B-146894, OCT. 12, 1964

B-146894, OCT. 12, 1964

TO THE SECRETARY OF DEFENSE:

WE HAVE A LETTER OF SEPTEMBER 14, 1964, REFERENCE CM, SIGNED BY THE DEPUTY ASSISTANT SECRETARY OF DEFENSE (PROCUREMENT), COMMENTING UPON A CONCLUSION IN OUR REPORT TO THE CONGRESS ON THE ILLEGAL AWARD OF ADVERTISED CONSTRUCTION CONTRACT AND EXCESSIVE COSTS FOR CONTRACT MODIFICATIONS. COPIES OF THE REPORT WERE TRANSMITTED TO YOU UNDER LETTER B-146894, JUNE 2, 1964.

INVITATION FOR BIDS ENG-49-080-59-24-/25) WAS ISSUED FOR THE CONSTRUCTION OF A RUNWAY AND OPERATION APRON AT ANDREWS AIR FORCE BASE. AFTER BIDS WERE OPENED BUT PRIOR TO AWARD, IT WAS DETERMINED THAT IN ADDITION TO THE LIGHTING ORIGINALLY CALLED FOR, A NEW NARROW GAUGE LIGHTING SYSTEM, ESTIMATED TO COST $1.2 MILLION, SHOULD BE INSTALLED AND THAT IT WOULD BE IMPRACTICAL TO HAVE THE SYSTEM INSTALLED BY A SEPARATE CONTRACTOR OR AT A DIFFERENT TIME. BECAUSE THE NEED FOR THE CONSTRUCTION WAS SO URGENT AS NOT TO ADMIT OF THE DELAY WHICH WOULD HAVE ENSUED HAD THE INVITATION BEEN WITHDRAWN AND THE PROCUREMENT HELD UP PENDING THE PREPARATION OF SPECIFICATIONS FOR THE NARROW-GAUGE LIGHTING, A CONTRACT WAS AWARDED TO THE LOW BIDDER ON THE ADVERTISED SPECIFICATIONS WITH THE INTENT THAT THE REQUIRED CHANGES AND ADDITIONS IN LIGHTING WOULD BE PROVIDED UNDER CHANGE ORDERS TO THE CONTRACT.

IN OUR EXAMINATION RESULTING IN THE REPORT, WE FOUND THAT THE SPECIFICATIONS ADVERTISED AND INCLUDED IN THE CONTRACT WERE SO MATERIALLY DIFFERENT IN SCOPE AND QUANTITY FROM THOSE INTENDED FOR USE IN THE ACTUAL WORK AS TO REQUIRE THE CONCLUSION THAT THE AWARD WAS IN VIOLATION OF THE STATUTES GOVERNING PROCUREMENTS UNDER FORMAL ADVERTISING; THEREFORE, THE CONTRACTOR COULD NOT BE PAID FROM APPROPRIATED FUNDS IN EXCESS OF THE FAIR VALUE OF THE WORK PERFORMED. WE ALSO STATED IN THE REPORT THAT A STUDY WAS REQUIRED TO BE UNDERTAKEN BY THE CONTRACTING AGENCY TO DETERMINE THE FAIR VALUE OF THE WORK, PENDING SUCH DETERMINATION, NO FURTHER PAYMENTS SHOULD BE MADE UNDER THE ILLEGAL CONTRACT.

IN THE LETTER OF SEPTEMBER 14, 1964, THE POSITION IS TAKEN THAT THE CONTRACT WAS IN CONFORMITY WITH EXISTING LAW AND REGULATIONS AND WAS ENTIRELY LEGAL AND PROPER. THAT CONCLUSION IS SUPPORTED BY DEMONSTRATING THE IMPRATICABILITY OF THE ALTERNATIVE PROCEDURE SUGGESTED IN OUR REPORT AND BY THE FOLLOWING FORMULATION OF PRINCIPLE:

"WE FULLY AGREE WITH THE POINT MADE IN THE REPORT THAT TO MINIMIZE THE NONCOMPETITIVE PRICING OF CHANGES, THE ORIGINAL COMPETITIVE CONTRACT SHOULD BE AS COMPLETE AND ALL-INCLUSIVE AS POSSIBLE. ACCORDINGLY, IF CHANGES ARE ANTICIPATED AND IF THE PROJECT CAN WAIT UNTIL THESE CHANGES ARE INCORPORATED IN THE CONTRACT, THIS CLEARLY SHOULD BE DONE SO THAT AS MUCH OF THE WORK AS POSSIBLE CAN BE SUBJECTED TO COMPETITION. ON THE OTHER HAND, IF THE PROJECT CANNOT WAIT, IT IS SOUND TO PROCEED BY FORMALLY ADVERTISING THAT PART OF THE JOB THAT CAN BE SPECIFIED EVEN THOUGH OTHER WORK WHICH CANNOT BE SPECIFIED WILL HAVE TO BE NEGOTIATED LATER ON A NONCOMPETITIVE BASIS WITH THE SUCCESSFUL BIDDER.

"IN BRIEF, WE BELIEVE THAT IF THE SPECIFICATIONS FOR A CONTRACT ARE SUFFICIENTLY DEFINITE AND COMPLETE TO PERMIT REASONABLY ACCURATE ESTIMATING, AND IF AN ADEQUATE NUMBER OF QUALIFIED CONTRACTORS ARE AVAILABLE TO BID, COMPETITION SHOULD BE OBTAINED BY FORMAL ADVERTISING AND THE BENEFITS THAT THE GOVERNMENT DERIVES FROM THIS METHOD OF CONTRACTING SHOULD NOT BE GIVEN UP SIMPLY BECAUSE OF THE PROSPECT THAT CHANGES MAY LATER BE MADE IN THE SPECIFICATIONS.'

ONE OF THE CHIEF PURPOSES OF THE PUBLIC PROCUREMENT STATUTES REQUIRING THE USE OF THE COMPETITIVE BID SYSTEM IS TO OBTAIN FOR THE GOVERNMENT THE BENEFITS OF FULL COMPETITION. SEE UNITED STATES V. BROOKRIDGE FARM (COLO. 1940) 111 F.2D 461. SUCH BENEFITS CAN BE ACHIEVED ONLY IF THE COMPETITION IS HELD ON THE WORK TO BE PERFORMED AND THIS IS WHAT THE SYSTEM CONTEMPLATES. SEE HANNAN V. BOARD OF EDUCATION (OKLA. 1909) 107 P. 646, 650. TO THE EXTENT THAT THE COMPETITION IS MEASURED BY SOMETHING GREATER, SMALLER, OR OTHER THAN THE WORK INTENDED, THE PURPOSE OF THE COMPETITION IS SERVED ONLY COINCIDENTALLY, IF AT ALL.

IT IS WELL ESTABLISHED THAT A CONTRACT AWARDED UNDER THE AUTHORITY OF THE COMPETITIVE BID STATUTES WHICH CONTAINS SPECIFICATIONS VARYING MATERIALLY FROM THOSE ADVERTISED IS INVALID. UNITED STATES V. ELLICOTT (1911) 223 U.S. 524; NEW YORK MAIL AND NEWSPAPER TRANSPORTATION CO. V. UNITED STATES (1957) 139 CT.CL. 751, 758, CERTIORARI DENIED 355 U.S.904; PRESTEX INCORPORATED V. UNITED STATES CT.CL. NO. 415-61, JULY 12, 1963, 320 F.2D 367. IF THIS RULE COULD BE OVERCOME BY THE SIMPLE EXPEDIENT OF INCORPORATING THE ADVERTISED SPECIFICATIONS IN A CONTRACT WITH THE INTENT OF MAKING MATERIAL CHANGES IN THEM SUBSEQUENTLY THE PRINCIPLE WOULD NOT BE WORTH MAINTAINING. THIS, HOWEVER, IS NOT THE CASE. CF. SCHNEIDER V. UNITED STATES (1884) 19 CT.CL. 547, 551.

