B-149602, JAN. 11, 1963

B-149602: Jan 11, 1963

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IS OPERATING THE GOVERNMENT -OWNED LAKE CITY ORDNANCE PLANT UNDER A COST-PLUS-A-FIXED-FEE CONTRACT. IS EXCESSIVE BECAUSE (1) THE REQUEST FOR QUOTATIONS FAILED TO SET FORTH A DEFINITE DELIVERY DATE BUT INSTEAD CALLED FOR THE BEST POSSIBLE DELIVERY SCHEDULE. IT IS IMPORTANT TO NOTE WITH RESPECT TO EACH OF THESE ARGUMENTS THAT ALTHOUGH THE PRIME CONTRACT PROVIDES THAT SUBCONTRACTS MADE THEREUNDER MUST BE APPROVED BY THE CONTRACTING OFFICER. THERE IS NO STATUTE REQUIRING DISAPPROVAL WHERE THE AWARD OF SUCH SUBCONTRACTS IS NOT MADE IN ACCORDANCE WITH THE RULES AND REGULATIONS GOVERNING DIRECT GOVERNMENT PROCUREMENT CONDUCTED UNDER COMPETITIVE BIDDING STATUTES. ALTHOUGH THESE LATTER STATUTES ARE GENERALLY NOT APPLICABLE TO CONTRACTS AWARDED BY A GOVERNMENT PRIME CONTRACTOR.

B-149602, JAN. 11, 1963

TO M. SLOANE MANUFACTURING CO.:

IN A COPY OF YOUR LETTER OF OCTOBER 18, 1962, ADDRESSED TO MR. JOHN J. COURTNEY, SPECIAL COUNSEL FOR THE SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS, COMMITTEE ON ARMED SERVICES OF THE HOUSE OF REPRESENTATIVES, AND IN PREVIOUS CORRESPONDENCE TO THIS OFFICE, YOU PROTESTED THE GOVERNMENT'S APPROVING A CONTRACT FOR 4,718,000 M-1 BANDOLEERS AWARDED TO TWEEDIE FOOTWEAR, WHICH FIRM HAD SUBMITTED THE LOWEST RESPONSIVE OFFER OF THE 25 SOLICITED UNDER A REQUEST FOR QUOTATIONS ISSUED BY REMINGTON ARMS COMPANY, INC. REMINGTON, A GOVERNMENT PRIME CONTRACTOR, IS OPERATING THE GOVERNMENT -OWNED LAKE CITY ORDNANCE PLANT UNDER A COST-PLUS-A-FIXED-FEE CONTRACT, DA -49-010 ORD-3. UNDER THIS CONTRACT IT HAS THE AUTHORITY TO SUBCONTRACT IN ITS OWN NAME FOR SUPPLIES AND MATERIALS, EXCEPT FOR THOSE THE GOVERNMENT CHOOSES TO FURNISH.

YOU CONTEND THAT THE PRICE OF ?1902 EACH, PAID TO TWEEDIE FOR THE BANDOLEERS, IS EXCESSIVE BECAUSE (1) THE REQUEST FOR QUOTATIONS FAILED TO SET FORTH A DEFINITE DELIVERY DATE BUT INSTEAD CALLED FOR THE BEST POSSIBLE DELIVERY SCHEDULE, AND AS A CONSEQUENCE, RESULTED IN PREMIUM DELIVERY PRICES; (2) REMINGTON, AND CONSEQUENTLY THE GOVERNMENT, INCURRED UNNECESSARY EXPENSES BECAUSE IT FAILED TO INSPECT AT ORIGIN AND TO SHIP DIRECTLY TO FIELD ACTIVITIES; AND (3) THE GOVERNMENT PAID AN UNNECESSARY FEE FOR THE PROCUREMENT SERVICES OF A "GO-BETWEEN," REMINGTON, INSTEAD OF PROCURING THE BANDOLEERS DIRECTLY.

