B-157254, DEC. 6, 1965, 45 COMP. GEN. 305

B-157254: Dec 6, 1965

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AUTHORITY FOR THE NEGOTIATION OF CONTRACTS WHERE IT IS IMPRACTICABLE TO OBTAIN COMPETITION. MAY BE GIVEN A PRICE INCREASE ALTHOUGH GENERALLY RELIEF IS PRECLUDED WHEN A MISTAKE IS UNILATERAL AND THE CONTRACTING OFFICER IS NOT ON ACTUAL NOTICE OF ERROR UNTIL AFTER THE CONTRACT HAD BEEN FULFILLED. IN VIEW OF THE FACT THAT ALTHOUGH THE PROCUREMENT WAS ON A SOLE SOURCE BASIS WITH NO OPPORTUNITY TO COMPARE PRICES. HE WOULD IN CONSULTING THE RECORDS ON THE EARLIER PROCUREMENT HAVE DETECTED THAT THE BID PRICE WAS LESS THAN ONE-TENTH THE FORMER PRICE AND QUESTIONED THE LOW BID. THE CONTRACTOR IS ENTITLED TO AN ADDITIONAL AMOUNT. 1965: REFERENCE IS MADE TO LETTER DATED NOVEMBER 2. DELIVERY OF THE ITEMS WAS MADE IN 1963.

B-157254, DEC. 6, 1965, 45 COMP. GEN. 305

CONTRACTS - MISTAKES - CONTRACTING OFFICERS ERROR DETECTION DUTY - COST ANALYSIS A CONTRACTOR WHO ALLEGES A UNILATERAL PRICE MISTAKE ON EQUIPMENT, SIMILAR TO THAT PREVIOUSLY FURNISHED, AFTER DELIVERY AND PAYMENT UNDER A CONTRACT NEGOTIATED ON A SOLE SOURCE BASIS PURSUANT TO 10 U.S.C. 2304 (A) (10), AUTHORITY FOR THE NEGOTIATION OF CONTRACTS WHERE IT IS IMPRACTICABLE TO OBTAIN COMPETITION, MAY BE GIVEN A PRICE INCREASE ALTHOUGH GENERALLY RELIEF IS PRECLUDED WHEN A MISTAKE IS UNILATERAL AND THE CONTRACTING OFFICER IS NOT ON ACTUAL NOTICE OF ERROR UNTIL AFTER THE CONTRACT HAD BEEN FULFILLED, IN VIEW OF THE FACT THAT ALTHOUGH THE PROCUREMENT WAS ON A SOLE SOURCE BASIS WITH NO OPPORTUNITY TO COMPARE PRICES, HAD THE CONTRACTING OFFICER COMPLIED WITH THE REQUIREMENT IN PARAGRAPH 3-807.2 OF THE ARMED SERVICES PROCUREMENT REGULATION FOR A COST OR PRICE ANALYSIS IN EVERY NEGOTIATED PROCUREMENT, HE WOULD IN CONSULTING THE RECORDS ON THE EARLIER PROCUREMENT HAVE DETECTED THAT THE BID PRICE WAS LESS THAN ONE-TENTH THE FORMER PRICE AND QUESTIONED THE LOW BID; THEREFORE, IT WOULD BE UNCONSCIONABLE FOR THE GOVERNMENT TO BENEFIT FROM THE EXTREMELY LOW PRICE QUOTED IN ERROR, AND THE CONTRACTOR IS ENTITLED TO AN ADDITIONAL AMOUNT.

TO THE SECRETARY OF THE ARMY, DECEMBER 6, 1965:

REFERENCE IS MADE TO LETTER DATED NOVEMBER 2, 1965, FROM THE GENERAL COUNSEL, HEADQUARTERS, UNITED STATES ARMY MATERIEL COMMAND, FORWARDING A REPORT ON A REQUEST BY NRC EQUIPMENT CORPORATION (NRC), NEWTON, MASSACHUSETTS, FOR AN INCREASE IN THE PRICE PAID BY THE GOVERNMENT FOR TWO SETS OF FURNACE HEAT SHIELDS FURNISHED BY NRC TO THE WATERTOWN ARSENAL, WATERTOWN, MASSACHUSETTS, UNDER CONTRACT NO. 01 19-066-S5-02141 (X), DATED NOVEMBER 4, 1964.

