOUNTS MAY BE CONSIDERED IN EVALUATING BIDS UNLESS IT IS KNOWN WITH REASONABLE CERTAINTY THAT THE GOVERNMENT WILL NOT BE ABLE TO TAKE ADVANTAGE OF THE DISCOUNT WITHIN THE TIME SPECIFIED. YOU FURTHER POINT OUT THAT PARAGRAPH 2.406.6 OF THE NAVAL PROCUREMENT DIRECTIVES PROVIDES THAT NO DISCOUNT FOR PROMPT PAYMENT SHOULD BE CONSIDERED UNLESS A MINIMUM OF 10 DAYS IS ALLOWED FOR PAYMENT WHEN DELIVERY AND ACCEPTANCE ARE AT POINT OF ORIGIN, 20 DAYS WHEN DELIVERY, FINAL INSPECTION AND ACCEPTANCE ARE AT A SINGLE POINT OF DESTINATION AND 30 DAYS WHEN DELIVERY, FINAL INSPECTION AND ACCEPTANCE ARE AT MULTIPLE POINTS OF DESTINATION. SINCE MULTIPLE DESTINATION POINTS ARE SPECIFIED IN THIS INVITATION, YOU CONTEND THAT NO PROMPT PAYMENT DISCOUNT OFFERED MAY BE CONSIDERED UNLESS A MINIMUM OF 30 DAYS IS ALLOWED FOR PAYMENT.

AS INDICATED ABOVE, THE INVITATION PROVIDES FOR DELIVERY F.O.B. POINT OF ORIGIN AT A SINGLE DESIGNATED LOCATION. PAGE 1 OF THE SCHEDULE ATTACHED TO THE INVITATION PROVIDES:

DISCOUNTS WILL BE ALLOWED BY BIDDER FOR PROMPT PAYMENT AS FOLLOWS: --- - PERCENT, 10 CALENDAR DAYS: ----- PERCENT, 20 CALENDAR DAYS: ----- PERCENT, 30 CALENDAR DAYS:

THESE BIDDERS ARE PUT ON NOTICE THAT ANY OF THE THREE PROMPT PAYMENT DISCOUNT PERIODS WILL BE CONSIDERED. SINCE BY THE TERMS OF THE NPD PARAGRAPH REFERRED TO ABOVE, THE MINIMUM ACCEPTABLE PERIOD FOR PROMPT PAYMENT DISCOUNT IS 30 DAYS ONLY WHEN DELIVERY, FINAL INSPECTION AND ACCEPTANCE ARE AT MULTIPLE POINTS OF DESTINATION, AND SINCE DELIVERY HERE IS CLEARLY AT A SINGLE POINT, THERE IS DEEMED TO BE SUFFICIENT BASIS FOR DETERMINING THAT THE DISCOUNT OFFERED BY HOUGHTON WAS PROPERLY CONSIDERED IN EVALUATING ITS BID. IN ANY CASE, PARAGRAPH 7 (B) OF THE TERMS AND CONDITIONS OF THE INVITATION PROVIDES IN PART THAT:

IN CONNECTION WITH ANY DISCOUNT OFFER, TIME WILL BE COMPUTED FROM DATE OF DELIVERY OF THE SUPPLIES TO CARRIER WHEN DELIVERY AND ACCEPTANCE ARE AT POINT OF ORIGIN. * * *

TIME OF ACCEPTANCE IS NOT SPECIFICALLY STIPULATED IN THE TERMS OF THE INVITATION. HOWEVER, STANDARD FORM 32, CONTAINING GENERAL PROVISIONS INCORPORATED IN THE INVITATION BY REFERENCE, PROVIDES, AT PARAGRAPH 5 (C) THAT:

FINAL ACCEPTANCE OR REJECTION OF THE SUPPLIES SHALL BE MADE AS PROMPTLY AS PRACTICABLE AFTER DELIVERY. * * *

SINCE DELIVERY IS AT F.O.B. ORIGIN AND FINAL ACCEPTANCE IS REQUIRED TO BE MADE AS PROMPTLY AS PRACTICABLE AFTER DELIVERY, THERE APPEARS NO REASON TO ASSUME THAT FINAL INSPECTION AND ACCEPTANCE WILL NOT BE MADE UNTIL THE FLUID HAS REACHED THE MULTIPLE FINAL DESTINATIONS PROVIDED FOR IN THE INVITATION. FOR THAT REASON, IN ADDITION TO THE FOREGOING, WE CANNOT CONSIDER THAT PARAGRAPH 2.406.6 OF THE NPD PRECLUDES CONSIDERATION OF THE HOUGHTON OFFER OF PROMPT PAYMENT DISCOUNT. THEREFORE, SINCE THE INVITATION CLEARLY CONTAINED PROVISION FOR OFFERS OF DISCOUNTS FOR PAYMENT WITHIN 10, 20, OR 30 DAYS AND CONSIDERATION OF SUCH OFFERS IS NOT PRECLUDED BY REGULATION, BY THE TERMS OF THE INVITATION ITSELF OR OTHERWISE, WE MUST CONCLUDE THAT THE DISCOUNT OFFERED BY HOUGHTON WAS PROPERLY INCLUDED IN THE EVALUATION OF ITS BID.

