B-159922, JANUARY 26, 1967, 46 COMP. GEN. 631

B-159922, JANUARY 26, 1967, 46 COMP. GEN. 631

CONTRACTS - NEGOTIATION - PUBLIC EXIGENCY - JUSTIFICATION FOR NEGOTIATION ALTHOUGH THE NEGOTIATION OF A PROCUREMENT UNDER THE PUBLIC EXIGENCY AUTHORITY IN 41 U.S.C. 252 (C) (2) WITH THE ONLY TWO MANUFACTURERS CAPABLE OF MEETING THE DELIVERY SCHEDULE ESTABLISHED FOR EQUIPMENT FORMERLY PROCURED BY FORMAL ADVERTISING WAS NOT JUSTIFIED ON THE BASIS NEW PRODUCERS COULD NOT MEET THE REQUIRED DELIVERY SCHEDULE, THE CONTRACTING AGENCY HAVING THE AUTHORITY TO DISQUALIFY A BIDDER INCAPABLE OF MEETING THE DELIVERY SCHEDULE OF AN ADVERTISED PROCUREMENT, THE CONTRACT, NOTWITHSTANDING THE DELAY IN MAKING THE AWARD, WILL NOT BE DISTURBED, THE QUESTION OF THE PROPRIETY OF EMPLOYING NEGOTIATION PROCEDURES NOT HAVING BEEN TIMELY RAISED, AND DUE TO THE FACT THAT FORMAL ADVERTISING WOULD HAVE RESULTED IN RESPONSIVE BIDS ONLY FROM THE TWO COMPANIES WITH WHOM NEGOTIATIONS WERE CONDUCTED. CONTRACTS - NEGOTIATION - COMPETITION - IMPRACTICABLE TO OBTAIN - UNAVAILABILITY OF SPECIFICATIONS REQUIREMENT THE AUTHORITY IN SECTION 1-3.210 (A) (13) C OF FEDERAL PROCUREMENT REGULATIONS CONTEMPLATING NEGOTIATION UNDER 41 U.S.C. 252 (C) (10) FOR PROPERTY OR SERVICES FOR WHICH IT IS IMPRACTICABLE TO SECURE COMPETITION ONLY WHEN IT IS IMPOSSIBLE TO DRAFT ADEQUATE SPECIFICATIONS OR ANY OTHER ADEQUATELY DETAILED DESCRIPTION OF THE REQUIRED PROPERTY OR SERVICES AND NOT WHEN IT IS MERELY INCONVENIENT TO DO SO, THE USE OF SECTION 252 (C) (10) NEGOTIATING AUTHORITY IS NOT JUSTIFIED ON THE BASIS THE PROTOTYPE OF THE EQUIPMENT BEING PROCURED IS UNAVAILABLE, WHERE NO ATTEMPT WAS MADE BY THE CONTRACTING AGENCY TO DRAFT ADEQUATE SPECIFICATIONS BETWEEN THE TIME A PREVIOUS PROCUREMENT WAS OBTAINED UNDER ADVERTISING PROCEDURES AND THE CURRENTLY NEEDED EQUIPMENT, AND WHERE EVIDENCE IS LACKING OF THE IMPOSSIBILITY TO DRAFT ANY NECESSARY CHANGES REQUIRED IN THE SPECIFICATIONS. CONTRACTS - NEGOTIATION - FIXED-PRICE INCENTIVE CONTRACT THE DETERMINATION TO USE A FIXED-PRICE INCENTIVE CONTRACT IN LIEU OF A FIXED-PRICE CONTRACT, OR ANY OTHER TYPE CONTRACT, ON THE BASIS THAT PRICES QUOTED IN PROPOSALS WERE UNREASONABLE AND UNACCEPTABLY HIGHER THAN THE PRICE AT WHICH SIMILAR EQUIPMENT HAD BEEN PREVIOUSLY OBTAINED UNDER ADVERTISING PROCEDURES, AND THAT THE QUOTED PRICES EXCEEDED THE GOVERNMENT'S ESTIMATE, WAS A PROPER EXERCISE OF ADMINISTRATIVE AUTHORITY UNDER 41 U.S.C. 254 (A), PROVIDING THAT A CONTRACT NEGOTIATION PURSUANT TO SECTION 252 (C) AUTHORITY MAY BE OF ANY TYPE WHICH IN THE OPINION OF THE AGENCY HEAD WILL PROMOTE THE BEST INTERESTS OF THE GOVERNMENT, SECTION 1- 3.403 (A) (2) OF THE FEDERAL PROCUREMENT REGULATIONS PROVIDING THAT IN THE ABSENCE OF EFFECTIVE PRICE COMPETITION AND THE SUFFICIENCY OF PRICE ANALYSIS, THE COST ESTIMATES OF OFFEROR AND OF GOVERNMENT MAY BE BASIS FOR NEGOTIATION OF PRICING ARRANGEMENTS. CONTRACTS - NEGOTIATION - COST, ETC., DATA - PRICE NEGOTIATION TECHNIQUE NOTWITHSTANDING THE CONTRACTING AGENCY HAVING WAIVED DISCLOSURE OF THE COST AND PRICING DATA REQUIRED BY SECTION 1-3.807-3 OF THE FEDERAL PROCUREMENT REGULATIONS FOR ONE OFFEROR UNDER BOTH FIXED-PRICE AND FIXED- PRICE INCENTIVE PROPOSALS SHOULD HAVE WAIVED THE DATA REQUIREMENT, PURSUANT TO THE AUTHORITY IN SECTION 1-3.807-3 (B), FOR THE ONLY OTHER OFFEROR SUBMITTING PROPOSALS, THE COST AND PRICING DATA FURNISHED PROPERLY WAS FOR CONSIDERATION UNDER SECTION 1-3.807-3 (F). ALTHOUGH THE FIXED- PRICE INCENTIVE CONTRACT AWARDED WILL NOT BE DISTURBED, THE COST AND PRICING DATA RELIED UPON, EVEN THOUGH NOT AS DETAILED AS CONSIDERED DESIRABLE FOR INCENTIVE CONTRACTS NEGOTIATED BY THE MILITARY DEPARTMENTS, JUSTIFYING THE ADMINISTRATIVE DETERMINATION THAT THE SUCCESSFUL FIXED- PRICE INCENTIVE PROPOSAL WAS REASONABLY PRICED AND ITS ACCEPTANCE WOULD BE IN THE BEST INTERESTS OF THE GOVERNMENT, STEPS SHOULD BE TAKEN TO ASSURE FUTURE COMPLIANCE WITH STATUTORY AND REGULATION PROCUREMENT REQUIREMENTS.

TO TELEVISO ELECTRONICS, JANUARY 26, 1967:

REFERENCE IS MADE TO YOUR PROTEST BY LETTER DATED AUGUST 19, 1966, AND SUBSEQUENT CORRESPONDENCE FROM YOU AND YOUR ATTORNEY, AGAINST THE AWARD BY THE FEDERAL AVIATION AGENCY (FAA) OF A FIXED-PRICE INCENTIVE CONTRACT TO TEXAS INSTRUMENTS INCORPORATED (TI) UNDER REQUEST FOR PROPOSALS NO. WA4M-6 -0355, ISSUED DECEMBER 29, 1965. THE SUBSTANCE OF YOUR PROTEST IS THAT THE USE OF NEGOTIATION WAS NOT JUSTIFIED, THAT YOUR FIXED-PRICE PROPOSAL SHOULD HAVE BEEN ACCEPTED BY FAA, AND THAT THE NEGOTIATION PROCEDURES EMPLOYED BY FAA WERE NOT IN ACCORD WITH THE FEDERAL PROCUREMENT REGULATIONS (FPR).

PURSUANT TO FINDINGS AND A DETERMINATION ISSUED NOVEMBER 23, 1965, BY THE CONTRACTING OFFICER AND APPROVED ON NOVEMBER 26 BY THE DIRECTOR, INSTALLATION AND MATERIEL SERVICE, FAA, NEGOTIATION OF THE PROCUREMENT WITH COMPETITION LIMITED TO ONLY YOU AND TI WAS CONDUCTED UNDER THE PUBLIC EXIGENCY EXCEPTION TO THE REQUIREMENT FOR FORMAL ADVERTISING OF GOVERNMENT PROCUREMENTS, WHICH IS SET OUT IN 41 U.S.C. 252 (C) (2). IN THE FINDINGS AND DETERMINATION IT WAS STATED THAT THE EQUIPMENT IN QUESTION--- AIRPORT SURVEILLANCE RADAR DISPLAY SYSTEM EQUIPMENT (ITEM NO. 1 IN THE RFP), SUPPLEMENTARY PLAN POSITION INDICATOR (ITEM NO. 2 IN THE RFP), AND RELATED ITEMS--- WAS IDENTICAL TO EQUIPMENT PREVIOUSLY PROCURED FROM BOTH YOU AND TI; THAT THE INDICATORS WERE REQUIRED FOR THE OPERATION OF TRANSMITTER SITE EQUIPMENT SCHEDULED TO BE DELIVERED TO THE GOVERNMENT COMMENCING IN JUNE 1966, THEREBY REQUIRING DELIVERY OF THE INDICATORS BY JULY 1966; AND THAT ANYONE OTHER THAN YOU AND TI WOULD REQUIRE UP TO 15 MONTHS AFTER AWARD FOR DELIVERY. THE USING AGENCIES WERE IDENTIFIED AS THE DEPARTMENTS OF THE NAVY AND THE ARMY AND A BRAZIL AID PROGRAM. THE ESTIMATED COST OF THE PROCUREMENT WAS STATED TO BE $1,413,500.