THE RECORD SHOWS THAT THE ARSENAL PURCHASED FROM NRC UNDER CONTRACT NO. DA-19-066-ORD-938, DATED JUNE 26, 1962, A HIGH VACUUM HEAT TREATING FURNACE, NRC MODEL 2915-B, AT A COST OF $34,775, TOGETHER WITH THREE EXTRA TUNGSTEN HEATING ELEMENTS AT $525 EACH AND TWO EXTRA TUNGSTEN-MOLYBDENUM HEAT SHIELD ASSEMBLIES AT $4,000 EACH. DELIVERY OF THE ITEMS WAS MADE IN 1963.

ON AUGUST 18, 1964, IN RESPONSE TO AN INQUIRY FROM AN ARMY MATERIEL COMMAND REQUISITIONER AS TO THE COST OF REPLACEMENTS FOR THE HEAT SHIELDS, HEATING ELEMENTS AND WORK SUPPORTS FOR THE SAME FURNACE, NRC QUOTED TO THE ARSENAL UNIT PRICES OF $389 FOR THE SHIELDS, $527 FOR THE HEATING ELEMENTS, AND $702 FOR THE WORK SUPPORTS. ON OCTOBER 5, THE ARSENAL ISSUED TO NCRC A REQUEST FOR PROPOSALS, NO. S-5-0181, PURSUANT TO WHICH NRC EXECUTED A FORMAL QUOTATION DATED OCTOBER 13 LISTING THE SAME PRICES AS QUOTED ORALLY AND BY LETTER OF AUGUST 18 ON THE ITEMS. ON NOVEMBER 4, PURSUANT TO THE AUTHORITY CONTAINED IN 10 U.S.C. 2304 (A) (10) FOR NEGOTIATION OF CONTRACTS WHERE IT IS IMPRACTICABLE TO OBTAIN COMPETITION, NRC WAS AWARDED CONTRACT NO. 01 19-066-S5-02141 (X), FOR ALL THREE ITEMS AT THE PRICES QUOTED.

SHIPMENT OF THE ITEMS WAS MADE IN TWO SEGMENTS, THE HEATING ELEMENTS BEING DELIVERED IN NOVEMBER 1964 AND THE SHIELDS AND SUPPORTS IN MARCH 1965. PAYMENT FOR ALL ITEMS WAS MADE BY ONE ARMY FINANCE CHECK DATED APRIL 8, 1965, IN THE AMOUNT OF $3,236.

ON APRIL 12, NRC ADDRESSED A LETTER TO THE CONTRACTING OFFICER AT THE ARSENAL STATING THAT, IN POSTING THE COST OF THE MATERIAL IN THE PROCUREMENT ITEMS, IT HAD DETECTED A TYPOGRAPHICAL ERROR OF $7,000 IN THE PRICE OF THE SHIELDS. IT WAS EXPLAINED THAT THE UNIT COST OF THE SHIELDS SHOULD HAVE BEEN QUOTED AS $3,890 RATHER THAN $389, MAKING A TOTAL PRICE OF $7,780 IN LIEU OF $778. TO ESTABLISH THE PRICE RANGE FOR THE SHIELDS, NRC CITED THE 1962 CONTRACT PRICE OF $4,000 FOR SIMILAR SHIELDS FOR THE SAME FURNACE. ACCORDINGLY, NRC REQUESTED RELIEF OFFERING TO ACCEPT RETURN OF THE SHIELDS FOR REFUND OF THE PURCHASE PRICE OF $778. IT IS TO BE NOTED, HOWEVER, THAT IN SUBSEQUENT CORRESPONDENCE NRC HAS STATED THAT THE ORIGINAL PRICE OF $389 REPRESENTED A BASE PRICE OF $387 PLUS $2 FOR TRANSPORTATION; THEREFORE, THE CORRECT PRICE FOR EACH UNIT WAS $3,870 PLUS $2 FOR TRANSPORTATION, OR A TOTAL OF $7,744 FOR BOTH UNITS.

BY LETTER DATED MAY 6, NRC WAS ADVISED BY THE CONTRACTING OFFICER THAT NO RELIEF COULD BE GRANTED. THE LETTER READS, IN PART AS FOLLOWS:

AN INDICATION OF THE POLICY APPLIED IN CASES SIMILAR TO YOURS MAY BE FOUND IN THE FOLLOWING RULE CITED BY THE UNITED STATES COURT OF CLAIMS: "ACCEPTANCE OF PAYMENT WITHOUT NOTIFICATION OF A MISTAKE PRECLUDES THE CONTRACTOR FROM ASSERTING A SUBSEQUENT CLAIM.'

THE INABILITY TO AMEND OR MODIFY THE SUBJECT CONTRACT TO PROVIDE ANY EQUITABLE ADJUSTMENT IN THIS INSTANCE IS CLEARLY SET FORTH IN THE LANGUAGE OF ASPR 17-205.1 (C) AS FOLLOWS: "NO CONTRACT SHALL BE AMENDED OR MODIFIED (I) UNLESS THE REQUEST THEREFOR HAS BEEN FILED BEFORE ALL OBLIGATIONS (INCLUDING FINAL PAYMENT) UNDER THE CONTRACT HAVE BEEN DISCHARGED.'

