B-163524, FEB. 23, 1968

B-163524: Feb 23, 1968

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ALLEGED THAT A SUBCONTRACT ITEM OF COST HAD BEEN ERRONEOUSLY OMITTED FROM THE COST PROPOSAL MAY HAVE CONTRACT MODIFIED SINCE SUBCONTRACTOR'S COST ESTIMATE SHOWS OMITTED ITEM AND SINCE CONTRACTING OFFICER WHO HAD BENEFIT OF REPORT OF COST ADVISORY BRANCH INCLUDING APPLICABLE OVERHEAD SHOULD HAVE REQUESTED VERIFICATION BEFORE ACCEPTANCE. SECRETARY: REFERENCE IS MADE TO A LETTER DATED FEBRUARY 8. REQUESTING A DECISION AS TO THE ACTION TO BE TAKEN CONCERNING THE REQUEST OF THE MASSACHUSETTS GENERAL HOSPITAL (MGH) FOR RELIEF IN CONNECTION WITH AN ERROR ALLEGED TO HAVE BEEN MADE IN ITS COST PROPOSAL UPON WHICH NEGOTIATED FIXED-PRICE CONTRACT NO. PH-110 177 IS BASED. ARE BOTH NONPROFIT ORGANIZATIONS AND NEIGHER HAS FUNDS AVAILABLE WHICH MAY BE USED TO OFFSET A MISTAKE OF THIS TYPE.

B-163524, FEB. 23, 1968

CONTRACTS - MISTAKES - REFORMATION DECISION TO SECY. OF HEW RE MODIFICATION OF NEGOTIATED FIXED PRICE CONTRACT BETWEEN MASS. GENERAL HOSPITAL (MGH) AND HEW FOR PRODUCTION OF VIDEO-TAPE PROGRAMS. A CONTRACTOR WHO, AFTER AWARD OF A NEGOTIATED FIXED-PRICE CONTRACT, ALLEGED THAT A SUBCONTRACT ITEM OF COST HAD BEEN ERRONEOUSLY OMITTED FROM THE COST PROPOSAL MAY HAVE CONTRACT MODIFIED SINCE SUBCONTRACTOR'S COST ESTIMATE SHOWS OMITTED ITEM AND SINCE CONTRACTING OFFICER WHO HAD BENEFIT OF REPORT OF COST ADVISORY BRANCH INCLUDING APPLICABLE OVERHEAD SHOULD HAVE REQUESTED VERIFICATION BEFORE ACCEPTANCE.

TO MR. SECRETARY:

REFERENCE IS MADE TO A LETTER DATED FEBRUARY 8, 1968, WITH ENCLOSURES, FROM THE DIRECTOR, DIVISION OF PROCUREMENT AND SUPPLY MANAGEMENT, REQUESTING A DECISION AS TO THE ACTION TO BE TAKEN CONCERNING THE REQUEST OF THE MASSACHUSETTS GENERAL HOSPITAL (MGH) FOR RELIEF IN CONNECTION WITH AN ERROR ALLEGED TO HAVE BEEN MADE IN ITS COST PROPOSAL UPON WHICH NEGOTIATED FIXED-PRICE CONTRACT NO. PH-110 177 IS BASED.

UNDER THE CONTRACT, MGH, A NONPROFIT ORGANIZATION, AGREED TO PRODUCE A SERIES OF VIDEO-TAPE PROGRAMS AS AN EDUCATIONAL TOOL TO BRING THE LARGE RESERVOIR OF KNOWLEDGE AND SUPPORTIVE PATIENT CARE SKILLS OF THE TEACHING HOSPITAL TO THE MANAGERIAL, ADMINISTRATIVE AND PROFESSIONAL PERSONNEL WITHIN NURSING HOMES. IN PERFORMANCE OF THIS CONTRACT, MGH AGREED TO UTILIZE THE PHYSICAL AND TECHNICAL RESOURCES OF AN EDUCATIONAL TELEVISION STATION TO PLAN AND PRODUCE 12 VIDEO-TAPE PROGRAMS, EACH OF 45 MINUTES IN DURATION. THE CONTRACT SPECIFIED A PRICE OF $44,196 FOR PERFORMING THE WORK.