THE RFP, WHICH WAS ISSUED TO YOU AND TI ONLY, INDICATED THAT AWARD OF A FIXED-PRICE CONTRACT WAS PROPOSED. ON FEBRUARY 21, 1966,THE FINAL DATE FOR SUBMISSION OF PROPOSALS UNDER THE RFP AS AMENDED THE TWO FIXED-PRICE PROPOSALS WERE OPENED, YOURS IN THE AMOUNT OF $1,832,620 AND TI'S IN THE AMOUNT OF $2,036,780. BOTH PROPOSALS WERE ACCOMPANIED BY COMPLETED FAA FORMS 3515, ENTITLED ,COST AND PRICE ANALYSIS," WITH DATA BEING SUBMITTED ON ITEMS NO. 1 AND NO. 2 ONLY. HOWEVER, TI SUBMITTED ONLY COST TOTALS FOR SUCH ITEMS AS MATERIAL AND LABOR BUT NO DETAILED SUPPORTING COST DATA, WHILE YOUR DATA, WHICH LIKEWISE SUPPLIED COST TOTALS, INCLUDED A SUMMARY OF LABOR COST BREAKDOWN BY HOURS, RATES AND CATEGORIES.

ON FEBRUARY 28, FAA REQUESTED THE DEFENSE CONTRACT AUDIT AGENCY TO AUDIT BOTH PROPOSALS. ON MARCH 9, TI NOTIFIED THE CONTRACTING OFFICER BY TELEGRAM THAT IT WOULD NOT SUBMIT TO AUDIT. ON APRIL 8, THE CONTRACTING OFFICER DISCUSSED THE MATTER WITH AN FAA OFFICIAL WHO WAS AUTHORIZED TO ACT, EXCEPT WITH RESPECT TO NONDELEGABLE AUTHORITY, AS "AGENCY HEAD," AND IT WAS AGREED THAT TI WOULD NOT BE PRESSED FOR COST DATA. ON APRIL 19, THE CONTRACTING OFFICER ADVISED TI THAT IN VIEW OF ITS REFUSAL TO PERMIT AN AUDIT, NEGOTIATIONS WOULD NOT BE CONDUCTED WITH IT AND THAT ITS PROPOSAL, AS AMENDED BY A TELEGRAM OF APRIL 6, WOULD BE CONSIDERED AS A FINAL OFFER. HOWEVER, BY LETTER DATED APRIL 22, TI OFFERED A PRICE REDUCTION OF $135,300, WHICH BROUGHT ITS FIXED PRICE WITHIN $56,500 TO $68,800 OF YOUR PRICE. ACCORDINGLY, THE CONTRACTING OFFICER CONFERRED WITH A MEMBER OF THE FAA LEGAL STAFF, AND UPON RECEIPT OF ADVICE THAT NOTWITHSTANDING TI'S REFUSAL TO BE AUDITED OR TO FURNISH COST DATA NEGOTIATIONS COULD BE CONDUCTED WITH TI, REVERSED HIS POSITION AND DECIDED TO DISCUSS TI'S AMENDED PROPOSAL WITH TI.

ON MAY 4, 1966, AT AN INTERNAL FAA PRENEGOTIATION MEETING, AN ADMINISTRATIVE DETERMINATION WAS MADE TO DISCUSS WITH EACH OFFEROR A FIXED -PRICE INCENTIVE PROPOSAL FOR THE REASONS THAT THE CONTRACTING OFFICER DID NOT HAVE THE CONFIDENCE IN EITHER OFFEROR'S ESTIMATED COSTS NECESSARY FOR USE OF A FIXED-PRICE CONTRACT; THE PROJECT MANAGER CONSIDERED THAT THE ENGINEERING EFFORT WAS OVERSTATED OR EXCESSIVE TO GOVERNMENT NEEDS; THE MOST RECENT UNIT PRICE OF APPROXIMATELY $42,000 FOR THE ITEM NO. 1 EQUIPMENT INDICATED THAT THE FIXED PRICES QUOTED BY BOTH OFFERORS (CLOSE TO $60,000 PER UNIT) WERE UNREASONABLY HIGH; THE USE OF A COST REIMBURSABLE TYPE CONTRACT WAS NOT CONSIDERED APPROPRIATE IN VIEW OF PRIOR PRODUCTION OF THE EQUIPMENT UNDER FIXED PRICE CONTRACTS; AND THE CONTRACTING OFFICER FELT THAT AN ACCEPTABLE TARGET COST COULD BE NEGOTIATED.

ON MAY 11, 1966, NEGOTIATIONS WITH TI WERE COMMENCED. AFTER TECHNICAL QUESTIONS WERE RESOLVED, TI WAS REQUESTED TO FURNISH SPECIFIC COST DATA ON ITS FIXED-PRICE PROPOSAL, BUT TI ADHERED TO ITS POSITION THAT IT WOULD NOT SUPPLY ANY ADDITIONAL DETAILED COST DATA, CONTENDING THAT THERE WAS ADEQUATE PRICE COMPETITION. AT THE SAME MEETING, A REQUEST WAS MADE THAT TI SUBMIT A PROPOSAL ON A FIXED-PRICE INCENTIVE BASIS WITH DELIVERY INCENTIVES. TENTATIVELY, TI PROPOSED COST SHARING RATIOS OF 90/10 FOR UNDERRUNS AND 60/40 FOR OVERRUNS, WHICH WERE IN ACCORDANCE WITH THE CONTRACTING OFFICER'S OBJECTIVE. WITH RESPECT TO DELIVERY INCENTIVES, HOWEVER, TI WAS ADVISED THAT IN LIEU OF OFFERS OF $500 FOR EARLY OR LATE DELIVERY OF ITEM NO. 1 AND $100 FOR EARLY OR LATE DELIVERY OF ITEM NO. 2 FOR EACH 30 DAYS FROM TARGET DELIVERY, THE GOVERNMENT DESIRED DELIVERY INCENTIVES (PREMIUM FOR EARLY DELIVERY AND PENALTY FOR LATE DELIVERY) OF 2 -1/2 PERCENT OF THE TARGET COST OF ITEMS NO. 1 AND NO. 2 FOR EACH 15 DAYS. ON JUNE 8, TI SUBMITTED A FIXED-PRICE INCENTIVE PROPOSAL, WHICH, AS MODIFIED BY TELEGRAMS OF JUNE 16 AND 30, PROVIDED FIRM CEILINGS ON ITEMS NO. 1 AND NO. 2 IN ADDITION TO A FIRM FIXED PRICE ON ALL OTHER ITEMS, RESULTING IN A TOTAL TARGET PRICE OF $1,838,740 AND A TOTAL CEILING PRICE OF $1,931,990. FURTHER, TI'S FINAL FIXED PRICE PROPOSAL WAS IN THE AMOUNT OF $1,984,760.

ON MAY 20, 1966, AFTER THE FAA NEGOTIATING TEAM HAD ESTABLISHED A PRICING OBJECTIVE IN THE AREA OF $1,650,000, BASED ON A FIRM FIXED PRICE CONTRACT, AND HAD DECIDED THAT IF SUCH A CONTRACT COULD NOT BE NEGOTIATED YOU WOULD BE ADVISED THAT A FIXED-PRICE INCENTIVE CONTRACT WITH DELIVERY INCENTIVES WOULD BE CONSIDERED, NEGOTIATIONS WERE COMMENCED WITH YOU. AT THE MEETING, YOU WERE ADVISED THAT THE COST DATA FURNISHED BY YOU WITH YOUR FIXED-PRICE PROPOSAL WAS NOT CONSIDERED ADEQUATE TO JUSTIFY THE MATERIAL COSTS QUESTIONED BY THE FAA AUDITOR AND THAT YOUR PROPOSED UNIT PRICE OF $59,202 FOR ITEM NO. 1 COULD NOT BE CONSIDERED REASONABLE IN VIEW OF THE UNIT PRICE OF $42,000 PER UNIT FOR WHICH YOU WERE CURRENTLY FURNISHING THE SAME EQUIPMENT TO FAA UNDER A FORMALLY ADVERTISED CONTRACT. FURTHER, IN RESPONSE TO THE CONTRACTING OFFICER'S STATEMENT THAT $1,648,800 WAS CONSIDERED A REASONABLE PRICE FOR A FIXED-PRICE CONTRACT, YOU INSISTED THAT YOUR FIXED PRICE WAS THE ONLY ONE YOU WOULD ACCEPT. SUBSEQUENTLY, AFTER DISCUSSION OF SUBMISSION OF AN INCENTIVE PROPOSAL AND, IN LINE WITH THE DISCUSSION OF MAY 11 WITH TI AS TO THE COST SHARING RATIOS AND DELIVERY INCENTIVES WHICH FAA CONSIDERED DESIRABLE, YOU AGREED TO CONSIDER ALONG WITH THE OTHER MATTERS COVERED AT THE MEETING THE POSSIBILITY OF OFFERING A FIXED-PRICE INCENTIVE PROPOSAL WITH DELIVERY INCENTIVES. ULTIMATELY, FOLLOWING A SECOND NEGOTIATION CONFERENCE ON JUNE 1, AT WHICH YOUR ATTORNEY WAS PRESENT, YOU SUBMITTED A REVISED FIXED-PRICE PROPOSAL IN THE AMOUNT OF $1,905,775.78, TOGETHER WITH A FIXED-PRICE INCENTIVE PROPOSAL OFFERING A COMBINED TARGET PRICE OF $1,776,568.79 ON ITEMS NO. 1 AND NO. 2, PLUS A FIXED PRICE OF $150,719.20 ON ALL OTHER ITEMS, TOTAL TARGET PRICE OF $1,927,287.99. YOUR CEILING PRICES ON ITEMS NO. 1 AND NO. 2 AND YOUR TOTAL CEILING PRICE WERE THE SAME AS YOUR RESPECTIVE TARGET PRICES, BUT YOUR TOTAL CEILING PRICE WAS FLEXIBLE SINCE IT WAS SUBJECT TO UPWARD ADJUSTMENT FOR ANY EARNED DELIVERY INCENTIVES BASED ON AN OPTIMUM OF 30 DAYS FOR EARLY DELIVERY ON ITEMS NO. 1 AND NO. 2.

