B-145461, MAY 23, 1961

B-145461: May 23, 1961

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TO GOODWAY PRINTING COMPANY: REFERENCE IS MADE TO THE LETTERS OF MARCH 28 AND 31. FOR COMPOSITION SERVICES WHICH YOUR ATTORNEY CONTENDS SHOULD HAVE BEEN OBTAINED UNDER THE ORIGINAL CONTRACT WITH YOUR FIRM. THE CONTRACTING OFFICER REPORTS THAT CERTAIN COMPOSITION SERVICES WERE ADVERTISED UNDER IFB600-346-61. THREE DIFFERENT TYPES OF COMPOSITION SERVICES WERE REQUIRED AND EACH TYPE WAS SET UP IN A SEPARATE LOT. IT WAS FURTHER PROVIDED: "NO ORDERS WILL BE PLACED UNDER THE SECONDARY CONTRACT/S) UNLESS A WRITTEN DETERMINATION HAS BEEN MADE BY THE ORDERING OFFICER THAT THE PRIMARY CONTRACTOR/S) BECAUSE OF GOVERNMENT WORK ORDERS. IS UNABLE TO PERFORM FURTHER GOVERNMENT WORK IN THE TIME REQUIRED.'.

B-145461, MAY 23, 1961

TO GOODWAY PRINTING COMPANY:

REFERENCE IS MADE TO THE LETTERS OF MARCH 28 AND 31, 1961, FROM YOUR ATTORNEY, PROTESTING THE ACTION OF THE NAVY PURCHASING OFFICE, WASHINGTON, D.C., IN CANCELLING LOT II OF CONTRACT NO. N600 (10) 56358 ON MARCH 7, 1961, AND ISSUING INVITATION FOR BIDS IFB600-825-61 ON MARCH 14, 1961, FOR COMPOSITION SERVICES WHICH YOUR ATTORNEY CONTENDS SHOULD HAVE BEEN OBTAINED UNDER THE ORIGINAL CONTRACT WITH YOUR FIRM.

IN A STATEMENT DATED APRIL 26, 1961, THE CONTRACTING OFFICER REPORTS THAT CERTAIN COMPOSITION SERVICES WERE ADVERTISED UNDER IFB600-346-61, DATED OCTOBER 31, 1960. THREE DIFFERENT TYPES OF COMPOSITION SERVICES WERE REQUIRED AND EACH TYPE WAS SET UP IN A SEPARATE LOT. THE INVITATION PROVIDED FOR PRIMARY CONTRACTS TO BE AWARDED TO THE LOW BIDDERS FOR LOTSI AND II AND FOR SECONDARY CONTRACTS TO BE AWARDED TO THE NEXT LOW BIDDERS. LOT II COVERED VARI-TYPE COMPOSITION SERVICES. IT WAS FURTHER PROVIDED: "NO ORDERS WILL BE PLACED UNDER THE SECONDARY CONTRACT/S) UNLESS A WRITTEN DETERMINATION HAS BEEN MADE BY THE ORDERING OFFICER THAT THE PRIMARY CONTRACTOR/S) BECAUSE OF GOVERNMENT WORK ORDERS, IS UNABLE TO PERFORM FURTHER GOVERNMENT WORK IN THE TIME REQUIRED.'

THE INVITATION REQUESTED BIDDERS TO FURNISH BASIC RATES FOR COMPOSITION SERVICES WITH ADDITIONAL RATES FOR EXTRA SERVICES SUCH AS MATHEMATICAL EQUATIONS, CHEMICAL FORMULAS, PAGE MAKE-UP AND FOLIO. EXPERIENCE IN PREVIOUS YEARS HAD SHOWN THAT THE ADDITIONAL RATES WERE SO SELDOM USED THAT THE NAVY PUBLICATIONS AND PRINTING SERVICE COULD NOT SUPPLY ANY REALISTIC ESTIMATES OF THEIR USE DURING THE CONTRACT PERIOD, AND THE BID EVALUATION WAS MADE ONLY ON THE BASIC PRICES. CONTRACT N600 (10) 56358 WAS AWARDED ON JANUARY 27, 1961, TO YOUR FIRM AS PRIMARY CONTRACTOR FOR LOT II AND SECONDARY CONTRACTOR FOR LOT I. THE CONTRACT CONTAINED THE FOLLOWING PROVISION:

"INDEFINITE QUANTITIES:

THE TOTAL QUANTITIES SPECIFIED HEREIN ARE ESTIMATES ONLY. THE AMOUNTS WHICH THE CONTRACTOR MAY BE REQUIRED TO FURNISH AND THE GOVERNMENT TO ACCEPT HEREUNDER SHALL BE THE AMOUNTS WHICH SHALL FROM TIME TO TIME BE ORDERED HEREUNDER BY THE GOVERNMENT DURING THE ORDERING PERIOD OF THIS CONTRACT. IN ANY EVENT, HOWEVER, THE GOVERNMENT SHALL ORDER SUPPLIES HEREUNDER HAVING AN AGGREGATE VALUE AT THE UNIT PRICES SPECIFIED HEREIN OF NOT LESS THAN $100.00; AND THE GOVERNMENT SHALL BE ENTITLED TO ORDER AND THE CONTRACTOR SHALL BE REQUIRED TO FURNISH SUPPLIES HEREUNDER AMOUNTING TO NOT MORE THAN THE TOTAL ESTIMATED QUANTITIES SET FORTH HEREIN. IF THE GOVERNMENT ORDERS AND THE CONTRACTOR FURNISHES MORE THAN THE FOREGOING MAXIMUM AMOUNT, THE TOTAL QUANTITY ORDERED AND FURNISHED SHALL BE TREATED FOR ALL PURPOSES AS HAVING BEEN ORDERED AND FURNISHED UNDER THE TERMS OF THIS CONTRACT AND PAYMENT THEREFOR SHALL BE MADE AT THE UNIT CONTRACT PRICE OR PRICES.'

THE CONTRACTING OFFICER STATED THAT, AFTER AWARD OF THE CONTRACT, NEW PROGRAMS WERE TRANSFERRED TO THE VARI-TYPE METHOD OF COMPOSITION, INCREASING THE NEED FOR SERVICES IN THE AREAS IN WHICH ADDITIONAL CHARGES APPLIED. IN PLACING ORDERS, THE NAVY PURCHASING OFFICE DISCOVERED THAT ACTUAL COSTS GREATLY EXCEEDED ESTIMATES FOR EACH ORDER AND ORDERS UNDER THE PRIMARY CONTRACT WITH YOUR FIRM COST FROM 20 TO 25 PERCENT MORE THAN THE SAME ORDERS WOULD HAVE COST UNDER THE SECONDARY CONTRACT FOR LOT II. USING THE ESTIMATES FOR SERVICES IN THE AREAS IN WHICH THE ADDITIONAL CHARGES APPLY AS WELL AS THOSE COVERED BY THE BASIC RATES, THE CONTRACTING OFFICER ESTIMATED THE TOTAL COST OF OBTAINING THE SERVICES FROM YOUR FIRM WOULD BE $58,099.58 WHILE THE ESTIMATED COST OF THE SAME SERVICES FROM THE SECONDARY CONTRACTOR WAS $40,227. UNDER THE CONTRACT IN EFFECT FOR THE PREVIOUS YEAR, THE COST WOULD HAVE BEEN $34,946.85.

AFTER PLACING ORDERS TOTALLING $1,625, THE CONTRACTING OFFICER DETERMINED THAT NO MORE ORDERS SHOULD BE PLACED UNDER THE EXISTING CONTRACT, AND THE COMPLETE REQUIREMENTS SHOULD BE SET FORTH IN A NEW INVITATION SO THAT BIDS COULD BE PROPERLY EVALUATED BY CONSIDERING THE ADDITIONAL CHARGES AND NOT MERELY THE BASIC RATES. ON MARCH 7, 1961, THE PRIMARY AND SECONDARY CONTRACTORS WERE NOTIFIED THAT LOT II WAS CANCELLED. THE NAVY PURCHASING OFFICE THEN ISSUED INVITATION FOR BIDS IFB600-825-61 ON MARCH 14, 1961, COVERING THE REVISED REQUIREMENT.

DURING THE PERIOD BETWEEN CANCELLATION AND AWARD OF A NEW CONTRACT, ORDERS WERE PLACED, FOR EMERGENCY SERVICES ONLY, WITH THE FULFILLMENT CORPORATION AT PRICES WHICH WERE IN EFFECT IN ITS CONTRACT FOR THE PREVIOUS YEAR.

