B-153000, JUN. 12, 1964

B-153000, JUN. 12, 1964

TO MR. WILLIAM E. FITZPATRICK:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 2, 1963, RELATIVE TO THE CLAIM OF ART FROST LEASING COMPANY TO BE RELIEVED OF ITS BID, THE ACCEPTANCE OF WHICH RESULTED IN CONTRACT NO. AF 04 (695/ 426.

BY INVITATION NO. IFB 04-695-63-7, ISSUED JUNE 14, 1963, THE SPACE SYSTEMS DIVISION, AFSC, LOS ANGELES, CALIFORNIA, SOLICITED BIDS TO BE OPENED JULY 9, 1963, FOR OPERATING A CENTRALIZED MOTOR POOL AT VANDENBURG AIR FORCE BASE, CALIFORNIA, IN ACCORDANCE WITH THE REQUIREMENTS OF EXHIBIT ," ENTITLED "WORK SPECIFICATION," AND EXHIBIT "B," ENTITLED "ESTIMATED VEHICLE REQUIREMENTS," BOTH OF WHICH WERE ATTACHED TO AND MADE A PART OF THE INVITATION.

EXHIBIT "A" STIPULATED THAT THE CONTRACTOR WAS TO PROVIDE THE NECESSARY PERSONNEL, SERVICES, EQUIPMENT AND VEHICLES TO OPERATE THE MOTOR POOL TO SUPPORT APPROXIMATELY 30 CONTRACTORS PERFORMING WORK FOR THE AIR FORCE; AND EXHIBIT "B" SET FORTH THE ESTIMATED NUMBER OF VEHICLES, ACCORDING TO TYPE, WHICH WOULD BE REQUIRED FOR CONTRACT PERFORMANCE, AND THE ESTIMATED "VEHICLE MONTHS" THAT THEY WOULD BE UTILIZED.

PART II OF THE SCHEDULE OF THE INVITATION PROVIDED THAT THE SERVICES REQUIRED TO BE FURNISHED UNDER THE CONTRACT WERE TO BE PERFORMED DURING A PERIOD OF 12 MONTHS TO BEGIN ON OR ABOUT AUGUST 2, 1963, SUBJECT TO THE CLAUSE OF THE INVITATION ENTITLED "ESTIMATED REQUIREMENTS.' THAT CLAUSE, CONTAINED IN PART III OF THE SCHEDULE OF THE INVITATION, PROVIDED THAT, ALTHOUGH THE QUANTITIES OF "SUPPLIES AND SERVICES" WHICH THE GOVERNMENT ESTIMATED THAT THE GOVERNMENT ACTIVITY INVOLVED WOULD REQUIRE DURING THE PERIOD COVERED BY THE CONTRACT WERE SET FORTH IN THE SCHEDULE,"THESE QUANTITIES ARE ESTIMATED ONLY AND ARE NOT PURCHASED HEREBY.' THE CLAUSE FURTHER PROVIDED THAT THE GOVERNMENT AGREED TO ORDER FROM THE CONTRACTOR ALL THE REQUIREMENTS FOR SUCH SUPPLIES AND SERVICES OF THE GOVERNMENT INVOLVED, BUT IN THE EVENT THAT THE REQUIREMENTS OF THE GOVERNMENT ACTIVITY THEREFORE "DO NOT MATERIALIZE IN THE QUANTITIES SPECIFIED AS * * * "ESTIMATED" * * * IN THE SCHEDULE," SUCH FAILURE WOULD NOT CONSTITUTE GROUNDS FOR EQUITABLE ADJUSTMENT UNDER THE CONTRACT. THE INVITATION ALSO PROVIDED THAT THE GOVERNMENT WAS TO HAVE THE OPTION OF RENEWING THE CONTRACT FOR A SECOND AND THIRD ONE-YEAR TERM AT THE UNIT PRICES STIPULATED IN THE BID OF THE SUCCESSFUL BIDDER FOR THE CONTINUED PERFORMANCE OF THE CONTRACT DURING THOSE PERIODS; HOWEVER, EVALUATION OF BIDS WAS TO BE SOLELY ON THE BASIS OF THE RATES QUOTED FOR THE FIRST YEAR, AND THE OPTION PROVISIONS ARE NOT HERE MATERIAL.

