B-154526, SEPTEMBER 14, 1964, 44 COMP. GEN. 137

B-154526: Sep 14, 1964

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WHERE THE INVITATION WAS SILENT AS TO TAXES AND EXEMPTION CERTIFICATES. THREE OUT OF FIVE BIDDERS VOLUNTEERED SALES TAX INFORMATION THAT WAS NOT CONSIDERED IN BID EVALUATION. WAS PROPERLY REJECTED. THE MORE EQUITABLE METHOD OF EVALUATING BIDS WAS ON A TAX INCLUSIVE BASIS. 1964: REFERENCE IS MADE TO YOUR LETTER DATED JULY 20. - IT IS STATED THAT PROPER CONSIDERATION WAS NOT GIVEN TO THE ENDORSEMENT ON YOUR BID WHEREIN YOU OFFERED A DEDUCTION OF $40. DUE TO THE FACT THAT HOSPITAL CONSTRUCTION IN THE STATE OF TEXAS IS SALES TAX EXEMPT. YOU FURTHER STATE IF THE DEDUCTION IS MADE FROM YOUR BASE BID. IT IS REPORTED THAT IN RESPONSE TO INVITATION FOR BIDS. BIDS FOR THE PROJECT WERE PUBLICLY OPENED ON JUNE 11.

B-154526, SEPTEMBER 14, 1964, 44 COMP. GEN. 137

BIDS - EVALUATION - TAX INCLUSION OR EXCLUSION AN UNSOLICITED OFFER TO REDUCE A BASE BID FOR THE CONSTRUCTION OF A HOSPITAL IN THE STATE OF TEXAS IN THE AMOUNT OF THE SALES TAX INCLUDED IN THE BID, AN OFFER THAT WOULD MAKE THE BASE BID, WITH ALTERNATIVES, THE LOWEST BID SUBMITTED, WHERE THE INVITATION WAS SILENT AS TO TAXES AND EXEMPTION CERTIFICATES, AND THREE OUT OF FIVE BIDDERS VOLUNTEERED SALES TAX INFORMATION THAT WAS NOT CONSIDERED IN BID EVALUATION, WAS PROPERLY REJECTED, MAINTENANCE OF FULL AND OPEN COMPETITION REQUIRING THAT THE SAME CONSIDERATION BE GIVEN ALL BIDDERS, WHICH WOULD PERMIT THE TWO BIDDERS WHO DID NOT REVEAL THE AMOUNT OF THE SALES TAX INCLUDED IN THEIR BIDS TO USE AN ARBITRARY FIGURE TO QUALIFY AS THE LOW BIDDER, OR COULD LEAD TO AN "AUCTIONING" SITUATION AMONG BIDDERS BY THE SIMPLE PROCESS OF CHANGING SALES TAX ESTIMATES; THEREFORE, IN THE ABSENCE OF AN EXEMPTION CERTIFICATE PROVISION IN THE INVITATION, THE MORE EQUITABLE METHOD OF EVALUATING BIDS WAS ON A TAX INCLUSIVE BASIS, HOLDING THE SUCCESSFUL BIDDER LIABLE FOR THE TAX.

TO THE T. C. BATESON CONSTRUCTION COMPANY, SEPTEMBER 14, 1964:

REFERENCE IS MADE TO YOUR LETTER DATED JULY 20, 1964, WITH ENCLOSURES, PROTESTING THE AWARD OF A CONTRACT TO WARRIOR CONSTRUCTORS, INCORPORATED, BY THE VETERANS ADMINISTRATION UNDER PROJECT NO. 42-5301, 240 BED NEUROPSYCHIATRIC BUILDING NO. 162 AND 240 BED G.M. AND S. BUILDING NO. 163, VETERANS ADMINISTRATION CENTER, TEMPLE, TEXAS.

IN THE ENCLOSURE WITH YOUR LETTER--- A COPY OF LETTER DATED JULY 20, 1964, TO THE VETERANS ADMINISTRATION CONSTRUCTION CONTRACTING OFFICER, WASHINGTON, D.C.--- IT IS STATED THAT PROPER CONSIDERATION WAS NOT GIVEN TO THE ENDORSEMENT ON YOUR BID WHEREIN YOU OFFERED A DEDUCTION OF $40,000 FROM YOUR BASE BID, FOR SALES TAX WHICH HAD BEEN INCLUDED IN YOUR BID, DUE TO THE FACT THAT HOSPITAL CONSTRUCTION IN THE STATE OF TEXAS IS SALES TAX EXEMPT. YOU FURTHER STATE IF THE DEDUCTION IS MADE FROM YOUR BASE BID, YOUR BID, WITH ALTERNATIVES, WOULD BE THE LOWEST BID SUBMITTED.