SINCE THE CONTRACTING OFFICER RECEIVED NO NOTICE OF THIS MISTAKE IN PRICING UNTIL AFTER COMPLETION OF THE CONTRACT, AND HAD NO KNOWLEDGE THEREOF, HE CONSEQUENTLY HAS NO AUTHORITY TO MODIFY OR AMEND THE CONTRACT TO FURNISH RELIEF TO YOUR COMPANY.

NRC CONCEDES THAT THE ERROR IN ITS QUOTATION WAS DUE SOLELY TO ITS OWN CARELESSNESS. HOWEVER, IN CLAIMING RELIEF, IT CITES THE SIZEABLE DIFFERENCE BETWEEN THE CORRECT PRICE AND THE PRICE PAID BY THE ARSENAL FOR THE SHIELDS AND CONTENDS THAT IT WOULD BE UNCONSCIONABLE FOR THE GOVERNMENT TO RETAIN A MAJOR BENEFIT FROM THE MISTAKE. AFFIDAVITS OF NRC OFFICIALS AND EMPLOYEES ATTEST THAT THE PRICES OF SHIELDS FOR THE NRC MODEL 2915-B FURNACE RANGE FROM $2,400 OR $2,500 TO $4,500 AND THAT THE UNIT PRICE OF THE SHIELDS IN QUESTION IS $3,870 FOB CONTRACTOR'S PLANT AT NEWTON. WORKSHEETS FURNISHED BY NRC, ON WHICH IT ALLEGEDLY BASED ITS QUOTATION, BEAR A PENCILED NOTATION ,2972,001 SET" FOR THE SHIELDS, WHICH IS CLAIMED TO BE THE UNIT PRICE OF $2,972 PAID BY NRC TO ITS SUPPLIER, NATIONAL RESEARCH CORPORATION, FOR THE SHIELDS, AS EVIDENCED BY AN INVOICE DATED MARCH 11, 1965. THE PRICE OF $3,870 IS SAID TO BE BASED ON THE COST PLUS A 30 PERCENT MARKUP ($2,972 PLUS $891.60, TOTAL $3,863, ROUNDED TO $3,870).

THE CONTRACTING OFFICER STATES, ON THE BASIS OF THE COST TO THE CONTRACTOR AND THE 1962 PURCHASE PRICE OF THE SHIELDS, THAT, IN HIS OPINION, A BONA FIDE ERROR WAS MADE BY NRC. HOWEVER, THE GRANTING OF RELIEF IS DISAPPROVED ON THE GROUNDS THAT THE GOVERNMENT HAD NO NOTICE OF THE ERROR SINCE THERE WAS NO PUBLISHED PRICE LIST FOR THE SHIELDS AND THE NEGOTIATOR OF THE CONTRACT FOR THE ARSENAL WAS NOT THE CONTRACTING OFFICER WHO AWARDED THE 1962 CONTRACT. IT IS FURTHER STATED THAT A COMPLETE PRICE ANALYSIS IS NOT USUALLY MADE FOR A CONTRACT OF SUCH SMALL DOLLAR VALUE; THAT, IN ANY EVENT, THE CONTRACTOR, AT THE REQUEST OF THE ARSENAL, STATED ITS PRICE WAS FAIR AND REASONABLE AND HAD SUFFICIENT TIME TO DISCOVER ITS ERROR BEFORE AWARD; AND THAT THE MISTAKE WAS NOT ALLEGED UNTIL AFTER DELIVERY AND PAYMENT HAD BEEN MADE. HEADQUARTERS, ARMY MATERIEL COMMAND, CONCURS WITH THE CONTRACTING OFFICER'S RECOMMENDATION.

