B-155689, DEC. 21, 1964

B-155689: Dec 21, 1964

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A DECISION IS REQUESTED AS TO WHETHER AN ADJUSTMENT MAY BE MADE IN THE CONTRACT PRICE UNDER CONTRACT NO. WHICH WAS DISCOVERED AFTER THE AWARD AND PERFORMANCE OF THE CONTRACT. THE CONTRACT WAS A NEGOTIATED SOLE-SOURCE PROCUREMENT AND CALLED FOR THE DELIVERY OF 10 KELCOM SK-2 BRIEF CASES FOR A UNIT PRICE OF $1. INCLUDING THE PROVISION THAT THE TIME WOULD BE COMPUTED FROM THE DATE THE CORRECT INVOICE OR VOUCHER IS RECEIVED IN THE OFFICE SPECIFIED BY THE GOVERNMENT IF THE LATTER DATE WAS LATER THAN THE DATE OF DELIVERY. WAS ACCEPTED BY NOTICE OF AWARD ON APRIL 6. IT WAS FURNISHED A "STATEMENT AND CERTIFICATE OF AWARD" ON WHICH THE CONTRACT PRICE WAS SET OUT AS FOLLOWS: " $12. WHICH WAS RECEIVED BY THE FOOD AND DRUG ADMINISTRATION (FDA) ON JULY 13.

B-155689, DEC. 21, 1964

TO THE HONORABLE, THE SECRETARY OF HEALTH, EDUCATION, AND WELFARE:

IN A LETTER DATED NOVEMBER 30, 1964, FROM THE CHIEF, PROCUREMENT AND SUPPLY MANAGEMENT BRANCH, A DECISION IS REQUESTED AS TO WHETHER AN ADJUSTMENT MAY BE MADE IN THE CONTRACT PRICE UNDER CONTRACT NO. FDA 64 40 BECAUSE OF AN ALLEGED MISTAKE IN A PROPOSAL SUBMITTED BY THE CONTRACTOR, KEL CORPORATION, WHICH WAS DISCOVERED AFTER THE AWARD AND PERFORMANCE OF THE CONTRACT.

THE CONTRACT WAS A NEGOTIATED SOLE-SOURCE PROCUREMENT AND CALLED FOR THE DELIVERY OF 10 KELCOM SK-2 BRIEF CASES FOR A UNIT PRICE OF $1,200. ON THE BID FORM THE CONTRACTOR HAD INSERTED IN THE SPACE PROVIDED FOR DISCOUNTS FOR PROMPT PAYMENT THE AMOUNT OF "10 PERCENT" FOR PAYMENT WITHIN 20 CALENDAR DAYS AND "NET" PERCENT FOR PAYMENT WITHIN 30 CALENDAR DAYS. THE REVERSE SIDE OF THE FIRST PAGE OF THE BID FORM CONTAINED IN PARAGRAPH 7 THE USUAL PROVISION FOR THE COMPUTATION OF TIME IN CONNECTION WITH DISCOUNTS OFFERED, INCLUDING THE PROVISION THAT THE TIME WOULD BE COMPUTED FROM THE DATE THE CORRECT INVOICE OR VOUCHER IS RECEIVED IN THE OFFICE SPECIFIED BY THE GOVERNMENT IF THE LATTER DATE WAS LATER THAN THE DATE OF DELIVERY.

THE CONTRACTOR'S PROPOSAL OF MARCH 30, 1964, WAS ACCEPTED BY NOTICE OF AWARD ON APRIL 6, 1964, AND IT WAS FURNISHED A "STATEMENT AND CERTIFICATE OF AWARD" ON WHICH THE CONTRACT PRICE WAS SET OUT AS FOLLOWS:

" $12,000.00 (PROMPT PAYMENT DISCOUNT, 10 PERCENT 20 DAYS) " SUBSEQUENT TO THE EXECUTION OF AN AMENDMENT TO THE CONTRACT AND DELIVERY OF THE EQUIPMENT, THE CONTRACTOR SUBMITTED ITS INVOICE DATED JULY 8, 1964, WHICH WAS RECEIVED BY THE FOOD AND DRUG ADMINISTRATION (FDA) ON JULY 13, 1964. THE INVOICE SHOWED THE CONTRACT PRICE AS $12,000 WITH DISCOUNT TERMS OF " 1 PERCENT-10 DAYS NET-30 DAYS.' PAYMENT WAS MADE ON JULY 21, 1964, IN THE SUM OF $11,880 WHICH REPRESENTS THE CONTRACT PRICE OF $2,000 LESS 1 PERCENT DISCOUNT. LATER FDA DISCOVERED THAT IT HAD FAILED TO APPLY THE 10 PERCENT DISCOUNT TO THE PRICE AS PROVIDED BY THE CONTRACT AND BY LETTER DATED AUGUST 3, 1964, IT REQUESTED THE CONTRACTOR TO REMIT THE AMOUNT OF $1,080, REPRESENTING THE AMOUNT OF THE ALLEGED OVERPAYMENT.

BY LETTER DATED AUGUST 12, 1964, THE ATTORNEYS FOR THE CONTRACTOR CLAIMED THAT A MISTAKE HAD BEEN MADE BY THE PERSON PREPARING THE PROPOSAL FOR SIGNATURE OF THE CONTRACTOR'S PRESIDENT IN THAT THE DISCOUNT TERMS SHOULD HAVE READ:

"1 PERCENT, 20 CALENDAR DAYS; NET PERCENT, 30 CALENDAR DAYS.' IN SUPPORT OF THEIR CONTENTION OF ERROR THE ATTORNEYS POINT OUT THAT THE CONTRACTOR'S INVOICE SHOWED ITS STANDARD TRADE TERMS OF 1 PERCENT--- 10 DAYS. THEY FURNISHED A COPY OF A LETTER DATED MAY 1, 1963, IN WHICH THE CONTRACTOR HAD OFFERED TO FDA THE SAME EQUIPMENT (10 UNITS) FOR $1,200 PER UNIT, LESS CASH DISCOUNT OF 1 PERCENT FOR PAYMENT WITHIN 10 DAYS. THEY ALSO STATED THAT A 10 PERCENT DISCOUNT FOR PROMPT PAYMENT "IS UNHEARD OF" AND THAT THE FDA SHOULD HAVE KNOWN THIS. FINALLY THEY CLAIM THAT THE FDA SHOULD REMIT TO THE CONTRACTOR THE SUM OF $120 APPARENTLY ON THE THEORY THAT PAYMENT WAS NOT MADE WITHIN 10 DAYS.

IN THE LETTER OF NOVEMBER 30 REQUESTING A DECISION REFERENCE IS MADE TO OUR DECISION OF NOVEMBER 6, 1963, TO YOU, B/152753, WHICH INVOLVED AN ALLEGATION OF A MISTAKE BY THE CONTRACTOR IN QUOTING A DISCOUNT OF 30 PERCENT, 30 CALENDAR DAYS. THIS ALLEGATION WAS NOT MADE UNTIL AFTER AWARD. IT WAS THE CONTRACTING OFFICER'S OPINION IN THAT CASE THAT HE WAS NOT ON CONSTRUCTIVE NOTICE OF AN ERROR BECAUSE IT WAS NOT UNUSUAL IN RECEIVING QUOTATIONS ON SUBSISTENCE ITEMS FOR BIDDERS TO OFFER DISCOUNTS OF 32 AND 34 PERCENT, 30 CALENDAR DAYS. WE HELD THAT A VALID AND BINDING CONTRACT HAD BEEN CONSUMMATED. UPON A REQUEST FOR RECONSIDERATION IT WAS SHOWN THAT WHILE DISCOUNTS OF 32 AND 34 PERCENT HAD BEEN INCLUDED IN OFFERS TO SUPPLY SOME SUBSISTENCE ITEMS SUCH AS BREAD AND BAKERY PRODUCTS, THE FRESH PRODUCE TRADE GENERALLY OFFERED NO DISCOUNT WHATEVER AND IN A FEW PROCUREMENTS DISCOUNTS OFFERED NEVER EXCEEDED 1 PERCENT. THE CONTRACT INVOLVED DELIVERY OF FRESH FRUITS AND VEGETABLES. ON THE BASIS OF THE LATER REPORTED FACTS, WE HELD IN OUR DECISION OF JUNE 3, 1964, B-152753, THAT THE CONTRACTING OFFICER MUST BE CHARGED WITH CONSTRUCTIVE NOTICE OF THE PROBABILITY OF AN ERROR AND AUTHORIZED ADJUSTMENT OF THE CONTRACT PRICE.

