B-133690, OCT. 1, 1957

B-133690: Oct 1, 1957

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TO THE ATTORNEY GENERAL: REFERENCE IS MADE TO A LETTER DATED AUGUST 30. REQUESTING A DECISION AS TO WHETHER ANY EXCESS COSTS ARE CHARGEABLE TO AMERICAN COTTON YARNS. THE DECISION IS BEING ADDRESSED TO YOU. THE BID OF THE CORPORATION WAS ACCEPTED ON SEPTEMBER 11. PURCHASE ORDER NO. 31 PI-8358 WAS ISSUED REQUESTING DELIVERY OF THE THREAD. IT IS REPORTED THAT ON SEPTEMBER 20. THE CORPORATION RETURNED THE PURCHASE ORDER AND IN ITS LETTER IT STATED THAT ITS BID PRICE OF $1.84 PER CONE WAS ERRONEOUS IN THAT IT WAS BASED ON FURNISHING NO. 2 GRADE (COMMERCIAL BLACK) THREAD RATHER THAN ON FURNISHING NO. 1 GRADE (VAT BLACK) THREAD WHICH. THE SUPERINTENDENT OF INDUSTRIES RETURNED THE PURCHASE ORDER TO THE CORPORATION AND ADVISED IT THAT NO. 2 GRADE THREAD WAS NOT ACCEPTABLE TO THE GOVERNMENT AND THAT THE CORPORATION SHOULD NOTIFY THE GOVERNMENT AS TO WHETHER IT INTENDED TO DELIVERY THE NO. 1 GRADE THREAD AS REQUIRED BY THE INVITATION.

B-133690, OCT. 1, 1957

TO THE ATTORNEY GENERAL:

REFERENCE IS MADE TO A LETTER DATED AUGUST 30, 1957, WITH ENCLOSURES, FROM THE SECRETARY, FEDERAL PRISON INDUSTRIES, INC., WASHINGTON, D.C., REQUESTING A DECISION AS TO WHETHER ANY EXCESS COSTS ARE CHARGEABLE TO AMERICAN COTTON YARNS, INC., CHICAGO, ILLINOIS, BY REASON OF ITS DEFAULT IN THE PERFORMANCE OF CONTRACT NO. NEG 31 PI-991 DATED SEPTEMBER 11, 1956.

SINCE AN AWARD HAS BEEN MADE IN THE PRESENT CASE, THE DECISION IS BEING ADDRESSED TO YOU. SEE 26 COMP. GEN. 993; AND 28 ID. 401.

BY INVITATION NO. 31 PI-649, FEDERAL PRISON INDUSTRIES, INC., UNITED STATES PENITENTIARY, TERRE HAUTE, INDIANA, REQUESTED BIDS--- TO BE OPENED SEPTEMBER 11, 1956--- FOR FURNISHING 2,500 CONES OF THREAD, COTTON, BLACK, SEWING SIZE 20/4 LEFT TWIST, VAT DYED, SOFT FINISH, WOUND ON 6,000 YARD CONES AND IN CONFORMANCE WITH TYPE 1 A 3 OF FEDERAL SPECIFICATION V-T-276B AND AMENDMENT NO. 4 DATED JUNE 5, 1947. IN RESPONSE AMERICAN COTTON YARNS, INC., SUBMITTED A BID OFFERING TO FURNISH THE THREAD AT A PRICE OF $1.84 PER CONE. THE BID OF THE CORPORATION WAS ACCEPTED ON SEPTEMBER 11, 1956, AND ON THE SAME DAY, PURCHASE ORDER NO. 31 PI-8358 WAS ISSUED REQUESTING DELIVERY OF THE THREAD.

IT IS REPORTED THAT ON SEPTEMBER 20, 1956, THE VICE-PRESIDENT OF AMERICAN COTTON YARNS, INC., TELEPHONED ALLEGING THAT THE CORPORATION HAD MADE AN ERROR IN ITS BID IN THAT IT HAD BASED ITS BID PRICE ON USING A CHEAPER DYE FOR ITS THREAD. BY LETTER DATED SEPTEMBER 24, 1956, THE CORPORATION RETURNED THE PURCHASE ORDER AND IN ITS LETTER IT STATED THAT ITS BID PRICE OF $1.84 PER CONE WAS ERRONEOUS IN THAT IT WAS BASED ON FURNISHING NO. 2 GRADE (COMMERCIAL BLACK) THREAD RATHER THAN ON FURNISHING NO. 1 GRADE (VAT BLACK) THREAD WHICH, IT STATED, WOULD COST $2.13 PER CONE. THE CORPORATION REQUESTED THAT THE CONTRACT BE CANCELED ON THE GROUND OF THE WIDE VARIANCE BETWEEN THE AMOUNT BID BY IT AND THE AMOUNT BID BY THE NEXT LOWEST BIDDER.

BY LETTER DATED SEPTEMBER 26, 1956, THE SUPERINTENDENT OF INDUSTRIES RETURNED THE PURCHASE ORDER TO THE CORPORATION AND ADVISED IT THAT NO. 2 GRADE THREAD WAS NOT ACCEPTABLE TO THE GOVERNMENT AND THAT THE CORPORATION SHOULD NOTIFY THE GOVERNMENT AS TO WHETHER IT INTENDED TO DELIVERY THE NO. 1 GRADE THREAD AS REQUIRED BY THE INVITATION.

