B-157144, NOV. 22, 1965, 45 COMP. GEN. 273

B-157144: Nov 22, 1965

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IS A VALID CLAUSE THAT WAS PROPERLY INCLUDED IN THE INVITATION FOR A PROCUREMENT CONSIDERED SUPPLY IN NATURE. REJECTION OF THE NONRESPONSIVE BID WAS. 1965: REFERENCE IS MADE TO YOUR TELEGRAM DATED JUNE 30. IT IS REPORTED THAT THE ABOVE INVITATION WAS THE SECOND STEP OF A TWO- STEP FORMALLY ADVERTISED PROCUREMENT FOR ONE RADAR COLLIMATION SYSTEM IN ACCORDANCE WITH TECHNICAL EXHIBIT SE/3512-1381A DATED APRIL 21. THE PROCUREMENT WAS DETERMINED SUITABLE FOR TWO-STEP FORMAL ADVERTISING AND A REQUEST FOR TECHNICAL PROPOSAL (FIRST STEP) WAS ISSUED ON MAY 1. FIFTY-FIVE PROSPECTIVE BIDDERS WERE SOLICITED. DURING THE TECHNICAL REVIEW IT WAS DETERMINED THAT THREE OF THE FOUR TECHNICAL PROPOSALS WERE ACCEPTABLE AND CONSEQUENTLY THE INVITATION FOR BID (SECOND STEP) WAS ISSUED TO THE THREE COMPANIES WITH ACCEPTABLE PROPOSALS.

B-157144, NOV. 22, 1965, 45 COMP. GEN. 273

BIDS - COMPETITIVE SYSTEM - TWO-STEP, ETC., PROCUREMENT - DEVIATIONS - WARRANTY CLAUSE THE LOW BIDDER UNDER A TWO-STEP ADVERTISED INVITATION FOR BID PRICES ON THE PRODUCTION AND INSTALLATION OF A RADAR COLLIMATION SYSTEM, TECHNICALLY APPROVED IN THE FIRST-STEP, WHO TOOK EXCEPTION TO THE USE OF A "CORRECTION OF DEFICIENCIES" CLAUSE, AUTHORIZED PURSUANT TO PARAGRAPH 1-324.4 OF THE ARMED SERVICES PROCUREMENT REGULATION, SEEKING IN EFFECT AN UNCONDITIONAL FIRST-YEAR PERFORMANCE WARRANTY, AND WHO OFFERED TO NEGOTIATE AN EQUITABLE GUARANTY CLAUSE, SUBMITTED A NONRESPONSIVE BID WHICH INCONSISTENT WITH THE INVITATION COULD NOT BE EVALUATED ON THE SAME BASIS AS OTHER BIDS RECEIVED, AND THE DEFICIENCY CLAUSE, ALTHOUGH DRAWN IN GENERAL TERMS, NOT INCLUDING ,DAMAGE" OR "INJURY" CAUSED BY AN OUTSIDE SOURCE, NOR DEPRIVING THE CONTRACTOR OF THE PROTECTION OF THE DISPUTES CLAUSE, IS A VALID CLAUSE THAT WAS PROPERLY INCLUDED IN THE INVITATION FOR A PROCUREMENT CONSIDERED SUPPLY IN NATURE, THE FIRST-STEP PROVIDING FOR TECHNICAL PROPOSALS NOT BEYOND THE "STATE OF THE ART," AND THE SECOND FOR THE PRODUCTION AND INSTALLATION OF THE SYSTEM, AND REJECTION OF THE NONRESPONSIVE BID WAS, THEREFORE, REQUIRED.

