B-139923, SEPTEMBER 30, 1959, 39 COMP. GEN. 247

B-139923: Sep 30, 1959

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THE SUBCONTRACTING REQUIREMENT MUST BE CONSTRUED AS INCIDENT TO A DETERMINATION OF THE CONTRACTOR'S ABILITY TO PERFORM WHICH INFORMATION IS NOT AN ESSENTIAL PART OF THE BID AND MAY BE SUPPLIED AFTER BID OPENING. 1959: FURTHER REFERENCE IS MADE TO YOUR LETTER DATED JUNE 16. ATTACHED TO THE INVITATION WAS A SHEET ENTITLED " SUBCONTRACTING" WHICH READS AS FOLLOWS: BIDDERS ARE REQUIRED TO FURNISH IN THE SPACED PROVIDED BELOW. NAME 10F SUBCONTRACTOR (S) ADDRESS TYPE OF WORK BIDDERS ARE FURTHER ADVISED THAT WHERE THEY ARE PROPOSING TO USE THE FACILITIES OF AN AFFILIATE OR OF A CONCERN OTHER THAN THE BIDDER. YOUR PROTEST IS ON THE BASIS THAT THE LOW BIDDER. IT IS A WELL-KNOWN PRACTICE IN THE CONSTRUCTION INDUSTRY IN THE BALTIMORE AREA THAT SUB-CONTRACTORS.

B-139923, SEPTEMBER 30, 1959, 39 COMP. GEN. 247

CONTRACTS - FAILURE TO FURNISH SOMETHING REQUIRED - SUBCONTRACTORS' NAMES - BID EVALUATION V. BIDDER'S RESPONSIBILITY FACTOR TO CONSTRUE A REQUIREMENT IN AN INVITATION THAT BIDDERS FURNISH AS A PART OF THE BID FORM A LIST OF SUBCONTRACTORS AS BEING MATERIAL TO THE BID, SO THAT FAILURE TO COMPLY WITH THE REQUIREMENT BEFORE BID OPENING WOULD RESULT IN REJECTION, WOULD RENDER MEANINGLESS ANOTHER PROVISION WHICH REQUIRES THE CONTRACTOR, AT THE REQUEST OF THE CONTRACTING OFFICER, TO FURNISH THE NAMES OF ALL SUBCONTRACTORS AND THE EXTENT OF THE WORK TO BE DONE BY EACH, AND WOULD BE INCONSISTENT WITH SECTION 1 307 (III) OF THE ARMED SERVICES PROCUREMENT REGULATION WHICH REQUIRES THAT CONSIDERATION BE GIVEN TO THE ADEQUACY OF SUBCONTRACTING ARRANGEMENTS IN DETERMINATION OF BIDDER RESPONSIBILITY; THEREFORE, THE SUBCONTRACTING REQUIREMENT MUST BE CONSTRUED AS INCIDENT TO A DETERMINATION OF THE CONTRACTOR'S ABILITY TO PERFORM WHICH INFORMATION IS NOT AN ESSENTIAL PART OF THE BID AND MAY BE SUPPLIED AFTER BID OPENING.

TO FELL AND HARTMAN, SEPTEMBER 30, 1959:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED JUNE 16, 1959, WRITTEN ON BEHALF OF YOUR CLIENT, REDDING AND COMPANY, INC., BALTIMORE, MARYLAND, PROTESTING THE AWARD OF A CONSTRUCTION CONTRACT AT FORT GEORGE G. MEADE, TO CARL GONNSEN AND SON, UNDER INVITATION FOR BIDS NO. 18-102-59-52.

