B-137689, JUN. 14, 1960

B-137689: Jun 14, 1960

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ESQUIRE: REFERENCE IS MADE TO YOUR LETTERS OF FEBRUARY 17 AND 18. THE CONTRACT WAS TERMINATED FOR DEFAULT ON FEBRUARY 26. REPURCHASE OF THE CONTRACT SUPPLIES WERE PROCURED FROM CAMCO INDUSTRIES. THE EXCESS COSTS WERE PAID TO THE GOVERNMENT UNDER A FINDINGS AND DECISION OF THE CONTRACTING OFFICER AND OTIS THEREAFTER APPEALED FROM SUCH DETERMINATION TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS. UNDERSTAND THAT CONSIDERATION OF THE APPEAL IS BEING HELD IN ABEYANCE PENDING OUR RECONSIDERATION OF THE MATTER. YOU REQUEST OUR OPINION AS TO THE FOLLOWING: "/1) WHETHER THE AWARD TO OTIS STEEL PRODUCTS CORPORATION OF CONTRACT DA- 33-079-ORD-2280 SHOULD BE SET ASIDE BY REASON OF THE ERRONEOUS BID OF WHICH THE CONTRACTING OFFICER HAD NOTICE AND WHICH WAS NOT WAIVED BY ANY OFFICER OF THE BIDDER HAVING SUFFICIENT AUTHORITY. "/2) WHETHER UNDER THE CIRCUMSTANCES SET FORTH HEREIN.

B-137689, JUN. 14, 1960

TO WILLIAM H. QUEALY, ESQUIRE:

REFERENCE IS MADE TO YOUR LETTERS OF FEBRUARY 17 AND 18, 1960, WITH ENCLOSURES, REQUESTING RECONSIDERATION OF OUR DECISION B-137689 DATED JANUARY 21, 1959, WHEREIN WE HELD THAT NO LEGAL BASIS EXISTED FOR RELIEVING THE OTIS STEEL PRODUCTS CORPORATION FROM ITS OBLIGATIONS UNDER CONTRACT NO. DA-33-079-ORD-2280 DATED APRIL 25, 1958.

SUBSEQUENT TO OUR DECISION, THE CONTRACT WAS TERMINATED FOR DEFAULT ON FEBRUARY 26, 1959, AND REPURCHASE OF THE CONTRACT SUPPLIES WERE PROCURED FROM CAMCO INDUSTRIES, INC., FOR A TOTAL CONTRACT PRICE OF $42,490.80, OR $22,846.20 IN EXCESS OF THE PRICE UNDER THE DEFAULTED CONTRACT. THE EXCESS COSTS WERE PAID TO THE GOVERNMENT UNDER A FINDINGS AND DECISION OF THE CONTRACTING OFFICER AND OTIS THEREAFTER APPEALED FROM SUCH DETERMINATION TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS. UNDERSTAND THAT CONSIDERATION OF THE APPEAL IS BEING HELD IN ABEYANCE PENDING OUR RECONSIDERATION OF THE MATTER. SPECIFICALLY, YOU REQUEST OUR OPINION AS TO THE FOLLOWING:

"/1) WHETHER THE AWARD TO OTIS STEEL PRODUCTS CORPORATION OF CONTRACT DA- 33-079-ORD-2280 SHOULD BE SET ASIDE BY REASON OF THE ERRONEOUS BID OF WHICH THE CONTRACTING OFFICER HAD NOTICE AND WHICH WAS NOT WAIVED BY ANY OFFICER OF THE BIDDER HAVING SUFFICIENT AUTHORITY.

"/2) WHETHER UNDER THE CIRCUMSTANCES SET FORTH HEREIN, OTIS STEEL PRODUCTS CORPORATION SHOULD BE PRECLUDED FROM RELYING UPON ITS INELIGIBILITY AS A SMALL BUSINESS CONCERN AS GROUNDS FOR SETTING ASIDE THE AWARD OF CONTRACT DA-33-079-ORD.2280.

