B-152190, OCT. 18, 1963

B-152190: Oct 18, 1963

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YOU CONTEND THAT: "* * * NO CONSIDERATION WAS MADE CONCERNING PARAGRAPH F. IF FIRST ARTICLE IS WAIVED. A COST FACTOR OPENS UP AND A PRICE ON THE BALANCE OF 377 UNITS IS AUTOMATICALLY AFFECTED TO A LOWER FIGURE THEN BID BY THE UNITED MANUFACTURING COMPANY AND ANYONE ELSE THAT BID FIRST ARTICLE. "THE SECOND REASON IS WHEN AN OPPORTUNITY WAS GIVEN TO ALL BIDDERS TO RE- SUBMIT A PRICE BECAUSE OF ENGINEERING CHANGES. IT IS OUR CONTENTION THAT EVERYONE SHOULD HAVE BEEN REQUESTED TO BID ON A B-LEVEL OR ON A A-LEVEL. AS A RESULT OF THE DEFICIENCIES IN THE REQUEST FOR QUOTATION IT IS OUR FEELING THAT PROPER COMPETITION WAS NOT SOLICITED ON THIS BID.'. PAGE 2 OF THE INVITATION PROVIDED AS TO FIRST ARTICLE APPLICABILITY THAT: "OFFERORS WHO HAVE NOT PREVIOUSLY FURNISHED TO THE GOVERNMENT THE ARTICLE REFERRED TO IN ITEM 1 ABOVE SHALL SUBMIT BID ON BID "A" WHICH INCLUDES COMPLIANCE WITH FIRST ARTICLE APPROVAL PROVISION SHOWN ON PAGES 2.

B-152190, OCT. 18, 1963

TO THE UNITED MANUFACTURING COMPANY:

BY LETTER DATED JULY 31, 1963, YOU PROTESTED AGAINST ANY AWARD UNDER REQUEST FOR PROPOSALS NO. SA-3-30025 DATED APRIL 8, 1963, FOR 378 MUNITIONS HANDLING TRAILERS. YOU CONTEND THAT:

"* * * NO CONSIDERATION WAS MADE CONCERNING PARAGRAPH F, PAGE 4 IN YOUR REQUEST. IF FIRST ARTICLE IS WAIVED, A COST FACTOR OPENS UP AND A PRICE ON THE BALANCE OF 377 UNITS IS AUTOMATICALLY AFFECTED TO A LOWER FIGURE THEN BID BY THE UNITED MANUFACTURING COMPANY AND ANYONE ELSE THAT BID FIRST ARTICLE.

"THE SECOND REASON IS WHEN AN OPPORTUNITY WAS GIVEN TO ALL BIDDERS TO RE- SUBMIT A PRICE BECAUSE OF ENGINEERING CHANGES, YOU STILL HAD AN A-TYPE BIDDER AND A B-TYPE BIDDER. IT IS OUR CONTENTION THAT EVERYONE SHOULD HAVE BEEN REQUESTED TO BID ON A B-LEVEL OR ON A A-LEVEL. AS A RESULT OF THE DEFICIENCIES IN THE REQUEST FOR QUOTATION IT IS OUR FEELING THAT PROPER COMPETITION WAS NOT SOLICITED ON THIS BID.'

THE REQUEST FOR PROPOSALS REQUESTED OFFERS ON THE BASIS OF FIRST ARTICLE APPROVAL REQUIRED (BID "A") AND ON FIRST ARTICLE APPROVAL NOT REQUIRED (BID "B"). PAGE 2 OF THE INVITATION PROVIDED AS TO FIRST ARTICLE APPLICABILITY THAT:

"OFFERORS WHO HAVE NOT PREVIOUSLY FURNISHED TO THE GOVERNMENT THE ARTICLE REFERRED TO IN ITEM 1 ABOVE SHALL SUBMIT BID ON BID "A" WHICH INCLUDES COMPLIANCE WITH FIRST ARTICLE APPROVAL PROVISION SHOWN ON PAGES 2, 3 AND 4, SECTION I.

