B-151177, JUN 17, 1963

B-151177: Jun 17, 1963

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YOU STATE THAT SEVERAL DECISIONS AND REGULATIONS OF OUR OFFICE PERTAINING TO THE WORD OF GOVERNMENT CONTRACTS ARISING OUT OF PUBLICLY ADVERTISED BIDS AND THAT IT IS IN THE BEST INTEREST OF THE GOVERNMENT TO GENERALLY AWARD CONTRACTS TO THE LOWEST QUALIFIED BIDDER SATISFYING THE MINIMUM SPECIFICATIONS. WHETHER IT IS IN THE BEST INTEREST OF THE GOVERNMENT TO CONSIDER PRICE AS THE MOST IMPORTANT FACTOR. IF NO SPARE PARTS ARE PROCURED. WHAT IS THE DIRECT EXPENSE OF THIS EFFORT. WHAT IS THE COST OF OPERATOR TRAINING TO PERFORM THESE FUNCTIONS AND WHAT IS THE COST OF NEW FACILITIES TO SUPPORT THE TRAINED OPERATOR YOUR LETTER FURTHER POINTS OUT THAT ACCORDING TO MILITARY AND OTHER GOVERNMENT AGENCIES THE COST OF MAINTAINING WEAPONS HAS RUN AS HIGH AS TEN TIMES THE COST OF DESIGN AND PRODUCTION COMBINED.

B-151177, JUN 17, 1963

PRECIS-UNAVAILABLE

MR. BRUNO O. WEINSCHEL

CHAIRMAN, PROCUREMENT ADVISORY SUBCOMMITTEE

SCIENTIFIC APPARATUS MAKERS ASSOCIATION

WEINSCHEL ENGINEERING

P.O. BOX 577

GAITHERSBURG, MARYLAND

DEAR MR. WEINSCHEL:

WE REFER TO YOUR LETTER DATED MARCH 27, 1963, AND ENCLOSURES, CONCERNING THE PROCUREMENT OF PROPERTY BY THE GOVERNMENT. YOU STATE THAT SEVERAL DECISIONS AND REGULATIONS OF OUR OFFICE PERTAINING TO THE WORD OF GOVERNMENT CONTRACTS ARISING OUT OF PUBLICLY ADVERTISED BIDS AND THAT IT IS IN THE BEST INTEREST OF THE GOVERNMENT TO GENERALLY AWARD CONTRACTS TO THE LOWEST QUALIFIED BIDDER SATISFYING THE MINIMUM SPECIFICATIONS. YOU QUESTION, IN EFFECT, WHETHER IT IS IN THE BEST INTEREST OF THE GOVERNMENT TO CONSIDER PRICE AS THE MOST IMPORTANT FACTOR. IT HAS BEEN, YOU STATE, THE EXPERIENCE OF THE OPERATIONAL GROUPS IN THE DEPARTMENT OF DEFENSE THAT THE INTEREST OF THE GOVERNMENT CAN BE SERVED BETTER BY CONSIDERING THE "TOTAL COST" ASSOCIATED WITH THE PROPERTY DURING ITS LIFE AND NOT ONLY THE "ACQUISITION COST". YOU LIST SEVERAL FACTORS WHICH SHOULD BE CONSIDERED TO ARRIVE AT THE "TOTAL COST" AS FOLLOWS:

1. INDIRECT PROCUREMENT EXPENSE

2. COST OF GOVERNMENT INSPECTION

3. COST OF GOVERNMENT EVALUATION

4. FREQUENCY OF NEED FOR MAINTENANCE, COST OF MAINTENANCE

AND COST OF NEW MAINTENANCE FACILITIES

5. COST OF TRAINING OF OPERATING PERSONNEL AND

AVAILABILITY OF SUCH PERSONNEL WITH SUITABLE SKILL

6. COST OF TRAINING OF MAINTENANCE PERSONNEL AND

AVAILABILITY OF PERSONNEL WITH SUITABLE SKILL

7. INSTALLATION EXPENSE

8. OPERATIONAL EFFECTIVENESS AND EFFICIENCY

9. NEED FOR SPARE PARTS IN LIGHT OF OPERATIONAL

EXPERIENCE AND COST OF SPARE PARTS

10. IF NO SPARE PARTS ARE PROCURED, AVAILABILITY AND COST

OF SPARE PARTS DURING LIFE OF PROPERTY

11. IN THE LIGHT OF OPERATIONAL EXPERIENCE, HOW FREQUENT

MUST THE EQUIPMENT BE ADJUSTED OR CALIBRATED OR OVERHAULED

TO PERFORM AS SPECIFIED, WHAT IS THE DIRECT EXPENSE OF

THIS EFFORT, WHAT IS THE COST OF OPERATOR TRAINING TO

PERFORM THESE FUNCTIONS AND WHAT IS THE COST OF NEW

FACILITIES TO SUPPORT THE TRAINED OPERATOR

YOUR LETTER FURTHER POINTS OUT THAT ACCORDING TO MILITARY AND OTHER GOVERNMENT AGENCIES THE COST OF MAINTAINING WEAPONS HAS RUN AS HIGH AS TEN TIMES THE COST OF DESIGN AND PRODUCTION COMBINED. SINCE IT APPEARS TO YOU THAT IT IS IN THE BEST INTEREST OF THE GOVERNMENT TO AWARD CONTRACTS WHICH LEAD TO THE LOWEST "TOTAL COST", IN CONTRAST TO THE LOWEST "ACQUISITION COST", YOU REQUEST GUIDANCE AS TO HOW THIS CAN BE ACCOMPLISHED IN VIEW OF THE EXISTING REGULATIONS AND DECISIONS OF OUR OFFICE.

AT THE OUTSET IT SHOULD BE POINTED OUT THAT WE ARE NOT AWARE OF ANY DECISION OR REGULATION ISSUED BY OUR OFFICE WHICH EITHER PREVENTS OR HINDERS THE AWARDING OF GOVERNMENT CONTRACTS ON THE BASIS OF "TOTAL COST" AS REFLECTED IN THE FACTORS LISTED IN YOUR LETTER. ANY MISAPPREHENSION ON YOUR PART CONCERNING THIS MATTER WILL, WE TRUST, BE DISPELLED BY A GENERAL DISCUSSION OF THE LEGAL PRINCIPLES RELATING TO PROCUREMENT BY FORMAL ADVERTISING WHICH FOLLOWS.

SECTION 2305(A) AND (C), TITLE 10, U.S.C. (THE ARMED SERVICES PROCUREMENT ACT OF 1947) PROVIDES AS FOLLOWS:

"(A) WHENEVER FORMAL ADVERTISING IS REQUIRED UNDER

SECTION 2304 OF THIS TITLE, THE ADVERTISEMENT SHALL BE

MADE A SUFFICIENT TIME BEFORE THE PURCHASE OF CONTRACT.

THE SPECIFICATIONS AND INVITATIONS FOR BIDS SHALL PERMIT

SUCH FREE AND FULL COMPETITION AS IS CONSISTENT WITH

THE PROCUREMENT OF THE PROPERTY AND SERVICES NEEDED

BY THE AGENCY CONCERNED.

"(C) BIDS SHALL BE OPENED PUBLICLY AT THE TIME AND

PLACE STATED IN THE ADVERTISEMENT. AWARDS SHALL BE MADE WITH

REASONABLE PROMPTNESS BY GIVING WRITTEN NOTICE TO THE

RESPONSIBLE BIDDER WHOSE BID CONFORMS TO THE INVITATION

AND WILL BE THE MOST ADVANTAGEOUS TO THE UNITED STATES,

PRICE AND OTHER FACTORS CONSIDERED. HOWEVER, ALL BIDS

MAY BE REJECTED IF THE HEAD OF THE AGENCY DETERMINES THAT

REJECTION IS IN THE PUBLIC INTEREST."

COMPARABLE PROVISIONS ARE CONTAINED IN THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 WHICH GOVERNS PROCUREMENTS BY MOST OF THE CIVILIAN AGENCIES. SEE 41 U.S.C. 253(A) AND (B).

