B-145416, JUL. 10, 1961

B-145416: Jul 10, 1961

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TO THE WHELAND COMPANY: REFERENCE IS MADE TO YOUR TELEGRAM OF MARCH 23. ASKING THIS OFFICE TO REVIEW THE DEPARTMENT'S EVALUATION OF YOUR OFFER AND OF FOOD MACHINERY'S OFFER AND DETERMINE IF THE AWARD WAS. THE SPECIFIC FACTORS TO WHICH YOU HAVE INVITED ATTENTION. ON WHICH YOU HAVE REQUESTED REVIEW. ARE SET OUT AND DISCUSSED ON AN INDIVIDUAL BASIS BELOW. (1) THE FAILURE OF THE DEPARTMENT OF THE ARMY TO USE COMPARABLE COST FACTORS IN EVALUATING TRANSPORTATION COSTS. THE TRANSPORTATION COST FACTOR APPLIED TO FMC'S PROPOSAL WAS $1. THIS FIGURE WAS ARRIVED AT BY COMBINING THE RAIL TRANSPORTATION COST OF $78. THE TRANSPORTATION COST FACTOR APPLIED TO YOUR PROPOSAL WAS $1. THIS FIGURE WAS ARRIVED AT BY COMBINING THE TRANSPORTATION COST OF $44.

B-145416, JUL. 10, 1961

TO THE WHELAND COMPANY:

REFERENCE IS MADE TO YOUR TELEGRAM OF MARCH 23, 1961, AND YOUR LETTER OF APRIL 6, 1961, PROTESTING AGAINST THE ACTION OF THE DEPARTMENT OF THE ARMY IN AWARDING A CONTRACT FOR M113 ARMORED PERSONNEL CARRIERS TO FOOD MACHINERY AND CHEMICAL CORPORATION, AND ASKING THIS OFFICE TO REVIEW THE DEPARTMENT'S EVALUATION OF YOUR OFFER AND OF FOOD MACHINERY'S OFFER AND DETERMINE IF THE AWARD WAS, IN FACT, MADE TO THE LOWEST RESPONSIBLE OFFEROR. THE SPECIFIC FACTORS TO WHICH YOU HAVE INVITED ATTENTION, AND ON WHICH YOU HAVE REQUESTED REVIEW, ARE SET OUT AND DISCUSSED ON AN INDIVIDUAL BASIS BELOW.

(1) THE FAILURE OF THE DEPARTMENT OF THE ARMY TO USE COMPARABLE COST FACTORS IN EVALUATING TRANSPORTATION COSTS.

THE CONTEMPLATED DISTRIBUTION PLAN PROVIDED THAT 146 CARRIERS WOULD BE SHIPPED TO FORT HOOD, TEXAS, AND 1,354 CARRIERS WOULD BE SHIPPED TO EUROPE, AND THE REQUEST FOR PROPOSAL PROVIDED THAT OFFERS WOULD BE EVALUATED ON THE BASIS OF OFFERED PRICES PLUS TRANSPORTATION COSTS FROM POINTS OF ORIGIN TO DESTINATION.

THE TRANSPORTATION COST FACTOR APPLIED TO FMC'S PROPOSAL WAS $1,249,973. THIS FIGURE WAS ARRIVED AT BY COMBINING THE RAIL TRANSPORTATION COST OF $78,276 FOR 146 M113'S SHIPPED FROM SAN JOSE, CALIFORNIA, TO FORT HOOD, TEXAS, WITH THE RAIL AND OCEAN COST OF $1,171,697 FOR 1,354 M113'S TO BE SHIPPED FROM SAN JOSE VIA OAKLAND, CALIFORNIA TO EUROPE.

THE TRANSPORTATION COST FACTOR APPLIED TO YOUR PROPOSAL WAS $1,220,764. THIS FIGURE WAS ARRIVED AT BY COMBINING THE TRANSPORTATION COST OF $44,531 FROM CHATTANOOGA, TENNESSEE, TO FORT HOOD, TEXAS, FOR THE 146 M113'S TO BE SHIPPED BY RAIL AND THE MOTOR AND OCEAN TRANSPORTATION COST OF $1,176,233 FOR 1,354 M113'S TO BE SHIPPED FROM CHATTANOOGA VIA SAVANNAH, GEORGIA, TO EUROPE.

