B-152859, MARCH 9, 1964, 43 COMP. GEN. 591

B-152859, MARCH 9, 1964, 43 COMP. GEN. 591

BIDS - COMPETITIVE SYSTEM - PRICES REDUCED TO OBTAIN AWARD - FEDERAL SUPPLY CONTRACTS V. INVITATION FOR BIDS WHERE AN ITEM WAS NOT REQUIRED TO BE PURCHASED FROM THE FEDERAL SUPPLY CATALOG, THE CANCELLATION OF AN AIR FORCE INVITATION FOR BIDS (IFB) TO PROCURE THE ITEM FOR A LESSER AMOUNT FROM THE LOW BIDDER UNDER THE IFB WHO TO MEET THE FEDERAL SUPPLY SERVICE (FSS) CONTRACT PRICE COMPETITION OF THE SECOND LOW BIDDER UNDER THE IFB SECURED ONE OF THE MULTIPLE FSS CONTRACTS ISSUED FOR THE ITEM, NEGOTIATED UNDER THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT, 40 U.S.C. 471, WAS NOT IN THE BEST INTERESTS OF THE GOVERNMENT, AND IS NOT A PROCUREMENT THAT CONTRIBUTES TO THE INTEGRITY OF COMPETITIVE BIDDING, THE OPTION TO MAKE AN AWARD PURSUANT TO A SUBSEQUENT FSS CONTRACT, OR PRICE REDUCTION, NULLIFYING THE BASIC TENET THAT ONCE BIDS ARE OPENED AND DISCLOSED, A HIGHER BIDDER WILL NOT HAVE A SECOND OPPORTUNITY TO UNDERBID THE LOW BIDDER; HOWEVER, THE AWARD WILL NOT BE DISTURBED, THE SECOND LOW BIDDER UNDER THE IFB HAVING REDUCED AWARD WILL NOT BE DISTURBED, THE SECOND LOW BIDDER UNDER THE IFB HAVING REDUCED HIS FSS CONTRACT PRICE AFTER DISCLOSURE OF THE IFB BID PRICES INDIRECTLY HAD THE SAME COMPETITIVE ADVANTAGE AS THOUGH PERMITTED TO SUBMIT A SECOND BID UNDER THE IFB.

TO CAREY-O-MADIGAN ASSOCIATES, MARCH 9, 1964:

REFERENCE IS MADE TO YOUR LETTERS OF NOVEMBER 6 AND 13, AND DECEMBER 18, 1963, IN WHICH YOU PROTEST THE ISSUANCE OF A DELIVERY ORDER ON OCTOBER 24, 1963, BY BROOKLEY AIR FORCE BASE TO THE SOMAT CORPORATION FOR 21 PAPER SHREDDING MACHINES, PURSUANT TO FEDERAL SUPPLY SERVICE (FSS) CONTRACT NO. GS-00S-45977. YOU CONTEND THAT THE PURCHASE SHOULD HAVE BEEN MADE SOMETIME BETWEEN AUGUST 14 AND OCTOBER 15, 1963, THE PERIOD DURING WHICH YOU WERE THE EXCLUSIVE HOLDER OF AN FSS CONTRACT FOR THE SUBJECT MACHINES, AND THAT, IN ANY EVENT, THE AWARD MADE ON OCTOBER 24 SHOULD HAVE GONE TO YOUR FIRM SINCE YOUR FSS CONTRACT OFFERED A LOWER PRICE ON THAT DATE THAN THE SOMAT FSS CONTRACT.

