B-154674, FEB. 2, 1965, 44 COMP. GEN. 439

B-154674: Feb 2, 1965

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THE RENT CHARGED BIDDERS FOR THE USE OF THE GOVERNMENT PROPERTY IS PRIMA FACIE EVIDENCE THAT THE FACILITIES WERE NOT EQUAL IN VALUE. PROSPECTIVE OFFERORS WERE INFORMED THAT PROPOSALS WOULD BE EVALUATED IN A FAIR AND IMPARTIAL MANNER BY A BOARD OF EXPERT PERSONNEL WHO WOULD USE A POINT RATING PROCEDURE IN ADDITION TO OTHER PERTINENT FACTORS IN THEIR EVALUATION. THE PROPOSAL EVALUATION GROUP DETERMINED THAT SEVENTEEN OF THE PROPOSALS WERE UNACCEPTABLE FOR VARIOUS REASONS. MANAGEMENT AND PRICE PROPOSALS WERE THEREUPON CERTIFIED TO THE CONTRACTING OFFICER AS BEING ACCEPTABLE: CHART RANKING FIRM TOTAL POINT SCORE 1 AMERICAN MACHINE AND FOUNDRY 747.1 2OTIS ELEVATOR COMPANY 735.9 3 HAYES INTERNATIONAL 715.4 FOLLOWING RECEIPT OF THE ABOVE RANKING REPORT THE CONTRACTING OFFICER PROCEEDED TO NEGOTIATE WITH EACH OF THE SUCCESSFUL FIRMS IN ACCORDANCE WITH PARAGRAPH 3-805.1 OF THE ARMED SERVICES PROCUREMENT REGULATION.

B-154674, FEB. 2, 1965, 44 COMP. GEN. 439

CONTRACTS - NEGOTIATION - EVALUATION FACTORS - POINT RATING AN AWARD OF A CONTRACT NEGOTIATED IN ACCORDANCE WITH PARAGRAPH 3 805.1 OF THE ARMED SERVICES PROCUREMENT REGULATION TO THE BIDDER WHO OFFERED THE LOWEST PRICE BASED ON THE INCLUSION, TO ELIMINATE ANY COMPETITIVE ADVANTAGE, OF THE ESTIMATED RENTAL VALUE OF THE GOVERNMENT FACILITIES TO BE USED, PURSUANT TO PARAGRAPH 13-407 OF THE REGULATION, NOTWITHSTANDING THE BIDDER IN THE EVALUATION OF BIDS AS PROVIDED BY THE REQUEST FOR PROPOSALS HAD NOT RECEIVED THE HIGHEST COMBINED POINT SCORE ON TECHNICAL AND MANAGEMENT FACTORS, RESULTED IN A VALID AND BINDING CONTRACTUAL OBLIGATION, THE PROPOSAL OF THE SUCCESSFUL BIDDER ESSENTIALLY EQUALING THAT OF THE BIDDER RECEIVING THE HIGHEST POINT SCORE, AND OTHER THAN THE TECHNICAL AND MANAGEMENT FACTORS BEING FOR CONSIDERATION, AND ALTHOUGH EQUALIZATION FACTORS NEED NOT BE APPLIED WHERE COMPETING CONCERNS POSSESS SUBSTANTIALLY EQUAL FACILITIES, A SUBSTANTIVE DETERMINATION FOR ADMINISTRATIVE RESOLUTION, THE RENT CHARGED BIDDERS FOR THE USE OF THE GOVERNMENT PROPERTY IS PRIMA FACIE EVIDENCE THAT THE FACILITIES WERE NOT EQUAL IN VALUE.

TO THE OTIS ELEVATOR COMPANY, FEBRUARY 2, 1965:

THIS REFERS TO YOUR RECENT CORRESPONDENCE PROTESTING AWARD OF A CONTRACT BY THE DEPARTMENT OF THE AIR FORCE TO HAYES INTERNATIONAL CORPORATION UNDER REQUEST FOR PROPOSALS NO. 04-694-64-226, ISSUED ON FEBRUARY 29, 1964, BY THE BALLISTIC SYSTEMS DIVISION, AIR FORCE SYSTEMS COMMAND, NORTON AIR FORCE BASE, CALIFORNIA.

