B-150103, APR. 23, 1963

B-150103, APR. 23, 1963

TO AEROFLEX LABORATORIES INCORPORATED:

IN YOUR LETTER OF OCTOBER 10, 1962, AND SUBSEQUENT CORRESPONDENCE, YOU PROTESTED AGAINST THE AWARD OF A SUBCONTRACT BY MCDONNELL AIRCRAFT CORPORATION, HEREINAFTER REFERRED TO AS MCDONNELL, TO FAIRCHILD CAMERA AND INSTRUMENT CORPORATION, FOR STABILIZED CAMERA MOUNTS FOR THE RF-4C AIRCRAFT.

THE RECORD ESTABLISHES THAT MCDONNELL, AS THE PRIME CONTRACTOR UNDER AN AIR FORCE COST-TYPE CONTRACT FOR THE DEVELOPMENT AND PRODUCTION OF THE RF- 4C AIRCRAFT, IN JUNE 1962, REQUESTED PROPOSALS FROM A NUMBER OF SELECTED SOURCES, SOLICITING PRICE QUOTATIONS AND TECHNICAL PROPOSALS FOR THE DESIGN, DEVELOPMENT AND MANUFACTURE OF SIX PROTOTYPES OF VERTICAL STABILIZED CAMERA MOUNTS FOR THE AIRCRAFT, IN ACCORDANCE WITH A SPECIFICATION AND DRAWING (SPECIFICATION CONTROL DRAWING (SCD) 53 87535) FURNISHED BY MCDONNELL. THE REQUEST FOR PROPOSALS ALSO ASKED FOR PRICES ON (1) 24 PRODUCTION UNITS, WITH STAGGERED DELIVERY DATES TO DECEMBER 30, 1963, (2) THE PRECEDING 24 PLUS 98 MORE PRODUCTION UNITS, WITH STAGGERED DELIVERY DATES TO JANUARY 30, 1965, AND (3) THE PRECEDING 122 UNITS PLUS 57 MORE PRODUCTION UNITS, A TOTAL OF 179, WITH STAGGERED DELIVERY DATES TO NOVEMBER 30, 1965. THE QUOTATION OF THESE PRICES WAS TO REMAIN VALID FOR ACCEPTANCE WITHIN 120 DAYS AFTER BID CLOSING DATE.

SEVEN FIRMS WERE SOLICITED AND FOUR SUBMITTED PROPOSALS. ALL PROPOSALS WERE EVALUATED BY MCDONNELL ENGINEERING AND PROCUREMENT PERSONNEL WHOSE FINDINGS WERE THEN SUBMITTED TO AN AIR FORCE PROCUREMENT REVIEW BOARD FOR APPROVAL. THE EVALUATION WAS MADE IN ACCORDANCE WITH A PROCEDURE AND CRITERIA ESTABLISHED BY MCDONNELL AND APPROVED BY THE AIR FORCE PRIOR TO THE ISSUANCE OF THE REQUEST FOR PROPOSALS. FOUR MAJOR CATEGORIES WERE CONSIDERED IN THE EVALUATION, FOR WHICH APPROPRIATE WEIGHTS WERE ASSIGNED ON THE BASIS OF A POINT SYSTEM. THESE CATEGORIES WERE:

A. COMPLIANCE WITH SPECIFICATIONS--- 400 POINTS POSSIBLE

B. RELATIVE STATE OF DEVELOPMENT--- 250 POINTS POSSIBLE

C. CAPABILITY OF MEETING PRODUCTION SCHEDULES--- 150 POINTS POSSIBLE

D. COST--- 200 POINTS POSSIBLE

TWO OF THE PROPOSALS SUBMITTED RECEIVED SUCH LOW NUMERICAL SCORES THAT THEY WERE CONSIDERED TOTALLY UNACCEPTABLE, AND WERE GIVEN NO FURTHER CONSIDERATION. THE PROPOSALS SUBMITTED BY FAIRCHILD AND YOUR COMPANY WERE CONSIDERED ACCEPTABLE, SUBJECT TO CHANGES, AND BOTH COMPANIES WERE REQUESTED TO REVISE THE PROPOSALS TO REFLECT NECESSARY MODIFICATIONS. AUGUST OF 1962, A SECOND EVALUATION WAS MADE ON THE BASIS OF REVISED PROPOSALS.