IN OUR REVIEW OF THE RATES UTILIZED BY THE ARMY IN COMPUTING TRANSPORTATION COST FACTORS APPLIED TO THE PROPOSALS, WE FOUND THAT AN INCORRECT RATE FOR MOTOR TRANSPORTATION FROM CHATTANOOGA TO SAVANNAH, GEORGIA, WAS UTILIZED IN EVALUATING YOUR PROPOSAL. THE RATE FOR MOTOR SHIPMENT FOR 1,354 M113'S FROM CHATTANOOGA TO SAVANNAH AS FURNISHED BY THE MILITARY TRAFFIC MANAGEMENT AGENCY TO THE ORDNANCE TANK-AUTOMOTIVE COMMAND WAS ?96 PER HUNDREDWEIGHT ON A MINIMUM SHIPMENT OF 30,000 POUNDS. THIS RESULTED IN A CHARGE OF $181.87 PER M113 FOR 1,354 M113'S OR A TOTAL OF $246,252. THE RATE OF $1.02 PER HUNDREDWEIGHT SHOULD HAVE BEEN USED IN COMPUTING MOTOR TRANSPORTATION AND WOULD HAVE RESULTED IN A CHARGE OF $193.24 PER M113. OTAC COMPUTED A RATE OF $191.34 PER M113 IF SHIPMENT FROM CHATTANOOGA TO SAVANNAH WERE TO BE MADE BY RAIL. IN CONSIDERING THE FEASIBILITY OF SHIPMENT BY RAIL AND MOTOR TRANSPORTATION, THE RAIL RATE IS LESS THAN THE CORRECTED MOTOR RATE AND SHOULD HAVE BEEN UTILIZED IN COMPUTING THE COST OF FIRST DESTINATION TRANSPORTATION TO BE APPLIED TO YOUR PROPOSAL. THIS WOULD HAVE RESULTED IN A CHARGE OF $259,074 FOR SHIPMENT OF 1,354 M113'S FROM CHATTANOOGA TO SAVANNAH INSTEAD OF THE CHARGE OF $246,252 UTILIZED BY OTAC. THIS CORRECTION WOULD HAVE RESULTED IN ADDITION OF $12,822 TO THE FIRST DESTINATION TRANSPORTATION COSTS ADDED TO YOUR OFFER.

OCEAN RATES USED IN THE EVALUATION OF BOTH OFFERS REPRESENT MILITARY SEA TRANSPORTATION SERVICE RATES AS PRESCRIBED IN "TRANSPORTATION COST FACTORS FOR USE IN THE PROCUREMENT CYCLE AND ROUTING OF EXPORT TRAFFIC," DATED SEPTEMBER 13, 1960, AND PREPARED BY THE OFFICE OF THE CHIEF OF TRANSPORTATION, DEPARTMENT OF THE ARMY. OUR REVIEW OF THESE RATES, AND OF THE TOTAL AMOUNTS EVALUATED AGAINST BOTH OFFERS BY USE OF SUCH RATES, SHOWS THEM TO BE CORRECT.

OUR REVIEW HAS RAISED AN ADDITIONAL QUESTION AS TO WHETHER THE CONTRACTING AGENCY WAS JUSTIFIED IN NOT CONSIDERING THE POSSIBILITY THAT CHEAPER METHODS OF TRANSPORTATION MAY HAVE BEEN AVAILABLE TO THE GOVERNMENT FROM BOTH YOUR PLANT AND FROM FMC'S PLANT, WHICH MAY HAVE RESULTED IN A LESSER AMOUNT FOR TRANSPORTATION BEING EVALUATED AGAINST ONE OR BOTH OFFERS. HOWEVER, IT IS OUR OPINION THAT THE EVIDENCE OF POSSIBLE REDUCTIONS FROM SUCH ACTION IS NOT SUFFICIENTLY CONCLUSIVE TO SUPPORT REJECTION OF THE RATES USED BY THE DEPARTMENT OF THE ARMY. WE ARE THEREFORE UNABLE TO AGREE WITH YOUR CONTENTION THAT COMPARABLE COST FACTORS WERE NOT USED BY THE CONTRACTING AGENCY IN EVALUATING TRANSPORTATION COSTS IN THIS PROCUREMENT, OR THAT ANY ADJUSTMENT BASED UPON TRANSPORTATION COSTS, OTHER THAN THE ADDITION OF $12,822.38 TO YOUR OFFER AS EXPLAINED ABOVE, SHOULD BE MADE IN THE EVALUATED PRICE OF EITHER YOUR OFFER OR OF FMC'S OFFER.

(2) GOVERNMENT-OWNED PLANT EQUIPMENT IN POSSESSION OF FMC WAS UNDERVALUED, WHICH RESULTED IN AN UNFAIR COMPETITIVE ADVANTAGE TO FMC.