ATTACHED TO THE INVITATION WAS A SHEET ENTITLED " SUBCONTRACTING" WHICH READS AS FOLLOWS:

BIDDERS ARE REQUIRED TO FURNISH IN THE SPACED PROVIDED BELOW, THE NAME, BUSINESS ADDRESS OF EACH SUB-CONTRACTOR PROPOSED TO BE USED IN THE EXECUTION OF THE WORK, TOGETHER WITH THE TYPE AND EXTENT OF THE WORK TO BE SO SUBCONTRACTED. NAME 10F SUBCONTRACTOR (S) ADDRESS TYPE OF WORK

BIDDERS ARE FURTHER ADVISED THAT WHERE THEY ARE PROPOSING TO USE THE FACILITIES OF AN AFFILIATE OR OF A CONCERN OTHER THAN THE BIDDER, ALL EXISTING BUSINESS ARRANGEMENTS, SUB-CONTRACT AGREEMENTS, ETC., WHETHER FIRM OR CONTINGENT, FOR THE USE OF SUCH FACILITIES, MUST BE SUBMITTED TO THE CONTRACTING OFFICER FOR REVIEW AND APPROVAL, PRIOR TO THE AWARD OF ANY CONTRACT AS A RESULT OF THIS BID.

REDDING AND COMPANY, INC., THE SECOND LOW BIDDER, AS A PART OF ITS BID AND PURSUANT TO THE REQUIREMENT, LISTED THE SUBCONTRACTORS WHICH IT PROPOSED TO USE.

YOUR PROTEST IS ON THE BASIS THAT THE LOW BIDDER, CARL GONNSEN AND SON, FAILED TO SUBMIT A LIST OF PROPOSED SUBCONTRACTORS UNTIL AFTER THE BID OPENING.

YOUR LETTER STATES IN PART AS FOLLOWS:

1. IT IS A WELL-KNOWN PRACTICE IN THE CONSTRUCTION INDUSTRY IN THE BALTIMORE AREA THAT SUB-CONTRACTORS, WHEN REQUESTED BY GENERAL CONTRACTORS TO SUBMIT PRICES, DELAY THE SUBMISSION OF SUCH PRICES UNTIL AN HOUR OR TWO PRIOR TO BID OPENING TIME, AND THEN THE PRICES ARE USUALLY SUBMITTED BY TELEPHONE. THEN, WHEN THE BIDS ARE OPENED AND THE LOW BIDDER ANNOUNCED, A NUMBER OF THE SUBCONTRACTORS WILL CONTACT THE LOW BIDDER AND BEGIN NEGOTIATIONS FOR THE SUBCONTRACTS. THEREFORE, THE FIRST PRICE WHICH IS SUBMITTED BY THE SUB-CONTRACTORS IS NOT THE "COMPETITIVE PRICE," BUT IS RATHER THE "GOING IN PRICE.' THE COMPETITION AMONG THE SUB-CONTRACTORS THUS BEGINS WHEN THE LOW BIDDER IS ANNOUNCED AND THE NEGOTIATED PRICE WHICH IS THEN REACHED BETWEEN THE GENERAL CONTRACTOR AND THE SUB- CONTRACTOR IS THE "COMPETITIVE PRICE" OF THE SUB-CONTRACT. IT GOES WITHOUT SAYING, THEREFORE, THAT THE "COMPETITIVE PRICE" IS LOWER THAN THE "GOING IN PRICE.'

2. LET US NOW CONSIDER THE GENERAL CONTRACTOR AT THIS PARTICULAR TIME, I.E., WHEN HE IS COMPILING HIS BID JUST PRIOR TO BID OPENING TIME. KNOWS THAT THE PRICES HE HAS RECEIVED FROM THE SUB CONTRACTORS AS OF THIS PARTICULAR TIME ARE NOT THE SUB CONTRACTORS'"COMPETITIVE PRICES," AND THAT, IF HE, THE GENERAL CONTRACTOR, BE THE LOW BIDDER, HE CAN THEN SECURE "COMPETITIVE RICES" FROM THE SUB-CONTRACTORS. THE GENERAL CONTRACTOR AT THIS PARTICULAR TIME, HOWEVER, IS IN COMPETITION WITH THE OTHER GENERAL CONTRACTORS WHO ARE BIDDING ON THE PROJECT. HE KNOWS THAT THE SAME PROCESS OF NEGOTIATION TO SECURE COMPETITIVE SUB-CONTRACT PRICES IS OPEN TO THE OTHER BIDDERS. WHAT, THEN, DOES THE GENERAL CONTRACTOR DO? IT IS OBVIOUS THAT SINCE HE IS IN COMPETITION WITH THE OTHER GENERAL CONTRACTORS, HE DEDUCTS FROM THE "GOING IN" SUB-CONTRACT PRICES THAT AMOUNT WHICH HE, FROM LONG EXPERIENCE, KNOWS HE WILL SAVE AS A RESULT OF THE COMPETITIVE NEGOTIATION PROCEDURE WHICH WILL THEREAFTER BE FOLLOWED BY THE SUB-CONTRACTORS AND THE GENERAL CONTRACTOR WILL, THEREFORE, COMPILE HIS BID ACCORDINGLY.