IT IS REPORTED THAT IN RESPONSE TO INVITATION FOR BIDS, DATED MAY 1, 1964, BIDS FOR THE PROJECT WERE PUBLICLY OPENED ON JUNE 11, 1964; THAT ALL WORK WAS PROVIDED FOR UNDER ITEM I TOGETHER WITH ALTERNATES IA THROUGH IX; THAT THE BID FORM STATED "AWARD MAY BE MADE OF THE ITEM ONLY, HOWEVER, AWARD OF ANY ALTERNATE WILL BE MADE ONLY AS PART OF THE ITEM; " THAT FIVE BIDS WERE RECEIVED, TWO OF THE BIDDERS ENDORSING ON THEIR BIDS UNSOLICITED INFORMATION AS TO TEXAS SALES TAX; THAT THE ENDORSEMENT ON YOUR BID STATED "BASE BID INCLUDES $40,000 SALES TAX--- MAY BE DEDUCTED IF TAX EXEMPTION CERTIFICATE IS FURNISHED; " AND THE OTHER BIDDER STATED "TEXAS STATE SALES TAX IN AMOUNT OF $140,000 INCLUDED IN ITEM NO. 1.'

IT IS FURTHER REPORTED THAT IN ACCORDANCE WITH ESTABLISHED PROCEDURE EACH BID RECEIVED WAS WEIGHED AGAINST THE EXPRESS TERMS OF THE ADVERTISED CONDITIONS AS OFFERED ALL BIDDERS BY THE INVITATION AND SINCE THE BIDDING DOCUMENTS WERE SILENT AS TO TAXES AND EXEMPTION CERTIFICATES, THE ENDORSEMENTS VOLUNTEERING INFORMATION AS TO THE SALES TAXES INCLUDED WERE NOT CONSIDERED IN EVALUATING THE BIDS. IT IS ALSO REPORTED THAT BASED ON THE BIDS RECEIVED IT WAS DETERMINED TO BE IN THE BEST INTERESTS OF THE GOVERNMENT TO AWARD CONTRACT FOR ITEM I TOGETHER WITH ALTERNATES IB, IC, IE, IJ, AND IL, AND CONTRACT WAS AWARDED TO WARRIOR CONSTRUCTORS, INCORPORATED, WHOSE NET BID WAS THE LOWEST, MEETING THE ADVERTISED CONDITIONS. IN ADDITION, WE HAVE BEEN ADVISED INFORMALLY THAT A THIRD BIDDER STATED ORALLY AFTER BID OPENING THAT HIS BID INCLUDED $100,000 FOR TEXAS STATE SALES TAX.

IT SEEMS PROBABLE THAT THE AMOUNT OF MATERIALS SUBJECT TO SALES TAX GOING INTO THE CONSTRUCTION HERE CONCERNED WOULD BE ABOUT THE SAME WHOEVER THE SUCCESSFUL BIDDER MIGHT BE, WHICH RENDERS INEXPLICABLE THE VARIANCE OF $100,000 IN THE ESTIMATE OF SALES TAX ON SUCH MATERIALS. IN THIS CONNECTION IT MAY BE OBSERVED THAT THE SUCCESSFUL BIDDER WOULD BE LEGALLY OBLIGATED FOR THE SALES TAX IN THE ABSENCE OF AN EXEMPTION CERTIFICATE, WHICH WAS NOT OFFERED BY THE GOVERNMENT IN THE INVITATION. WE, THEREFORE, ARE OF THE OPINION THAT THE MORE EQUITABLE METHOD OF EVALUATING THE BIDS IN THIS CASE IS ON A TAX INCLUSIVE BASIS.

IN HIS LETTER DATED JULY 24, 1964, TO YOU, THE CONSTRUCTION CONTRACTING OFFICER ADVISED:

PURSUANT TO THE PROVISIONS OF SECTION 3709 OF THE REVISED STATUTES, THE VETERANS ADMINISTRATION AWARDS ITS CONTRACTS FOR CONSTRUCTION WORK TO THE LOWEST RESPONSIBLE BIDDER MEETING THE ADVERTISED CONDITIONS.

IT HAS LONG BEEN HELD THAT THE CITED STATUTE CONTEMPLATES THAT ALL QUALIFIED PERSONS SHALL BE ENABLED TO COMPETE FOR GOVERNMENT BUSINESS UPON AN EQUAL BASIS, AND THAT THERE SHALL BE SECURED TO THE UNITED STATES THE BENEFITS WHICH MAY BE EXPECTED TO FLOW FROM FREE AND OPEN COMPETITION.