WITH RESPECT TO THE TWO FINAL FIXED-PRICE PROPOSALS RECEIVED FROM YOU AND FROM TI AFTER THE CONCLUSION OF NEGOTIATIONS, IT WAS DETERMINED THAT BOTH PROPOSALS WERE BEYOND THE DOLLAR VALUE CONSIDERED REASONABLE BY THE CONTRACTING OFFICER, AND, THEREFORE, ONLY THE FIXED PRICE INCENTIVE PROPOSALS WOULD BE CONSIDERED FOR AWARD.

COMPARISON OF THE TWO INCENTIVE PROPOSALS REVEALED, AMONG OTHER THINGS, THAT WHILE YOUR TARGET COST WAS LOWER BY $38,271 THAN TI'S TARGET COST, YOUR TARGET PROFIT, WHICH WAS $69,688 HIGHER THAN TI'S TARGET PROFIT, MADE YOUR TARGET PRICE (I.E. TARGET COST PLUS TARGET PROFIT) $31,417 HIGHER THAN TI'S TARGET PRICE; THAT WHILE YOUR FLEXIBLE CEILING PRICE WAS SLIGHTLY LOWER THAN TI'S FIRM CEILING PRICE, THE ADDITION OF POSSIBLE DELIVERY INCENTIVES TO YOUR CEILING PRICE WOULD MAKE IT HIGHER THAN TI'S CEILING PRICE; THAT AN OVERRUN OF $156,000 WOULD BE NECESSARY IN ORDER FOR TI TO REACH YOUR FLEXIBLE CEILING PRICE, IN WHICH EVENT TI WOULD BE REQUIRED TO ABSORB APPROXIMATELY $62,400 OF THE OVERRUN UNDER ITS 60/40 OVERRUN SHARING OFFER AND TO ACCEPT A PROFIT REDUCED TO APPROXIMATELY $14,000, OR LESS THAN 1 PERCENT OF COST; THAT WHILE YOU OFFERED TO ABSORB 100 PERCENT OF COST OVERRUN, THERE WAS NOTHING IN THE COST DATA SUPPLIED BY YOU TO CLEARLY ESTABLISH THAT YOU WERE MORE LIKELY TO UNDERRUN THE CONTRACT THAN TI; AND THAT THE FIRM FIXED PRICE FOR ALL ITEMS EXCLUSIVE OF ITEMS NO. 1 AND NO. 2 WAS LOWER BY$57,569 IN THE TI PROPOSAL THAN IN YOUR PROPOSAL. FURTHER, IN VIEW OF THE AVAILABILITY OF THE SUMMARY COST DATA SUBMITTED BY TI, OF COMPLETE AUDIT INFORMATION ON TI'S OVERHEAD BURDENS AND LABOR RATES MADE AVAILABLE FROM RESIDENT AUDIT SERVICES AT TI'S PLANT, OF PRICE INFORMATION ON PRIOR PROCUREMENTS AND PRIOR BIDS BY TI AND OTHER COMPANIES ON THE SAME EQUIPMENT, AND OF YOUR COST DATA (FOR COMPARATIVE PURPOSES), THE CONTRACTING OFFICER DETERMINED THAT THERE WAS ADEQUATE DATA ON WHICH TO BASE A DECISION WHETHER TI'S INCENTIVE PROPOSAL WAS MORE IN THE GOVERNMENT'S INTEREST THAN YOUR PROPOSAL. ACCORDINGLY, UPON CONSIDERATION OF SUCH DATA, IT WAS FURTHER DETERMINED THAT TI'S INCENTIVE PROPOSAL WAS ACCEPTABLE, AND AFTER VERIFICATION THAT THERE WAS STILL AN URGENT NEED FOR THE EQUIPMENT DESPITE THE LAPSE OF 8 MONTHS SINCE THE ISSUANCE OF THE RFP, THE CONTRACTING OFFICER PRESENTED THE MATTER TO THE FAA CONTRACT AWARDS BOARD WITH A RECOMMENDATION THAT TI'S FIXED-PRICE INCENTIVE PROPOSAL BE ACCEPTED. THE BOARD IN TURN MADE A FAVORABLE RECOMMENDATION ON THE TI INCENTIVE PROPOSAL, ALSO, AND AFTER APPROVAL OF THE AWARD BY THE DEPUTY ADMINISTRATOR, FAA, A CONTRACT WITH TI WAS EXECUTED ON AUGUST 11, 1966.

YOUR POSITION, AS STATED BY YOU AND YOUR ATTORNEY, IS THAT THE AWARD TO TI SHOULD BE SET ASIDE AND A CONTRACT FOR THE PROCUREMENT NEED AWARDED TO YOU ON THE BASIS THAT YOUR FIXED-PRICE PROPOSAL WAS LOWER THAN TI'S INCENTIVE PROPOSAL CEILING PRICE AND THAT THE GOVERNMENT WILL BENEFIT FROM AN AWARD TO YOU SINCE YOU WILL BE ABLE, BY REASON OF THE FACT THAT YOU ARE IN CURRENT PRODUCTION OF THE SAME EQUIPMENT, TO MAKE EARLY DELIVERY.

YOU CONTEND THAT THE PROCUREMENT WAS MISMANAGED AND BIASED TO SOME EXTENT IN FAVOR OF TI. YOU SUGGEST THAT SOME OF THE PRICE INFORMATION WHICH YOU FURNISHED TO FAA IN CONFIDENCE FOUND ITS WAY TO TI, STATING THAT SOME OF YOUR VENDORS ADVISED YOU THAT TI HAD COMPLAINED THAT YOU HAD BEEN QUOTED LOWER PRICES FOR SOME COMPONENTS OF THE EQUIPMENT THAN THE VENDORS HAD QUOTED TO TI. YOU ALLEGE THAT TI WAS TWICE PERMITTED TO REVISE ITS PRICE BY TELEGRAM AFTER YOU HAD REDUCED YOUR PRICE, AND YOU INFER THAT SUCH ACTION RAISES THE QUESTION WHETHER FAA HAS OBSERVED THE NEGOTIATION PROCEDURES SET FORTH IN THE FEDERAL PROCUREMENT REGULATIONS (FPR). YOU COMPLAIN OF THE MARKED SIMILARITY BETWEEN THE TWO INCENTIVE PROPOSALS AND THEIR "SHARE LINES" (I.E., COST SHARING RATIOS), AND YOU CRITICIZE THE ACTION OF THE FAA CONTRACTING OFFICER IN ADVISING YOU DURING NEGOTIATIONS OF A FIXED PRICE FIGURE WHICH MIGHT BE ACCEPTABLE TO FAA, STATING THAT YOU REGARD SUCH ACTION AS AN AUCTION TECHNIQUE IN VIOLATION OF FPR 1-3.805.

YOU FURTHER CONTEND THAT FORMAL ADVERTISING SHOULD HAVE BEEN USED SINCE THE EQUIPMENT IN QUESTION HAD BEEN SO PROCURED PREVIOUSLY; SINCE THE LAPSE OF 8 MONTHS BETWEEN THE DATE THE RFF WAS ISSUED AND THE DATE OF AWARD TO TI EVIDENCES THAT THE "PUBLIC EXIGENCY" ON WHICH THE USE OF NEGOTIATION WAS JUSTIFIED DID NOT EXIST; AND FOR THE REASON THAT HAD FORMAL ADVERTISING BEEN EMPLOYED WITH THE SAME DISPATCH AS IN A PRIOR PROCUREMENT, IN WHICH AWARD WAS MADE TO YOU WITHIN 48 DAYS AFTER THE ISSUANCE OF THE INVITATION FOR BIDS, DELIVERY OF THE URGENTLY NEEDED EQUIPMENT COULD HAVE BEEN EFFECTED IN AUGUST 1966 RATHER THAN IN FEBRUARY 1967 AS IS SCHEDULED UNDER THE TI CONTRACT. IN ADDITION, YOU STATE THAT AT ONE TIME THE FAA NEGOTIATION TEAM INDICATED THAT DELIVERY WAS NO LONGER OF PARAMOUNT IMPORTANCE. IN ANY EVENT, YOU CONTEND THAT THE AWARD SHOULD HAVE BEEN ON A FIXED-PRICE BASIS SINCE ADEQUATE PRICE COMPETITION EXISTED WITHIN THE MEANING OF FPR 1-3.807 1. IN THIS CONNECTION, YOU STATE THAT YOUR FIXED PRICE WAS WELL WITHIN THE RANGE OF PREVIOUS BID PRICES ON THE SAME EQUIPMENT EVEN THOUGH THE PRESENT PROCUREMENT QUANTITY IS SMALLER THAN ON PRIOR PROCUREMENTS AND NOTWITHSTANDING THAT, DURING THE 2 YEARS WHICH HAVE ELAPSED SINCE A PREVIOUS PURCHASE WAS MADE FROM YOU, LABOR AND MATERIAL COSTS HAVE INCREASED CONSIDERABLY. MOREOVER, YOU ASSERT THAT FAA'S ACCEPTANCE OF THE TI INCENTIVE PROPOSAL ATTESTS TO THE REASONABLENESS OF TI'S CEILING PRICE AND THEREBY FURTHER ATTESTS TO THE REASONABLENESS OF YOUR LOWER FIXED-PRICE PROPOSAL. WITH RESPECT TO TI'S REFUSAL TO FURNISH THE COST DATA REQUESTED BY FAA, YOU CONTEND THAT SUCH ACTION ON THE PART OF TI RENDERS THE AWARD IN VIOLATION OF THE PROVISIONS OF FPR 1-3.404 (C) REQUIRING ADEQUATE COST DATA FOR FIXED-PRICE INCENTIVE CONTRACTS.

