B-155866, APR. 20, 1965

B-155866, APR. 20, 1965

TO GADSBY, HANNAH, COLSON AND MORIN, ATTORNEYS AT LAW:

WE REFER TO YOUR MOST RECENT LETTER OF MARCH 5, 1965, AND THE PRIOR CORRESPONDENCE, PROTESTING IN BEHALF OF SPECIALTY ELECTRONICS DEVELOPMENT CORPORATION AGAINST AN AWARD TO ANY OTHER BIDDER UNDER INVITATION FOR BIDS NO. 600-235-65, ISSUED ON SEPTEMBER 3, 1964, BY THE DEPARTMENT OF THE NAVY FOR METEOROLOGICAL STATIONS, AN/SMT-1.

THE INVITATION PROVIDED THAT THE CONTRACTOR WOULD BE REQUIRED TO FURNISH A PRODUCTION MODEL FOR PURPOSE OF TESTING. THERE WAS NO PROVISION FOR WAIVER OF THE PREPRODUCTION REQUIREMENT. BIDS WERE OPENED ON OCTOBER 5, 1964, AND AERONCA MANUFACTURING CORPORATION WAS LOW BIDDER AT $341,950.63 AND SPECIALTY ELECTRONICS WAS SECOND LOW BIDDER AT $350,350.00. TELEGRAM OF OCTOBER 8, 1964, (AFTER BID OPENING), SPECIALTY NOTIFIED NAVY THAT, AS A PRESENT SUPPLIER OF THE REQUIRED ITEM, IT PROPOSED TO REDUCE ITS BID PRICE BY $17,500 UPON WAIVER OF THE PREPRODUCTION REQUIREMENT. AWARD HAS NOT YET BEEN MADE.

THESE UNITS ARE TO BE USED IN REPORTING WEATHER CONDITIONS IN BODIES OF WATER IN ISOLATED AREAS THROUGHOUT THE WORLD. YOU ADVISE THAT SPECIALTY MANUFACTURED THE FIRST PRODUCTION EQUIPMENT OF THIS UNIT UNDER CONTRACT TO THE NAVY (NOW-61-0984-F, DATED 22 JUNE 1961) ON WHICH THE LAST DELIVERY WAS MADE IN JANUARY 1965; THAT THE NAVY NEGOTIATED A CONTRACT FOR TWO ADDITIONAL UNITS ON APRIL 8, 1964 (NOW 64-0345-F) ON WHICH DELIVERY WAS MADE IN THE FALL OF 1964; AND THAT THIS PROCUREMENT REPRESENTS THE THIRD PROCUREMENT OF THIS ITEM, WITH SPECIALTY BEING THE ONLY PRODUCER TO DATE. YOU POINT TO PARAGRAPH 1 OF THE REQUIRED SPECIFICATION FOR THE ITEM (SPECIFICATION MIL-W 22818A, DATED 31 JANUARY 1964), WHICH STATES AS FOLLOWS:

"1. SCOPE

"1.1 * * * THE COMPONENTS AND PARTS OF THE EQUIPMENT SHALL BE PHYSICALLY, MECHANICALLY AND ELECTRICALLY INTERCHANGEABLE WITH THE CORRESPONDING COMPONENTS AND PARTS OF THE GOVERNMENT AN/SMT-1 AS MANUFACTURED ON CONTRACT NOW-61-0984-F.'

THE SUBSTANCE OF YOUR CONTENTION IS THAT WHAT IS REQUIRED UNDER THE PRESENT IFB "IS A UNIT IDENTICAL TO THAT WHICH SPECIALTY MANUFACTURED UNDER THE PRIOR CONTRACT, THE TECHNICAL SPECIFICATIONS FOR WHICH SPECIALTY INCORPORATED IN THE PRESENT MIL SPEC.'

