B-152469, DEC. 10, 1963

B-152469, DEC. 10, 1963

TO SUCCESS CHEMICAL COMPANY, INC.:

REFERENCE IS MADE TO YOUR TELEGRAM OF SEPTEMBER 12, 1963, AND TO YOUR LETTERS OF OCTOBER 1 AND NOVEMBER 18, 1963, WITH ENCLOSURES, PROTESTING AGAINST THE ACTION OF THE DEFENSE MEDICAL SUPPLY CENTER, BROOKLYN, NEW YORK, IN AWARDING A CONTRACT TO E. R. SQUIBB AND SONS, DIVISION OF OLIN MATHIESON CHEMICAL CORPORATION, UNDER RFP DSA-2 3495.

THE CITED REQUEST FOR PROPOSALS SOLICITED BIDS FOR FURNISHING 54,600 BOTTLES OF TETRACYCLINE SYRUP. THE LOWEST BID WAS SUBMITTED BY YOUR FIRM. IT IS REPORTED THAT YOUR BID ON THE TETRACYCLINE SYRUP, INCLUDING TRANSPORTATION AND DUTY WAS $153,637.52. YOUR OFFER WAS BASED ON BULK MATERIAL TO BE SUPPLIED BY A FOREIGN DRUG MANUFACTURER (PRO-TER, MILAN, ITALY) AND THE END PRODUCT WAS TO BE MANUFACTURED BY YOUR FIRM. THE LOW DOMESTIC BID, INCLUDING TRANSPORTATION, WAS IN THE AMOUNT OF $197,444.52 AND SUCH BID WAS SUBMITTED BY E. R. SQUIBB AND SONS. UNDER THE PROVISIONS OF SECTION 6-104.4 (B) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) YOUR FIRM WOULD HAVE BEEN ENTITLED TO AN AWARD BECAUSE THE HIGHER DOMESTIC BID WAS NOT WITHIN THE PERMISSIBLE DIFFERENTIAL IN COST AS TO BE ENTITLED TO PREFERENCE IN MAKING AWARD. HOWEVER, PRIOR TO THE ISSUANCE OF THIS REQUEST FOR PROPOSALS, THE SECRETARY OF DEFENSE HAD ISSUED A MEMORANDUM DATED AUGUST 11, 1962, TO THE SECRETARIES OF THE MILITARY DEPARTMENTS AND THE DIRECTOR OF THE DEFENSE SUPPLY AGENCY, WHICH REQUIRED THAT UNTIL FURTHER NOTICE PROPOSED PROCUREMENT OF SUPPLIES FOR USE IN THE UNITED STATES WHICH WOULD NORMALLY RESULT IN THE ACQUISITION OF FOREIGN END PRODUCTS UNDER THE BUY AMERICAN ACT PROCEDURES CURRENTLY SET FORTH IN PART I, SECTION VI OF THE ARMED SERVICES PROCUREMENT REGULATION, BE SUBMITTED IN WRITING FOR APPROVAL BY THE SECRETARY OF DEFENSE OR THE DEPUTY SECRETARY OF DEFENSE. IN THE CASE OF SUCH PROCUREMENT WHERE THE ESTIMATED COST DOES NOT EXCEED $100,000, THE DECISIONS THEREON WERE TO BE MADE AT THE "SECRETARIAL LEVEL OF MILITARY DEPARTMENT OR THE DIRECTOR, OR DEPUTY DIRECTOR, DEFENSE SUPPLY AGENCY.'

PURSUANT TO THE REFERRED-TO MEMORANDUM THE SUMMARY OF FACTS AND COMMENTS BY THE CONTRACTING OFFICER ON THE BIDS RECEIVED ON THE INSTANT INVITATION WERE FORWARDED TO THE DEPUTY SECRETARY OF DEFENSE. ON AUGUST 14, 1963, THE DEPUTY SECRETARY OF DEFENSE AUTHORIZED AN AWARD TO THE LOWEST RESPONSIVE, RESPONSIBLE BIDDER OFFERING A UNITED STATES END PRODUCT.

