B-142630, JUNE 15, 1960, 39 COMP. GEN. 840

B-142630: Jun 15, 1960

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WAS NOT ENTITLED TO PROGRESS PAYMENTS FOR OTHER THAN DIRECT WORK ON THE CONTRACT AND THAT BUILDINGS AND EQUIPMENT MAY NOT BE CONSIDERED SPECIAL TOOLING FOR PROGRESS PAYMENTS WAS PROPERLY MADE. 1960: FURTHER REFERENCE IS MADE TO YOUR PROTEST CONCERNING THE ACTION TAKEN BY THE DEPARTMENT OF THE NAVY IN CONNECTION WITH TWO INVITATIONS FOR BIDS ISSUED BY THE U.S.C. WAS ISSUED ON FEBRUARY 18. WAS ISSUED ON MARCH 3. BOTH INVITATIONS WERE COMPLETELY SEPARATE AND INDEPENDENT OF EACH OTHER AND WERE SOLELY FOR THE PROCUREMENT OF THE END ITEMS. THAT IS. THEY WERE NOT FOR THE ESTABLISHMENT OF FACILITIES FOR THE MANUFACTURE OF THE BOMBS. NO PROVISION WAS MADE FOR SPECIAL TOOLING SINCE IT WAS CONSIDERED NO SPECIAL TOOLING WAS REQUIRED.

B-142630, JUNE 15, 1960, 39 COMP. GEN. 840

CONTRACTS - PROGRESS PAYMENTS - REQUEST - SPECIAL TOOLING UNDER A PROGRESS PAYMENT PROVISION IN AN INVITATION FOR THE MANUFACTURE OF BOMBS WHICH DID NOT INCLUDE ANY REFERENCE TO SPECIAL TOOLING BUT SPECIFICALLY REQUIRED THAT COSTS FOR WHICH PROGRESS PAYMENTS WOULD BE MADE MUST BE ALLOCABLE TO THE CONTRACT AND THAT SUCH PAYMENTS WOULD NOT BE MADE FOR COSTS ORDINARILY CAPITALIZED AND SUBJECT TO DEPRECIATION OR AMORTIZATION, AN ADMINISTRATIVE DETERMINATION THAT A BIDDER, WHOSE REQUEST FOR PROGRESS PAYMENTS TO BE SUED TO ENABLE HIM TO PURCHASE A BUILDING AND EQUIPMENT TO PRODUCE THE BOMBS, WAS NOT ENTITLED TO PROGRESS PAYMENTS FOR OTHER THAN DIRECT WORK ON THE CONTRACT AND THAT BUILDINGS AND EQUIPMENT MAY NOT BE CONSIDERED SPECIAL TOOLING FOR PROGRESS PAYMENTS WAS PROPERLY MADE.

TO MMS, INC., JUNE 15, 1960:

FURTHER REFERENCE IS MADE TO YOUR PROTEST CONCERNING THE ACTION TAKEN BY THE DEPARTMENT OF THE NAVY IN CONNECTION WITH TWO INVITATIONS FOR BIDS ISSUED BY THE U.S.C. NAVAL AMMUNITION DEPOT, CRANE, INDIANA.

THE FIRST INVITATION, IFB 164-74-60, WAS ISSUED ON FEBRUARY 18, 1960, FOR 193,000 OF ONE TYPE ( ITEM 1), AND 361,613 OF ANOTHER TYPE ( ITEM 2), OF THE MARK 76 MOD 2, 25-POUND PRACTICE BOMB. THE SECOND INVITATION, IFB 164 -78-60, WAS ISSUED ON MARCH 3, 1960, FOR 44,200, MK 89 MOD 10, 56-POUND PRACTICE BOMB. BOTH INVITATIONS WERE COMPLETELY SEPARATE AND INDEPENDENT OF EACH OTHER AND WERE SOLELY FOR THE PROCUREMENT OF THE END ITEMS, PRACTICE BOMBS. THAT IS, THEY WERE NOT FOR THE ESTABLISHMENT OF FACILITIES FOR THE MANUFACTURE OF THE BOMBS, AND NO PROVISION WAS MADE FOR SPECIAL TOOLING SINCE IT WAS CONSIDERED NO SPECIAL TOOLING WAS REQUIRED. AWARDS UNDER BOTH INVITATIONS WERE RESTRICTED TO SMALL BUSINESS FIRMS AND BOTH INVITATIONS PROVIDED FOR PROGRESS PAYMENTS, IN PERTINENT PART, AS FOLLOWS:

PROGRESS PAYMENTS

PROGRESS PAYMENTS SHALL BE MADE TO THE CONTRACTOR AS WORK PROGRESSES, FROM TIME TO TIME UPON REQUEST, IN AMOUNTS APPROVED BY THE CONTRACTING OFFICER UPON THE FOLLOWING TERMS AND CONDITIONS:

(A) COMPUTATION OF AMOUNTS.