IT IS IMPORTANT TO NOTE WITH RESPECT TO EACH OF THESE ARGUMENTS THAT ALTHOUGH THE PRIME CONTRACT PROVIDES THAT SUBCONTRACTS MADE THEREUNDER MUST BE APPROVED BY THE CONTRACTING OFFICER, THERE IS NO STATUTE REQUIRING DISAPPROVAL WHERE THE AWARD OF SUCH SUBCONTRACTS IS NOT MADE IN ACCORDANCE WITH THE RULES AND REGULATIONS GOVERNING DIRECT GOVERNMENT PROCUREMENT CONDUCTED UNDER COMPETITIVE BIDDING STATUTES. ALTHOUGH THESE LATTER STATUTES ARE GENERALLY NOT APPLICABLE TO CONTRACTS AWARDED BY A GOVERNMENT PRIME CONTRACTOR, WE HAVE SUGGESTED THAT A CONTRACTING OFFICER, IN THE PROPER EXERCISE OF HIS DISCRETION, IS JUSTIFIED IN REFUSING TO GRANT APPROVAL OF THE SUBCONTRACT IF THE INTERNAL REGULATIONS OF THE PROCURING ACTIVITY REQUIRE THAT SUBCONTRACTS BE AWARDED BY COMPETITIVE BIDDING. COMP. GEN. 311. HOWEVER, WE ARE ADVISED THAT THE ACTIVITY IN THE INSTANT CASE HAS NO REGULATION WHICH REQUIRES THE PRIME CONTRACTOR TO SOLICIT BIDS. IN THESE CIRCUMSTANCES, DISAPPROVAL IS WARRANTED ONLY IF THE EXECUTION OF THE SUBCONTRACT WOULD BE DETRIMENTAL TO THE INTEREST OF THE UNITED STATES, AND THE STATUTORY RULES AND REGULATIONS OF COMPETITIVE BIDDING MAY BE USED SOLELY FOR GENERAL GUIDANCE IN DETERMINING WHETHER A PRIME CONTRACTOR'S ESTABLISHED PROCUREMENT POLICIES SHOULD BE APPROVED. 37 COMP. GEN. 315.

WE ARE INFORMALLY ADVISED THAT THE CONTRACTING OFFICER DID REVIEW REMINGTON'S ESTABLISHED PROCUREMENT PROCEDURE PRIOR TO AWARD OF THE PRIME CONTRACT. UNDER THIS PROCEDURE, REMINGTON WOULD DISTRIBUTE ITS REQUESTS FOR QUOTATIONS AMONG SEVERAL COMPANIES, AND ACCEPT THE LOWEST OFFER RECEIVED UNLESS THE CONTRACTING OFFICER CONSENTED TO A JUSTIFIED REQUEST TO DO OTHERWISE. THE CONTRACTING OFFICER DECIDED THAT THIS METHOD OF PROCUREMENT EMPLOYED THE ESSENTIAL FEATURES OF COMPETITIVE BIDDING, AND THEREFORE, AFTER INCORPORATING CERTAIN OTHER GOVERNMENT PROCUREMENT POLICIES INTO THE REQUEST FOR QUOTATIONS, HE APPROVED THE METHOD BY WHICH REMINGTON PROPOSED TO OBTAIN SUBCONTRACTS.

IN VIEW OF THESE FACTS, AND THE LEGAL PRINCIPLES DISCUSSED ABOVE, WE MUST CONCLUDE THAT THE ABSENCE OF A DEFINITE DELIVERY DATE IN REMINGTON'S REQUEST FOR QUOTATIONS DOES NOT IN ITSELF REQUIRE DISAPPROVAL OF THE SUBCONTRACT ISSUED THEREUNDER, ALTHOUGH AN INVITATION FOR BIDS DRAWN BY THE GOVERNMENT WHICH FAILED TO SET FORTH THE BASIS FOR EVALUATION AS BETWEEN PRICE AND TIME OF DELIVERY WOULD RENDER A CONTRACT AWARDED THEREUNDER VOIDABLE. SEE 41 COMP. GEN. - , B-147759, DATED MARCH 20, 1962, CITING B-128405, DATED SEPTEMBER 17, 1956. THE RATIONALE OF THE CITED DECISIONS IS THAT THE PURPOSE OF STATUTORY ADVERTISING REQUIREMENTS WOULD BE VIOLATED IF BIDS WERE NOT EVALUATED ON A COMMON BASIS. HOWEVER, SINCE THE INSTANT SUBCONTRACT IS NOT STRICTLY GOVERNED BY SUCH REQUIREMENTS, IT CANNOT BE ILLEGAL IN THE SENSE THAT IT CONTRAVENED THE ADVERTISING STATUTES.