THIS ALLEGATION APPEARS TO BE BASED UPON YOUR UNDERSTANDING THAT FMC IS IN POSSESSION OF GOVERNMENT-OWNED FACILITIES HAVING AN ACQUISITION COST IN EXCESS OF $8,750,000, WHILE THE ACQUISITION COST OF FACILITIES USED IN EVALUATING FMC'S OFFER WAS ONLY $6,700,000.

OUR REVIEW INDICATES THAT THE TOTAL ACQUISITION COST OF ALL GOVERNMENT- OWNED PROPERTY IN THE POSSESSION OF FMC WAS $9,416,996. HOWEVER, ONLY $4,946,479 OF THIS AMOUNT WAS TO BE USED IN PERFORMANCE OF THE CONTRACT IN QUESTION. FOR EVALUATION PURPOSES, FACILITIES VALUED AT $461,000 IN POSSESSION OF RHEEM AUTOMOTIVE COMPANY AND FACILITIES VALUED AT $1,200,000 IN POSSESSION OF WESTERN GEAR CORPORATION, WHICH WERE ALSO TO BE USED IN SUPPORT OF FMC, WERE ADDED TO FMC'S OFFER TO ARRIVE AT THE ROUNDED-OFF FIGURE OF $6,700,000 EVALUATED AGAINST FMC FOR PLANT FACILITIES.

OUR REVIEW FAILED TO INDICATE ANY JUSTIFIABLE BASIS FOR QUESTIONING THE VALIDITY OF USING AN ACQUISITION COST OF $6,700,000 IN EVALUATING THE GOVERNMENT-OWNED PROPERTY TO BE USED BY FMC IN PERFORMANCE OF THE CONTRACT.

(3) USE OF A RENT FACTOR IN EVALUATING GOVERNMENT-OWNED SPECIAL TOOLING IN THE POSSESSION OF FMC, WHILE SPECIAL TOOLING REQUIRED BY YOUR COMPANY WAS EVALUATED AT FULL ACQUISITION COST, GAVE FMC AN UNFAIR COMPETITIVE ADVANTAGE.

AS INDICATED IN YOUR LETTER DATED APRIL 6, 1961, THE REQUEST FOR PROPOSAL ORIGINALLY PROVIDED THAT FMC'S SPECIAL TOOLING SHOULD BE EVALUATED AT FULL ACQUISITION COST. THE RECORDS SHOW THAT AMENDMENT OF THE REQUEST FOR PROPOSAL, TO PROVIDE FOR EVALUATION OF SPECIAL TOOLING AVAILABLE TO ONLY ONE OFFEROR ON A USE CHARGE BASIS, RESULTED FROM APPLICATION OF THE PROVISIONS OF ORDNANCE PROCUREMENT INSTRUCTION (OPI) 3-840.7B (3) (D), WHICH REQUIRES EVALUATION BASED UPON THE RATIO OF PROPOSED MONTHS USAGE VERSUS THE TOTAL TOOLING LIFE.

THE INCLUSION OF SPECIAL TOOLING REQUIRED BY YOUR COMPANY AT FULL ACQUISITION COST AS A PART OF THE END ITEM PRICE WAS IN ACCORDANCE WITH (OPI) 3-840.7B (3) (A). IT WOULD THEREFORE APPEAR THAT THE EVALUATION OF SPECIAL TOOLING UNDER BOTH YOUR OFFER AND FMC'S OFFER WAS IN ACCORD WITH THE SPECIFIC PROVISIONS OF THE REGULATIONS.

(4) THAT THE ACTION OF RHEEM AUTOMOTIVE CORPORATION, A SUBCONTRACTOR IN POSSESSION OF GOVERNMENT-OWNED FACILITIES COSTING $413,492, IN QUOTING YOUR COMPANY A HIGHER PRICE ON TORSION BARS THAN THE PRICE QUOTED FMC, WAS A VIOLATION OF THE ROBINSON-PATMAN ACT WHICH SHOULD HAVE BEEN CONSIDERED IN EVALUATING THE OFFERS MADE BY FMC AND BY YOUR COMPANY.

WHETHER THIS ACTION WAS, IN FACT, A VIOLATION OF THE ROBINSON-PATMAN ACT WOULD APPEAR TO BE FOR DETERMINATION BY EITHER THE FEDERAL TRADE COMMISSION OR THE COURTS, RATHER THAN BY THIS OFFICE OR THE CONTRACTING AGENCY. IN VIEW THEREOF, AND IN THE ABSENCE OF A SPECIFIC PROVISION IN THE REQUEST FOR PROPOSAL, WE ARE AWARE OF NO VALID BASIS UPON WHICH THE DIFFERENCE IN PRICES QUOTED BY RHEEM AUTOMOTIVE COULD PROPERLY BE CONSIDERED IN EVALUATING THE OFFERS SUBMITTED BY YOUR COMPANY AND BY FMC.