IN OUR CASE, REDDING AND COMPANY, INC., INTERPRETED THE REQUIREMENTS TO BE MANDATORY UPON IT TO LIST THE SUB-CONTRACTORS WHICH IT WOULD USE, AND IN COMPILING ITS BID, IT WAS FORCED TO USE THE ,GOING IN" SUB-CONTRACT PRICES. ON THE OTHER HAND, CARL GONNSEN AND SON WAS, BY THE ACTION OF THE CONTRACTING OFFICER, LEFT FREE TO FOLLOW THE OLD AND NORMAL BID PROCEDURE AND TO USE THE COMPETITIVE SUB-CONTRACT PRICES. IT NECESSARILY FOLLOWS, THAT THE GOVERNMENT HAS NOT RECEIVED THE BENEFIT OF "COMPETITIVE PRICES" IN THE REDDING AND COMPANY BID AND FROM THOSE OTHER BIDDERS WHO RESPONDED TO THE REQUIREMENT; IT CANNOT, THEREFORE, BE SAID THAT THE GOVERNMENT HAS RECEIVED THE LOWEST PRICE OBTAINABLE.

WE THINK THAT THE QUOTED PROVISION OF THE INVITATION REQUIRING THE FURNISHING ON A PART OF THE BID FORM (AND APPARENTLY, THEREFORE, TO BE FURNISHED WITH THE BID) OF A LIST OF THE SUBCONTRACTORS PROPOSED TO BE USED COULD REASONABLY BE INTERPRETED AS A MATERIAL PART OF THE BID, FAILURE TO COMPLY WITH WHICH WOULD RESULT IN THE REJECTION OF THE BID. THIS VIEW WERE ADOPTED, IT WOULD FOLLOW AS A NECESSARY COROLLARY THAT THE SUBCONTRACTORS LISTED ARE THOSE WHICH MUST BE USED, SINCE, IF THE BIDDER COULD NEVERTHELESS AMEND THE LIST AFTER BID OPENING, THE REQUIREMENT COULD SERVE NO USEFUL PURPOSE AND WOULD ESTABLISH AN ANOMALY WHEREBY A BID COULD BE REJECTED FOR FAILURE TO FURNISH INFORMATION WHICH THE BIDDER COULD CHANGE AFTER OPENING.

THE ADMINISTRATIVE REPORT INDICATES THAT THE PURPOSE OF THE REQUIREMENT AT ISSUE WAS TO ENABLE THE CONTRACTING OFFICER TO EVALUATE THE CONTRACTOR'S ABILITY TO PERFORM. THIS IS A FACTOR OF ,RESPONSIBILITY" AND INFORMATION IN CONNECTION THEREWITH MAY BE SUBMITTED AFTER BID OPENING AND IS NOT NORMALLY A PART OF THE BID. CF. 37 COMP. GEN. 143. THE INTENDMENT OF THE PROVISION IN QUESTION IS SUPPORTED BY THE LANGUAGE OF PARAGRAPH GC- 6 OF " PART II--- GENERAL CONDITIONS OF SPECIFICATIONS TO LUMP SUM CONSTRUCTION CONTRACTS" -- INCLUDED AS A PART OF THE INVITATION--- WHICH READS:

GC-6. SUBCONTRACTORS: AT THE REQUEST OF THE CONTRACTING OFFICER THE CONTRACTOR SHALL NOTIFY THE CONTRACTING OFFICER, IN WRITING, OF THE NAMES OF ALL SUBCONTRACTORS, TOGETHER WITH A SUMMARY OF THE EXTENT AND CHARACTER OF THE WORK TO BE DONE BY EACH SUBCONTRACTOR. IF FOR SUFFICIENT REASON, AT ANY TIME DURING THE PROGRESS OF THE WORK, THE CONTRACTING OFFICER DETERMINES THAT ANY SUBCONTRACTOR IS INCOMPETENT OR UNDESIRABLE, HE WILL NOTIFY THE CONTRACTOR ACCORDINGLY AND IMMEDIATE STEPS WILL BE TAKEN FOR CANCELLATION OF SUCH SUBCONTRACT. SUBLETTING BY SUBCONTRACTORS SHALL BE SUBJECT TO THE SAME REGULATIONS. NOTHING CONTAINED IN THIS CONTRACT SHALL CREATE ANY CONTRACTUAL RELATION BETWEEN THE SUBCONTRACTOR AND THE GOVERNMENT.