IN ITS BID DATED JULY 9, 1963, ART FROST LEASING COMPANY INDICATED IN EXHIBIT B, WHERE BID PRICES WERE REQUIRED TO BE SHOWN, THE "FIRM MONTHLY RATE" AND THE "ESTIMATED TOTAL AMOUNT" AT WHICH IT OFFERED TO FURNISH EACH OF THE TEN TYPES OF VEHICLES TABULATED IN THE EXHIBIT, WHICH ALSO SET FORTH THE "ESTIMATED NUMBER OF VEHICLES" IN EACH CATEGORY, AS WELL AS THE "ESTIMATED VEHICLE MONTHS" THAT THEY WOULD BE UTILIZED. THE ESTIMATED NUMBER OF VEHICLES IN ALL CATEGORIES AS SHOWN IN THE EXHIBIT TOTALLED 434 AND THE ESTIMATED VEHICLE MONTHS THAT THEY WOULD BE UTILIZED WERE SHOWN THEREIN AS AMOUNTING TO 5208. THE ESTIMATED TOTAL AMOUNTS SHOWN IN ART FROST'S BID FOR FURNISHING THE VARIOUS CATEGORIES OF EQUIPMENT, BASED UPON THE FIRM UNIT PRICES QUOTED, AMOUNTED IN THE AGGREGATE TO $640,916.88. THE THREE OTHER BIDS RECEIVED IN RESPONSE TO THE INVITATION WERE IN THE AGGREGATE AMOUNTS OF $805,378.80, $845,340 AND $1,258,164. ART FROST LEASING COMPANY WAS AWARDED THE CONTRACT ON JULY 23, 1963, AS THE LOW BIDDER AFTER A SURVEY OF ITS FACILITIES AND INTERVIEW WITH ITS RESPONSIBLE OFFICIALS HAD RESULTED IN A FAVORABLE FACILITIES CAPABILITY REPORT.

IN YOUR LETTER, YOU REQUEST THAT ART FROST BE "RELIEVED OF ITS BID" ON THE GROUNDS THAT IT MADE A MATERIAL AND SUBSTANTIAL MISTAKE IN ESTIMATING THE COST OF FINANCING THE EQUIPMENT NECESSARY TO PERFORM THE CONTRACT; THAT IT COMMUNICATED THE EXISTENCE OF SUCH MISTAKE TO THE CONTRACTING OFFICER AND "CERTAIN OF HIS REPRESENTATIVES" PRIOR TO THE AWARD OF THE CONTRACT; AND THAT THE DIFFERENCE BETWEEN THE AMOUNT OF ART FROST'S BID AND THE OTHER BIDS SUBMITTED WAS SO GREAT AS TO PUT THE GOVERNMENT ON NOTICE OF SUCH MISTAKE.