IN ADDITION TO THE FOREGOING, YOU CONTEND THAT SINCE THE METHOD OF EVALUATING THE INCENTIVE PROPOSALS WAS NOT MADE KNOWN IN ADVANCE OF SUBMISSION OF THE PROPOSALS, YOU ASSUMED THAT AWARD WOULD BE MADE ON THE BASIS OF THE TOTAL ULTIMATE LIABILITY TO THE GOVERNMENT, AS DETERMINED BY THE CEILING PRICE. THEREFORE, YOU STATE, THE ONLY PROPER BASIS FOR EVALUATING SUCH A PROPOSAL IS TO UTILIZE THE CEILING PRICE.

THE RECORD MADE AVAILABLE TO OUR OFFICE CONTAINS A COPY OF A REPORT OF AN INVESTIGATION OF THE PROCUREMENT PROCEDURES EMPLOYED IN THE PROCUREMENT IN QUESTION WHICH CONCLUDES THAT THERE WERE NO IMPROPER DISCLOSURES OF CONFIDENTIAL INFORMATION BY FAA PERSONNEL. FURTHER, WHILE THE CONTRACTING OFFICER ADMITS THAT HE UNINTENTIONALLY FURNISHED TO YOU SUBSEQUENT TO THE AWARD THE TARGET COSTS AND TARGET PROFIT UNDER THE TI PROPOSAL ON WHICH THE AWARD WAS MADE, THERE IS NO EVIDENCE THAT ANY OF YOUR PRICING INFORMATION WAS REVEALED TO TI EITHER BEFORE OR AFTER AWARD.

REGARDING THE SIMILARITY OF THE COST SHARING RATIOS IN THE TWO PROPOSALS, THE RECORD ALSO CONTAINS A LETTER DATED MAY 13, 1966, 1 WEEK BEFORE THE FIRST NEGOTIATION CONFERENCE OF MAY 20 BETWEEN YOU AND FAA, IN WHICH TI PROPOSED COST SHARING RATIOS OF 90/10 FOR UNDERRUNS AND 60/40 FOR OVERRUNS, THE SAME RATIOS WHICH THE CONTRACTING OFFICER MENTIONED TO YOUR MR. TIM SHEA AS A GUIDE LINE IN A TELEPHONE CONSERVATION OF MAY 26.

IT IS THE POSITION OF FAA THAT THE CONTRACT WITH TI SHOULD NOT BE SET ASIDE AND THAT YOUR PROTEST SHOULD BE REJECTED. A REPORT DATED NOVEMBER 1, 1966, A COPY OF WHICH WAS MADE AVAILABLE TO YOU, TAKES THE POSITION THAT THERE HAS BEEN NO BIAS OR MISMANAGEMENT OF THE PROCUREMENT. FAA CONCEDES THAT IN YOUR FIXED-PRICE INCENTIVE PROPOSAL YOUR CEILING PRICE MINUS PROMPT PAYMENT DISCOUNTS WAS LOWER THAN THE TI CEILING PRICE BUT STATES THAT OTHER FACTORS, INCLUDING THOSE MENTIONED ABOVE, MADE THE TI FIXED-PRICE INCENTIVE PROPOSAL MORE ATTRACTIVE. FURTHER, ABSENT ANY REQUIREMENT IN THE PROCUREMENT REGULATIONS FOR THE GOVERNMENT TO PRESCRIBE IN ADVANCE A FORMULA FOR DETERMINING THE RECIPIENT OF INCENTIVE CONTRACTS AND OF SPECIFIC INSTRUCTIONS IN THE REGULATIONS AS TO THE BASIS FOR AWARD OF FIXED PRICE INCENTIVE CONTRACTS, IT IS FAA'S VIEW THAT CONSIDERATION MUST BE GIVEN TO ALL FACTORS, INCLUDING CEILING, TARGET, COST SHARING FORMULA, ETC., TO DETERMINE "THE OVERALL BEST DEAL FOR THE GOVERNMENT BASED ON THE CONTRACTING OFFICER'S BEST JUDGMENT OF THE PROBABLE EXPERIENCE IN THE PERFORMANCE OF THE CONTRACT.'

CONCERNING THE USE OF THE PUBLIC EXIGENCY EXCEPTION AS JUSTIFICATION FOR NEGOTIATION OF THE PROCUREMENT, THE RECORD CONTAINS A STATEMENT BY THE CONTRACTING OFFICER TO THE EFFECT THAT WHILE IT NOW APPEARS THAT LACK OF THE EQUIPMENT DID NOT ENDANGER LIFE OR PROPERTY AND THAT THE DEPARTMENT OF THE NAVY ADVISED FAA IN JUNE 1966 THAT THE URGENCY OF THE PROCUREMENT HAD SLIPPED, NEVERTHELESS, ECONOMIC WASTE IS CONSIDERED TO BE A FACTOR SINCE A SUBSTANTIAL INVENTORY OF ASSOCIATED EQUIPMENT WILL BE UNUSABLE UNLESS THE PROCUREMENT ITEMS ARE MADE ON SCHEDULE. FURTHER, IT IS STATED THAT SINCE ADEQUATE SPECIFICATIONS WERE NOT AVAILABLE AND SINCE FAA HAD NO PROTOTYPE FOR THIS PROCUREMENT, NEGOTIATION COULD HAVE BEEN JUSTIFIED UNDER FPR 1- 3.210 ON THE BASIS THAT IT WAS IMPRACTICABLE TO SECURE COMPETITION BY FORMAL ADVERTISING; HOWEVER, PURSUANT TO FAA'S OWN REGULATIONS (FAPR 2- 3.350 (A) (, THE PUBLIC EXIGENCY EXCEPTION WAS USED AS THE SECTION OF THE APPLICABLE FPR MOST SPECIFICALLY CORRESPONDING WITH ALL OF THE CIRCUMSTANCES OF THE PROCUREMENT.

WITH RESPECT TO THE LENGTH OF TIME CONSUMED IN PROCESSING THE PROCUREMENT, FAA CONCURS WITH YOUR VIEW THAT SUCH ACTION APPEARS TO BE INCONSISTENT WITH THE STATED URGENCY OF THE PROCUREMENT, BUT EXPLAINS THAT MUCH OF THE DELAY WAS UNAVOIDABLE. AMONG THE FACTORS WHICH REPORTEDLY CONTRIBUTED TO THE DELAY WERE THE NEED TO SECURE CLARIFICATION OF THE SPECIFICATION, PREPARATION AND APPROVAL OF SPECIFICATION CHANGES, THE NEED TO OBTAIN ADDITIONAL FUNDS BECAUSE THE TWO PROPOSALS EXCEEDED THE FUNDS INITIALLY COMMITTED FOR THE PROCUREMENT, AND REQUIREMENT OF A PERIOD OF 2 MONTHS FOR TECHNICAL EVALUATION OF THE PROPOSALS AND AUDIT. ACCORDINGLY, IT IS FAA'S VIEW THAT NOTWITHSTANDING THE DELAY IN MAKING AWARD, SINCE THE PROCUREMENT WAS URGENT WHEN INITIATED AND URGENT AT THE TIME OF AWARD, NEGOTIATION ON THE BASIS OF PUBLIC EXIGENCY WAS PROPER.

WITH REFERENCE TO YOUR STATEMENT THAT THE FAA NEGOTIATION TEAM ADVISED YOU THAT DELIVERY WAS NO LONGER OF PARAMOUNT IMPORTANCE, IT IS REPORTED THAT, ACCORDING TO THE RECOLLECTION OF THE FAA PERSONNEL INVOLVED, THROUGHOUT THE PROCUREMENT URGENCY WAS STATED TO EXIST AND THERE WAS NO INCONSISTENCY IN THE GOVERNMENT'S POSITION ON THAT POINT.