(1) UNLESS A SMALLER AMOUNT IS REQUESTED, EACH PROGRESS AMOUNT SHALL BE (I) 75 PERCENT OF THE AMOUNT OF THE CONTRACTOR'S TOTAL COSTS INCURRED UNDER THIS CONTRACT PLUS (II) TO THE EXTENT IF ANY PROVIDED IN THE SCHEDULE, THE AMOUNT OF THE PROGRESS PAYMENTS MADE BY THE CONTRACTOR TO ITS SUBCONTRACTORS AND REMAINING UNLIQUIDATED; ALL LESS THE SUM OF PREVIOUS PROGRESS PAYMENTS.

(2) THE CONTRACTOR'S TOTAL COSTS SHALL BE REASONABLE, ALLOCABLE TO THIS CONTRACT, AND CONSISTENT WITH SOUND AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES. HOWEVER, SUCH COSTS SHALL NOT INCLUDE (I) ANY COSTS INCURRED BY SUBCONTRACTORS OR SUPPLIERS, OR (II) ANY PAYMENTS OR AMOUNTS PAYABLE TO SUBCONTRACTORS OR SUPPLIERS, EXCEPT FOR COMPLETED WORK (INCLUDING PARTIAL DELIVERIES) TO WHICH THE CONTRACTOR HAS ACQUIRED TITLE AND EXCEPT FOR AMOUNTS PAID OR PAYABLE UNDER COST-REIMBURSEMENT OR TIME AND MATERIAL SUBCONTRACTS FOR WORK TO WHICH THE CONTRACTOR HAS ACQUIRED TITLE, OR (III) COSTS ORDINARILY CAPITALIZED AND SUBJECT TO DEPRECIATION OR AMORTIZATION EXCEPT FOR THE PROPERLY DEPRECIATED OR AMORTIZED PORTION OF SUCH COSTS.

MMS, INC., SUBMITTED A BID DATED MARCH 18, 1960, ON THE 25-POUND PRACTICE BOMBS, OF $4 EACH ON BOTH ITEMS, ALL OR NONE, LESS A PROMPT PAYMENT DISCOUNT OF ONE-HALF PERCENT FOR PAYMENT WITHIN 20 CALENDAR DAYS, OR FOR A TOTAL OF 554, 613 BOMBS FOR A NET PRICE OF $2,207,359.74. THE BID UNCONDITIONALLY OFFERED TO MEET ALL TERMS AND CONDITIONS OF THE INVITATION, INCLUDING DELIVERY. THE INVITATION CONTAINED THE STATEMENT " PROGRESS PAYMENTS ARE REQUESTED.' SUBSEQUENT TO THE TIME SET FOR THE OPENING OF THE BIDS, 1:30 P.M., MARCH 21, 1960, THERE WAS RECEIVED FROM MMS, INC., A TELEGRAM INCREASING THE UNIT PRICE BY $0.108 PER UNIT, OR TO $4.108 PER BOMB, OR A TOTAL INCREASE OF $59,898.20. BY NIGHT LETTER TELEGRAM DATED MARCH 21, 1960, MMS, INC., NOTIFIED THE CONTRACTING OFFICER THAT THE TELEGRAM INCREASING THE PRICE WAS SENT TOO LATE TO HAVE BEEN RECEIVED PRIOR TO THE OPENING OF THE BIDS AND, THEREFORE, COULD NOT BE HONORED OR CONSIDERED PURSUANT TO PARAGRAPH 2A OF THE GENERAL TERMS AND CONDITIONS OF THE INVITATION. THIRTEEN BIDS WERE RECEIVED. THE BID OF MMS, INC., WAS LOW ONLY IF THE LATE TELEGRAM INCREASING THE PRICE WAS NOT PROPERLY FOR CONSIDERATION, AND ON THE FACTS STATED IT WAS NOT.