THE SUBJECT PROPOSAL, AS AMENDED ON MARCH 4, 1964, INVITED PROSPECTIVE OFFERORS TO SUBMIT WRITTEN PROPOSALS FOR THE DESIGN, DOCUMENTATION, FABRICATION, DELIVERY, ASSEMBLY AND CHECK-OUT OF FIVE WS-133A MISSILE COMBAT CREW PROCEDURES, PROFICIENCY/EVALUATION TRAINERS. ON PAGE 4 OF THE REQUEST, PROSPECTIVE OFFERORS WERE INFORMED THAT PROPOSALS WOULD BE EVALUATED IN A FAIR AND IMPARTIAL MANNER BY A BOARD OF EXPERT PERSONNEL WHO WOULD USE A POINT RATING PROCEDURE IN ADDITION TO OTHER PERTINENT FACTORS IN THEIR EVALUATION. OF THE TWENTY PROPOSALS RECEIVED, THE PROPOSAL EVALUATION GROUP DETERMINED THAT SEVENTEEN OF THE PROPOSALS WERE UNACCEPTABLE FOR VARIOUS REASONS. THE FOLLOWING THREE FIRMS HAVING ACCUMULATED THE HIGHEST COMBINED POINT SCORES ON THEIR TECHNICAL, MANAGEMENT AND PRICE PROPOSALS WERE THEREUPON CERTIFIED TO THE CONTRACTING OFFICER AS BEING ACCEPTABLE:

CHART

RANKING FIRM TOTAL POINT SCORE

1 AMERICAN MACHINE AND FOUNDRY 747.1

2OTIS ELEVATOR COMPANY 735.9

3 HAYES INTERNATIONAL 715.4

FOLLOWING RECEIPT OF THE ABOVE RANKING REPORT THE CONTRACTING OFFICER PROCEEDED TO NEGOTIATE WITH EACH OF THE SUCCESSFUL FIRMS IN ACCORDANCE WITH PARAGRAPH 3-805.1 OF THE ARMED SERVICES PROCUREMENT REGULATION. EACH CONTRACTOR WAS REQUESTED TO CLARIFY ANY TECHNICAL MATTERS RAISED BY THE EVALUATION BOARD AND TO SUBMIT THEIR FINAL PROPOSALS ON OR BEFORE MAY 25, 1964. SINCE HAYES AND OTIS BOTH INDICATED AN INTENT TO USE GOVERNMENT FACILITIES THE CONTRACTING OFFICER REQUESTED THESE FIRMS TO INCLUDE WITH THEIR PROPOSALS THE ESTIMATED RENTAL VALUE OF THE FACILITIES THEY INTENDED TO USE. THIS INFORMATION WAS NEEDED IN ORDER TO ELIMINATE ANY COMPETITIVE ADVANTAGE THAT WOULD ACCRUE TO A CONCERN INTENDING TO USE GOVERNMENT FACILITIES WITHOUT CHARGE. IN THEIR FINAL PROPOSALS THE THREE FIRMS SUBMITTED THE FOLLOWING PRICES:

CHART

PROPOSED PRICE

(BASED ON

RENT-FREE USE

OF GOV-T. VALUE OF GOV-T. EVAL.

FIRM FACILITIES) FACILITIES PRICE

HAYES INTERNATIONAL $665,000 $5,714 $670,714

OTIS ELEVATOR COMPANY 658,639 12,800 671,439

AMERICAN MACHINE AND FOUNDRY 745,324 (NO GOV-T. FAC.) 745,324

BASED ON THE ABOVE EVALUATED PRICES, AWARD WAS MADE TO HAYES INTERNATIONAL ON JUNE 6, 1964, YOU STATE:

WE BELIEVE THAT OUR COMPANY RATED SUBSTANTIALLY HIGHER ON THE TECHNICAL AND MANAGEMENT PROPOSALS AND ENJOYS AN OVERALL POINT ADVANTAGE OVER THE INTENDED SUCCESSFUL CONTRACTOR.

MOREOVER, WE UNDERSTAND THAT OUR PRICE IS LOWER THAN THAT OF THE INTENDED RECIPIENT WHEN THE RENTAL FACTORS CONCERNING THE USE OF GOVERNMENT FACILITIES ARE REMOVED FROM OUR RESPECTIVE PROPOSALS. ASPR 13-407 CLEARLY INDICATES THAT THE APPLICATION OF EQUALIZATION FACTORS IS NOT WARRANTED "WHERE THE AWARD IS TO BE MADE ON THE BASIS IN WHICH THE RENTAL COST OF GOVERNMENT OWNED FACILITIES IS NOT THE CONTROLLING FACTOR.' RENT WAS NOT DECLARED TO BE THE CONTROLLING FACTOR IN THE RFP AND "NO CHARGE USE AUTHORIZATION OF GOVERNMENT FACILITIES" WOULD CERTAINLY BE IN THE BEST INTERESTS OF THE AIR FORCE IN THIS PROCUREMENT.