THE RECORD SHOWS THAT THE CITED SOMAT CONTRACT IS ONE OF THE MULTIPLE AWARD CONTRACTS, WHICH INCLUDE YOUR CONTRACT NO. GS-00S-45965, NEGOTIATED BY THE GENERAL SERVICES ADMINISTRATION (GSA) UNDER AUTHORITY OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, 63 STAT. 377, AS AMENDED, 40 U.S.C. 471, TO COVER THE GOVERNMENT'S REQUIREMENTS FOR PAPER SHREDDING MACHINES FOR THE 12 MONTH PERIOD ENDING JUNE 30, 1964. FEDERAL SUPPLY CATALOG (FSC) GROUP 36, PART 2, LISTS THE FIRMS AWARDED FSS CONTRACTS FOR PRINTING, DUPLICATING AND BOOKBINDING EQUIPMENT, AND STATES THE PERTINENT TERMS AND CONDITIONS GOVERNING PERFORMANCE THEREUNDER. WITH CERTAIN EXCEPTIONS, ONE OF WHICH IS CONSIDERED BELOW, ALL DEPARTMENTS AND AGENCIES IN THE EXECUTIVE BRANCH OF THE GOVERNMENT MUST PROCURE THEIR REQUIREMENTS FOR THE STATED EQUIPMENT FROM FSS CONTRACTS. IT IS FURTHER PROVIDED IN THE FSC THAT WHERE A REQUIREMENT FOR THE ITEM THEREIN MAY BE MET BY MORE THAN ONE CONTRACT, THE PROCUREMENT MUST BE MADE UNDER THAT MULTIPLE AWARD CONTRACT OFFERING THE LOWEST PRICE. AMENDMENTS TO AN FSC, REFLECTING ADDITIONS TO THE ITEMS CONTAINED THEREIN, AS WELL AS CONTRACTORS' PRICE REDUCTIONS AND THE EFFECTIVE DATES THEREUNDER, ARE PERIODICALLY TRANSMITTED BY GSA TO GOVERNMENT AGENCIES FOR THEIR USE IN PLACING FUTURE ORDERS.

THE RECORD ESTABLISHES THE FOLLOWING CHRONOLOGY OF EVENTS:

WHEN THE AIR FORCE INITIATED A PROCUREMENT FOR ITS SUPPOSED REQUIREMENT FOR 21 UNITS OF THE SUBJECT MACHINE AND THREE LARGER PAPER PULPING MACHINES, BY ISSUING INVITATIONS FOR BIDS (IFB) 01-601-63-705 ON MARCH 22, 1963, THE FSC GROUP 36, PART 2, FOR FISCAL 1963, ENDING JUNE 30, 1963, CONTAINED NO REFERENCE TO SHREDDING MACHINES. FURTHERMORE, A SOLICITATION BY GSA FOR OFFERS ON FISCAL 1964 FSS CONTRACTS FOR SHREDDING MACHINES, WHICH WAS ISSUED ON JANUARY 29, 1963, HAD GENERATED NO RESPONSES, INSOFAR AS CONCERNS THE SHREDDING MACHINES HERE SPECIFIED, WHEN BIDS WERE OPENED UNDER IFB 01-601-63-705 ON APRIL 23, 1963. THE FOLLOWING INFORMATION WAS DISCLOSED AT THE APRIL 23 BID OPENING:

TABLE -------------------------------------------------------------- ----

ITEM 1 - UNIT ITEM 2 - UNIT ITEM 3 - UNIT

PRICE FOR 21 PRICE FOR 1 PRICE FOR 2

BIDDER MACHINES OF MACHINE OF MACHINES OF

100 LB. 400 LB. 200 LB.

CAPACITY CAPACITY CAPACITY -- ------------------------------------------- -------------------------- CAREY O-MADIGAN $2,965 NO BID NO BID SOMAT CORPORATION $2,485 $10,020

$7,040 -------------------------------------------------------------- ---

IN A LETTER OF APRIL 25, 1963, TO BROOKLEY AIR FORCE BASE, YOU PROTESTED ANY AWARD UNDER THE IFB ON THE GROUND THAT THE LARGER UNITS LISTED THEREUNDER WERE SOLE SOURCE ITEMS AND SHOULD NOT HAVE BEEN INCLUDED WITH ITEM I UNITS, ON WHICH SOMAT ALLEGEDLY WAS ABLE TO OFFER A LOW BID ONLY BECAUSE OF THE HIGH PRICES IT QUOTED ON THE LARGER UNITS. ON MAY 27, THE CONTRACTING OFFICER REPLIED, IN EFFECT, THAT SINCE THE AIR FORCE WAS FREE UNDER THE TERMS OF THE SOMAT BID TO AWARD ONLY THE UNITS UNDER ITEM I AND NO OTHER UNITS TO THAT COMPANY, SOMAT GAINED NO ADVANTAGE IT WOULD NOT HAVE HAD HAD THE AIR FORCE ISSUED 2 SEPARATE INVITATIONS. IT SHOULD BE NOTED AT THIS POINT THAT WHEN GSA PUBLISHED FSC GROUP 36, PART 2, FOR THE PERIOD JULY 1, 1963 THROUGH JUNE 30, 1964, IT HAD AWARDED NO CONTRACTS FOR SHREDDING MACHINES WHICH MET THE SPECIFICATIONS OF THE SUBJECT IFB.

