B-152342, DEC. 11, 1963

B-152342, DEC. 11, 1963

TO MR. HENRY S. MAUK:

REFERENCE IS MADE TO YOUR TELEGRAM OF AUGUST 21, 1963, PROTESTING THE ACTION OF THE DEPARTMENT OF THE ARMY IN NOT MAKING AWARD TO YOUR COMPANY OF A CONTRACT FOR SITE SUPPORT OF A MISSILE ASSEMBLY AND LAUNCHING AREA AT GREEN RIVER, UTAH, UNDER REQUEST FOR PROPOSAL (ME/AMC/R/-29-040-63-212.

FOURTEEN PROPOSALS WERE RECEIVED IN RESPONSE TO THE REQUEST FOR PROPOSAL. THE FOUR PROPONENTS OFFERING THE LOWEST ESTIMATED COST-PLUS FIXED-FEE PROPOSALS WERE SELECTED FOR NEGOTIATION. THE ESTIMATED COSTS INCLUDING FIXED FEES OF THOSE FOUR PROPONENTS AFTER NEGOTIATION WERE AS FOLLOWS:

TABLE

TOTAL ESTIMATED

COST INCLUDING FIXED

FIXED FEE FEE

BENDIX FIELD ENGINEERING CORPORATION $503,076.00 $27,181

PLANT ENGINEERING, INCORPORATED 521,955.73 16,000

HUGHES AIRCRAFT COMPANY 536,799.00 30,385

ENGINEERING MAINTENANCE LOGISTICS 555,981.26 37,000

PRIOR TO NEGOTIATIONS, A TECHNICAL EVALUATION WAS MADE OF EACH OF THE FOURTEEN PROPOSALS RECEIVED. BASED UPON THE EVALUATION, A NUMERICAL GRADE WAS COMPUTED FOR EACH OF THE PROPOSALS. THE RANK AND GRADE OF THE FOUR LOWEST PROPOSALS WERE AS FOLLOWS:

TABLE

RANK GRADE

ENGINEERING MAINTENANCE LOGISTICS 2 94.4

BENDIX FIELD ENGINEERING CORPORATION 7 92.6

HUGHES AIRCRAFT COMPANY 11 88.4

PLANT ENGINEERING, INCORPORATED 14 80.9

AWARD WAS MADE TO BENDIX BECAUSE ITS PROPOSAL WAS CONSIDERED MOST ADVANTAGEOUS TO THE GOVERNMENT PRICE AND OTHER FACTORS CONSIDERED. THE RECORD SHOWS THAT EVALUATING PERSONNEL CONSIDERED THAT THE COUPLING OF BENDIX'S $503,076 PROPOSAL WITH THE 92.6 POINT SCORE IN THE TECHNICAL EVALUATION MADE IT THE "BEST BUY" FOR THE GOVERNMENT. THE RECOMMENDATION OF EVALUATING PERSONNEL FOR AN AWARD TO BENDIX WAS REVIEWED BY A BOARD OF AWARDS WHICH AGREED THAT THE AWARD SHOULD BE MADE TO BENDIX.

IN REVIEW OF THE ADMINISTRATIVE RECORD WHICH WAS FURNISHED TO OUR OFFICE IN RESPONSE TO A REQUEST FOR A REPORT CONCERNING YOUR PROTEST, WE OBSERVED A STATEMENT BY LOGISTICS TECHNICAL PERSONNEL THAT "FOR PLANT TO BE CONSIDERED AS AN EQUAL "BEST BUY" COMPARABLE TO BENDIX, PLANT COST WOULD HAVE TO BE 14.5 PERCENT LOWER THAN BENDIX ($72,946) WITH A HYPOTHETICAL PROPOSAL OF $430,130.' SINCE THE $521,955.73 COST PROPOSAL SUBMITTED BY PLANT ENGINEERING BASED UPON NEGOTIATION WITH THE FIRM INCLUDED A STATEMENT THAT $126,381.25 WOULD BE RECOVERED THROUGH THE SALE OF FOOD AT ITS COST PRICE AND AS THE DEDUCTION OF THAT AMOUNT WOULD HAVE REDUCED THE ESTIMATED COST PROPOSAL TO $395,574.48 OR MORE THAN $34,000 LESS THAN THE AMOUNT STATED AS BEING NECESSARY FOR THE PLANT ENGINEERING PROPOSAL TO BE CONSIDERED COMPARABLE TO THE BENDIX PROPOSAL, WE REQUESTED THE DEPARTMENT OF THE ARMY TO ADVISE WHY THAT AMOUNT WAS NOT DEDUCTED FROM THE COST IN THE EVALUATION OF THE PROPOSAL.