(5) NORRIS THERMADOR, INC., A SUBCONTRACTOR POSSESSING GOVERNMENT OWNED SPECIAL TOOLING COSTING $27,173, QUOTED PRICES FOR ROAD WHEELS TO FMC, BUT REFUSED TO QUOTE PRICES ON THESE ITEMS TO YOUR COMPANY.

BY AMENDMENT DATED DECEMBER 20, 1960, THE REQUEST FOR PROPOSALS PROVIDED AS FOLLOWS:

"IF ANY SUBCONTRACTOR HAVING GOVERNMENT-OWNED SPECIAL TOOLING, OR SPECIAL TOOLING TO WHICH THE GOVERNMENT HAS THE RIGHT TO ACQUIRE TITLE, REFUSES TO QUOTE ON REQUEST OF PROSPECTIVE PRIME CONTRACTORS, SUCH SPECIAL TOOLING WILL BE EVALUATED IN ACCORDANCE WITH PROCEDURES FOR EVALUATING SPECIAL TOOLING IN THE PRESENT PRIME CONTRACTOR'S PLANT (S).'

THE SPECIAL TOOLING IN POSSESSION OF NORRIS THERMADOR, WHICH WAS VALUED AT SLIGHTLY LESS THAN $27,000, SHOULD THEREFORE HAVE BEEN EVALUATED AGAINST FMC'S OFFER AND WOULD HAVE INCREASED ITS EVALUATED PRICE BY $3,214, COMPUTED AS FOLLOWS:

$27,000 TIMES 1 2/3 PERCENT TIMES 7 3/21 EQUALS $3,214

(6) REGULATIONS PRESCRIBED BY THE DEPARTMENT OF THE ARMY, REQUIRING A FAIR AND OPEN EXAMINATION OF EVALUATING FACTORS BY AN AWARD BOARD, HAVE NOT BEEN COMPLIED WITH IN THIS PROCUREMENT.

WHILE YOUR PROTEST FAILS TO SPECIFY THE REGULATIONS REFERRED TO, THE RECORDS SHOW THAT OTAC REFERRED THE PROCUREMENT TO THE BOARD OF AWARDS ON FEBRUARY 24, 1961, WITH RECOMMENDATION FOR AWARD TO FMC. WHILE FACTORS OTHER THAN PRICE WERE CONSIDERED IN EVALUATING THE PROPOSALS, IT APPEARS THAT PRICE WAS THE PRINCIPAL CONSIDERATION IN MAKING THE AWARD.

OUR REVIEW SHOWED NO FAILURE TO FOLLOW APPLICABLE REGULATIONS WHICH WOULD AFFECT THE VALIDITY OR LEGALITY OF THE CONTRACT AWARDED TO FMC.

(7) FAILURE OF THE ARMY TO GIVE PROPER WEIGHT TO THE FACT THAT YOUR COMPANY AND YOUR PROPOSED SUBCONTRACTORS HAVE MANUFACTURING FACILITIES LOCATED IN LABOR SURPLUS AREAS.

SECTION 523 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1961, PROHIBITS THE PAYMENT OF A PRICE DIFFERENTIAL ON CONTRACTS MADE FOR THE PURPOSE OF RELIEVING ECONOMIC DISLOCATIONS, AND REQUIRES THAT, SO FAR AS PRACTICABLE, ALL CONTRACTS SHALL BE AWARDED ON A COMPETITIVE BASIS TO THE LOWEST RESPONSIBLE BIDDER. IN VIEW OF THESE STATUTORY PROVISIONS IT IS OUR OPINION THAT SUBSTANTIAL PERFORMANCE OF THE CONTRACT BY YOUR COMPANY AND YOUR SUBCONTRACTORS IN LABOR SURPLUS AREAS WAS NOT A PROPER FACTOR FOR CONSIDERATION IF SUCH PERFORMANCE WOULD RESULT IN GREATER COST TO THE GOVERNMENT THAN PERFORMANCE BY FMC. THE SOLE QUESTION UNDER SECTION 532 THEREFORE IS WHETHER YOUR COMPANY COULD BE CONSIDERED THE LOW RESPONSIBLE BIDDER.