WHILE IT IS TRUE THAT YOUR FIRM RECEIVED THE HIGHEST POINT SCORE ON YOUR TECHNICAL AND MANAGEMENT PROPOSALS, THE PROPOSALS SUBMITTED BY THE OTHER TWO FIRMS WERE CONSIDERED BY COMPETENT TECHNICAL ADVISERS TO BE ESSENTIALLY EQUAL. MOREOVER, SINCE THE MANAGEMENT AND TECHNICAL FACTORS WERE NOT THE ONLY CRITERIA USED FOR EVALUATION, ANY AWARD MADE ON THIS BASIS ALONE, WITHOUT DUE REGARD TO OTHER PERTINENT CONSIDERATIONS MIGHT WELL HAVE BEEN SUBJECT TO CRITICISM BY THIS OFFICE. IF, AS SUGGESTED, THE AIR FORCE COMMITTED ITSELF TO MAKE AWARD SOLELY ON THE BASIS OF THE HIGHEST POINT SCORE, IT COULD BE ARGUED THAT AWARD SHOULD HAVE PROPERLY BEEN MADE TO AMERICAN MACHINE AND FOUNDRY NOTWITHSTANDING THE PROCURING ACTIVITY FELT THEIR PRICE WAS TOO HIGH. THOUGH WE RECOGNIZE THAT OFFERORS MAY HAVE BEEN MISLED INTO BELIEVING THAT FINAL OFFERS WERE GOING TO BE EVALUATED SOLELY BY USE OF THE POINT EVALUATION SYSTEM, WE DO NOT FEEL THAT THE USE OF THE POINT EVALUATION SYSTEM AS A BASIS FOR FURTHER NEGOTIATION WAS ILLEGAL, OR CONTRARY TO STATUTE OR REGULATION.

THE ADMINISTRATIVE REPORT STATES THAT CONSIDERATION OF THE RENT FACTOR WAS INCLUDED IN THE EVALUATION PURSUANT TO ARMED SERVICES PROCUREMENT REGULATION 13-407 QUOTED, IN PART, BELOW:

13-407 RIGHT OF CONTRACTOR TO USE.

(A) (1) EACH FACILITIES CONTRACT SHALL LIMIT THE RIGHT OF THE CONTRACTOR TO USE THE INDUSTRIAL FACILITIES TO THE PERFORMANCE OF THE CONTRACTS AND SUBCONTRACTS SPECIFIED OR OTHERWISE IDENTIFIED IN THE FACILITIES CONTRACT, ADDED THERETO BY AMENDMENT, OR APPROVED IN WRITING BY THE CONTRACTING OFFICER COGNIZANT OF THE FACILITIES CONTRACT. IN THE LATTER EVENT, A RECORD OF APPROVED CONTRACTS AND SUBCONTRACTS SHALL BE INCLUDED IN THE FACILITIES CONTRACT FILE. WHERE A FACILITIES CONTRACT AUTHORIZES THE USE OF INDUSTRIAL FACILITIES IN THE PERFORMANCE OF CONTRACTS ENTERED INTO BY FORMAL ADVERTISING, THE FACILITIES CONTRACT SHALL SPECIFY A CASH RENTAL TO BE PAID IN SUCH CASES. FACILITIES CONTRACTS MAY AUTHORIZE THE USE OF INDUSTRIAL FACILITIES WITHOUT CHARGE IN THE PERFORMANCE OF CONTRACTS OTHER THAN THOSE ENTERED INTO BY FORMAL ADVERTISING IF---

(I) THE USER IS NOT HEREBY PLACED IN A FAVORED COMPETITIVE POSITION; AND

(II) THE GOVERNMENT RECEIVES ADEQUATE CONSIDERATION THROUGH REDUCED COST FOR SUPPLIES OR SERVICES OR OTHERWISE (SEE 13-601.1). SUCH REDUCED COST MAY BE ESTABLISHED IN THE INITIAL NEGOTIATION OF NEW CONTRACTS, OR BY THE READJUSTMENT OF PRICES (INCLUDING FIXED-FEES AND ALLOWABLE COSTS) OF EXISTING CONTRACTS, OR BY PRICE REDETERMINATION IN THE CASE OF NEGOTIATED FIXED-PRICE CONTRACTS WHERE THE SAVING TO THE CONTRACTOR CANNOT BE ACCURATELY FORECAST.