"/3) WHETHER IN THE LIGHT OF THE ERROR IN THE SUBMISSION OF THE BID AND THE SUBSEQUENTLY DISCOVERED INELIGIBILITY OF THE BIDDER, BOTH OF WHICH WERE BROUGHT TO THE ATTENTION OF THE CONTRACTING OFFICER WITHIN A REASONABLE PERIOD OF TIME FOLLOWING THE SUBMISSION OF THE BID, THE AWARD OF CONTRACT DA-33-079-ORD-2280 RESULTED IN A BINDING CONTRACT ON THE PART OF THE NTRACTOR.'

WITH RESPECT TO THE ALLEGATION THAT AN ERRONEOUS BID HAD BEEN SUBMITTED BY OTIS, IT IS CONTENDED THAT THE BID WAS APPARENTLY ONE HALF OF THE AMOUNT OF THE NEXT LOWEST BID; THAT THE PROCUREMENT ACTIVITY KNEW AT THE OUTSET THAT AN ERRONEOUS BID HAD BEEN SUBMITTED; AND THAT ADMINISTRATIVE CONFIRMATION OF THE AUTHORITY OF OTIS' EMPLOYEE TO SIGN THE BID HAD NO EFFECT SINCE THE EMPLOYEE HAD NO AUTHORITY AT THE TIME TO BIND OTIS. SUPPORT OF THE ALLEGATION OF ERROR, YOU CITE UNITED STATES V. METRO NOVELTY MANUFACTURING COMPANY, 125 F.SUPP. 713; C. N. MONROE MANUFACTURING COMPANY V. UNITED STATES, 143 F.SUPP. 449.

INVITATION FOR BIDS NO. ORD-33-079-58-70 ISSUED ON FEBRUARY 12, 1958, REQUESTED BIDS FOR THE FURNISHING OF TWO ITEMS OF STEEL SPARE PARTS CABINETS UNDER A TOTAL SMALL-BUSINESS SET ASIDE DETERMINED PURSUANT TO SECTION 214 OF THE SMALL BUSINESS ACT OF 1953 (NOW 15 U.S.C. 644). BIDS WERE OPENED ON MARCH 14, 1958, AND THE ABSTRACT OF BIDS SHOWS THAT 18 BIDS WERE RECEIVED UNDER ITEM 2 (1) COVERING 348 CABINETS--- THE ONLY ITEM HERE INVOLVED--- AS FOLLOWS:

TABLE

BIDDER BID (EACH)

OTIS STEAL PRODUCTS CORP. $ 56.45

JEBCO, INC. 81.25

DEHLER MFG. CO. 96.25

EMCO PORCELAIN ENAMEL CO. 102.28

WERNER'S MFG. CO. 103.98

TRACY MFG. CO. 135.40

GENERAL PRODUCTS CO., INC. 138.90

SPECIALTY ENGR. INC. 156.00

SHURE MFG. CORP. 175.32

LYON METAL PRODUCTS, INC. 175.50

THE BELL CO. 189.00

METAL CRAFT 190.00

NIXEN ENGR. CO., INC. 198.00

MORTON MFG. CO. 217.54

THE WRIGHT LINE INC. 219.17

IRVING C. STEINBERG AND SONS 221.00

MID-WEST METAL PRODUCTS, INC. 287.43

B-R-O-T, INC. 333.00

THE BID OF OTIS WAS SIGNED BY "L. R. SMITH, SALES MANAGER.'

