B-144768, JANUARY 23, 1961, 40 COMP. GEN. 425

B-144768: Jan 23, 1961

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A BIDDER WHO SUBMITS THE ONLY BID ON A LEASE BASIS WITH THE STIPULATION THAT THE GOVERNMENT MUST PAY THE COST OF REPLACING RETIREMENT UNITS OF PROPERTY HAS SUBMITTED A BID WHICH CANNOT BE EVALUATED ON THE BASIS OF ALL COSTS DIRECTLY ATTRIBUTABLE TO THE MAINTENANCE OF THE EQUIPMENT FOR THE CONTRACT PERIOD WHICH WAS THE BASIS FOR EVALUATION OF THE OTHER BIDS SUBMITTED ON THE GOVERNMENT OWNED EQUIPMENT BASIS. SUCH QUALIFIED BID WAS PROPERLY REJECTED AS NONRESPONSIVE TO THE INVITATION. 1961: WE HAVE YOUR LETTER OF JANUARY 10. THAT PORTION OF THE INVITATION IS NOT IN QUESTION AND WILL NOT BE CONSIDERED HERE. THE ALTERNATE TO BE SELECTED WAS THAT WHICH WOULD PROVE LESS COSTLY TO THE GOVERNMENT OVER A 10-YEAR PERIOD IN ACCORDANCE WITH THE FOLLOWING FORMULAE: CHART GOVERNMENT OWNED COMMERCIAL LEASE TOTAL BID PRICE ( ITEMS 1 THRU E OR ITEMS 5 NON-RECURRING AND THRU 5E) CONSTRUCTION CHARGES LESS ST YEAR M AND O (1ITEM C.2 OR ITEM 5C2) PLUS RECURRING MONTHLY CHARGE X 120 *1PLUS EASEMENTS (1WALKER OR PLATTSBURG) PLUS NON- RECURRING M AND O (1CLAUSE 44B.).

B-144768, JANUARY 23, 1961, 40 COMP. GEN. 425

BIDS - EVALUATION - ALTERNATE BID RESPONSIVENESS - GOVERNMENT OWNERSHIP V. LEASE OF EQUIPMENT UNDER AN INVITATION WHICH SOLICITED BIDS ON THE BASES THAT GOVERNMENT WOULD PURCHASE THE EQUIPMENT, WITH THE CONTRACTOR MAINTAINING THE EQUIPMENT FOR A YEAR, OR IN THE ALTERNATIVE THAT THE GOVERNMENT WOULD LEASE THE EQUIPMENT FOR A PERIOD OF YEARS, WHICHEVER ALTERNATIVE WOULD BE LESS COSTLY TO THE GOVERNMENT OVER A TEN-YEAR PERIOD BASED ON CERTAIN MAINTENANCE AND OPERATION COSTS AND RECURRING AND NONRECURRING CHARGES, A BIDDER WHO SUBMITS THE ONLY BID ON A LEASE BASIS WITH THE STIPULATION THAT THE GOVERNMENT MUST PAY THE COST OF REPLACING RETIREMENT UNITS OF PROPERTY HAS SUBMITTED A BID WHICH CANNOT BE EVALUATED ON THE BASIS OF ALL COSTS DIRECTLY ATTRIBUTABLE TO THE MAINTENANCE OF THE EQUIPMENT FOR THE CONTRACT PERIOD WHICH WAS THE BASIS FOR EVALUATION OF THE OTHER BIDS SUBMITTED ON THE GOVERNMENT OWNED EQUIPMENT BASIS; THEREFORE, SUCH QUALIFIED BID WAS PROPERLY REJECTED AS NONRESPONSIVE TO THE INVITATION.

TO THE MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, JANUARY 23, 1961:

WE HAVE YOUR LETTER OF JANUARY 10, 1961, PROTESTING AGAINST THE REJECTION OF THE BID SUBMITTED JOINTLY BY YOUR FIRM AND THE PENASCO VALLEY TELEPHONE COOPERATIVE, INCORPORATED, PURSUANT TO INVITATION NO. 30-635-61-74, ISSUED NOVEMBER 2, 1960, BY THE DEPARTMENT OF THE AIR FORCE, FOR THE INSTALLATION AND MAINTENANCE OF AN INTERSITE COMMUNICATIONS SYSTEM FOR THE WALKER MISSILE SQUADRON AT ROSWELL, NEW MEXICO.

THE INVITATION ALSO SOLICITED BIDS FOR THE SAME TYPE OF INSTALLATION AT PLATTSBURGH, NEW YORK, BUT THAT PORTION OF THE INVITATION IS NOT IN QUESTION AND WILL NOT BE CONSIDERED HERE.

