B-156582, JUL. 16, 1965

B-156582: Jul 16, 1965

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BIDS WERE OPENED ON FEBRUARY 16. THE TOTAL OF THE BIDS WERE AS FOLLOWS: CHART. 049 ROCKETDYNE'S BID ON ITEM 1A FOR THE MULTI-YEAR REQUIREMENT WAS $465. THAT IS. THE RESULTS IN THE CASE OF THE TWO LOWEST BIDS ARE AS FOLLOWS: CHART. THERE IS A TRANSPORTATION COST DIFFERENTIAL IN FAVOR OF ROCKETDYNE IN THE AMOUNT OF $8. YOUR DEPARTMENT FINDS THAT ROCKETDYNE IS LOWER THAN AMF BY $24. IT IS REPORTED THAT THE SUBJECT ENGINE IS THE MAJOR COMPONENT OF THE LR 64-NA-4 PROPULSION SYSTEM FOR THE AQM-37A (KD2B-1) MISSILE TARGET WHICH WAS DESIGNED AND DEVELOPED BY THE BEACH AIRCRAFT COMPANY UNDER CONTRACT NO. THAT ROCKETDYNE WAS A SUBCONTRACTOR TO BEECH FOR THE LR 64-NA-4 ENGINE. THAT ROCKETDYNE AGAIN WAS THE SOLE SOURCE SUB- CONTRACTOR TO BEECH FOR THE ENGINES ON THE F.Y. 1962 AND F.Y. 1963 PROCUREMENTS.

B-156582, JUL. 16, 1965

TO THE SECRETARY OF THE NAVY:

THIS REFERS TO YOUR REPORT OF JUNE 7, 1965, (R1.1) CONCERNING THE BID PROTEST OF AMERICAN MACHINE AND FOUNDRY COMPANY UNDER INVITATION FOR BIDS NO. 600-474-65, ISSUED BY THE NAVY PURCHASING OFFICE, WASHINGTON, D.C.

THIS PROCUREMENT COVERS A MULTI-YEAR (F.Y. 1965 THROUGH F.Y. 1969) OPTION BUY OF THE LR 64-NA-4 LIQUID PROPELLANT ROCKET ENGINE (TOTAL OF 1,020 UNITS), TECHNICAL DATA, PLUS 15 PREPRODUCTION UNITS (ITEM 1A). BIDS WERE OPENED ON FEBRUARY 16, 1965, AND, FOR THE MULTI-YEAR QUANTITY, INCLUDING TECHNICAL DATA AND THE PREPRODUCTION REQUIREMENT, THE TOTAL OF THE BIDS WERE AS FOLLOWS:

CHART.

AMF $2,547,535

CONTINENTAL AVIATION AND ENGINE CORPORATION $3,010,321

ROCKETDYNE DIVISION OF NORTH AMERICAN

AVIATION, INCORPORATED $3,085,049

ROCKETDYNE'S BID ON ITEM 1A FOR THE MULTI-YEAR REQUIREMENT WAS $465,462.

YOUR DEPARTMENT PROPOSES TO WAIVE THE PREPRODUCTION REQUIREMENT IN THE CASE OF ROCKETDYNE, THAT IS, TO EVALUATE ROCKETDYNE'S BID WITHOUT INCLUDING ITEM 1A. IN ADDITION, IT PROPOSES TO INCLUDE IN THE BID EVALUATION A COST FACT OF $88,098 TO REPRESENT ITS ESTIMATE OF THE COST OF TESTING PREPRODUCTION UNITS. THE RESULTS IN THE CASE OF THE TWO LOWEST BIDS ARE AS FOLLOWS:

CHART.

AMF

BID PRICE $2,547,535

ADD ESTIMATED COST OF TESTING 88,098

$2,635,633

ROCKETDYNE

BID PRICE $3,085,049

LESS ITEM 1A 465,462

$2,619,587

IT FURTHER ESTIMATES THAT UNDER THE INVITATION SPECIFIED DESTINATION POINTS OF OAKLAND, CALIFORNIA (50 PERCENT) AND NORFOLK, VIRGINIA (50 PERCENT), THERE IS A TRANSPORTATION COST DIFFERENTIAL IN FAVOR OF ROCKETDYNE IN THE AMOUNT OF $8,200. IN TOTAL, YOUR DEPARTMENT FINDS THAT ROCKETDYNE IS LOWER THAN AMF BY $24,246 FOR THE MULTI-YEAR BUY. PROPOSES TO MAKE AWARD TO ROCKETDYNE.

