B-138305, APRIL 17, 1959, 38 COMP. GEN. 703

B-138305: Apr 17, 1959

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AFTER COMPETITIVE BIDDING DEVELOPED THAT THE CONSTRUCTION COSTS WERE BEING AMORTIZED OVER THE FIRST FEW YEARS OF THE 10 -YEAR TERM. WILL NOT BE OBJECTED TO IN THE ABSENCE OF EVIDENCE OF ABUSE OF THE NEGOTIATION AUTHORITY. 1959: FURTHER REFERENCE IS MADE TO YOUR TELEGRAM OF JANUARY 2. THE FACTS ARE SET FORTH IN A REPORT DATED FEBRUARY 25. INVITATIONS WERE REQUESTED FOR COMPETITIVE BIDS FOR THE CONSTRUCTION AND LEASING OF EIGHT AIR ROUTE TRAFFIC CONTROL CENTERS AT FREMONT. BIDDERS WERE REQUESTED TO SUBMIT ALTERNATE RENTAL RATES ON A FIRM 5-YEAR LEASE. BIDDERS WERE REQUESTED TO INDICATE WHETHER THEY WOULD GRANT THE GOVERNMENT AN OPTION TO PURCHASE AT THE END OF 5 OR 10 YEARS AND. CERTIFICATES OF NECESSITY WERE ISSUED BY THE DEPARTMENT OF THE AIR FORCE AUTHORIZING THE LEASING OF THESE CENTERS WITHOUT REGARD TO THE LIMITATIONS OF SECTION 322 OF THE ECONOMY ACT OF JUNE 30.

B-138305, APRIL 17, 1959, 38 COMP. GEN. 703

LEASES - NEGOTIATION - LONG-TERM V. PURCHASE OPTION - GENERAL SERVICES ADMINISTRATION AUTHORITY THE NEGOTIATION OF LONG-TERM LEASE AGREEMENTS UNDER THE AUTHORITY IN SECTION 302 (C) (2) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, 41 U.S.C. 252 (C) (2), FOR THE CONSTRUCTION AND LEASING OF FACILITIES WITH THE BIDDERS WHO MADE THE LOWEST OFFER ON A RENTAL PLUS OPTION BASIS RATHER THAN THE BIDDERS WHO OFFERED THE LOWEST ANNUAL RENTAL FOR THE 10-YEAR TERM, AFTER COMPETITIVE BIDDING DEVELOPED THAT THE CONSTRUCTION COSTS WERE BEING AMORTIZED OVER THE FIRST FEW YEARS OF THE 10 -YEAR TERM, WILL NOT BE OBJECTED TO IN THE ABSENCE OF EVIDENCE OF ABUSE OF THE NEGOTIATION AUTHORITY, NOTWITHSTANDING THAT THE LEASES RESULT IN THE ACQUISITION OF FACILITIES UNDER A PROCEDURE NOT CONTEMPLATED BY THE LONG- TERM LEASE AUTHORITY IN PUBLIC LAW 85-493 WHICH ADDED SUBSECTION (H) (1) TO SECTION 210 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, 40 U.S.C. 490 (H) (1).

TO MCCLOSKEY AND CO., APRIL 17, 1959:

FURTHER REFERENCE IS MADE TO YOUR TELEGRAM OF JANUARY 2, 1959, AND OTHER COMMUNICATIONS, RELATIVE TO A PROTEST ON BEHALF OF YOUR COMPANY AND J. H. POMEROY AND COMPANY, INC., AGAINST CONTRACT AWARDS BY GENERAL SERVICES ADMINISTRATION FOR THE LEASING OF AIR TRAFFIC CONTROL CENTERS TO BE CONSTRUCTED AT HAMPTON, GEORGIA, AND OBERLIN, OHIO.