YOUR COMPANY REFUSED TO ACCEPT A NO COST TERMINATION AND AT A MEETING ON MARCH 10, 1961, AT THE NAVY PURCHASING OFFICE, YOU REQUESTED THAT NEGOTIATIONS BE CONDUCTED REGARDING THE PRICES IN THE UNEVALUATED PORTION OF THE ORIGINAL INVITATION. YOUR LETTER OF MARCH 16, 1961, OFFERED REDUCTIONS IN THE ORIGINAL CONTRACT PRICES WHICH WOULD HAVE REDUCED THE TOTAL ESTIMATED COST FROM $58,099.58 TO $53,589.55.

THE INVITATION OF MARCH 14, 1961, WAS SET-ASIDE 100 PERCENT FOR SMALL BUSINESS, BUT SUBSEQUENT TO THE ISSUANCE OF THE INVITATION, THE CONTRACTING OFFICER DETERMINED THAT ADEQUATE COMPETITION AT FAIR AND REASONABLE PRICES WAS NOT AVAILABLE IN THE WASHINGTON, D.C. AREA FROM SMALL BUSINESS FIRMS ALONE. THE SET ASIDE WAS REMOVED BY AMENDMENT NO. 1 TO THE INVITATION, DATED MARCH 27, 1961.

THE NAVY PURCHASING OFFICE WAS NOTIFIED ON MARCH 29, 1961, OF THE PROTEST, FILED ON YOUR BEHALF BY YOUR ATTORNEY, AGAINST THE ISSUANCE OF THE NEW INVITATION FOR BIDS. THE NAVY PUBLICATIONS AND PRINTING SERVICE ADVISED ON MARCH 31, 1961, THAT IT WAS ESSENTIAL THAT A CONTINUITY OF SERVICES BE PROVIDED TO MEET PRODUCTION SCHEDULES AT THE GOVERNMENT PRINTING OFFICE, SINCE THE SERVICE COVERS MOSTLY DATED PERIODICALS WHICH ARE ISSUED MONTHLY.

YOUR BID ON THE NEW INVITATION QUOTED PRICES WHICH RESULT IN AN ESTIMATED COST OF $42,544.88, WHILE THREE OTHER BIDDERS SUBMITTED PRICES WHICH GAVE ESTIMATED COSTS OF $28,313.30, $34,358.35 AND $50,405.10. AFTER CERTIFICATION BY THE OFFICER-IN-CHARGE, NAVY PURCHASING OFFICE, THAT IN ORDER TO PROVIDE ESSENTIAL SERVICES, IT WAS IN THE BEST INTERESTS OF THE GOVERNMENT TO MAKE AN IMMEDIATE AWARD; ON APRIL 6, 1961, AWARD WAS MADE TO THE LOWEST BIDDERS.

YOUR ATTORNEY HAS DIRECTED THE MAJOR PORTION OF HIS PROTEST AGAINST THE "INDEFINITE QUANTITY" CLAUSE IN CONTRACT N600 (10) 56358. HE HAS ALLEGED THAT USE OF SUCH A CLAUSE BY THE GOVERNMENT IS UNFAIR, IMMORAL AND PERHAPS ILLEGAL AND SHOULD BE PROHIBITED BECAUSE IT ENCOURAGES CONTRACTORS TO MAKE COMMITMENTS OF THEIR FACILITIES WHICH ARE DISPROPORTIONATE TO THE GOVERNMENT'S OBLIGATION TO MAKE PURCHASES. WITH RESPECT TO THE LEGALITY OF THE "INDEFINITE QUANTITY" CLAUSE, IN TENNESSEE SOAP CO. V. UNITED STATES, 130 CT.CL. 154, A CLAUSE SIMILAR TO ONE IN THE INSTANT CONTRACT, EXCEPT FOR A STATED MINIMUM OF $10, WAS HELD TO BE ENFORCEABLE TO THE EXTENT THAT THE CONTRACT WAS PERFORMED OR THAT SOAP WAS ORDERED. IT IS POINTED OUT IN SECTION 105A, WILLISTON ON CONTRACTS, THIRD EDITION, THAT CONFUSION HAS RESULTED WHEN ONE PARTY HAS AN OPTION TO DETERMINE THE EXTENT OF PERFORMANCE, BUT THE MERE FACT THAT MUTUAL PROMISES ARE NOT COEXTENSIVE, DOES NOT PREVENT BOTH PROMISES FROM BEING BINDING ACCORDING TO THEIR RESPECTIVE TERMS. IN OUR OPINION, THERE IS NO LEGAL BASIS FOR OBJECTION TO THE USE OF AN INDEFINITE QUANTITY CLAUSE UNDER THE CIRCUMSTANCES OF THE INSTANT CASE. THE PURPOSE OF SUCH A CLAUSE IS TO PROTECT THE INTERESTS OF THE GOVERNMENT WHEN THE EXACT QUANTITY OF GOODS OR SERVICES CANNOT BE DETERMINED IN ADVANCE AND IF A PROSPECTIVE BIDDER FEELS THAT SUCH A CLAUSE IS UNFAIR, HIS ALTERNATIVE IS TO MAKE NO BID.