ON JULY 15, 1963, AFTER YOU HAD PRESENTED CERTAIN ALLEGATIONS CONCERNING THE PREFERENCE OF SOME USING ACTIVITIES FOR THE 100 LB. CAPACITY MACHINES, RATHER THAN THE THREE LARGER UNITS LISTED IN THE IFB, THE AIR FORCE ADVISED YOU THAT IT WAS CONDUCTING A REVIEW OF ITS REQUIREMENTS FOR THE SHREDDING MACHINES. ON JULY 29, 1963, WHILE THE REVIEW OF ACTIVITY REQUIREMENTS WAS BEING CONDUCTED, YOU PRESENTED TO GSA AN OFFER FOR AN FSS CONTRACT FOR THE SUBJECT MACHINES. ON AUGUST 14, YOU OBTAINED CONTRACT NO. GS-00S-45965, AND EFFECTIVE ON THAT DATE YOU BECAME ELIGIBLE FOR FSS CONTRACTS UNDER FSC GROUP 36, PART 2, FOR THE SAME MACHINE DESCRIBED BY ITEM I OF THE IFB. IN EFFECT, YOU REDUCED BY $11,970 THE PRICE YOU HAD OFFERED FOR 21 UNITS OF ITEM I UNDER THE IFB, BY CONTRACTING WITH GSA TO SELL TO ORDERING AGENCIES AT $2,395 PER UNIT. ON AUGUST 26, 1963, YOU ADVISED THE PROCURING ACTIVITY THAT YOU EXPECTED IT TO FILL ITS NEEDS FOR SHREDDING MACHINES UNDER YOUR FSS CONTRACT WITH GSA.

ON SEPTEMBER 3, 1963, THE REQUIREMENTS STATED IN THE IFB FOR ITEMS TWO AND THREE WERE CANCELED, THEREBY RENDERING MOOT THE OBJECTION THAT SOLE SOURCE ITEMS HAD BEEN INCLUDED WITH COMPETITIVE ITEMS IN THE SAME INVITATION FOR BIDS. ON SEPTEMBER 26, THE CONTRACTING OFFICER DECIDED THAT THE AIR FORCE SHOULD MAKE AWARD FOR THE 21 UNITS UNDER THE IFB RATHER THAN THE FSC. THIS DECISION WAS QUESTIONED IN A REVIEW BY THE STAFF JUDGE ADVOCATE AT WRIGHT-PATTERSON AIR FORCE BASE, IN A MEMORANDUM DATED OCTOBER 3, 1963. THE BASIS FOR SUCH QUESTION WAS THE APPARENT REQUIREMENT FOR PROCUREMENT FROM THE FSC, SET FORTH IN ARMED SERVICES PROCUREMENT REGULATION 5-102 AND IN THE PARAGRAPH TITLED "SCOPE OF CONTRACT" IN THE SPECIAL PROVISIONS OF FSC GROUP 36, PART 2, WHICH PARAGRAPH PROVIDES IN RELEVANT PART: 1. SCOPE OF CONTRACT.---

(A) THIS SCHEDULE PROVIDES FOR THE NORMAL SUPPLY REQUIREMENTS OF ALL DEPARTMENTS AND INDEPENDENT ESTABLISHMENTS, INCLUDING WHOLLY-OWNED GOVERNMENT CORPORATIONS, IN THE EXECUTIVE BRANCH OF THE FEDERAL GOVERNMENT (EXCEPT THE DEPARTMENT OF DEFENSE, UNDER LITHOGRAPHIC COPYING CAMERAS: PHOTOCOPYING AND PROCESSING MACHINES; AND BLUEPRINT, AND DRY- AND MOIST- DEVELOPING PRINTING MACHINES) AND THE GOVERNMENT OF THE DISTRICT OF COLUMBIA, FOR DELIVERY WITHIN THE 48 CONTIGUOUS STATES, AND WASHINGTON, D.C., AND CONTRACTS WILL BE USED AS PRIMARY SOURCES FOR THE ARTICLES OR SERVICES LISTED HEREIN UNDER SECTION A - PURCHASE.