THE RECORD CONTAINS THE FOLLOWING INFORMATION PERTINENT TO THE NATURE OF THE ALLEGED MISTAKE AND THE TIME WHEN IT WAS DISCOVERED BY YOUR CLIENT AND BROUGHT TO THE ATTENTION OF THE AIR FORCE. ON JULY 25, 1963, THE GOVERNMENT PLACED AN ORDER WITH ART FROST TO FURNISH 434 VEHICLES OF THE TYPE DESCRIBED IN EXHIBIT B TO BE AVAILABLE FOR USE UNDER THE CONTRACT NOT LATER THAN AUGUST 9, 1963. HOWEVER, IN A LETTER DATED AUGUST 8, 1963 (A COPY OF WHICH WAS ENCLOSED WITH YOUR LETTER), ART FROST ADVISED THE CONTRACTING OFFICER THAT, AS INDICATED DURING DISCUSSIONS WHICH HAD BEEN HELD IN "COLONEL BATTEN'S OFFICE" BETWEEN AIR FORCE REPRESENTATIVES, BANK OF AMERICA REPRESENTATIVES, ITS REPRESENTATIVES AND "LABOR CONTRACTOR'S REPRESENTATIVES" ON AUGUST 7, 63,"THE CONTRACTOR STARTED TO PERFORM UNDER THE CONTRACT ONLY TO BE INFORMED BY THE BANK OF AMERICA THAT THIS CONTRACT WAS ACTUALLY A CALL TYPE CONTRACT RATHER THAN A NORMAL LEASING TYPE CONTRACT.' ART FROST STATED THAT ITS ORIGINAL BID CALCULATIONS, WHICH WERE BASED ON NORMAL AUTO LEASING FINANCING, WERE "INCOMPATIBLE" WITH THE FINANCING "STIPULATIONS" REQUIRED BY THE BANK OF AMERICA (ITS USUAL SOURCE OF FINANCING) IN THE CASE OF LEASING-TYPE CONTRACTS. IN AMPLIFICATION, ART FROST STATED THAT ITS BID WAS BASED UPON THE USE OF A "30 PERCENT DEPRECIATION FACTOR PER R," RATHER THAN THE 50 PERCENT DEPRECIATION FACTOR REQUIRED TO BE USED BY THE BANK, AND ON A STRAIGHT 6 PERCENT PER YEAR FINANCING CHARGE, WHEREAS THE BANK, REQUIRED A 5 PERCENT ADD ON FINANCING CHARGE "PRIMARILY DUE TO THE LARGE QUANTITY OF USED CARS INVOLVED AND THE CALL-TYPE CONTRACT FEATURES.' IN VIEW THEREOF, THE CONTRACTOR STATED THAT AN INCREASE IN THE FIRM UNIT PRICES WHICH IT HAD QUOTED IN EXHIBIT B FOR FURNISHING THE EQUIPMENT, TO THE EXTENT SHOWN IN A ,REVISED EXHIBIT B TO CONTRACT" ENCLOSED WITH THE CONTRACTOR'S LETTER, WOULD BE REQUIRED "IF THE CONTRACTOR IS TO PERFORM UNDER THE CONTRACT.' THE REVISION OF THE UNIT PRICES THUS PROPOSED HAD THE EFFECT OF INCREASING THE TOTAL ESTIMATED PRICE FOR THE SERVICES REQUIRED TO BE FURNISHED UNDER THE CONTRACT BY THE AMOUNT OF $118,648. THE CONTRACTOR ALSO STATED THAT IT WOULD BE IMPOSSIBLE TO HAVE THE NUMBER OF VEHICLES SPECIFIED BY "VEHICLE RELEASE NO. 1" ON LOCATION BY AUGUST 9, 1963, IN VIEW OF THE FACT THAT AN AGREEMENT HAD NOT YET BEEN REACHED WITH THE CONTRACTOR WHO HAD PREVIOUSLY SUPPLIED THE SERVICES CALLED FOR BY THE CONTRACT WITH RESPECT TO THE PURCHASE OF ITS INVENTORY OF VEHICLES, AND THE DELAYS IN FINALIZING THE NECESSARY FINANCIAL ARRANGEMENTS.

IN A LETTER DATED AUGUST 14, 1963, ART FROST, IN REPLY TO A LETTER DATED AUGUST 7, 1963, FROM THE CONTRACTING OFFICER (WHICH IS ACKNOWLEDGED TO HAVE BEEN RECEIVED ON AUGUST 8) EXPRESSING CONCERN AS TO THE CONTRACTOR'S ABILITY TO FURNISH THE VEHICLES INVOLVED BY AUGUST 9, STATED IN MATERIAL PART THAT, IN COMPILING ITS BID, THE CONTRACTOR STATED HAD FAILED TO COMPREHEND THAT THE REQUIREMENTS WERE FOR OTHER THAN THE USUAL TYPE AUTO LEASING PROGRAM. HOWEVER, THE CONTRACTOR STATED THAT "WHEN THE BANK OF AMERICA HAD HAD THE OPPORTUNITY TO STUDY THE EXECUTED CONTRACT WE WERE INFORMED THAT THIS CONTRACT DID NOT SPECIFY THE USUAL TYPE AUTO LEASING FEATURES.'

