B-148814, JUNE 5, 1962, 41 COMP. GEN. 788

B-148814: Jun 5, 1962

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SAMPLES AND A SHORTER DELIVERY PERIOD FOR PRIOR PRODUCERS ENABLES THE GOVERNMENT BY GIVING A LONGER DELIVERY PERIOD TO NEW PRODUCERS AND BY EVALUATING THE TWO TYPES OF BIDS ON THE BASIS OF PRICE ALONE AN OPPORTUNITY TO DEVELOP NEW SOURCES OF SUPPLY WHICH IS RECOGNIZED AS A MATERIAL FACTOR IN GOVERNMENT PROCUREMENT. THE DUAL DELIVERY SCHEDULE IS NOT CONTRARY TO THE PRINCIPLES OF COMPETITIVE BIDDING TO MAKE AN AWARD UNDER THE INVITATION ILLEGAL AND A CONTRACT WHICH WAS CANCELED WHEN THE SECOND LOW BIDDER. AFTER BID OPENING THAT THE DUAL DELIVERY PROVISION WAS ILLEGAL. 1962: WE HAVE A LETTER OF MAY 16. THE STATED NUMBER OF ASSEMBLIES WERE INCLUDED IN ITEMS 2 THROUGH 7 OF THE BIDDING SCHEDULE.

B-148814, JUNE 5, 1962, 41 COMP. GEN. 788

BIDS - DELIVERY PROVISIONS - DUAL DELIVERY SCHEDULES A DUAL DELIVERY SCHEDULE IN AN INVITATION WHICH PROVIDES A LONGER DELIVERY TIME FOR BIDDERS REQUIRED TO FURNISH PREPRODUCTION, TESTED, SAMPLES AND A SHORTER DELIVERY PERIOD FOR PRIOR PRODUCERS ENABLES THE GOVERNMENT BY GIVING A LONGER DELIVERY PERIOD TO NEW PRODUCERS AND BY EVALUATING THE TWO TYPES OF BIDS ON THE BASIS OF PRICE ALONE AN OPPORTUNITY TO DEVELOP NEW SOURCES OF SUPPLY WHICH IS RECOGNIZED AS A MATERIAL FACTOR IN GOVERNMENT PROCUREMENT; THEREFORE, THE DUAL DELIVERY SCHEDULE IS NOT CONTRARY TO THE PRINCIPLES OF COMPETITIVE BIDDING TO MAKE AN AWARD UNDER THE INVITATION ILLEGAL AND A CONTRACT WHICH WAS CANCELED WHEN THE SECOND LOW BIDDER, A PRIOR PRODUCER, WHO HAD THE ADVANTAGE PROTESTED, AFTER BID OPENING THAT THE DUAL DELIVERY PROVISION WAS ILLEGAL, SHOULD BE REINSTATED.

TO THE SECRETARY OF THE AIR FORCE, JUNE 5, 1962:

WE HAVE A LETTER OF MAY 16, 1962, YOUR REFERENCE AFSPM-1PO, IN RESPONSE TO OUR REQUEST OF MAY 4, 1962, ON THE CIRCUMSTANCES SURROUNDING THE CANCELLATION OF CONTRACT NO. AF 33/657/-8707, AWARDED APRIL 24, 1962, AFTER ADVERTISING, TO THE EMTEX DIVISION, MISSILE SYSTEMS CORPORATION OF TEXAS.

INVITATION FOR BIDS NO. 33-657-62-107, ISSUED JANUARY 23, 1962, FROM WRIGHT-PATTERSON AIR FORCE BASE, SOLICITED BIDS FOR 1,356 PYLON BOMB RACK ASSEMBLIES OF TWO TYPES IN ACCORDANCE WITH A MILITARY SPECIFICATION. THE STATED NUMBER OF ASSEMBLIES WERE INCLUDED IN ITEMS 2 THROUGH 7 OF THE BIDDING SCHEDULE. ITEM 1 OF THE SCHEDULE CALLED FOR THE MANUFACTURE OF TWO PREPRODUCTION UNITS OF EACH OF THE TWO TYPES, THE TESTING OF THESE UNITS AND THE PREPARATION OF A REPORT ON THE TESTS. THE FOLLOWING NOTE APPEARED UNDER ITEM 1:

BIDDERS WHO HAVE NOT PREVIOUSLY FURNISHED TO THE GOVERNMENT ACCEPTED ARTICLES AS REFERRED TO IN ITEMS 2 AND 3 BELOW OR IN ACCORDANCE WITH PREVIOUS SPECIFICATION MIL-P-9793 SHALL BID ON ITEM 1 ABOVE.