ON MARCH 25, 1958, OR PRIOR TO AWARD, THE BID OF OTIS WAS VERIFIED BY GEORGE L. PARENT AND IN LETTER OF APRIL 1, 1958, THE SALES MANAGER OF OTIS, L. R. SMITH, STATED THAT NO ERROR IN PRICING WAS CLAIMED BUT THAT IN BIDDING IN A TOTAL AMOUNT FOR ITEMS 1 (1) AND 2 (1), THE BID WAS INTENDED TO BE ON AN ALL OR NONE BASIS. HOWEVER, MR. SMITH FURTHER STATED THAT OTIS WOULD ACCEPT AWARD FOR ITEM 2 (1) IF THE ALL OR NONE CONDITION JEOPARDIZED ITS POSITION WITH THE GOVERNMENT. CONSIDERING THAT THE GOVERNMENT HAD NO NOTICE OF THE ACQUISITION OF OTIS' STOCK BY THE GENERAL FIREPROOFING COMPANY OR OF A CHANGE IN MANAGEMENT AND OFFICERS UNTIL SOME TIME AFTER AWARD HAD BEEN MADE, WE CANNOT HOLD THAT THE VERIFICATION OF THE OTIS BID WAS DEFICIENT IN ANY MATERIAL RESPECT OR THAT THE OFFICER VERIFYING THE BID WAS NOT OTHERWISE AUTHORIZED TO ACT. THE GOVERNMENT, IN THE ABSENCE OF KNOWLEDGE OF THE CHANGE IN OWNERSHIP AND MANAGEMENT OF OTIS, WAS ENTITLED TO REPLY UPON THE STATEMENT OF OTIS A. SPRINGS, JR., EXECUTIVE VICE PRESIDENT OF OTIS, WHO ADVISED THE PROCUREMENT AGENCY ON APRIL 29, 1958, THAT L. R. SMITH "IS THE SALES MANAGER, AND ALSO THE VICE- PRESIDENT AND ASSISTANT SECRETARY OF OTIS STEEL PRODUCTS CORPORATION, AND AS AN OFFICER HAS FULL AUTHORITY TO SIGN CONTRACTUAL DOCUMENTS FOR THIS COMPANY.' WE ALSO NOTE THAT BY LETTER OF APRIL 30, 1958, OTIS ACKNOWLEDGE RECEIPT OF THE CONTRACT AND AGAIN VERIFIED THE CONTRACT AMOUNTS.

WITH REGARD TO THE ALLEGATION OF ERROR IN BID, AN ANALYSIS OF THE OTHER BIDS RECEIVED IN THE LIGHT OF OTIS' BID REVEALS THAT THE DIFFERENCE BETWEEN ITS BID PRICE AND THAT OF OTHER BIDS WAS NOT SO SIGNIFICANT AS TO CONSTITUTE THE AWARD AS UNCONSCIONABLE, ESPECIALLY WHERE VERIFICATION OF OTIS' BID PRICE WAS OBTAINED PRIOR TO AWARD. AMPLE OPPORTUNITY WAS AFFORDED OTIS TO RECOMPUTE OR RECONSIDER ITS BID BUT IT CHOSE TO VERIFY ITS BID ON AT LEAST THREE OCCASIONS. IT IS DIFFICULT TO PERCEIVE OF ANY FURTHER ACTIONS THAT COULD HAVE BEEN TAKEN TO ESTABLISH THE BONA FIDES OF OTIS' BID. WE THUS BELIEVE THAT THE STANDARDS INDICATED IN THE METRO CASE WERE MORE THAN MET HERE. FURTHER, THE FACTS INVOLVED IN THE MONROE CASE ARE CLEARLY DISTINGUISHABLE IN THAT HERE THERE PLAINLY DID NOT EXIST A GROSS, APPARENT ERROR IN BID WHICH SHOULD HAVE BEEN OBVIOUS TO THE CONTRACTING OFFICER IN THE EVALUATION OF BIDS. SEE, IN THIS CONNECTION, B -139757, DECEMBER 1, 1959, WHEREIN THE MONROE CASE WAS DISCUSSED AND DISTINGUISHED.