IT IS WELL RECOGNIZED THAT THE PURPOSE OF STATUTES REQUIRING THE AWARD OF CONTRACTS TO THE LOWEST RESPONSIBLE BIDDER AFTER FORMAL ADVERTISING FOR BIDS IS TO GIVE ALL PERSONS AN EQUAL OPPORTUNITY TO COMPETE FOR GOVERNMENT CONTRACTS, TO PREVENT UNJUST FAVORITISM, COLLUSION, OR FRAUD IN AWARDING GOVERNMENT CONTRACTS, AND TO SECURE FOR THE GOVERNMENT THE BENEFITS WHICH FLOW FROM FREE AND UNRESTRICTED COMPETITION. SEE UNITED STATES V. BROOKRIDGE FARM, 111 F.2D 461. IN ORDER THAT BIDDERS MAY COMPETE ON EQUAL TERMS, THE INVITATION MUST BE SUFFICIENTLY DEFINITE TO PERMIT THE PREPARATION AND EVALUATION OF BIDS ON A COMMON BASIS.

THE PREPARATION AND ESTABLISHMENT OF INVITATIONS FOR BIDS CONTAINING SPECIFICATIONS TO DESCRIBE THE NEEDS OF THE GOVERNMENT AND THE DETERMINATION OF WHETHER PRODUCTS OFFERED MEET THE SPECIFICATIONS ARE MATTERS PRIMARILY WITHIN THE JURISDICTION OF THE PROCUREMENT AGENCY. COMP.GEN. 190 37 ID. 554. ON THE OTHER HAND, OUR OFFICE IN SETTLING ACCOUNTS AND DETERMINING THE AVAILABILITY OF APPROPRIATIONS IS CHARGED WITH THE RESPONSIBILITY OF SEEING THAT CONTRACTS INVOLVING THE EXPENDITURE OF PUBLIC FUNDS ARE LEGALLY MADE, INCLUDING OBSERVANCE OF THE LAW RESPECTING COMPETITIVE BIDDING; AND, WHEN NECESSARY TO THAT END, IT IS WITHIN THE AUTHORITY OF OUR OFFICE TO DETERMINE, AS A MATTER OF LAW, THE MEANING AND EFFECT OF THE TERMS AND SPECIFICATIONS USED. 17 COMP.GEN. 554; 38 ID. 190. HOWEVER, THE JURISDICTION OF OUR OFFICE CLEARLY DOES NOT EXTEND TO THE DRAFTING OF SPECIFICATIONS. 33 COMP.GEN. 586. SEE 16 COMP.GEN. 404 WHERE A REQUEST FROM A PROCURING AGENCY THAT OUR OFFICE PREPARE OR SUGGEST "WHAT WOULD CONSTITUTE AN EFFECTIVE AND PROPER SPECIFICATION" WAS REFUSED.

IN PREPARING SPECIFICATIONS TO DESCRIBE THE PRODUCT TO BE PROCURED, THE PROCUREMENT AGENCY HAS A CONSIDERABLE AMOUNT OF DISCRETION, WITHOUT INTERFERENCE BY OUR OFFICE, IN DESCRIBING THE ESSENTIAL FEATURES OF THE PRODUCT. THIS DISCRETION IS SUBJECT TO CERTAIN LEGAL PROCEDURAL REQUIREMENTS AND TO AUTHORIZATION ACTS AND AVAILABLE FUNDS APPROPRIATED BY THE CONGRESS, BUT BY AND LARGE, THE QUESTIONS RAISED BY YOU WITH RESPECT TO "TOTAL COSTS" AS OPPOSED TO "ACQUISITION COST" ARE NOT RELATED TO THESE LEGAL LIMITATIONS. WE RECOGNIZE, AS YOU POINT OUT, THAT THE COST OF MAINTAINING PARTICULAR ITEMS OF EQUIPMENT MAY, IN MANY INSTANCES, GREATLY EXCEED THE ACQUISITION COST OF SUCH EQUIPMENT. HOWEVER, IN MOST, IF NOT ALL, CASES THIS RESULT STEMS, WE BELIEVE, FROM QUALITATIVE DEFICIENCIES IN THE EQUIPMENT ITSELF AND NOT FROM ANY LEGAL REQUIREMENT THAT AWARDS OF CONTRACTS UNDER FORMAL ADVERTISING MUST BE MADE TO THE BIDDER WHOSE BID "WILL BE THE MOST ADVANTAGEOUS TO THE UNITED STATES, PRICE AND OTHER FACTORS CONSIDERED." THESE QUALITATIVE DEFICIENCIES, IN TURN, CAN BE TRACED, IN MOST CASES, EITHER TO DEFECTIVE OR INADEQUATELY PREPARED SPECIFICATIONS, TO INSUFFICIENT SCIENTIFIC AND TECHNOLOGICAL KNOWLEDGE DUE NOT TO HUMAN CARELESSNESS OR INEPTITUDE BUT TO THE "PRESENT STATE OF THE ART"; OR TO POOR CONTRACTUAL PERFORMANCE BY THE CONTRACTOR.