TO THE BENDIX CORPORATION, BENDIX SYSTEMS DIVISION, NOVEMBER 22, 1965:

REFERENCE IS MADE TO YOUR TELEGRAM DATED JUNE 30, 1965, YOUR LETTERS DATED AUGUST 2, AUGUST 25, AND OCTOBER 8, 1965, WITH ENCLOSURES, AND YOUR LETTER OF PROTEST DATED JULY 6, 1965, WITH ENCLOSURE, DIRECTED TO THE COMMANDING OFFICER, HEADQUARTERS, AIR FORCE EASTERN TEST RANGE, AIR FORCE SYSTEMS COMMAND, PATRICK AIR FORCE BASE, FLORIDA, ALL PROTESTING THE REJECTION OF YOUR BID AS NONRESPONSIVE UNDER INVITATION FOR BIDS NO. 08- 606-65-385, AND ALSO PROTESTING THE INCLUSION IN THE INVITATION OF THE CLAUSE ENTITLED "CORRECTION OF DEFICIENCIES" AS SET FORTH IN AIR FORCE PROCUREMENT CIRCULAR NO. 6, FEBRUARY 4, 1965 (AFPI 7-105.51).

IT IS REPORTED THAT THE ABOVE INVITATION WAS THE SECOND STEP OF A TWO- STEP FORMALLY ADVERTISED PROCUREMENT FOR ONE RADAR COLLIMATION SYSTEM IN ACCORDANCE WITH TECHNICAL EXHIBIT SE/3512-1381A DATED APRIL 21, 1965. THE PROCUREMENT WAS DETERMINED SUITABLE FOR TWO-STEP FORMAL ADVERTISING AND A REQUEST FOR TECHNICAL PROPOSAL (FIRST STEP) WAS ISSUED ON MAY 1, 1965. FIFTY-FIVE PROSPECTIVE BIDDERS WERE SOLICITED. OF THE PROSPECTIVE BIDDERS SOLICITED, FOUR BIDDERS SUBMITTED TECHNICAL PROPOSALS. DURING THE TECHNICAL REVIEW IT WAS DETERMINED THAT THREE OF THE FOUR TECHNICAL PROPOSALS WERE ACCEPTABLE AND CONSEQUENTLY THE INVITATION FOR BID (SECOND STEP) WAS ISSUED TO THE THREE COMPANIES WITH ACCEPTABLE PROPOSALS. THE SECOND STEP INVITATION CALLED FOR A BID PRICE ON THE DESIGN, FABRICATION, ALIGNMENT AND FACTORY TEST OF A RADAR COLLIMATION SYSTEM IN ACCORDANCE WITH A TECHNICAL EXHIBIT AND TECHNICAL PROPOSAL PREVIOUSLY APPROVED UNDER STEP ONE, AND ALSO REQUIRED THE INSTALLATION AND TESTING OF THE SYSTEM ON THE AN/FPQ-6 RADAR AT PATRICK AIR FORCE BASE, FLORIDA. IN ADDITION THE BID WAS TO INCLUDE INTERIM SPARE PARTS KITS, TRAINING SERVICES, DATA AND REPORTS. BENDIX SYSTEMS WAS ONE OF THE THREE COMPANIES. THREE BIDS WERE RECEIVED PRIOR TO THE TIME SET FOR OPENING, JUNE 23, 1965, AT THE AIR FORCE EASTERN TEST RANGE, PATRICK AIR FORCE BASE, FLORIDA. BENDIX SYSTEMS WAS LOW BIDDER WITH CANOGA ELECTRONICS CORPORATION SECOND LOW BIDDER.

IT IS FURTHER REPORTED THAT DURING BID OPENING IT WAS NOTED THAT THE ACCOMPANYING LETTER, DATED JUNE 21, 1965, FORWARDING THE BENDIX SYSTEMS' BID TOOK AN EXCEPTION TO THE CORRECTION OF DEFICIENCIES CLAUSE (GENERAL PROVISION NO. 49). THE EXCEPTION WAS AS FOLLOWS:

IT IS THE POLICY OF THE BENDIX CORPORATION TO NEGOTIATE AN EQUITABLE GUARANTEE CLAUSE BASED UPON AFPI 7-105.22 IN LIEU OF THE CORRECTION OF DEFICIENCIES CLAUSE (GP NO. 49). THIS POSITION HAS BEEN ACCEPTED BY OTHER AIR FORCE PROCUREMENT ACTIVITIES AND OUR PROPOSAL ASSUMES THIS SUBSTITUTION WILL BE MADE.

