B-156854, JUL. 27, 1965

B-156854, JUL. 27, 1965

TO HUDSON AND CREYKE:

THIS IS IN REPLY TO YOUR LETTER OF JUNE 17, 1965, WITH REFERENCE TO THE PROTEST OF THE CYRIL BATH COMPANY AGAINST THE AWARD OF A CONTRACT TO SHERIDAN-GRAY, INC., UNDER TWO-STEP INVITATION FOR BIDS IFB-156-434 65, ISSUED ON MAY 10, 1965, BY THE NAVAL AIR ENGINEERING CENTER FOR ONE HYDRAULIC STRETCH DRAW PRESS. THE AWARD IS PROTESTED ON THREE BASES:

1. THAT PRODUCTION AND FURNISHING OF THE STRETCH DRAW PRESS UNDER THE CONTRACT ENTERED INTO UNDER THE INVITATION WOULD INFRINGE THREE PATENTS OWNED BY CYRIL BATH;

2. THAT SHERIDAN-GRAY IS NOT A RESPONSIBLE CONTRACTOR BECAUSE IT HAD DELAYED PERFORMANCE UNDER A PRIOR SIMILAR CONTRACT AND HAD DELIVERED A PRESS WHICH DID NOT MEET THE CONTRACT SPECIFICATIONS; AND

3. THAT SHERIDAN-GRAY LACKS THE FINANCIAL ABILITY TO PERFORM THE RESULTING CONTRACT.

THE INVITATION COVERED THE SECOND STEP OF A TWO-STEP PROCUREMENT WHICH WAS ADVERTISED IN ACCORDANCE WITH THE PROCEDURES PRESCRIBED BY SECTION II, PART 5, OF THE ARMED SERVICES PROCUREMENT REGULATIONS (ASPR). SINCE BOTH CYRIL BATH AND SHERIDAN-GRAY HAD SUBMITTED ACCEPTABLE TECHNICAL PROPOSALS, EACH FIRM WAS REQUESTED TO SUBMIT BIDS UNDER THE INVITATION. UPON THE OPENING OF BIDS ON MAY 24, 1965, IT APPEARED THAT SHERIDAN-GRAY BID $719,827 AND CYRIL BATH BID A PRICE OF $813,000. NOTWITHSTANDING THE PROTEST OF CYRIL BATH, AWARD WAS MADE ON JUNE 18, 1965, TO SHERIDAN-GRAY AT ITS BID PRICE. UPON REVIEW OF THE RECORD BEFORE US, AS SUPPLEMENTED AT YOUR REQUEST, WE FIND NO LEGAL BASIS TO QUESTION THE AWARD.

TURNING TO THE FIRST POINT OF PROTEST, IT IS TO BE NOTED THAT THE INVITATION CONTAINED THE STANDARD AUTHORIZATION AND CONSENT CLAUSE PRESCRIBED BY ASPR 9-102.1 WHICH READS AS FOLLOWS:

"AUTHORIZATION AND CONSENT (MAR. 1964)

"THE GOVERNMENT HEREBY GIVES ITS AUTHORIZATION AND CONSENT (WITHOUT PREJUDICE TO ANY RIGHTS OF INDEMNIFICATION) FOR ALL USE AND MANUFACTURE, IN THE PERFORMANCE OF THIS CONTRACT OR ANY PART HEREOF OR ANY AMENDMENT HERETO OR ANY SUBCONTRACT HEREUNDER (INCLUDING ANY LOWER TIER SUBCONTRACT), OF ANY INVENTION DESCRIBED IN AND COVERED BY A PATENT OF THE UNITED STATES (I) EMBODIED IN THE STRUCTURE OR COMPOSITION OF ANY ARTICLE THE DELIVERY OF WHICH IS ACCEPTED BY THE GOVERNMENT UNDER THIS CONTRACT, OR (II) UTILIZED IN THE MACHINERY, TOOLS, OR METHODS OF USE OF WHICH NECESSARILY RESULTS FROM COMPLIANCE BY THE CONTRACTOR OR THE USING SUBCONTRACTOR WITH (A) SPECIFICATIONS OR WRITTEN PROVISIONS NOW OR HEREAFTER FORMING A PART OF THIS CONTRACT, OR (B) SPECIFIC WRITTEN INSTRUCTIONS GIVEN BY THE CONTRACTING OFFICER DIRECTING THE MANNER OF PERFORMANCE. THE ENTIRE LIABILITY TO THE GOVERNMENT FOR INFRINGEMENT OF A PATENT OF THE UNITED STATES SHALL BE DETERMINED SOLELY BY THE PROVISIONS OF THE INDEMNITY CLAUSES, IF ANY, INCLUDED IN THIS CONTRACT OR ANY SUBCONTRACT HEREUNDER (INCLUDING ANY LOWER-TIER SUBCONTRACT), AND THE GOVERNMENT ASSUMES LIABILITY FOR ALL OTHER INFRINGEMENT TO THE EXTENT OF THE AUTHORIZATION AND CONSENT HEREINABOVE GRANTED.'