THE INVITATION, ISSUED AS THE SECOND PART OF A 2-STEP FORMALLY ADVERTISED PROCUREMENT (SEE 40 COMP. GEN. 35), SOLICITED BIDS EITHER ON THE BASIS THAT THE GOVERNMENT WOULD PURCHASE THE SYSTEM TO BE INSTALLED BY THE CONTRACTOR AND THE CONTRACTOR WOULD MAINTAIN IT FOR A PERIOD OF ONE YEAR, OR IN THE ALTERNATIVE THAT THE CONTRACTOR WOULD RETAIN TITLE TO THE SYSTEM AND THE GOVERNMENT WOULD LEASE SUCH SYSTEM FOR A PERIOD OF 10 YEARS. PURSUANT TO THE TERMS OF THE INVITATION, THE ALTERNATE TO BE SELECTED WAS THAT WHICH WOULD PROVE LESS COSTLY TO THE GOVERNMENT OVER A 10-YEAR PERIOD IN ACCORDANCE WITH THE FOLLOWING FORMULAE:

CHART

GOVERNMENT OWNED COMMERCIAL LEASE TOTAL BID PRICE ( ITEMS 1 THRU E OR ITEMS 5 NON-RECURRING AND

THRU 5E) CONSTRUCTION CHARGES LESS ST YEAR M AND O (1ITEM C.2 OR ITEM 5C2) PLUS RECURRING

MONTHLY CHARGE X 120 *1PLUS EASEMENTS (1WALKER OR PLATTSBURG) PLUS NON- RECURRING M AND O (1CLAUSE 44B.) PLUS RECURRING ANNUAL M AND 10 X 10

(1CLAUSE 44B) ------------------------------------------ --- ------------ ----------- I. TOTAL COST TO GOVERNMENT FOR II. TOTAL COST TO

GOVERNMENT OWNED SYSTEM GOVERNMENT FOR

COMMERCIALLY LEASED

SYSTEM

IF I IS LOWER THAN II A GOVERNMENT OWNED SYSTEM WILL BE PURCHASED PURSUANT TO SECTION I OF THE IFB OR IF II IS LOWER THAN I THE SYSTEM WILL BE COMMERCIALLY LEASED AS CONTEMPLATED BY SECTION II.

*FIGURE WILL BE ANNOUNCED OR FURNISHED AFTER OPENING OF BIDS.

BIDS WERE OPENED AS SCHEDULED ON NOVEMBER 18, 1960. YOUR BID WAS SUBMITTED ON A BASIS PROVIDING FOR LEASE OF THE FACILITY TO THE GOVERNMENT OVER A 10-YEAR PERIOD, WHICH FOR THE INSTALLATION AT ROSWELL, NEW MEXICO, IS DESCRIBED IN THE INVITATION AS FOLLOWS:

CHART

ITEM 1--- FURNISH A LEASED COMMUNICATIONS SYSTEM FOR WALKER MISSILE SQUADRON FOR A TEN (10) YEAR PERIOD IN ACCORDANCE WITH SPECIFICATION ROZ 61-C-D-6 DATED 24 AUGUST 1960 AND ADDENDUM NO. 1 DATED 6 SEPTEMBER 1960 AND ADDENDUM NO. 3 DATED 30 SEPTEMBER 1960. CHARGES TO BE BID AS FOLLOWS:

1. NON-RECURRING AND CONSTRUCTION CHARGES ---------- $------------

2. MONTHLY RECURRING CHARGES ------------------------ $------------

THE LOWEST BID SUBMITTED ON THE BASIS OF A GOVERNMENT-OWNED SYSTEM WAS FROM ITT KELLOGG, A DIVISION OF THE INTERNATIONAL TELEPHONE AND TELEGRAPH CORPORATION, WHICH WAS EVALUATED UNDER THE FORMULA SET OUT ABOVE AT $3,225,161 FOR THE 10-YEAR PERIOD. YOUR BID, THE ONLY ONE RECEIVED ON THE LEASE BASIS, WAS EVALUATED FOR THE 10-YEAR PERIOD AT $2,072,143. HOWEVER, NOTE NO. 2 ON PAGE 2 OF YOUR PROPOSAL PROVIDED:

THE MONTHLY RECURRING CHARGE QUOTED ABOVE INCLUDES ALL OF THE MAINTENANCE COSTS FOR THE FULL 10-YEAR PERIOD, NOT ONLY THE RECURRING ITEMS OF COST BUT ALSO MOTOR VEHICLE AND TOOL EXPENSE WHICH MAY BE CLASSED AS NON- RECURRING BUT WHICH WILL INVOLVE REPLACEMENT ONE OR MORE TIMES DURING THE 10-YEAR PERIOD. IT DOES NOT INCLUDE THE REPLACEMENT OF "RETIREMENT UNITS OR PROPERTY" AS DEFINED IN THE UNIFORMED SYSTEM OF ACCOUNTS PRESCRIBED BY THE FEDERAL COMMUNICATIONS COMMISSION FOR CLASS A AND CLASS B TELEPHONE COMPANIES. THE GOVERNMENT WILL BE REQUIRED TO PAY THE COST OF REPLACEMENT OF SUCH "RETIREMENT UNITS OF PROPERTY" AS AND WHEN SUCH REPLACEMENT IS REQUIRED REGARDLESS OF THE REASON FOR THE REPLACEMENT.