IT SHOULD BE NOTED THAT WE ARE NOT CONSIDERING A MERE THEORETICAL POSSIBILITY THAT ADHERENCE TO THE PRINCIPLES OF COMPETITIVE BIDDING MIGHT HAVE EFFECTING A DIFFERING RESULT. AS NOTED ON PAGE 12 OF OUR REPORT, THE CIRCUMSTANCES IN THIS CASE WERE SUCH AS TO PRESENT THE REAL POSSIBILITY THAT A DIFFERENT CONTRACTOR WOULD HAVE BEEN SELECTED IF THE NARROW-GAUGE LIGHTING HAD BEEN INCLUDED IN THE ADVERTISED SPECIFICATIONS.

WE RECOGNIZE THAT IN LARGE-SCALE CONSTRUCTION CONTRACTS SUCH AS THIS THE LIKELIHOOD IS VERY STRONG THAT SUBSTANTIAL CHANGES WILL BE MADE IN THE SPECIFICATIONS BEFORE COMPLETION. WE RECOGNIZE ALSO THAT MINOR CHANGES IN THE SPECIFICATIONS ARE OFTEN MADE BOTH PRIOR TO AND AFTER AWARD OF THE CONTRACT AND THAT, AS A PRACTICAL MATTER, THE ADVERTISED SPECIFICATIONS CANNOT CONTINUALLY BE REVISED TO REFLECT ALL SUCH CHANGES. IN THIS CASE, HOWEVER, SIGNIFICANT AND COSTLY CHANGES IN THE SPECIFICATIONS WERE KNOWN TO HAVE BEEN REQUIRED PRIOR TO AWARD; AND WHILE IT MAY HAVE BEEN TRUE THAT NECESSARY PLANS AND SPECIFICATIONS FOR INSTALLATION OF THE NARROW-GAUGE LIGHTING AT ANDREWS HAD NOT BEEN DEVELOPED AT TIME OF AWARD, SUCH A LIGHTING SYSTEM HAD BEEN OPERATIONAL AT DOW AIR FORCE BASE, MAINE, SINCE 1958 AND HAD BEEN UNDER STUDY BY CIVIL AGENCIES IN 1957. WE ARE, THUS, NOT DEALING WITH A POSSIBLE CHANGE OF THE EXACT NATURE OF WHICH COULD NOT BE ANTICIPATED AT TIME OF AWARD BUT A KNOWN REQUIREMENT FOR A FACILITY LONG CONSIDERED AND ALREADY IN PRACTICAL USE, LACKING ONLY DETAILED APPLICATION TO LOCAL SITE CHARACTERISTICS.

AS NOTED EARLIER, A SIGNIFICANT PART OF THE LETTER OF SEPTEMBER 14, 1964, IS TAKEN UP WITH A DEMONSTRATION PURPORTING TO SHOW THAT THE THREE ALTERNATIVES TO THE ACTION TAKEN SUGGESTED IN OUR REPORT WERE IMPRACTICAL. IT SHOULD BE EMPHASIZED THAT THE IMPRACTICALITY OF ANY OR ALL THREE ALTERNATIVES DOES NOT IN ANY WAY AFFECT THE LEGALITY OF THE CONTRACT AWARD. AN ILLEGAL ACTION CANNOT BE JUSTIFIED ON THE BASIS THAT NO VALID ALTERNATIVE WAS AVAILABLE TO ACCOMPLISH A NEEDED PURPOSE.

THE THREE ALTERNATIVES SUGGESTED WERE, IN BRIEF: (1) READVERTISEMENT BASED ON REQUIREMENTS KNOWN AT TIME OF AWARD; (2) SPLITTING THE WORK BY AWARDING THAT PORTION ALREADY FIRM AND READVERTISING THE REMAINDER WHEN PLANS WERE COMPLETED; AND (3) IF THE FIRST TWO ARE IMPRACTICAL, NEGOTIATE THE PROCUREMENT.