THE INVITATION ITSELF CONTAINS NO PROVISION REGARDING WAIVER OF THE PREPRODUCTION REQUIREMENT OR EVALUATION OF PREPRODUCTION TESTING. PROVIDES, HOWEVER, THAT THE ITEMS SHALL BE FURNISHED IN ACCORDANCE WITH THE REQUIREMENTS OF SPECIFICATION MIL-L-23822A (WEP) DATED DECEMBER 2, 1964, AND PARAGRAPH 3.2 AND 3.2.1 OF THE SPECIFICATION PROVIDES, IN TURN, THAT:

"3.2 PREPRODUCTION SAMPLE. UNLESS OTHERWISE SPECIFIED IN THE CONTRACT OR PURCHASE ORDER, EACH CONTRACTOR WHO HAS NOT PREVIOUSLY BEEN APPROVED AS A QUALIFIED PRODUCER OF THE ROCKET ENGINE SHALL MANUFACTURE A SAMPLE LOT OF 15 ROCKET ENGINES * * *. THE PREPRODUCTION ENGINES SHALL MEET THE REQUIREMENTS OF * * * THIS SPECIFICATION WHEN TESTED * * * AT AN ACTIVITY DESIGNATED BY THE PROCURING ACTIVITY * * *.

"3.2.1 QUALIFIED PRODUCER. IN THE EVENT OF INTERRUPTION OF PRODUCTION BY A PREVIOUSLY QUALIFIED PRODUCER, THE PROCURING ACTIVITY SHALL, UNLESS OTHERWISE SPECIFIED IN THE CONTRACT OR PURCHASE ORDER, REQUIRE TEST OF ADDITIONAL PREPRODUCTION ROCKET ENGINES IN NUMBER AS SPECIFIED IN THE CONTRACT PRIOR TO THE RESUMPTION OF PRODUCTION. ANY PRODUCTION BY THE CONTRACTOR PRIOR TO THE APPROVAL OF THE PREPRODUCTION LOT SHALL BE AT THE CONTRACTOR'S RISK.'

IT IS REPORTED THAT THE SUBJECT ENGINE IS THE MAJOR COMPONENT OF THE LR 64-NA-4 PROPULSION SYSTEM FOR THE AQM-37A (KD2B-1) MISSILE TARGET WHICH WAS DESIGNED AND DEVELOPED BY THE BEACH AIRCRAFT COMPANY UNDER CONTRACT NO. NOAS 59-6262-C; THAT ROCKETDYNE WAS A SUBCONTRACTOR TO BEECH FOR THE LR 64-NA-4 ENGINE; THAT ROCKETDYNE AGAIN WAS THE SOLE SOURCE SUB- CONTRACTOR TO BEECH FOR THE ENGINES ON THE F.Y. 1962 AND F.Y. 1963 PROCUREMENTS, AND THAT A CONTRACT (NOW 64-0571-F) WAS PLACED DIRECTLY WITH ROCKETDYNE FOR THE F.Y. 1964 REQUIREMENTS, THE GOVERNMENT FURNISHING THE ENGINES TO THE PRIME CONTRACTOR FOR THE MISSILE TARGET.

