B-158805, JUL. 21, 1966

B-158805: Jul 21, 1966

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TO PATRICK LUMBER COMPANY: REFERENCE IS MADE TO YOUR LETTER OF MARCH 25. YOU SAY THAT (1) YOU ARE CONCERNED AS A COMPANY BECAUSE YOU FEEL THE BIDDING AND AWARD WAS HANDLED IMPROPERLY. (2) YOU ARE CONCERNED AS INDIVIDUAL CITIZENS AS TO WHETHER THE LUMBER WILL BE FURNISHED AS CHEAPLY AS POSSIBLE AND DELIVERED IN ACCORDANCE WITH SPECIFICATIONS AS QUICKLY AS POSSIBLE UNDER EMERGENCY CONDITIONS. THE RMK-BRJ JOINT VENTURE IS THE PRIME CONTRACTOR FOR THE CONSTRUCTION OF CERTAIN AIRFIELDS AND COMMUNICATION FACILITIES IN SOUTH VIETNAM. UNDER THE TERMS OF ITS CONTRACT THE CONTRACTOR IS DESIGNATED AS THE PURCHASING AGENT OF THE GOVERNMENT FOR THE PURCHASE OF ALL MATERIALS REQUIRED TO ACCOMPLISH THE WORK.

B-158805, JUL. 21, 1966

TO PATRICK LUMBER COMPANY:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 25, 1966, EXPRESSING CONCERN ABOUT THE AWARD OF A NAVY (BUREAU OF YARDS AND DOCKS) CONTRACT FOR 78,400,000 BOARD FEET OF LUMBER NEEDED IN SOUTH VIETNAM TO ONE FIRM, NIEDERMEYER-MARTIN COMPANY (NM) OF PORTLAND, OREGON, BY THE JOINT VENTURE OF RAYMOND INTERNATIONAL OF DELAWARE, INC., MORRISON KNUDSEN OF ASIA, INC., BROWN AND ROOT, INC., AND THE J. A. JONES CONSTRUCTION COMPANY (RMK- BRJ). YOU SAY THAT (1) YOU ARE CONCERNED AS A COMPANY BECAUSE YOU FEEL THE BIDDING AND AWARD WAS HANDLED IMPROPERLY; AND (2) YOU ARE CONCERNED AS INDIVIDUAL CITIZENS AS TO WHETHER THE LUMBER WILL BE FURNISHED AS CHEAPLY AS POSSIBLE AND DELIVERED IN ACCORDANCE WITH SPECIFICATIONS AS QUICKLY AS POSSIBLE UNDER EMERGENCY CONDITIONS.

THE RMK-BRJ JOINT VENTURE IS THE PRIME CONTRACTOR FOR THE CONSTRUCTION OF CERTAIN AIRFIELDS AND COMMUNICATION FACILITIES IN SOUTH VIETNAM. UNDER THE TERMS OF ITS CONTRACT THE CONTRACTOR IS DESIGNATED AS THE PURCHASING AGENT OF THE GOVERNMENT FOR THE PURCHASE OF ALL MATERIALS REQUIRED TO ACCOMPLISH THE WORK. THE CONTRACT DOES NOT ESTABLISH ANY PROCUREMENT PROCEDURES FOR CONDUCTING SUCH PURCHASES OTHER THAN THOSE WHICH CONCERN APPROVAL OR DIRECTION OF THE OFFICER IN CHARGE OF CONSTRUCTION. FEBRUARY 28, 1966, RMK-BRJ ISSUED A REQUEST FOR QUOTATIONS (RFQ) TO 18 LUMBER SUPPLIERS ON FOUR IDENTICAL LOTS OF LUMBER. EACH LOT CALLED FOR 19,600,000 BOARD FEET OF PRESSURE TREATED 1 INCH, 2 INCHES AND 4 INCHES S4S DOUGLAS FIR, CONSTRUCTION GRADE OR BETTER AND IN VARIOUS LENGTHS AND WIDTHS. DELIVERY WAS REQUIRED AT THE RATE OF 4,000,000 BOARD FEET PER MONTH STARTING JULY 1, 1966. PARAGRAPH 12 OF THE RFQ PROVIDED THAT THE CONTRACTOR COULD ACCEPT ANY UNQUALIFIED ITEM OR GROUP OF ITEMS OF ANY BID AND THAT THE ORDER WOULD BE AWARDED TO THAT RESPONSIBLE SELLER WHO REPRESENTED THE MOST ADVANTAGEOUS BID, PRICE AND OTHER FACTORS CONSIDERED.