IT ALSO IS REPORTED THAT FOLLOWING THE BID OPENING, AND PREDICATED ON A STAFF LEGAL OPINION, THE CONTRACTING OFFICER DETERMINED THAT THE BENDIX SYSTEMS' BID WAS NONRESPONSIVE DUE TO A MATERIAL DEVIATION FROM THE PROVISIONS OF THE IFB PURSUANT TO 2-404.2 (A), 2-404.2 (D) (VI) OF THE ARMED SERVICES PROCUREMENT REGULATION. AWARD WAS THEN MADE TO CAMOGA ELECTRONICS CORPORATION, THE SECOND LOW BIDDER.

IN YOUR LETTER OF JULY 6, 1965, REFERRED TO ABOVE, YOU STATE THAT THE BASIS OF THE BENDIX PROTEST

* * * IS THE INCLUSION OF THE CLAUSE ENTITLED "CORRECTION OF DEFICIENCIES" SET FORTH IN AIR FORCE PROCUREMENT CIRCULAR NO. 6, OF 4 FEBRUARY 1965 (AFPI 7-105.51). THIS CLAUSE CONTAINS VAGUE, GENERAL TERMS WHICH APPEAR TO LACK PRECISE LEGAL MEANING AND COULD BE THE SOURCE OF DIFFERING INTERPRETATIONS AND SUBJECTIVE JUDGMENTS. TO US, THE CLAUSE APPEARS TO LACK PRECISE DEFINITIONS WITH RESPECT TO WHETHER, WHEN, WHERE AND HOW PARTICULAR CORRECTIONS ARE TO BE MADE, MAKING IT COMPLETELY IMPRACTICABLE FOR A CONTRACTOR INTELLIGENTLY TO EVALUATE THE RISKS BEING ASSUMED AND ACCURATELY TO DETERMINE PROPER COST FACTORS TO REFLECT THE UNCERTAIN AND UNKNOWN RISKS.

* * * THE INCORPORATION OF THE CLAUSE IN A "DESIGN AND BUILD ONE UNIT" CONTRACT APPEARS TO BE INCONSISTENT WITH AFPI 7-105.51 ITSELF, IN WHICH THE CLAUSE IS AUTHORIZED FOR USE IN SUPPLY CONTRACTS, SUBJECT TO MODIFICATIONS AS APPROPRIATE. BENDIX CONSIDERS THE CLAUSE ESPECIALLY INAPPROPRIATE WHERE IT IS EMPLOYED, WITHOUT OPPORTUNITY FOR NEGOTIATION, IN AN ADVERTISED CONTRACT INVOLVING DEVELOPMENT OF A COMPLEX NEW ITEM.

IT IS FURTHER CONTENDED THAT THE PROSPECTIVE BIDDERS SHOULD HAVE BEEN ADVISED AT THE TIME OF THE REQUEST FOR FIRST STEP PROPOSALS OF THE INTENT TO INCLUDE THE SAID CLAUSE, SINCE IT MIGHT AFFECT THE DECISION OF A PROSPECTIVE BIDDER WHETHER TO SUBMIT A BID, AND ALSO, THAT THE CLAUSE MAKES NO ALLOWANCE FOR EQUITABLE ADJUSTMENT OF PRICE IN THE EVENT THAT THE DEFICIENCY SHOULD PROVE TO BE OF GOVERNMENT ORIGIN, OR NONEXISTENT.