IT IS REPORTED THAT ON SEPTEMBER 9, 1963, REPRESENTATIVES OF YOUR FIRM MET WITH PERSONNEL OF THE DEFENSE SUPPLY AGENCY TO DISCUSS THIS PROCUREMENT AND THAT REPRESENTATIVES OF YOUR FIRM REQUESTED THAT THE DECISION OF THE DEPUTY SECRETARY OF DEFENSE BE REVIEWED IN THE LIGHT OF ADDITIONAL INFORMATION CONTAINED IN YOUR LETTER OF SEPTEMBER 9, 1963, TO THE DEFENSE MEDICAL SUPPLY CENTER. IN THAT LETTER YOU STATED:

"THIS CONFIRMS THE TELEPHONE CONVERSATION BETWEEN MR. EMANUEL ROSENBLAT AND YOURSELF, ON OUR BEHALF, CONCERNING THE POSSIBLE OUTFLOW OF GOLD AND THE PENDING BID FOR TETRACYCLINE SYRUP NOT YET AWARDED, AS OF THE CLOSE OF BUSINESS FRIDAY, SEPTEMBER 6, 1963.

"SHOULD THE OUTFLOW OF GOLD, WHICH IN THIS CASE REPRESENTS ONLY APPROXIMATELY 24 PERCENT OF A TOTAL PRICE TO THE GOVERNMENT (65 CENTS PER BOTTLE OUT OF A TOTAL OF $2.70) AND A SAVINGS OF MORE THAN 50 PERCENT OF THE OUTFLOW OF GOLD ($1.65 PER PINT SAVINGS AGAINST 65 CENTS OUTFLOW OF GOLD), BECOME A FACTOR IN PREVENTING THE AWARD TO SUCCESS, WE WISH TO CONFIRM THAT ARRANGEMENTS CAN BE MADE TO PREVENT THE OUTFLOW OF ANY GOLDBY DEPOSITING THE MONEY DESTINED ABROAD IN A CONTROLLED ACCOUNT IN THE UNITED STATES FOR THE PURCHASE OF AMERICAN MERCHANDISE HERE.

"THIS LETTER IS DECLARATORY OF THE SAME OFFER MADE TO THE DEPARTMENT OF DEFENSE AND DEFENSE SUPPLY AGENCY LEGAL PERSONNEL AT THE TIME OF PREVIOUS GOLD DISCUSSIONS IN JULY AND AUGUST 1963.'

YOUR LETTER OF SEPTEMBER 9, 1963, IN WHICH YOU OFFERED TO MAKE ARRANGEMENTS TO PREVENT THE OUTFLOW OF GOLD FROM THE UNITED STATES WAS REVIEWED BY THE OFFICE OF THE SECRETARY OF DEFENSE AND THE DEFENSE SUPPLY AGENCY WAS ADVISED THAT THE DECISION OF THE DEPUTY SECRETARY OF DEFENSE OF AUGUST 14, 1963, WOULD NOT BE CHANGED. ON SEPTEMBER 11, 1963, THE DEFENSE MEDICAL SUPPLY CENTER WAS ADVISED OF THESE EVENTS AND WAS AUTHORIZED TO PROCEED WITH THE AWARD. AWARD WAS MADE ON SEPTEMBER 11, 1963, TO E. R. SQUIBB AND SONS.

IN YOUR LETTERS OF OCTOBER 1 AND NOVEMBER 18, 1963, TO OUR OFFICE, YOU CONTEND THAT NO AWARD SHOULD HAVE BEEN MADE TO E. R. SQUIBB AND SONS BECAUSE YOUR FIRM WAS THE LOWEST RESPONSIBLE QUALIFIED BIDDER AND THAT IN VIEW OF THE FACT THAT ONLY THE QUESTION OF THE FLOW OF GOLD TO A FOREIGN COUNTRY WAS INVOLVED, THERE WAS ABSOLUTELY NO JUSTIFICATION FOR THE AWARD TO SQUIBB SINCE IN YOUR LETTER OF SEPTEMBER 9, 1963, YOU HAD OFFERED TO SATISFY THE REQUIREMENT THAT NO GOLD WOULD FLOW FROM THE UNITED STATES TO A FOREIGN COUNTRY. YOU STATE THAT YOUR FIRM'S BID PRICE FOR THE TETRACYCLINE SYRUP WAS $54,054 LOWER THAN THE BID PRICE QUOTED BY E. R. SQUIBB AND SONS AND THAT SINCE SUCH AMOUNT REPRESENTS A 27 PERCENT DIFFERENTIAL IN COST WHICH EXCEEDS THE 6 PERCENT DIFFERENTIAL PERMITTED BY ASPR AWARD PROPERLY SHOULD HAVE BEEN MADE TO YOU. YOU ALSO STATE THAT PRIOR TO THE AWARD OF THE CONTRACT TO E. R. SQUIBB AND SONS YOU PROTESTED TO THE DEFENSE SUPPLY AGENCY AND THAT UNDER THE PROVISIONS OF ASPR 2- 407.9, THAT AGENCY SHOULD HAVE OBTAINED THE VIEWS OF OUR OFFICE BEFORE MAKING SUCH AN AWARD.