ELEVEN BIDS WERE RECEIVED BY THE DUE DATE, MARCH 15, 1966, AND WERE OPENED ON THE NEXT DAY, MARCH 16. NIEDERMEYER-MARTIN SUBMITTED THE LOWEST CONFORMING BID ON ALL FOUR LOTS IN THE AMOUNTS OF $3,262,200; $3,301,400; $3,497,400 AND $3,693,400 WITH THE ADDITIONAL PROVISION THAT FOR AN AWARD OF ALL LOTS, THE LOW PRICE OF $3,262,200 WOULD APPLY TO EACH LOT THEREBY MAKING ITS TOTAL BID $13,048,800 FOR THE 78,400,000 BOARD FEET OF LUMBER. ALTHOUGH YOUR FIRM SUBMITTED THE LOWEST CONFORMING BID FOR A SINGLE LOT IN THE AMOUNT OF $3,077,200, AND A CONFORMING BID OF $3,547,600 FOR A SECOND LOT, AN AWARD TO YOU OF ONE LOT AT $3,077,200 AND AWARD OF THE REMAINING THREE LOTS TO NM FOR $3,262,200; $3,301,400 AND $3,497,400 WOULD HAVE RESULTED IN A HIGHER PRICE TO THE GOVERNMENT ($13,138,200) THAN THE $13,048,800 BID BY NM FOR ALL FOUR LOTS. SUCH BID BY NM, THEREFORE, WAS CONSIDERED TO BE THE MOST ADVANTAGEOUS TO THE GOVERNMENT (PRICE AND OTHER FACTORS CONSIDERED) AND AWARD OF ALL FOUR LOTS WAS MADE TO THAT FIRM ON MARCH 18, 1966, IN ACCORDANCE WITH PARAGRAPH 12 OF THE RFQ.

PURCHASE ORDERS WERE ISSUED BY RMK-BRJ ON MARCH 18 AT THE NM BID PRICE OF $13,048,800 LESS A $211,200 REDUCTION APPLICABLE TO THE INCISING OF 1 INCH AND 2 INCH LUMBER WHICH REQUIREMENT WAS ELIMINATED. IN SUCH CONNECTION IT IS NOTED THAT EVEN HAD SUCH REDUCTION BEEN REFLECTED PROPORTIONATELY IN EACH LOT OF THE RMK-BRJ BID AND COMPARED WITH YOUR BID LESS THE $88,000 CORRESPONDING CHARGE PER LOT QUOTED BY YOU FOR THE INCISING FACTOR, AN AWARD TO NM FOR THE FOUR LOTS WOULD STILL HAVE BEEN AT THE LOWEST PRICE TO THE GOVERNMENT ($12,837,600 AS COMPARED WITH $12,891,800 FOR THE AWARD OF ONE LOT TO YOU AND THREE LOTS TO NM).