IN RESPONSE TO OUR INQUIRY, WE WERE RECENTLY ADVISED AS FOLLOWS:

"3. DURING A 22 JULY 1963 NEGOTIATION CONFERENCE AT WHITE SANDS MISSILE RANGE, REPRESENTATIVES OF PLANT ENGINEERING INDICATED THAT THE $126,381 COST OF FOOD ITEM WAS AN ELEMENT OF COST TO SATISFY THE MESS REQUIREMENTS. SUBSEQUENTLY, PLANT ENGINEERING INCLUDED THE COST OF FOOD AS A SUBCONTRACT COST IN ITS REVISED COST PROPOSAL OF 24 JULY 1963. THE PROPOSER'S NOTATION THAT $126,381 WAS ANTICIPATED AS RECOVERABLE THROUGH THE SALE OF FOOD AT COST PRICE WAS NOT SUFFICIENT JUSTIFICATION FOR THE CONTRACTING OFFICER TO CONCLUDE THAT PLANT ENGINEERING COULD SUCCESSFULLY CONDUCT A MESS OPERATION WITHOUT THIS COST.

"4. THE PLANT ENGINEERING PROPOSAL FOR MESSING WAS NEITHER UNUSUAL NOR ADVANTAGEOUS TO THE GOVERNMENT. ACTUALLY, 10 OF THE 14 BIDDERS PROPOSED A SIMILAR METHOD OF OPERATING AND FUNDING THE MESS OPERATION. BASICALLY, THIS CONCEPT WAS FOR THE GOVERNMENT TO OBLIGATE AND TO MAKE AVAILABLE THE FUNDS TO PURCHASE THE FOOD. THE MONIES FROM SALES WOULD LATER BE DEDUCTED FROM BILLINGS. THE COST OF FOOD IN SUCH PROPOSALS RANGED FROM $70,000 UPWARD. IN THE CASE OF PLANT ENGINEERING IT WAS $126,381.

"5. IN THE 10 PROPOSALS CITED ABOVE, THE ESTIMATED COST FOR FOOD HAD TO BE PROVIDED BY THE OBLIGATION OF GOVERNMENT FUNDS. THEREFORE, THE CONTRACTING OFFICER HAD TO EXERCISE JUDGMENT AS TO WHETHER OR NOT THE PROPOSER'S MESS OPERATION COULD SUCCEED. HIS CONFIDENCE IN THE CONTRACTOR'S ABILITY TO SUCCESSFULLY MEET THE MESSING REQUIREMENT WAS NECESSARILY INFLUENCED BY THE QUALITY OF THE CONTRACTOR'S MANAGEMENT APPROACH AND BY THE TECHNICAL EVALUATION OF THE CONTRACTOR'S PROPOSAL. NEITHER PLANT ENGINEERING'S APPROACH NOR ITS TECHNICAL EVALUATION SCORE INSPIRED SUFFICIENT CONFIDENCE TO CONSIDER A $126,381 REDUCTION FOR COST OF FOOD.

"6. ALTHOUGH IT COULD BE ASSUMED THAT SOME PART OF THE COST OF FOOD MIGHT HAVE SUBSEQUENTLY REVERTED TO THE GOVERNMENT, THERE WAS NO POSITIVE ASSURANCE OF THE AMOUNT. PARTICULARLY IN THE CASE OF PLANT ENGINEERING, ITS LOW TECHNICAL EVALUATION SCORE COULD NOT BE IGNORED WHEN CONSIDERING SUCH RISK OF GOVERNMENT MONIES. THIS FIRM HAD ALREADY NEEDED TO AMEND ITS MESSING PROPOSAL WHICH, EVEN IN FINAL FORM, WAS A WEAK AND INFLEXIBLE APPROACH. FURTHER, THIS APPROACH ELIMINATED INCENTIVE FOR THE CONTRACTOR TO EFFECT SAVINGS IN THE PURCHASE OF FOOD OR THROUGH ECONOMIES IN THE OPERATION OF THE MESS. IN VIEW OF THE ABOVE FACTS, THE COST OF FOOD WAS NECESSARILY INCLUDED AS SUBMITTED IN THE COST PROPOSAL.

