B-164284, JUL. 16, 1968

B-164284: Jul 16, 1968

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TO MINNESOTA MINING AND MANUFACTURING COMPANY: REFERENCE IS MADE TO YOUR LETTER OF MAY 2. THE ORIGINAL INVITATION IN QUESTION WAS ISSUED ON DECEMBER 8. WHICHEVER WAS LATER. BIDS WERE OPENED AS SCHEDULED ON JANUARY 9. YOUR COMPANY WAS THE LOW BIDDER ON ITEMS 25 THROUGH 30. WHEN THE BIDS RECEIVED WERE COMPARED WITH THE THEN CURRENT CONTRACT PRICES. IT WAS FOUND THAT ACCEPTANCE OF THE LOW BIDS. COST INCREASES ON THE ITEMS WITH RESPECT TO WHICH YOUR COMPANY WAS LOW WOULD HAVE TOTALED $357. WOULD HAVE INCREASED THE COSTS FOR SAID ITEMS $56. THE CONTRACTING OFFICER FORMALLY DETERMINED IN WRITING THAT IT WAS IN THE BEST INTEREST OF THE GOVERNMENT TO CANCEL THE INVITATION BECAUSE ALLOTHERWISE ACCEPTABLE BIDS WERE AT UNREASONABLE PRICES.

B-164284, JUL. 16, 1968

TO MINNESOTA MINING AND MANUFACTURING COMPANY:

REFERENCE IS MADE TO YOUR LETTER OF MAY 2, 1968, PROTESTING CERTAIN OF THE PROCUREMENT POLICIES AND PRACTICES OF THE GENERAL SERVICES ADMINISTRATION IN ITS HANDLING OF A RECENT PROCUREMENT UNDER INVITATION FOR BIDS NO. FPNSO-E1-0097A-N.

THE ORIGINAL INVITATION IN QUESTION WAS ISSUED ON DECEMBER 8, 1967, AND COVERED A REQUIREMENTS CONTRACT FOR 150 ITEMS OF FS CLASS 7510, PRESSURE- SENSITIVE ADHESIVE PAPER MASKING AND DRAFTING TAPES FOR THE PERIOD MAY 1, 1968, OR DATE OF AWARD, WHICHEVER WAS LATER, THROUGH APRIL 30, 1969. BIDS WERE OPENED AS SCHEDULED ON JANUARY 9, 1968. YOUR COMPANY WAS THE LOW BIDDER ON ITEMS 25 THROUGH 30, 35 THROUGH 40, 45 THROUGH 50, 55 THROUGH 60, 65 THROUGH 70, 75 THROUGH 80, AND 91 THROUGH 140.

WHEN THE BIDS RECEIVED WERE COMPARED WITH THE THEN CURRENT CONTRACT PRICES, IT WAS FOUND THAT ACCEPTANCE OF THE LOW BIDS, INCLUDING THAT OF YOUR COMPANY, WOULD RESULT IN AN AGGREGATE COST TO THE GOVERNMENT FOR THE ESTIMATED QUANTITIES STATED IN THE SOLICITATION OF $3,105,441.90, AS COMPARED WITH $2,518,781.30 AT CURRENT CONTRACT PRICES, AN INCREASE OF $586,660.60, OR APPROXIMATELY 23 PERCENT. BID PRICES ON INDIVIDUAL ITEMS INCREASED FROM 13 TO 35 PERCENT. COST INCREASES ON THE ITEMS WITH RESPECT TO WHICH YOUR COMPANY WAS LOW WOULD HAVE TOTALED $357,865.22, OR AN INCREASE OF 26 PERCENT. THE BID PRICES ON FLATBACK MARKING TAPE (ITEMS 81 THROUGH 140), WOULD HAVE INCREASED THE COSTS FOR SAID ITEMS $56,254.03, OR ABOUT 19 PERCENT.

BASED UPON THE INCREASED COSTS DISCLOSED BY THE PRICE ANALYSIS, THE CONTRACTING OFFICER FORMALLY DETERMINED IN WRITING THAT IT WAS IN THE BEST INTEREST OF THE GOVERNMENT TO CANCEL THE INVITATION BECAUSE ALLOTHERWISE ACCEPTABLE BIDS WERE AT UNREASONABLE PRICES, AND THAT THE PROCUREMENT SHOULD BE NEGOTIATED IN ACCORDANCE WITH AUTHORITY CONTAINED IN SECTION 302 (C) (14) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 (63 STAT. 377), AS AMENDED (41 U.S.C. 252 (C) (14) AND SECTION 1-2.404-1 (B) (5) OF THE FEDERAL PROCUREMENT REGULATIONS.