YOUR COMPANY WAS DETERMINED TO HAVE SUBMITTED THE LOWER PRICE AND CONSEQUENTLY WAS GIVEN 26 POINTS MORE THAN FAIRCHILD UNDER THE CRITERION HEADING "COST.' SINCE FAIRCHILD WAS CONSIDERED TO HAVE MORE NEARLY COMPLETED ITS DESIGN AND PACKAGING, IT WAS GIVEN A SLIGHTLY HIGHER SCORE FOR ITS RELATIVE STATE OF DEVELOPMENT. BOTH COMPANIES WERE GIVEN THE HIGHEST MAXIMUM SCORE ON CAPABILITY TO MEET PRODUCTION SCHEDULES. HOWEVER, FAIRCHILD'S NUMERICAL STANDING IN REGARD TO COMPLIANCE WITH SPECIFICATIONS EXCEEDED YOUR OWN BY 50 POINTS. THE PROCURING ACTIVITY REPORTS THAT THE FOLLOWING ARE SOME OF THE REASONS FOR GIVING FAIRCHILD THE HIGHER SCORE IN THIS CATEGORY:

1. FAIRCHILD COMPLIED WITH THE MCDONNELL SCD REQUIREMENT WITH RESPECT TO THE VIBRATION SPECTRUM. YOUR COMPANY TOOK EXCEPTION TO THE SPECIFICATION, ARGUING THAT IT WAS EXCESSIVELY SEVERE AND REQUESTED A NEGOTIATION OF THE SPECIFICATION.

2. FAIRCHILD COMPLIED WITH THE SCD WITH RESPECT TO ZERO DEGREE CAGING OF THE CAMERA MOUNT GYRO ON ALL THREE AXES. YOUR COMPANY DEVIATED THE AZIMUTH AXIS REQUIREMENT. ZERO DEGREE CAGING IN ALL THREE AXES IS IMPORTANT FROM A SYSTEM STANDPOINT SINCE THE CAGED VERTICAL GYRO IS PLANNED FOR USE A A BACKUP FLIGHT ATTITUDE REFERENCE IN CASE OF FAILURE OF THE PRIMARY REFERENCE.

3. THE FAIRCHILD PROPOSAL, WITH RESPECT TO MAXIMUM WEIGHT, EXCEEDED THE SPECIFICATION REQUIREMENT (WEIGHED LESS THAN REQUIRED). YOUR COMPANY PROPOSED A MAXIMUM ALLOWABLE WEIGHT AND REQUESTED A NEGOTIATED WEIGHT PENALTY IN CASE IT COULD NOT MAKE THIS MAXIMUM VALUE, BUT INCLUDED NO SUPPORTING WEIGHT BROCHURE.

4. YOUR COMPANY PROVIDED INSUFFICIENT INFORMATION FOR PROPER EVALUATION OF INPUT AND OUTPUT SIGNALS.

5. YOUR COMPANY EXCEEDED THE MAXIMUM VERTICAL DEVIATION PERMITTED.

THE ADDITION OF THE POINTS SCORED UNDER THE FOUR CRITERIA RESULTED IN YOUR PROPOSAL RECEIVING 740 OUT OF A POSSIBLE 1,000 POINTS, AND THE PROPOSAL OF YOUR COMPETITOR RECEIVING 774 POINTS. ACCORDINGLY, THE PRIME CONTRACTOR RECOMMENDED FAIRCHILD FOR AWARD OF THE SUBCONTRACT, AND ON SEPTEMBER 14, 1962, THIS SELECTION WAS APPROVED BY A SUBCONTRACTOR ADVISORY PANEL OF THE AERONAUTICAL SYSTEMS DIVISION, AIR FORCE SYSTEMS COMMAND, WRIGHT-PATTERSON AIR FORCE BASE. FAIRCHILD WAS NOTIFIED ON SEPTEMBER 21, 1962, THAT IT WAS TO BE AWARDED THE CONTRACT. IT AGREED TO EXTEND THE OPTIONS FOR THE PRODUCTION UNITS UNTIL JUNE 1, 1963, FOR THE FIRST 24 MOUNTS; OCTOBER 31, 1963, FOR THE NEXT 98; AND OCTOBER 31, 1964, FOR THE LAST 57, AND ON THIS BASIS, A PURCHASE ORDER DATED NOVEMBER 19, 1962, FOR SIX PROTOTYPES, WAS ISSUED TO FAIRCHILD.