CONCERNING THE REFUSAL OF TI TO MAKE AVAILABLE TO FAA THE REQUESTED COST DATA ON ITS PROPOSALS, IT IS FAA'S VIEW THAT THE CONTRACTING OFFICER, BY REFERRING THE MATTER TO A MEMBER OF THE FAA LEGAL STAFF WHEN ONLY THE FIXED-PRICE PROPOSALS WERE BEFORE FAA, COMPLIED WITH THE REQUIREMENT IN FPR 1-3.807-6 THAT AWARD BE WITHHELD AND THE CASE REFERRED TO HIGHER AUTHORITY. WITH REGARD TO THE CONTINUED REFUSAL OF TI TO SUPPLY SUCH DATA AT THE TIME OF SUBMISSION OF ITS INCENTIVE PROPOSAL, FAA POINTS TO THE ABSENCE FROM THE FPR OF ANY PROVISION GOVERNING SUCH CIRCUMSTANCES OTHER THAN REFERRING THE MATTER TO HIGHER AUTHORITY, WHICH ACTION WAS TAKEN BY THE CONTRACTING OFFICER IN THIS CASE, AND AT THE SAME TIME URGES THAT IN VIEW OF THE AVAILABILITY OF THE DATA DISCUSSED ABOVE, THERE WAS AN ACCEPTABLE BASIS FOR AWARD TO TI.

UNDER 41 U.S.C. 252 (C) (2), A PURCHASE OR CONTRACT WHICH WOULD OTHERWISE BE REQUIRED TO BE MADE PURSUANT TO FORMAL ADVERTISING MAY BE NEGOTIATED IF THE PUBLIC EXIGENCY WILL NOT ADMIT OF THE DELAY INCIDENT TO ADVERTISING. FPR 1-3.202 (A), ISSUED IN IMPLEMENTATION OF THE STATUTORY PROVISION, STATES THAT IN ORDER FOR THE PUBLIC EXIGENCY EXCEPTION TO APPLY, THE NEED MUST BE COMPELLING AND OF UNUSUAL URGENCY, AS WHEN THE GOVERNMENT WOULD BE SERIOUSLY INJURED FINANCIALLY OR OTHERWISE IF THE PROPERTY OR SERVICES TO BE PURCHASED OR CONTRACTED FOR WERE NOT FURNISHED BY A CERTAIN TIME AND WHEN THEY COULD NOT BE PROCURED BY THAT TIME BY MEANS OF FORMAL ADVERTISING. THE APPLICABILITY OF THE PUBLIC EXIGENCY EXCEPTION MUST THEREFORE BE DETERMINED SOLELY ON THE URGENCY OF THE NEED FOR THE SUPPLIES OR SERVICES AND WHETHER SUCH NEED CAN, OR CANNOT, BE MET BY USE OF FORMAL ADVERTISING. FROM THE PRESENT RECORD IT WOULD APPEAR THAT THE DETERMINATION TO NEGOTIATE UNDER 41 U.S.C. 252 (C) (2) WAS BASED UPON FAA'S CONTENTION THAT A NEW PRODUCER (I.E., SOMEONE OTHER THAN YOU OR TI) WOULD REQUIRE UP TO 15 MONTHS FOR DELIVERY AS OPPOSED TO 6 MONTHS FOR PRIOR PRODUCERS. HOWEVER, NO REASON APPEARS WHY DELIVERY REQUIREMENTS OF 6 MONTHS COULD NOT HAVE BEEN SET FORTH IN AN INVITATION FOR BIDS, IT BEING WITHIN THE PROVINCE OF THE CONTRACTING AGENCY TO DISQUALIFY FOR AWARD, SUBJECT TO APPROVAL OF THE SMALL BUSINESS ADMINISTRATION IN THE CASE OF SMALL BUSINESS CONCERNS, ANY BIDDER DETERMINED TO BE INCAPABLE OF MEETING SUCH DELIVERY REQUIREMENTS. SEE B-158249, MARCH 11, 1966.

WITH RESPECT TO FAA'S CONTENTION THAT THE PROVISIONS OF 41 U.S.C. 252 (C) (10), WHICH AUTHORIZE NEGOTIATION OF CONTRACTS FOR PROPERTY OR SERVICES FOR WHICH IT IS IMPRACTICABLE TO SECURE COMPETITION, COULD PROPERLY HAVE BEEN INVOKED, IT SHOULD BE NOTED THAT FPR 1-3.210 (A) (13) PROVIDES SUCH AUTHORITY MAY BE USED WHEN IT IS IMPOSSIBLE TO DRAFT FOR AN INVITATION FOR BIDS ADEQUATE SPECIFICATIONS OR ANY OTHER ADEQUATELY DETAILED DESCRIPTION OF THE REQUIRED PROPERTY OR SERVICES. SUCH PROVISIONS CONTEMPLATE IMPOSSIBILITY OF DRAFTING ADEQUATE SPECIFICATIONS, NOT MERE INCONVENIENCE. BASED UPON THE PRESENT RECORD, IT WOULD NOT APPEAR THAT ANY BROADER CONCLUSION IS JUSTIFIED THAN THAT THE SPECIFICATIONS USED IN PRIOR ADVERTISED PROCUREMENTS OF THE EQUIPMENT IN QUESTION COULD NOT BE USED SINCE A PROTOTYPE SUCH AS WAS PREVIOUSLY FURNISHED BIDDERS WAS NOT AVAILABLE. HOWEVER, THERE IS NO INDICATION THAT FAA MADE ANY ATTEMPT BETWEEN THE PREVIOUS AND PRESENT PROCUREMENTS TO DRAFT ADEQUATE SPECIFICATIONS, AND ABSENT ANY EVIDENCE THAT IT WAS IMPOSSIBLE FOR FAA TO DRAFT ANY NECESSARY CHANGES IN SUCH SPECIFICATIONS, IT IS OUR VIEW THAT THE RECORD DOES NOT DEMONSTRATE SUCH CIRCUMSTANCES AS WOULD JUSTIFY NEGOTIATION OF THE PROCUREMENT UNDER FPR 1-3.210 (A) (13).

IN LINE WITH THE FOREGOING, WE CONCUR WITH YOUR VIEW THAT THE PRESENT RECORD DOES NOT SUPPORT THE CONCLUSION THAT IT WAS PROPER FOR FAA TO EMPLOY NEGOTIATION PROCEDURE FOR THE PROCUREMENT OF THE EQUIPMENT IN QUESTION. HOWEVER, IN VIEW OF YOUR FAILURE TO TIMELY RAISE THIS QUESTION, AND SINCE IT WOULD APPEAR THAT USE OF FORMAL ADVERTISING WOULD HAVE RESULTED IN RESPONSIVE BIDS FROM ONLY TI AND YOUR COMPANY, WE ARE UNABLE TO CONCLUDE THAT THE FAILURE TO ADVERTISE FOR BIDS AFFORDS PROPER BASIS FOR DISTURBING THE CONTRACT AWARDED TO TI. ACCORDINGLY, SINCE THE PROCUREMENT WAS SUBJECT TO THE RULES GOVERNING NEGOTIATED PROCUREMENTS, OUR DECISION WILL BE RENDERED ON THAT BASIS.

UNDER 41 U.S.C. 254 (A), A CONTRACT NEGOTIATED PURSUANT TO 41 U.S.C. 252 (C) MAY BE OF ANY TYPE WHICH IN THE OPINION OF THE AGENCY HEAD WILL PROMOTE THE BEST INTERESTS OF THE GOVERNMENT. SEE, ALSO, FPR 1 3.401 (A). FURTHER, FPR 1-3.403 (A) (2) PROVIDES THAT IN THE ABSENCE OF EFFECTIVE PRICE COMPETITION AND WHERE PRICE ANALYSIS IS NOT SUFFICIENT, THE COST ESTIMATES OF THE OFFEROR AND OF THE GOVERNMENT ARE THE BASES FOR NEGOTIATION OF ANY PRICING ARRANGEMENTS. FPR 1 3.805-1 (B) PROVIDES THAT WHEN NEGOTIATIONS ARE CONDUCTED WITH MORE THAN ONE OFFEROR, NO INDICATION SHALL BE MADE TO ANY OFFEROR OF A PRICE WHICH MUST BE MET IN ORDER TO OBTAIN FURTHER CONSIDERATION SINCE SUCH PRACTICE CONSTITUTES AN AUCTION TECHNIQUE THAT MUST BE AVOIDED. FPR 1-3.807-1 PROVIDES THAT WHETHER THERE IS PRICE COMPETITION FOR A GIVEN PROCUREMENT IS A MATTER OF JUDGMENT TO BE BASED ON EVALUATION OF WHETHER THE CONDITIONS SET FORTH IN FPR 1-3.807-1 (B) (1), RELATING TO THE NUMBER OF OFFERORS, ETC., ARE SATISFIED; HOWEVER, COMPETITION NEED NOT BE CONSIDERED "ADEQUATE" IF THE CONTRACTING OFFICER FINDS THAT THE LOWEST FINAL PRICE IS NOT REASONABLE.

SUCH PROVISIONS VEST IN THE CONTRACTING OFFICER DISCRETION AS TO THE TYPE OF CONTRACT TO BE AWARDED, AUTHORITY TO USE THE GOVERNMENT'S COST ESTIMATE IN NEGOTIATING A PRICE WITH ANY OFFEROR, AND AUTHORITY TO DETERMINE WHETHER OFFERS OR PROPOSALS SUBMITTED TO THE GOVERNMENT ARE REASONABLY PRICED. ACCORDINGLY, SINCE EACH OF THE FIXED-PRICE PROPOSALS RECEIVED UNDER THE RFP WAS MORE THAN $400,000 HIGHER THAN FAA'S ORIGINAL ESTIMATE AND SINCE THE UNIT PRICE OF CLOSE TO $60,000 QUOTED IN EACH PROPOSAL FOR THE BASIC ITEM WAS APPROXIMATELY $18,000 HIGHER THAN THE PRICE FOR WHICH THE EQUIPMENT HAD BEEN OBTAINED IN THE MOST RECENT ADVERTISED PROCUREMENT, IT IS OUR VIEW THAT THERE WAS A SUBSTANTIAL BASIS FOR THE DETERMINATION BY THE CONTRACTING OFFICER THAT THE FIXED-PRICE PROPOSALS WERE NOT REASONABLY PRICED.

