B-159665, OCTOBER 24, 1966, 46 COMP. GEN. 360

B-159665: Oct 24, 1966

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THE NEGOTIATION OF THE PROCUREMENT UNDER 10 U.S.C. 2304/A) (10) IS NOT REQUIRED BY STATUTE. WHERE NEGOTIATION OF A CONTRACT IS JUSTIFIED UNDER MORE THAN ONE OF THE NUMBERED EXCEPTIONS IN 10 U.S.C. 2304/A). THE GENERAL ACCOUNTING OFFICE WILL NOT ORDINARILY SUBSTITUTE ITS JUDGMENT FOR THAT OF THE CONTRACTING AGENCY. THE FACT THAT A CONTRACT WAS NEGOTIATED UNDER SECTION 2304/A) (10/. PROVIDING FOR NEGOTIATION AFTER ADVERTISING WHEN THE HEAD OF AN AGENCY DETERMINES BID PRICES ARE UNREASONABLE. WILL NOT BE QUESTIONED. NOTWITHSTANDING NEGOTIATION UNDER SECTION 2304/A) (15) WOULD HAVE BEEN JUSTIFIED. THE SUBSTANTIAL DIFFERENCE BETWEEN BID PRICES SUPPORT THE ASSUMPTION SPECIFICATIONS WERE INADEQUATE TO OBTAIN COMPETITION BY FORMAL ADVERTISING.

B-159665, OCTOBER 24, 1966, 46 COMP. GEN. 360

BIDDERS - PREFERENCE - INVITATION CANCELED AND PROCUREMENT NEGOTIATED. UPON THE CANCELLATION OF AN INVITATION FOR BIDS BECAUSE THE ONLY TWO ACCEPTABLE TECHNICAL PROPOSALS RECEIVED UNDER THE FIRST STEP OF A TWO STEP PROCUREMENT INDICATED THAT COMPETITION HAD BEEN INADEQUATE TO INSURE REASONABLE PRICES, THE NEGOTIATION OF THE PROCUREMENT UNDER 10 U.S.C. 2304/A) (10) IS NOT REQUIRED BY STATUTE, REGULATION, OR DECISION TO BE LIMITED TO THE TWO FIRMS SUBMITTING TECHNICAL PROPOSALS UNDER THE CANCELED PROCUREMENT ON THE BASIS OF THE TIME AND MONEY EXPENDED BY THE BIDDERS TO DEMONSTRATE TECHNICAL COMPETENCY DURING THE FIRST STEP OF THE PROPOSED PROCUREMENT IN VIEW OF THE FACT THAT OTHER BIDDERS PARTICIPATING IN FUTURE NEGOTIATIONS WOULD BE REQUIRED TO DEMONSTRATE COMPETENCY. CONTRACTS - NEGOTIATION - AFTER ADVERTISING - MORE THAN ONE EXCEPTION AVAILABLE. WHERE NEGOTIATION OF A CONTRACT IS JUSTIFIED UNDER MORE THAN ONE OF THE NUMBERED EXCEPTIONS IN 10 U.S.C. 2304/A), THE GENERAL ACCOUNTING OFFICE WILL NOT ORDINARILY SUBSTITUTE ITS JUDGMENT FOR THAT OF THE CONTRACTING AGENCY, AND THEREFORE AFTER CANCELLATION OF AN INVITATION FOR BIDS BY THE CONTRACTING OFFICER BECAUSE THE SUBSTANTIAL DIFFERENCE IN BID PRICES RECEIVED INDICATED THAT COMPETITION HAD BEEN INADEQUATE TO INSURE A REASONABLE PRICE, THE FACT THAT A CONTRACT WAS NEGOTIATED UNDER SECTION 2304/A) (10/---IMPRACTICABLE TO OBTAIN COMPETITION BY ADVERTISING---RATHER THAN SECTION 2304/A) (15), PROVIDING FOR NEGOTIATION AFTER ADVERTISING WHEN THE HEAD OF AN AGENCY DETERMINES BID PRICES ARE UNREASONABLE, WILL NOT BE QUESTIONED, NOTWITHSTANDING NEGOTIATION UNDER SECTION 2304/A) (15) WOULD HAVE BEEN JUSTIFIED, THE SUBSTANTIAL DIFFERENCE BETWEEN BID PRICES SUPPORT THE ASSUMPTION SPECIFICATIONS WERE INADEQUATE TO OBTAIN COMPETITION BY FORMAL ADVERTISING.