NOTWITHSTANDING THE RELATIVELY BROAD DISCRETION THE PRIME CONTRACTOR MAY EXERCISE IN CHOOSING SUBCONTRACTORS AND, CONVERSELY, THE RELATIVELY LIMITED AUTHORITY OF THE GOVERNMENT CONTRACTING OFFICER, WE HAVE STATED THAT THE CONTRACTING OFFICER IS REQUIRED TO DISAPPROVE A SUBCONTRACT ENTERED INTO BY THE PRIME CONTRACTOR AT AN UNREASONABLY HIGH PRICE, SINCE THE EXECUTION OF SUCH A CONTRACT WOULD BE PREJUDICIAL TO THE INTEREST OF THE GOVERNMENT. SEE 41 COMP. GEN. 424, 427. YOU ALLEGE THAT BECAUSE THE REQUEST FOR QUOTATIONS CALLED FOR THE BEST POSSIBLE DELIVERY DATE, YOU FELT REQUIRED TO PREDICATE YOUR BID ON AN OVERTIME BASIS IN ORDER TO COMMENCE EARLY DELIVERY. YOU STATE THAT YOUR BID WAS THEREFORE UNNECESSARILY HIGH. APPARENTLY, YOU ASSUME EITHER THAT YOU OFFERED SUBSTANTIALLY BETTER DELIVERY DATES THAN THE LOW BIDDER OR, IF YOU DID NOT, THAT THE LOW BIDDER AS WELL AS YOU CHARGED A PREMIUM RATE FOR A DELIVERY SCHEDULE THE GOVERNMENT DID NOT NEED.

THE RECORD OF THE INSTANT CASE DOES NOT SUPPORT YOUR ASSUMPTIONS. THERE IS NO EVIDENCE THAT EITHER REMINGTON OR THE GOVERNMENT DESIRED A LESSER DELIVERY SCHEDULE THAN REMINGTON ACCEPTED AND THE GOVERNMENT APPROVED. INDEED, THE APPROVAL OF THE CONTRACT INDICATES THAT THE DELIVERY DATES WERE AGREEABLE TO THE GOVERNMENT. THERE IS NO EVIDENCE THAT TWEEDIE CHARGED A PREMIUM FOR THE DELIVERY DATES IT PROPOSED. MOREOVER, TWEEDIE OFFERED NOT ONLY A PRICE WHICH WAS $68,871.24 LOWER THAN YOUR OFFER, BUT WHAT APPEARS TO BE THE MORE FAVORABLE DELIVERY SCHEDULE. YOU OFFERED TO DELIVER THE FIRST 58,000 UNITS BY JUNE 30, 1962, WITH COMPLETION 11 MONTHS LATER. TWEEDIE OFFERED TO DELIVER 250,000 UNITS TWO WEEKS AFTER RECEIPT OF THE ORDER, JUNE 21, 1962, AND 250,000 UNITS EACH WEEK THEREAFTER UNTIL THE ORDER WAS COMPLETED. TWEEDIE SUBSTANTIALLY COMPLIED WITH ITS OFFERED SCHEDULE AND COMPLETED DELIVERY IN FOUR MONTHS. WE CANNOT PROPERLY CONCLUDE ON THE BASIS OF THESE FACTS THAT THE SUBCONTRACT WAS AWARDED AT AN EXCESSIVELY HIGH PRICE. NEVERTHELESS, WE REALIZE THAT INVITATIONS WHICH FAIL TO ADVISE THE BIDDER WHAT VALUE WILL BE GIVEN TO THE DELIVERY SCHEDULE MAY, UNDER SOME CIRCUMSTANCES, RESULT IN INFLATED BID PRICES AND THUS PREJUDICE THE INTERESTS OF THE UNITED STATES. THEREFORE, WE ARE REQUESTING THE DEPARTMENT OF THE ARMY TO ADVISE ITS PRIME CONTRACTORS OPERATING UNDER COST CONTRACTS THAT INVITATIONS FOR BIDS FROM SUBCONTRACT BIDDERS SHOULD PROVIDE FOR A COMMON BASIS OF EVALUATION.

