B-151882, AUG. 20, 1963, 43 COMP. GEN. 166

B-151882, AUG. 20, 1963, 43 COMP. GEN. 166

CONTRACTS - SPECIFICATIONS - FAILURE TO FURNISH SOMETHING REQUIRED - INFORMATION OVERHEAD AND PROFIT DATA WHICH A LOW BIDDER FOR THE CONSTRUCTION OF A HOUSING PROJECT FAILED TO INCLUDE WITH HIS BID IS CONSIDERED INFORMATIONAL DATA TO BE USED IN THE EVENT A CHANGE OF WORK IS ORDERED INVOLVING AN EQUITABLE PRICE ADJUSTMENT RATHER THAN DATA REQUIRED FOR BID EVALUATION PURPOSES AND, THEREFORE, THE FAILURE TO FURNISH SUCH OVERHEAD AND PROFIT DATA DOES NOT RENDER THE LOW BID NONRESPONSIVE TO THE ESSENTIAL REQUIREMENTS OF THE INVITATION.

TO GIL CONSTRUCTION COMPANY, AUGUST 20, 1963:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF JUNE 24, 1963, PROTESTING THE AWARD MADE UNDER INVITATION FOR BIDS NO. 12-4009-63 ISSUED BY THE TWELFTH COAST GUARD DISTRICT, SAN FRANCISCO, CALIFORNIA.

THE PROTEST IS BASED ON THE CONTENTION THAT THE LOW BID AND THE SECOND LOW BID WERE NOT RESPONSIVE TO THE INVITATION, SINCE THE BIDDERS FAILED TO SUBMIT WITH THEIR BIDS A STATEMENT GIVING THEIR OVERHEAD AND PROFIT RATES TO BE USED IN DETERMINING CHANGE ORDER PRICES.

THE INVITATION, A SMALL BUSINESS SET-ASIDE, REQUESTED BIDS TO FURNISH ALL LABOR, TOOLS, MATERIALS, EQUIPMENT, EXCEPT AS SPECIFICALLY STATED IN THE SPECIFICATIONS TO BE FURNISHED BY THE COAST GUARD, AND TO PERFORM ALL WORK AS MAY BE REQUIRED TO ACCOMPLISH THE WORK AS CALLED FOR UNDER THE ATTACHED SPECIFICATIONS AND DRAWINGS FOR THE CONSTRUCTION OF THE HUMBOLDT BAY FAMILY HOUSING PROJECT. THE WORK TO BE PERFORMED WAS SET FORTH IN THE BID SCHEDULE UNDER ITEMS 1 THROUGH 11 AND PROVIDED SPACES FOR BIDDERS TO QUOTE LUMP SUM PRICES FOR PERFORMING THE VARIOUS ITEMS OF WORK. PAGE THREE OF THE BID SCHEDULE PROVIDED THAT THE WORK INVOLVED WAS TO BE COMPLETED WITHIN 180 DAYS FROM THE FIRST DAY SUBSEQUENT TO RECEIPT BY THE SUCCESSFUL BIDDER OF THE NOTICE TO PROCEED WITH THE WORK, AND THAT LIQUIDATED DAMAGES AT THE RATE OF $60 PER DAY WOULD BE CHARGED FOR ANY DELAY IN COMPLETION OF THE WORK BEYOND THAT TIME. PAGE FOUR OF THE INVITATION CONTAINED THE FOLLOWING PROVISION:

CONTRACTOR WILL FOR THE PURPOSE OF ESTABLISHING CONDITIONS WHICH WILL COVER ANY CHANGE ORDERS NECESSARY DURING THE LIFE OF THE CONTRACT SUBMIT WITH HIS BID A STATEMENT GIVING HIS OVERHEAD AND PROFIT RATES WHICH HE WILL USE WHEN DETERMINING BID PRICE FOR ADDITIONAL WORK. THESE RATES WILL BE USED IN DETERMINING CHANGE ORDER PRICES.