THE EVENTS WHICH SUBSEQUENTLY TOOK PLACE ARE NOT MATERIAL TO THE ISSUE PRESENTED BY YOUR LETTER, WHICH IS WHETHER ANY GROUNDS EXIST FOR RELIEVING ART FROST OF THE LEGAL EFFECT OF ITS BID.

AS INDICATED ABOVE, THE INVITATION SET FORTH IN CLEAR AND UNAMBIGUOUS LANGUAGE THE TERMS OF THE CONTRACT WHICH THE SUCCESSFUL BIDDER WOULD BE CALLED UPON TO PERFORM, AND ANY MISTAKE AS TO SUCH TERMS WOULD APPEAR CHARGEABLE SIMPLY TO THE CONTRACTOR'S FAILURE TO READ THAT DOCUMENT CAREFULLY BEFORE SUBMITTING A BID. THE CONTRACTOR MUST ALSO BE CONSIDERED TO HAVE BEEN NEGLIGENT IN NOT OBTAINING ADVANCE ASSURANCE THAT THE NECESSARY FINANCING COULD BE ARRANGED ON THE TERMS AT WHICH IT CALCULATED ITS BID.

IT IS WELL SETTLED THAT A UNILATERAL MISTAKE CONSTITUTES NO GROUND FOR RELIEVING A PARTY FROM HIS CONTRACT UNLESS THE OTHER PARTY KNEW OR HAD REASON TO KNOW, BECAUSE OF THE AMOUNT OF THE BID OR OTHERWISE, OF THE MISTAKE. SEE UNITED STATES V. PURCELL ENVELOPE COMPANY (1919), 249 U.S. 13; AMERICAN SMELTING AND REFINING COMPANY V. UNITED STATES (1922), 259 U.S. 75; SALIGMAN ET AL. V. UNITED STATES (1944, D.C.PA.), 56 F.SUPP. 505.

IN YOUR LETTER YOU STATE THAT BETWEEN JULY 9 AND JULY 23, 1963, ART FROST INFORMED THE CONTRACTING OFFICER AND VARIOUS OTHER REPRESENTATIVES OF THE GOVERNMENT THAT IT HAD MADE THE MISTAKE IN QUESTION AND COULD NOT PERFORM THE CONTRACT, BUT THAT, NOTWITHSTANDING SUCH INFORMATION, THE CONTRACTING OFFICER "ON JULY 23, 1963, SIGNED AND DATED THE AWARD SECTION OF THE BID FORM AND DELIVERED IT TO CONTRACTOR'S REPRESENTATIVES.' WE DO NOT UNDERSTAND THE BASIS FOR THE FOREGOING CONTENTION IN VIEW OF THE ADVICE FURNISHED TO THE CONTRACTING OFFICER IN ART FROST'S LETTER OF AUGUST 9, 1963, REFERRED TO ABOVE, WHICH INDICATES THAT THE CONTRACTOR WAS NOT EVEN AWARE OF THE ALLEGED MISTAKE UNTIL IT "STARTED TO PERFORM UNDER THE CONTRACT.'

RELATIVE TO THE ABOVE CONTENTION, AS WELL AS YOUR CONTENTION THAT THE DIFFERENCE BETWEEN THE AMOUNT OF ART FROST'S BID AND THE OTHER BIDS WAS SO GREAT AS TO PUT THE GOVERNMENT ON NOTICE OF THE ALLEGED MISTAKE, THE ADMINISTRATIVE REPORT FURNISHED TO US IN CONNECTION WITH OUR INVESTIGATION OF THIS MATTER INCLUDES A REPORT SUBMITTED BY THE CONTRACTING OFFICER WHICH IS, IN PERTINENT PART, AS FOLLOWS:

"2. MR. FITZPATRICK ALLEGES IN THE SECOND PARAGRAPH OF HIS DECEMBER 2, 1963 LETTER THAT THE CONTRACTOR COMMUNICATED THE EXISTENCE OF SUCH MISTAKE TO THE CONTRACTING OFFICER AND CERTAIN OF HIS REPRESENTATIVES PRIOR TO AWARD OF SUCH CONTRACT.' THIS IS NOT TRUE. BY HIS OWN ADMITTANCE, THE CONTRACTOR WAS NOT AWARE OF HIS ERROR PRIOR TO AWARD OF THE CONTRACT. SEE ART FROST LETTER DATED 30 AUGUST 1963 (TO AIR FORCE SYSTEMS COMMAND; ATTENTION OF CONTRACTING OFFICER) WHEREIN HE STATES:

"THEREFORE, WHEN WE WENT TO THE BANK OF AMERICA WITH THE CONTRACT THEY INFORMED US THAT INSTEAD OF THE 2 1/2 PERCENT PER MONTH, OR 30 PERCENT PER YEAR AT 6 PERCENT SIMPLE INTEREST, THEY WOULD HAVE TO CHARGE US 4-1/6 PERCENT PER MONTH ON A 5 PERCENT ADD-ON INTEREST BASIS. NATURALLY, IT WAS NECESSARY FOR US TO REVISE OUR BID TO REFLECT THE INCREASED COST OF HANDLING THE VEHICLES REQUIRED TO PERFORM THIS CONTRACT. WE PRESENTED OUR CASE TO THE AIR FORCE, TOGETHER WITH REPRESENTATIVES FROM THE BANK OF AMERICA AND THE LABOR CONTRACTOR ON 7 AUGUST 1963. OUR LETTER OF AUGUST 8 WAS THE RESULT OF THIS CONFERENCE . . .'

"DISCUSSIONS BETWEEN AIR FORCE PROCUREMENT PERSONNEL AND ART FROST PRIOR TO AWARD WERE DIRECTED TOWARD THE BIDDER'S PROBLEM OF OBTAINING THE VEHICLES NECESSARY FOR PERFORMANCE, HIS FINANCIAL STATUS, AND HIS SMALL BUSINESS STATUS. THERE WAS GREAT DOUBT PRIOR TO AWARD THAT A FAVORABLE FCR COULD BE OBTAINED ON ART FROST. NONE OF THE DISCUSSIONS PRIOR TO AWARD INVOLVED THE MISTAKE IN BID LATER RAISED BY THE CONTRACTOR.

"3. MR. FITZPATRICK ALSO ALLEGES IN THE SECOND PARAGRAPH OF HIS LETTER "THAT THE DIFFERENCE BETWEEN THE AMOUNT OF THE CONTRACTOR'S BID AND THE OTHER BIDS SUBMITTED WAS SO GREAT AS TO PUT THE GOVERNMENT ON NOTICE OF SUCH MISTAKE.' IT IS THE CONTRACTING OFFICER'S PRESENT OPINION AND WAS HIS OPINION PRIOR TO RECEIPT OF NOTICE OF THE CONTRACTOR'S MISTAKE THAT ALTHOUGH THE BID WAS SIGNIFICANTLY LOWER THAN THE SECOND LOW BID, ART FROST HAD EXTENSIVE EXPERIENCE IN THE BUSINESS OF BUYING, SELLING AND LEASING CARS, AND WAS PRESUMED TO HAVE USED GOOD BUSINESS JUDGMENT IN CALCULATING HIS BID. THE CONTRACTING OFFICER DID NOT SUSPECT THAT THE BIDDER HAD MADE A MISTAKE. IT SHOULD BE NOTED THAT ON 9 JULY 1963 WHEN BIDS WERE OPENED, MERLE A. FROST, JR. WAS PRESENT AND HEARD HOW MUCH LOWER HIS BID WAS THAN THE OTHER THREE BIDS. IF THE MISTAKE SHOULD HAVE BEEN OBVIOUS TO THE PCO AT THAT TIME, IT SHOULD HAVE BEEN OBVIOUS TO MR. FROST. THAT IT WAS NOT OBVIOUS IS SUPPORTED BY THE CONTRACTOR'S STATEMENT REFERRED TO ABOVE THAT IS WAS NOT UNTIL HE WENT TO THE BANK WITH CONTRACT IN HAND THAT HE WAS TOLD OF THE HIGHER INTEREST RATES. PRIOR TO THAT TIME HE HAD NOT MADE ANY COMPLAINT REGARDING AN "OBVIOUS MISTAKE.'