YOU CONTEND THAT YOU SUBMITTED THE LOWEST SUBCONTRACT BID WHICH WAS RESPONSIVE TO THE SPECIFICATIONS, AND THEREFORE MCDONNELL SHOULD NOT HAVE BEEN PERMITTED TO MAKE THE AWARD TO A HIGHER BIDDER. IT SHOULD BE NOTED AT THE OUTSET THAT IN NEGOTIATED PROCUREMENT, WHETHER CONDUCTED DIRECTLY BY THE GOVERNMENT OR, AS HERE, BY A PRIME CONTRACTOR ON A COST- REIMBURSABLE BASIS, COMPLIANCE WITH THE RULES OF FORMALLY ADVERTISED BIDDING IS NOT REQUIRED. MOREOVER, THERE IS NO STATUTE WHICH PROHIBITS A GOVERNMENT PRIME CONTRACTOR FROM AWARDING A SUBCONTRACT TO OTHER THAN THE LOW BIDDER. THE ONLY LEGAL INTERDICTION IMPOSED BY THIS OFFICE IS THAT THE CONTRACTING OFFICER MAY NOT APPROVE A SUBCONTRACT WHICH IS PREJUDICIAL TO THE INTERESTS OF THE UNITED STATES. 41 COMP. GEN. 424, 427, AND DECISIONS CITED THEREIN. THE RECORD GIVES NO INDICATION THAT THE EXECUTION OF THIS SUBCONTRACT WAS PREJUDICIAL TO THE INTERESTS OF THE UNITED STATES.

YOU URGE THAT THE EVALUATION SYSTEM DID NOT GIVE SUFFICIENT WEIGHT TO COST. THE RELATIVE WEIGHTS WHICH WERE ALLOCATED TO THE FOUR CRITERIA WERE ESTABLISHED PRIOR TO THE ISSUANCE OF THE REQUEST FOR QUOTATIONS AND APPLIED WITHOUT DISCRIMINATION TO EACH PROPOSAL. NO EVIDENCE HAS BEEN SUBMITTED TO PROVE THAT THE ASSIGNED WEIGHTS WERE ARBITRARY OR DESIGNED TO FAVOR ANY PARTICULAR BIDDER. MOREOVER, IN NEGOTIATED PROCUREMENTS, THE FACT THAT MORE WEIGHT IS GIVEN TO EVALUATION FACTORS OTHER THAN COST DOES NOT IN ITSELF RENDER ILLEGAL AN AWARD OF A CONTRACT MADE ON THAT BASIS. SEE 40 COMP. GEN. 508. WHILE IT IS TRUE THAT YOUR OFFICER WAS APPROXIMATELY 9 PERCENT LOWER THAN FAIRCHILD-S, WE CANNOT AGREE, IN VIEW OF THE OTHER EVALUATION FACTORS, THAT THE ACCEPTANCE OF THE HIGHER OFFER WAS UNWARRANTED OR PREJUDICIAL TO THE INTERESTS OF THE UNITED STATES.