ALSO, INCLUDED IN THE INVITATION WAS A PATENT INDEMNITY CLAUSE (PREDETERMINED) PRESCRIBED BY ASPR 9-103.1 (A) WHICH PROVIDED, IN PART, AS FOLLOWS:

"IF THE AMOUNT OF THIS CONTRACT IS IN EXCESS OF $5,000, THE CONTRACTOR SHALL INDEMNIFY THE GOVERNMENT AND ITS OFFICERS, AGENTS, AND EMPLOYEES AGAINST LIABILITY, INCLUDING COSTS, FOR INFRINGEMENT OF ANY UNITED STATES LETTERS PATENT (EXCEPT LETTERS PATENT ISSUED UPON AN APPLICATION WHICH IS NOW OR MAY HEREAFTER BE KEPT SECRET OR OTHERWISE WITHHELD FROM ISSUE BY ORDER OF THE GOVERNMENT) ARISING OUT OF THE MANUFACTURE OR DELIVERY OF SUPPLIES * * * UNDER THIS CONTRACT, OR OUT OF THE USE OR DISPOSAL BY OR FOR THE ACCOUNT OF THE GOVERNMENT OF SUCH SUPPLIES * * *. THE FOREGOING INDEMNITY SHALL NOT APPLY UNLESS THE CONTRACTOR SHALL HAVE BEEN INFORMED AS SOON AS PRACTICABLE BY THE GOVERNMENT OF THE SUIT OR ACTION ALLEGING SUCH INFRINGEMENT, AND SHALL HAVE BEEN GIVEN SUCH OPPORTUNITY AS IS AFFORDED BY APPLICABLE LAWS, RULES, OR REGULATIONS TO PARTICIPATE IN THE DEFENSE THEREOF; AND FURTHER, SUCH INDEMNITY SHALL NOT APPLY TO: (I) AN INFRINGEMENT RESULTING FROM COMPLIANCE WITH SPECIFIC WRITTEN INSTRUCTIONS OF THE CONTRACTING OFFICER DIRECTING A CHANGE IN THE SUPPLIES TO BE DELIVERED OR IN THE MATERIALS OR EQUIPMENT TO BE USED, OR DIRECTING A MANNER OF PERFORMANCE OF THE CONTRACT NOT NORMALLY USED BY THE CONTRACTOR; (II) AN INFRINGEMENT RESULTING FROM ADDITION TO, OR CHANGE IN, SUCH SUPPLIES OR COMPONENTS FURNISHED * * * WHICH ADDITION OR CHANGE WAS MADE SUBSEQUENT TO DELIVERY OR PERFORMANCE BY THE CONTRACTOR; OR (III) A CLAIMED INFRINGEMENT WHICH IS SETTLED WITHOUT THE CONSENT OF THE CONTRACTOR, UNLESS REQUIRED BY FINAL DECREE OF A COURT OF COMPETENT JURISDICTION.'

PRIOR TO BID OPENING, SHERIDAN-GRAY ADVISED THE PROCUREMENT AGENCY THAT:

"IN CONNECTION WITH THE CYRIL BATH COMPANY'S CLAIM THAT THE SPECIFICATIONS INFRINGE ON THREE (3) PATENTS OWNED BY THAT COMPANY, WE HAVE NO OBJECTIONS TO THE INCLUSION OF THE PATENT INDEMNITY CLAUSE IN ANY CONTRACT WHICH WOULD BE AWARDED US AS A RESULT OF THIS QUOTATION.'

ON MAY 27, 1965, THE PROCUREMENT AGENCY WAS AUTHORIZED UNDER ARTICLE 1265, GENERAL REGULATIONS OF THE NAVY, TO UTILIZE PATENTS NOS. 2,961,028; 3,113,607; AND 3,116.780 OWNED BY CYRIL BATH IN THE PROCUREMENT OF THE PRESS UNDER THE INVITATION. THE AUTHORIZATION WAS GRANTED IN VIEW OF THE $93,173 (13 PERCENT) DIFFERENCE BETWEEN THE TWO BIDS.