CLEARLY, BIDDERS WOULD NOT BE IN FREE AND OPEN COMPETITION FOR GOVERNMENT BUSINESS UPON AN EQUAL BASIS IF, AFTER ADVERTISING FOR PROPOSALS, THE GOVERNMENT SHOULD ENTERTAIN AN OFFER OF ONE BIDDER WHICH WOULD RESULT IN AWARD OF A CONTRACT ON A BASIS DIFFERING FROM THE ADVERTISED CONDITIONS.

THE FACT THAT THREE BIDDERS INCLUDED SALES TAX IN THE BASE BID WARRANTS THE CONCLUSION THAT THE REMAINING TWO BIDDERS INCLUDED SALES TAX IN THEIR BASE BIDS. HENCE, IF CONSIDERATION WERE TO BE GIVEN TO THE UNSOLICITED OFFER OF DEDUCTION OF SALES TAX FROM YOUR BID, THE SAME CONSIDERATION SHOULD BE GIVEN TO THE OTHER BIDDERS, PARTICULARLY WHERE YOUR BID WOULD SUPPLANT THE LOW BIDDER WHO CONFORMED STRICTLY TO THE INVITATION. WOULD BE EQUALLY INEQUITABLE TO PERMIT THE TWO BIDDERS WHO DID NOT MAKE KNOWN THE AMOUNT OF THE SALES TAX INCLUDED IN THEIR BIDS, TO MODIFY THEIR BIDS, SINCE IN VIEW OF THE WIDE SPREAD IN THE AMOUNTS OF ESTIMATED SALES TAX AS INDICATED ABOVE, THEY COULD USE AN ARBITRARY FIGURE IN AN AMOUNT SUFFICIENT TO INSURE QUALIFICATION AS A LOW BIDDER, OR IT COULD LEAD TO AN "AUCTIONING" SITUATION AMONG ALL BIDDERS BY THE SIMPLE PROCESS OF CHANGING THEIR ESTIMATES OF SALES TAX. THIS WOULD NOT BE FREE AND OPEN COMPETITION.

IN 17 COMP. GEN. 554, 558-9, WE SAID:

* * * TO PERMIT PUBLIC OFFICERS TO ACCEPT BIDS NOT COMPLYING IN SUBSTANCE WITH THE ADVERTISED SPECIFICATIONS OR TO PERMIT BIDDERS TO VARY THEIR PROPOSALS AFTER THE BIDS ARE OPENED WOULD SOON REDUCE TO A FARCE THE WHOLE PROCEDURE OF LETTING PUBLIC CONTRACTS ON AN OPEN COMPETITIVE BASIS. THE STRICT MAINTENANCE OF SUCH PROCEDURE, REQUIRED BY LAW, IS INDEFINITELY MORE IN THE PUBLIC INTEREST THAN OBTAINING AN APPARENTLY PECUNIARY ADVANTAGE IN A PARTICULAR CASE BY A VIOLATION OF THE RULES. AS WAS SAID BY THE COURT IN THE CITY OF CHICAGO V. MOHR, 216, ILL. 320; 74 N.E. 1956--

"* * * WHERE A BID IS PERMITTED TO BE CHANGED (AFTER THE OPENING) IT IS NO LONGER THE SEALED BID SUBMITTED IN THE FIRST INSTANCE, AND, TO SAY THE LEAST, IS FAVORITISM, IF NOT FRAUD--- A DIRECT VIOLATION OF LAW--- AND CANNOT BE TOO STRONGLY CONDEMNED.'

IT HAS BEEN BROUGHT TO OUR ATTENTION THAT THE NEGOTIATION OF A SUPPLEMENTAL AGREEMENT WITH THE SUCCESSFUL BIDDER IS IN PROCESS, TO THE END THAT TEXAS STATE SALES TAX BE EXCLUDED FROM THE AMOUNT OF ITS CONTRACT AS AWARDED, UPON EXECUTION OF A TAX EXEMPTION CERTIFICATE. WE UNDERSTAND ALSO THAT STEPS HAVE BEEN TAKEN TO INCLUDE THE FEDERAL, STATE, AND LOCAL TAXES CLAUSE IN CURRENT AND FUTURE CONTRACTS. SEE SUBPART 1-11.4 OF THE FEDERAL PROCUREMENT REGULATIONS.

ACCORDINGLY WE CAN PERCEIVE NO PROPER BASIS FOR VOIDING THE ACTION OF THE CONTRACTING OFFICER, AND YOUR PROTEST IS DENIED.