ON SEPTEMBER 13, SOMAT HAD BEEN INFORMED THAT THE PRIVILEGES IT MIGHT NORMALLY EXPECT TO FLOW FROM BEING LOW BIDDER UNDER THE IFB MAY HAVE BEEN USURPED WHEN YOUR COMPANY OBTAINED ITS FSS CONTRACT. SOMAT EXPRESSED SOME UNHAPPINESS THAT IT HAD HAD NO "OPPORTUNITY" TO OBTAIN A SIMILAR CONTRACT FROM GSA. ONE WEEK LATER IT MADE AN OFFER TO GSA TO SUPPLY SHREDDING MACHINES TO THE GOVERNMENT, WHICH RESULTED IN AN FSS CONTRACT EFFECTIVE ON OCTOBER 15, 1963, AT $2,342.11 PER UNIT, A PRICE SLIGHTLY LESS THAN THE ONE ESTABLISHED IN YOUR FSS CONTRACT.

DURING THIS TIME, AIR FORCE HEADQUARTERS IN WASHINGTON WAS QUESTIONING WHETHER AWARD IN THIS CASE WAS MANDATORY UNDER FSC GROUP 36, PART 2. THE PRIMARY REASON FOR DOUBTING THE NECESSITY OF SUCH AN AWARD WAS BECAUSE WHEN GSA ADDED SHREDDING MACHINES TO FSC GROUP 36, PART 2, IT HAD NOT OBTAINED THE CONCURRENCE OF THE OFFICE OF THE SECRETARY OF DEFENSE AS PER THE AGREEMENT BETWEEN GSA AND THE DEPARTMENT OF DEFENSE. SEE ASPR 5- 102.4. RESOLUTION OF THIS DIFFICULTY BECAME UNNECESSARY WHEN, ON OR ABOUT OCTOBER 18, HEADQUARTERS LEARNED FROM GSA THAT EFFECTIVE OCTOBER 17, SHREDDING MACHINES WOULD NOT BE INCLUDED IN THE FSC AS A MANDATORY ITEM INSOFAR AS THE DEPARTMENT OF DEFENSE WAS CONCERNED. ON OCTOBER 18, 1963, HEADQUARTERS DRAFTED LETTERS TO YOU AND SOMAT ADVISING THAT THE BEST INTEREST OF THE GOVERNMENT REQUIRED CANCELLATION OF THE IFB AND PROCUREMENT OF THE SUPPLIES UNDER FSC GROUP 36, PART. WE ARE ADVISED THAT HEADQUARTERS DELIBERATELY DID NOT STATE TO WHOM THE AWARD WOULD BE MADE, SINCE UNDER THE COURSE IT HAD CHOSEN TO FOLLOW, YOU AND SOMAT MIGHT CONTINUE TO OFFER TO GSA SUCCESSIVELY LARGER REDUCTIONS IN THE PRICE ESTABLISHED BY YOUR CONTRACT WITH THE FSS.

EFFECTIVE OCTOBER 23, 1963, THE DAY BEFORE AWARD WAS MADE TO SOMAT, YOUR PRICES UNDER FSC, GROUP 36, PART 2, WERE REDUCED TO ALMOST ONE DOLLAR PER UNIT LOWER THAN YOUR COMPETITOR-S. HOWEVER, THE AMENDMENT TO THE FSC CONTAINING THIS REDUCTION WAS NOT PUBLISHED UNTIL OCTOBER 30, AND THE RECORD ESTABLISHES THAT YOU DID NOT ADVISE THE PROCURING ACTIVITY OF THIS REDUCTION UNTIL OCTOBER 24, AND THAT THE NOTICE OF AWARD HAD BEEN MAILED TO SOMAT APPROXIMATELY 35 MINUTES BEFORE RECEIPT OF SUCH ADVICE FROM YOU.