THE FACTS ARE SET FORTH IN A REPORT DATED FEBRUARY 25, 1959, FROM THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, AS FOLLOWS: ON AUGUST 18, 1958, INVITATIONS WERE REQUESTED FOR COMPETITIVE BIDS FOR THE CONSTRUCTION AND LEASING OF EIGHT AIR ROUTE TRAFFIC CONTROL CENTERS AT FREMONT, CALIFORNIA; HILLIARD, FLORIDA; FARMINGTON, MINNESOTA; KELLER, TEXAS; HAMPTON, GEORGIA; OLATHE, KANSAS; OBERLIN, OHIO; AND AURORA, ILLINOIS. EACH INSTANCE, BIDDERS WERE REQUESTED TO SUBMIT ALTERNATE RENTAL RATES ON A FIRM 5-YEAR LEASE, RENEWABLE AT THE OPTION OF THE GOVERNMENT FOR THREE ADDITIONAL TERMS OF 5 YEARS EACH, AND FOR A FIRM 10-YEAR LEASE RENEWABLE AT THE GOVERNMENT'S OPTION FOR TWO ADDITIONAL TERMS OF 5 YEARS EACH. BIDDERS WERE REQUESTED TO INDICATE WHETHER THEY WOULD GRANT THE GOVERNMENT AN OPTION TO PURCHASE AT THE END OF 5 OR 10 YEARS AND, IF SO, TO STATE THE OPTION PRICE. ON APRIL 14, 1958, CERTIFICATES OF NECESSITY WERE ISSUED BY THE DEPARTMENT OF THE AIR FORCE AUTHORIZING THE LEASING OF THESE CENTERS WITHOUT REGARD TO THE LIMITATIONS OF SECTION 322 OF THE ECONOMY ACT OF JUNE 30, 1932, AS AMENDED, 40 U.S.C. 278 (A).

THE INVITATION, AS MODIFIED BY ADDENDA ISSUED PRIOR TO BID OPENING, STATED THAT DATE OF DELIVERY AND OTHER ADDITIONAL FACTORS AS MIGHT BE SPECIFIED IN THE INVITATIONS, SCHEDULES, OR BID FORMS WOULD BE CONSIDERED AS AWARD FACTORS AND THAT IN THE EVALUATION OF BIDS, PRIME CONSIDERATION WOULD BE GIVEN TO THE TOTAL RENTAL FOR THE FIRST 10-YEAR PERIOD AND THAT RENEWAL OPTIONS SUBSEQUENT TO THE FIRST 10-YEAR TERM WOULD BE CONSIDERED AS ADDITIONAL FACTORS IN SUCH EVALUATION. NO OTHER AWARD FACTORS WERE STATED.

AN ANALYSIS OF THE BIDS RECEIVED PURSUANT TO THESE INVITATIONS DISCLOSED THAT FOR EACH LOCATION EXCEPT THE FREMONT AND HILLIARD CENTERS, ONE BIDDER WAS LOW ON A RENTAL BASIS ONLY, WHILE A DIFFERENT BIDDER WAS LOW ON THE BASIS OF RENTAL FOR 10 YEARS PLUS THE PURCHASE OPTION PRICE. THE LOW BIDDERS ON THE FREMONT AND HILLIARD CENTERS WERE LOWEST WHETHER OR NOT THE PURCHASE OPTION PRICE WAS TAKEN INTO CONSIDERATION. THEREFORE, THE LOW BIDS OF MCCLOSKEY AND CO. AND J. H. POMEROY AND COMPANY, INC., FOR THE FREMONT CENTER, AND THE AUCHTER COMPANY FOR THE HILLIARD CENTER, WERE ACCEPTED.

THEREAFTER, ALL BIDS FOR THE FARMINGTON, KELLER, HAMPTON, OLATHE, OBERLIN, AND AURORA CENTERS WERE REJECTED AND A DETERMINATION WAS MADE UNDER SECTION 302 (C) (2) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED, 41 U.S.C. 252 (C) (2), THAT LEASES FOR THE REMAINING SIX CENTERS WOULD BE ENTERED INTO ON A NEGOTIATED BASIS. ALL BIDDERS AND OTHER INTERESTED PARTIES WERE INVITED TO SUBMIT PROPOSALS FOR A NEGOTIATED LEASE IN ACCORDANCE WITH THE ORIGINAL INVITATIONS AS AMENDED. THEREAFTER, THE REGIONAL COMMISSIONERS WERE NOTIFIED THAT THE BIDS WOULD BE EVALUATED UPON THE BASIS OF RENTAL FOR 10 YEARS PLUS THE COST OF THE FACILITY TO THE GOVERNMENT UNDER OPTIONS TO PURCHASE AT THE END OF THE LEASE TERM. IN THIS CONNECTION, YOUR REPRESENTATIVE, MR. STEWART, HAS STATED INFORMALLY THAT THE BIDDERS WERE NEVER NOTIFIED TO THAT EFFECT.