ROCKETDYNE'S CONTRACTS WITH BEECH HAD BEEN PERFORMED UNDER BEECH SPECIFICATION 4089C, ISSUED MARCH 20, 1961, AND ITS CONTRACT WITH THE GOVERNMENT IS BEING PERFORMED UNDER BEECH SPECIFICATION 4516A, ISSUED FEBRUARY 15, 1963, REVISED JULY 15, 1963. YOUR DEPARTMENT REPORTS THAT THE PRESENT SPECIFICATION IS AN OUTGROWTH OF THESE PRIOR SPECIFICATIONS, INCLUDING MIL-L-23822 (WEP) DATED JULY 1, 1964, BUT HAS BEEN CONVERTED FROM A DETAIL TO A PERFORMANCE SPECIFICATION. THE DEPARTMENT EXPLAINS THAT THIS WAS DONE BECAUSE THERE WERE DOUBTS REGARDING THE COMPLETENESS OF THE ROCKETDYNE DOCUMENTATION FOR MANUFACTURE OF THE ENGINES BY ANOTHER SOURCE, BUT THAT THE PERFORMANCE REQUIREMENTS ARE IDENTICAL IN THE TWO MILITARY SPECIFICATIONS AND THAT ALL PERFORMANCE AND TEST DATA WERE DERIVED FROM THE RESULTS OF TESTING THE ROCKETDYNE ENGINE.

YOUR DEPARTMENT CONCLUDES THAT ROCKETDYNE IS A QUALIFIED PRODUCER OF THESE ROCKET ENGINES WITHIN THE MEANING OF PARAGRAPH 3.2 OF THE CURRENT SPECIFICATION. THE BUREAU OF NAVAL WEAPONS, THE TESTING AGENCY IN THIS CASE, HAS COMPUTED ESTIMATED COSTS OF TESTING UNDER THIS SPECIFICATION TO BE IN THE AMOUNT OF $88,098. IT IS REPORTED THAT THIS FIGURE REPRESENTS A CONSERVATIVE ESTIMATE OF THE TESTING COSTS.

WE FIND NO EXCUSE FOR THE DEPARTMENT'S FAILURE TO COMPLY WITH THE MANDATORY REQUIREMENTS OF ASPR 2-201 (B) (XIV) IN A CASE SUCH AS THE PRESENT WHERE THERE HAS BEEN PRIOR PRODUCTION OF AN ALLEGEDLY IDENTICAL ITEM. SECTION 2-201 (B) (XIV) IS QUITE EXPLICIT IN REQUIRING THAT WHERE, AS HERE, PREPRODUCTION SAMPLES ARE ASKED FOR, THE INVITATION SHALL ALSO INCLUDE A STATEMENT THAT THE GOVERNMENT RESERVES THE RIGHT TO WAIVE THE FURNISHING OF SUCH PREPRODUCTION SAMPLES IN THE CASE OF PRIOR PRODUCERS. PARAGRAPHS 3.2 AND 3.2.1 OF THE PRESENT SPECIFICATION DO NOT SPECIFICALLY RESERVE SUCH A RIGHT OF WAIVER; THEY STATE ONLY THAT 15 PREPRODUCTION SAMPLES WILL BE REQUIRED FROM NEW PRODUCERS AND FROM PRIOR PRODUCERS WHO HAVE HAD A BREAK IN PRODUCTION. IT CAN BE ARGUED, AS NAVY DOES, THAT THE INFERENCE TO BE DRAWN FROM THIS PARAGRAPH IS THAT A PRIOR QUALIFIED PRODUCER WITHOUT A BREAK IN PRODUCTION WILL NOT BE REQUIRED TO FURNISH ANY PREPRODUCTION SAMPLES. WE BELIEVE THAT BIDDERS ARE ENTITLED TO BID ON THE BASIS OF DEFINITE INVITATION TERMS RATHER THAN HAVING TO RELY ON INFERENCES WHICH MAY BE DRAWN FROM SPECIFICATIONS. HOWEVER, IN THIS PARTICULAR CASE WE CANNOT SEE THAT THE RIGHTS OF OTHER BIDDERS HAVE BEEN PREJUDICED SINCE NEITHER IS A PRIOR PRODUCER OF THE ITEM AND THEREFORE THE WAIVER OF PREPRODUCTION TESTS WOULD NOT BE APPLICABLE TO THEM.