ON FEBRUARY 28, 1968, A REQUEST FOR PROPOSALS WAS ISSUED FOR THE PURPOSE OF SOLICITING OFFERS FOR THE SAME ITEMS COVERED BY THE CANCELLED INVITATION FOR BIDS. COPIES OF THE PROPOSALS WERE SENT TO EACH BIDDER WHO HAD SUBMITTED A BID UNDER THE ORIGINAL INVITATION. THE PROPOSALS WERE OPENED ON MARCH 12, 1968, AND YOUR COMPANY WAS NOT LOW ON ANY ITEM.

BASED ON THE ESTIMATED QUANTITIES, THE PRICES OFFERED UNDER THE RESOLICITATION REFLECTED AN INCREASE OF APPROXIMATELY $299,287.60, OR 12 PERCENT OVER THE CURRENT CONTRACT PRICES, AND A DECREASE OF $287,373, OR ABOUT 9 PERCENT, FROM THE PRICES THAT WERE BID UNDER THE CANCELLED INVITATION. WITH RESPECT TO THE FLATBACK MASKING TAPE (ITEMS 81 THROUGH 140), THE LOW OFFER UNDER THE SOLICITATION WAS $8,241, OR APPROXIMATELY 3 PERCENT LESS THAN THE PRICE BID ON SAID ITEMS UNDER THE INVITATION.

YOU CHALLENGE THIS OFFICE "TO A REVIEW OF THE PRESUMED DETERMINATIONS AND FINDINGS OF GSA THAT THE PRICES ULTIMATELY NEGOTIATED WERE ANY MORE REASONABLE THAN THOSE SUBMITTED IN RESPONSE TO THE INITIAL IFB," AND IN YOUR LETTER OF MAY 2, 1968, SET FORTH THE FOLLOWING CONTENTIONS AS THE BASIS FOR YOUR PROTEST AND CHALLENGE:

"AS AN ILLUSTRATION, THE PRICES FOR VARIOUS TAPE PRODUCTS ULTIMATELY AWARDED IN THE CONTRACT REPRESENTED INCREASES RANGING FROM 11.3 PERCENT TO 16.2 PERCENT HIGHER THAN THE PRICES FOR EQUIVALENT PRODUCTS IN THE GSA CONTRACT OF ONE YEAR AGO. THE OVER-ALL AVERAGE PRICE FOR THE CONTRACT AWARDED REPRESENTED A 12 PERCENT INCREASE OVER YEAR EARLIER PRICES. QUESTION WHETHER THE LEVEL OF THESE INCREASES CAN BE SUFFICIENTLY JUSTIFIED, DETERMINED AND FOUND TO BE MORE REASONABLE THAN THE LOWEST- BIDDER PRICES OF THE 3M COMPANY SUBMITTED IN RESPONSE TO THE IFB.

"FURTHER, THE PROVISIONS OF THE CODE OF FEDERAL REGULATIONS, TITLE 41, SEC. 1-3.214 AUTHORIZE THE CONTRACTING OFFICER TO USE HIS DISCRETION IN ACCEPTING THOSE BIDS UNDER AN IFB FOR ITEMS LESS THAN THE FULL QUANTITY REQUIREMENT, WHICH ARE IN FACT CONSIDERED REASONABLE. IN RESPECT TO THE FLATBACK-MASKING TAPE PRODUCT, THE PRICE ACHIEVED AFTER NEGOTIATION REPRESENTED A MERE $8,241.00 REDUCTION OUT OF A TOTAL QUANTITY AMOUNT OF $352,288.00 FOR SUCH TAPE FROM THE LOW PRICE BID SUBMITTED BY THE 3M COMPANY ON THE IFB. WE AGAIN QUESTION WHETHER THE GOVERNMENT'S RESORT TO NEGOTIATION BASED ON A JUSTIFICATION OF UNREASONABLE IFB PRICES IS WARRANTED IN THE LIGHT OF THE ABOVE EVIDENCE.

"THE END RESULT OF CANCELLING FORMALLY ADVERTISED BIDS AFTER ALL COMPETITORS HAVE DISCLOSED THEIR PRICES, ONLY TO THEN TURN TO A NEGOTIATED PROCUREMENT, IS TO DESTROY THE VITALITY OF THE ADVERTISED PROCUREMENT SYSTEM. THERE IS NO SURER WAY TO WEAKEN THE INTEGRITY OF GOVERNMENT PROCUREMENT THAN TO ENGAGE IN THIS TYPE OF PRACTICE. THE REAL DANGER IN THIS PRACTICE IS THAT ONCE CONDONED THE OPPORTUNITY FOR A RESORT TO NEGOTIATION AFTER ADVERTISING ON THE GROUNDS OF UNREASONABLE PRICES BECOMES INHERENT IN VIRTUALLY EVERY GOVERNMENT PROCUREMENT ACTION.