IN OUR DECISION AT 38 COMP. GEN. 276, WE HELD THAT 28 U.S.C. 1498 CLEARLY CONSTITUTES A MODIFICATION OF THE PATENT LAWS BY LIMITING THE RIGHTS OF PATENTEES INSOFAR AS THE PROCUREMENT OF SUPPLIES BY THE GOVERNMENT IS CONCERNED, AND BY VESTING IN THE GOVERNMENT A RIGHT TO THE USE OF ANY PATENTS GRANTED BY IT UPON THE PAYMENT OF REASONABLE COMPENSATION FOR SUCH USE. WE ALSO HELD IN THAT DECISION THAT NEGOTIATION OF A CONTRACT WITH A PATENTEE PURSUANT TO 10 U.S.C. 2304 (A) (10) WAS NOT AUTHORIZED BUT, RATHER, THE DETERMINING FACTOR SHOULD BE WHETHER FIRMS OTHER THAN A PATENTEE, CAPABLE OF PERFORMANCE IN ACCORDANCE WITH THE GOVERNMENT'S SPECIFICATIONS, WOULD BE INTERESTED IN SUBMITTING BIDS. THE FURTHER VIEW WAS EXPRESSED THEREIN THAT WHAT IS A FAIR AND REASONABLE PRICE UNDER SUCH CIRCUMSTANCES PROBABLY COULD NOT BE DEFINITELY ASCERTAINED EXCEPT UNDER FORMAL ADVERTISING PROCEDURES, AND THAT NEGOTIATION IN THOSE CIRCUMSTANCES WOULD APPARENTLY BE IN CONTRAVENTION OF THE GENERAL REQUIREMENT OF 10 U.S.C. 2304 (A) THAT "PURCHASE OF AND CONTRACTS FOR PROPERTY OR SERVICES * * * SHALL BE MADE BY FORMAL ADVERTISING.' ALSO, SEE ASPR 2-407.8. DECISION B-136916 DATED AUGUST 25, 1958, THE AIR FORCE REQUESTED CONSIDERATION OF A PROPOSAL TO REJECT A LOW BID RECEIVED UNDER AN ADVERTISED INVITATION FOR BIDS AND THEN NEGOTIATE A CONTRACT WITH A LICENSEE OF A PATENT HOLDER SUBMITTING A HIGHER BID FOR THE PURPOSE OF ENFORCING AND PROTECTING THE RIGHTS OF THE PATENT OWNERS AND THEIR LICENSEES. WE ADVISED THE AIR FORCE THAT SUCH ACTION WOULD, IN OUR OPINION, CONSTITUTE AN IMPROPER RESTRICTION OF COMPETITION UNDER THE CIRCUMSTANCES AND WOULD LIMIT THE APPLICATION OF THE PROVISIONS OF 28 U.S.C. 1498, AUTHORIZING SUITS IN THE COURT OF CLAIMS BY PATENTEES TO OBTAIN ADEQUATE COMPENSATION FOR USE OF PATENTS BY THE UNITED STATES. THIS CASE, THE LOW BIDDER HAD PREVIOUSLY FURNISHED THE ITEM AT A PRICE SUBSTANTIALLY LESS THAN THAT WHICH HAD BEEN CHARGED BY LICENSEES. THE PATENTEES RESORTED TO LITIGATION, INCLUDING A SUIT IN THE DISTRICT COURT FOR THE DISTRICT OF COLUMBIA AGAINST THE SECRETARY OF DEFENSE REQUESTING A DECLARATORY JUDGMENT THAT 28 U.S.C. 1498 COULD NOT BE USED BY A GOVERNMENT AGENCY AS LONG AS THE AGENCY COULD PROCURE THE PATENTED ARTICLES INVOLVED FROM QUALIFIED LICENSEES AT A REASONABLE COST, A PERMANENT INJUNCTION RESTRAINING THE DEPARTMENT OF DEFENSE FROM INVOKING 28 U.S.C. 1498 IN SUCH CIRCUMSTANCES, AND AN INJUNCTION AGAINST AWARD OF THE PROCUREMENT IN QUESTION TO OTHER THAN A LICENSEE. THIS SUIT WAS DISMISSED. IN VIEW OF THE FOREGOING, THE FIRST POINT OF PROTEST IS DENIED.

