B-157351, AUG. 20, 1965, 45 COMP. GEN. 84

B-157351: Aug 20, 1965

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THE RIGHT OF THE GOVERNMENT TO RECOVER SAVINGS INCIDENT TO SUBCONTRACTOR SUBSTITUTION IS PROTECTED UNDER THE CONTRACT AND INCREASED COSTS TO THE CONTRACTOR MAY NOT BE THE BASIS OF A BID PRICE INCREASE. THE INVITATION REQUIREMENT SHOULD PROVIDE FOR BID REJECTION WHEN A SUBCONTRACTOR IS NOT CONSIDERED RESPONSIBLE. 1965: REFERENCE IS MADE TO A LETTER DATED JULY 27. WERE PENED: J. 000 INVESTIGATION OF THE FACTORS BEARING ON THE RESPONSIBILITY OF THE APPARENT LOW BIDDER WAS SATISFACTORY WITH THE EXCEPTION OF ONE PROPOSED SUBCONTRACTOR. ARE MATTERS WHICH. THE SUCCESSFUL BIDDER AGREES THAT HE WILL NOT HAVE ANY OF THE LISTED CATEGORIES OF WORK INVOLVED IN THE PERFORMANCE OF THIS CONTRACT PERFORMED BY ANY SUBCONTRACTOR OTHER THAN THE SUBCONTRACTOR NAMED FOR THE PERFORMANCE OF SUCH WORK.

B-157351, AUG. 20, 1965, 45 COMP. GEN. 84

CONTRACTS - SUBCONTRACTS - BID SHOPPING - SUBCONTRACTOR SUBSTITUTION PRIOR TO AWARD THE SUBSTITUTION PRIOR TO CONTRACT AWARD OF A NAMED SUBCONTRACTOR DETERMINED TO BE NONRESPONSIBLE DOES NOT REQUIRE REJECTION OF THE LOW BID WHEN IN THE INTEREST OF THE GOVERNMENT AND ABSENT AN INVITATION PROVISION FOR REJECTION, THE BIDDER HAVING MET THE MATERIAL REQUIREMENT OF THE INVITATION TO FURNISH A LIST OF SUBCONTRACTORS FOR THE PURPOSE OF PREVENTING BID SHOPPING, AND THE APPLICATION BY THE CONTRACTING OFFICER PRIOR TO AWARD OF HIS AUTHORITY TO "DISAPPROVE OR REJECT THE EMPLOYMENT" OF A SUBCONTRACTOR CONSIDERED NONRESPONSIBLE BEING CONSISTENT WITH HIS DUTY TO MAKE AFFIRMATIVE DETERMINATIONS OF RESPONSIBILITY PRIOR TO AWARD AND, ALTHOUGH, THE RIGHT OF THE GOVERNMENT TO RECOVER SAVINGS INCIDENT TO SUBCONTRACTOR SUBSTITUTION IS PROTECTED UNDER THE CONTRACT AND INCREASED COSTS TO THE CONTRACTOR MAY NOT BE THE BASIS OF A BID PRICE INCREASE, TO AVOID THE POSSIBILITY OF BIDDER ELECTION NOT TO OFFER A SUBSTITUTE IF HE PREFERRED NOT TO TAKE THE AWARD, THE INVITATION REQUIREMENT SHOULD PROVIDE FOR BID REJECTION WHEN A SUBCONTRACTOR IS NOT CONSIDERED RESPONSIBLE.

TO THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, AUGUST 20, 1965:

REFERENCE IS MADE TO A LETTER DATED JULY 27, 1965, FROM YOUR GENERAL COUNSEL REQUESTING A DECISION AS TO WHETHER J. J. THOMAS, INC., THE APPARENT LOW BIDDER ON PROJECT SO236-001, EXTENSION AND MODERNIZATION OF THE U.S. POST OFFICE IN CLEBURNE, TEXAS, MAY BE ALLOWED TO MAKE A SUBSTITUTION ON ITS LIST OF PROPOSED SUBCONTRACTORS AND BE AWARDED THE CONTRACT OR WHETHER THE BID SHOULD BE REJECTED.