IT SHOULD BE POINTED OUT THAT, CONTRARY TO THE IMPLICATIONS RAISED IN YOUR LETTER, OUR OFFICE HAS EXPRESSLY HELD THAT THE COST OF MAINTENANCE AND OPERATION OF EQUIPMENT IS OF PRIMARY IMPORTANCE AND THAT NO LEGAL OBJECTION IS SEEN TO THE ISSUANCE OF A SPECIFICATION ADVISING PROSPECTIVE BIDDERS THAT SUCH ELEMENTS WILL BE TAKEN INTO CONSIDERATION IN ADDITION TO PRICE IN THE ACCEPTANCE OR REJECTION OF BIDS. 36 COMP.GEN. 380, 384 CITING A-50925, SEPTEMBER 21, 1933. TO THE SAME EFFECT WITH REFERENCE TO THE COST OF GOVERNMENT INSPECTION SEE 8 COMP.GEN. 649. WITH RESPECT TO THE STATED FACTORS OF INSTALLATION EXPENSE AND NEED AND COST OF SPARE PARTS IT IS NOT UNCOMMON FOR INVITATION FOR BIDS TO PROVIDE THAT SUCH FACTORS WILL BE TAKEN INTO CONSIDERATION IN EVALUATING BIDS AND WE HAVE NOT OBJECTED TO THE CONSIDERATION OF THESE FACTORS. SEE 36 COMP.GEN. 380 AND B-126830, FEBRUARY 21, 1956. IN THE LATTER DECISION WE STATED, IN PERTINENT PART, THAT:

"IN THE EVALUATION OF COMPETITIVE BIDS, THE RULE

HAS BEEN ESTABLISHED THAT ONLY SUCH FACTORS (OTHER THAN

PRICES BID) MAY BE CONSIDERED AS HAVE BEEN CLEARLY

INDICATED BY THE INVITATION OR MAY BE CONSIDERED TO HAVE

BEEN NECESSARILY KNOWN TO ALL PARTIES, SUCH AS TRANSPORTATION

COSTS WHERE THE ARTICLES OFFERED ARE PRICED AT A POINT

OTHER THAN THAT AT WHICH THEY ARE DESIRED. THE LANGUAGE

OF PARAGRAPH 15 OF THIS INVITATION *** THAT ANY ELEMENT

WHICH WOULD AFFECT THE FINAL COST TO THE GOVERNMENT WOULD

BE CONSIDERED, MAY BE SUFFICIENT TO JUSTIFY THE USE OF

INSTALLATION COSTS OF THE EQUIPMENT INVOLVED - FOUNDATION,

BUILDING, AND COOLING APPARATUS - AS A FACTOR IN EVALUATING

THE BIDS RECEIVED, SINCE THE NECESSITY FOR SUCH INSTALLATION ADV WAS OBVIOUS FROM THE VERY NATURE OF THE REQUIREMENTS

STATED ***"