IN REPLY TO THE FIRST ALTERNATIVE, IT IS STATED THE NEED FOR THE PROJECT "WAS TOO URGENT" TO ADMIT OF THE DELAY NECESSARILY INCIDENT TO THE DEVELOPMENT OF PLANS AND SPECIFICATIONS FOR THE NEW LIGHTING SYSTEM. HOWEVER, THE NEED WAS APPARENTLY NOT SO URGENT AS TO CALL FOR INVOKING THE NEGOTIATING AUTHORITY PURSUANT TO 10 U.S.C. 2304 (A) (2). THE INVOKING OF SUCH AUTHORITY WOULD HAVE REQUIRED, UNDER THE PROVISIONS OF ASPR IN EFFECT ON THE DATE OF AWARD, THAT THE CONTRACT BE ACCOMPANIED BY A SIGNED STATEMENT OF THE CONTRACTING OFFICER JUSTIFYING ITS USE (ASPR 3-202.3), AND THE SOLICITING OF PRICE QUOTATIONS SUPPORTED BY STATEMENTS AND ANALYSES OF ESTIMATED COSTS OR OTHER EVIDENCE OF REASONABLE PRICES AND OTHER VITAL MATTERS (ASPR 3 101). IN ADDITION, OF COURSE, THE RESULTING CONTRACT WOULD HAVE HAD TO INCLUDE, PURSUANT TO 10 U.S.C. 2313 (B), A CLAUSE GRANTING OUR OFFICE ACCESS TO THE CONTRACTOR'S RECORDS. IT APPEARS TO BE CONCEDED THAT NONE OF THE STATUTORY OR REGULATORY REQUIREMENTS FOR NEGOTIATION WAS MET IN THE THE AWARD OF THE INSTANT CONTRACT.

HISTORICALLY, THE USUAL METHOD OF PUBLIC PROCUREMENT HAS BEEN THROUGH FORMAL ADVERTISING FOR THE REASON THAT THERE ARE PRESUMED TO BE INHERENT IN SUCH METHOD SAFEGUARDS PROTECTING THE PUBLIC INTEREST. THIS SYSTEM, AS NOTED EARLIER, CONTEMPLATES A COMPETITION ON THE WORK TO BE PERFORMED. MORE RECENTLY, THE USE OF NEGOTIATION HAS BEEN AUTHORIZED IN CERTAIN CIRCUMSTANCES; BUT, BECAUSE THE PROTECTION CONSIDERED TO BE INHERENT IN FORMAL ADVERTISING IS REGARDED AS LACKING UNDER NEGOTIATION THE SUBSTITUTE SAFEGUARDS DESCRIBED IN THE PREVIOUS PARAGRAPH (WHICH SAFEGUARDS HAVE SUBSEQUENTLY BEEN EXPANDED, PARTICULARLY UNDER PUBLIC LAW 87-653) HAVE BEEN ESTABLISHED. IN THIS CASE, HOWEVER, THE CONTRACTING AGENCY HAS APPARENTLY SOUGHT TO ESTABLISH A THIRD FORM OF PUBLIC CONTRACTING WHICH IS BEREFT OF THE SAFEGUARDS OF FORMAL ADVERTISING IN THAT THE COMPETITION WAS NOT BASED ON THE WORK TO BE PERFORMED, AND EQUALLY LACKING THE SUBSTITUTE PROTECTION ESTABLISHED BY LAW AND REGULATION FOR NEGOTIATED PROCUREMENTS. WE ARE NOT AWARE OF ANY AUTHORITY FOR THE ESTABLISHMENT OF SUCH THIRD FORM, NOR CAN WE AGREE THAT ITS USE SERVES THE PUBLIC INTEREST.

IN ACCORDANCE WITH THE FOREGOING WE MUST AFFIRM THE CONCLUSION STATED IN THE AUDIT REPORT THAT THE CONTRACT IN QUESTION IS INVALID FOR FAILURE TO COMPLY WITH THE PUBLIC PROCUREMENT STATUTES, AND THAT PAYMENT TO THE CONTRACTOR ON ANY BASIS OTHER THAN QUANTUM MERUIT WOULD BE ILLEGAL. CONSEQUENTLY, IT IS OUR VIEW THAT THE STUDY CALLED FOR IN THE REPORT IS A NECESSARY PREREQUISITE TO ANY FURTHER EXPENDITURE OF FUNDS UNDER THE CONTRACT, AND UNLESS WE ARE ASSURED THAT SUCH STUDY WILL BE UNDERTAKEN PROMPTLY, WE WILL BE COMPELLED TO CONSIDER APPROPRIATE AUDIT ACTION.