ON JUNE 24, 1965, THE FOLLOWING BIDS, RECEIVED PURSUANT TO THE INVITATION FOR BIDS, WERE PENED:

J. J. THOMAS, INC. $289,900

LEON H. STANLEY 294,492

B-F-W CONSTRUCTION CO., INC.303,686

BUSBOOM AND RAUH 319,000 INVESTIGATION OF THE FACTORS BEARING ON THE RESPONSIBILITY OF THE APPARENT LOW BIDDER WAS SATISFACTORY WITH THE EXCEPTION OF ONE PROPOSED SUBCONTRACTOR. J. J. THOMAS, INC., HAD NAMED X COMPANY AS THE PROPOSED SUBCONTRACTOR FOR PLUMBING AND FOR HEATING AND AIR CONDITIONING. YOUR GENERAL COUNSEL SAYS THAT SOME OF THE ADVERSE REPORTS, SUCH AS X COMPANY'S FAILURE TO PAY EMPLOYEES, EXCESSIVE DELAY IN COMPLETING WORK, AND ATTEMPTS TO DEVIATE FROM THE REQUIREMENTS OF PLANS AND SPECIFICATIONS, ARE MATTERS WHICH, IF REPEATED ON THIS CONTRACT, WOULD ADVERSELY AFFECT THE TIME OF PERFORMANCE, ENFORCEMENT OF LABOR LAWS, AND THE EXTENT OF GOVERNMENT INSPECTION AND SUPERVISION, SHOULD THE CONTRACT BE AWARDED TO THOMAS. ON SUCH A BASIS IT HAS BEEN DETERMINED THAT X COMPANY CANNOT BE CONSIDERED A RESPONSIBLE POTENTIAL SUBCONTRACTOR.

PURSUANT TO 41 CFR 5B-2.202-70, 30 F.R. 7436, THE SPECIAL CONDITIONS OF THE INVITATION CONTAIN THE FOLLOWING PROVISIONS:

2-21. LISTING OF SUBCONTRACTORS

A. FOR EACH OF THE CATEGORIES OF WORK CONTAINED IN THE LIST INCLUDED AS PART OF THE BID FORM, THE BIDDER SHALL SUBMIT THE NAME AND ADDRESS OF THE FIRM TO WHOM HE PROPOSES TO SUBCONTRACT THE WORK. THE LIST MAY BE SUBMITTED WITH THE BID OR SEPARATELY BY TELEGRAPH, MAIL OR OTHERWISE. SENT SEPARATELY, THE ENVELOPE MUST BE SEALED, IDENTIFIED AS TO CONTENT, AND ADDRESSED IN THE SAME MANNER AS PRESCRIBED FOR SUBMISSION OF BIDS. THE LIST MUST BE SUBMITTED TO THE PLACE DESIGNATED FOR RECEIPT OF BIDS NO LATER THAN THE EXACT TIME SET FOR BID OPENING AS STATED ELSEWHERE IN THIS INVITATION FOR BIDS. FAILURE TO SUBMIT THE LIST BY THE TIME SET FOR BID OPENING SHALL CAUSE THE BID TO BE CONSIDERED NONRESPONSIVE EXCEPT IN ACCORDANCE WITH INSTRUCTION NO. 7 OF THE INSTRUCTIONS TO BIDDERS (STANDARD FORM 22). EXCEPT AS OTHERWISE PROVIDED HEREIN, THE SUCCESSFUL BIDDER AGREES THAT HE WILL NOT HAVE ANY OF THE LISTED CATEGORIES OF WORK INVOLVED IN THE PERFORMANCE OF THIS CONTRACT PERFORMED BY ANY SUBCONTRACTOR OTHER THAN THE SUBCONTRACTOR NAMED FOR THE PERFORMANCE OF SUCH WORK.