"7. ON THE OTHER HAND, BENDIX PROPOSED TO FURNISH $1000 TO ESTABLISH A REVOLVING FUND ON WHICH TO BASE A SELF-SUPPORTING MESS OPERATION. THE PROPOSAL DID INCLUDE A COST OF $4,630 FOR MESS EQUIPMENT TO BE PAID BY THE GOVERNMENT; A ONE-TIME COST WHICH WAS CONSIDERED WHEN EVALUATING THE BENDIX PROPOSAL. ALSO CONSIDERED WAS THE FACT THAT IN A MESSING OPERATION OF THIS TYPE, INCREASED COSTS MIGHT BE EXPECTED. SUCH COSTS WOULD BE FINANCED BY INCREASING THE PRICE OF MEALS. THE ENTIRE BENDIX PROPOSAL, REINFORCED BY A HIGH TECHNICAL EVALUATION SCORE, MADE BENDIX THE MOST FAVORABLE PROPOSER.

"8. IT MUST BE NOTED THAT A SUBTRACTION OF $126,381 FROM THE PLANT ENGINEERING PROPOSAL WOULD NOT WARRANT AWARD OF CONTRACT TO PLANT ENGINEERING. THE BENDIX PROPOSAL WAS IN ALL RESPECTS MORE ADVANTAGEOUS TO THE GOVERNMENT. THEREFORE, AWARD OF THIS CONTRACT TO THE BENDIX FIELD ENGINEERING CORPORATION WAS MADE IN ACCORDANCE WITH ARMED SERVICES PROCUREMENT REGULATION 3-805.2 AND SUPPORTED BY 3-805.1D WHICH STATES THAT "AWARD OF A CONTRACT MAY BE PROPERLY INFLUENCED BY THE PROPOSAL WHICH PROMISES GREATEST VALUE TO THE GOVERNMENT IN TERMS OF POSSIBLE PERFORMANCE, ULTIMATE PRODUCIBILITY, GROWTH POTENTIAL, AND OTHER FACTORS RATHER THAN THE PROPOSAL OFFERING THE LOWEST PRICE OR PROBABLE COST AND FIXED FEE.'"

THE LAST PARAGRAPH REFLECTS SOME DIFFERENCE IN ADMINISTRATIVE THINKING SINCE PREVIOUSLY IT HAD BEEN INDICATED THAT IF THE PLANT ENGINEERING PROPOSAL WAS AT LEAST $72,946 LOWER THAN THE BENDIX PROPOSAL IT WOULD BE CONSIDERED COMPARABLE TO IT. HOWEVER, IN A NEGOTIATED PROCUREMENT, SUCH AS THE IMMEDIATE ONE, THE RULES OF FORMALLY ADVERTISED COMPETITIVE BIDDING, SUCH AS THE REQUIREMENT FOR AWARD TO THE LOWEST BIDDER, IF IT IS RESPONSIBLE, ARE NOT APPLICABLE AND A CONTRACTING OFFICER MAY LEGALLY CONSIDER ALL FACTORS DEEMED ESSENTIAL TO THE PROCUREMENT IN MAKING AN AWARD. ON THIS SUBJECT, SECTION 3-805.2 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) STATES:

"IN SELECTING THE CONTRACTOR FOR A COST-REIMBURSEMENT TYPE CONTRACT, ESTIMATED COSTS OF CONTRACT PERFORMANCE AND PROPOSED FEES SHOULD NOT BE CONSIDERED AS CONTROLLING, SINCE IN THIS TYPE OF CONTRACT ADVANCE ESTIMATES OF COST MAY NOT PROVIDE VALID INDICATORS OF FINAL ACTUAL COSTS. THERE IS NO REQUIREMENT THAT COST-REIMBURSEMENT TYPE CONTRACTS BE AWARDED ON THE BASIS OF EITHER (1) THE LOWEST PROPOSED COST, (2) THE LOWEST PROPOSED FEE, OR (3) THE LOWEST TOTAL ESTIMATED COST PLUS PROPOSED FEE. THE AWARD OF COST-REIMBURSEMENT TYPE CONTRACTS PRIMARILY ON THE BASIS OF ESTIMATED COSTS MAY ENCOURAGE THE SUBMISSION OF UNREALISTICALLY LOW ESTIMATES AND INCREASE THE LIKELIHOOD OF COST OVERRUNS. THE COST ESTIMATE IS IMPORTANT TO DETERMINE THE PROSPECTIVE CONTRACTOR'S UNDERSTANDING OF THE PROJECT AND ABILITY TO ORGANIZE AND PERFORM THE CONTRACT. THE AGREED FEE MUST BE WITHIN THE LIMITS PRESCRIBED BY LAW AND APPROPRIATE TO THE WORK TO BE PERFORMED (SEE 3 808). BEYOND THIS, HOWEVER, THE PRIMARY CONSIDERATION IN DETERMINING TO WHOM THE AWARD SHALL BE MADE IS: WHICH CONTRACTOR CAN PERFORM THE CONTRACT IN A MANNER MOST ADVANTAGEOUS TO THE GOVERNMENT.'

