B-163441, MAY 13, 1968

B-163441: May 13, 1968

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TO THE BERYLLIUM CORPORATION: REFERENCE IS MADE TO YOUR LETTER DATED JANUARY 25. THERE IS NO PROVISION IN THE PRIME CONTRACT REQUIRING LOCKHEED TO MAKE A SPLIT PURCHASE OF THE BERYLLIUM REQUIREMENTS. THERE ARE COST AND PERFORMANCE INCENTIVE PROVISIONS WHICH ARE DESIGNED TO INDUCE LOCKHEED TO DEVELOP AND PRODUCE A MISSILE SYSTEM WITH MAXIMUM PERFORMANCE CHARACTERISTICS WHILE STAYING WITHIN THE MOST PRACTICABLE COST LIMITATIONS. THE SUBSTANCE OF YOUR PROTEST IS THAT IT WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT TO APPORTION THE SUBCONTRACT REQUIREMENT BETWEEN YOUR COMPANY AND BRUSH. YOU STATE THAT YOU WERE REASONABLY COMPETITIVE FROM A PRICE STANDPOINT AND THAT YOU HAVE ALREADY PRODUCED AND DELIVERED PARTS TO SPECIFICATION.

B-163441, MAY 13, 1968

TO THE BERYLLIUM CORPORATION:

REFERENCE IS MADE TO YOUR LETTER DATED JANUARY 25, 1968, AS SUPPLEMENTED BY A MEMORANDUM OF THE SAME DATE, PROTESTING AGAINST THE FAILURE OF LOCKHEED MISSILES AND SPACE COMPANY (LOCKHEED) TO AWARD YOUR COMPANY A SUBCONTRACT UNDER THE POSEIDON MISSILE PROGRAM.

LOCKHEED HAS A NEGOTIATED PRIME CONTRACT WITH THE DEPARTMENT OF THE NAVY FOR THE DEVELOPMENT AND INITIAL PRODUCTION OF THE POSEIDON MISSILE SYSTEM, AND THE SINGLE SUBCONTRACT AWARDED TO BRUSH BERYLLIUM COMPANY (BRUSH) COVERS ROUGH MACHINED BERYLLIUM METAL PARTS REQUIRED FOR THE WORK INVOLVED. THERE IS NO PROVISION IN THE PRIME CONTRACT REQUIRING LOCKHEED TO MAKE A SPLIT PURCHASE OF THE BERYLLIUM REQUIREMENTS, BUT THERE ARE COST AND PERFORMANCE INCENTIVE PROVISIONS WHICH ARE DESIGNED TO INDUCE LOCKHEED TO DEVELOP AND PRODUCE A MISSILE SYSTEM WITH MAXIMUM PERFORMANCE CHARACTERISTICS WHILE STAYING WITHIN THE MOST PRACTICABLE COST LIMITATIONS.

THE SUBSTANCE OF YOUR PROTEST IS THAT IT WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT TO APPORTION THE SUBCONTRACT REQUIREMENT BETWEEN YOUR COMPANY AND BRUSH, AS THE TWO QUALIFIED PRODUCERS. YOU STATE THAT YOU WERE REASONABLY COMPETITIVE FROM A PRICE STANDPOINT AND THAT YOU HAVE ALREADY PRODUCED AND DELIVERED PARTS TO SPECIFICATION. YOU CONTEND THAT ALLOWING THE TOTAL AWARD TO BRUSH TO STAND WILL COMMIT LOCKHEED TO A SINGLE SOURCE OF THE PROCUREMENT ITEM NOT ONLY FOR THE PRESENT SUBCONTRACT BUT FOR FUTURE NEEDS THROUGH 1974; MAY WELL GIVE BRUSH AN INSURMOUNTABLE LEAD OVER YOU IN KNOW-HOW AND CAPACITY TO FABRICATE BERYLLIUM SHAPES, WHICH WOULD PERMANENTLY IMPAIR COMPETITION FOR FUTURE GOVERNMENT BUSINESS IN THIS FIELD; AND WOULD PLACE THE ENTIRE POSEIDON PROGRAM IN JEOPARDY IN THE EVENT OF A CATASTROPHE TO THE SINGLE SOURCE OF SUPPLY. ACCORDINGLY, YOU REQUEST THAT A PORTION OF THE SUBCONTRACT REQUIREMENT BE AWARDED TO YOU.

THE RECORD FURNISHED BY THE DEPARTMENT OF THE NAVY INDICATES THAT LOCKHEED SOLICITED FOUR BERYLLIUM PRODUCERS FOR THE SUBCONTRACT REQUIREMENTS, BUT ONLY YOU AND BRUSH SUBMITTED PROPOSALS. ALTHOUGH THE SOLICITATION DID NOT GUARANTEE THAT A SPLIT AWARD WOULD BE MADE, AND NEITHER YOU NOR BRUSH MADE ANY OBJECTION ON THIS ISSUE, LOCKHEED'S INTENT WAS TO USE BOTH SOURCES, IF POSSIBLE. SINCE A DUAL AWARD WAS CONSIDERED HIGHLY PROBABLE, COMPETITION ALONE COULD NOT BE RELIED UPON TO PRODUCE THE LOWEST OVERALL COSTS TO THE POSEIDON PROGRAM. THE USE OF COST ANALYSIS AND NEGOTIATION TECHNIQUES WAS THEREFORE CONSIDERED PRUDENT AND NECESSARY, AND YOU AND BRUSH WERE SO INFORMED.