"4. MR. FITZPATRICK FURTHER STATES THAT "THE CONTRACTING OFFICER, ON JULY 23, 1963, SIGNED AND DATED THE AWARD SECTION OF THE BID FORMAND DELIVERED IT TO CONTRACTOR'S REPRESENTATIVES. AT SUCH TIME AND PRIOR TO THE DELIVERY OF THE FULLY-EXECUTED INVITATION BID AND AWARD ON STANDARD FORM 33, CONTRACTOR'S REPRESENTATIVES AGAIN ADVISED THE CONTRACTING OFFICER AND REPRESENTATIVES OF THE GOVERNMENT THAT A MISTAKE HAD BEEN MADE AND THAT THEY COULD NOT PERFORM.' THIS IS NOT TRUE. AS RELATED ABOVE, NEITHER THE CONTRACTING OFFICER NOR OTHER AIR FORCE PROCUREMENT PERSONNEL WERE INFORMED OF ANY MISTAKE IN BID PRIOR TO THE AWARD. NOR DID ART FROST OR ANY OF HIS REPRESENTATIVES STATE TO THE CONTRACTING OFFICER OR OTHER AIR FORCE PERSONNEL THAT HE COULD NOT PERFORM. IT SHOULD BE NOTED REGARDING THIS POINT THAT THE BY THE BANK OF AMERICA, ETC . . . .' IN ADDITION, A FAVORABLE FACILITY CONTRACTOR STATES IN HIS 8 AUGUST 1963 LETTER THAT "THE CONTRACTOR STARTED TO PERFORM UNDER THE CONTRACT ONLY TO BE INFORMED BY THE BANK OF AMERICA, ETC. . . .' IN ADDITION, A FAVORABLE FACILITY CAPABILITY REPORT OF 25 JULY 1963 GOES INTO DETAIL REGARDING THE CONTRACTOR'S ABILITY TO PERFORM THE CONTRACT. THE CONTRACTOR'S 19 JULY 1963 LETTER SUPPORTS THE FCR. ALTHOUGH THERE WAS DOUBT AS TO WHAT IF ANY EQUIPMENT THE PRIOR CONTRACTOR WOULD SELL OR LEASE TO ART FROST, IT WAS THE CONTRACTING OFFICER'S OPINION THAT ART FROST COULD OBTAIN THE VEHICLES NECESSARY FOR PERFORMANCE BUT MIGHT HAVE TO PAY A HIGHER PRICE THAN HE WOULD LIKE TO PAY.'

THE RECORD THUS COMPLETELY REFUTES YOUR CONTENTION THAT THE CONTRACTING OFFICER HAD EITHER ACTUAL OR CONSTRUCTIVE NOTICE OF MISTAKE PRIOR TO AWARD OF THE CONTRACT. MOREOVER, THE RECORD CLEARLY SHOWS THAT THERE WAS IN FACT NO MISTAKE OF THE KIND WHICH ENTITLES A BIDDER TO ANY ELIEF: THE BID WAS EXACTLY WHAT THE BIDDER INTENDED TO SUBMIT, AND THE FACT THAT IT WAS BASED ON AN EXPECTATION OF FINANCING ARRANGEMENTS THE AVAILABILITY OF WHICH HE HAD FAILED TO VERIFY CANNOT BE CONSIDERED AS A GROUND FOR AVOIDING THE OBLIGATIONS LEGALLY FLOWING FROM ACCEPTANCE OF THE BID.

IN THE CIRCUMSTANCES, WE HOLD THAT ACCEPTANCE OF THE BID GAVE RISE TO A VALID AND BINDING CONTRACT, AND THAT THE ART FROST LEASING COMPANY MAY NOT BE RELIEVED FROM THE RESULTING OBLIGATIONS.