THE DEFENSE SUPPLY AGENCY REPORTS THAT IT IS NOT AWARE OF ANY PROTEST, FORMAL OR INFORMAL, HAVING BEEN FILED BY YOUR FIRM WITH THAT AGENCY PRIOR TO THE AWARD OF THE CONTRACT TO E. R. SQUIBB AND SONS. IT IS ALSO REPORTED THAT AT A MEETING HELD ON SEPTEMBER 9, 1963, MR. ROSENBLAT AND OTHER REPRESENTATIVES OF YOUR FIRM WERE ADVISED THAT THE FLOW OF GOLD WAS A FACTOR IN THIS PROCUREMENT AND THAT THE DEPUTY SECRETARY OF DEFENSE HAD AUTHORIZED AWARD TO E. R. SQUIBB AND ONES; AND THAT CONTRARY TO YOUR ALLEGATION THE CONTRACTING OFFICER HAS STATED THAT HE DID NOT, ON SEPTEMBER 6, 1963, OR ANY OTHER DATE, ADVISE MR. ROSENBLAT THAT THE FLOW OF GOLD WAS NOT AN ISSUE IN THIS PROCUREMENT. THE AGENCY ALSO STATES THAT WHEN YOUR FIRM'S REPRESENTATIVES REQUESTED THAT THE DECISION OF THE DEPUTY SECRETARY OF DEFENSE BE RECONSIDERED YOUR REPRESENTATIVES WERE ADVISED THAT IF YOUR FIRM COULD PRODUCE A COMPREHENSIVE AND DETAILED PLAN TO INSURE THAT NO GOLD WOULD LEAVE THE COUNTRY IT WOULD BE FORWARDED TO THE OFFICE OF THE SECRETARY OF DEFENSE FOR CONSIDERATION; THAT YOUR FIRM'S REPRESENTATIVES STATED THAT SUCH A PLAN WAS CONTAINED IN YOUR LETTER OF SEPTEMBER 9, 1963, TO THE DEFENSE MEDICAL SUPPLY CENTER; AND THAT A COPY OF YOUR LETTER OF SEPTEMBER 9, 1963, WAS FORWARDED TO THE OFFICE OF THE SECRETARY OF DEFENSE WITH A REQUEST THAT ITS DECISION OF AUGUST 14, 1963, BE RECONSIDERED IN VIEW OF THE ADDITIONAL INFORMATION CONTAINED IN SUCH LETTER. THE DEFENSE SUPPLY AGENCY STATES THAT YOUR LETTER OF SEPTEMBER 9, 1963, WAS FAR FROM BEING A DETAILED PLAN AND MERELY CONFIRMED "THAT ARRANGEMENTS CAN BE MADE TO PREVENT THE OUTFLOW OF ANY GOLD BY DEPOSITING THE MONEY DESTINED ABROAD IN A CONTROLLED ACCOUNT IN THE UNITED STATES FOR THE PURCHASE OF AMERICAN MERCHANDISE HERE.'

YOU STATE THAT IN THE DISCUSSIONS WITH DEPARTMENT OF DEFENSE AND DEFENSE SUPPLY AGENCY PERSONNEL IT APPEARED TO YOUR REPRESENTATIVES THAT THE PERSONNEL WERE RELYING HEAVILY ON OUR DECISION OF SEPTEMBER 3, 1963, B- 151787, 43 COMP. GEN. - , FOR JUSTIFICATION OF THE AWARD TO E. R. SQUIBB AND SONS AND THAT IT IS YOUR OPINION THAT SUCH DECISION DOES NOT INVOLVE THE BUY AMERICAN ACT, AND EXECUTIVE ORDER NO. 10582, WHICH YOU STATE IS APPLICABLE HERE. IN THAT REGARD THE DEFENSE SUPPLY AGENCY STATES THAT IT IS IN AGREEMENT WITH YOUR STATEMENT THAT OUR DECISION OF SEPTEMBER 3, 1963, SUPRA, IS NOT CONTROLLING IN THIS CASE.