YOUR ATTORNEY HAS ALLEGED THAT THE ESTIMATED TOTAL REQUIREMENTS IN THE ORIGINAL INVITATION ARE ALMOST IDENTICAL WITH THOSE IN THE NEW INVITATION AND THEREFORE IT HAS NOT BEEN SHOWN THAT THE REQUIREMENTS ACTUALLY INCREASED. IN THIS CONNECTION, IT MUST BE NOTED THAT THE ORIGINAL INVITATION COVERED THE ENTIRE CALENDAR YEAR 1961 WHILE THE NEW INVITATION COVERED ONLY THE EIGHT MONTH PERIOD FROM MAY 1 TO DECEMBER 31, 1961. THE ORDERS PLACED DURING THE TIME THE CONTRACT WAS IN EFFECT AND THE EMERGENCY PROCUREMENT AFTER TERMINATION WOULD HAVE RESULTED IN AN INCREASE IN THE TOTAL ESTIMATED AMOUNT IF THERE HAD BEEN NO CHANGE IN REQUIREMENTS.

AN ALTERNATIVE CONTENTION OF YOUR ATTORNEY WAS THAT IF THE REQUIREMENTS HAD ACTUALLY CHANGED, THEN THE CIRCUMSTANCES WERE ANALOGOUS TO A SITUATION IN WHICH REQUIREMENTS CHANGED AFTER BID OPENING BUT BEFORE AWARD. IN SUCH CASE, YOUR ATTORNEY SUGGESTED THE RULE IN ASPR 2-404.1 SHOULD APPLY. THAT SECTION OF ASPR STATES THE GENERAL RULE THAT AN INVITATION SHOULD NOT BE CANCELLED BEFORE AWARD DUE SOLELY TO INCREASED REQUIREMENTS, BUT AWARD SHOULD BE MADE ON THE ORIGINAL INVITATION, WITH THE ADDITIONAL QUANTITY TREATED AS NEW PROCUREMENT. IN THE INSTANT CASE, WE DO NOT CONSIDER CANCELLATION OF A CONTRACT WHICH HAD BEEN IN EXISTENCE FOR SEVERAL MONTHS TO BE THE EQUIVALENT OF CANCELLATION OF AN INVITATION BEFORE AWARD.

THE DECISION TO WITHDRAW THE SMALL BUSINESS SET-ASIDE IN THE NEW INVITATION DUE TO LACK OF COMPETITION FROM SMALL BUSINESS FIRMS WAS AN ADMINISTRATIVE DETERMINATION IN ACCORDANCE WITH ASPR 1-706.3 AND WAS CONSISTENT WITH DECISIONS OF OUR OFFICE REGARDING WITHDRAWAL OF SET ASIDES. SEE 37 COMP. GEN. 147.

ON THE RECORD BEFORE US, IT IS OUR OPINION THAT THE REQUIREMENTS FOR VARI -TYPE COMPOSITION SERVICES CHANGED AFTER AWARD OF THE ORIGINAL CONTRACT TO SUCH AN EXTENT THAT THE DECISION TO TREAT THE CHANGED REQUIREMENTS AS NEW PROCUREMENT WAS JUSTIFIED. SINCE THE GOVERNMENT ORDERED SERVICES FAR IN EXCESS OF THE MINIMUM AMOUNT WHICH IT WAS OBLIGATED TO ORDER, WE FIND NO LEGAL BASIS UPON WHICH WE COULD OBJECT TO THE TERMINATION OF LOT II OF CONTRACT N600 (10) 56358. YOUR PROTEST AGAINST THAT TERMINATION AND THE SUBSEQUENT ISSUANCE OF A NEW INVITATION IS THEREFORE DENIED.