BY LETTER DATED JULY 12, 1967, MGH ADVISED THE CONTRACTING OFFICER THAT AN ERROR HAD BEEN MADE IN ITS COST PROPOSAL IN THAT AN AMOUNT OF $7,027 FOR GENERAL AND ADMINISTRATIVE (G-AND-A) EXPENSE IN A PROPOSED SUBCONTRACT WITH A NONPROFIT EDUCATIONAL TELEVISION STATION (WGBH) HAD BEEN ERRONEOUSLY OMITTED FROM THE COST PROPOSAL SUBMITTED TO THE GOVERNMENT. THE HOSPITAL REQUESTED THAT THE CONTRACT PRICE OF THE PROJECT BE INCREASED BY $7,027 TO COVER THE OMITTED G-AND-A EXPENSE ITEM. MGH STATED THAT THE HOSPITAL AND ITS SUBCONTRACTOR, TELEVISION STATION WGBH, ARE BOTH NONPROFIT ORGANIZATIONS AND NEIGHER HAS FUNDS AVAILABLE WHICH MAY BE USED TO OFFSET A MISTAKE OF THIS TYPE.

IN SUPPORT OF ITS ALLEGATION OF ERROR, MGH HAS SUBMITTED A COPY OF THE ORIGINAL COST ESTIMATE SUBMITTED TO IT BY ITS SUBCONTRACTOR, TELEVISION STATION WGBH, AND A COPY OF THE COST BREAD DOWN WHICH MGH HAD INCLUDED IN ITS COST PROPOSAL TO THE GOVERNMENT. A COMPARISON OF THOSE DOCUMENTS SHOWS THAT THE SUBCONTRACTOR'S PROPOSAL TO MGH INCLUDES $7,027 FOR G-AND- A, WHEREAS THE COST PROPOSAL SUBMITTED BY MGH TO THE GOVERNMENT DOES NOT INCLUDE THIS ITEM. THE COST PROPOSAL DOES SHOW THE OVERHEAD OF MGH TO BE IN THE AMOUNT OF $1,350. IN THIS CONNECTION, IT IS REPORTED THAT A PRELIMINARY ESTIMATE PREVIOUSLY FURNISHED BY MGH TO THE COGNIZANT PROGRAM OFFICE INCLUDED A G-AND-A FACTOR IN THE AMOUNT OF $5,862.

IT IS REPORTED THAT COMPETITION WAS NOT SOLICITED BECAUSE THE DESCRIPTION AND SCOPE OF WORK TO BE PERFORMED UNDER THE CONTRACT WERE BASED ON A PROPOSAL DEVELOPED BY MGH IN CONJUNCTION WITH THE LOWELL INSTITUTE COOPERATIVE BROADCASTING COUNCIL, OF WHICH STATION WGBH IS A MEMBER.

THE RECORD INDICATES THAT PRIOR TO NEGOTIATION AND AWARD OF THE SUBJECT CONTRACT, THE CHIEF, COST ADVISORY BRANCH, DIVISION OF FINANCE, WAS REQUESTED TO PROVIDE AN ADVISORY AUDIT REPORT CONCERNING THE PROPOSAL SUBMITTED BY MGH. IN HIS REPORT DATED JUNE 16, 1967, TO THE CONTRACTING OFFICER, THE CHIEF, COST ADVISORY BRANCH, STATES AS FOLLOWS: "THE CONTRACTOR BY HIS PROPOSAL DATED MAY 27, 1967, IS REQUESTING A COST REIMBURSEMENT TYPE CONTRACT (ASSUMED) FOR A PERIOD OF 15 MONTHS AT A TOTAL ESTIMATED COST OF $44,195.50.

WE HAVE REVIEWED THE PROPOSAL AND SUBMIT THE FOLLOWING: 1. MASSACHUSETTS GENERAL HOSPITAL (MGH) WILL SUBCONTRACT WITH WGBH - WGBX (TV) FOR PRODUCTION AND TRANSMISSION OF TWELVE 45-MINUTE BROADCASTS. 2. A RESUME OF PROPOSED COSTS TOGETHER WITH COMMENTS IS LISTED BELOW:

LABOR: TV $ 7,300.00 1)

MGH 4,500.00 2)

FRINGE BENEFITS: TV 584.00 3)

MGH 467.50 3)

OVERHEAD: MGH 1,350.00 4)

HONORARIA: MGH 1,800.00 5)

MATERIAL: TV 13,644.00 6)

EQUIPMENT RENTAL: TV 4,860.00 6)

OTHER: MGH AND TV 6,060.00 5)

TRANSMISSION: TV 3,630.00 6)