BIDDERS WHO HAVE PREVIOUSLY FURNISHED TO THE GOVERNMENT ACCEPTED ARTICLES AS REFERRED TO IN ITEMS 2 AND 3 BELOW OR IN ACCORDANCE WITH PREVIOUS SPECIFICATION MIL-P-9793 SHALL NOT BID ON ITEM 1 ABOVE.

BIDS SUBMITTED UNDER ITEM 1 AND BIDS NOT SUBMITTED UNDER ITEM 1 ARE EQUALLY ACCEPTABLE TO THE GOVERNMENT AS APPLICABLE, AND AWARD WILL BE MADE THEREON WITH THE BEST INTEREST OF THE GOVERNMENT CONSIDERED.

WHEN BIDS WERE OPENED AS SCHEDULED ON FEBRUARY 23, 1962, IT WAS FOUND THAT THE LOW BID ON THE PROCUREMENT HAD BEEN SUBMITTED BY EMTEX AT $2,750,194.19 LESS PROMPT PAYMENT DISCOUNT OF ONE-HALF OF 1 PERCENT. THE LOW BID INCLUDED $64,759.96 FOR ITEM 1 ON WHICH THE FIRM WAS REQUIRED TO BID IN ACCORDANCE WITH THE QUOTED NOTE. THE SECOND LOW BID, AT $2,942,400 NET, WAS SUBMITTED BY GEMCO, INC., A FIRM WHICH HAD PREVIOUSLY FURNISHED THE ARTICLES TO THE GOVERNMENT AND, THEREFORE, UNDER THE TERMS OF THE NOTE, COULD NOT BID ON ITEM 1.

AFTER A DETERMINATION THAT THE LOW BIDDER WAS RESPONSIBLE, THAT FIRM WAS AWARDED CONTRACT NO. AF 33/657/-8707 ON APRIL 24, 1962. THE AWARD WAS PROTESTED BY GEMCO ON THE GROUNDS THAT THE DELIVERY PROVISIONS OF THE INVITATION WERE DISCRIMINATORY.

ARTICLE K OF THE INVITATION SETS OUT TWO DIFFERENT DELIVERY SCHEDULES: ONE FOR THOSE BIDDING ON ITEM 1, AND THE OTHER FOR THOSE NOT BIDDING ON THAT ITEM. THE FORMER WAS REQUIRED TO PRODUCE THE PREPRODUCTION UNITS, PERFORM THE TESTS AND SUBMIT THE TEST REPORTS WITHIN 180 DAYS AFTER RECEIPT OF WRITTEN NOTICE OF AWARD. DELIVERY OF PRODUCTION UNITS WAS TO BEGIN 225 DAYS AND BE COMPLETED 525 DAYS AFTER RECEIPT OF SUCH NOTICE. THE PRODUCTION UNIT DELIVERY SCHEDULE FOR THOSE BIDS NOT INCLUDING ITEM 1 WAS IDENTICAL EXCEPT THAT IN EACH CASE THE TIME WAS DECREASED BY 105 DAYS FROM DATE OF RECEIPT OF WRITTEN NOTICE OF AWARD.

GEMCO IN PROTESTING TOOK THE POSITION THAT IT COULD HAVE SUBMITTED A SUBSTANTIALLY LOWER BID ON THE LONGER DELIVERY SCHEDULE TO BE USED BY THOSE BIDDING ON ITEM 1. UPON CONSIDERATION OF THE MATTER, HEADQUARTERS, UNITED STATES AIR FORCE, CONCLUDED THAT THE DIFFERENT DELIVERY SCHEDULES IN FACT DID NOT AFFORD ALL BIDDERS AN OPPORTUNITY TO BID ON THE SAME BASIS, THAT THE INVITATION CONTRAVENED THE BASIC POLICIES AND ESTABLISHED RULES GOVERNING PROCUREMENT BY FORMAL ADVERTISING, AND, THEREFORE, THAT THE AWARD WAS ILLEGAL. FOLLOWING THAT CONCLUSION EMTEX WAS NOTIFIED ON MAY 2, 1962, THAT THE AWARD WAS CANCELED. A NEW INVITATION, NO. 33-657-62 -581, ADOPTING A SINGLE DELIVERY SCHEDULE, WAS ISSUED ON MAY 1, 1962, WITH A BID SUBMISSION DEADLINE OF MAY 11, 1962.

EMTEX PROTESTED THE CANCELLATION OF THE CONTRACT BY LETTER OF MAY 3, 1962, IN WHICH IT IS CONTENDED THAT, EVEN ASSUMING THE VALIDITY OF THE BASIS FOR GEMCO'S PROTEST, OBJECTION TO THE USE OF TWO DELIVERY SCHEDULES SHOULD HAVE BEEN RAISED BEFORE THE BIDS WERE EXPOSED AND AN AWARD MADE. FURTHER, IT IS NOTED THAT THE SAME KIND OF DUAL DELIVERY SCHEDULE HAS BEEN EMPLOYED BY VARIOUS AIR FORCE INSTALLATIONS IN OTHER INVITATIONS WHICH HAVE RESULTED IN AWARDS TO EMTEX AND OTHERS. EMTEX HAS NOTED ALSO THAT THE DELIVERY SCHEDULE APPLICABLE TO IT IS NOT NECESSARILY ADVANTAGEOUS, SINCE THE TIME AVAILABLE FOR PRODUCTION AFTER APPROVAL OF THE ARTICLES FURNISHED UNDER ITEM 1 IS LESS THAN THAT AVAILABLE TO BIDDERS IN THE OTHER CATEGORY.