REGARDING YOUR CONTENTION THAT UNDER THE REGULATIONS APPLICABLE TO THE BUY AMERICAN ACT YOU WERE ENTITLED TO AWARD OF THE CONTRACT, THE ACT OF MARCH 3, 1933, 47 STAT. 1520, AS AMENDED, 41 U.S.C. 10 (A) TO 10 (D), COMMONLY REFERRED TO AS THE BUY AMERICAN ACT, AS IMPLEMENTED BY EXECUTIVE ORDER NO. 10582, DECEMBER 17, 1954, WAS DESIGNED TO ACCORD PREFERENTIAL TREATMENT TO DOMESTIC PRODUCERS AND MANUFACTURERS IN THE CASE OF PURCHASES OF MATERIALS AND SUPPLIES BY FEDERAL AGENCIES AND ESTABLISHMENTS. INSOFAR AS MATERIAL IN THIS CASE, THE HEAD OF A DEPARTMENT OR AGENCY CONCERNED COULD MAKE AN EXCEPTION TO THE REQUIREMENT FOR PURCHASE OR USE OF DOMESTIC MATERIALS IN A CASE WHERE IT WOULD BE INCONSISTENT WITH THE PUBLIC INTEREST. NO FORMULA WAS PRESCRIBED IN THE BUY AMERICAN ACT TO SERVE AS A GUIDELINE FOR DECIDING WHEN THE COST OF DOMESTIC SUPPLIES WAS UNREASONABLE. HOWEVER, EXECUTIVE ORDER NO. 10582 ESTABLISHED IN GENERAL A DIFFERENTIAL OF 6 PERCENT IN FAVOR OF THE DOMESTIC MATERIALS BEFORE THE PRICE WAS TO BE REGARDED AS UNREASONABLE. SECTION 5 OF THE EXECUTIVE ORDER PROVIDED THAT IN ANY CASE IN WHICH THE HEAD OF AN EXECUTIVE AGENCY PROPOSING TO PURCHASE DOMESTIC MATERIALS DETERMINES THAT A GREATER DIFFERENTIAL THAN THAT PROVIDED IN THE ORDER BETWEEN THE COST OF MATERIALS OF DOMESTIC ORIGIN AND MATERIALS OF FOREIGN ORIGIN IS NOT UNREASONABLE OR THAT THE PURCHASE OF MATERIALS OF DOMESTIC ORIGIN IS NOT INCONSISTENT WITH THE PUBLIC INTEREST, THIS ORDER WAS NOT TO APPLY. ALSO, SECTION 3 (A) OF THE EXECUTIVE ORDER PROVIDED THAT NOTHING IN THE ORDER WAS TO AFFECT THE AUTHORITY OR RESPONSIBILITY OF AN EXECUTIVE AGENCY TO REJECT ANY BID OR OFFER FOR REASONS OF THE NATIONAL INTEREST NOT DESCRIBED OR REFERRED TO IN THIS ORDER.

IN OUR DECISION OF APRIL 30, 1963, B-150471, 42 COMP. GEN. - , WE HELD THAT SECTION 3 (A) OF EXECUTIVE ORDER NO. 10582 DID NOT CONFER ON EXECUTIVE AGENCIES ANY NEW OR ADDITIONAL AUTHORITY TO REJECT ANY BID FOR REASONS OF NATIONAL INTEREST AND SINCE WE WERE UNAWARE OF ANY PREEXISTING AUTHORITY TO MAKE ANY SUCH REJECTION, WE BELIEVED THAT SECTION 3 (A) WAS ERRONEOUSLY RELIED UPON. IN THAT DECISION WE ALSO HELD THAT ONCE A DETERMINATION IS MADE THAT THE PURCHASE OF MATERIALS OF DOMESTIC ORIGIN AT A GREATER DIFFERENTIAL THAN THAT PROVIDED IN THE EXECUTIVE ORDER WOULD NOT BE UNREASONABLE OR WOULD NOT BE INCONSISTENT WITH THE PUBLIC INTEREST, THERE THEN WOULD BE FOR APPLICATION THE PROVISION IN SECTION 5 OF THE EXECUTIVE ORDER WHICH STATES THAT UNDER THOSE CIRCUMSTANCES THE "ORDER SHALL NOT APPLY," THUS PLACING THE MATTER SQUARELY WITHIN THE PURVIEW OF THE BUY AMERICAN ACT ITSELF WHICH PROVIDES THAT ONLY DOMESTIC SUPPLIES SHALL BE ACQUIRED FOR PUBLIC USE UNLESS THE HEAD OF THE DEPARTMENT CONCERNED DETERMINES THEIR COST TO BE UNREASONABLE. IN MAKING SUCH A DETERMINATION OF UNREASONABLE COST, THE AGENCY HEAD IS NOT BOUND BY THE PRICE DIFFERENTIALS SPECIFIED IN THE EXECUTIVE ORDER AND WOULD HAVE THE RIGHT TO CONSIDER A GREATER PRICE DIFFERENTIAL REASONABLE. THE MERE FACT THAT THE PRICE FOR DOMESTIC SUPPLIES WAS HIGHER THAN THAT FOR FOREIGN SUPPLIES PLUS THE DIFFERENTIALS STATED IN THE EXECUTIVE ORDER WOULD NOT REQUIRE A DETERMINATION THAT THE DOMESTIC COST WAS UNREASONABLE. IT WOULD REQUIRE ONLY A DETERMINATION THAT THE DOMESTIC COST WAS UNREASONABLE IF FOREIGN GOODS WERE TO BE PURCHASED. IN THIS CASE NO DETERMINATION WAS MADE BY THE DEFENSE SUPPLY AGENCY THAT THE COST OF DOMESTIC GOODS WAS UNREASONABLE AND THEREFORE THERE IS NO LEGAL BASIS FOR DISTURBING THE AWARD ON THE BASIS THAT THE DIFFERENTIAL EXCEEDED 6 PERCENT.