AN ANALYSIS OF THE PROPOSALS RECEIVED DISCLOSED CONSIDERABLE VARIANCE IN THE AMOUNTS QUOTED FOR ANNUAL RENTAL AND PURCHASE OPTIONS. FOR EXAMPLE, THE RENTAL FOR THE FIRST YEAR SPECIFIED BY THE LOWEST OFFER FOR THE OLATHE, KANSAS, CENTER EXCEEDED GENERAL SERVICES ADMINISTRATION'S TOTAL ESTIMATED COST OF CONSTRUCTION OF THE FACILITY BY $400,000. OFFERS ON OTHER CENTERS SPECIFIED RENTALS WHICH APPEARED TO AMORTIZE THE COST OF CONSTRUCTION OVER THE FIRST 5 YEARS OR LESS, WITH SUBSTANTIALLY LOWER RENTALS FOR THE REMAINDER OF THE LEASE TERMS. SINCE GENERAL SERVICES ADMINISTRATION DOUBTED THE WISDOM OF DEFRAYING A SUBSTANTIAL PORTION OF THE AGGREGATE RENTALS FOR 10 YEARS DURING THE FIRST FEW YEARS OF THE ORIGINAL TERMS, ALL PROPONENTS WERE INFORMED THAT OFFERS INVOLVING UNEQUAL ANNUAL RENTALS WOULD NOT BE CONSIDERED AND THEY WERE AFFORDED AN OPPORTUNITY TO SUBMIT REVISED OFFERS SPECIFYING EQUAL ANNUAL RENTAL PROVISIONS. ON THE BASIS OF THE NEW SOLICITATION THE LOWEST OFFERS ON THE RENTAL PLUS OPTION TO PURCHASE BASIS WERE ACCEPTED FOR THE OBERLIN AND HAMPTON CENTERS. ON JANUARY 13, 1959, BIDDERS FOR THE CENTERS AT OLATHE, AURORA, FARMINGTON, AND KELLER, WERE NOTIFIED THAT ALL PENDING OFFERS WOULD BE REJECTED AND THAT NEW PROPOSALS SHOULD BE SUBMITTED PURSUANT TO REVISED SPECIFICATIONS AS THEREIN INDICATED. BIDDERS WERE INFORMED THAT PURCHASE OPTIONS WERE NOT DESIRED AND THAT OFFERS WOULD BE EVALUATED ON THE BASIS OF THE LOWEST RENTS FOR THE 10-YEAR TERMS. THEREAFTER, IT WAS CONCLUDED TO DISCONTINUE THE PROGRAM TO PROVIDE THE AIR ROUTE TRAFFIC CONTROL CENTERS THROUGH THE LEASING OF FACILITIES, AND ALL BIDS FOR THE CENTERS AT OLATHE, KELLER, FARMINGTON, AND AURORA WERE REJECTED. LETTER OF MARCH 12, 1959, THE ADMINISTRATOR OF GENERAL SERVICES INFORMED OUR OFFICE THAT ATTEMPTS ARE NOW BEING MADE TO RENEGOTIATE EXISTING COMMITMENTS FOR THE CENTERS AT FREMONT, HAMPTON, HILLIARD, AND OBERLIN.

WITH RESPECT TO THE AWARDS MADE FOR THE HAMPTON AND OBERLIN CENTERS IT IS CONTENDED IN YOUR LETTER OF JANUARY 3, 1959, IN EFFECT, THAT IT WAS IMPROPER TO CONSIDER THE PURCHASE OPTION PRICE IN EVALUATING THE BIDS AND THAT THE AWARDS SHOULD HAVE BEEN MADE TO THE BIDDERS OFFERING THE LOWEST AGGREGATE ANNUAL RENTALS FOR THE 10-YEAR TERMS. YOU STATE THAT BOTH THE ORIGINAL INVITATION AND THE REINVITATION ARE BASED UPON PUBLIC LAW 85-493, APPROVED JULY 2, 1958, 43 U.S.C. 490 (H) (1), AND THAT UNDER THIS STATUTE GENERAL SERVICES ADMINISTRATION WAS REQUIRED TO MAKE AWARDS TO THE BIDDERS OFFERING THE LOWEST AGGREGATE ANNUAL 10-YEAR RENTALS AND THAT IT COULD NOT PROPERLY CONSIDER THE PURCHASE OPTIONS IN DETERMINING WHICH PROPOSALS WERE MOST ADVANTAGEOUS TO THE GOVERNMENT.