THE INVITATION INCORPORATED THE GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION CONTRACTS, STANDARD FORM 23A, APRIL 1961 EDITION. ARTICLE 3 THEREOF ENTITLED "CHANGES" PROVIDES, IN PART, THAT THE---

CONTRACTING OFFICER MAY, AT ANY TIME, BY WRITTEN ORDER, AND WITHOUT NOTICE TO THE SURETIES, MAKE CHANGES IN THE DRAWINGS AND/OR SPECIFICATIONS OF THIS CONTRACT IF WITHIN ITS GENERAL SCOPE. IF SUCH CHANGES CAUSE AN INCREASE OR DECREASE IN THE CONTRACTOR'S COST OF, OR TIME REQUIRED FOR, PERFORMANCE OF THE CONTRACT, AN EQUITABLE ADJUSTMENT SHALL BE MADE AND THE CONTRACT MODIFIED IN WRITING ACCORDINGLY. * * * IF THE PARTIES FAIL TO AGREE UPON THE ADJUSTMENT TO BE MADE, THE DISPUTE SHALL BE DETERMINED AS PROVIDED IN CLAUSE 6 OF THESE GENERAL PROVISIONS; * * *.

ONLY TWO OF THE SEVEN BIDS RECEIVED IN RESPONSE TO THE INVITATION CONTAINED STATEMENTS GIVING OVERHEAD AND PROFIT RATES. THE TWO LOW AGGREGATE BIDS IN THE AMOUNT OF $354,772 AND $359,209 WERE TWO OF THE FIVE BIDS WHICH DID NOT CONTAIN THE OVERHEAD AND PROFIT DATA. YOUR BID QUOTING AN AGGREGATE PRICE OF $373,159 WAS THE LOWEST BID WHICH CONTAINED THE OVERHEAD AND PROFIT DATA.

YOU PROTESTED THE CONSIDERATION OF ANY BID WHICH FAILED TO FURNISH THE OVERHEAD AND PROFIT DATA. THE PROTEST WAS DENIED BY THE CONTRACTING OFFICER ON THE BASIS THAT THE FAILURE TO FURNISH SUCH DATA DID NOT GO TO THE SUBSTANCE OF THE BID. IN THIS CONNECTION, THE CONTRACTING OFFICER REPORTS, IN PART, AS FOLLOWS:

PRIOR TO PREPARING THIS INVITATION, THIS DISTRICT HAD EXPERIENCED SEVERAL ANNOYING ADMINISTRATIVE PROBLEMS IN NEGOTIATING PRICES FOR CHANGE ORDERS AND ADDITIONAL WORK ON THE VARIOUS FIXED-PRICE CONSTRUCTION CONTRACTS. THESE DIFFICULTIES GENERALLY CONCERNED REACHING AN AGREEMENT WITH CONTRACTORS OVER WHAT THE COAST GUARD WOULD ACCEPT AS A REASONABLE OVERHEAD AND PROFIT. IN GENERAL, THE CONTRACTING OFFICER HAS BEEN RELUCTANT TO USE THE EXISTING AUTHORITY TO ORDER CHANGES WITH OR WITHOUT THE CONCURRENCE OF THE CONTRACTOR. THE POLICY FOLLOWED HAS BEEN TO REACH AN AGREEMENT BEFORE THE ORDER IS ISSUED, THEREBY ELIMINATING MORE COSTLY AND DIFFICULT DISPUTE PROBLEMS LATER IN THE TERMS OF THE CONTRACT. WITH THIS IN MIND, THE FOLLOWING CLAUSE WAS INSERTED IN THE INVITATION.

"CONTRACTOR WILL FOR THE PURPOSE OF ESTABLISHING CONDITIONS WHICH WILL GOVERN ANY CHANGE ORDERS NECESSARY DURING THE LIFE OF THE CONTRACT SUBMIT WITH HIS BID A STATEMENT GIVING HIS OVERHEAD AND PROFIT RATES WHICH HE WILL USE WHEN DETERMINING BID PRICE FOR ADDITIONAL WORK. THESE RATES WILL BE USED IN DETERMINING CHANGE ORDER PRICES.'

