B-143219, AUG. 4, 1960

B-143219, AUG. 4, 1960

TO KUTHE LABORATORIES, INC.:

FURTHER REFERENCE IS MADE TO YOUR TELEGRAM AND LETTER OF JUNE 15, 1960, PROTESTING AGAINST THE AWARD OF A CONTRACT TO THE CHATHAM ELECTRONICS DIVISION OF TUNG-SOL ELECTRIC, INC., UNDER FORMALLY ADVERTISED INVITATION 33-604-60-747 DATED APRIL 22, 1960, ON THE BASIS THAT CHATHAM HAS AN UNFAIR COMPETITIVE ADVANTAGE IN THAT IT WILL BE PERMITTED TO USE GOVERNMENT INDUSTRIAL FACILITIES IN ITS POSSESSION CONTRARY TO REVISION 49, DATED OCTOBER 1, 1959, OF ASPR 13-407 WHICH REQUIRES THE PAYMENT OF A CASH RENTAL WHERE GOVERNMENT FACILITIES ARE TO BE USED IN THE PERFORMANCE OF CONTRACTS ENTERED INTO BY FORMAL ADVERTISING.

HOWEVER, THE CURRENT REQUIREMENT IN ASPR FOR CASH RENTAL WAS NOT REQUIRED BY THE REGULATION AT THE TIME THE AGREEMENT WAS EXECUTED COVERING THE FACILITIES CHATHAM CONTEMPLATES USING IN PERFORMANCE OF ITS CONTRACT UNDER INVITATION 33-604-60-747. THEREFORE, THE REQUIREMENT IS NOT FOR APPLICATION HERE. INSTEAD, WE MUST LOOK TO THE TERMS OF THE REGULATION AT THE TIME THE CONTRACTOR ACQUIRED THE RIGHT TO USE GOVERNMENT FURNISHED EQUIPMENT. THEN ASPR 13-407 PROVIDED THAT--

"FACILITIES CONTRACTS SHALL NOT AUTHORIZE THE USE OF INDUSTRIAL FACILITIES WITHOUT CHARGE TO PERFORM CONTRACTS ENTERED INTO BY FORMAL ADVERTISING.'

IT HAS BEEN ASCERTAINED THAT BEFORE THE AGREEMENT COVERING THE FACILITIES WAS ENTERED INTO, THE GOVERNMENT CONSIDERED CHARGING A CASH RENTAL. HOWEVER, SINCE CHATHAM WAS IN POSSESSION OF ABOUT $4,000,0000 (ACQUISITION COST) WORTH OF GOVERNMENT FACILITIES AND WOULD ONLY USE $800,000 WORTH, OR LESS, IT WAS DETERMINED THAT THE 1 PERCENT OF ACQUISITION COST RENTAL RATE ESTABLISHED IN ASPR 13-601.2 FOR THE FACILITIES THAT WOULD BE USED WOULD BE LESS THAN THE COST THE CONTRACTOR WOULD BE REQUIRED TO BEAR IN STORING AND MAINTAINING BEYOND A NORMAL MEASURE, IN IDLE AS WELL AS ACTIVE PERIODS, ALL OF THE FACILITIES WITHOUT REMUNERATION. AS A RESULT, THERE WAS INCLUDED IN THE FACILITIES AGREEMENT A STATEMENT THAT THE CONTRACTOR'S ADDITIONAL RESPONSIBILITIES FOR MAINTENANCE, PRESERVATION AND PROTECTION OF THE FACILITIES WOULD BE THE SOLE COST AND EXPENSE OF THE CONTRACTOR AND WOULD BE IN LIEU OF RENTAL CHARGES AND CONSTITUTE ADEQUATE CONSIDERATION FOR THE USE OF THE FACILITIES FOR GOVERNMENT PRODUCTION. THEREFORE, THE ADDITIONAL MAINTENANCE OBLIGATION OF ALL THE FACILITIES APPEARS TO HAVE BEEN CONSIDERED AND RECOGNIZED IN THE AGREEMENT AS A FAIR CHARGE FOR THE LIMITED FACILITIES THAT THE CONTRACTOR WOULD USE DURING THE TERM OF THE AGREEMENT WHICH EXPIRES IN MAY 1962.

WHILE IT MAY BE THAT THE CONTRACTOR IS NOT REQUIRED TO PAY THE GOVERNMENT IN CASH FOR THE USE OF THE EQUIPMENT, IT APPARENTLY IS INCURRING A SUBSTANTIAL EXPENSE WHICH MUST BE CONSIDERED AS REMUNERATION IN KIND TO THE GOVERNMENT, SO THAT WE DO NOT THINK THAT THE CONTRACTOR CAN BE SAID TO BE USING THE FACILITIES WITHOUT COST OR CHARGE. AND, BECAUSE THE UPKEEP OBLIGATION UNDERTAKEN IS BEYOND THE ORDINARY 1 PERCENT RENTAL MEASURE, WE CANNOT CONCLUDE THAT CHATHAM HAS BEEN ACCORDED ANY COMPETITIVE ADVANTAGE.

ACCORDINGLY, IN THE CIRCUMSTANCES WE WILL NOT OBJECT TO THE AWARD OF THE CONTRACT AS PROPOSED BY THE CONTRACTING OFFICE.