IF THE PROVISION " SUBCONTRACTING" WERE INTERPRETED TO REQUIRE, AS A MATERIAL PART OF THE BID, THE NAMES OF AND OTHER REQUESTED DATA CONCERNING THE PROPOSED SUBCONTRACTORS, THE FIRST SENTENCE OF PARAGRAPH GC-6 WOULD BE UNNECESSARY SINCE THE DATE WOULD ALREADY HAVE BEEN PROVIDED IN THE BID. FOR THE SAME REASON, THE INTERPRETATION URGED BY YOU WOULD BE INCONSISTENT WITH SECTION 1-307 (III) OF THE ARMED SERVICES PROCUREMENT REGULATION AND PARAGRAPH 1-307.1 (B) OF THE ARMY PROCUREMENT PROCEDURE WHICH REQUIRE THAT IN DETERMINING THE RESPONSIBILITY OF A BIDDER PRIOR TO AWARD (WHICH DETERMINATION IS NORMALLY BASED ON DATA DEVELOPED AFTER BIDS ARE OPENED AND THE OTHERWISE RESPONSIVE LOW BIDDER IS SELECTED) CONSIDERATION BE GIVEN TO THE ABILITY OF THE BIDDER TO MAKE ADEQUATE SUBCONTRACTOR ARRANGEMENTS WHICH MAY BE REQUIRED. IN OTHER WORDS, WHERE THE DETERMINATION OF THE ADEQUACY OF SUBCONTRACTOR ARRANGEMENTS IS AN INTEGRAL PART OF THE PROCESS WHEREBY RESPONSIBILITY IS DETERMINED ON THE BASIS OF DATA COLLECTED AFTER BID OPENING, IT APPEARS ILLOGICAL THAT A SIGNIFICANT PORTION OF THAT DATA WOULD BE REQUIRED AS AN ESSENTIAL PART OF THE BID.

WHERE DESIGNATED INFORMATION IS BY THE TERMS OF THE INVITATION REQUIRED TO BE SUBMITTED WITH THE BID, THE INFERENCE ARISES THAT SUCH INFORMATION IS REGARDED BY THE GOVERNMENT AS MATERIAL SO THAT THE FAILURE TO ACCOMPANY THE BID WITH SUCH INFORMATION REQUIRES THAT THE BID BE REJECTED. TO THAT EXTENT, THE LANGUAGE OF THE INVITATION MAY BE REGARDED AS SOMEWHAT MISLEADING. ON THE OTHER HAND, WE BELIEVE THAT INVITATIONS, LIKE CONTRACTS, SHOULD BE SO INTERPRETED AS TO GIVE MEANING TO EACH PART. INDICATED ABOVE, TO GIVE THE PROVISION IN QUESTION THE MEANING YOU URGE WOULD RENDER PARAGRAPH GC-6 MEANINGLESS. FOR THAT REASON AND SINCE SUCH INTERPRETATION WOULD BE INCONSISTENT WITH THE CITED REGULATORY PROVISIONS, WE DO NOT FEEL JUSTIFIED IN DISTURBING THE AWARD AS MADE. WE ARE, HOWEVER, BY SEPARATE LETTER, REQUESTING THE SECRETARY OF THE ARMY TO TAKE WHATEVER STEPS MAY BE NECESSARY TO INSURE THAT FUTURE INVITATIONS OF THIS TYPE ARE COUCHED IN LANGUAGE WHICH WILL CLEARLY ADVISE BIDDERS OF THE NATURE OF THE REQUIREMENT AND THE EFFECT OF FAILURE TO COMPLY THEREWITH.