F. NO SUBSTITUTIONS FOR THE FIRMS NAMED WILL BE PERMITTED EXCEPT IN UNUSUAL SITUATIONS AND THEN ONLY UPON THE SUBMISSION IN WRITING TO THE CONTRACTING OFFICER OF A COMPLETE JUSTIFICATION THEREFOR AND RECEIPT OF THE CONTRACTING OFFICER'S WRITTEN APPROVAL.

G. NOTWITHSTANDING ANY OF THE PROVISIONS OF THIS CLAUSE, THE CONTRACTING OFFICER SHALL HAVE AUTHORITY TO DISAPPROVE OR REJECT THE EMPLOYMENT OF ANY SUBCONTRACTOR HE HAS DETERMINED NONRESPONSIBLE; HE SHALL HAVE THE RIGHT TO REQUIRE ANY INFORMATION CONCERNING THE COST OF PERFORMANCE OF THIS CONTRACT BY ANY SUBCONTRACTOR LISTED OR PROPOSED AS A SUBSTITUTE FOR A LISTED SUBCONTRACTOR, AS WELL AS THE RIGHT TO REQUIRE ANY OTHER INFORMATION HE DEEMS NECESSARY CONCERNING ANY LISTED SUBCONTRACTOR OR SUBCONTRACTOR PROPOSED AS A SUBSTITUTE. IMPOSITION OF ANY REQUIREMENTS UNDER THIS SUBPARAGRAPH SHALL NOT GIVE RISE TO ANY COURSE OF ACTION AGAINST THE GOVERNMENT BY THE SUCCESSFUL BIDDER OR BY ANY SUBCONTRACTOR ENGAGED OR PROPOSED TO BE ENGAGED HEREUNDER.

I. IN THE EVENT THE BIDDER FAILS IN CONNECTION WITH THIS BID (1) TO IDENTIFY THE SUBCONTRACTORS AS REQUIRED BY SUBPARAGRAPH A., OR (2) TO COMPLY WITH SUBPARAGRAPH C. IF THE BIDDER HIMSELF INTENDS TO PERFORM ONE OR MORE LISTED CATEGORIES OF WORK, THE BID WILL BE REJECTED AS NONRESPONSIVE TO THE INVITATION.

IT IS STATED THAT THE FOLLOWING PROVISION OF FPR 1-1.310-11 MAKES THE FOREGOING RELEVANT TO THE DECISION AS TO THE RESPONSIBILITY OF J. J. THOMAS, INC.: GENERALLY, THE EVALUATION OF THE QUALIFICATIONS OF SUBCONTRACTORS IS A FUNCTION OF THE PRIME CONTRACTOR. HOWEVER, TO THE EXTENT THAT A PROSPECTIVE CONTRACTOR CANNOT MEET THE STANDARD IN SEC. 1- 1.310-5 (A) (2) EXCEPT BY MEANS OF PROPOSED SUBCONTRACTING, THE PROSPECTIVE PRIME CONTRACTOR SHALL NOT BE CONSIDERED TO BE RESPONSIBLE UNLESS RECENT PERFORMANCE HISTORY INDICATES AN ACCEPTABLE PURCHASING AND SUBCONTRACTING SYSTEM OR PROSPECTIVE MAJOR SUBCONTRACTORS ARE DETERMINED BY THE CONTRACTING OFFICER TO SATISFY THAT STANDARD.

YOUR GENERAL COUNSEL STATES THE BASIC PROBLEM AS FOLLOWS:

WHILE THE FOREGOING PROVISIONS OF THE INVITATION CLEARLY PERMIT SUBSTITUTIONS WHEN, AFTER AWARD, A NAMED SUBCONTRACTOR IS DETERMINED NOT TO BE RESPONSIBLE OR WHEN THERE ARE OTHER REASONS DEEMED JUSTIFIABLE BY THE CONTRACTING OFFICER, IT IS LESS CLEAR WHETHER THEY SHOULD BE SIMILARLY APPLIED WHEN, PRIOR TO AWARD, A SUBCONTRACTOR HAS BEEN FOUND NON- RESPONSIBLE.