IN YOUR LETTER OF OCTOBER 1, 1963, YOU STATE THAT IT IS HARD TO UNDERSTAND HOW THE DEPUTY SECRETARY IN THIS PARTICULAR INSTANCE COULD FIND THAT DEALING WITH E. R. SQUIBB AND SONS WAS IN THE "PUBLIC INTEREST," IN VIEW OF THE FACT THAT THE FEDERAL TRADE COMMISSION IN A DECISION RENDERED ON AUGUST 8, 1963, DOC. NO. 7211, FOUND THIS COMPANY GUILTY OF ENGAGING IN UNFAIR METHODS OF COMPETITION BY CONSPIRING TO FIX AND MAINTAIN THE SELLING PRICE OF TETRACYCLINE.

IN ITS DECISION OF AUGUST 8, 1963, THE FEDERAL TRADE COMMISSION FOUND THAT OLIN MATHIESON CHEMICAL CORPORATION, OF WHICH E. R. SQUIBB AND SONS IS A SUBSIDIARY, AND OTHERS, HAD ENGAGED IN UNFAIR METHODS OF COMPETITION BY CONSPIRING TO FIX AND MAINTAIN THE SELLING PRICE OF TETRACYCLINE IN THE NON-FEDERAL MARKETS, THAT IS, PRIVATE HOSPITALS, CITY, COUNTY, AND STATE HOSPITALS. IT IS NOTED THAT IN HIS OPINION, IN WHICH HE DISSENTED IN PART AND CONCURRED IN PART WITH THE DECISION OF THE COMMISSION, COMMISSIONER ANDERSON MADE THE FOLLOWING STATEMENT: "I FEEL CONSTRAINED TO SAY THAT, IN MY OPINION, IT IS ONLY BY THE NARROWEST MARGIN THAT THE EVIDENCE SUPPORTS THE ALLEGATION AS TO PRICE FIXING BY SQUIBB AND UPJOHN.' THE DEFENSE SUPPLY AGENCY REPORTS THAT THIS SAME MATTER IS THE SUBJECT OF A CRIMINAL ANTITRUST CASE (UNITED STATES V. CHARLES PFIZER AND COMPANY, 61 CR 772), FILED IN THE SOUTHERN DISTRICT OF NEW YORK, ON AUGUST 17, 1961, AND THAT IN THAT CASE WHILE OLIN NATHIESON CHEMICAL CORPORATION WAS ALLEGED TO BE A CO CONSPIRATOR IT IS NOT NAMED AS A DEFENDANT IN THAT SUIT. THE DEFENSE SUPPLY AGENCY STATES THAT AFTER CAREFUL CONSIDERATION OF THE REFERRED TO FEDERAL TRADE COMMISSION DECISION IT CONCLUDED THAT E. R. SQUIBB AND SONS WAS A RESPONSIBLE BIDDER AND THAT A DETERMINATION TO THAT EFFECT WAS MADE AND PLACED IN THE CONTRACT FILE. AS E. R. SQUIBB AND SONS WAS ADMINISTRATIVELY DETERMINED TO BE RESPONSIBLE WE WILL NOT QUESTION THE AWARD MADE TO THAT COMPANY SOLELY ON THE BASIS OF THE EVIDENCE PRESENTED BY YOU CONCERNING SQUIBB'S RESPONSIBILITY.