SINCE WE CANNOT AGREE THAT IT WAS IN THE BEST INTERESTS OF THE GOVERNMENT TO HAVE CANCELED THE IFB, AND SINCE WE BELIEVE THAT AN AWARD SHOULD HAVE BEEN MADE THEREUNDER, WE DO NOT CONSIDER IT NECESSARY TO DECIDE WHO SHOULD HAVE RECEIVED THE AWARD HAD IT BEEN PROPER TO MAKE IT UNDER THE FSC. YOU POINTED OUT IN A LETTER TO THE PROCURING ACTIVITY, WE HAVE STATED MANY TIMES THAT THE PRESERVATION OF THE COMPETITIVE BIDDING SYSTEM IS MORE BENEFICIAL TO THE GOVERNMENT FROM A LONG-RANGE STANDPOINT THAN THE PECUNIARY SAVING WHICH MIGHT BE REALIZED IN THE INDIVIDUAL CASE. 41 COMP. GEN. 599. THE RATHER UNIQUE SYSTEM OF PROCUREMENT HERE DEVELOPED BY THE BIDDERS AND ACQUIESCED IN BY THE AIR FORCE DOES LITTLE TO SECURE THE INTEGRITY OF COMPETITIVE BIDDING. UNDER THIS SYSTEM, PRICES OFFERED IN BIDS SOLICITED BY THE MILITARY AGENCIES MAY BE MEANINGLESS WHEN THE IFB CALLS FOR ITEMS WHICH MAY, BUT ARE NOT REQUIRED TO, BE PROCURED UNDER AN EXISTING FSS CONTRACT. IN THIS CIRCUMSTANCE, A PROCURING ACTIVITY MIGHT CHOOSE TO PROCURE THE ITEMS NEITHER FROM THE LOW BIDDER UNDER THE IFB NOR FROM THE COMPANY WITH THE LOWEST FSC CONTRACT PRICE AT THE TIME BIDS WERE OPENED, BUT FROM ANY BIDDER WHO SUBSEQUENTLY REDUCES HIS FSC CONTRACT PRICE, OR OFFERS FOR THE FIRST TIME TO CONTRACT WITH THE FSS, AT A PRICE LOWER THAN THOSE PRICES WHICH ARE OUTSTANDING UNDER EITHER THE IFB OR THE FSC. WE BELIEVE SUCH ABUSE OF THE COMPETITIVE BIDDING CONCEPT IS JUST AS PALPABLE WHERE, AS HERE, THERE ARE NO FSS CONTRACTS FOR THE ADVERTISED ITEM AT THE TIME BIDS ARE OPENED, ALTHOUGH THE ITEM ITSELF IS LISTED IN AN FSC. IN OUR VIEW, THE OPTION TO MAKE AN AWARD PURSUANT TO THE SUBSEQUENT FSS CONTRACT OR PRICE REDUCTION THEREOF, UNDER THE CIRCUMSTANCES DESCRIBED ABOVE, NULLIFIES ONE OF THE MOST BASIC TENETS OF ADVERTISED BIDDING, I.E., THAT LOW PRICES ARE BEST ASSURED BY ESTABLISHING AMONG BIDDERS THE CONFIDENCE THAT ONCE BIDS ARE OPENED AND DISCLOSED, A HIGH BIDDER WILL NOT BE GIVEN A SECOND OPPORTUNITY TO UNDERBID THE PRICE SUBMITTED BY THE LOW BIDDER ON THAT PROCUREMENT.

IN THE INSTANT PROCUREMENT BID PRICES UNDER THE AIR FORCE IFB HAD ALREADY BEEN DISCLOSED BEFORE YOU OFFERED A LOWER PRICE FOR A CONTRACT UNDER THE FSC, AND A FORTIORI, BEFORE YOU SUBSEQUENTLY REDUCED YOUR FSS CONTRACT PRICE. IT NECESSARILY FOLLOWS THAT PROCUREMENT OF THE ITEM INCLUDED IN THE AIR FORCE IFB FROM YOUR COMPANY AT THE LOWER PRICE YOU QUOTED FOR AN FSS CONTRACT, WOULD AFFORD YOUR COMPANY, INDIRECTLY, THE SAME COMPETITIVE ADVANTAGE WHICH WOULD HAVE RESULTED HAD YOU BEEN PERMITTED TO SUBMIT A SECOND BID UNDER THE AIR FORCE IFB. ACCORDINGLY, WE MUST CONCLUDE THAT PROCUREMENT BY THE AIR FORCE OF THE PAPER SHREDDING MACHINES IN QUESTION FROM YOUR COMPANY WOULD HAVE BEEN IMPROPER, AND YOUR PROTEST AGAINST THE FAILURE OF THE AIR FORCE TO TAKE SUCH ACTION MUST THEREFORE BE DENIED.

IN VIEW THEREOF, AND SINCE THE AWARD WAS MADE TO THE BIDDER WHO HAD SUBMITTED THE LOW BID UNDER THE IFB, NO FURTHER ACTION IS CONTEMPLATED BY THIS OFFICE.