IN THIS CASE, THE CONTRACTING OFFICER STATES THAT HE ACCEPTED THE CONTRACTOR'S PROPOSAL IN GOOD FAITH AND WITHOUT NOTICE OR SUSPICION OF ERROR BY THE CONTRACTOR. ALSO, HE POINTS OUT THAT THE CONTRACT WAS NEGOTIATED ON A SOLE-SOURCE BASIS AND THEREFORE THERE WERE NO OTHER OFFERS UPON WHICH A COMPARATIVE EVALUATION COULD BE MADE. THE CONTRACTING OFFICER FEELS THAT HE SHOULD NOT BE HELD TO BE ON NOTICE THAT THE CONTRACTOR'S PRIOR PAYMENT TERMS WOULD BE INTENDED TO APPLY TO THE SUBJECT PROPOSAL. IN THIS CONNECTION IT IS ADMINISTRATIVELY REPORTED THAT THE PORTION ON THE FIRST SHEET OF THE INVITATION PERTAINING TO THE 10-DAY DISCOUNT WAS DELETED PRIOR TO FORWARDING THE REQUEST FOR PROPOSALS TO THE CONTRACTOR SO THAT DISCOUNTS FOR 20-DAY PAYMENT OR 30-DAY PAYMENT ONLY WERE FOR CONSIDERATION. IT IS ADMITTED THAT A PURCHASE OF 10 UNITS WAS MADE FROM THE CONTRACTOR BY THE CONTRACTING OFFICER IN 1963 AT THE PRICE OF $1,200 PER UNIT LESS 1 PERCENT DISCOUNT, 10 DAYS. THIS WAS THE SAME QUANTITY AND THE SAME PRICE AS HERE INVOLVED. IN THIS REGARD ATTENTION IS INVITED TO THE FEDERAL PROCUREMENT REGULATIONS, SECTION 1-2.406-4 (F) (2) (IV) (D) OF WHICH PROVIDES FOR THE COLLECTION OF EVIDENCE FOR CONSIDERATION OF MISTAKES IN BIDS AND WHICH PROVIDES THAT WHERE ONLY ONE BID IS RECEIVED, THERE SHOULD BE FURNISHED A QUOTATION OF A RECENT CONTRACT PRICE FOR THE SUPPLIES INVOLVED, OR IN THE ABSENCE OF SUCH A CONTRACT THE CONTRACTING OFFICER'S ESTIMATE OF A FAIR PRICE FOR THE SUPPLIES AND THE BASIS FOR SUCH ESTIMATE. IT IS NOTED THAT IN THE FINDINGS AND DETERMINATIONS MADE ON MARCH 26, 1964, BY THE CONTRACTING OFFICER JUSTIFYING A PROPOSED NEGOTIATION OF A CONTRACT WITH KEL CORPORATION ON A SOLE-SOURCE BASIS IT WAS STATED THAT THE ESTIMATED COST OF THE EQUIPMENT WAS $12,000 WHICH WAS THE CONTRACT PRICE FOR THE SAME NUMBER OF UNITS PURCHASED IN 1963 BY THE SAME CONTRACTING OFFICER WITH DISCOUNT TERMS OF 1 PERCENT FOR PAYMENT WITHIN 10 DAYS.

UNDER THESE CIRCUMSTANCES WE THINK THE CONTRACTING OFFICER MUST BE CHARGED WITH CONSTRUCTIVE NOTICE OF THE PROBABILITY OF AN ERROR BECAUSE OF THE ENORMOUS DISPARITY BETWEEN THE SUBJECT DISCOUNT AND THAT OFFERED HERETOFORE BY THE SAME CONTRACTOR. ACCORDINGLY, THE AMOUNT OF $120 MAY BE CONSIDERED PROPERLY DEDUCTED AS DISCOUNT IN ACCORDANCE WITH THE TERMS OF CONTRACT AND THE MATTER SHOULD BE REGARDED AS CLOSED.