TO SELLERS, CONNER AND CUNEO, OCTOBER 24, 1966:

IN YOUR LETTERS OF JULY 26 AND SEPTEMBER 13, 1966, YOU PROTEST ON BEHALF OF YOUR CLIENT, ITT-FEDERAL LABORATORIES, THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION'S (NASA-S) CANCELLATION OF INVITATION FOR BIDS (IFB) NO. CC-458-6, ISSUED BY THE JOHN F. KENNEDY SPACE CENTER (KSC) FOR THREE UNIFIED S-BAND TELEMETRY CHECKOUT RECEIVING SYSTEMS, AND YOU QUESTION NASA'S AUTHORITY TO OPEN SUBSEQUENT NEGOTIATIONS FOR THE SAME ITEMS TO ANY FIRM OTHER THAN THE TWO WHICH QUALIFIED UNDER THE FIRST STEP OF THE CANCELED IFB.

THE RECORD INDICATES THAT, AS THE FIRST PART OF A TWO-STEP PROCUREMENT, KSC MAILED A REQUEST FOR TECHNICAL PROPOSALS TO 27 POTENTIAL CONTRACTORS ON JANUARY 28, 1966. THE EQUIPMENT ON WHICH PROPOSALS WERE INVITED HAS CIRCUITY AND PACKAGING WHICH DIFFERS FROM THAT INVOLVED IN PREVIOUS PROCUREMENTS BY KSC. YOUR CLIENT, AND MOTOROLA, INC; WERE THE ONLY FIRMS WHICH SUBMITTED TECHNICAL PROPOSALS, AND BOTH WERE DETERMINED TO BE ACCEPTABLE. MOTOROLA'S PROPOSAL INVOLVED A DATA EXTRACTION DEVICE OF STANDARD MANUFACTURE, WHILE ITT'S APPARENTLY DID NOT.

ON MAY 17, 1966, KSC ISSUED STEP TWO OF THE IFB, REQUESTING PRICES FROM THE TWO FIRMS. ON MAY 23 ITT ASKED KSC IF A BID ON A COST-PLUS INCENTIVE- FEE BASIS WOULD BE CONSIDERED, SINCE THE DATA EXTRACTION DEVICE SPECIFIED IN THE SYSTEM WAS BASICALLY A DEVELOPMENT ITEM. KSC ANSWERED IN THE NEGATIVE, POINTING OUT THAT THE REQUEST FOR TECHNICAL PROPOSALS HAD STATED THAT THE CONTRACT WOULD BE FIXED-PRICE. (ALSO SEE NASA PROCUREMENT REGULATION 2.502/V), INDICATING THE INAPPROPRIATENESS OF COST TYPE CONTRACTS IN TWO-STEP ADVERTISED PROCUREMENTS.) KSC ALSO ADVISED ITT THAT THE GOVERNMENT WAS UNDER THE IMPRESSION THAT A GREAT MAJORITY OF THE COMPONENTS COMPRISING THE SYSTEM WERE LARGELY COMMERCIAL, SO THAT THE PROCUREMENT COULD BE BID ON A FIXED-PRICE BASIS.

THE GOVERNMENT'S ESTIMATE OF THE PROBABLE PRICE FOR THIS EQUIPMENT WAS $120,000, WHICH WAS ALSO THE MAXIMUM AMOUNT KSC HAD BEEN AUTHORIZED TO COMMIT FOR THIS PROCUREMENT. AT BID OPENING ON JUNE 7, 7, 1966, THE FOLLOWING BIDS WERE RECEIVED:

ITT 249,000

MOTOROLA 79,673

YOUR CLIENT'S BID WAS ON A FIXED-PRICE-BASIS. THE MOTOROLA BID WAS EXPRESSLY CONDITIONED UPON SUBSTITUTING THE PROVISIONS IN ITS BASIC AGREEMENT NO. NAS-7-422 WITH NASA, FOR THE GENERAL PROVISIONS CONTAINED IN THE IFB. ALTHOUGH MOTOROLA STATED SPECIFICALLY THAT IT WOULD "ACCOMPLISH THE TASK AS STATED FOR A FIXED PRICE OF $79,673", THE BASIC AGREEMENT CONTAINS PROVISIONS APPLICABLE TO COST CONTRACTS OF A RESEARCH AND DEVELOPMENT NATURE. MOTOROLA SUBSEQUENTLY ALLEGED THAT THE BASIC AGREEMENT HAD BEEN INADVERTENTLY INCORPORATED IN ITS BID, HOWEVER THE CONTRACTING OFFICER, FOLLOWING ADVICE OF COUNSEL AT KSC, REJECTED MOTOROLA'S BID AS NONRESPONSIVE.