IT FURTHER APPEARS THAT AFTER THE LOCKHEED AND GOVERNMENT AUDITORS DETERMINED THAT TWO CONSECUTIVE SETS OF QUOTATIONS RECEIVED FROM YOU AND BRUSH WERE NOT REASONABLY PRICED, CONCURRENT BUT SEPARATE NEGOTIATIONS WERE CONDUCTED WITH EACH OF YOU WITH A VIEW TO NEGOTIATING THE LOWEST POSSIBLE PRICE OVER THE ENTIRE RANGE OF QUANTITIES. IN MID-JANUARY 1968, YOUR COMPANY AND BRUSH SIGNIFIED THAT YOU HAD SUBMITTED YOUR FINAL PRICES, AND NEGOTIATIONS WERE BROUGHT TO A CLOSE. EVALUATION OF THE PROPOSALS SHOWED THAT THE LOWEST PRICE COULD BE OBTAINED BY A SINGLE AWARD TO BRUSH; THAT AWARD OF 70 PERCENT TO BRUSH AND 30 PERCENT TO YOU WOULD PRODUCE THE LOWEST PRICED SPLIT AWARD BUT WOULD EXCEED THE SINGLE AWARD TO BRUSH BY MORE THAN $800,000; AND THAT A 50-50 AWARD TO YOU AND TO BRUSH WOULD COST $1,200,000 MORE THAN A SINGLE AWARD TO BRUSH.

AFTER CONSIDERING VARIOUS PERTINENT FACTORS, INCLUDING BRUSH'S PLANT CAPACITY AND ABILITY TO MEET DELIVERY REQUIREMENTS, THE POSSIBLE LACK OF FUTURE COMPETITION FOR BRUSH, AND THE COST TO THE GOVERNMENT OF USING TWO SOURCES FOR THE BERYLLIUM, LOCKHEED DECIDED UPON AN AWARD TO BRUSH FOR 1,220 UNITS AT $10,700 PER UNIT; TO DEFINITIZE AN OUTSTANDING LETTER CONTRACT WITH YOU FOR 45 UNITS AT $14,400 PER UNIT RATHER THAN TO TERMINATE SUCH CONTRACT AT AN ESTIMATED EXPENSE OF $200,000; AND TO HOLD 375 UNITS IN RESERVE FOR POSSIBLE FABRICATION BY A NEW, LOWER COST PROCESS NOW UNDER DEVELOPMENT. IN THIS CONNECTION, THE DEPARTMENT OF THE NAVY REPORTS THAT SHOULD THE NEW FABRICATION PROCESS PROVE TO BE UNACCEPTABLE, BRUSH MIGHT BE THE LOGICAL CHOICE FOR THE ENTIRE POSEIDON BERYLLIUM ROUGH MACHINED BILLET PRODUCTION SINCE BRUSH IS COMMITTED TO A UNIT PRICE OF $10,700 FOR UP TO 1,600 UNITS AND THE SUBCONTRACT WITH BRUSH INCLUDES A SPECIAL PROVISION THAT REQUIRES BRUSH, AT THE OPTION OF LOCKHEED, TO NEGOTIATE IN GOOD FAITH FIRM FIXED-PRICE OR COST REIMBURSABLE INCENTIVE TYPE SUBCONTRACTS FOR ANY FOLLOW-ON PROCUREMENTS OF THE BILLETS AND TO MAINTAIN RECORDS OF PRODUCTION COSTS AND SERVICES WHICH ARE TO BE MADE AVAILABLE TO LOCKHEED PRIOR TO ANY SUCH NEGOTIATION.

FOLLOWING RECEIPT OF NOTICE OF YOUR PROTEST, THE DEPARTMENT OF THE NAVY REQUESTED FROM LOCKHEED THE RECORD OF THE NEGOTIATIONS AND OBTAINED LOCKHEED'S AGREEMENT THAT NO FINAL ACTION WOULD BE TAKEN IN THE MATTER PENDING REVIEW THEREOF, ALTHOUGH THE AWARD OF THE PROPOSED SUBCONTRACT WOULD HAVE BEEN WITHIN THE LIMITS OF THE NAVY'S APPROVAL OF LOCKHEED'S PURCHASING SYSTEM. UPON ITS REVIEW OF THE RECORD, AND OF REPLIES RECEIVED FROM OTHER INTERESTED GOVERNMENT AGENCIES WHOSE VIEWS AS TO THE NECESSITY FOR DUAL SOURCES OF BERYLLIUM MACHININGS WERE SOLICITED, THE DEPARTMENT REACHED THE FOLLOWING CONCLUSIONS:

"A. THE ACTIONS OF THE PRIME CONTRACTOR, LOCKHEED MISSILES AND SPACE COMPANY, WERE IN ACCORD WITH LAW AND REGULATIONS AND WITH BOTH THE TERMS AND INTENT OF ITS CONTRACT, AND RESULTED FROM THE EXERCISE OF REASONABLE BUSINESS JUDGMENT.