YOU LIST THREE PURPOSES WHICH A PREPRODUCTION MODEL MAY SERVE: FIRST, TO PROVE THAT THE CONTRACTOR IS CAPABLE OF BUILDING A UNIT; SECOND, TO FINALIZE THE DESIGN; AND THIRD, TO SERVE AS A STANDARD FOR MANUFACTURING AND INSPECTION. YOU STATE THAT WITH RESPECT TO THE FIRST POINT, SPECIALTY'S MODELS WERE ALL ACCEPTED UNDER ITS PRIOR CONTRACTS; WITH RESPECT TO THE SECOND POINT THAT THE IFB REQUIRES A MODEL SUCH AS PRODUCED ALREADY BY SPECIALTY AND, WITH RESPECT TO THE THIRD POINT, THAT THE GOVERNMENT-FURNISHED MODEL WHICH WAS MANUFACTURED BY SPECIALTY BEFORE SERVES AS A STANDARD FOR MANUFACTURING AND INSPECTION. WHILE YOU RECOGNIZE THAT THE GOVERNMENT HAS RECENTLY REVISED THE HIGH VOLTAGE POWER SUPPLY DIAGRAM AND HAS REPLACED CERTAIN FAULTY MODULES WITH MODULES OF ITS OWN DESIGN AND FABRICATION, YOU CONTEND THAT THE SAME CHANGES WERE ALSO INCORPORATED DURING THE COURSE OF SPECIALTY'S CONTRACT PERFORMANCE INTO AT LEAST THREE UNITS MANUFACTURED BY SPECIALTY.

NAVY REPORTS THAT THE SPECIALTY MODELS IN THE FIELD HAVE INDICATED POOR QUALITY CONTROL AND HAVE HAD PERFORMANCE FAILURES. YOU CONTEND THAT SUCH DEFICIENCIES DO NOT JUSTIFY ASKING FOR A PREPRODUCTION MODEL FROM A PRIOR PRODUCER. YOU SAY THAT QUALITY CONTROL DEFICIENCIES CAN EASILY BE REMEDIED, BUT NOT BY PREPRODUCTION TESTING REQUIREMENTS, AND THAT ANY DESIGN DEFICIENCIES WILL NOT BE CURED SO LONG AS THE SPECIFICATION REMAINS UNCHANGED.

YOU NOTE THAT ASPR 2-201 (B) (XIV) PROVIDES THAT INVITATIONS SHOULD RESERVE FOR THE GOVERNMENT THE RIGHT TO WAIVE PREPRODUCTION MODELS AND TESTING IN THE CASE OF PRIOR SUPPLIERS, AND THAT DECISION OF THIS OFFICE HAVE STATED THAT IT IS THE DUTY OF A CONTRACTING OFFICER TO AVOID BURDENING THE GOVERNMENT WITH COSTS OF UNNECESSARY AND UNREASONABLE TESTING OR SAMPLING REQUIREMENTS. THUS, YOU CONCLUDE THAT NAVY SHOULD PERMIT SPECIALTY TO BID ON THIS PROCUREMENT ON THE BASIS OF A PREPRODUCTION WAIVER.

COMPONENTS AND PARTS OF THE EQUIPMENT MAY BE PHYSICALLY, MECHANICALLY, FUNCTIONALLY, AND ELECTRICALLY INTERCHANGEABLE WITH THE CORRESPONDING COMPONENTS AND PARTS AS MANUFACTURED BY SPECIALTY, AS REQUIRED BY PARAGRAPH 1.1 OF THE SPECIFICATION, WITHOUT BEING IDENTICAL. THE HIGH VOLTAGE POWER SOURCE IS LISTED AS A "COMPONENT" OF THE EQUIPMENT. SEE PARAGRAPHS 3.2, 3.2.4 (B), AND 3.3 OF THE SPECIFICATION. IN OTHER WORDS, IT IS POSSIBLE THAT THE MODIFIED POWER SUPPLY FURNISHED BY SPECIALTY AND THE POWER SUPPLY MADE IN-HOUSE BY NAVY COULD EACH MEET THE SPECIFICATION REQUIREMENTS, ALTHOUGH WE UNDERSTAND THERE ARE SIGNIFICANT DESIGN DIFFERENCES BETWEEN THEM. THE ONLY PREPRODUCTION MODEL FURNISHED BY SPECIALTY AS SUCH DID NOT CONTAIN THIS POWER SUPPLY. IT IS TRUE THAT THIS PREPRODUCTION MODEL WAS LATER MODIFIED BY SPECIALTY TO INCORPORATE A MODIFIED POWER SUPPLY WHICH YOU ALLEGE WAS INTENDED TO MEET THE PRESENT SPECIFICATION REQUIREMENTS, AND THAT AS SO MODIFIED THIS UNIT WAS ACCEPTED. HOWEVER, THE ONLY TESTS MADE BEFORE ACCEPTANCE OF THE MODEL WERE PRODUCTION TESTS, NOT PREPRODUCTION TESTS.