WITH RESPECT TO FAA'S ACTION IN ADVISING YOU DURING DISCUSSION OF YOUR FIXED-PRICE PROPOSAL THAT FAA CONSIDERED A PRICE OF $1,648,800 (WHICH REPRESENTED THE PRICING OBJECTIVE ESTABLISHED BY THE NEGOTIATING TEAM) REASONABLE FOR A FIXED-PRICE CONTRACT, THERE IS NO INDICATION THAT YOU WERE FURTHER ADVISED THAT SUCH PRICE HAD TO BE MET IN ORDER TO WARRANT FURTHER CONSIDERATION OF ANY PROPOSAL FROM YOU. CONVERSELY, YOU WERE REQUESTED DURING THE COURSE OF THE SAME DISCUSSION TO CONSIDER SUBMITTING A FIXED-PRICE INCENTIVE PROPOSAL WITH DELIVERY INCENTIVES AS AN ALTERNATE TO YOUR FIXED-PRICE PROPOSAL. ACCORDINGLY, WE ARE UNABLE TO CONCUR WITH YOUR VIEW THAT AUCTION TECHNIQUES WERE EMPLOYED WITHIN THE PURVIEW OF FPR 1-3.805-1 (B). IN FACT, IN VIEW OF YOUR FIRM REFUSAL TO MEET THE SUGGESTED PRICE IT WOULD NOT APPEAR THAT YOU WERE INFLUENCED BY SUCH ADVICE, AND WE THEREFORE SEE NO BASIS THEREIN FOR QUESTIONING THE VALIDITY OF THE CONTRACT AWARDED TO TI.

FPR 1-3.404-4 (A) DESCRIBES THE FIXED-PRICE INCENTIVE CONTRACT AS A FIXED -PRICE TYPE CONTRACT WITH PROVISION FOR ADJUSTMENT OF PROFIT AND ESTABLISHMENT OF THE FINAL CONTRACT PRICE BY A FORMULA BASED ON THE RELATIONSHIP WHICH FINAL NEGOTIATED TOTAL COST BEARS TO TOTAL TARGET COSTS. FPR 1-3.404-4 (B) (1), RELATING TO THE APPLICATION OF SUCH A CONTRACT, READS AS FOLLOWS:

(B) APPLICATION (1) FIXED-PRICE INCENTIVE CONTRACTS ARE APPROPRIATE WHEN USE OF THE FIRM FIXED-PRICE CONTRACT IS INAPPROPRIATE, AND THE SUPPLIES OR SERVICES BEING PROCURED ARE OF SUCH A NATURE THAT ASSUMPTION OF A DEGREE OF COST RESPONSIBILITY BY THE CONTRACTOR IS LIKELY TO PROVIDE HIM WITH A POSITIVE PROFIT INCENTIVE FOR EFFECTIVE COST CONTROL AND CONTRACT PERFORMANCE. IT MAY ALSO BE APPROPRIATE TO NEGOTIATE ADDITIONAL INCENTIVE PROVISIONS COVERING PERFORMANCE LEVELS AND MORE TIMELY DELIVERY (SEE SEC. 1-3.407-2). CONTRACT PERFORMANCE REQUIREMENTS MUST BE SUCH THAT THERE IS REASONABLE OPPORTUNITY FOR THE INCENTIVE PROVISIONS TO HAVE A MEANINGFUL IMPACT ON THE MANNER IN WHICH THE CONTRACTOR MANAGES THE WORK. FPR 1- 3.404-4 (C), LIMITING THE USE OF FIXED-PRICE INCENTIVE CONTRACTS, READS AS FOLLOWS:

(C) LIMITATIONS. FIXED-PRICE INCENTIVE CONTRACTS SHALL NOT BE USED UNLESS THE CONTRACTOR'S ACCOUNTING SYSTEM IS ADEQUATE FOR PRICE REVISION PURPOSES AND PERMITS SATISFACTORY APPLICATION OF THE PROFIT AND PRICE ADJUSTMENT FORMULAS. IN NO CASE SHOULD SUCH CONTRACTS BE USED WHERE (1) COST OR PRICING INFORMATION ADEQUATE FOR FIRM TARGETS IS NOT AVAILABLE AT THE TIME OF INITIAL CONTRACT NEGOTIATION OR AT A VERY EARLY POINT IN PERFORMANCE, OR (2) THE SOLE OR PRINCIPAL PURPOSE IS TO SHIFT SUBSTANTIALLY ALL COST RESPONSIBILITY TO THE GOVERNMENT. IN NO CASE SHALL THE FIRM TARGET PROFIT OR THE FORMULA FOR FINAL PROFIT AND PRICE BE ESTABLISHED PRIOR TO THE NEGOTIATION OF THE FIRM TARGET COST. NEITHER TYPE OF FIXED-PRICE INCENTIVE CONTRACT SHALL BE USED UNLESS A DETERMINATION HAS BEEN MADE, IN ACCORDANCE WITH THE REQUIREMENTS OF SUBPART 1-3.3, THAT SUCH METHOD OF CONTRACTING IS LIKELY TO BE LESS COSTLY THAN OTHER METHODS, OR THAT IT IS IMPRACTICAL TO SECURE SUPPLIES OR SERVICES OF THE KIND OR QUALITY REQUIRED WITHOUT THE USE OF SUCH TYPE OF CONTRACT.

FPR 1-3.807-2 REQUIRES SOME FORM OR PRICE OR COST ANALYSIS IN CONNECTION WITH EVERY NEGOTIATED PROCUREMENT ACTION, THE METHOD AND DEGREE OF ANALYSIS BEING DEPENDENT ON THE FACTS SURROUNDING THE PARTICULAR PROCUREMENT AND PRICING SITUATION. FPR 1-3.807-3, WHICH SETS FORTH THE REQUIREMENTS FOR COST OR PRICING DATA FOR NEGOTIATED CONTRACTS, PROVIDES, IN PERTINENT PART, AS FOLLOWS:

SEC. 1-3.807-3 REQUIREMENTS FOR COST OR PRICING DATA.

(A) THE CONTRACTING OFFICER SHALL, EXCEPT AS PROVIDED IN PARAGRAPH (B) OF THIS SECTION, REQUIRE THE PROSPECTIVE CONTRACTOR OR CONTRACTOR, AS THE CASE MAY BE, TO SUBMIT IN WRITING COST OR PRICING DATA AND TO CERTIFY, BY USE OF THE CERTIFICATE IN SEC. 1-3.807-4, THAT TO THE BEST OF HIS KNOWLEDGE AND BELIEF, THE COST OR PRICING DATA HE SUBMITTED WAS ACCURATE, COMPLETE, AND CURRENT, PRIOR TO:

(1) THE AWARD OF ANY COST-REIMBURSEMENT TYPE, TIME AND MATERIAL, LABOR- HOUR, INCENTIVE, OR PRICE REDETERMINABLE CONTRACT EXPECTED TO EXCEED $100,000 IN AMOUNT.

(2)THE AWARD OF ANY FIRM FIXED-PRICED OR FIXED-PRICE WITH ESCALATION, NEGOTIATED CONTRACT EXPECTED TO EXCEED $100,000 IN AMOUNT.

(3) THE PRICING OF ANY CONTRACT MODIFICATION EXPECTED TO EXCEED $100,000 IN AMOUNT TO ANY FORMALLY ADVERTISED OR NEGOTIATED CONTRACT WHETHER OR NOT COST OR PRICING DATA WAS REQUIRED IN CONNECTION WITH THE INITIAL PRICING OF THE CONTRACT.

(B) THE REQUIREMENTS OF PARAGRAPH (A) OF THIS SECTION NEED NOT BE APPLIED WHERE, IN THE CASE OF (1) THEREOF, CONSTRUCTION CONTRACTS OR BASIC RESEARCH CONTRACTS WITH EDUCATIONAL INSTITUTIONS ARE INVOLVED; WHERE, IN THE CASE OF (2) AND (3) THEREOF, IT IS DETERMINED BY THE CONTRACTING OFFICER THAT THE PRICE NEGOTIATED IS BASED ON ADEQUATE PRICE COMPETITION, ESTABLISHED CATALOG OR MARKET PRICES OF COMMERCIAL ITEMS SOLD IN SUBSTANTIAL QUANTITIES TO THE GENERAL PUBLIC, OR PRICES SET BY LAW OR REGULATION; OR WHERE, IN EXCEPTIONAL CASES, THE HEAD OF THE AGENCY OR HIS AUTHORIZED DESIGNEE AUTHORIZES THE WAIVER OF THOSE REQUIREMENTS AND STATES IN WRITING HIS REASONS FOR SUCH DETERMINATION (SEE SEC. 1-3.302 (E) ).