"B. EFFECTIVE COMPETITION EXISTED ON THIS PROCUREMENT AND PROPERLY INFLUENCED QUALITY, SCHEDULE, AND PRICE. TO INSURE THAT COMPETITION WILL CONTINUE IN THE FUTURE, THE NAVY IS SUPPORTING THE DEVELOPMENT OF ALTERNATE FABRICATION PROCESSES WHICH ARE OF LOWER COST AND EXPECTED TO INCREASE THE NUMBER OF FIRMS CAPABLE OF PARTICIPATING. IF THESE EFFORTS ARE NOT SUCCESSFUL IN MAINTAINING COMPETITION, REASONABLE STEPS HAVE BEEN TAKEN TO PROTECT THE GOVERNMENT. BRUSH BERYLLIUM COMPANY HAS AGREED TO FURNISH LOCKHEED WITH PRODUCTION AND SERVICES COSTS ON THE CURRENT CONTRACT FOR APPLICATION TOWARDS PRICING OF ANY FUTURE BUYS.

"C. THE NATIONAL CAPACITY FOR NEWLY REFINED BERYLLIUM METAL, BERYLLIUM METAL INGOTS, AND FABRICATED BERYLLIUM METAL PARTS IS ADEQUATE TO MEET CURRENTLY KNOWN AND PREDICTED NATIONAL NEEDS AND WILL, IN ALL REASONABLE PROBABILITY, REMAIN ADEQUATE WITHOUT SUBSIDY. IN THIS REGARD, A TRI- SERVICE COMMITTEE ESTABLISHED BY THE DIRECTOR OF DEFENSE RESEARCH AND ENGINEERING ON 8 JANUARY 1968 TO INVESTIGATE THE ADEQUACY OF BERYLLIUM SOURCES, FABRICATION CAPACITY, ETC., TO MEET PROJECTED REQUIREMENTS IS STUDYING THIS MATTER. A REPORT IS EXPECTED TO BE DELIVERED BY THE FALL OF 1968. IT IS RECOGNIZED THAT THIS STUDY COULD CONCEIVABLY DEVELOP NEW FACTS SIGNIFICANTLY AT VARIANCE WITH THE CURRENT PROJECTIONS. HOWEVER, THIS IS BELIEVED TO BE UNLIKELY.

"D. CHANGES TO THE TERMS OF NAVY'S CONTRACT N0030-66C-0186 WITH THE LOCKHEED MISSILES AND SPACE COMPANY WHICH WOULD HAVE THE EFFECT OF REQUIRING PROCUREMENT OF BERYLLIUM METAL OR ROUGH MACHINED PARTS FROM DUAL SOURCES ARE NOT JUSTIFIED.'

IN THE LIGHT OF THE FOREGOING, AND SINCE THE RECORD ALSO SHOWS THAT THE COMMITTEE TO WHICH THE DEPARTMENT OF THE NAVY MAKES REFERENCE WILL INCLUDE IN ITS STUDY OF THE BERYLLIUM INDUSTRY THE QUESTION OF MAINTAINING, AT THE EXPENSE OF A SUBSIDY, DUAL SOURCES FOR FABRICATION OF LARGE BERYLLIUM COMPONENTS, AS MAY BE AUTHORIZED IN THE DISCRETION OF THE HEAD OF THE CONTRACTING AGENCY PURSUANT TO 10 U.S.C. 2304 (A) (16), WE MUST CONCLUDE THAT YOUR CONTENTION THAT THE AWARD TO BRUSH NECESSARILY MEANS THE ELIMINATION OF FUTURE COMPETITION IS NOT CLEARLY SUPPORTED.

IN ANY EVENT THE POWER TO AUTHORIZE OR DIRECT PROCUREMENT FROM A PARTICULAR SUPPLIER IN ORDER TO MAINTAIN HIS AVAILABILITY IN CASE OF A NATIONAL EMERGENCY HAS BEEN PLACED BY THE CONGRESS IN THE HEAD OF THE PROCURING AGENCY (IN THIS CASE THE SECRETARY OF THE NAVY) WITHOUT AUTHORITY TO DELEGATE IT, AND HIS DECISION IS DECLARED BY THE LAW TO BE FINAL. SEE 10 U.S.C. 2304 (A) (16), 2310 (A), AND 2311. WE THEREFORE HAVE NO AUTHORITY TO DIRECT OR CONTROL THE EXERCISE BY THE SECRETARY OF HIS DISCRETION IN THIS AREA.

IN ADDITION, WE FIND NO BASIS IN THE RECORD WHICH WOULD WARRANT EXCEPTION BY OUR OFFICE TO THE CONCLUSIONS OF THE DEPARTMENT OF THE NAVY CONCERNING THE PROPRIETY OF THE SINGLE SUBCONTRACT AWARD TO BRUSH, AND YOUR PROTEST THEREFORE MUST BE DENIED.