B-154323, JUN. 16, 1964

B-154323: Jun 16, 1964

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CONTRACTING OFFICER: REFERENCE IS MADE TO YOUR LETTER OF MAY 1. PROVISION WAS MADE FOR VARIOUS PRICING ARRANGEMENTS DEPENDING UPON THE NUMBER AND TYPE OF EQUIPMENT TO BE PROVIDED AND WHETHER MAINTENANCE WAS TO BE FURNISHED BY THE CONTRACTOR OF THE GOVERNMENT. INCLUDED THEREIN WAS AN OPTION. THE ONLY BID RECEIVED WHICH OFFERED TO SUPPLY ENOUGH EQUIPMENT TO MEET ALL WEATHER BUREAU REQUIREMENTS WAS FROM THE ALDEN ELECTRONIC AND IMPULSE RECORDING EQUIPMENT COMPANY. NOTE 7 OF WHICH IS IN PERTINENT PART AS FOLLOWS: "THE EQUIPMENT UNT PRICES MONTHLY MAINTENANCE CHARGES ARE BASED ON THE USE OF ALFAX TAPE "A" OR TYPE "A-2" PAPER. IF OTHER PAPERS ARE USED. THERE WILL BE AN ADDITIONAL MONTHLY CHARGE FOR SERVICING AND PARTS OF $25.00 PER OPERATING RECORDER.

B-154323, JUN. 16, 1964

TO MR. B. F. LOVELESS, CONTRACTING OFFICER:

REFERENCE IS MADE TO YOUR LETTER OF MAY 1, 1964, FILE A-3.5, REQUESTING A DECISION AS TO THE PROPER COURSE OF ACTION TO FOLLOW IN PROCURING PAPER FOR USE ON ALDEN FACSIMILE RECORDS FOR THE FISCAL YEAR 1965 PERIOD.

ON APRIL 10, 1962, THE WEATHER BUREAU ISSUED INVITATION FOR BIDS NO. WB001-63 COVERING THE RENTAL AND MAINTENANCE OF FACSIMILE EQUIPMENT ON WEATHER BUREAU FACSIMILE CIRCUITS. PROVISION WAS MADE FOR VARIOUS PRICING ARRANGEMENTS DEPENDING UPON THE NUMBER AND TYPE OF EQUIPMENT TO BE PROVIDED AND WHETHER MAINTENANCE WAS TO BE FURNISHED BY THE CONTRACTOR OF THE GOVERNMENT. ALSO, INCLUDED THEREIN WAS AN OPTION, IN FAVOR OF THE GOVERNMENT, PROVIDING FOR ANNUAL RENEWAL OF THE CONTRACT ON THE SAME TERMS FOR TWO 1-YEAR PERIODS, MAKING A TOTAL POSSIBLE CONTRACT PERIOD OF 3 YEARS.

THE ONLY BID RECEIVED WHICH OFFERED TO SUPPLY ENOUGH EQUIPMENT TO MEET ALL WEATHER BUREAU REQUIREMENTS WAS FROM THE ALDEN ELECTRONIC AND IMPULSE RECORDING EQUIPMENT COMPANY, INC. ALDEN INCLUDED SOME SPECIAL PROVISIONS IN ITS LETTER OF MAY 15, 1962, TRANSMITTING ITS BID, NOTE 7 OF WHICH IS IN PERTINENT PART AS FOLLOWS:

"THE EQUIPMENT UNT PRICES MONTHLY MAINTENANCE CHARGES ARE BASED ON THE USE OF ALFAX TAPE "A" OR TYPE "A-2" PAPER. IF OTHER PAPERS ARE USED, USING CATECHOL ON OTHER CHEMICAL COMPOSITIONS WHICH DO NOT MEET OUR APPROVAL, THERE WILL BE AN ADDITIONAL MONTHLY CHARGE FOR SERVICING AND PARTS OF $25.00 PER OPERATING RECORDER. THIS CHARGE WILL APPLY WHETHER SERVICE IS BY ALDEN OR MAINTENANCE IS BY BY GOVERNMENT.'