SINCE THE ITT BID WAS MORE THAN DOUBLE THE AMOUNT OF THE PRICE ESTIMATED BY THE GOVERNMENT, AND MORE THAN THREE TIME THE PRICE BID BY MOTOROLA, THE PROCURING OFFICER ASKED THE REQUIRING ACTIVITY AT KSC TO REVIEW THE TECHNICAL PROPOSAL AND TO EXPRESS AN OPINION ON TECHNICAL ASPECTS OF THE REQUIREMENT WHICH MIGHT ACCOUNT FOR THE LARGE PRICE VARIANCE BETWEEN THE ITT AND MOTOROLA BIDS. THE REQUIRING ACTIVITY FOUND THAT THE ITT TECHNICAL PROPOSAL DID NOT SUBSTANTIALLY EXCEED SPECIFIED REQUIREMENTS, AND THAT SUCH REQUIREMENTS COULD NOT BE REVISED WITHOUT SERIOUSLY IMPAIRING THE SYSTEM'S CAPABILITY. IT ALSO FOUND THAT ITT'S BID PRICE WAS EXCESSIVE BECAUSE THE PRICE FAR EXCEEDED BOTH MOTOROLA'S LOW BID AND THE GOVERNMENT ESTIMATE, WHICH ESTIMATE WAS BASED ON THE ACTIVITY'S JUDGMENT AS TO THE EXTENT OF THE NEW CIRCUITRY AND PACKAGING NECESSARY TO SATISFY DETAILED REQUIREMENTS.

THE CONTRACTING OFFICER CANCELED THE IFB BECAUSE IN HIS VIEW THE SUBSTANTIAL DIFFERENCE IN BID PRICES INDICATED THAT COMPETITION HAD BEEN INADEQUATE TO INSURE A REASONABLE PRICE. HE ALSO INDICATES THAT HIS DECISION WAS INFLUENCED BY THE PRICE SPREAD BETWEEN ITT'S BID AND THE GOVERNMENT'S ESTIMATE. IN REGARD TO THE GOVERNMENT ESTIMATE, THE RECORD SHOWS THAT NASA TECHNICAL PERSONNEL WERE UNWILLING TO APPROVE THE ADDITIONAL FUNDS NEEDED TO MEET ITT'S PRICE.

AFTER CANCELING THE IFB, THE CONTRACTING OFFICER MADE A DETERMINATION AND FINDINGS THAT DUE TO POSSIBLE AMBIGUITIES IN THE SPECIFICATIONS IT WAS NECESSARY TO NEGOTIATE THE REPROCUREMENT UNDER THE AUTHORITY OF 10 U.S.C. 2304/A) (10). HE THEN ISSUED A REQUEST FOR PROPOSALS, TO WHICH ITT AND MOTOROLA HAVE RESPONDED.

YOU STATE THAT NASA'S BEING FACED WITH AWARDING A CONTRACT AT A PRICE IT FELT IT COULD NOT AFFORD WAS NOT A COGENT REASON FOR CANCELING THE IFB. WITHOUT AGREEING THAT THE LIMITATION ON THE AMOUNT WHICH COULD BE OBLIGATED DOES NOT PROVIDE A COGENT REASON FOR CANCELLATION, WE HOLD THAT UNDER THE FACTS OF THIS CASE THE SUBSTANTIAL DIFFERENCE IN PRICES PROVIDED A REASONABLE BASIS FOR CONCLUDING THAT THE CANCELLATION WAS IN THE PUBLIC INTEREST. SEE 43 COMP. GEN. 268, AND B-145109, DATED MARCH 10, 1961, TO THE EFFECT THAT THE WIDE DISPARITY BETWEEN THE SECOND LOW BID AND A LOW BID WHICH WAS REJECTED BECAUSE OF NONRESPONSIVENESS OR MISTAKE IS SUFFICIENT CAUSE TO REJECT ALL BID SAND READVERTISE. ALSO SEE 10 U.S.C. 2305/C) AND 2311, THE EFFECT OF WHICH HAS BEEN TO ESTABLISH AUTHORITY IN THE CONTRACTING OFFICER TO REJECT ALL BIDS WHERE HE DETERMINES THAT REJECTION IS IN THE PUBLIC INTEREST.