(3) IN ORDER TO INSURE THAT A CONCERN POSSESSING GOVERNMENT FACILITIES WITHOUT CHARGE IS NOT THEREBY PLACED IN A FAVORED POSITION IN COMPETING FOR GOVERNMENT BUSINESS, EITHER AS A PRIME CONTRACTOR OR A SUBCONTRACTOR, WITH RELATION TO CONCERNS POSSESSING EITHER A LESSER AMOUNT OF GOVERNMENT FACILITIES OR THEIR OWN FACILITIES, A SUITABLE METHOD FOR ELIMINATING ANY COMPETITIVE PRICING ADVANTAGE SHALL BE EMPLOYED. THIS MAY BE ACCOMPLISHED (I) BY CHARGING A RENTAL IN A MANNER PRESCRIBED IN THIS SECTION XIII, OR (II) IN THE PRICE EVALUATION OF COMPETITIVE PROPOSALS, BY ADDING TO THE PROPOSED CONTRACT PRICE OF A CONCERN POSSESSING GOVERNMENT FACILITIES WITHOUT CHARGE AN EVALUATION FACTOR CONSISTING OF AN AMOUNT WHICH IT IS ESTIMATED WOULD EQUAL SUCH RENTAL CHARGE, OR (III) BY ANY OTHER AVAILABLE METHOD WHICH WILL GIVE EFFECT TO THE BASIC POLICY SET FORTH IN THIS PARAGRAPH 13-407 UNDER THE FACTS OF THE PARTICULAR CASE. IT IS RECOGNIZED THAT THERE MAY BE SITUATIONS IN WHICH THERE IS NO NEED FOR CHARGING RENTAL OR APPLYING EQUALIZATION FACTORS TO ASSURE THAT THE USER POSSESSING GOVERNMENT FACILITIES IS NOT THEREBY PLACED IN A FAVORED COMPETITIVE POSITION, AS, FOR EXAMPLE, WHERE THE ONLY COMPETING CONCERNS POSSESS SUBSTANTIALLY THE SAME AMOUNT OF GOVERNMENT FACILITIES ON A NO-CHARGE BASIS FOR USE IN THE PERFORMANCE OF A PROPOSED CONTRACT, OR WHERE THE PROCUREMENT IS TO BE MADE FROM A SOLE SOURCE, OR WHERE THE AWARD IS TO BE MADE ON A BASIS IN WHICH THE RENTAL COST OF GOVERNMENT-OWNED FACILITIES IS NOT A CONTROLLING FACTOR. WHERE ONE OF THE METHODS AUTHORIZED BY THIS PARAGRAPH 13-407 IS USED TO ELIMINATE COMPETITIVE ADVANTAGE IN THE AWARD OF A CONTRACT FOR SUPPLIES OR SERVICES, THE CONTRACT FILE SHALL BE DOCUMENTED TO SHOW THE METHOD EMPLOYED.

(4) VARYING METHODS OR TECHNIQUES MAY BE REQUIRED TO ACHIEVE EQUALIZATION OF COMPETITIVE ADVANTAGE IN DIFFERENT INDUSTRIES OR COMMODITY AREAS, OR BY REASON OF THE COMPLEXITY OF THE FACILITY PATTERN IN CONTRACTORS' PLANTS, OR OTHER CONSIDERATIONS. WHATEVER METHOD OR TECHNIQUE IS USED, IT SHOULD CONFORM TO THE BASIC POLICY OF ELIMINATING COMPETITIVE ADVANTAGE IN PRICING, AND SHOULD DO SO IN A MANNER CONSISTENT WITH THE RENTAL POLICY AND CONSIDERATION APPLICABLE TO THE USE BY CONTRACTORS OF GOVERNMENT FACILITIES. EACH DEPARTMENT SHALL ADOPT SUCH PROCEDURES OF ADMINISTRATION AND REVIEW AS WILL ACCOMPLISH THE FOREGOING OBJECTIVES.

ALTHOUGH YOU CORRECTLY POINT OUT IN YOUR LETTER OF OCTOBER 21 THAT THE CONTRACTING AGENCY IS UNDER NO COMPULSION TO CHARGE RENTAL OR APPLY EQUALIZATION FACTORS WHERE COMPETING CONCERNS POSSESS SUBSTANTIALLY EQUAL FACILITIES IN THE DETERMINATION OF WHETHER FACILITIES ARE OR ARE NOT EQUAL IS A MATTER, IN THE FIRST INSTANCE, TO BE RESOLVED BY THE PROCURING ACTIVITY AND TO A LARGE EXTENT INVOLVED A SUBJECTIVE DETERMINATION. WHILE OUR OFFICE MIGHT DISAGREE WITH THE PROCURING ACTIVITY IN A GIVEN INSTANCE, WE ARE INCLINED TO ACCEPT SUCH DETERMINATIONS ABSENT CLEAR EVIDENCE THAT THE DETERMINATION WAS ARBITRARY OR UNFOUNDED. IN THE PRESENT CASE EXAMINATION OF THE HAYES PROPOSAL INDICATES THAT HAYES PROPOSED USING CERTAIN GOVERNMENT-OWNED MACHINERY HAVING A TOTAL ACQUISITION VALUE OF $183,393.30 WHILE YOUR FIRM PROPOSED TO UTILIZE SPACE IN A GOVERNMENT- OWNED PLANT, HAVING AN ACQUISITION VALUE OF $1,900,000. UNDER THESE CIRCUMSTANCES THE FACT THAT THE RENTAL CHARGEABLE TO OTIS WAS MORE THAN DOUBLE THE RENTAL CHARGEABLE TO HAYES IS PRIMA FACIE EVIDENCE THAT THE FACILITIES WERE NOT EQUAL IN VALUE.