YOUR SECOND CONTENTION IS THAT SINCE THE INVITATION CALLED FOR A DELIVERY PRICE F.O.B. CONTRACTOR'S PLANT, THE NAVY COULD NOT CONSIDER TRANSPORTATION COSTS BEYOND THE DELIVERY POINT IN EVALUATING BIDS. THIS STATEMENT IS CONTRARY TO THE TRADITIONAL POSITION OF THE ACCOUNTING OFFICERS OF THE GOVERNMENT. FOR EXAMPLE, WE STATED IN 10 COMP. GEN. 402, 404 THAT:

* * * IT MAY BE STATED AS A GENERAL RULE THAT THE COST OF DELIVERY OF EQUIPMENT, ETC., IS ALWAYS A MATTER FOR CONSIDERATION BY THE GOVERNMENT IN DETERMINING WHICH IS IN FACT THE LOWEST BID RECEIVED.

SEE, ALSO, 18 COMP. GEN. 44.

YOU NEXT CONTEND THAT IF TRANSPORTATION COSTS COULD PROPERLY BE CONSIDERED IN EVALUATING THE BIDS, THE NAVY SHOULD HAVE INFORMED THE BIDDERS THAT GOVERNMENT TRANSPORTATION WOULD BE UTILIZED. WE HAVE BEEN ADVISED BY THE DEPARTMENT OF THE NAVY THAT THE RATES FOR THE MOST ECONOMICAL MEANS OF TRANSPORTATION IN EACH INSTANCE WERE PROPERLY UTILIZED IN EVALUATING THE BIDS. SEE 19 COMP. GEN. 233. FOR SHIPMENTS TO THE WEST COAST, THE HOUGHTON BID WAS EVALUATED ON THE BASIS OF COMMERCIAL SEA CARRIER RATES BECAUSE OF THE CONVENIENT LOCATION OF ITS PLANT TO PORT. HAVE BEEN INFORMALLY ADVISED THAT IN FACT COMMERCIAL SEA CARRIERS HAVE BEEN USED FOR SHIPMENTS TO THE WEST COAST MADE UNDER THE TERMS OF THE CONTRACT UP TO THIS TIME. YOU ALLEGE THAT YOU WERE ADVISED BY NAVY DEPARTMENT OFFICIALS THAT THE USE OF GOVERNMENT TRANSPORTATION WAS ACTUALLY CONTEMPLATED. YOU DO NOT STATE WHO THESE OFFICIALS WERE; NOR IS THERE ANY INDICATION THAT THEY WERE AUTHORIZED TO SPEAK FOR THE GOVERNMENT IN THIS MATTER. IT MAY HAVE BEEN THAT SUCH STATEMENT, IF MADE, WAS INTENDED TO APPLY ONLY IN THE EVENT OF SOME UNFORESEEN EXIGENCY. IN ANY CASE, GOVERNMENT TRANSPORTATION HAS NOT BEEN UTILIZED AND THE QUESTION OF WHETHER SUCH TRANSPORTATION COULD HAVE BEEN UTILIZED WHEN ANOTHER MEANS OF TRANSPORTATION WAS ACTUALLY USED IN EVALUATING BIDS IS HYPOTHETICAL AND DOES NOT WARRANT A DECISION AS TO THE LEGALITY OF SUCH USE. 34. COMP. GEN. 158.