YOU ALSO CONTEND THAT THE GOVERNMENT INCURRED UNNECESSARY INSPECTION, SHIPPING AND PACKING EXPENSES BECAUSE, UNLIKE THE THREE INSTANCES WHERE THE GOVERNMENT ITSELF CONDUCTED THE PROCUREMENT, LAKE CITY ORDNANCE PLANT WAS CHOSEN AS THE POINT OF DESTINATION AND INSPECTION. YOU ALLEGE THAT THE COST OF INSPECTION COULD HAVE BEEN REDUCED BY INSPECTING AT THE SUCCESSFUL BIDDER'S PLANT, AND YOU ALLEGE THAT SINCE "THIS PROCUREMENT WAS MADE FOR FIELD SERVICE AND FOR THE PURPOSE OF PACKING AMMUNITION AT VARIOUS INSTALLATIONS, AND NOT FOR STOCK PILING OR REPLACEMENT" AT THE REMINGTON OPERATING PLANT, THE COST OF SHIPPING AND PACKING COULD HAVE BEEN REDUCED BY DIRECT DELIVERY TO THE ULTIMATE USERS OF THE BANDOLEERS, THE FIELD INSTALLATIONS.

WE NEED NOT CONSIDER WHETHER THE ALLEGED INCREASE IN THESE COSTS WOULD BE PREJUDICIAL TO THE INTERESTS OF THE GOVERNMENT, SINCE THE DEPARTMENT OF THE ARMY DENIES YOUR ASSERTIONS OF FACT. IT REPORTS THAT INSPECTION AT ORIGIN WOULD HAVE BEEN MORE EXPENSIVE THAN INSPECTION AT DESTINATION BECAUSE THE FORMER NECESSITATES PROVIDING EITHER RESIDENT OR ROVING INSPECTORS WHOSE EMPLOYMENT IS JUSTIFIED ONLY IN THE LARGER DOLLAR VOLUME CONTRACTS, OR IN CONTRACTS FOR MORE COMPLEX ITEMS.

THE DEPARTMENT FURTHER REPORTS THAT THE ULTIMATE DESTINATIONS OF THE BANDOLEERS WERE NOT KNOWN WHEN THE PROCUREMENT WAS INITIATED, AND THEREFORE COULD NOT HAVE BEEN DELIVERED DIRECTLY TO THE FIELD INSTALLATIONS. RECORDS OF DELIVERY SHOW THAT AS OF NOVEMBER 13, 1962, 17 SHIPMENTS FROM THE REMINGTON OPERATING PLANT, IN THE TOTAL AMOUNT OF 3,618,400 BANDOLEERS, HAD BEEN RECEIVED AT 9 INSTALLATIONS. THESE SHIPMENTS DID NOT BEGIN UNTIL OVER A MONTH AFTER TWEEDIE MADE ITS FIRST DELIVERY TO REMINGTON, AND THEY WERE MADE IN RELATIVELY SMALL AMOUNTS OVER FAIRLY CONSTANT INTERVALS OF TIME. THE FIRST THREE OF THESE SHIPMENTS APPARENTLY WOULD HAVE EXHAUSTED THE STOCK OF REMINGTON BUT FOR THE DELIVERIES FROM TWEEDIE. MOREOVER, THE RECORDS ALSO SHOW THAT THE INVENTORY OF BANDOLEERS STOCKED AT REMINGTON ON NOVEMBER 13, 1962, AMOUNTED TO THE REPLENISHED QUANTITY OF 1,301,600.

