B-146441, AUG. 29, 1961

B-146441: Aug 29, 1961

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ALTHOUGH GOVERNMENT FUNDS ARE LOANED TO COOPERATIVES TO FINANCE SUCH CONSTRUCTION. CONSTRUCTION CONTRACTS ENTERED INTO BETWEEN COOPERATIVES AND PRIVATE COMPANIES ARE NOT GOVERNMENT CONTRACTS BUT ARE CONTRACTS BETWEEN PRIVATE BUSINESS FIRMS. THE BULLETIN STATED THAT IT IS THE RESPONSIBILITY OF THE BORROWER AS OWNER OF ITS SYSTEM TO DETERMINE THE METHODS OF CONSTRUCTION AND OF PURCHASING MATERIALS WHICH ARE BEST SUITED TO ITS NEEDS. REA WILL NOT RECOMMEND ONE METHOD IN PREFERENCE TO ANOTHER EXCEPT FOR LARGE AND COMPLEX CONSTRUCTION PROJECTS WHERE IT IS EVIDENT THAT THE CONTRACT METHOD OF CONSTRUCTION IS PREFERABLE. SHOULD QUALIFY BIDDERS BEFORE ANY BIDS ARE OPENED. THE BIDS OF UNQUALIFIED BIDDERS ARE TO BE RETURNED UNOPENED.'.

B-146441, AUG. 29, 1961

TO R. E. LEE ELECTRIC COMPANY:

YOUR TELEGRAM OF JULY 18, 1961, PROTESTS AWARD OF A CONTRACT TO THE IRBY CONSTRUCTION COMPANY BY THE NORTHERN PIEDMONT ELECTRIC COOPERATIVE UNDER RURAL ELECTRIFICATION ADMINISTRATION PROJECT VIRGINIA 35 MADISON.

THE RURAL ELECTRIFICATION ACT OF 1936, 7 U.S.C. 901 ET SEQ., AUTHORIZES THE ADMINISTRATOR OF REA TO MAKE LOANS FOR RURAL ELECTRIFICATION TO COOPERATIVES TO FINANCE THE CONSTRUCTION OF GENERATING PLANTS, ELECTRIC TRANSMISSION AND DISTRIBUTION LINES AND SYSTEMS TO FURNISH ELECTRIC ENERGY TO PERSONS IN RURAL AREAS. ALTHOUGH GOVERNMENT FUNDS ARE LOANED TO COOPERATIVES TO FINANCE SUCH CONSTRUCTION, CONSTRUCTION CONTRACTS ENTERED INTO BETWEEN COOPERATIVES AND PRIVATE COMPANIES ARE NOT GOVERNMENT CONTRACTS BUT ARE CONTRACTS BETWEEN PRIVATE BUSINESS FIRMS.

THE STATUTE PROVIDES THAT THE ADMINISTRATOR OF REA SHALL DETERMINE THE TERMS AND CONDITIONS RELATING TO EXPENDITURE OF THE MONEYS LOANED. NOTHING IN THE ACT, AS AMENDED, REQUIRES BORROWERS TO ADVERTISE FOR BIDS AND AWARD CONTRACTS TO THE LOWEST RESPONSIBLE BIDDER. REA BULLETIN 40-6, DATED NOVEMBER 27, 1959, OUTLINES THE POLICY OF REA WITH RESPECT TO THE CONSTRUCTION OF FACILITIES AND THE PURCHASE OF MATERIALS AND EQUIPMENT BY ELECTRIC BORROWERS. IN GENERAL, THE BULLETIN STATED THAT IT IS THE RESPONSIBILITY OF THE BORROWER AS OWNER OF ITS SYSTEM TO DETERMINE THE METHODS OF CONSTRUCTION AND OF PURCHASING MATERIALS WHICH ARE BEST SUITED TO ITS NEEDS. REA WILL NOT RECOMMEND ONE METHOD IN PREFERENCE TO ANOTHER EXCEPT FOR LARGE AND COMPLEX CONSTRUCTION PROJECTS WHERE IT IS EVIDENT THAT THE CONTRACT METHOD OF CONSTRUCTION IS PREFERABLE.

SECTION IV, ON PAGE 7 OF BULLETING 40-6, DESCRIBES THE GENERAL BIDDING PROCEDURES REQUIRED BY REA WHEN BORROWERS CHOOSE TO TAKE COMPETITIVE BIDS FOR CONSTRUCTION OF FACILITIES. PARAGRAPH D, SECTION IV, PROVIDES AS FOLLOWS:

"D. QUALIFYING BIDDERS: IF THE NOTICE AND INSTRUCTIONS TO BIDDERS REQUIRES THAT BIDDERS SHOW EVIDENCE OF MEETING CERTAIN REQUIREMENTS, THE OWNER, WITH THE ADVICE OF THE ENGINEER, SHOULD QUALIFY BIDDERS BEFORE ANY BIDS ARE OPENED. THIS SHOULD BE DONE AS FAR AS POSSIBLE IN ADVANCE OF THE TIME SCHEDULED FOR OPENING OF BIDS. THE BIDS OF UNQUALIFIED BIDDERS ARE TO BE RETURNED UNOPENED.'