THIS CONCLUSION IS STRENGTHENED BY THE FACT THAT THE PRIME CONTRACTOR DID NOT CONSIDER IN ITS PRICE EVALUATION OF YOUR OFFER CERTAIN FACTORS WHICH, IN THE OPINION OF THE AIR FORCE, WOULD HAVE INCREASED THE TOTAL COST. FOR EXAMPLE, YOUR COMPANY REQUIRED THE BAILMENT OF EQUIPMENT, BUT FAIRCHILD DID NOT, FAIRCHILD ELIMINATED THE NEED FOR AN ADDITIONAL SUPPORTING ITEM AT A COST OF APPROXIMATELY $8,000 PER AIRCRAFT WHICH WAS NOT INHERENT IN YOUR COMPANY'S PROPOSAL. ALSO, COSTS INVOLVING FURTHER NEGOTIATIONS RELATING TO THE MCDONNELL $20,000 WITHHOLDING PAYMENT CLAUSE AND THE WEIGHT PENALTY CLAUSE PROPOSED BY YOUR COMPANY WERE EXCLUDED FROM THE EVALUATION. IN ADDITION, THE CONCLUSION THAT THE CONTRACT TO FAIRCHILD WAS AWARDED AT A REASONABLE PRICE AND WAS NOT PREJUDICIAL TO THE INTEREST ON THE UNITED STATES IS SUPPORTED BY THE FACT THAT THE PRIME CONTRACTOR NEGOTIATED A DOWNWARD ONLY REDETERMINATION PROVISION UNDER WHICH 80 PERCENT OF COST SAVINGS WILL BE RETURNED TO THE GOVERNMENT, BUT THE GOVERNMENT WILL NOT PARTICIPATE IN ANY COST OVERRUNS.

YOU ARGUE THAT YOUR OFFERING PRICE WAS INFLATED BECAUSE YOU WERE REQUIRED TO INCLUDE COSTS FOR CERTAIN TOOLING AND TEST EQUIPMENT WHICH YOU ALLEGE WERE PROBABLY UNNECESSARY TO THE PERFORMANCE OF THE CONTRACT. THE DEPARTMENT OF THE AIR FORCE REPORTS THAT THE TOOLING WAS CONSIDERED NECESSARY TO ACCOMMODATE THE ANTICIPATED PRODUCTION RATE, INCLUDING SPARES, FOR THE RF-4C PROGRAM, AND THAT THE EQUIPMENT WAS REQUIRED TO SUPPORT MCDONNELL'S BENCH AND FLIGHT TESTS. FAIRCHILD WAS ALSO REQUIRED TO INCLUDE THIS COST IN ITS OFFER. IF THESE COSTS WERE ELIMINATED FROM BOTH OFFERS, FAIRCHILD WOULD STILL HAVE BEEN OVER-ALL HIGH IN THE POINT EVALUATION SYSTEM.

THE QUESTION AS TO WHETHER THE TECHNICAL PERFORMANCE REQUIREMENTS ARE NECESSARY TO MEET THE MINIMUM NEEDS OF THE PROCURING ACTIVITY IS NOT ORDINARILY CONSIDERED TO BE WITHIN THE JURISDICTION OF THIS OFFICE. OUR DECISION B-139830, DATED AUGUST 19, 1959, WE MADE THE FOLLOWING OBSERVATION:

"THIS OFFICE HAS NEITHER AN ENGINEERING STAFF NOR A TESTING LABORATORY TO EVALUATE THE TECHNICAL ASPECTS OF SPECIFICATIONS. MOREOVER, IN DISPUTES OF FACT BETWEEN A PROTESTANT AND A GOVERNMENT AGENCY, WE USUALLY ARE REQUIRED TO ACCEPT THE ADMINISTRATIVE REPORT AS CORRECT. WHETHER A PARTICULAR BID IS RESPONSIVE TO THE TECHNICAL DETAILS OF THE SPECIFICATIONS IS NOT A MATTER, ORDINARILY, FOR OUR DETERMINATION. * *

IN THIS REGARD, WE HELD IN OUR DECISION B-143389, DATED AUGUST 26, 1960, AS FOLLOWS:

"THE QUESTION AS TO THE ACTION, IF ANY, WHICH OUR OFFICE SHOULD TAKE IN CASES INVOLVING THE EVALUATION OF TECHNICAL REQUIREMENTS OF SPECIFICATIONS, ETC., HAS BEEN THE SUBJECT OF A NUMBER OF DECISIONS BY OUR OFFICE. YOUR PROTEST IS BASED UPON SUCH AN EVALUATION. OF NECESSITY, OUR OFFICE HAS ESTABLISHED A RULE GOVERNING SUCH SITUATIONS. IN A DECISION DATED JANUARY 8, 1938, TO THE PRESIDENT, BOARD OF COMMISSIONERS, DISTRICT OF COLUMBIA, PUBLISHED AT 17 COMP. GEN. 554, 557, WE SET FORTH THE FOLLOWING RULE WHICH WE CONSIDER TO BE CONTROLLING IN THE INSTANT MATTER:

" "IT IS IN THE PROVINCE OF ADMINISTRATIVE OFFICERS TO DRAFT PROPER SPECIFICATIONS NECESSARY TO SUBMIT FOR FAIR COMPETITIVE BIDDING PROPOSED CONTRACTS TO SUPPLY GOVERNMENTAL NEEDS, AND TO DETERMINE FACTUALLY WHETHER ARTICLES OFFERED MEET THOSE SPECIFICATIONS. * * *" "

FOR THE FOREGOING REASONS, WE THINK THAT THE AWARD OF THE CONTRACT FOR SIX PROTOTYPES OF THE STABILIZED CAMERA MOUNTS TO FAIRCHILD HAS NOT BEEN SHOWN TO BE PREJUDICIAL TO THE INTERESTS OF THE UNITED STATES. NEVERTHELESS, WE REALIZE THAT IN VIEW OF THE RELATIVELY CLOSE SCORES ON BID EVALUATION, AND THE DIFFICULTY OF ESTIMATING OR PREDICTING WHETHER A COMPETITIVE PRICE GIVEN TODAY WILL REMAIN COMPETITIVE 10 TO 27 MONTHS LATER, THE EXERCISE OF THE OPTIONS IN THE CONTRACT COULD RESULT IN CONTRACTS AWARDED AT EXCESSIVE PRICES. THE DEPARTMENT OF THE AIR FORCE HAS ADVISED US IN A LETTER DATED FEBRUARY 21, 1963, THAT AT THE PRESENT TIME IT APPEARS THAT TESTS ON THE PROTOTYPES WILL NOT BE COMPLETED, AND THEREFORE, SPECIFICATIONS ADEQUATE FOR COMPETITIVE PROCUREMENT WILL NOT BE AVAILABLE, UNTIL AFTER THE TIME FOR EXERCISING THE FIRST TWO OPTIONS HAS EXPIRED. THE AIR FORCE FURTHER REPORTS THAT, WHILE IT HAS NO PROCEDURE FOR DIRECTING ITS PRIME CONTRACTOR TO TEST THE MARKET PRIOR TO EXERCISING AN OPTION, IT WILL NOT, WHERE ADEQUATE SPECIFICATIONS HAVE BEEN DEVELOPED, GRANT THE REQUIRED APPROVAL FOR THE EXERCISE OF SUCH OPTIONS UNTIL IT HAS FIRST DETERMINED BY THE PROCEDURES SET FORTH IN ASPR 1-1505 THAT THE OPTION PRICE IS MOST ADVANTAGEOUS TO THE GOVERNMENT. YOU SUGGEST THAT IF MCDONNELL HAS DEVELOPED SPECIFICATIONS FROM THE SIX PROTOTYPES ADEQUATE ENOUGH TO PROCURE NUMEROUS PRODUCTION UNITS, THESE SAME SPECIFICATIONS SHOULD BE ADEQUATE ENOUGH FOR COMPETITIVE PROCUREMENT, AND THEREFORE A DETERMINATION SHOULD BE MADE UNDER ASPR 1-1505 AS TO WHETHER OR NOT THE FAIRCHILD PRICES ON THE FIRST TWO OPTIONS ARE MOST ADVANTAGEOUS TO THE GOVERNMENT.