GENERAL PROVISION NO. 49, OF THE INVITATION FOR BIDS IS, INSOFAR AS PERTINENT HERE, AS FOLLOWS:

(1) DEFINITIONS--- AS USED IN THIS CLAUSE:

(A) THE WORD "DEFICIENCY" SHALL MEAN: ANY CONDITION OR CHARACTERISTIC IN ANY SUPPLIES (WHICH TERM SHALL INCLUDE, BUT NOT BE LIMITED TO, ARTICLES, DATA, REPORTS OR SERVICES) FURNISHED OR TO BE FURNISHED HEREUNDER, WHICH IS NOT IN COMPLIANCE WITH THE REQUIREMENTS OF THIS CONTRACT.

(B) THE WORD "CORRECTIONS" SHALL MEAN: ANY AND ALL ACTIONS NECESSARY TO ELIMINATE ANY AND ALL DEFICIENCIES.

(2) IF IT IS DETERMINED BY THE PROCURING CONTRACTING OFFICER (PCO) THAT A DEFICIENCY EXISTS IN ANY OF THE SUPPLIES ACCEPTED BY THE GOVERNMENT UNDER THIS CONTRACT, HE MAY NOTIFY THE CONTRACTOR, IN WRITING, OF THE DEFICIENCY. IT IS AGREED THAT UPON NOTIFICATION OF THE EXISTENCE OF SUCH DEFICIENCY, THE CONTRACTOR SHALL PROMPTLY SUBMIT TO THE PCO ITS RECOMMENDATIONS FOR CORRECTIVE ACTION. THE INFORMATION SHALL BE IN SUFFICIENT DETAIL FOR THE PCO TO DETERMINE WHAT CORRECTIVE ACTION, IF ANY, SHOULD BE UNDERTAKEN.

(3) IF THE CONTRACTOR SHALL BECOME AWARE THAT A DEFICIENCY EXISTS OR THAT A POTENTIAL DEFICIENCY, IF UNCORRECTED, WILL EXIST IN ANY SUPPLIES EITHER TENDERED TO THE GOVERNMENT FOR ACCEPTANCE BUT NOT YET ACCEPTED OR NOT YET TENDERED TO THE GOVERNMENT FOR ACCEPTANCE HEREUNDER, OR THAT A DEFICIENCY EXISTS IN ANY ACCEPTED SUPPLIES, IT SHALL PROMPTLY COMMUNICATE SUCH INFORMATION IN WRITING TO THE PCO TOGETHER WITH ITS DETAILED RECOMMENDATIONS FOR CORRECTIVE ACTION.

(4) THE PCO, AT HIS SOLE DISCRETION MAY DIRECT THE CONTRACTOR TO CORRECT, WITHIN A REASONABLE TIME AND AT A PLACE OR PLACES DESIGNATED, ANY AND ALL ACTUAL OR POTENTIAL DEFICIENCIES IN SUCH SUPPLIES AND THE CONTRACTOR SHALL TAKE NECESSARY ACTION TO BRING THE SUPPLIES INTO COMPLIANCE WITH THE REQUIREMENTS OF THE CONTRACT AT NO INCREASE IN THE TOTAL CONTRACT PRICE.

(9) THE CONTRACTOR SHALL PROMPTLY COMPLY WITH ANY WRITTEN DIRECTION BY THE PCO TO CORRECT A DEFICIENCY, PROVIDED SUCH DIRECTIONS IS ISSUED WITHIN ONE YEAR FOLLOWING ACCEPTANCE BY THE GOVERNMENT OF ITEM 2.

(11) FAILURE TO AGREE ON ANY DETERMINATION OR SETTLEMENT UNDER THESE PROVISIONS SHALL BE DEEMED TO BE A DISPUTE WITHIN THE MEANING OF THE CLAUSE OF THIS CONTRACT ENTITLED "DISPUTES.'