THESE FACTS ARE ADEQUATE EVIDENCE THAT THIS PROCUREMENT WAS NOT FOR IMMEDIATE TRANSFER TO FIELD INSTALLATIONS BUT, ON THE CONTRARY, WAS INTENDED FOR REPLACING REMINGTON INVENTORY AND FOR STOCKING FUTURE NEEDS OF THE INSTALLATIONS. IT IS APPARENT FROM YOUR ALLEGATIONS THAT YOU DISAGREE WITH THE FACTS AS REPORTED BY THE DEPARTMENT OF THE ARMY. SUCH DISPUTES, IT IS A RULE OF LONG STANDING THAT IN THE ABSENCE OF CONVINCING EVIDENCE TO THE CONTRARY OUR OFFICE MUST ACCEPT THE REPORT OF THE ADMINISTRATIVE AGENCY. 37 COMP. GEN. 568. WE DO NOT REGARD YOUR ALLEGATIONS AS CONVINCING, ESPECIALLY IN VIEW OF THE EVIDENCE SUBMITTED BY THE DEPARTMENT OF THE ARMY TO SUPPORT ITS POSITION.

FINALLY, YOU QUESTION THE ECONOMY OF THE DEPARTMENT'S PERMITTING THE PROCUREMENT TO BE CONDUCTED BY THE PRIME CONTRACTOR OF A COST-PLUS CONTRACT. YOU PRESENT COST FIGURES OF M-1 BANDOLEER PROCUREMENTS SHOWING THAT IN THE THREE INSTANCES IN FISCAL YEAR 1962 WHERE THE GOVERNMENT PURCHASED THE ITEM ITSELF, IT PAID AN AVERAGE OF ?2088 EACH, WHILE IN THREE SIMILAR PROCUREMENTS CONDUCTED BY REMINGTON DURING APPROXIMATELY THE SAME PERIOD, REMINGTON PAID YOUR COMPANY AN AVERAGE OF ?2180 EACH. YOU CONCLUDE FROM THESE FIGURES THAT DIRECT PROCUREMENT BY THE GOVERNMENT IS LESS EXPENSIVE THAN PROCUREMENT CONDUCTED BY REMINGTON.

HOWEVER, WHILE YOU SUGGEST THAT WE DETERMINE THE COST FOR DIRECT GOVERNMENT PROCUREMENT ON AN F.O.B. ORIGIN BASIS, YOU PRESENT FOR COMPARISON THE F.O.B. DESTINATION PRICES WHICH REMINGTON PAID ON ITS CONTRACTS WITH YOU. PRESUMABLY, YOU MAY HAVE FELT JUSTIFIED IN INCLUDING THE TRANSPORTATION COST FOR ONLY THE REMINGTON PURCHASES, ON THE GROUNDS THAT, AS YOU ALLEGE IN THE INSTANT CASE, TRANSPORTATION TO THE REMINGTON OPERATING PLANT WAS UNNECESSARY, SERVED NO PURPOSE AND SHOULD HAVE BEEN MADE DIRECTLY TO THE FIELD INSTALLATIONS. HOWEVER, IN THE ABSENCE OF EVIDENCE TO SUPPORT SUCH A PRESUMPTION, WE MUST ASSUME THAT TRANSPORTATION TO THE OPERATING PLANT IN THOSE THREE PROCUREMENTS WAS AS PURPOSEFUL AS IT APPEARS TO BE IN THE INSTANT CASE. THEREFORE, IN ORDER TO OBTAIN A MORE ACCURATE REFLECTION OF THE TOTAL COST TO THE GOVERNMENT, AND A MORE REALISTIC COMPARISON OF SUCH COSTS IN DIFFERENT PROCUREMENTS, WE SHALL CONSIDER ALL PRICES ON AN F.O.B. DESTINATION BASIS.