IN YOUR LETTER OF SEPTEMBER 13, YOU MAINTAIN THAT IF NEGOTIATIONS ARE CONDUCTED, THEY SHOULD BE LIMITED TO MOTOROLA AND ITT, SINCE TO INCLUDE OTHER COMPANIES WOULD BE UNFAIR TO THESE TWO FIRMS WHICH HAD EXPENDED TIME AND MONEY DEMONSTRATING THEIR TECHNICAL COMPETENCE DURING THE FIRST STEP OF THE CANCELED PROCUREMENT. HOWEVER, IT WOULD APPEAR THAT ANY OTHER FIRM WHICH PARTICIPATES IN ANY FUTURE NEGOTIATIONS WOULD AT THAT TIME BE REQUIRED TO EXPEND ITS TIME AND MONEY TO DEMONSTRATE ITS COMPETENCE. ANY EVENT, WE KNOW OF NO STATUTE, REGULATION OR DECISION, AND NONE HAS BEEN CITED IN YOUR BRIEFS, WHICH WOULD CIRCUMSCRIBE THE NUMBER OF OFFERS NASA MAY ENTERTAIN UNDER A NEW SOLICITATION.

IN YOUR LETTER OF JULY 26, YOU EXPRESSED AS AN ADDITIONAL POINT TO THE TWO GROUNDS WHICH YOU ADVANCED AS UPHOLDING YOUR PROTEST AND WHICH HAVE BEEN DISCUSSED ABOVE, AN OPINION THAT THE CONTRACTING OFFICER ERRONEOUSLY CITED SECTION 2304/A) (10), INSTEAD OF 2304/A) (15), OF TITLE 10, U.S.C; AS A BASIS FOR NEGOTIATING THE NEW PROCUREMENT SECTION 2304/A) (10) PROVIDES FOR THE NEGOTIATION OF A CONTRACT WHERE A CONTRACTING OFFICER DETERMINES "IT IS IMPRACTICABLE TO OBTAIN COMPETITION" BY ADVERTISED BIDDING PROCEDURES, AND SECTION 3.210-2 (XIII) OF NASA PROCUREMENT REGULATION GIVES AS ONE ILLUSTRATION OF THIS CONDITION THE CASE WHERE IT IS IMPOSSIBLE TO DRAFT ADEQUATE SPECIFICATIONS TO A SOLICITATION OF BIDS. SECTION 2304/A) (15) PROVIDES FOR NEGOTIATION AFTER ADVERTISING WHEN THE HEAD OF THE AGENCY DETERMINES THAT BID PRICES ARE UNREASONABLE.

YOU SUGGEST THAT NASA SHOULD HAVE INVOKED 10 U.S.C. 2304/A) (15), AS AUTHORITY TO NEGOTIATE WITH ITT ON A SOLE-SOURCE BASIS. HOWEVER, YOU APPEAR TO HAVE ABANDONED THIS SUGGESTION IN YOUR SUBSEQUENT LETTER OF SEPTEMBER 13, AND BOTH YOU AND THE CONTRACTING OFFICER POINT OUT THAT THERE HAS BEEN NO DETERMINATION BY THE HEAD OF THE AGENCY THAT ITT'S BID PRICE IS UNREASONABLE, WHICH DETERMINATION MUST BE MADE BEFORE 10 U.S.C. 2304/A) (15) BECOMES OPERATIVE. SECONDLY, SECTION 2304/A) (15) DOES NOT APPEAR TO CONTEMPLATE A SOLE-SOURCE PROCUREMENT UNDER THE CIRCUMSTANCES PRESENT IN THIS CASE. FINALLY, WHILE IT WOULD APPEAR THAT THE CIRCUMSTANCES ARE SUCH AS WOULD JUSTIFY A DETERMINATION TO NEGOTIATE UNDER 10 U.S.C. 2304/A) (15), WE THINK THE SUBSTANTIAL DIFFERENCE BETWEEN THE TWO BID PRICES IN THIS CASE IS SUFFICIENT TO SUPPORT THE ASSUMPTION THAT THE SPECIFICATIONS ARE INADEQUATE FOR PURPOSES OF OBTAINING COMPETITION BY FORMAL ADVERTISING. WHERE IT APPEARS THAT NEGOTIATION IS JUSTIFIED UNDER MORE THAN ONE OF THE NUMBERED EXCEPTIONS IN 2304/A), THIS OFFICE WILL NOT ORDINARILY SUBSTITUTE ITS JUDGMENT FOR THAT OF THE CONTRACTING AGENCY. UNDER THE FACTS OF THIS CASE, WE ARE NOT INCLINED TO QUESTION THE JUSTIFICATION GIVEN FOR NEGOTIATING THE CONTRACT PURSUANT TO 10 U.S.C. 2304/A) (10), AND YOUR PROTEST MUST THEREFORE BE DENIED.