CONCERNING THE SELECTION OF OFFERORS FOR NEGOTIATION AND AWARD, ASPR 3- 805.1 (A) PROVIDES THAT:

AFTER RECEIPT OF INITIAL PROPOSALS, WRITTEN OR ORAL DISCUSSIONS SHALL BE CONDUCTED WITH ALL RESPONSIBLE OFFERORS WHO SUBMIT PROPOSALS WITHIN A COMPETITIVE RANGE, PRICE AND OTHER FACTORS CONSIDERED, * * *

APPARENT FROM THE ABOVE EXCERPT IS THE CONCLUSION THAT PRICE IS ALWAYS A FACTOR IN GOVERNMENT PROCUREMENT. WHETHER IT WILL ULTIMATELY EMERGE AS THE DOMINANT FACTOR IS, OF COURSE, RARELY KNOWN IN ADVANCE.

WITH RESPECT TO THE FAILURE OF THE AIR FORCE TO SPECIFICALLY ADVISE PROSPECTIVE OFFERORS OF ALL EVALUATION FACTORS AND TO INDICATE THE RELATIVE IMPORTANCE ATTACHED TO EACH, IT IS OUR OPINION THAT SOUND PROCUREMENT POLICY DICTATES THIS SHOULD BE DONE. HOWEVER, SINCE WE ARE AWARE OF NO SUCH FORMAL REQUIREMENT, WE ARE TAKING OCCASION TO RECOMMEND TO THE SECRETARY OF THE AIR FORCE THAT PROCEDURES IN THIS AREA BE REVIEWED WITH A VIEW TO ISSUANCE OF APPROPRIATE REGULATIONS ON THE SUBJECT.

WE AGREE THAT THERE IS MERIT TO THE ARGUMENT THAT THE RENTAL PAYMENT CALLED FOR IN A FACILITIES AGREEMENT DOES NOT ALWAYS REPRESENT THE GOVERNMENT'S ACTUAL COST. HOWEVER, WE THINK IT ONLY FAIR AND IN ACCORDANCE WITH SOUND ACCOUNTING PRACTICE IN ESTIMATING FACILITY COSTS THAT FACTORS SUCH AS DEPRECIATION, COST OF SELF-INSURANCE, LOSS OF RETURN ON INVESTMENT, UNAVAILABILITY FOR OTHER USE, AND GENERAL ADMINISTRATIVE EXPENSES BE CONSIDERED. TO SUGGEST THAT DEPRECIATION NO LONGER CONTINUES MERELY BECAUSE THE ASSET COULD HAVE BEEN FULLY DEPRECIATED OVER A CERTAIN PERIOD FOR TAX PURPOSES IS TO OVERLOOK THE PRACTICAL WASTING AND DETERIORATION THAT USUALLY OCCURS TO ANY BUILDING OR EQUIPMENT OVER AN EXTENDED PERIOD OF YEARS. THE FACT THAT THE FACILITY IS NOT BEING USED TO THE FULLEST EXTENT POSSIBLE AT A GIVEN MOMENT IS NO REASON TO ASSUME THAT THE GOVERNMENT CONTEMPLATES THAT THE FACILITY WILL REMAIN IDLE INDEFINITELY.

SINCE THE AWARD HAS BEEN MADE IN GOOD FAITH AND IN ACCORDANCE WITH APPLICABLE REGULATIONS IT WOULD APPEAR THAT THE ACTION TAKEN REPRESENTS A VALID AND BINDING CONTRACTUAL OBLIGATION. CANCELLATION AT THIS LATE DATE PROBABLY WOULD RENDER THE GOVERNMENT LIABLE FOR COSTS INCURRED AND WOULD NOT BE IN THE BEST INTEREST OF THE GOVERNMENT.