YOUR FOURTH CONTENTION IS THAT IF TRANSPORTATION COSTS COULD BE CONSIDERED, THE GOVERNMENT SHOULD HAVE ADVISED THE BIDDERS AS TO THE WEIGHT OF THE PRODUCT SINCE WEIGHT WOULD AFFECT THE COST OF TRANSPORTATION. IN THIS REGARD, THE REPORT ON THE MATTER RECEIVED FROM THE DEPARTMENT OF THE NAVY STATES:

IT APPEARS TO THE BUREAU OF SHIPS THAT THE CONTENTION THAT THE GOVERNMENT HAD A DUTY TO INFORM THE BIDDERS THAT TRANSPORTATION COSTS WERE TO BE CONSIDERED IN ORDER THAT THEY MIGHT BE AWARE THAT A VARIANCE IN THE WEIGHT OF THE PRODUCT WOULD INFLUENCE THE TRANSPORTATION COSTS IS A SPURIOUS ARGUMENT. IT IS TRUE THAT THE SPECIFICATION DOES PERMIT A VARIATION IN THE WEIGHT OF THE PRODUCT, HOWEVER, THE REQUIREMENTS FOR VISCOSITY, POUR POINT, AND REFRACTIVE INDEX FOR PHOSPHATE ESTER FLUIDS (THE HYDRAULIC POWER TRANSMISSION FLUID UNDER PROCUREMENT) ARE SUCH THAT THE WEIGHT FACTOR WILL NECESSARILY BE FAIRLY CONSTANT, EVEN AMONG DIFFERENT MANUFACTURERS. AS A MATTER OF RECORD, QUALIFICATION TESTS AT THE ENGINEERING EXPERIMENT STATION AT ANNAPOLIS, INDICATED THAT THE SPECIFIC GRAVITY FOR BOTH THE HOUGHTON AND CELANESE PRODUCTS WAS 1.150. PARAGRAPH 4.3. TITLED " TESTS" ( MIL-H-19457) STATES, IN PART, IN ADDITION TO CONFORMING WITH THE REQUIREMENTS OF THE SPECIFICATION, THE RESULTS OF INSPECTION TESTS LISTED SHALL NOT VARY FROM THE ANALYSIS OF THE MATERIAL THAT INITIALLY MET THIS SPECIFICATION TO AN EXTENT GREATER THAN THE TOLERANCES SHOWN. THE LIMITS FOR SPECIFIC GRAVITY ARE PLUS, OR MINUS 10.02. THE WEIGHT FACTOR, THEREFORE, IS IN THIS CASE NOT SIGNIFICANT IN THE COMPUTATION OF TRANSPORTATION COSTS.

IT IS NORMAL PRACTICE WHERE WEIGHTS MAY VARY TO REQUIRE BIDDERS TO INCLUDE IN THEIR BIDS A GUARANTEED SHIPPING WEIGHT FOR THE PRODUCT, OR PRODUCTS, TO BE TRANSPORTED. HOWEVER, SINCE IN THIS CASE THE ADMINISTRATIVE REPORT INDICATES THAT ANY VARIATIONS OF WEIGHT WOULD NOT BE SIGNIFICANT IN THE COMPUTATION TRANSPORTATION COSTS, WE DO NOT REGARD THE FAILURE TO REQUIRE GUARANTEED SHIPPING WEIGHTS AS CONSEQUENTIAL.

YOU NEXT CONTEND THAT THE HOUGHTON PRODUCT SHOULD NOT HAVE BEEN PLACED ON THE QUALIFIED PRODUCTS LISTS SINCE HOUGHTON IS "NOT A MANUFACTURER OR PRODUCER AS REQUIRED BY THE REGULATIONS IN THE MILITARY QUALIFIED PRODUCTS LISTS MANUAL.' IN REGARD TO THIS CONTENTION, YOU STATE THAT HOUGHTON ,PURCHASES THE PRODUCT AFTER COMPLETE CHEMICAL SYNTHESIS FROM THE FUNDAMENTAL RAW MATERIALS AND ADDS 2 PERCENT OF OTHER INGREDIENTS, WHICH DO NOT FUNCTIONALLY CONTRIBUTE TO THE NAVY SPECIFICATIONS.' THE ADMINISTRATIVE REPORT STATES THAT THE HOUGHTON COMPANY IS CONSIDERED A MANUFACTURER WITHIN THE MEANING OF THE QUALIFIED PRODUCTS REQUIREMENT BECAUSE "THE CHEMICAL MIXING PROCESS CONDUCTED BY THE SUPPLIER IS DONE UNDER THE CONTROL AND PURSUANT TO THE INSTRUCTIONS OF HOUGHTON AND THE FINAL STEPS OF MANUFACTURE WHICH INCLUDE THE ADDITION OF ADDITIVES AND LABORATORY TESTINGS ARE PERFORMED IN THE HOUGHTON PLANT.' A MANUFACTURER IS GENERALLY DEFINED AS ONE WHO ENGAGES IN THE BUSINESS OF WORKING RAW MATERIALS INTO FORMS SUITABLE FOR USE OR, WHO GIVES NEW COMBINATIONS TO MATTER WHICH HAS ALREADY GONE THROUGH SOME ARTIFICIAL PROCESS. STATE V. MAGNOLIA PACKING CO. 35 SO.2D 422 ( NOTE NO. 1, PAGE 423); SEE, ALSO, KIDD V. PEARSON, 128 U.S. 1, 20. IT HAS BEEN HELD THAT IMPORTERS OF PERFUME CONCENTRATES OR COMPOUNDS BLENDED IN THE UNITED STATES WITH ALCOHOL ARE MANUFACTURERS. FIORET SALES CO. V. FEDERAL TRADE COMMISSION, 100 F.2D 358, 359. WHILE WE ARE NOT QUALIFIED TO DETERMINE THE SIGNIFICANCE OF THE ADDITIVES ADDED BY HOUGHTON, THE CITED CASES APPEAR TO SUPPORT THE CONCLUSION ARRIVED AT BY THE DEPARTMENT OF THE NAVY THAT THE HOUGHTON COMPANY IS IN FACT A MANUFACTURER. FURTHER, WHETHER HOUGHTON IN THIS INSTANCE IS OR IS NOT A MANUFACTURER IS LARGELY A QUESTION OF FACT AND STATEMENTS OF FACT PRESENTED BY THE CONTRACTING AGENCY ARE ACCEPTED BY OUR OFFICE IN THE ABSENCE OF A CLEAR SHOWING THAT THEY ARE INCORRECT. COMP. GEN. 325. THEREFORE, WE CANNOT CONCLUDE ON THE BASIS OF THE INFORMATION FURNISHED THAT HOUGHTON DOES NOT QUALIFY WITH REGARD TO THE PRODUCT INVOLVED AS A MANUFACTURER.