AS STATED, AWARD WAS MADE TO EMTEX. THIS FACT MUST BE CONSIDERED IN DETERMINING THE COURSE OF ACTION PRESENTLY IN THE BEST INTEREST OF THE GOVERNMENT. CANCELLATION OF THE AWARD MAY SUBJECT THE UNITED STATES TO SUBSTANTIAL LIABILITY IF THE COURTS SHOULD TAKE THE VIEW THAT THE AWARD CREATED A BINDING CONTRACT. IF THERE BE CONSIDERABLE DOUBT THAT THE COURTS WOULD FIND THE AWARD ILLEGAL, WE BELIEVE CANCELLATION OF THE AWARD WOULD NOT BE IN THE BEST INTEREST OF THE UNITED STATES.

THE INCLUSION OF ITEM 1 FOR NEW PRODUCERS IS ADVANTAGEOUS TO THE GOVERNMENT. IT IS TRUE THAT IF ITEM 1 WERE OMITTED, A CONTRACTOR, WHETHER NEW OR OLD, COULD BE HELD RESPONSIBLE FOR PERFORMANCE IN ACCORDANCE WITH THE SPECIFICATIONS OR, IN THE ALTERNATIVE, COULD BE REQUIRED TO RESPOND IN DAMAGES FOR FAILURE TO CONFORM THERETO. ITEM 1, HOWEVER, PERMITS THE PROCURING AGENCY TO DETERMINE CONFORMITY OF THE ITEMS DESTINED FOR OPERATIONAL USE AT AN EARLIER TIME THAN WOULD OTHERWISE BE POSSIBLE. THIS IS AN ADVANTAGE WHICH MIGHT BE REGARDED AS JUSTIFYING AN ADDITIONAL CONSIDERATION IN TERMS OF MONEY, TIME, OR BOTH. AS INDICATED IN YOUR LETTER, THIS ADVANTAGE HAD PREVIOUSLY BEEN PURCHASED FROM THOSE NOT BIDDING ON ITEM 1.

THIS KIND OF DUAL DELIVERY SCHEDULE PROVIDING DIFFERING DUE DATES DEPENDING UPON WHETHER PREPRODUCTION TESTING IS REQUIRED OF THE INDIVIDUAL BIDDER HAS BEEN USED BY YOUR DEPARTMENT IN THE PAST. ONE SUCH INSTANCE APPEARS IN THE PROCUREMENT DEALT WITH IN OUR DECISION B 145714, JUNE 21, 1961, WHERE NO QUESTION WAS RAISED AS TO THAT FEATURE OF THE INVITATION. SIMILAR PROVISIONS HAVE BEEN INCLUDED IN INVITATION NOS. 30-635-61-670 AND 104-606-62-3, WHICH HAVE RESULTED IN CONTRACTS, AND 41-608-62-630 ON WHICH AWARD IS PENDING. MEMORANDA PREPARED BY THE CONTRACTING OFFICER AND THE BUYER, WHICH APPEAR IN THE FILE FURNISHED IN CONNECTION WITH YOUR REPORT, INDICATE THE AWARENESS OF THOSE PERSONS THAT THE USE OF SUCH DELIVERY PROVISION WAS NOT UNIQUE. THE REGULAR USE OF SUCH DELIVERY PROVISIONS WAS ALSO KNOWN TO REPRESENTATIVES OF EMTEX, WHICH HAS RECEIVED PREVIOUS AWARDS OF CONTRACTS BY THE AIR FORCE UNDER SIMILAR PROVISIONS. THESE CIRCUMSTANCES WOULD BE SUFFICIENT TO GIVE A BIDDER REASONABLE ASSURANCE THAT THE VALIDITY OF SUCH PROVISIONS WAS ESTABLISHED.