(F) WHEN THERE IS ADEQUATE PRICE COMPETITION, COST OR PRICING DATA SHOULD NOT BE REQUESTED REGARDLESS OF THE DOLLAR AMOUNT INVOLVED. WHERE, HOWEVER, COST OR PRICING DATA HAS BEEN FURNISHED, IT SHALL BE CONSIDERED IN MAKING DECISIONS ON CONTRACT PRICES. * * *

FPR 1-3.807-7 PROVIDES THAT CERTIFICATE OF COST OR PRICING DATA SHALL NOT BE CONSIDERED A SUBSTITUTE FOR EXAMINATION AND ANALYSIS OF THE CONTRACTOR'S PROPOSAL, NOR SHALL CONTRACTING OFFICERS RELY ON PROFIT LIMITING STATUTES AS REMEDIES FOR INEFFECTIVE PRICING.

THE REASONS ADVANCED BY FAA, AS SET FORTH ABOVE, FOR ITS VIEW THAT THE ORIGINAL FIXED-PRICE PROPOSALS WERE UNREASONABLY PRICED AND THAT A FIXED- PRICE INCENTIVE CONTRACT MIGHT BE MORE IN THE INTEREST OF THE GOVERNMENT SATISFY, IN OUR OPINION, THE REQUIREMENTS OF THE REGULATIONS AND THEREFORE THE SELECTION OF A FIXED-PRICE INCENTIVE CONTRACT IN LIEU OF A FIXED-PRICE CONTRACT OR ANY OTHER TYPE CONTRACT WAS A PROPER EXERCISE OF THE ADMINISTRATIVE AUTHORITY.

WITH RESPECT TO THE MATTER OF COST DATA, HOWEVER, IT IS OUR OPINION THAT FAA'S ACTIONS ARE SUBJECT TO QUESTION. FIRST, THE CONTRACTING OFFICER HAVING VALID REASONS FOR DOUBTING THE REASONABLENESS OF THE FIXED-PRICE PROPOSALS, WAS JUSTIFIED, IN OUR OPINION, IN REQUESTING COST DATA FROM BOTH YOU AND TI. SEE 45 COMP. GEN. 642. IN ADDITION, WHEN TI REFUSED TO SUBMIT THE REQUESTED DATA ON ITS FIXED-PRICE PROPOSAL, THE CONTRACTING OFFICER PROPERLY COMPLIED WITH FPR 1-3.807-6 BY REFERRING THE MATTER TO HIGHER AUTHORITY WITHIN FAA. THE AGENCY'S SUBSEQUENT ACTIONS, HOWEVER, ARE SUBJECT TO QUESTION.

THE PROVISIONS IN FPR 1-3.807-3 RELATING TO THE FURNISHING OF COST OR PRICING DATA PRIOR TO THE AWARD OF NEGOTIATED CONTRACTS ARE SIMILAR TO THE PROVISIONS IN ARMED SERVICES PROCUREMENT REGULATION (ASPR) 3 807.3 AND, LIKE ASPR, ARE INTENDED TO REFLECT REQUIREMENTS SET FORTH IN PUBLIC LAW 87 -653, EFFECTIVE DECEMBER 1, 1962, CODIFIED AT 10 U.S.C. 2306 (F), GOVERNING PROCUREMENTS BY THE DEPARTMENT OF DEFENSE, THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION, AND THE UNITED STATES COAST GUARD. THE STATUTORY PROVISION IS AS FOLLOWS:

A PRIME CONTRACTOR OR ANY SUBCONTRACTOR SHALL BE REQUIRED TO SUBMIT COST OR PRICING DATA UNDER THE CIRCUMSTANCES LISTED BELOW, AND SHALL BE REQUIRED TO CERTIFY THAT, TO THE BEST OF HIS KNOWLEDGE AND BELIEF, THE COST OR PRICING DATA HE SUBMITTED WAS ACCURATE, COMPLETE AND CURRENT---

(1) PRIOR TO THE AWARD OF ANY NEGOTIATED PRIME CONTRACT UNDER THIS TITLE WHERE THE PRICE IS EXPECTED TO EXCEED $100,000;

(2) PRIOR TO THE PRICING OF ANY CONTRACT CHANGE OR MODIFICATION FOR WHICH THE PRICE ADJUSTMENT IS EXPECTED TO EXCEED $100,000, OR SUCH LESSER AMOUNT AS MAY BE PRESCRIBED BY THE HEAD OF THE AGENCY;

(3) PRIOR TO THE AWARD OF A SUBCONTRACT AT ANY TIER, WHERE THE PRIME CONTRACTOR AND EACH HIGHER TIER SUBCONTRACTOR HAVE BEEN REQUIRED TO FURNISH SUCH A CERTIFICATE, IF THE PRICE OF SUCH SUBCONTRACT IS EXPECTED TO EXCEED $100,000; OR

(4) PRIOR TO THE PRICING OF ANY CONTRACT CHANGE OR MODIFICATION TO A SUBCONTRACT COVERED BY (3) ABOVE, FOR WHICH THE PRICE ADJUSTMENT IS EXPECTED TO EXCEED $100,000, OR SUCH LESSER AMOUNT AS MAY BE PRESCRIBED BY THE HEAD OF THE AGENCY.

ANY PRIME CONTRACT OR CHANGE OR MODIFICATION THERETO UNDER WHICH SUCH CERTIFICATE IS REQUIRED SHALL CONTAIN A PROVISION THAT THE PRICE TO THE GOVERNMENT, INCLUDING PROFIT OR FEE, SHALL BE ADJUSTED TO EXCLUDE ANY SIGNIFICANT SUMS BY WHICH IT MAY BE DETERMINED BY THE HEAD OF THE AGENCY THAT SUCH PRICE WAS INCREASED BECAUSE THE CONTRACTOR OR ANY SUBCONTRACTOR REQUIRED TO FURNISH SUCH A CERTIFICATE, FURNISHED COST OR PRICING DATA WHICH, AS OF A DATE AGREED UPON BETWEEN THE PARTIES (WHICH DATE SHALL BE AS CLOSE TO THE DATE OF AGREEMENT ON THE NEGOTIATED PRICE AS IS PRACTICABLE), WAS INACCURATE, INCOMPLETE, OR NONCURRENT: PROVIDED, THAT THE REQUIREMENTS OF THIS SUBSECTION NEED NOT BE APPLIED TO CONTRACTS OR SUBCONTRACTS WHERE THE PRICE NEGOTIATED IS BASED ON ADEQUATE PRICE COMPETITION, ESTABLISHED CATALOG OR MARKET PRICES OF COMMERCIAL ITEMS SOLD IN SUBSTANTIAL QUANTITIES TO THE GENERAL PUBLIC, PRICES SET BY LAW OR REGULATION OR, IN EXCEPTIONAL CASES WHERE THE HEAD OF THE AGENCY DETERMINES THAT THE REQUIREMENTS OF THIS SUBSECTION MAY BE WAIVED AND STATES IN WRITING HIS REASONS FOR SUCH DETERMINATION.

THE LEGISLATIVE HISTORY OF THE STATUTORY PROVISION DISCLOSES THAT ONE OF ITS PRIMARY PURPOSES WAS TO REQUIRE FULL, COMPLETE, AND ACCURATE DATA AND DISCLOSURE BY BOTH PARTIES IN PRICING DISCUSSIONS OF INCENTIVE CONTRACTS IN PARTICULAR, INCLUDING FIXED-PRICE INCENTIVE CONTRACTS, AND TO REQUIRE THE CONTRACTOR TO CERTIFY TO THE COST FIGURES IN HAND AT THE TIME OF NEGOTIATIONS FOR TARGET PRICE. AS STATED IN H.REPT. NO. 1638, 87TH CONG., 2D SESS., THE PROVISION DOES TWO THINGS: "IT REQUIRES BY LAW A FULL DISCLOSURE IN NEGOTIATIONS AND IT REQUIRES A READJUSTMENT OF TARGET PRICES, BEFORE FINAL SETTLEMENT AND COST SHARING, SO THAT THE INCENTIVE PROFIT OVER THE NORMAL PROFIT WILL BE THE PRODUCT OF THE CONTRACTOR'S ACTION IN PERFORMANCE RATHER THAN ARTIFICIAL PRICING IN NEGOTIATIONS FOR TARGET PRICE.'

INSOFAR AS INCENTIVE-TYPE CONTRACTS ARE CONCERNED, ASPR 3-807.3 (A) REQUIRES THE FURNISHING OF COST OR PRICING DATA PRIOR TO AWARD, SUBJECT TO ONLY ONE EXCEPTION, THAT IS, THE EXERCISE IN EXCEPTIONAL CASES OF A WAIVER BY THE SECRETARY (OR, IN THE CASE OF A CONTRACT WITH A FOREIGN GOVERNMENT OR AGENCY THEREOF, THE HEAD OF A PROCURING ACTIVITY). FPR 1 3.807-3 (A) AND (B) ARE WORDED SIMILARLY, EXCEPT THAT THE WAIVER MAY BE EXERCISED BY THE HEAD OF THE AGENCY OR HIS AUTHORIZED DESIGNEE.