INSERTION OF THIS CLAUSE WAS DONE WITH THE INTENTION OF CONTINUING PRESENT POLICY ON CHANGE ORDERS AND ADDITIONAL WORK. IT WAS FELT THAT THE EARLY ESTABLISHMENT OF THESE DATA WOULD VERY LIKELY MINIMIZE ADMINISTRATIVE PROBLEMS WHICH MIGHT ARISE AFTER AWARD OF THIS CONTRACT IF A CHANGE ORDER OR ADDITIONAL WORK BECAME NECESSARY. THE CONTRACTING OFFICER REALIZED NOT ONLY THAT OVERHEAD RATE IS A FUNCTION OF SEVERAL VARIABLES AND THEREFORE SUBJECT TO CHANGE DURING THE LIFE OF ANY CONTRACT, BUT ALSO THAT SOME BIDDERS MIGHT BE RELUCTANT TO FURNISH PROFIT RATE INFORMATION ON A BID THAT WOULD BE OPENED PUBLICLY. THIS RELUCTANCE TO FURNISH PROFIT RATE INFORMATION WOULD PRESUMABLY BE BASED ON THE FAILURE TO RECOGNIZE THE DIFFERENCE BETWEEN THIS FIGURE AND THE PROFIT INFORMATION WHICH THE FIRM USED IN TAX COMPUTATIONS. NEVERTHELESS, ESTABLISHMENT OF SOME DATA ON THESE RATES PRIOR TO AWARD SEEMED ADVISABLE, AND INSERTION OF THE CLAUSE SHOWN ABOVE WAS THE METHOD USED TO ELICIT THESE DATA. BECAUSE IT WAS IMPOSSIBLE TO DETERMINE THE USE, IF ANY, FOR THIS INFORMATION, NO CONSIDERATION WAS EVER GIVEN TO DISREGARDING BIDS WHICH FAILED TO GIVE THIS INFORMATION IN THE BID. FOR THIS REASON, THE STATEMENT THAT FAILURE TO COMPLY WITH THIS REQUIREMENT WOULD BE GROUNDS FOR BID REJECTION, AS IS FOUND WITH OTHER REQUIREMENTS, SUCH AS THE SMALL BUSINESS REQUIREMENT AND THE 180 DAY COMPLETION PERIOD, WAS DELIBERATELY OMITTED.

IT IS THE PRACTICE OF THIS DISTRICT TO SOLICIT BIDS FOR WORK OF THIS KIND BASED ON THE MOST COMPLETE AND DETAILED SPECIFICATIONS AVAILABLE. WHILE THIS PRACTICE DOES NOT EXCLUDE THE POSSIBILITY OF CHANGE ORDERS AND/OR ADDITIONAL WORK, THE SPECIFICATIONS ISSUED ARE PRESUMED TO BE SUFFICIENT SO THAT COMPLETION OF THE WORK DESCRIBED CAN BE COMPLETED WITHOUT THE NEED OF ADDITIONAL WORK OF CHANGE ORDERS. IN GENERAL, THIS POLICY ASSUMES THAT AN OVERSIGHT IN THE SPECIFICATIONS OR A SITUATION NOT ANTICIPATED BY THE SPECIFICATIONS MAY OCCASIONALLY REQUIRE A CHANGE ORDER AND/OR ADDITIONAL WORK. HOWEVER, THIS POLICY REGARDS CHANGE ORDERS AND/OR ADDITIONAL WORK AS ONLY POSSIBLE FUTURE CONTINGENCIES THAT MAY OR MAY NOT OCCUR. FURTHERMORE, THE CONTRACTING OFFICER RECOGNIZES THAT THE ESTABLISHMENT OF AN OVERHEAD RATE DOES NOT CONSTITUTE AN IRREVOCABLE COMMITMENT BY EITHER PARTY TO THE CONTRACT. WHILE ESTABLISHMENT OF THIS RATE TO ANALYZE FIXED PRICES FOR ADDITIONAL WORK OR CHANGE ORDERS IS OBVIOUSLY USEFUL IN CONTRACT ADMINISTRATION, THE RATE SHOULD BE REVIEWED WHENEVER A CHANGE ORDER AND/OR ADDITIONAL WORK BECOMES NECESSARY TO INSURE THAT IT ACTUALLY REFLECTS THE CONTRACTORS OVERHEAD. FINALLY, THE ESTABLISHMENT OF THESE RATES DOES NOT APPEAR TO PRE-EMPT THE CONTRACTING OFFICER'S AUTHORITY TO ARBITRARILY ESTABLISH A PRICE FOR CHANGE ORDERS OR ADDITIONS AS DESCRIBED IN THE PROVISIONS OF PARAGRAPH 3 (CHANGES) AND PARAGRAPH 6 (DISPUTES) AS CONTAINED IN STANDARD FORM 23A WHICH IS A PART OF THIS BID.