SINCE THE ALDEN COMPANY WAS THE ONLY BIDDER OFFERING TO MEET ALL OF THE WEATHER BUREAU EQUIPMENT REQUIREMENTS, YOU ACCEPTED ITS BID CONTAINING THE QUOTED SPECIAL PROVISION FOR THE LEASE OF ITS EQUIPMENT WITH MAINTENANCE SERVICE. BEFORE EXERCISING THE RENEWAL OPTION IN THE CONTRACT WITH ALDEN FOR THE FISCAL YEAR 1964 AN INFORMAL SOLICITATION OF THE MARKET WAS MADE IN ORDER TO ASSURE THAT THE RENEWAL PRICE OFFERED THROUGH THE OPTION WAS STILL IN FACT THE LOWEST PRICE AVAILABLE TO THE GOVERNMENT. AT THAT TIME ALDEN WAS STILL THE ONLY FIRM OFFERING ENOUGH EQUIPMENT TO SATISFY ALL OF THE WEATHER BUREAU REQUIREMENTS.

YOU STATE THAT A PRECEDENT HAS BEEN ESTABLISHED FOR MANY YEARS OF ISSUING SEPARATE INVITATIONS FOR BIDS FOR THE EQUIPMENT AND SEPARATE INVITATIONS FOR BIDS FOR THE PAPER REQUIRED FOR USE ON THIS EQUIPMENT. THIS HAS BEEN DONE BECAUSE THERE ARE AVAILABLE MORE COMPANIES MAKING FACSIMILE PAPER THAN THOSE WHO CAN SUPPLY THE EQUIPMENT. UNTIL LAST YEAR THE EQUIPMENT MANUFACTURER, OR AN AFFILIATED FIRM, HAS ALWAYS BEEN THE LOW BIDDER FOR PAPER TO BE USED ON HIS EQUIPMENT AND THE BUREAU DID NOT HAVE TO CONSIDER THE POSSIBILITY OF HAVING A COMPETITOR'S PAPER USED ON THE MANUFACTURER'S EQUIPMENT WHEN THE MANUFACTURER IS ULTIMATELY RESPONSIBLE UNDER THE RENTAL CONTRACT FOR THE SUSTAINED OPERATION OF THE EQUIPMENT.

THE ALFAX PAPER AND ENGINEERING COMPANY, AN AFFILIATE OF ALDEN, IS A MANUFACTURER AND DISTRIBUTOR OF FACSIMILE PAPER AND IN THE PAST HAS ALWAYS BEEN THE LOW BIDDER AND SUPPLIER OF PAPER FOR USE ON THE LEASED ALDEN RECORDERS. LAST YEAR TWO POTENTIALLY LOWER BIDS THAN THAT OF ALFAX WERE RECEIVED FOR PAPER ALLEGED TO BE EQUIVALENT TO ALFAX TYPE "A" AND TYPE "A- 2" (MENTIONED IN NOTE 7 OF ALDEN'S BID). WHILE THESE BIDS WERE NONRESPONSIVE AND AWARD AGAIN WAS MADE TO THE ALFAX COMPANY, YOU STATE THAT THESE LOWER PRICES BID ARE AN INDICATION OF A GREATER INTEREST IN THIS PROCUREMENT BY COMPETITORS OF ALFAX AND THERE IS A STRONG POSSIBILITY THAT, IF THE REQUIREMENTS FOR FACSIMILE PAPER BE ADVERTISED AGAIN THIS YEAR, A FIRM OTHER THAN ALFAX WOULD BE THE LOW BIDDER. IF AWARD FOR FURNISHING PAPER WERE CONTEMPLATED TO BE MADE TO A BIDDER WHO WOULD FURNISH PAPER NOT MEETING THE APPROVAL OF ALDEN, THE MATTER OF PAYING AN ADDITIONAL $25 PER MONTH TO ALDEN WOULD HAVE TO BE CONSIDERED IN EVALUATING BIDS.