ON MARCH 23, 1960, THE CONTRACTING AGENCY REQUESTED THE INSPECTOR OF NAVAL MATERIAL, ATLANTA, GEORGIA, TO CONDUCT A PREAWARD SURVEY OF MMS, INC., AND ON MARCH 25, 1960, THE SMALL BUSINESS ADMINISTRATION WAS REQUESTED TO INVESTIGATE THE CORPORATION PREPARATORY TO THE ISSUANCE OF A " CERTIFICATE OF COMPETENCY," IF DEEMED APPROPRIATE. DURING THE TIME BETWEEN THE REQUEST FOR THE PREAWARD SURVEY AND THE AWARD OF THE CONTRACT, THE CONTRACTING OFFICER WAS IN FREQUENT COMMUNICATION WITH THE OFFICE OF THE INSPECTOR OF NAVAL MATERIAL, ATLANTA, GEORGIA, REPRESENTATIVES OF THE SMALL BUSINESS ADMINISTRATION, AND MMS, INC., THE TWO BASIC FACTS DISCUSSED WERE (1) THE CAPABILITY OF MMS, INC., TO MEET THE DELIVERY DATES SET FORTH IN THE INVITATION TO WHICH NO EXCEPTION WAS TAKEN, AND (2) THE PROGRESS PAYMENTS REQUIREMENTS WHICH MMS, INC., WAS REQUESTING WITH RESPECT TO SPECIAL TOOLING. THE PREAWARD SURVEY INDICATED THAT MMS, INC., COULD NOT MEET THE DELIVERY REQUIREMENTS. THE CONTRACTING OFFICER WAS ADVISED BY THE SMALL BUSINESS ADMINISTRATION, AND ALSO BY MR. GRIMLAND OF MMS, INC., THAT THE CORPORATION WAS REQUESTING AND REQUIRING PROGRESS PAYMENTS ON SPECIAL TOOLING OF BETWEEN $200,000 AND $300,000. MR. GRIMLAND ADVISED THAT MMS, INC., PLANNED PRODUCING THE BOMB IN TWO PHASES. PHASE 1 WAS TO BE ALMOST A TOTAL SUBCONTRACTED JOB. PHASE 2 WOULD BE BASED ON DEVELOPING A FULLY AUTOMATIC PLANT OR FACILITY WHEREIN MMS, INC., COULD UNDERTAKE FULL PRODUCTION OF THE BOMBS.

SINCE THE INVITATION DID NOT PROVIDE FOR SPECIAL TOOLING FOR THE MANUFACTURE OF THE BOMBS, THE CONTRACTING OFFICER DETERMINED THAT PROGRESS PAYMENTS COULD BE MADE ONLY ON THE DIRECT WORK IN PROGRESS AS APPLICABLE TO THE BOMBS COVERED BY THE INVITATION. ON THE BASIS OF THE PREAWARD SURVEY AND THE INFORMATION RECEIVED FROM THE SMALL BUSINESS ADMINISTRATION, THE CONTRACTING OFFICER DETERMINED THAT MMS, INC., COULD NOT BE CONSIDERED A RESPONSIBLE BIDDER FOR AWARD OF THE SUBJECT PROCUREMENT. ALSO, THE SMALL BUSINESS ADMINISTRATION REFUSED TO ISSUE A CERTIFICATE OF COMPETENCY TO MMS, INC. AWARDS WERE ACCORDINGLY MADE TO THE LOWEST BIDDERS DETERMINED TO BE CAPABLE OF MANUFACTURING THE BOMBS, IN ACCORDANCE WITH THE TERMS OF THE INVITATION.

ALTHOUGH PRIOR TO THE TIME FOR THE OPENING OF THE BIDS ON THE 56 POUND BOMBS, MMS, INC., WAS AWARE OF THE FACT THAT THERE WAS A SERIOUS QUESTION AS TO WHETHER IT WOULD RECEIVE THE AWARD ON THE 25-POUND BOMBS, MMS, INC., SUBMITTED AN UNQUALIFIED BID OFFERING TO FURNISH THE 56-POUND BOMBS FOR A UNIT PRICE OF $9 EACH. THE BID OF MMS, INC., UNDER THIS INVITATION, WAS THE LOWEST OF THE SEVEN BIDS RECEIVED. HOWEVER, THE PREAWARD SURVEY UNDER THE PRIOR INVITATION DISCLOSED THAT THIS BID WAS ENTIRELY CONTINGENT ON RECEIPT OF THE AWARD UNDER ITS BID ON THE 25-POUND BOMBS. ALSO, MMS, INC., ADVISED THAT IT WOULD NOT ATTEMPT TO OBTAIN A CERTIFICATE OF COMPETENCY FROM THE SMALL BUSINESS ADMINISTRATION IN CONNECTION WITH THIS INVITATION.