"OFFERORS SHALL SUBMIT FOR THE ARTICLE REFERRED TO IN ITEM 1 ABOVE ON BID "B" WHICH DOES NOT INCLUDE COMPLIANCE WITH THE FIRST ARTICLE APPROVAL PROVISION IF---

"/I) OFFERORS ARE CURRENTLY IN PRODUCTION OF THE ARTICLE ON AN AIR FORCE CONTRACT CONTAINING REQUIREMENTS FOR FIRST APPROVAL OR---

"/II) OFFERORS HAVE PREVIOUSLY BEEN GIVEN FIRST ARTICLE APPROVAL AND PROPOSE TO RE-PRODUCE IDENTICAL ARTICLES, PROVIDED THAT NOT MORE THAN 12 MONTHS HAVE ELAPSED SINCE THE COMPLETION OF THE CONTRACT.

"/III) OFFERORS WHO HAVE BEEN GRANTED PRIOR QUALIFICATION APPROVAL FOR THE ITEM.

"OFFERS SUBMITTED UNDER BID "A" (FIRST ARTICLE APPROVAL REQUIRED) OR UNDER BID "B" (FIRST ARTICLE APPROVAL NOT REQUIRED) ARE EQUALLY ACCEPTABLE TO THE GOVERNMENT, AS APPLICABLE, AND AWARD WILL BE MADE THEREON WITH THE BEST INTEREST OF THE GOVERNMENT CONSIDERED.'

PARAGRAPH "F" ON PAGE 4 PROVIDED:

"F. THE GOVERNMENT RESERVES THE RIGHT TO WAIVE FIRST ARTICLE TESTING AND PROTOTYPE TESTS AND/OR DEMONSTRATION REQUIREMENTS OF THESE ARTICLES PRIOR TO AWARD.'

IN A DECISION OF THIS OFFICE B-151436 DATED JUNE 20, 1963, 42 COMP. GEN. * * *, DEALING WITH THE SAME ISSUE AS RAISED BY YOU WITH RESPECT TO WAIVER OF FIRST ARTICLE REQUIREMENT, WE STATED THAT:

"* * * THERE IS NO QUESTION BUT THAT THE DEVELOPER OR FIRST PRODUCER OF A SPECIALIZED PIECE OF EQUIPMENT NORMALLY HAS A SUBSTANTIAL COMPETITIVE ADVANTAGE OVER WOULD-BE COMPETITORS, AND SHOULD BE ABLE TO FURNISH IT AT A LOWER PRICE. THE GOVERNMENT PRESUMABLY HAS PAID EITHER DIRECTLY OR INDIRECTLY THE COST OF THE INITIAL DEVELOPMENT AND OF THE FIRST PRODUCER'S KNOW-HOW, AND SHOULD BE ABLE TO REALIZE ON ITS INVESTMENT WITHOUT SUBSTANTIALLY DUPLICATING IT TO SET UP ANOTHER PRODUCER. HOWEVER, EXPERIENCE HAS AMPLY DEMONSTRATED THAT SO LONG AS A SINGLE PRODUCER IS PERMITTED TO MAINTAIN HIS MONOPOLY POSITION HIS PRICE TENDS TO REMAIN SUBSTANTIALLY HIGHER THAN WHEN HE IS REQUIRED TO MEET COMPETITION, AND IT IS IN RECOGNITION OF THIS FACT THAT THE CONGRESS HAS ADOPTED THE POLICY OF MAXIMUM COMPETITION.

"IN THE EXTREME CASE, WHERE THE SETTING UP OF AN ADDITIONAL PRODUCER OR SOURCE OF SUPPLY IS IN THE INTEREST OF NATIONAL DEFENSE, A CONTRACT MAY BE NEGOTIATED UNDER 10 U.S.C. 2304 (A) (16), AND UNDER THAT AUTHORITY ANY ADDITIONAL COST INVOLVED COULD BE ASSUMED BY THE GOVERNMENT, WITHOUT REGARD TO PRICES AVAILABLE FROM PRIOR PRODUCERS.