BY LETTER DATED SEPTEMBER 28, 1956, THE CORPORATION ADVISED THAT IT STILL BELIEVED THAT NO. 2 GRADE THREAD WOULD MEET THE REQUIREMENTS OF SPECIFICATION VI-276B BUT THAT, IF NO. 2 GRADE THREAD STILL WAS NOT ACCEPTABLE TO THE GOVERNMENT, IT SHOULD PURCHASE THE NO. 1 GRADE THREAD FROM THE NEXT LOWEST BIDDER. IN ITS LETTER THE CORPORATION CONTENDED THAT THE 20 PERCENT DIFFERENCE BETWEEN ITS BID PRICE AND THE PRICE QUOTED BY THE NEXT LOWEST BIDDER ON AN ITEM ON WHICH, IT STATED, THE PERCENTAGE OF PROFIT IS NORMALLY TWO OR THREE PERCENT, WAS SUFFICIENT TO HAVE PLACED THE CONTRACTING OFFICER ON NOTICE THAT ITS BID PRICE WAS NOT BASED ON NO. 1 GRADE THREAD.

BY LETTER DATED OCTOBER 1, 1956, THE SUPERINTENDENT OF INDUSTRIES ADVISED THE CORPORATION THAT ITS RIGHT TO PROCEED WITH THE CONTRACT WAS TERMINATED. SUBSEQUENTLY A REPLACEMENT CONTRACT FOR THE SAME TYPE AND GRADE OF THREAD WAS ENTERED INTO WITH THE NEXT LOWEST BIDDER AT AN EXCESS COST OF $895.68 TO THE GOVERNMENT.

IN A LETTER DATED FEBRUARY 21, 1957, THE CORPORATION PROTESTED THE ASSESSMENT OF THE EXCESS COSTS INCURRED BY THE GOVERNMENT IN PROCURING THE THREAD FROM THE NEXT LOWEST BIDDER, AND IT AGAIN CONTENDED THAT THE 20 PERCENT DIFFERENCE BETWEEN ITS BID PRICE AND THE PRICE QUOTED BY THE NEXT LOWEST BIDDER SHOULD HAVE BEEN QUESTIONED BY THE CONTRACTING OFFICER. THE CORPORATION ALSO CONTENDED THAT ITS BID WAS SIGNED BY AN UNAUTHORIZED PERSON WHO, IT STATED, HAS SINCE BEEN DISMISSED.

THE ABSTRACT OF BIDS SHOWS THAT OF THE FOUR OTHER BIDDERS QUOTING ON THE NO. 1 GRADE THREAD, TWO BIDDERS QUOTED A PRICE OF $2.20 PER CONE, THE THIRD BIDDER QUOTED A PRICE OF $2.21 PER CONE AND THAT THE FOURTH BIDDER OFFERED TO FURNISH NO. 1 GRADE THREAD--- THE GRADE OF THREAD REQUIRED BY THE SPECIFICATIONS--- AT A PRICE OF $2.30 PER CONE AND NO. 2 GRADE THREAD- -- A LESS EXPENSIVE GRADE OF THREAD--- AT A PRICE OF $1.90 PER CONE WHICH IS MORE THAN THE PRICE QUOTED BY AMERICAN COTTON YARNS, INC., FOR NO. 1 GRADE THREAD. IT IS REPORTED THAT NO. 1 GRADE THREAD WAS PREVIOUSLY PROCURED ON DIFFERENT OCCASIONS AT PRICES OF $2.05 AND $2.21 PER CONE. VIEW OF THE DIFFERENCE BETWEEN THE BID OF AMERICAN COTTON YARNS, INC., OF $1.84 PER CONE FOR NO. 1 GRADE THREAD, AND THE OTHER BIDS RECEIVED ON THAT ITEM, AND THE PRICES PREVIOUSLY PAID THEREFOR, TOGETHER WITH THE FACT THAT THE CORPORATION'S BID PRICE FOR NO. 1 GRADE THREAD IS LOWER THAN THE PRICE QUOTED BY ANOTHER BIDDER FOR NO. 2 GRADE THREAD, WHICH IS LESS EXPENSIVE, AND PROBABILITY OF ERROR WAS APPARENT, AND, IN THE CIRCUMSTANCES, THE BID OF AMERICAN COTTON YARNS, INC., SHOULD NOT HAVE BEEN ACCEPTED WITHOUT REQUESTING IT TO VERIFY ITS BID. THERE APPEARS NO ROOM FOR DOUBT THAT THE BID OF THE CORPORATION WAS NOT BASED ON FURNISHING THE GRADE OF THREAD REQUIRED.

IN THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE CONTRACT WAS NOT LEGALLY ENFORCEABLE. IT FOLLOWS THAT THE INDEBTEDNESS FOR EXCESS COSTS STATED AGAINST AMERICAN COTTON YARNS, INC., SHOULD BE CANCELED.