EVEN WITH A WAIVER OF THE UNEXPLAINED AND UNREASONABLY HIGH DOLLAR AMOUNT QUOTED BY THE PRIOR PRODUCER FOR THE 15 PREPRODUCTION SAMPLES, ITS BID IS NOT LOW. IT IS PROPOSED BY NAVY TO CONSIDER, IN BID EVALUATION, ANOTHER FACTOR WHICH WAS NOT MENTIONED IN THE INVITATION AS ONE OF THE CRITERIA TO BE USED IN EVALUATING BIDS, NAMELY, COSTS OF NAVY TESTING ESTIMATED TO EXCEED $88,000. THE INVITATION MAKES IT CLEAR THAT TESTING OF PREPRODUCTION SAMPLES WILL BE CONDUCTED BY THE NAVY, AND IT IS OBVIOUS THAT SUCH TESTING COSTS MONEY. ON FIRST IMPRESSION IT THEREFORE SEEMS REASONABLE THAT THE AMOUNT OF SUCH COSTS BE CONSIDERED, IN THE EVENT OF A WAIVER OF TESTING, IN DETERMINING THE BID MOST ADVANTAGEOUS TO THE GOVERNMENT.

HOWEVER, FURTHER CONSIDERATION OF THE IMPLICATIONS OF EVALUATING TESTING COSTS LEADS US TO THE CONCLUSION THAT IT WOULD NOT BE PROPER IN THIS CASE. IN THE FIRST PLACE, ASPR 2-201 (A) (XX) REQUIRES THAT THE EXACT BASIS UPON WHICH BIDS WILL BE EVALUATED MUST BE STATED IN THE INVITATION, INCLUDING ANY GOVERNMENT COSTS OR EXPENDITURES TO BE ADDED OR DEDUCTED. CF. 42 COMP. GEN. 7, 721,722, WHERE WE STATED:

"* * * IF, HOWEVER, THE TECHNICAL OR PERFORMANCE REQUIREMENTS ARE SO NOVEL OR EXACTING THAT ACCEPTABILITY OF THE PRODUCT CANNOT REASONABLY BE ANTICIPATED WITHOUT ACTUAL DEMONSTRATION OR TESTING, WE DO NOT FEEL THAT THE STATEMENT IN AN INVITATION FOR BIDS OF A REQUIREMENT THEREFOR, ALTHOUGH NOT EQUALLY APPLICABLE TO ALL BIDDERS, SHOULD BE CONSIDERED TO BE A VIOLATION OF COMPETITIVE BIDDING PRINCIPLES, SO LONG AS THE TERMS OF THE COMPETITION ARE CLEARLY SET FORTH.'

SECONDLY, AND OF PERHAPS MORE IMPORTANCE, IS THE FACT THAT IF SUCH GOVERNMENT TESTING COSTS ARE PROPER FOR CONSIDERATION IN DETERMINING THE MOST ADVANTAGEOUS BID IN THE PRESENT CASE, THEY NOT ONLY MAY BUT MUST BE CONSIDERED IN THIS AND ALL OTHER CASES OF GOVERNMENT PROCUREMENT. WE DO NOT KNOW WHETHER IT IS POSSIBLE OR ADMINISTRATIVELY FEASIBLE TO DETERMINE SUCH COSTS IN ALL CASES. CONCEIVABLY SUCH COSTS MAY VARY EVEN IN TESTING THE SAME ITEM. THERE MIGHT BE DIFFERENCES OF OPINION AS TO WHAT SPECIFIC CATEGORIES OF COSTS, SUCH AS SALARIES AND OVERHEAD, SHOULD BE INCLUDED. WE BELIEVE THAT IF SUCH COSTS ARE TO BE A FACTOR IN BID EVALUATION, THIS SHOULD BE DONE ONLY AFTER THOROUGH STUDY AND CONSIDERATION OF THE PROS AND CONS BY ALL INTERESTED GOVERNMENT AGENCIES, ESTABLISHMENT OF PROPER CRITERIA FOR THE USE OF THIS FACTOR, AND SPECIFIC NOTICE TO BIDDERS IN INVITATIONS TO BID THAT IT WILL BE A BID EVALUATION FACTOR.

WE THEREFORE CONCLUDE THAT IT WOULD NOT BE PROPER IN THE PRESENT CASE TO DEPART WITHOUT WARNING FROM THE USUAL RULE THAT GOVERNMENT TESTING COSTS ARE NOT TO BE CONSIDERED IN BID EVALUATION IN CASES OF WAIVER OF PREPRODUCTION TESTING UNLESS THE INVITATION SO PROVIDES.