BECAUSE OF DIFFICULTIES WHICH WERE EXPERIENCED WITH THE SPECIALTY POWER SUPPLY, THE NAVY DESIGNED ITS OWN POWER SUPPLY. IT IS SIGNIFICANT TO NOTE THAT THE SET OF MANUFACTURING DRAWINGS WHICH WAS MADE AVAILABLE TO BIDDERS (PAGE 2 OF IFB) FOR THE PURPOSE OF ENABLING THEM TO PREPARE BIDS CONSISTED FOR THE MOST PART OF SPECIALTY DRAWINGS. IT DID NOT, HOWEVER, CONTAIN THE SPECIALTY POWER SUPPLY DRAWING, BUT THE NAVY POWER SUPPLY DIAGRAM, AND BIDDERS WERE TOLD THAT THE COMPLETE AND OPERABLE MODEL TO BE FURNISHED THE SUCCESSFUL BIDDER WOULD CONTAIN THE NAVY-MADE HIGH VOLTAGE POWER SOURCE COMPONENT.

SPECIALTY PARTICIPATED WITH NAVY IN PREPARING THE REVISED SPECIFICATION (MIL-W-22818A) WHICH WAS ISSUED IN JANUARY 1964, AND SPECIALTY MODIFIED ITS ORIGINAL POWER SUPPLY IN AN ATTEMPT TO MEET THE REQUIREMENTS OF THAT SPECIFICATION. SPECIALTY MODELS INCORPORATING ITS MODIFIED POWER SUPPLY WERE ACCEPTED, INCLUDING ONE DELIVERED IN DECEMBER 1964, BUT IT MUST BE NOTED THAT THEY WERE NOT ACCEPTED UNDER THE REQUIREMENTS OF THE REVISED SPECIFICATION SINCE SPECIALTY WAS UNDER NO LEGAL OBLIGATION TO MEET THAT SPECIFICATION. NO SPECIALTY MODEL WITH THE MODIFIED POWER SUPPLY HAS EVER BEEN TESTED IN A MODEL DURING PREPRODUCTION TESTING AT DOCKSIDE AS CONTEMPLATED BY PARAGRAPH 4.4.2 OF THE SPECIFICATION. MODELS CONTAINING THE IMPROVED SPECIALTY POWER SUPPLY, AND APPARENTLY THE POWER SUPPLY ITSELF, WERE TESTED BY THE NATIONAL BUREAU OF STANDARDS. THE MODELS EXHIBITED UNSTABLE AND ERRATIC VARIATIONS IN PULSE RECURRENCE FREQUENCY IN THE TRANSMITTED SIGNAL. WHEN THE POWER SUPPLY WAS CONNECTED TO A 160 WATT RESISTIVE LOAD THE TEMPERATURE OF THE TRANSISTORS INCREASED TO 135 DEGREES F IN FOUR MINUTES. ANOTHER MODEL WITH SPECIALTY'S IMPROVED POWER SUPPLY WAS SET TO OPERATE ON A THREE-HOUR SCHEDULE AND FAILED IN 48 HOURS BECAUSE OF A SHORTED TRANSISTOR. IT IS THE OPINION OF THE BUREAU OF STANDARDS THAT THE SPECIALTY POWER SUPPLY DESIGN EVEN AS IMPROVED IS NOT CAPABLE OF MEETING THE SPECIFICATION REQUIREMENTS.