WHILE THE INVITATION DOES NOT SPECIFICALLY REQUIRE THAT A BID ON A LEASE BASIS INCLUDE ALL OF THE COSTS DIRECTLY ATTRIBUTABLE TO THE MAINTENANCE OF THE SYSTEM FOR THE CONTRACT PERIOD, THE INVITATION MUST SO BE INTERPRETED IN ORDER TO GIVE THE SYSTEM OF EVALUATION ANY VALIDITY. IF BIDDERS COULD PROVIDE FOR THE OMISSION OF CERTAIN COSTS IN THE EVALUATION OF THEIR BIDS, THEY WOULD NOT BE COMPETING ON AN EQUAL BASIS AS REQUIRED BY THE ADVERTISING STATUTES.

THE CONTRACTING OFFICER SOLICITED THE VIEWS OF THE FEDERAL COMMUNICATIONS COMMISSION AS TO THE EFFECT OF THE INCLUSION IN YOUR BID OF THE PROVISION WHEREBY RETIREMENT UNITS OF PROPERTY WOULD BE REPLACED AT THE GOVERNMENT'S COST. IN A LETTER OF DECEMBER 7, 1960, THE ACTING SECRETARY OF THE COMMISSION STATED THAT THE COSTS OF REPLACEMENT OF RETIREMENT UNITS OF PROPERTY ARE NORMALLY INCLUDED IN MONTHLY RECURRING CHARGES; THAT THE ELIMINATION OF SUCH COSTS FROM THE MONTHLY RECURRING CHARGES SHOULD RESULT IN A LOWER MONTHLY RECURRING CHARGE; AND THE ELIMINATION OF THOSE COSTS FROM THE MONTHLY RECURRING CHARGES MAKES THE GOVERNMENT LIABLE FOR THE COST OF REPLACEMENT OF ALL MAJOR ITEMS OF CAPITAL EQUIPMENT AT ANY TIME DURING THE TERM OF THE LEASE. IN VIEW OF THE FOREGOING, AND UPON A DETERMINATION--- BASED ON AN ANALYSIS OF PREVIOUS BIDDING PATTERNS ESTABLISHED BY YOUR FIRM ON SIMILAR PROCUREMENTS--- THAT HAD YOUR REGULAR PRICING POLICY BEEN FOLLOWED YOUR BID, IF NOT CONDITIONED, WOULD HAVE BEEN EVALUATED AT A HIGHER FIGURE THAN THE LOW BID, YOUR BID WAS REJECTED AND AWARD WAS MADE TO ITT KELLOGG ON DECEMBER 16, 1960. UPON RECEIPT OF YOUR PROTEST, A STOP ORDER HAS BEEN ISSUED BY THE AIR FORCE PENDING OUR RESOLUTION IN THE MATTER.

IN YOUR LETTER OF JANUARY 10, 1961, YOU STATE THAT BASED ON YOUR EXPERIENCE THE COST OF REPLACING RETIREMENT UNITS OF PROPERTY FOR THE 10- YEAR PERIOD WOULD NOT EXCEED $60,000 AND, THEREFORE, THAT IT WOULD HAVE BEEN DECIDEDLY TO THE GOVERNMENT'S FINANCIAL ADVANTAGE TO ACCEPT YOUR OFFER. AS POINTED OUT ABOVE, THE DEPARTMENT OF THE AIR FORCE HAS OFFICIALLY REPORTED TO US THAT, AFTER ANALYZING YOUR PREVIOUS BIDS FOR ALL INTERSITE SYSTEMS, A BID FOR THE WALKER SITE BASED ON YOUR OWN PRICING POLICY "WOULD HAVE BEEN HIGHER THAN THE LOW BIDDER OFFERING SERVICES FOR A GOVERNMENT-OWNED SYSTEM.' IN ANY EVENT, IT SHOULD BE NOTED THAT UNDER LONG-STANDING RULINGS OF OUR OFFICE AND OF THE STATE AND FEDERAL COURTS, AN AWARD PURSUANT TO COMPETITIVE BIDDING PROCEDURES MAY BE MADE ONLY TO THAT RESPONSIBLE BIDDER WHOSE BID IS LOW AND IS RESPONSIVE IN ALL MATERIAL RESPECTS TO THE INVITATION FOR BIDS. NEW YORK MAIL AND NEWSPAPER TRANS. CO. V. UNITED STATES, 139 CT. CL. 751; 17 COMP. GEN. 554. SEE ALSO UNITED STATES V. ELLICOTT, 223 U.S. 524. EVEN ACCEPTING YOUR POSITION AS TO THE REPLACEMENT COST OF THE RETIREMENT UNITS OF PROPERTY, YOUR BID MUST BE CONSIDERED MATERIALLY AT VARIANCE FROM THE TERMS OF THE INVITATION, WHICH REASONABLY MUST BE REGARDED AS REQUIRING THE INCLUSION IN THE BID PRICE OF ALL MAINTENANCE COSTS FOR THE CONTRACT. THEREFORE, WE CONCLUDE THAT YOUR BID WAS PROPERLY REJECTED BY THE AIR FORCE AS NOT RESPONSIBLE TO THE TERMS OF THE INVITATION.