IN YOUR LETTER OF FEBRUARY 11, 1959, YOU STATE THAT AT THE TIME OF THE ORIGINAL INVITATIONS FOR BIDS THERE WAS NO APPROPRIATION AVAILABLE FOR LEASE-PURCHASE CONTRACTS; THAT GENERAL SERVICES ADMINISTRATION IN REQUESTING BIDS FOR 10-YEAR TERMS WITH PURCHASE OPTIONS WAS, IN EFFECT, ATTEMPTING TO ACCOMPLISH UNDER ITS 10-YEAR LEASING AUTHORITY THAT WHICH THE CONGRESS HAD PRESCRIBED SHOULD BE ACCOMPLISHED UNDER THE LEASE PURCHASE ACT ( PUBLIC BUILDINGS PURCHASE CONTRACT ACT OF 1954, 68 STAT. 518), 40 U.S.C. 352 NOTE, WHICH AT THAT TIME HAD EXPIRED. ALSO, YOU STATE THAT WHEN THE CONGRESS SPECIFICALLY PROVIDES A METHOD FOR ACQUISITION OF SPACE BY GENERAL SERVICES ADMINISTRATION FOR ACCOMMODATIONS FOR THE FEDERAL AGENCIES, THEN THAT STATUTORY METHOD SHOULD BE FOLLOWED. REFERENCE IS MADE TO THE LEGISLATIVE HISTORY OF PUBLIC LAW 85-493, FOR THE PURPOSE OF SHOWING THAT THE 10-YEAR LEASING AUTHORITY GRANTED THE GENERAL SERVICES ADMINISTRATION BY THIS STATUTORY PROVISION WAS NOT INTENDED TO BE USED AS A DEVICE TO ACQUIRE SPACE IN ANY SITUATION WHERE THE PERMANENT NEEDS FOR THE GOVERNMENT REQUIRED THAT THE FACILITIES SHOULD BE ACQUIRED OUTRIGHT, IN ANY OTHER MANNER AUTHORIZED BY EXISTING LAW.

BASED UPON THE COMMITTEE REPORTS REFERRED TO IN YOUR LETTER OF FEBRUARY 11, 1959 AND UPON THE EXPRESS INHIBITION CONTAINED IN THE APPROPRIATION MADE TO GENERAL SERVICES ADMINISTRATION FOR THE FISCAL YEAR ENDING JUNE 30, 1959, INDEPENDENT OFFICES APPROPRIATION ACT, PUBLIC LAW 85-844, AUGUST 28, 1958, 72 STAT. 1067, TITLE I, UNDER THE HEADING " PAYMENTS, PUBLIC BUILDINGS PURCHASE TRACTS," WE AGREE AS YOU CONTEND THAT THE CONGRESS INTENDED THAT CONSTRUCTION OF BUILDINGS, EXCEPT AS OTHERWISE SPECIFICALLY AUTHORIZED, UNDER LEASE-PURCHASE OR LEASE-PURCHASE TYPE AGREEMENTS SHOULD BE DISCONTINUED. WHILE THE INVOLVED LEASE AGREEMENTS ARE NOT, STRICTLY SPEAKING, LEASE-PURCHASE AGREEMENTS SUCH AS REFERRED TO IN THE INHIBITION CONTAINED IN THE APPROPRIATION MADE TO GSA FOR THE FISCAL YEAR 1959 UNDER THE HEADING " PAYMENTS, PUBLIC BUILDING CONTRACTS," SINCE THE BIDDING DEVELOPED THAT GENERALLY THE CONSTRUCTION COSTS OF THE FACILITIES WERE BEING AMORTIZED OVER THE FIRST FEW YEARS OF THE 10-YEAR TERMS, IT IS OBVIOUS THAT IT PROBABLY WILL BE IN THE INTEREST OF THE GOVERNMENT TO TAKE TITLE TO THE PROPERTY AT THE END OF THE LEASE TERMS, NOTWITHSTANDING THE APPARENT POLICY OF THE CONGRESS AS INDICATED IN THE COMMITTEE REPORTS REFERRED TO IN YOUR LETTER OF FEBRUARY 29, 1959, AND IN THE ABOVE APPROPRIATION INHIBITION. CERTAINLY, IT COULD HARDLY BE CONTENDED THAT, NOTWITHSTANDING THAT IT MAY INDIRECTLY ACCOMPLISH A RESULT WHICH MAY NOT HAVE BEEN INTENDED BY THE CONGRESS, IT WOULD NOT BE IN THE GOVERNMENT'S INTEREST TO TAKE TITLE TO THE PROPERTY AT A NOMINAL OR SMALL CONSIDERATION AT THE END OF THE LEASE TERM WHEN THROUGH ANNUAL RENTAL PAYMENTS DURING THE TERM IT WILL HAVE BORNE SUBSTANTIALLY THE ENTIRE CONSTRUCTION COST.