ARMED SERVICES PROCUREMENT REGULATION (ASPR) 17-205.1 (C), CITED IN THE CONTRACTING OFFICER'S LETTER OF MAY 6, 1965, AS PRECLUDING EQUITABLE ADJUSTMENT BECAUSE THE CLAIM WAS MADE AFTER PAYMENT, RELATES TO CASES WHICH THE DEPARTMENT OF DEFENSE IS AUTHORIZED TO CONSIDER FOR RELIEF UNDER PUBLIC LAW 85-804, AUGUST 28, 1958, 72 STAT. 972, 50 U.S.C. 1431-1435, AS IMPLEMENTED BY EXECUTIVE ORDER NO. 10789, DATED NOVEMBER 14, 1958. WHILE NO SIMILAR RESTRICTION IS IMPOSED UPON THE JURISDICTION OF OUR OFFICE TO CONSIDER CLAIMS BASED UPON MISTAKES IN BIDS, OUR DECISIONS ON SUCH CLAIMS ARE BASED UPON JUDICIAL PRECEDENT AND, AS A GENERAL RULE, NO RELIEF WILL BE GRANTED IN THE CASE OF A CONTRACTOR'S UNILATERAL MISTAKE AFTER THE BID OR OFFER HAS BEEN ACCEPTED BY THE GOVERNMENT UNLESS THE CIRCUMSTANCES ARE SUCH THAT THE GOVERNMENT SHOULD HAVE BEEN ON NOTICE OF THE PROBABILITY OF MISTAKE, THUS NECESSITATING VERIFICATION BEFORE ACCEPTANCE OF THE BID OR OFFER. OGDEN AND DOUGHERTY V. UNITED STATES, 102 CT.CL. 249, AND SALIGMAN ET AL. V. UNITED STATES, 56 F.SUPP. 505, 507.SEE ALSO KEMP V. UNITED STATES, 38 F.SUPP. 568, WHERE A MISTAKE IN BID WAS SO GROSS (LOW BID LESS THAN ONE THIRD OF THE NEXT TWO LOW BIDS) THAT IT COULD BE SAID THE GOVERNMENT "WAS OBVIOUSLY GETTING SOMETHING FOR NOTHING," AND RELIEF WAS THEREFORE ALLOWED SUBSEQUENT TO PERFORMANCE OF THE CONTRACT. CONSISTENT THEREWITH, OUR OFFICE HAS ALLOWED RELIEF WHERE ENFORCEMENT OF A CONTRACT AT THE ERRONEOUS BID PRICES WAS CONSIDERED TO BE UNCONSCIONABLE. 146413, AUGUST 1, 1961; B-144834, FEBRUARY 2, 1961. SEE ALSO C. N. MONROE MANUFACTURING COMPANY V. UNITED STATES, 143 F.SUPP. 449.

IN THE INSTANT CASE IT IS OUR OPINION THAT THE FACTS OF RECORD ESTABLISH THAT THE CONTRACTOR MADE A BONA FIDE ERROR IN ITS QUOTATION, AS ALLEGED, WHICH IT DID NOT DISCOVER UNTIL AFTER DELIVERY AND PAYMENT. WHILE THE RECORD INDICATES THAT THE CONTRACTING OFFICER HAD NO ACTUAL NOTICE OF THE ERROR UNTIL AFTER THE CONTRACT HAD BEEN FULFILLED, SINCE THE PROCUREMENT WAS ON A SOLE SOURCE BASIS AND THERE WAS NO OPPORTUNITY TO COMPARE BID PRICES, IT IS CLEAR THAT THE ARSENAL'S RECORDS OF THE 1962 PROCUREMENT DID INDICATE THAT THE 1964 BID PRICE MUST BE IN ERROR. WHETHER OR NOT INFORMATION OF THIS NATURE IN THE PROCURING ACTIVITY'S FILES MAY BE IMPUTED TO THE CONTRACTING OFFICER, IT IS EVIDENT THAT IF THE CONTRACTING OFFICER, IN COMPLIANCE WITH THE REQUIREMENT IN ASPR 3-807.2 FOR A COST OR PRICE ANALYSIS IN EVERY NEGOTIATED PROCUREMENT, HAD CONSULTED THE RECORD OF THE 1962 PURCHASE OF THE FURNACE, IT IS REASONABLE TO ASSUME THAT THE 1964 QUOTATION ON THE HEAT SHIELDS WOULD HAVE BEEN QUESTIONED SINCE IT WAS LESS THAN ONE TENTH OF THE 1962 CONTRACT PRICE FOR THE ITEMS. ACCORDINGLY, AND SINCE IT WOULD BE UNCONSCIONABLE FOR THE GOVERNMENT TO RETAIN THE ITEMS AT SUCH A LOW PRICE, AN ADDITIONAL PAYMENT TO THE CONTRACTOR IN THE AMOUNT OF $6,966, REPRESENTING THE CORRECT UNIT PRICE OF $3,870 PLUS $2 TRANSPORTATION CHARGE FOR EACH SHIELD, TOTAL $7,744, LESS THE PRIOR PAYMENT OF $778 FOR THE SHIELDS, IS AUTHORIZED.

A REFERENCE TO THIS DECISION SHOULD BE MADE ON THE VOUCHER COVERING SUCH PAYMENT.