THE USE OF THE CLAUSE WAS AUTHORIZED BY AIR FORCE PROCUREMENT CIRCULAR NO. 6, DATED FEBRUARY 4, 1965, WHICH IN TURN, WAS PROMULGATED UNDER PARAGRAPH 1-324.4, ARMED SERVICES PROCUREMENT REGULATION, SCOPE OF WARRANTY CLAUSE. THIS ASPR PROVISION PROVIDES, IN PART, AS FOLLOWS:

(D) WHERE A CONTRACT CONTAINS PERFORMANCE SPECIFICATIONS AND DESIGN IS OF MINOR IMPORTANCE, THE CONTRACTOR'S LIABILITY MAY EXTEND TO DEFECTS OR NONCONFORMANCE TO SPECIFICATIONS WHICH MAY ARISE AFTER DELIVERY OF THE SUPPLIES OR ACCEPTANCE OF THE SERVICES. WHERE APPROPRIATE, HOWEVER, THE WARRANTY SHOULD BE LIMITED TO DEFECTS OR NONCONFORMANCE EXISTING AT THE TIME OF DELIVERY OF THE SUPPLIES OR ACCEPTANCE OF THE SERVICES.

(F) WHEN IT CAN BE FORESEEN THAT IT WILL NOT BE PRACTICAL TO RETURN AN ARTICLE FOR CORRECTION OR REPLACEMENT BECAUSE OF THE NATURE OF ITS USE OR THE COST OF PREPARATION FOR ITS RETURN (E.G., WHERE OPERATING EQUIPMENT INSTALLED IN A VESSEL, AIRCRAFT OR TANK NEEDS ONLY A CORRECTION OF ADJUSTMENT, BUT TO RETURN IT WOULD REQUIRE SUBSTANTIAL EXPENSE OF REMOVAL FROM WHERE IT IS INSTALLED), THE CLAUSE SHOULD PROVIDE THAT THE GOVERNMENT MAY CORRECT OR REQUIRE THE CONTRACTOR TO CORRECT THE ARTICLE IN PLACE AT ITS LOCATION, AT THE CONTRACTOR'S EXPENSE.

THE USE OF THE ABOVE-QUOTED PROVISIONS EVIDENCES AN INTENT ON THE PART OF THE AIR FORCE TO PLACE EMPHASIS, IN THIS PROCUREMENT, UPON "CUSTOMER SATISFACTION"--- SEEKING, IN EFFECT, AN UNCONDITIONAL WARRANTY THAT THE RADAR COLLIMATOR WOULD PERFORM AS SPECIFIED IN THE INVITATION FOR THE PERIOD OF 1 YEAR.

IT IS REPORTED THAT THE AIR FORCE WAS AWARE THAT ALTHOUGH THIS PROVISION WOULD TEND TO INCREASE THE COSTS OF THE PROCUREMENT OVER THOSE ININSTANCES WHERE THE GOVERNMENT IS A "SELF-INSURER," IT WAS CONSIDERED THAT THE NATURE OF THE PROCUREMENT WARRANTED THE USE OF THE "CORRECTION OF DEFICIENCIES" CLAUSE. THE USE OF THE CLAUSE IS AUTHORIZED BY REGULATIONS, AND IN VIEW OF ITS USE IN THE INVITATION FOR BIDS, THE BENDIX SYSTEMS' EXCEPTION TO THE CLAUSE AND OFFER OF A SUBSTITUTE WARRANTY CAUSED ITS BID TO BE NONRESPONSIVE TO THE INVITATION. THE BENDIX SYSTEMS' BID WAS INCONSISTENT WITH THE INVITATION AND HENCE COULD NOT BE EVALUATED ON THE SAME BASIS AS ITS COMPETITORS' BIDS WHICH TOOK NO EXCEPTION TO THE PARTICULAR CLAUSE CONCERNED.

WHILE WE MUST AGREE THAT THE SUBJECT CLAUSE IS DRAWN IN A GENERAL MANNER, WE CANNOT AGREE WITH YOUR OBJECTIONS TO IT, OR CONSIDER IT INVALID OR ILLEGAL. YOUR VIEW THAT BENDIX SYSTEMS WOULD BE REQUIRED TO CORRECT DEFICIENCIES EVEN IF CAUSED BY GOVERNMENT FAULT OR MISDEED WE DO NOT BELIEVE TO BE WELL TAKEN, SINCE WE BELIEVE THE "DISPUTES" CLAUSE IS AVAILABLE FOR PROTECTION OF THE CONTRACTOR. IN THIS CONNECTION IT IS OUR VIEW THAT "DEFICIENCIES" AS DEFINED IN THE CONTRACT DOES NOT INCLUDE "DAMAGE" OR "INJURY" CAUSED BY AN OUTSIDE SOURCE.