WITH A FEW EXCEPTIONS, THE PROVISIONS OF ASPR GENERALLY RELATE TO PROCEDURES FOR PROCUREMENT FROM PRIME CONTRACTORS, AND THEREFORE, NONE OF THESE PROVISIONS ORDINARILY WOULD BE APPLICABLE TO THE INSTANT CASE. HOWEVER, THE AIR FORCE HAS VOLUNTARILY ADOPTED A POLICY WHEREBY ASPR 1- 1505 IS, FOR PRACTICAL PURPOSES, EXTENDED TO COVER SUBCONTRACTS FOR ITEMS ON WHICH ADEQUATE SPECIFICATIONS HAVE BEEN DEVELOPED. WE THINK THE ADOPTION OF THIS POLICY IS HELPFUL IN PREVENTING ABUSES WHICH MIGHT ARISE IF THERE WERE NO STANDARDS AS TO HOW TO DETERMINE WHEN IT IS IN THE BEST INTERESTS OF THE GOVERNMENT FOR A PRIME CONTRACTOR UNDER A COST-TYPE CONTRACT TO PROCURE ITEMS BY EXERCISING OPTIONS INSTEAD OF BY ADVERTISING OR NEGOTIATING PROCEDURES. NONETHELESS, WE NOTE THAT BEFORE THE AIR FORCE COMPLETES THE TESTS OF THE FIRST SIX EXPERIMENTAL OR TEST MODELS OF THE CAMERA MOUNT, AND DRAWS SPECIFICATIONS TO MERELY CONSIDER THE POSSIBILITY OF COMPETITIVE PROCUREMENT, IT INTENDED TO EXPEND $3.8 MILLION FOR 128 CAMERA MOUNTS. IN EFFECT, NOT ONLY THE FIRST SIX BUT THE SUCCEEDING 122 MOUNTS ARE TO SOME DEGREE EXPERIMENTAL. FURTHERMORE, THESE 122 MOUNTS, SOMEWHAT MISLEADINGLY REFERRED TO IN THE REQUEST FOR QUOTATIONS AS "PRODUCTION MODELS," AND PERHAPS MORE ACCURATELY DESCRIBED IN ASPR 3-211.3 AS "PROTOTYPES," ARE TO BE PROCURED WITHOUT FURTHER COMPETITION AND WITH NO FINDING OR DETERMINATION BY THE SECRETARY OF THE AIR FORCE AS TO THE PROPRIETY AND NECESSITY OF IGNORING WHAT MIGHT BE OFFERED UNDER COMPETITIVE PROCUREMENT. THE AIR FORCE CONSIDERS THIS ACTION NECESSARY BECAUSE ITS TIME SCHEDULE FOR DEVELOPING AND PRODUCING THE RF-4C AIRCRAFT IS SUCH THAT IT MUST PROCURE A LARGE NUMBER OF EXPERIMENTAL COMPONENTS FOR ACTUAL USE IN THE AIRCRAFT BEFORE IT CAN DETERMINE WHETHER THOSE COMPONENTS, WHICH MAY NOT HAVE YET BEEN FULLY TESTED, ARE SUITABLE ENOUGH FOR COMPETITIVE PROCUREMENT. WHILE WE HAVE NO PRESENT BASIS UPON WHICH TO QUESTION THE JUSTIFICATION GIVEN FOR THE METHODS USED BY THE PRIME CONTRACTOR TO PROCURE ITEMS FROM A SUBCONTRACTOR, WE ARE SUGGESTING TO THE SECRETARY OF THE AIR FORCE THAT HE CONSIDER (1) THE APPLICATION OF ASPR 3- 211.3, WHICH PROHIBITS PRIME CONTRACTS FOR "QUANTITY PRODUCTION" IN RESEARCH AND DEVELOPMENT PROCUREMENTS, TO PURCHASES OF OVER 100 ,PRODUCTION MODELS," THEORETICALLY BUT NOT IN FACT MANUFACTURED TO CONFORM TO PROTOTYPE ITEMS WHICH HAVE BEEN NEITHER FULLY TEST NOR APPROVED, AND (2) THE DESIRABILITY OF ESTABLISHING STANDARDS AS TO WHAT CONSTITUTES "QUANTITY PRODUCTION" IN RESEARCH AND DEVELOPMENT CONTRACTS.