TOTAL $44,195.50 7) "1) THESE COSTS ARE BASED ON UNION RATES CURRENTLY IN EFFECT IN THE BOSTON AREA AND ARE COMPARABLE TO RATES IN EFFECT IN OTHER PHS CONTRACTS FOR SIMILAR PROGRAMS. "2) BASED ON THE CONTRACTOR'S CURRENT SALARY AND WAGE SCALE. "3) FRINGE BENEFITS ARE ACCEPTABLE FOR PRICING PURPOSES, HOWEVER, WE SUGGEST THE CONTRACT PROVIDE FOR FRINGE BENEFITS TO BE BILLED AT ACTUAL COST. "4) THE CONTRACTOR IS PROPOSING AN OVERHEAD RATE OF 30 PERCENT OF SALARIES AND WAGES WHICH IS IN ACCORD WITH THE LATEST OVERHEAD RATE ACCEPTABLE FOR USE IN PHS CONTRACTS TO BE USED AS A PROVISIONAL RATE FOR PERIODS SUBSEQUENT TO JANUARY 12, 1967. "5) THESE COSTS ARE REPRESENTATIVE OF SIMILAR ITEMS OF COSTS CURRENTLY IN EFFECT IN OTHER PHS CONTRACTS. "6) THESE COSTS ARE BASED ON THE SUBCONTRACTOR'S PAST EXPERIENCE AND ARE REPRESENTATIVE OF COSTS UNDER THE STANDARD PRICE LIST. "7) BASED ON THE FOREGOING COMMENTS THESE COSTS ARE ACCEPTABLE.'

IT IS NOTED FROM THE ABOVE REPORT THAT THE COST ADVISORY BRANCH RECOMMENDED OVERHEAD APPLICABLE TO THE PRIME CONTRACTOR'S COST, BUT DID NOT IDENTIFY AN OVERHEAD FACTOR FOR THE SUBCONTRACT TV EFFORT. IN THE LETTER OF FEBRUARY 8, 1968, THE DIRECTOR, DIVISION OF PROCUREMENT AND SUPPLY MANAGEMENT, STATES THAT WHEN THE PROPOSAL OF MGH, THE PRIME CONTRACTOR, WAS RECEIVED, THERE WAS NO INDICATION THAT SUBCONTRACTOR OVERHEAD EXPENSE WAS INCLUDED IN THE PROPOSAL EVEN THOUGH THE INCLUSION OF SUCH OVERHEAD EXPENSE IS CUSTOMARY IN PROPOSALS OF THIS NATURE. SINCE IT IS REPORTED THAT THE INCLUSION OF OVERHEAD EXPENSE IS CUSTOMARY IN PROPOSALS OF THIS NATURE AND SINCE THE OVERHEAD EXPENSE IN THE PRIME CONTRACTOR'S PROPOSAL WAS IDENTIFIED AS THAT OF MGH, THE PRIME CONTRACTOR, WE ARE OF THE OPINION THAT THE CONTRACTING OFFICER SHOULD HAVE REQUESTED MGH TO VERIFY WHETHER ITS COST PROPOSAL INCLUDED THE OVERHEAD EXPENSES OF ITS SUBCONTRACTOR, TELEVISION STATION WGBH, BEFORE ACCEPTING SUCH PROPOSAL, PARTICULARLY SINCE IN ITS PRELIMINARY ESTIMATE MGH SHOWED THE COST OF THE ADMINISTRATION OF THE PROJECT AND GENERAL OVERHEAD AS $5,862, OR $4,512 MORE THAN THE AMOUNT SHOWN FOR THAT ITEM IN MGH'S COST PROPOSAL.

THE CONTRACTING OFFICER RECOMMENDS THAT HE BE AUTHORIZED TO MODIFY THE CONTRACT TO CORRECT THE MISTAKE IN BID, WITH THE AMOUNT OF THE PRICE ADJUSTMENT TO BE BASED ON THE RESULTS OF AN ADVISORY AUDIT AND NEGOTIATION WITH THE CONTRACTOR. ACCORDINGLY, WE WOULD HAVE NO OBJECTION TO AN AMENDMENT OF CONTRACT NO. PH-110-177 TO INCLUDE THE SUBCONTRACTOR'S OVERHEAD EXPENSE AS RECOMMENDED, BUT NOT TO EXCEED $7,027.

A REFERENCE TO THIS DECISION SHOULD BE MADE ON THE AMENDMENT TO THE CONTRACT.