THE NORTHERN PIEDMONT ELECTRIC COOPERATIVE SOLICITED SEALED PROPOSALS, TO BE OPENED ON JULY 13, 1961, FOR NEW LINE CONSTRUCTION AND LINE CONVERSION IN THE PROJECT DESIGNATED AS VIRGINIA 35 MADISON. PARAGRAPH 5 OF THE NOTICE AND INSTRUCTIONS TO BIDDERS MADE THE FOLLOWING REQUIREMENT:

"5. MANNER OF SUBMITTING PROPOSALS. PROPOSALS AND ALL SUPPORTING INSTRUMENTS MUST BE SUBMITTED ON THE FORMS FURNISHED BY THE OWNER AND MUST BE DELIVERED IN A SEALED ENVELOPE ADDRESSED TO THE OWNER. THE NAME AND ADDRESS OF THE BIDDER, ITS LICENSE NUMBER IF A LICENSE IS REQUIRED BY THE STATE, AND THE DATE AND HOUR OF THE OPENING OF BIDS MUST APPEAR ON THE ENVELOPE IN WHICH THE PROPOSAL IS SUBMITTED. PROPOSALS MUST BE FILLED IN IN INK OR TYPEWRITTEN. NO ALTERATIONS OR INTERLINEATIONS WILL BE PERMITTED, UNLESS MADE BEFORE SUBMISSION, AND INITIALED AND DATED.'

IN RESPONSE TO THE INVITATION, THE COOPERATIVE RECEIVED EIGHT PROPOSALS. ONE PROPOSAL WAS REJECTED BECAUSE IT HAD NOT BEEN SIGNED BY THE BIDDER. ANOTHER BID, WHICH WAS SUBSEQUENTLY DETERMINED TO BE YOURS, WAS NOT PROPERLY IDENTIFIED ON THE ENVELOPE AS REQUIRED BY PARAGRAPH 5 OF THE NOTICE AND INSTRUCTIONS TO BIDDERS. ALTHOUGH THE STATE OF VIRGINIA REQUIRES A LICENSE, YOUR LICENSE NUMBER WAS NOT SHOWN ON THE ENVELOPE CONTAINING YOUR PROPOSAL. IN THE ABSENCE OF THE REQUIRED INFORMATION, YOUR QUALIFICATIONS AS A BIDDER COULD NOT BE DETERMINED IN ADVANCE AS REQUIRED BY REA BULLETIN 40-6. THE BOARD OF DIRECTORS OF THE COOPERATIVE THEREFORE DETERMINED THAT IT WAS IN THE BEST INTEREST OF THE COOPERATIVE TO LEAVE THE UNIDENTIFIED BID UNOPENED. THE BOARD THEN CONSIDERED THE REMAINING SIX BIDS AND AWARDED A CONTRACT TO THE LOWEST BIDDER, THE IRBY CONSTRUCTION COMPANY.

YOU PROTEST THAT THE COOPERATIVE COULD HAVE WAIVED YOUR FAILURE TO PLACE THE REQUIRED INFORMATION ON THE ENVELOPE CONTAINING YOUR BID AND THAT AN AWARD TO YOUR COMPANY WOULD RESULT IN A SAVING OF APPROXIMATELY $25,000.

SINCE THE COOPERATIVE IS FINANCING THE PROJECT WITH A LOAN WHICH MUST BE REPAID WITH INTEREST, ANY SAVINGS RESULTING FROM REDUCTION OF THE CONSTRUCTION COSTS WOULD ACCRUE TO THE COOPERATIVE AND NOT TO THE GOVERNMENT. THE GOVERNMENT IS CONCERNED WITH THE TRANSACTION ONLY IN ITS ROLE AS CREDITOR AND ITS PRIMARY INTEREST IS TO DETERMINE THAT THE COSTS ARE REASONABLE AND THAT THE PHYSICAL PROPERTIES CONSTITUTING THE SECURITY FOR THE LOAN ARE ADEQUATELY CONSTRUCTED TO SERVE THAT PURPOSE. ONE METHOD OF SECURING ADEQUATE CONSTRUCTION IS TO DEAL ONLY WITH QUALIFIED BIDDERS. THE PROCEDURES SET FORTH IN REA BULLETIN 40-6 WITH RESPECT TO QUALIFYING BIDDERS WERE ISSUED UNDER AUTHORITY CONTAINED IN 7 U.S.C. 904. WHEN YOU DID NOT COMPLY WITH THE INSTRUCTIONS IN PARAGRAPH 5 OF THE INSTRUCTIONS TO BIDDERS, THE COOPERATIVE'S DECISION TO LEAVE YOUR BID UNOPENED WAS IN COMPLIANCE WITH THE REQUIREMENT THAT BIDS OF UNQUALIFIED BIDDERS ARE TO BE RETURNED UNOPENED, SINCE YOUR QUALIFICATIONS AS A BIDDER COULD NOT BE DETERMINED PRIOR TO BID OPENING.

WE HAVE HELD THAT THE COMPETITIVE BID PROCEDURES APPLICABLE TO PROCUREMENT BY GOVERNMENT AGENCIES DO NOT APPLY TO PROCUREMENT BY A RURAL ELECTRIC COOPERATIVE ACTING UNDER TERMS AND CONDITIONS DETERMINED BY THE ADMINISTRATOR OF REA. B-132796, AUGUST 30, 1957. THEREFORE, WITHOUT REGARD TO WHAT OUR DECISION ON THE QUESTION OF WAIVER OF THE DEFICIENCY MAY HAVE BEEN HAD THIS BEEN A DIRECT PROCUREMENT BY A GOVERNMENT AGENCY, THERE IS NO BASIS UPON WHICH WE MAY CONCLUDE THAT THE NORTHERN PIEDMONT ELECTRIC COOPERATIVE ACTED IMPROPERLY. IN OUR OPINION, THE SIX BIDS CONSIDERED CONSTITUTED AN ADEQUATE NUMBER OF QUALIFIED BIDS UPON WHICH TO BASE AN AWARD. WE CAN OFFER NO OBJECTION TO REA APPROVAL OF THE CONTRACT BETWEEN THE COOPERATIVE AND THE IRBY CONSTRUCTION COMPANY.