IN VIEW OF THE COST-REIMBURSEMENT TYPE CONTRACT CONTEMPLATED, YOUR COMPANY'S PROPOSAL IN THE NEGOTIATED PROCUREMENT CANNOT BE REGARDED IN THE SAME LIGHT AS A BID ON A FIXED PRICE CONTRACT UNDER ADVERTISED PROCUREMENT. EVEN IF YOUR PROPOSAL WERE TO BE CONSIDERED AS ONE FOR $395,574.48, IT WOULD NOT IN ANY SENSE BE A LOWER OFFER THAN THE PROPOSAL OF $503,076 FROM THE SUCCESSFUL PROPONENT FOR THE REASON THAT NEITHER PROPONENT WOULD BE BOUND BY ITS COST ESTIMATES. REGARDLESS OF THE ESTIMATES SUBMITTED, THE GOVERNMENT IS BOUND TO PAY ACTUAL COSTS IN THE EVENT OF AN AWARD UNDER THE COST-REIMBURSEMENT TYPE OF CONTRACT CONTEMPLATED IN THIS PROCUREMENT. THEREFORE, IN SITUATIONS SUCH AS THESE, PROCUREMENT PERSONNEL MUST EXERCISE JUDGMENT AS TO WHETHER SUBMITTED PROPOSALS ARE REALISTIC AND DEMONSTRATE AN ADEQUATE UNDERSTANDING OF THE WORK INVOLVED. SUCH JUDGMENT MUST PROPERLY BE LEFT TO THE ADMINISTRATIVE DISCRETION OF THE CONTRACTING AGENCIES INVOLVED, SINCE THEY ARE IN THE BEST POSITION TO ASSESS EACH PROPONENT'S UNDERSTANDING AND MUST BEAR THE MAJOR BRUNT OF ANY DIFFICULTIES OR EXPENSES EXPERIENCED BY REASON OF THE CONTRACTOR'S LACK OF UNDERSTANDING.

IT IS OBSERVED THAT PLANT ENGINEERING'S FIXED FEE WAS LOWER THAN ANY OTHER PROPONENT'S FIXED FEE. IN 37 COMP. GEN. 430, OUR OFFICE APPROVED AN AWARD ON THE BASIS OF A LOW FIXED FEE. HOWEVER, AS APR 3 805.2 INDICATES, THERE IS NO REQUIREMENT THAT COST-REIMBURSEMENT TYPE CONTRACTS BE AWARDED ON THE BASIS OF THE LOWEST PROPOSED FEE. AND OUR OFFICE HAS UPHELD THE AWARD OF A COST-PLUS-FIXED-FEE CONTRACT TO A PROPONENT OTHER THAN TO THE PROPONENT WHO SUBMITTED THE LOWEST ESTIMATED COST AND THE LOWEST FIXED FEE ($1) ON THE BASIS OF OTHER FACTORS. B-147394, SEPTEMBER 4, 1962.

AS INDICATED ABOVE, THE PROCUREMENT IN THIS CASE WAS NOT MADE UNDER FORMAL ADVERTISING PROCEDURES, BUT UNDER NEGOTIATED PROCEDURES PERMITTING PROCUREMENT PERSONNEL A CONSIDERABLY BROADER RANGE OF DISCRETION. THEREFORE DO NOT FIND THAT THERE WAS ANY LEGAL OBLIGATION FOR THE CONTRACTING ACTIVITY TO MAKE AN AWARD TO YOUR FIRM.