IT SHOULD BE POINTED OUT, HOWEVER, THAT THE CONTRACTS HERE INVOLVED WERE NEGOTIATED PURSUANT TO SECTION 302 (C) (2) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED. WE HAVE HELD THAT WHERE NEGOTIATION IS AUTHORIZED THE RULES OF FORMALLY ADVERTISED COMPETITIVE BIDDING ARE NOT FOR APPLICATION AND THAT IT IS THE DUTY OF THE CONTRACTING OFFICIALS TO CONDUCT THE NEGOTIATIONS TO THE BEST ADVANTAGE OF THE GOVERNMENT AND TO PLACE THE CONTRACT WITH THE SUPPLIER MAKING THE BEST FINAL PROPOSAL. 37 COMP. GEN. 855. THE DISCRETION VESTED IN THE ADMINISTRATOR OF GENERAL SERVICES ADMINISTRATION TO NEGOTIATE MAY NOT BE QUESTIONED IN THE ABSENCE OF BAD FAITH. NO SUCH SHOWING IS OF RECORD HERE OR ALLEGED.

YOUR CONTENTIONS, AS SET FORTH ABOVE, THAT THE PURCHASE OPTIONS COULD NOT PROPERLY BE CONSIDERED IN EVALUATING THE BIDS ARE WITHOUT MERIT. PUBLIC LAW 85-493 MERELY ADDED A NEW SUBSECTION TO SECTION 210 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED, TO PERMIT THE ADMINISTRATOR OF GENERAL SERVICES ADMINISTRATION TO ENTER INTO LEASE AGREEMENTS FOR PERIODS NOT IN EXCESS OF 10 YEARS ON SUCH TERMS AS HE DEEMS TO BE IN THE INTEREST OF THE UNITED STATES. AS HERETOFORE INDICATED THE TWO LEASES OBJECTED TO BY YOUR COMPANY WERE NEGOTIATED AND AWARDED UNDER THE EXPRESS AUTHORITY OF SECTION 302 (C) (2), TITLE III, OF THAT ACT.

WE HAVE HELD THAT WHERE AN AGENCY IS AUTHORIZED TO NEGOTIATE CONTRACTS WITHOUT ADVERTISING AND IT IS DETERMINED TO BE IN THE PUBLIC INTEREST THAT AWARDS BE MADE IN SPECIFIC INSTANCES AT PRICES OTHER THAN THE LOWEST THAT MIGHT BE OBTAINABLE, OUR OFFICE COULD NOT LEGALLY OBJECT TO CONTRACTS SO AWARDED. 31 COMP. GEN. 279. WE DID, HOWEVER, INDICATE IN THE CITED DECISION THAT EVEN THOUGH WE HAD NO LEGAL RIGHT TO QUESTION A CONTRACT AWARDED IN SUCH CIRCUMSTANCES WE WOULD REPORT TO THE CONGRESS ANY TRANSACTION IN WHICH WE FELT THAT THERE HAD BEEN AN IMPROPER NEGOTIATION AND AWARD OF THE CONTRACT. IN THE INSTANT CASE, IN VIEW OF THE FACTS DEVELOPED BY THE BIDDING, AND NOTWITHSTANDING THAT IT MAY ULTIMATELY RESULT IN THE GOVERNMENT'S ACQUIRING PROPERTY UNDER A PROCEDURE NOT CONTEMPLATED BY THE 10-YEAR STATUTE, WE DO NOT FEEL THAT WE WOULD BE JUSTIFIED IN HOLDING THAT THE ACTION TAKEN BY GSA IN THE AWARDS PROTESTED BY YOU WAS NOT IN THE BEST INTEREST OF THE GOVERNMENT.

YOU ARE THEREFORE ADVISED THAT WE WOULD NOT BE JUSTIFIED IN TAKING EXCEPTION TO THE AWARDS PROTESTED BY YOUR COMPANY.