"AT THE OTHER EXTREME, WHERE IT IS DETERMINED THAT A SUBSTANTIAL INITIAL INVESTMENT OR AN EXTENDED PERIOD OF PREPARATION WOULD BE REQUIRED FOR PRODUCTION OF TECHNICAL OR SPECIAL ARTICLES AND THAT FORMAL ADVERTISING MIGHT REQUIRE DUPLICATION OF INVESTMENT OR PREPARATION ALREADY MADE AND THUS INCREASE THE COST TO THE GOVERNMENT, OR UNDULY DELAY PROCUREMENT, NEGOTIATION WITH PRIOR PRODUCERS, IS AUTHORIZED BY 10 U.S.C. 2304 (A) (14).

"IN BETWEEN THOSE EXTREMES, WE KNOW OF NO SATISFACTORY SUBSTITUTE FOR FORMAL ADVERTISING AND COMPETITIVE BIDDING, DESPITE THE FACT THAT A PRIOR PRODUCER MAY HAVE A SUBSTANTIAL COMPETITIVE ADVANTAGE. IT HAS BEEN OBSERVED THAT IN MANY CASES PRIOR NON-PRODUCERS HAVE QUOTED PRICES CLOSELY COMPETITIVE WITH THOSE OF BIDDERS WHO HAVE PREVIOUSLY SUPPLIED THE IDENTICAL ITEM; IT MAY BE SURMISED THAT IN SUCH CASES THE WILLINGNESS OF THE ONE BIDDER TO ABSORB SOME OR ALL OF THE INITIAL COSTS OF QUALIFYING HIMSELF AS A PRODUCER TENDS TO BALANCE THE NORMAL DESIRE OF THE OTHER TO MAINTAIN HIS PRICE AS HIGH AS HE THINKS HE CAN WITHOUT JEOPARDIZING HIS PREVIOUS MONOPOLY. IN ANY EVENT, WE BELIEVE THAT THE INTRODUCTION OF THE THREAT OF COMPETITION MAY BE MORE EFFECTIVE IN LOWERING THE PRICE OF AN EXISTING PRODUCER THAN ANY NEGOTIATING TECHNIQUES.'

IT IS NOTED THAT THE LOW OFFEROR IN THIS CASE SUBMITTED ITS OFFER ON A FIRST ARTICLE APPROVAL REQUIRED BASIS. WE DO NOT AGREE THAT ANY PROSPECTIVE OFFEROR WAS IN ANY WAY PREJUDICED BY THE PROVISION IN THE REQUEST FOR PROPOSALS PERMITTING WAIVER OF FIRST ARTICLE APPROVAL PRIOR TO AWARD IN THE EVENT INFORMATION GAINED IN THE COURSE OF NEGOTIATIONS INDICATED THAT IT WAS IN THE GOVERNMENT'S INTEREST TO DO SO.

CONCERNING YOUR CONTENTION RESPECTING ENGINEERING CHANGES AS AFFECTING THE FIRST ARTICLE APPROVAL REQUIREMENT, WE ARE ADVISED THAT THE CHANGES WERE VERY MINOR IN NATURE AND THAT THEY WOULD NOT HAVE NECESSITATED FIRST ARTICLE TESTING BY ANY MANUFACTURER OTHERWISE QUALIFIED TO FURNISH THE ARTICLES WITHOUT SUCH TESTING. IT DOES NOT APPEAR, THEREFORE, THAT ANY CHANGES IN THE FIRST ARTICLE APPROVAL PROVISIONS WERE NECESSARY OR REQUIRED.

ACCORDINGLY, WE FIND NO BASIS TO QUESTION AN AWARD UNDER THE REQUEST FOR PROPOSALS TO THE LOWEST RESPONSIVE OFFEROR AND YOUR PROTEST IS THEREFORE DENIED.