WHILE THE FIRST SENTENCE OF FPR 1-3.807-3 (F) PROVIDES THAT COST OR PRICING DATA SHOULD NOT BE REQUESTED WHEN THERE IS ADEQUATE PRICE COMPETITION (SEE ALSO ASPR 3-807.3 (C) (, IN THE LIGHT OF THE LEGISLATIVE HISTORY OF THE STATUTE, WHICH SERVES AS THE BASIS FOR THE DATA REQUIREMENTS SET FORTH IN BOTH ASPR 3-807.3 AND FPR 1-3.807-3, IT IS OUR OPINION THAT FPR 1-3.807-3 (F) COULD NOT HAVE BEEN INVOKED TO DISPENSE WITH THE REQUIREMENT FOR COST OR PRICING DATA ONCE IT WAS DECIDED THAT AN INCENTIVE-TYPE CONTRACT WAS TO BE AWARDED. TO APPLY SUCH PROVISION TO JUSTIFY FAILURE TO OBTAIN SUCH DATA IN THE CASE OF AN INCENTIVE CONTRACT SUCH AS IS INVOLVED HERE WOULD BE CONTRARY TO THE INTENT OF THE STATUTE, AND MUST THEREFORE BE CONSIDERED INCONSISTENT WITH THE INTENT OF THE PROVISIONS OF FPR 1-3.807-3 (A). ACCORDINGLY, THE ADMINISTRATIVE DECISION NOT TO INSIST ON THE FURNISHING BY TI OF COST DATA ON ITS INCENTIVE PROPOSAL CAN BE JUSTIFIED ONLY UNDER THE EXCEPTIONAL CASE WAIVER AUTHORITY IN FPR 1-3.807-3 (B).

THE DISCUSSION WHICH THE CONTRACTING OFFICER REPORTEDLY HAD ON APRIL 8 WITH THE FAA OFFICIAL WHO WAS AUTHORIZED AT THE TIME TO ACT, EXCEPT WITH RESPECT TO NONDELEGABLE FUNCTIONS, AS THE ,AGENCY HEAD" DID NOT CULMINATE IN THE WRITTEN WAIVER CONTEMPLATED BY FPR 1-3.807-3 (B). HOWEVER, THE EFFECT OF THE INITIAL DECISION NOT "TO PRESS" TI FOR DETAILED COST DATA AND OF THE FINAL DECISION TO ACCEPT TI'S FIXED PRICE INCENTIVE PROPOSAL WITHOUT SUCH DATA WAS TO GRANT A WAIVER OF THE DATA REQUIREMENT AS TO TI. THERE IS NOTHING IN THE FPR OR IN THE SIMILARLY WORDED PROVISIONS IN THE ASPR, OR IN THE LEGISLATIVE HISTORY OF PUBLIC LAW 87-653, 10 U.S.C. 2304 (F), PURSUANT TO WHICH THE ASPR PROVISIONS WERE ISSUED, WHICH WOULD JUSTIFY THE CONCLUSION THAT THE WAIVER PROVISION IS DIRECTED TO AUTHORITY, WHEN THERE IS MORE THAN ONE OFFEROR, TO WAIVE THE SUBMISSION AND CERTIFICATION OF COST DATA WITH RESPECT TO ONE, OR LESS THAN ALL, OF THE OFFERORS. THAT THE REQUIREMENT FOR PROCUREMENT ON AN EQUAL COMPETITIVE BASIS, AS WELL AS THE REGULATIONS AND THE STATUTE REQUIRING THE SUBMISSION OF COST DATA, MUST BE INTERPRETED TO PRECLUDE SUCH PARTIAL WAIVER BECOMES EVIDENT WHEN IT IS REALIZED THAT AN OFFEROR WHO FURNISHES COST DATA AND EXECUTES THE CERTIFICATE REQUIRED BY FPR 1-3.807-4 MAY HAVE HIS CONTRACT PRICE REDUCED, WHEREAS AN OFFEROR WHO IS PERMITTED TO SUBMIT A PROPOSAL WITHOUT BEING REQUIRED TO SUBMIT COMPLETE, ACCURATE, AND CURRENT COST DATA MAY NOT BE SO PENALIZED, THE CERTIFICATE IN SUCH CASE BEING OF NO EFFECT. IT IS OUR VIEW, THEREFORE, THAT FAA EITHER SHOULD HAVE INSISTED THAT TI FURNISH THE REQUESTED DATA, SHOULD HAVE REFUSED TO CONSIDER ITS INCENTIVE PROPOSAL IF IT FAILED TO DO SO, OR SHOULD HAVE EXECUTED AN "EXCEPTIONAL CASE" WAIVER, IF DEEMED PROPER, AS TO BOTH OFFERORS.

WITH REGARD TO YOUR ASSERTION THAT THE INCENTIVE PROPOSALS SHOULD HAVE BEEN EVALUATED ON THE BASIS OF THE CEILING PRICES SINCE THE METHOD OF EVALUATION WAS NOT MADE KNOWN BEFORE AWARD, YOUR ATTENTION IS INVITED TO THE LANGUAGE IN FPR 1-3.404-4, WHICH CLEARLY INDICATES THAT THE INTENT OF A FIXED-PRICE INCENTIVE CONTRACT IS TO STATE A REALISTIC TARGET PRICE, TO MAKE EVERY EFFORT TO STAY WITHIN SUCH PRICE, AND, IF POSSIBLE, TO PERFORM THE CONTRACT FOR A LOWER PRICE. TO EVALUATE FIXED PRICE INCENTIVE PROPOSALS ON THE BASIS OF CEILING PRICES, AS YOU PROPOSE, WOULD RENDER MEANINGLESS THE TARGET PRICES. ACCORDINGLY, WE MUST CONCUR WITH THE VIEW OF FAA IN THIS RESPECT. IN ADDITION, THERE IS FOR NOTING THE FACT THAT TI'S TARGET PRICE, WHICH FAA CONSIDERS REALISTIC, WAS LOWER THAN YOUR FIXED-PRICE PROPOSAL APPEARS TO SUPPORT THE CONTRACTING OFFICER'S JUDGMENT THAT A FIXED-PRICE INCENTIVE CONTRACT WOULD BE MORE IN THE GOVERNMENT'S INTEREST THAN A FIRM FIXED PRICE CONTRACT.

THE ADMINISTRATIVE REPORT, WHICH WE MUST ACCEPT AS CORRECT ABSENT EVIDENCE SUFFICIENT TO OVERCOME THE PRESUMPTION OF ITS CORRECTNESS, IS IN DIRECT CONFLICT WITH YOUR ALLEGATIONS THAT PRICING INFORMATION WAS IMPROPERLY DISCLOSED TO TI BY FAA PERSONNEL AND THAT DURING THE PENDENCY OF NEGOTIATIONS YOU WERE INFORMED BY FAA THAT DELIVERY OF THE PROCUREMENT ITEMS WAS NO LONGER IMPORTANT. CONVERSELY, THE REPORT INDICATES THAT INFORMATION WAS INADVERTENTLY RELEASED TO YOU ON PRICES SET FORTH IN TI'S INCENTIVE PROPOSAL AFTER AWARD AND THAT FAA'S POSITION ON THE URGENCY OF THE PROCUREMENT WAS MAINTAINED THROUGHOUT NEGOTIATIONS. FURTHER, WHILE THE COST AND PRICING DATA ON WHICH FAA RELIED IN MAKING ITS DETERMINATION THAT TI'S INCENTIVE PROPOSAL WAS REASONABLY PRICED MIGHT NOT HAVE BEEN AS DETAILED AS THE CONGRESS HAS INDICATED IS DESIRABLE FOR INCENTIVE CONTRACTS NEGOTIATED BY THE MILITARY DEPARTMENTS (H.REPT. NO. 1959, 86TH CONG. 2D SESS.), WE ARE UNABLE TO SAY THAT SUCH DATA, WHICH INCLUDES YOUR FIXED PRICE AND FIXED-PRICE INCENTIVE PROPOSALS, BOTH OF WHICH WERE HIGHER THAN THE TARGET PRICE IN TI'S FIXED-PRICE INCENTIVE PROPOSAL, WAS NOT SUFFICIENT JUSTIFICATION FOR THE ADMINISTRATIVE DETERMINATION THAT TI'S INCENTIVE PROPOSAL WAS REASONABLY PRICED AND THAT ITS ACCEPTANCE WAS IN THE BEST INTERESTS OF THE GOVERNMENT. IN THIS CONNECTION, IT MAY BE NOTED THAT WHILE IT IS OUR VIEW THAT YOU SHOULD NOT HAVE BEEN REQUIRED TO FURNISH COST DATA UNLESS TI LIKEWISE WAS REQUIRED TO FURNISH SUCH DATA, NEVERTHELESS, THE CONSIDERATION OF THE DATA WHICH YOU FURNISHED WAS REQUIRED BY FPR 1-3.807-3 (F).

IN THE CIRCUMSTANCES, WHILE IN OUR OPINION THE RECORD DOES NOT ESTABLISH THAT A PROPER BASIS EXISTED FOR THE USE OF NEGOTIATION AND THE CONDUCT OF THE PROCUREMENT WAS NOT IN FULL COMPLIANCE WITH THE REGULATIONS GOVERNING NEGOTIATED PROCUREMENTS, WE DO NOT FEEL THAT CANCELLATION OF THE AWARD MADE MORE THAN 4 MONTHS AGO WOULD NOW BE IN THE BEST INTERESTS OF THE GOVERNMENT. HOWEVER, WE ARE BRINGING THE MATTER TO THE ATTENTION OF THE ADMINISTRATOR, FAA, WITH THE SUGGESTION THAT APPROPRIATE STEPS BE TAKEN TO ASSURE COMPLIANCE WITH THE PROCUREMENT STATUTE AND REGULATIONS IN ORDER TO AVOID ANY SIMILAR INCIDENTS. A COPY OF OUR LETTER OF TODAY TO THE ADMINISTRATOR, FAA, IS ENCLOSED.