IN YOUR LETTER YOU ALSO POINT OUT THAT UNDER THE EVALUATION FORMULA IN THE INVITATION, THE FIRST YEAR'S MAINTENANCE AND OPERATION EXPENSES ARE REGARDED AS TYPICAL FOR THE 10-YEAR PERIOD. IT IS YOUR POSITION THAT THIS APPLICATION IS INVALID, SINCE THE MAINTENANCE COSTS MAY BE EXPECTED TO INCREASE DURING THE LATTER PART OF THE 10-YEAR PERIOD. THUS, IT APPEARS TO BE YOUR POSITION THAT THOSE BIDDERS WHO BID ON THE GOVERNMENT OWNERSHIP BASIS ARE FAVORED IN THE EVALUATION PROCESS OVER THOSE WHO OFFERED BIDS ON A LEASE BASIS. WE HAVE BEEN INFORMALLY ADVISED BY REPRESENTATIVES OF THE DEPARTMENT OF THE AIR FORCE THAT WHILE REPLACEMENT COSTS MAY BE EXPECTED TO INCREASE IN THE LATTER PART OF THE 10-YEAR PERIOD, THE "SHAKE-DOWN" COSTS INCURRED IN THE EARLY PHASES OF OPERATIONS TEND TO OFFSET THE RELATIVELY LOW REPLACEMENT COSTS, SO THAT THE FIRST YEAR MAY BE REGARDED AS SUBSTANTIALLY TYPICAL AS TO RECURRING MAINTENANCE COSTS FOR THE 10-YEAR PERIOD. WE ARE FURTHER ADVISED THAT OF THE 12 INSTALLATIONS CONTRACTED FOR BY THE AIR FORCE, EXCLUDING THE ONE HERE UNDER CONSIDERATION, 7 HAVE BEEN AWARDED ON A GOVERNMENT-OWNED AND 5 ON A LEASE BASIS; AND THAT THE SAME TYPE OF EVALUATION HAS BEEN USED IN EACH OF THE PROCUREMENTS. IF, AS YOU CONTEND, THOSE BIDDING ON A GOVERNMENT-OWNED BASIS ARE FAVORED BY THE EVALUATION FORMULAE, IT APPEARS REASONABLE TO ASSUME THAT ALL, OR THE VAST MAJORITY OF PROCUREMENTS, SHOULD HAVE BEEN LET ON THAT BASIS. THE FACT THAT A NUMBER OF PROCUREMENTS HAVE BEEN AWARDED ON EACH ALTERNATIVE TENDS TO BEAR OUT THE POSITION OF THE AIR FORCE THAT THE EVALUATION FORMULAE DO NOT FAVOR EITHER TYPE OF CONTRACT.

THE BID EVALUATION PROCESS INCLUDES CONSIDERATION OF PROJECTED SERVICING COSTS. IT MUST BE RECOGNIZED THAT THE EXERCISE OF A CONSIDERABLE DEGREE OF JUDGMENT IS NECESSARILY INVOLVED IN THE ASSIGNMENT OF DEFINITE VALUES TO AN UNCERTAIN FUTURE. IT APPEARS HERE THAT THE STATED BASIS OF EVALUATION HAS LOGICAL SUPPORT FROM DATE DERIVED FROM PAST EXPERIENCE.

IN VIEW OF THE FOREGOING, WE CONCLUDE THAT THERE HAS BEEN PRESENTED NO BASIS UPON WHICH WE MAY TAKE LEGAL EXCEPTION TO THE AWARD AS MADE.