INSOFAR AS THE LEGALITY OF THE $25 PER MONTH ADDITIONAL CHARGE IS CONCERNED YOU STATE THAT ALDEN HAS CITED CERTAIN CASES AS LEGAL PRECEDENT FOR SUCH A CHARGE, NAMELY, INTERNATIONAL SALT COMPANY, INC.V. UNITED STATES, 332 U.S. 392, AND DEHYDRATING PROCESS COMPANY V. A. O. SMITH CORPORATION 292 F.2D 643 (1961). AN EXAMINATION OF THE OPINIONS IN THESE CASES SUPPORTS ALDEN'S CONTENTIONS IN THIS MATTER. ALSO, ON PAGES 3 AND 4 OF YOUR LETTER YOU SET OUT THE REASONS AS TO WHY THE CHARGE OF $25 PER MONTH IS JUSTIFIED WHERE PAPER OTHER THAN THAT REFERRED TO IN ALDEN'S CONTRACT IS USED. FURTHERMORE, ALDEN'S CONTRACT (PARAGRAPH 6, PAGE 2 OF SPECIAL PROVISIONS) PROVIDES FOR THE ASSESSMENT OF LIQUIDATED DAMAGES IN THE EVENT OF FAILURE OR IMPROPER OPERATION OF THE EQUIPMENT.

THE DIFFICULTY THAT WILL BE ENCOUNTERED IN EVALUATING BIDS FOR FURNISHING PAPER--- OTHER THAN ALFAX TYPE "A" OR TYPE "A-2" OR ITS EQUIVALENT--- IS SET OUT IN THE FIRST FULL PARAGRAPH ON PAGE 4 OF YOUR LETTER AS FOLLOWS:

"SHOULD THE $25.00 PER MONTH BE RECOGNIZED AS A LEGITIMATE CHARGE, THE WEATHER BUREAU WILL THEN HAVE TO ASK THAT PAPER MANUFACTURERS OTHER THAN ALDEN WISHING TO BID ON ALFAX TYPE "A" IN TYPE ,A-2" EQUIVALENT PAPER WILL HAVE TO OBTAIN THE APPROVAL OF THE ALDEN COMPANY BEFORE THEIR PAPER CAN BE CONSIDERED FOR AWARD. SHOULD THE ALDEN COMPANY REFUSE TO GRANT ITS APPROVAL FOR OTHER PAPER, THE ADDITIONAL $25.00 CHARGE WILL HAVE TO BE CONSIDERED IN EVALUATING THEIR BIDS. IF THIS CHARGE IS CONSIDERED, COMPETITION WILL BE ELIMINATED BECAUSE ON THE BASIS OF NUMBER OF CURRENT FACSIMILE RECORDERS INSTALLED AND PAPER USAGE AND PRICE, A COMPETITOR WOULD BE FORCED TO GIVE HIS PRODUCT TO THE WEATHER BUREAU AT NO COST IN ORDER TO COMPENSATE FOR THIS EXTRA CHARGE. ASIDE FROM THIS, HOWEVER, WE DO NOT BELIEVE IT TO BE A DESIRABLE PROCEDURE TO MAKE FINAL DETERMINATION OF THE ACCEPTABILITY OR NONACCEPTABILITY OF A PRODUCT ON A GOVERNMENT INVITATION FOR BID CONTINGENT UPON APPROVAL BY A PRIVATE INDUSTRIAL FIRM-- - PARTICULARLY WHERE SUCH FIRM HAS A VESTED INTEREST AS A PARTICIPANT IN THE OUTCOME OF THE DETERMINATION.'