FINALLY, YOU CONTEND THAT HOUGHTON MISREPRESENTED MATERIAL FACTS BY SPECIFYING THAT IT WOULD NOT PLACE ANY SUBCONTRACTS UNDER THE CONTRACT, THAT SUBCONTRACTS WOULD NOT CONSTITUTE ANY OF THE COST OF PERFORMING THE CONTRACT AND THAT NO SUBCONTRACTS WOULD BE PLACED WITH SMALL BUSINESS FIRMS. PAGE 7 OF THE SCHEDULE CONTAINED IN THE INVITATION REQUIRES THAT BIDDERS INDICATE THE APPROXIMATE AMOUNT OF SUBCONTRACTING TO BE PERFORMED UNDER THE CONTRACT AND THE PERCENTAGE OF THAT AMOUNT TO BE PERFORMED UNDER SUBCONTRACTS AND PURCHASE ORDERS WITH SMALL BUSINESS CONCERNS. AS YOU POINT OUT, HOUGHTON, IN ITS ORIGINAL BID, INDICATED THAT IT DID NOT CONTEMPLATE THAT ANY SUBCONTRACTORS WOULD BE UTILIZED IN PERFORMING THE CONTRACT. THIS STATEMENT WAS APPARENTLY MADE ON THE BASIS THAT HOUGHTON'S SOURCES OF MATERIAL WERE REGARDED AS SUPPLIERS RATHER THAN SUBCONTRACTORS. THE INFORMATION ORIGINALLY FURNISHED WAS AMENDED BY THE HOUGHTON COMPANY BY LETTER OF MAY 11, 1957, TOGETHER WITH A JUSTIFICATION FOR THE INFORMATION ORIGINALLY SUPPLIED. AS YOU POINT OUT, THE INFORMATION REQUIRED ON PAGE 7 OF THE SCHEDULE IS SOLICITED IN ORDER TO CARRY OUT THE POLICY OF THE CONGRESS, STATED IN 10 U.S.C. 2301, THAT A FAIR PROPORTION OF PURCHASES AND CONTRACTS SHOULD BE PLACED WITH SMALL BUSINESS CONCERNS. IN THIS INSTANCE, THE STATEMENTS CONCERNING SUBCONTRACTING FURNISHED BY THE HOUGHTON COMPANY HAD NO BEARING ON THE ULTIMATE AWARD AND, THEREFORE, NEITHER THE FURNISHING OF INCORRECT INFORMATION IN HOUGHTON'S ORIGINAL BID NOR THE SUBSEQUENT CORRECTION OF THAT INFORMATION AFTER THE BIDS WERE OPENED COULD CONSTITUTE SUFFICIENT BASIS FOR DETERMINING THAT THE AWARD WAS NOT VALID. CF. B-130725, MAY 13, 1957.

IN ACCORDANCE WITH THE FOREGOING, THERE IS PERCEIVED NO LEGAL BASIS UPON WHICH WE MAY CONCLUDE THAT THE CONTRACT IN QUESTION WAS NOT PROPERLY AWARDED TO THE HOUGHTON COMPANY.