AS SHOWN ABOVE, EXCEPT FOR THE UPWARD ADJUSTMENT OF $12,822 IN YOUR EVALUATED OFFER, REPRESENTING ADDITIONAL TRANSPORTATION COSTS TO FIRST DESTINATION, AND THE UPWARD ADJUSTMENT OF $3,214 IN FMC'S EVALUATED OFFER, REPRESENTING THE EVALUATED RENTAL OF SPECIAL TOOLING IN THE POSSESSION OF NORRIS THERMADOR, INC., THE OFFERS APPEAR TO HAVE BEEN EVALUATED IN ACCORDANCE WITH THE REQUEST FOR PROPOSAL AND THE PROVISIONS OF THE ARMED SERVICES PROCUREMENT REGULATION AND THE ORDNANCE PROCUREMENT INSTRUCTIONS. OTHER THAN THE CORRECTIONS SET OUT ABOVE, IT WOULD APPEAR THAT ANY FURTHER QUESTION REGARDING THE EVALUATION OF OFFERS MUST BE BASED UPON THE PROPRIETY OF THE PROVISIONS OF OPI 3-840.7B (2) (I) AND 3-840.7B (3) (A), UNDER WHICH NEW PLANT AND PRODUCTION EQUIPMENT, AS WELL AS NEW SPECIAL TOOLING, REQUIRED BY YOUR COMPANY TO PERFORM THE CONTRACT WAS EVALUATED AGAINST YOUR OFFER AT ITS FULL ACQUISITION COST. HOWEVER, IF THERE HAD BEEN AN EVALUATION OF NEW SPECIAL TOOLING FOR YOUR COMPANY ON THE SAME BASIS AS FMC'S SPECIAL TOOLING, AND AN EVALUATION OF NEW PLANT AND PRODUCTION EQUIPMENT NEEDED BY YOUR COMPANY ON A RENTAL BASIS, COMPUTED ACCORDING TO AGE OF EQUIPMENT UNDER THE PROVISIONS OF ASPR 13- 601.2 (I), AS IN THE CASE OF FMC'S EQUIPMENT, AND IF FMC'S OFFER HAD BEEN EVALUATED ON THE BASIS OF ELEVEN MONTHS USE TO EQUALIZE THE USE PERIOD EVALUATED AGAINST YOUR COMPANY'S OFFER, SUCH EVALUATION WOULD STILL HAVE RESULTED IN FMC'S OFFER BEING THE LOWER. SEE THE TABULATION BELOW, WHICH IS BASED UPON PERTINENT LINE ITEMS IN THE SUMMARY OF ABSTRACT OF PROPOSALS.

TABLE

FMC WHELANDLINE 1. DELETION OF ACQUISITION COST

OF SPECIAL TOOLING $ (835,227) LINE 6. DELETION OF 10 PERCENT

ESCALATION ON ACQUISITION COST

OF SPECIAL TOOLING (83,523) LINE 10. NEW PRODUCTION EQUIPMENT (206,063) LINE 13. FIRST DESTINATION TRANSPORTATION

COSTS 12,822 LINE 17. RENTAL OF PLANT OR PROPERTY $ 5,143 LINE 18. RENTAL OF PLANT EQUIPMENT 193,831 LINE 19. RENTAL OF SPECIAL TOOLING73,756 153,125

TOTAL CORRECTIONS IN

EVALUATED OFFERS $ 272,730 $ (958,866)

FMC'S OFFER WAS EVALUATED AT $45,004,627. THE ADDITION OF $272,730, AS INDICATED ABOVE, WOULD THEREFORE RESULT IN AN EVALUATED OFFER OF $45,277,357. YOUR OFFER WAS EVALUATED AT $46,350,433. THE DEDUCTION OF $956,866, AS SHOWN ABOVE, WOULD THEREFORE RESULT IN AN EVALUATED OFFER OF $45,391,567. IN OUR OPINION THE ABOVE TABULATION REPRESENTS THE MAXIMUM UPWARD ADJUSTMENTS WHICH COULD HAVE BEEN CONSIDERED IN EVALUATING FMC'S OFFER AND THE MOST FAVORABLE EVALUATION OF YOUR OFFER WHICH COULD HAVE BEEN CONSIDERED. WHILE THE RECORDS DO NOT SUPPORT A CONCLUSION THAT ALL OF THE INCREASES IN FMC'S OFFER WHICH ARE SET OUT IN THE ABOVE TABULATION, OR ALL OF THE DECREASES IN YOUR OFFER, WOULD HAVE BEEN PROPER, IT WOULD APPEAR THAT SUCH TABULATION DOES ESTABLISH THAT THERE IS NO VALID BASIS TO SUPPORT A CONTENTION THAT FMC'S OFFER WAS NOT THE LOWER OFFER OR THAT THE CONTRACT WAS NOT AWARDED TO THE LOWEST RESPONSIBLE BIDDER AS REQUIRED BY SECTION 523 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1961, IF THAT REQUIREMENT BE CONSIDERED APPLICABLE.