YOUR PROTEST OF THE REJECTION OF YOUR BID UNDER THE FIRST INVITATION, THE 25-POUND BOMBS, IS BASED ENTIRELY ON THE REFUSAL OF THE CONTRACTING OFFICER TO GRANT MMS, INC., PROGRESS PAYMENTS ON SPECIAL TOOLING. APPEARS TO BE CONCEDED BY YOU THAT MMS, INC., COULD NOT PERFORM UNDER ANY CIRCUMSTANCES WITHOUT SUCH PROGRESS PAYMENTS.

THE RECORD SHOWS THAT YOU CONTENDED THAT YOU COULD BUY A BUILDING ( BUTLER HUT TYPE), CONVEYOR LINE, AND OTHER EQUIPMENT WHICH SHOULD BE CLASSIFIED AS "SPECIAL TOOLING," AND THAT THE GOVERNMENT SHOULD PAY PROGRESS PAYMENTS THEREFOR TO THE EXTENT OF BETWEEN $200,000 AND $300,000. THE CONTRACTING OFFICER DETERMINED THAT UNDER THE TERMS OF THE INVITATION, PROGRESS PAYMENTS COULD ONLY BE MADE IN CONNECTION WITH DIRECT WORK IN PROGRESS IN CONNECTION WITH THE BOMBS INVOLVED. EVEN IF SUCH PROGRESS PAYMENTS COULD BE MADE, AS REQUESTED, IT WAS THE CONTRACTING OFFICER'S VIEW THAT THE GOVERNMENT WOULD BE RISKING APPROXIMATELY A QUARTER OF A MILLION DOLLARS TO PROVIDE MMS, INC., WITH FACILITIES FOR PRODUCTION, WITHOUT A SATISFACTORY SHOWING THAT PRODUCTION OR DELIVERY SCHEDULES ESTABLISHED BY THE INVITATION COULD BE MET.

IT CONSISTENTLY HAS BEEN HELD THAT THE DETERMINATION OF THE QUALIFICATION OF BIDDERS IS PRIMARILY THE FUNCTION OF THE ADMINISTRATIVE OFFICERS CONCERNED, AND, IN THE ABSENCE OF ANY SHOWING OF BAD FAITH OR LACK OF REASONABLE FACTUAL BASIS FOR DETERMINATION MADE, THERE IS NO LEGAL BASIS FOR US TO QUESTION THE DETERMINATION. THE RECORD SHOWS THAT THE DEPARTMENT OF THE NAVY, AFTER CAREFUL INVESTIGATION AND FULL CONSIDERATION OF THE FACTS, DETERMINED THAT YOUR BID MUST BE REJECTED ON THE BASIS OF LACK OF RESPONSIBILITY. ALSO, THE SMALL BUSINESS ADMINISTRATION REFUSED TO ISSUE A CERTIFICATE OF COMPETENCY FOR REASONS OTHER THAN THE CONTRACTING OFFICER'S DETERMINATION THAT PROGRESS PAYMENTS COULD NOT BE MADE FOR "SPECIAL TOOLING" AS REQUESTED BY MMS, INC.

WITH RESPECT TO THE QUESTION OF THE PROGRESS PAYMENTS, WE BELIEVE THAT THE DETERMINATION MADE WITH RESPECT THERETO WAS CORRECT. THE PROGRESS PAYMENTS PROVISION OF THE INVITATION QUOTED ABOVE DID NOT INCLUDE ANY REFERENCE TO SPECIAL TOOLING, BUT SPECIFICALLY PROVIDED THAT COSTS FOR WHICH PROGRESS PAYMENTS WOULD BE MADE MUST BE "ALLOCABLE TO THIS CONTRACT," AND THAT SUCH PAYMENTS WOULD NOT BE MADE FOR "COSTS ORDINARILY CAPITALIZED AND SUBJECT TO DEPRECIATION OR AMORTIZATION EXCEPT FOR THE PROPERLY DEPRECIATED OR AMORTIZED PORTION OF SUCH COSTS.' THE COSTS OF THE BUILDING AND EQUIPMENT, WHICH YOU URGE SHOULD BE CONSIDERED AS "SPECIAL TOOLING," APPEAR TO BE CAPITAL ITEMS RATHER THAN ITEMS RELATED SOLELY TO THE MANUFACTURE OF THE BOMBS COVERED BY THE INVITATION.

IN VIEW OF THE FOREGOING, WE FIND NO BASIS TO QUESTION THE ADMINISTRATIVE DETERMINATIONS MADE IN THIS CASE AND YOUR PROTEST MUST THEREFORE BE DENIED.