THE CHIEF LEGAL PROBLEM THAT ARISES IN CONNECTION WITH THE FACTORS DISCUSSED ABOVE IS NOT WHETHER SUCH FACTORS MAY PROPERLY BE USED IN EVALUATING BIDS, BUT WHETHER THESE FACTORS CAN BE STATED WITH SUFFICIENT CLARITY AND DEFINITENESS TO ENABLE BIDDERS TO KNOW PRECISELY HOW THEIR BIDS WILL BE EVALUATED. SUCH KNOWLEDGE IS IMPERATIVE IF BIDDERS ARE TO COMPETE ON AN EQUAL BASIS AS REQUIRED BY THE LAWS GOVERNING FORMAL ADVERTISING. AS STATED IN 36 COMP.GEN. 380:

"THE 'BASIS' OF EVALUATION WHICH MUST BE MADE KNOWN

IN ADVANCE TO THE BIDDERS SHOULD BE AS CLEAR, PRECISE AND

EXACT AS POSSIBLE. IDEALLY, IT SHOULD BE CAPABLE OF BEING

STATED AS A MATHEMATICAL EQUATION. IN MANY CASES,

HOWEVER, THAT IS NOT POSSIBLE. AT THE MINIMUM, THE 'BASIS'

MUST BE STATED WITH SUFFICIENT CLARITY AND EXACTNESS TO

INFORM EACH BIDDER PRIOR TO BID OPENING, NO MATTER HOW

VARIED THE ACCEPTABLE RESPONSES, OF OBJECTIVELY DETERMINABLE

FACTORS FROM WHICH THE BIDDER MAY ESTIMATE WITHIN REASONABLE

LIMITS THE EFFECT OF THE APPLICATION OF SUCH EVALUATION

FACTOR ON HIS BID IN RELATION TO OTHER POSSIBLE BIDS.

THE TERM 'OBJECTIVELY DETERMINABLE FACTORS' WE MEAN

FACTORS WHICH ARE MADE KNOWN TO OR WHICH CAN BE ASCERTAINED

BY THE BIDDER AT THE TIME HIS BID IS BEING PREPARED. ***"

WHILE WE RECOGNIZE AND AGREE THAT IT WOULD BE IN THE GOVERNMENT'S BEST INTEREST TO MAKE SUCH FACTORS AS YOU LIST A PART OF ALL BID EVALUATION FORMULAS SO AS TO ARRIVE AT THE LOWEST "TOTAL COST", IT MUST BE NOTED THAT THE FACTORS LISTED CANNOT IN EVERY INSTANCE BE DESCRIBED OR EVALUATED WITH THE PRECISION AND ACCURACY REQUIRED BY THE FORMAL ADVERTISING LAWS. THESE CASES WHERE SUCH FACTORS CAN BE SO DESCRIBED AND EVALUATED TO HAVE HELD, AS NOTED, THAT THEY PROPERLY MAY BE INCLUDED IN THE BID EVALUATION FORMULA AND, CONVERSELY, WHEN THIS CANNOT BE DONE WE HAVE HELD THAT THE BID EVALUATION FORMULA SHOULD NOT CONTAIN SUCH FACTORS. FOR EXAMPLES, IN 33 COMP.GEN. 108 WITH RESPECT TO THE FACTOR OF PROSPECTIVE DEPRECIATION ON AUTOMOBILES; 35 COMP.GEN. 282 FOR ADMINISTRATIVE EXPENSES AND INTEREST INCIDENT TO PROGRESS PAYMENTS; AND 38 COMP.GEN. 747 FOR MAINTENANCE COSTS OVER A 30 YEAR PERIOD.

IN VIEW OF THE FACT THAT THE RESPONSIBILITY FOR PREPARING BID INVITATIONS AND SPECIFICATIONS RESTS WITH THE AGENCIES DOING THE PURCHASING, WE SUGGEST THAT YOU CONTACT THESE AGENCIES FOR ANY ADDITIONAL GUIDANCE YOU MAY REQUIRE ON THE QUESTIONS RAISED IN YOUR LETTER.

VERY TRULY YOURS,

FRANK H. WEITZEL

ASSISTANT COMPTROLLER GENERAL

OF THE UNITED STATES ..END :