IT IS REPORTED THAT AFTER ISSUANCE OF THE PURCHASE ORDERS URGENT OPERATIONAL MILITARY REQUIREMENTS IN SOUTH VIETNAM MADE IT NECESSARY FOR THE GOVERNMENT TO DIRECT RMK-BRJ TO ORDER NM TO EXPEDITE SHIPMENTS IMMEDIATELY. THE GOVERNMENT OFFICER IN CHARGE OF CONSTRUCTION, SAIGON, DETERMINED THAT THERE WAS NO AVAILABLE LUMBER IN SOUTH VIETNAM OR ENROUTE, AND THAT WAITING UNTIL JULY FOR THE FIRST DELIVERY WOULD BE UNTENABLE. WHILE NAVY REPORTS, AS YOU ALSO STATED IN YOUR LETTER, THAT EARLIER DELIVERIES COULD BE OBTAINED BY AN EASING OF THE SPECIFICATIONS, IT IS NOTED THAT THE RFQ EXPRESSED A PREFERENCE FOR DELIVERY AS "SOON AS POSSIBLE" AND, APPARENTLY IN REPLY THERETO, NM STATED IN ITS QUOTATIONS TRANSMITTAL LETTER OF MARCH 15, 1966, THAT "WE ARE IN A POSITION TO COMMENCE SHIPMENT OF YOUR TREATED LUMBER IMMEDIATELY, AND CONTINUE UNDER ANY REASONABLE SCHEDULE YOU MAY DESIRE.' IN ITS QUOTATIONS DATED MARCH 14, NM HAD MADE A NOTATION THAT IT COULD QUOTE LOWER PRICES AND PROVIDE AN EARLIER DELIVERY THAN SPECIFIED IN THE INQUIRY IF RMK-BRJ WOULD CONSIDER OTHER SPECIES, LENGTHS, GRADES, ETC. THE RECORD DOES NOT SHOW THE SIZE OF THE IMMEDIATE SHIPMENTS OF LUMBER, CONFORMING TO THE SPECIFICATIONS, CONTEMPLATED BY NM IN ITS LETTER OF MARCH 15 OR WHAT THAT FIRM CONSIDERED THE LIMITS OF A REASONABLE SCHEDULE TO BE. A CHANGE ORDER WAS ISSUED THEREAFTER ON MARCH 28 WHICH RELAXED THE ORIGINAL SPECIFICATIONS SIGNIFICANTLY FOR THE ENTIRE 78,400,000 BOARD FEET OF LUMBER. SUCH ORDER PERMITTED THE SUPPLYING OF 50 PERCENT OF THE PROCUREMENT IN HEMLOCK AND LARCH, 20 PERCENT IN STANDARD GRADE AND 25 PERCENT IN 10 FEET TO 12 FEET LENGTHS FOR WHICH CHANGES THE PURCHASE PRICE WAS SUBSEQUENTLY REDUCED IN THE AMOUNTS OF $216,480; $78,400 AND $21,560, RESPECTIVELY. THE SPECIFICATIONS HAVE ALSO BEEN REVISED TO MAKE LUMBER IN GREATER LENGTHS (UP TO 30 FEET) ACCEPTABLE, HOWEVER, NO PRICE ADJUSTMENT WAS MADE FOR THAT CHANGE. CONTRARY TO YOUR UNDERSTANDING, THE RECORD DOES NOT INDICATE ANY REVISION OF THE REQUIREMENT THAT ALL LUMBER BE PRESSURE TREATED WITH WATER REPELLENT.

UNDER THE RELAXED SPECIFICATIONS, NM AGREED TO FURNISH THE LUMBER IN ACCORDANCE WITH THE FOLLOWING DELIVERY SCHEDULE:

TABLE

MINIMUM QUANTITY MAXIMUM

(BOARD FEET) READINESS DATE

1,500,000 APRIL 18, 1966

2,500,000 APRIL 28, 1966

3,000,000 MAY 7, 1966

3,000,000 MAY 17, 1966

15,000,000 JUNE 17, 1966

16,000,000 JULY 17, 1966

16,000,000 AUG. 17, 1966

16,000,000 SEPT. 17, 1966

5,400,000 OCT. 17, 1966

THE RECORDS INDICATE THAT NM HAS BEEN MEETING THE REVISED DELIVERY SCHEDULE, AND AS OF JUNE 1, 1966, IT HAD DELIVERED TO THE PORT OF EMBARKATION APPROXIMATELY 30.3 MILLION BOARD FEET OF LUMBER. THE LUMBER IS BEING INSPECTED BY A DEPARTMENT OF DEFENSE CONTRACT ADMINISTRATION SERVICES OFFICE REPRESENTATIVE AND ALSO BY AN RMK-BRJ INSPECTOR TO ASSURE COMPLIANCE WITH THE SPECIFICATIONS. AT THE REQUEST OF THE RESIDENT OFFICER IN CHARGE OF CONSTRUCTION (PACIFIC), RMK-BRJ RETAINED AN INDEPENDENT INSPECTION AGENCY TO PERFORM PENTACHLOROPHENOL RETENTION TESTS ON DELIVERED LUMBER. THE TESTS RESULTS SHOW THAT IN EACH OF THE FIFTY TESTS MADE, THE MINIMUM REQUIREMENTS OF THE SPECIFICATIONS HAD BEEN MET.

FROM THE FOREGOING, WE DO NOT PERCEIVE A VALID BASIS ON WHICH TO QUESTION THE LEGALITY OF THE CONTRACT AWARDED NIEDERMEYER-MARTIN, AND IT APPEARS THAT SUCH FIRM IS MEETING ITS CONTRACTUAL RESPONSIBILITIES.

WE HAVE, HOWEVER, CONSIDERABLE DOUBT THAT THE FINANCIAL INTERESTS OF THE GOVERNMENT WERE BEST SERVED BY THE MANNER IN WHICH THIS PROCUREMENT WAS PROCESSED. IT APPEARS THAT PREAWARD ATTEMPTS BY PROSPECTIVE BIDDERS TO GET THE SPECIFICATIONS REVISED, PARTICULARLY AS TO LENGTHS, SPECIES AND GRADE, SO THAT BETTER PRICES AND EARLIER DELIVERY COULD BE QUOTED WERE UNAVAILING, AND BIDDERS WERE NOT AFFORDED THE OPPORTUNITY TO BID ON THE LUMBER ACTUALLY PROCURED ALTHOUGH THE SPECIFICATIONS WERE REVISED IN THOSE SPECIFIC AREAS SHORTLY AFTER AWARD AND PRICE ADJUSTMENTS NEGOTIATED. WHILE IT HAS BEEN REPORTED THAT THE CHANGES IN THE SPECIFICATIONS WERE OCCASIONED AFTER AWARD BY URGENT OPERATIONAL MILITARY REQUIREMENTS NECESSITATING EARLIER SHIPMENTS THAN REQUIRED BY THE RFQ, OUR INVESTIGATION IN THIS MATTER HAS BEEN UNABLE TO DISCLOSE ANY RECORD OR DOCUMENTATION WHICH ESTABLISHES THE DATE WHEN IT WAS FIRST DECIDED THAT THE SPECIFICATIONS SHOULD BE RELAXED.

WITH RESPECT TO THE CHANGE WHICH ELIMINATED THE INCISING OF 1 INCH AND 2 INCH LUMBER, HOWEVER, IT APPEARS THAT AT LEAST THE DESIRABILITY OF SUCH A CHANGE MAY HAVE BEEN EVIDENT IN TIME TO PERMIT BIDDERS TO CONSIDER SUCH CHANGE IN THEIR QUOTATIONS, INASMUCH AS IT WAS EFFECTED IN THE PURCHASE ORDERS ISSUED ON MARCH 18, THE DATE OF THE AWARD OF THE CONTRACT. THE RECORD PRESENTLY BEFORE US DOES NOT SHOW WHETHER THE PRICE REDUCTIONS NEGOTIATED FOR THAT AND THE OTHER CHANGES WERE REASONABLE UNDER THE CIRCUMSTANCES INVOLVED. SUCH FACTORS, HOWEVER, WILL BE SUBJECT TO OUR FURTHER CONSIDERATION WHEN THE EXPENDITURES MADE PURSUANT TO THE RMK-BRJ CONTRACT ARE REVIEWED BY US IN THE EXERCISE OF OUR AUDIT FUNCTIONS.