WHEN TRANSPORTATION COSTS ARE ADDED TO THE FIGURES YOU REPRESENT AS THE COST OF THE BANDOLEERS PROCURED DIRECTLY BY THE GOVERNMENT, THE TOTAL AVERAGE UNIT COST TO THE GOVERNMENT IS ?2133, NOT .2088. WE NOTE THAT THE ADJUSTED PRICE ON DIRECT GOVERNMENT PROCUREMENT STILL APPEARS SLIGHTLY LESS EXPENSIVE THAN THE AVERAGE UNIT PRICE OF ?2180, WHICH REMINGTON PAID IN ITS PROCUREMENTS FROM YOU. HOWEVER, THE RECORD SHOWS THAT IN THOSE THREE CONTRACTS AWARDED TO YOUR COMPANY, REMINGTON PAID A HIGHER PRICE THAN IT DID IN COMPANION CONTRACTS AWARDED TO TWEEDIE, IN ORDER TO MAINTAIN TWO SOURCES OF SUPPLY. IN THE SEVEN PROCUREMENTS MADE FROM TWEEDIE DURING THE PERIOD, INCLUDING THOSE THREE WHERE, ON THE SAME OR SUCCEEDING DAY, REMINGTON ALSO AWARDED A CONTRACT TO YOU AT YOUR HIGHER OFFER, REMINGTON PAID TWEEDIE AN AVERAGE UNIT PRICE ON AN F.O.B. DESTINATION BASIS OF .2122. OBVIOUSLY, THIS COMPARES FAVORABLY WITH THE ?2133 COST TO THE GOVERNMENT IN DIRECT PROCUREMENTS, AS WELL AS WITH THE ?2180 COST TO REMINGTON IN PROCUREMENTS FROM YOU. FURTHERMORE, IF REMINGTON HAD NOT BEEN DIRECTED TO MAINTAIN TWO SOURCES OF SUPPLY, AND HAD PROCURED ITS FULL REQUIREMENTS FROM THE LOW BIDDER, THE COST TO REMINGTON AND ULTIMATELY TO THE GOVERNMENT WOULD HAVE BEEN SLIGHTLY LESS THAN ?2122. THUS, AN ANALYSIS OF THE FIGURES YOU PRESENT APPEARS TO INDICATE NOT THAT THE GOVERNMENT CAN SAVE MONEY BY DIRECT PROCUREMENT, AS YOU ALLEGE, BUT THAT IT MAY HAVE SAVED MONEY BY NOT DIRECTING THAT THE AWARD OF THIS PROCUREMENT BE MADE TO YOUR COMPANY AT A PREMIUM PRICE.

THE DEPARTMENT OF THE ARMY ADVISES US THAT IT IS UNECONOMICAL AND ADMINISTRATIVELY CUMBERSOME FOR GOVERNMENT PROCUREMENT OFFICES TO PROCURE FREQUENT AND UNPREDICTABLE SMALL QUANTITY REQUIREMENTS FOR BANDOLEERS ON AN ORDER-BY-ORDER BASIS. HOWEVER, SMALL QUANTITY REQUIREMENTS CAN BE FILLED FROM AN AMMUNITION MANUFACTURER'S OPERATING INVENTORY, AND REPLACED BY A LARGE PROCUREMENT AT A LATER DATE. IT FURTHER REPORTS THAT AFTER A COMPREHENSIVE REVIEW AND ANALYSIS OF THE PROBLEM, IT DETERMINED THAT PERMITTING A CONTRACTOR OPERATOR, SUCH AS REMINGTON ARMS AT LAKE CITY ORDNANCE PLANT, TO MAKE ITS OWN PROCUREMENTS OF AMMUNITION AND SUPPLIES, IS MORE ECONOMICAL, EXPEDIENT AND PRACTICAL THAN DIRECT PROCUREMENT BY THE GOVERNMENT. THE PRESENT RECORD PRESENTS NO SUBSTANTIAL REASON TO QUESTION THIS DETERMINATION INSOFAR AS THE INSTANT PROCUREMENT IS CONCERNED. THEREFORE, WE MUST CONCLUDE THAT THE CONTRACT BETWEEN REMINGTON ARMS COMPANY AND TWEEDIE FOOTWEAR DOES NOT APPEAR TO BE PREJUDICIAL TO THE INTEREST OF THE UNITED STATES. ACCORDINGLY, WE SEE NO BASIS UPON WHICH TO OBJECT TO THE ACTION TAKEN BY THE DEPARTMENT OF THE ARMY, AND YOUR PROTEST MUST BE DENIED.