GENERALLY, THE FINAL DETERMINATION OF THE ELIGIBILITY OF A BIDDER AS A SMALL BUSINESS CONCERN UNDER A SMALL-BUSINESS RESTRICTED INVITATION IS MADE AT THE DATE OF AWARD. THE DATE OF AWARD MUST OF NECESSITY FIX AND ESTABLISH THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO THE CONTRACT, INCLUDING THE LEGAL CAPACITY OF A BIDDER TO RECEIVE AN AWARD WHICH IS RESTRICTED BY STATUTE TO A CERTAIN CLASS OF BIDDERS. SECTION 1.703 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) PRESCRIBES THE CRITERIA TO BE UTILIZED IN DETERMINING THE STATUS OF BIDDERS AS SMALL BUSINESS CONCERNS, AND THAT ENTIRE SECTION ENVISAGES A FINAL DETERMINATION PRIOR TO AWARD, PROVIDED OTHER BIDDERS OR THE CONTRACTING OFFICER HIMSELF DOES NOT QUESTION SUCH STATUS PRIOR TO AWARD. IT WAS NEITHER PRACTICABLE NOR WAS THE PROCUREMENT ACTIVITY LEGALLY REQUIRED TO KEEP OPEN INDEFINITELY THE MATTER OF THE SMALL BUSINESS ELIGIBILITY OF OTIS THAT WAS BASED UPON AN UNCHALLENGED SMALL BUSINESS SELF-CERTIFICATION WHICH, AT THE TIME MADE, WAS FACTUALLY CORRECT SINCE THE GENERAL FIREPROOFING COMPANY DID NOT ASSUME LEGAL CONTROL OF OTIS UNTIL APRIL 17, 1958, OR SUBSEQUENT TO THE DATE BIDS WERE OPENED AND EVALUATED. THE EARLIEST DATE THE PROCUREMENT ACTIVITY COULD BE SAID TO HAVE BEEN ON NOTICE OF THE OWNERSHIP OF OTIS BY GENERAL FIREPROOFING WAS ON SEPTEMBER 8, 1958, OR ALMOST 5 MONTHS AFTER AWARD OF THE CONTRACT, WHEN AN UNSUCCESSFUL BIDDER INFORMALLY ADVISED THE PROCUREMENT ACTIVITY OF THE TRANSFER OF THE OWNERSHIP OF OTIS TO GENERAL FIREPROOFING. AND IT WAS NOT UNTIL SEPTEMBER 23, 1958, THAT GENERAL FIREPROOFING FORMALLY ADVISED THE PROCUREMENT ACTIVITY OF ITS ACQUISITION OF THE OWNERSHIP OF OTIS AND OF ITS DESIRE TO HAVE THE CONTRACT CANCELLED BECAUSE OF ITS SMALL BUSINESS INELIGIBILITY. IN THE PRESENT POSTURE OF THE MATTER, THE FOLLOWING HOLDING IN OUR DECISION OF JANUARY 21, 1959, SEEMS TO BE ESPECIALLY PERTINENT:

"* * * ALSO, WE ARE OF THE VIEW THAT, IN THE ABSENCE OF A PROTEST FROM OTHER BIDDERS WHO WERE INTERESTED IN THE PROCUREMENT, A CONTRACT AWARDED IN GOOD FAITH ON THE BASIS OF THE BIDDER'S STATEMENT THAT IT IS A SMALL BUSINESS CONCERN IS NOT VOID AB INITIO BUT IS, AT THE MOST, VOIDABLE ONLY AT THE OPTION OF THE GOVERNMENT. THIS WOULD APPEAR TO BE ESPECIALLY TRUE WHERE, AS HERE, THE GOVERNMENT HAS INCURRED COSTS IN CARRYING OUT ITS DUTIES UNDER THE CONTRACT. TO HOLD OTHERWISE WOULD PERMIT A CONTRACTOR WHO ALONE HAD KNOWLEDGE OF HIS INELIGIBILITY FOR AWARD AS A SMALL BUSINESS CONCERN TO RELY UPON SUCH KNOWLEDGE AT A LATER DATE TO AVOID HIS RESPONSIBILITIES UNDER A CONTRACT AWARDED TO HIM IN GOOD FAITH ON THE BASIS OF HIS SELF-CERTIFICATION OF SMALL BUSINESS.'

IT IS OUR VIEW THAT A VALID AND BINDING CONTRACT WAS CONSUMMATED BY THE ACCEPTANCE OF OTIS' BID AND THAT THE SUBSEQUENT DISCLOSURES OF ALLEGED INELIGIBILITY FOR AWARD OR ERROR IN BID DID NOT RENDER THE AWARD ILLEGAL OR NONENFORCEABLE BY THE GOVERNMENT. ANY RELIEF TO WHICH GENERAL FIREPROOFING MAY BE ENTITLED WOULD BE A MATTER BETWEEN IT AND THE FORMER OWNERS OF OTIS.

ACCORDINGLY, YOU ARE ADVISED THAT OUR DECISION OF JANUARY 21, 1959, IS AFFIRMED.