UNDER THE TERMS OF THE INVITATION THE WORK TO BE PERFORMED IS THAT SET FORTH IN THE DRAWINGS AND SPECIFICATIONS AND BIDDERS WERE REQUIRED TO QUOTE PRICES FOR PERFORMING SUCH WORK UNDER ITEMS 1 THROUGH 11. THESE ITEMS, AND ONLY THESE ITEMS FORM THE BASIS FOR THE CONTRACT AWARDED. THE OVERHEAD AND PROFIT DATA BECOME INVOLVED ONLY IN THE EVENT A CHANGE IN THE WORK COVERED BY SUCH ITEMS IS ORDERED BY THE CONTRACTING OFFICER. IF THIS SHOULD OCCUR, IT WOULD CONSTITUTE A CHANGE AND UNDER THE "CHANGES" ARTICLE OF THE CONTRACT AN EQUITABLE ADJUSTMENT WOULD BE REQUIRED TO BE MADE. THE PURPOSE OF THE DATA AS TO OVERHEAD AND PROFIT WAS SOLELY AN ATTEMPT TO FIX BEFOREHAND A BASIS FOR COMPUTING THE AMOUNT OF THE EQUITABLE ADJUSTMENT, IF CHANGES IN THE CONTRACT WORK SHOULD BECOME NECESSARY.

ASIDE FROM THE FACT THAT THE INVITATION DID NOT PROVIDE THAT THE OVERHEAD AND PROFIT DATA WOULD BE CONSIDERED IN EVALUATING THE BIDS, THERE WOULD BE NO BASIS FOR DOING SO IN ANY EVENT, SINCE INSOFAR AS WAS KNOWN AT THE TIME, THE WORK INVOLVED WAS AS SET FORTH IN THE DRAWINGS AND SPECIFICATIONS, AND EVALUATION COULD PROPERLY BE MADE ONLY ON THE BASIS OF WHAT WOULD BE INCLUDED IN THE CONTRACT. IN ADDITION, TO CONSIDER THE STATEMENT OF RATES FOR PROFIT AND OVERHEAD AS CONSTITUTING A BINDING COMMITMENT TO APPLY SUCH RATES IN PRICING OF CHANGES IN ALL EVENTS WOULD VIOLATE THE RULE AGAINST COST-PLUS-PERCENTAGE-OF-COST CONTRACTING.

IN VIEW OF THE FOREGOING, IT IS CLEAR THAT THE OVERHEAD AND PROFIT DATA COULD BE CONSIDERED ONLY FOR INFORMATIONAL PURPOSES, AND THE FAILURE TO FURNISH SUCH DATA WITH THE BID DID NOT RENDER THE BID NONRESPONSIVE TO THE ESSENTIAL REQUIREMENTS OF THE INVITATION. THEREFORE, WE FIND NO LEGAL BASIS FOR OBJECTING TO THE ACTION TAKEN BY THE CONTRACTING OFFICER IN THE MATTER.