IT IS THE GENERAL RULE THAT ADVERTISED SPECIFICATIONS FOR GOVERNMENT CONTRACTS SHOULD STATE THE BONA FIDE NEEDS OF THE GOVERNMENT, AND DELIVERY TIME HAS ORDINARILY BEEN CONSIDERED AS ONE OF THE NEEDS SUBJECT TO THIS RULE. HOWEVER, THERE HAVE BEEN MANY INSTANCES IN WHICH EFFORTS HAVE BEEN MADE TO PROVIDE BIDDERS SOME LEEWAY TO OFFER DELIVERY SCHEDULES VARYING FROM THE OPTIMUM DESIRED BY THE GOVERNMENT. WE HAVE APPROVED INVITATIONS ALLOWING BIDDERS TO OFFER DIFFERENT DELIVERY SCHEDULES, PROVIDED ONLY THAT A PRECISE METHOD OF EVALUATION OF SUCH BIDS WAS STATED SO THAT THE AWARD WOULD NOT REST IN THE ARBITRARY DISCRETION OF THE CONTRACTING OFFICIALS. SEE 36 COMP. GEN. 181. IN THE PRESENT INSTANCE IT APPEARS THAT THE PROCURING OFFICIALS HAVE ATTEMPTED TO MEET THIS PROBLEM BY FIXING IN ADVANCE A TIME OF DELIVERY DEEMED TO BE EQUIVALENT TO A WAIVER OF THE REQUIREMENT OF PREPRODUCTION TESTING, WHICH WOULD OBVIOUSLY NOT BE NECESSARY IN THE CASE OF AWARD TO A PRIOR PRODUCER OF THE IDENTICAL ARTICLE. WHILE IT MAY BE ARGUED THAT IF THE GOVERNMENT HAS A BONA FIDE NEED FOR DELIVERY OF THE SUBJECT PROCUREMENT WITHIN THE TIME REQUIRED OF PRIOR PRODUCERS IT SHOULD NOT ALLOW A LONGER TIME FOR ANY OTHER BIDDER, THE SAME ARGUMENT WOULD BE EQUALLY APPLICABLE TO THOSE CASES IN WHICH A LONGER DELIVERY TIME HAS BEEN EQUATED WITH A LOWER PRICE. IN THIS CASE, INSTEAD OF PRICE ADVANTAGE THE GOVERNMENT HAS CHOSEN TO CONSIDER THE POTENTIAL ADVANTAGES OF OBTAINING A NEW SOURCE OF SUPPLY AS AN EQUIVALENT TO A LONGER DELIVERY TIME, LEAVING PRICE ALONE AS THE BASIS FOR AWARD. VIEW OF THE FACT THAT DEVELOPMENT OF NEW SOURCES OF SUPPLY IS CLEARLY RECOGNIZED AS A MATERIAL FACTOR IN PROCUREMENT, IN THAT IT IS ONE OF THE STATUTORY GROUNDS ON WHICH NEGOTIATION IS AUTHORIZED IN LIEU OF COMPETITIVE BIDDING, WE DO NOT FEEL THAT WE SHOULD OBJECT TO THE METHOD OF EVALUATING THAT OBJECTIVE AS ADOPTED IN THIS CASE, PARTICULARLY SINCE THE PROTESTING BIDDER SUBMITTED A BID ON THE BASIS OF THE TERMS OF THE INVITATION AND REFRAINED FROM OBJECTING TO THOSE TERMS UNTIL AFTER BID OPENING. GEMCO BENEFITED IN THE EVALUATION BY BEING ABLE TO BID WITHOUT HAVING TO CONSIDER THE COST OF PERFORMANCE OF ITEM 1; IN ADDITION IT HAD THE ADVANTAGE OF BEING IN PRODUCTION ON THE SAME UNIT UNDER THREE EARLIER CONTRACTS CONTAINING DELIVERY SCHEDULES WHICH WE UNDERSTAND WOULD PHASE IN EXTREMELY WELL WITH THAT OF THE INSTANT PROCUREMENT.

IT MAY BE AS SUGGESTED IN YOUR REPORT THAT THE DELIVERY PROVISION SHOULD MORE PROPERLY HAVE BEEN THE SAME ON PRODUCTION UNITS FOR ALL BIDDERS. SHOULD BE POINTED OUT, HOWEVER, THAT IF IN THAT EVENT A PRIOR PRODUCER HAD RECEIVED THE AWARD, IT WOULD NOT HAVE BEEN IMPROPER TO REQUIRE, AS A CONSIDERATION FOR WAIVING THE PREPRODUCTION TESTING, EITHER A PRICE REDUCTION OR ACCELERATION OF DELIVERY. BY THE FORM OF INVITATION USED HERE, THAT CONSIDERATION WAS FIXED IN ADVANCE AND NOT LEFT FOR NEGOTIATION.

IN VIEW OF THE FOREGOING, WE CANNOT CONCLUDE THAT THE TERMS OF THE INVITATION WERE SO CONTRARY TO THE PRINCIPLES OF COMPETITIVE BIDDING AS TO MADE AWARD OF A CONTRACT THEREUNDER ILLEGAL. ACCORDINGLY, THE CONTRACT AWARDED SHOULD BE REINSTATED.