IN THE INSTANT SITUATION, THE LISTING IS RESPONSIVE TO THE EXPLICIT TERMS OF THE REQUIREMENT. THE QUESTION IS WHETHER THE TERMS OF THE INVITATION INCLUDE AN IMPLICIT REQUIREMENT THAT THE BIDDER LIST ONLY RESPONSIBLE SUBCONTRACTORS IN ORDER TO BE RESPONSIVE OR WHETHER, THE BID HAVING MET THE REQUIREMENT SUFFICIENTLY TO BE CONSIDERED RESPONSIVE, THE REMAINING APPLICATION OF THE REQUIREMENT MERELY GOES TO A QUESTION OF RESPONSIBILITY SO AS TO PERMIT SUBSTITUTION.

THE PURPOSE OF 41 CFR 5B-2.202-70 IS TO MINIMIZE THE PRACTICE OF BID SHIPPING BY SUCCESSFUL BIDDERS, WHO, AFTER THEIR STATUS AS LOW BIDDERS HAS BEEN DISCLOSED, ARE IN A POSITION TO SOLICIT LOWER PRICES FROM FIRMS OTHER THAN THOSE ON WHOSE QUOTATIONS THEIR BIDS WERE BASED. THIS PRACTICE HAS BEEN THE SUBJECT OF LONG AND WIDESPREAD COMPLAINT, PARTICULARLY FROM FIRMS ENGAGED IN THE MECHANICAL SPECIALTIES INVOLVED IN PUBLIC BUILDING CONSTRUCTION.

IN SUBMITTING THE QUESTION, THE GENERAL COUNSEL REFERRED TO OUR DECISIONS IN 39 COMP. GEN. 247, IN WHICH WE HELD THAT FAILURE TO SUBMIT A LIST OF SUBCONTRACTORS, REQUIRED BY THE INVITATION FOR THE STATED PURPOSE OF EVALUATING THE RESPONSIBILITY OF BIDDERS, DID NOT REQUIRE REJECTION OF A BID. IN THE COURSE OF THAT DECISION WE SAID, ARGUENDO, THAT IF THE REQUIRED LIST WERE CONSIDERED A MATERIAL PART OF THE BID, "IT WOULD FOLLOW AS A NECESSARY COROLLARY THAT THE SUBCONTRACTORS LISTED ARE THOSE WHICH MUST BE USED, SINCE, IF THE BIDDER COULD NEVERTHELESS AMEND THE LIST AFTER BID OPENING, THE REQUIREMENT COULD SERVE NO USEFUL PURPOSE AND WOULD ESTABLISH AN ANOMALY WHEREBY A BID COULD BE REJECTED FOR FAILURE TO FURNISH INFORMATION WHICH THE BIDDER COULD CHANGE AFTER OPENING.' IN VIEW OF THE EXPRESS PROVISIONS OF THE INVITATION HERE UNDER CONSIDERATION WE DO NOT FEEL THAT THE QUOTED LANGUAGE IS DETERMINATIVE OF THE QUESTION PRESENTED.