NOR DO WE VIEW FAVORABLY YOUR CONTENTION THAT THE "PLACE OR PLACES" OF CORRECTIVE ACTION IS ILL-DEFINED. IN THIS PROCUREMENT, THE RADAR COLLIMATOR CAN BE AT ONE OF TWO PLACES ONLY--- AT PLACE OF MANUFACTURE OR AT POINT OF INSTALLATION, PATRICK AIR FORCE BASE. NO PROVISION IS MADE FOR TRANSSHIPMENT OF THE ITEM TO OTHER PARTS OF THE WORLD AS YOU SUGGEST MIGHT BE DONE. THE INVITATION REQUIRED INSTALLATION AND TESTING AT PATRICK AIR FORCE BASE AND IN OUR OPINION INSTALLATION ELSEWHERE WOULD BE BEYOND THE SCOPE OF THE INVITATION AND WARRANTY CLAUSE.

YOUR CONTENTION THAT IT IS NOT POSSIBLE TO COMPUTE THE COSTS CONCERNED, SINCE THE RISKS CANNOT BE EVALUATED, NEEDS ONLY A BRIEF COMMENT. THE TWO RESPONSIVE BIDDERS WHO DID NOT TAKE EXCEPTION TO THE CLAUSE, APPARENTLY SATISFIED THEMSELVES THAT THEY COULD EVALUATE THE RISK, OR CONSIDERED THAT THEIR PRODUCT WOULD BE SO FREE OF DEFICIENCIES WHEN INSTALLED THAT NONE WOULD ARISE WITHIN THE 1-YEAR PERIOD FOLLOWING INSTALLATION. IN ANY EVENT WE DO NOT VIEW THE REQUIREMENT AS ILLEGAL OR INVALID, NOTWITHSTANDING THE DIFFICULTY OF COMPUTATION.

YOUR ARGUMENT THAT BENDIX SYSTEMS' SUBSTITUTION FOR THE CORRECTION OF DEFICIENCIES CLAUSE WAS APPROVED BY OTHER AIR FORCE CONTRACTING OFFICERS IN PREVIOUS PROCUREMENTS IS NOT WELL TAKEN, SINCE IT IS REPORTED THAT IN THE PREVIOUS PROCUREMENTS THE CLAUSE IN QUESTION WAS SUBSTITUTED IN NEGOTIATED PROCUREMENTS AND NOT IN TWO-STEP FORMAL ADVERTISED CONTRACTS.

NOR CAN WE AGREE THAT THIS PROCUREMENT WAS ESSENTIALLY RESEARCH AND DEVELOPMENT IN NATURE, RATHER THAN OF A SUPPLY NATURE. THE FIRST STEP OF THE PROCUREMENT CALLED FOR THE SUBMISSION OF TECHNICAL PROPOSALS TO ACCOMPLISH A SPECIFIC RESULT NOT BEYOND THE "STATE OF THE ART," AND THE SECOND STEP CALLED FOR THE SUBMISSION OF BID PRICES FOR THE PRODUCTION AND INSTALLATION OF ONE UNIT OF THE APPROVED PROPOSAL. WE AGREE WITH THE ADMINISTRATIVE OFFICE THAT THE PROCUREMENT WAS SUPPLY IN NATURE AND INCLUSION OF THE CLAUSE WAS PROPER.

IN VIEW OF THE ABOVE, WE CONCLUDE THAT YOUR BID ON STEP TWO WAS NOT RESPONSIVE TO THE INVITATION AND THAT YOUR PROTEST TO THE REJECTION OF YOUR BID IS DENIED.