YOU CONTEND THAT NAVY COULD CONDUCT PREPRODUCTION TESTS ON ONE OF SPECIALTY'S EXISTING MODELS. THIS IS QUITE TRUE, BUT IT DOES NOT ANSWER THE QUESTION AS TO HOW ANY DEFICIENCIES WHICH MIGHT BE DISCOVERED DURING SUCH TESTING WOULD BE CORRECTED. PARAGRAPH 3.6 OF THE SPECIFICATION PROVIDES THAT THE PREPRODUCTION MODEL REQUIRED SHALL BE MODIFIED TO INCORPORATE ALL CHANGES REQUIRED AS A RESULT OF PREPRODUCTION TESTS, AND THAT AFTER NAVY APPROVAL OF SUCH MODIFICATIONS THE PREPRODUCTION MODEL SHALL CONSTITUTE THE APPROVED MODEL. PARAGRAPH 3.6.1 OF THE SPECIFICATION PROVIDES THAT THE APPROVED PREPRODUCTION MODEL SHALL BE RETURNED TO THE CONTRACTOR, FOR USE BY THE GOVERNMENT INSPECTOR AS A PRODUCTION STANDARD FOR THE DURATION OF THE CONTRACT, AND SHALL BE THE LAST UNIT DELIVERED UNDER THE CONTRACT.

YOU STATE THAT IF PREPRODUCTION TESTS ON ONE OF THE EXISTING SPECIALTY MODELS DISCLOSE DEFICIENCIES WHICH MUST BE CORRECTED, SPECIALTY IS WILLING TO MAKE SUCH CORRECTIONS AND GET APPROVAL THEREOF BEFORE PROCEEDING WITH PRODUCTION. THIS COURSE OF ACTION MIGHT GIVE RISE TO SERIOUS LEGAL COMPLICATIONS AND BE DETRIMENTAL TO THE NAVY'S PROGRAM. IN THE FIRST PLACE, UNDER THE INVITATION AS WRITTEN SPECIALTY WOULD BE UNDER NO LEGAL OBLIGATION TO CORRECT DEFICIENCIES WHICH MIGHT BE DISCLOSED BY PREPRODUCTION TESTING OF AN EXISTING MODEL. FURTHER, IT MAY WELL BE THAT NAVY WISHES TO PUT ALL EXISTING MODELS ON STATION, RATHER THAN LEAVING ONE WITH SPECIALTY AS A PRODUCTION STANDARD FOR THE DURATION OF THE CONTRACT.

UNDER THE CIRCUMSTANCES, WE CANNOT FIND THE NAVY AT FAULT IN REQUIRING A PREPRODUCTION MODEL FROM SPECIALTY AS WELL AS FROM ALL OTHER BIDDERS. MUST BE REMEMBERED THAT NAVY WOULD BE UNDER NO OBLIGATION TO WAIVE A PREPRODUCTION MODEL FROM SPECIALTY EVEN IF THE CLAUSE HAD BEEN INCLUDED IN THE INVITATION, AND IT STATES THAT IT WOULD NOT IN FACT WAIVE SUCH A MODEL FROM SPECIALTY EVEN IF THE PROCUREMENT WERE TO BE READVERTISED. SPECIALTY'S BID WITHOUT PREPRODUCTION WAIVER IS NOT THE LOWEST BID, SO THAT THE ONLY PURPOSE READVERTISEMENT WOULD SERVE WOULD BE TO PERMIT SPECIALTY TO REDUCE ITS EXISTING NONWAIVER BID AFTER A LOWER BID HAS BEEN EXPOSED. WE DO NOT BELIEVE THIS TO BE IN THE BEST INTERESTS OF THE COMPETITIVE BIDDING SYSTEM. SECTION 2 201 (B) (XIV) OF THE ARMED SERVICES PROCUREMENT REGULATION DOES REQUIRE THE INCLUSION OF A WAIVER CLAUSE WHENEVER A PREPRODUCTION SAMPLE IS REQUIRED. HOWEVER, WE DO NOT CONSIDER THE FAILURE TO INCLUDE A WAIVER CLAUSE AS FATAL TO THE VALIDITY OF THE INVITATION IN A CASE SUCH AS THE PRESENT WHERE, SO NAVY SAYS, IT WAS DETERMINED BEFORE ISSUANCE OF THE INVITATION BECAUSE OF CHANGES IN THE SPECIFICATION NOT TO WAIVE A PREPRODUCTION MODEL.