BY THE TERMS OF THE SUBJECT INVITATION THE FURNISHING OF A LIST OF SUBCONTRACTORS WAS MADE A MATERIAL REQUIREMENT, AND IT IS CLEARLY PROVIDED THAT A BID WILL BE REJECTED AS NONRESPONSIVE IF SUBCONTRACTORS ARE NOT LISTED. ON THE OTHER HAND, THERE IS NO SPECIFIC STATEMENT THAT THE LISTING OF A NONRESPONSIBLE SUBCONTRACTOR WILL REQUIRE REJECTION OF THE BID, AND THE LANGUAGE OF PARAGRAPH G OF THE LISTING REQUIREMENT APPEARS RATHER TO NEGATIVE SUCH AN INTERPRETATION. THE AUTHORITY OF THE CONTRACTING OFFICER, AS THEREIN STATED, IS "TO DISAPPROVE OR REJECT THE EMPLOYMENT" OF A SUBCONTRACTOR HE CONSIDERS NONRESPONSIBLE, RATHER THAN TO REJECT THE BID LISTING SUCH SUBCONTRACTOR. FURTHERMORE, TO CONSTRUE THE PROVISIONS OF PARAGRAPHS F AND G AS APPLICABLE ONLY AFTER AWARD OF A CONTRACT WOULD BE INCONSISTENT WITH THE DUTY OF A CONTRACTING OFFICER TO MAKE AFFIRMATIVE DETERMINATIONS OF RESPONSIBILITY PRIOR TO AWARD.

THE FURTHER PROVISIONS OF PARAGRAPH G GIVING THE CONTRACTING OFFICER THE RIGHT TO REQUIRE INFORMATION CONCERNING SUBCONTRACTOR COSTS APPEAR ADEQUATE TO PREVENT EVASION OF THE PURPOSE OF THE LISTING REQUIREMENT TO PREVENT BID SHOPPING, SINCE THE CONTRACTING OFFICER IS THEREBY PUT IN A POSITION TO REQUIRE THAT ANY REDUCTION IN COST INCIDENT TO A PROPOSED SUBSTITUTION OF A SUBCONTRACTOR BE PASSED ON TO THE GOVERNMENT THROUGH A REDUCTION IN THE BID PRICE, WHICH CAN PROPERLY BE OFFERED BY A LOW BIDDER. AT THE SAME TIME THESE PROVISIONS WOULD TEND TO DISCOURAGE BIDDERS FROM PROPOSING QUESTIONABLE SUBCONTRACTORS, SINCE THE INCREASED COST WHICH MIGHT BE INCURRED IN THE EVENT OF SUBSTITUTION OF ANOTHER COULD NOT PROPERLY BE MADE THE BASIS OF AN INCREASE IN THE BID.

THE ONLY POSSIBLE EVIL OR ABUSE WHICH WE CAN ENVISION AS A RESULT OF PERMITTING SUBSTITUTION OF A SUBCONTRACTOR AFTER BID OPENING AND BEFORE AWARD IS THE POSSIBILITY THAT A BIDDER MIGHT LIST ONE WHICH HE WOULD EXPECT TO BE REJECTED AND THEN, AFTER OPENING AND DISAPPROVAL OF THE LISTED CONTRACTOR, ELECT NOT TO OFFER A SUBSTITUTE IF HE PREFERRED NOT TO TAKE AWARD AT HIS BID PRICE. IF IT BE CONSIDERED BY YOUR AGENCY THAT THIS OR OTHER CONSIDERATIONS MAKE IT UNDESIRABLE TO PERMIT SUBCONTRACTOR SUBSTITUTION AFTER BID OPENING WE BELIEVE THAT THE PERTINENT PROVISIONS SHOULD BE REVISED TO MAKE IT CLEAR THAT LISTING OF A SUBCONTRACTOR NOT CONSIDERED RESPONSIBLE BY THE CONTRACTING OFFICER WILL REQUIRE REJECTION OF THE BID. IN THE ABSENCE OF SUCH A PROVISION WE INTERPRET THE LANGUAGE OF THE SUBJECT INVITATION AS AUTHORIZING THE CONTRACTING OFFICER IN SUCH A CASE TO PERMIT THE SUBSTITUTION OF A SUBCONTRACTOR WHEN IN HIS SOUND DISCRETION HE FINDS THAT SUCH ACTION WOULD BE IN THE GOVERNMENT'S INTEREST.