CONCERNING THE RESPONSIBILITY OF SHERIDAN-GRAY IN THE LIGHT OF ITS PRIOR PERFORMANCE ON A SIMILAR CONTRACT WHICH WAS THE SUBJECT OF OUR DECISION OF JUNE 4, 1964, B-153144, IT IS PERTINENT TO OBSERVE THAT OUR OFFICE HAS TAKEN THE CONSISTENT POSITION THAT THE DETERMINATION OF A BIDDER'S OVERALL RESPONSIBILITY IS PRIMARILY THAT OF THE PROCUREMENT AGENCY AND NOT OF OUR OFFICE. 38 COMP. GEN. 131; 33 ID. 549. WE FIND NO BASIS TO DISAGREE WITH THE ADMINISTRATIVE FINDING THAT SHERIDAN-GRAY WAS A RESPONSIBLE CONTRACTOR IN ACCORDANCE WITH ASPR 1-904.1. THE PROCUREMENT AGENCY HAS REPORTED IN THIS CONNECTION THAT:

"* * * THE EARLIER CONTRACT (N156-44520) AWARDED TO SHERIDAN GRAY, INC. FOR A STRETCH DRAW PRESS WAS DATED 24 DECEMBER 1963 AND INITIALLY CALLED FOR DELIVERY OF THE EQUIPMENT 200 DAYS AFTER DATE OF CONTRACT, WHICH WOULD REQUIRE DELIVERY DURING JULY 1964. THE PRESS, AFTER INSPECTION BY THE GOVERNMENT AT THE SHERIDAN GRAY PLANT, WAS SHIPPED BY SHERIDAN GRAY, INC. ON 20 JULY 1964, CONSIGNED TO THE GOVERNMENT REPRESENTATIVE AT THE MCDONNELL AIRCRAFT CORPORATION IN ACCORDANCE WITH THE CONTRACT TERMS. WAS RECEIVED AT THE MCDONNELL PLANT SHORTLY THEREAFTER. THE INSTRUCTION BOOK, AND INSTALLATION, OPERATING AND MAINTENANCE MANUAL REQUIRED UNDER THE CONTRACT WERE SHIPPED BY THE CONTRACTOR ON 20 JULY 1964 AND WERE RECEIVED BY NAEC ON 29 JULY 1964. UNDER THE CONTRACT TERMS, FINAL INSPECTION AND ACCEPTANCE OF THE PRESS COULD NOT BE ACCOMPLISHED UNTIL THE PRESS WAS INSTALLED AT THE MCDONNELL PLANT AND SUBJECTED TO TESTS AT THAT PLANT. AS A RESULT OF A DELAY IN SITE PREPARATION AT THE MCDONNELL PLANT, IT WAS NOT POSSIBLE TO INSTALL THE PRESS THERE AND COMPLETE THE TESTING AND INSPECTION REQUIRED BY THE CONTRACT UNTIL JANUARY 1965. IN VIEW OF THE KNOWN DELAY BEING ENCOUNTERED IN SITE PREPARATION AT THE MCDONNELL PLANT, THE CONTRACT WAS AMENDED IN OCTOBER 1964 TO PROVIDE THAT THE CONTRACTOR SHOULD FURNISH THE SERVICES OF A FIELD ENGINEER TO ASSIST IN INSTALLATION AT MCDONNELL IN DECEMBER 1964 RATHER THAN IN JULY 1964 AS SPECIFIED ORIGINALLY IN THE CONTRACT. AS ESTABLISHED BY THE MCDONNELL AIRCRAFT REPORT * * * THE STRETCH DRAW PRESS FULLY MET THE CONTRACT SPECIFICATIONS. IT IS APPARENT FROM THE FOREGOING FACTS THAT THERE IS NO SUBSTANTIAL BASIS FOR THE ASSERTION BY THE CYRIL BATH COMPANY THAT THE "* * * PAST EXPERIENCE WITH SHERIDAN GRAY, INC. PROVES THAT THEY CANNOT AND HAVE NOT MET THE PERFORMANCE REQUIREMENTS OF THE SPECIFICATIONS FOR THE EARLIER MACHINE WITHIN THE REQUIRED DELIVERY TIME.'"

THE SECOND POINT OF PROTEST IS THEREFORE DENIED.

AS TO THE LAST POINT OF PROTEST, THE RECORD BEFORE US CONTAINS AMPLE JUSTIFICATION TO SUPPORT THE CONTRACTING OFFICER'S DETERMINATION THAT SHERIDAN-GRAY IS FINANCIALLY RESPONSIBLE. THERE IS NOTHING IN THE RECORD WHICH WOULD REQUIRE US TO QUESTION THE ADMINISTRATIVE DETERMINATION.

UPON REVIEW OF THE FILE BEFORE US, WE MUST CONCLUDE THAT THE AWARD MADE TO SHERIDAN-GRAY IS NOT SUBJECT TO OBJECTION BY OUR OFFICE.