IN VIEW OF THE FACT THAT YOUR BUREAU CAN EXERCISE AN OPTION FOR RENEWAL FOR ONLY 1 YEAR MORE (FISCAL YEAR 1964) UNDER ITS EQUIPMENT RENTAL CONTRACT, YOU STATE THAT THE FOLLOWING ACTION IS CONTEMPLATED--

"IT IS PLANNED THAT FOR THE FOLLOWING YEAR A NEW INVITATION FOR BID WILL BE ISSUED WHICH WILL CONTAIN ALTERNATES PERMITTING THE BIDDERS TO OFFER PRICES FOR EQUIPMENT AND MAINTENANCE WITH AND/OR WITHOUT PAPER. BIDDERS THEN WILL ALL BE PLACED ON A COMMON FOOTING, AND THOSE OFFERING EQUIPMENT AND MAINTENANCE WITHOUT PAPER CAN REFLECT IN THEIR RESPECTIVE BID PRICES ANY ADDITIONAL CHARGES AND RISKS BROUGHT ABOUT THROUGH USE OF PAPER OTHER THAN THAT OF THEIR OWN MANUFACTURE AND CONTROL. IT IS ALSO PLANNED THAT WE WOULD ANNOUNCE TO THE TRADE A YEAR IN ADVANCE, OUR INTENTION TO IMPLEMENT THIS REVISED BIDDING PROCEDURE IN ORDER THAT ALL POTENTIAL BIDDERS WOULD HAVE AN OPPORTUNITY TO MAKE ARRANGEMENTS TO BID ON THE ALTERNATIVES IF THEY DESIRED. IN PARTICULAR THIS WOULD PERMIT MANUFACTURERS OF PAPER ONLY TO TIE IN WITH AN EQUIPMENT MANUFACTURER IN ORDER THAT THEY COULD BID ON THE COMPLETE PACKAGE OF EQUIPMENT AND PAPER.

"FOR CURRENT REQUIREMENTS OF EQUIPMENT AND PAPER DURING THE FISCAL YEAR 1965, IT IS PLANNED THAT AN INFORMAL SURVEY OF THE MARKET WILL BE MADE IN ORDER TO DETERMINE THAT IT IS STILL IN THE BEST INTERESTS OF THE GOVERNMENT TO EXERCISE THE RENEWAL OPTION ON THE PRESENT CONTRACT WITH THE ALDEN COMPANY. ASSUMING THIS TO BE THE CASE, IT IS PROPOSED TO NEGOTIATE WITH THE ALDEN AFFILIATE, THE ALFAX PAPER AND ENGINEERING COMPANY, FOR WEATHER BUREAU PAPER REQUIREMENTS FOR THIS PERIOD. IT IS BELIEVED THAT, UNDER THE CIRCUMSTANCES OUTLINED ABOVE, NEGOTIATION IS APPROPRIATE UNDER THE AUTHORITY CONTAINED IN 41 U.S.C. 252 (C) (10).'

UNDER THE PROVISIONS OF 41 U.S.C. 252 (C) (10) CONTRACTS FOR PROPERTY AND SERVICES MAY BE NEGOTIATED WITHOUT ADVERTISING FOR BIDS WHEN IT IS IMPRACTICABLE TO OBTAIN COMPETITION. IF AN INFORMAL SURVEY OF THE MARKET SHOWS THAT IT IS STILL IN THE BEST INTERESTS OF THE GOVERNMENT TO EXERCISE THE RENEWAL OPTION IN THE PRESENT CONTRACT WITH ALDEN, OUR OFFICE WOULD NOT BE REQUIRED TO OBJECT TO NEGOTIATION OF A CONTRACT WITH THE ALDEN AFFILIATE FOR THE PAPER REQUIREMENTS FOR THE FISCAL YEAR 1965 SINCE ALDEN IS UNWILLING TO RELIEVE THE GOVERNMENT OF THE $25 PER MONTH ADDITIONAL CHARGE IF PAPER FROM OTHER MANUFACTURERS IS USED IN ITS EQUIPMENT. HOWEVER, WE ARE IN COMPLETE AGREEMENT WITH YOUR PROPOSAL TO ADOPT A PROCEDURE DESIGNED TO AVOID THIS SITUATION IN ..END :