"THE CONDUCT OF GSA AFTER CANCELLATION OF THE IFB REPRESENTS A FURTHER BASIS UPON WHICH WE PROTEST THIS PROCUREMENT. AFTER CANCELLATION OF THE IFB, THE GOVERNMENT ISSUED A REQUEST FOR PROPOSAL (RFP). THE 3M COMPANY MADE A THOROUGH AND CRITICAL ANALYSIS OF ITS PRICING STRUCTURE AND SUBMITTED A PROPOSAL WHICH REPRESENTED SOME ADDITIONAL PRICE REDUCTIONS ON EACH OF THE REQUIRED ITEMS. THE GOVERNMENT SUBSEQUENTLY REQUESTED INFORMATION AS TO WHETHER THESE PRICES MIGHT BE LOWERED STILL FURTHER AND ULTIMATELY ASKED FOR CONFIRMATION OF THE 3M COMPANY PRICES AS BEING OUR - BEST OFFER-. THE TIME INTERVAL INVOLVED IN THIS NEGOTIATION, THE DISCUSSION BETWEEN 3M COMPANY REPRESENTATIVES AND GOVERNMENT OFFICIALS, AND THE COMMENTS OF THOSE OFFICIALS REGARDING THE REASONABLENESS OF OUR COMPANY'S PRICES, PROVIDE SUBSTANTIAL EVIDENCE THAT THE GOVERNMENT HAD EMBARKED UPON A AUCTION TECHNIQUE-. THIS PRACTICE IS EXPLICITLY PROHIBITED IN THE ARMED SERVICES PROCUREMENT REGULATIONS (ASPR 3-805.1 (B) (, AND REPRESENTS AN UNDESIRABLE METHOD OF PROCUREMENT FOR EITHER MILITARY OR CIVILIAN GOVERNMENTAL AGENCIES.

"THE KEYSTONE OF FEDERAL PROCUREMENT POLICY IS THE ATTEMPT TO ACHIEVE PRICES THAT ARE FAIR AND REASONABLE TO BOTH THE GOVERNMENT AND THE CONTRACTOR. WE BELIEVE THAT WHEN THE GOVERNMENT RESORTS TO AN AUCTION TECHNIQUE DURING THE NEGOTIATIONS WHICH FOLLOW THE CANCELLATION OF A FORMALLY ADVERTISED PROCUREMENT, THE NET AFFECT IS TO HARASS THE INITIAL LOW BIDDER BECAUSE OF HIS THEN-DISCLOSED PRICES AND THAT THIS REPRESENTS A PRACTICE NOT IN CONFORMITY WITH THE -FAIR AND REASONABLE PRICES' TEST. ASK THAT IN REVIEWING THIS PROCUREMENT ACTION, YOUR OFFICE FOLLOW THE PRINCIPLE SET FORTH IN JOHN REINER AND COMPANY V U.S. (163 CT. CL. 381, 325 F.2D 438 (1963) (, -... THAT (THE COMPTROLLER GENERAL NOT BE) ... CONFINED TO THE MINIMAL MEASURE OF LEGALITY BUT SPONSOR AND ENCOURAGE THE OBSERVANCE OF HIGHER STANDARDS BY THE PROCURING AGENCY.-

"A BROAD BASE OF COMPETITIVE SUPPLIERS IS GENERALLY ACCEPTED AS ESSENTIAL TO GOVERNMENT'S COMPETITIVE PROCUREMENT SYSTEM. ACTIONS WHICH REDUCE COMPETITION, OR ELIMINATE IT, OR NARROW THE BASE OF SUPPLY, ARE ALWAYS UNDESIRABLE.

"WE BELIEVE THAT YOUR INVESTIGATION INTO THIS MATTER CAN BE OF MATERIAL BENEFIT IN RESTORING A SOUND BASIS FOR PROCUREMENT POLICY ON THE PART OF THE GENERAL SERVICES ADMINISTRATION. ...'

THERE IS NO LEGAL REQUIREMENT THAT A CONTRACT MUST BE AWARDED AFTER FORMAL SOLICITATION OF BIDS, THE RIGHT TO REJECT ANY AND ALL BIDS BEING RESERVED TO THE GOVERNMENT BY LAW AND IN THE INVITATION FOR BIDS. THUS OUR OFFICE HAS HELD THAT A PUBLIC OFFICER ACTING FOR THE PUBLIC WELFARE IS NOT BOUND TO ACCEPT A BID WHERE IT IS DETERMINED THAT A MORE ADVANTAGEOUS CONTRACT FOR THE GOVERNMENT MIGHT RESULT AND THE PUBLIC INTEREST MIGHT BE BETTER SERVED BY A REJECTION OF ALL BIDS AND READVERTISEMENT. 17 COMP. GEN. 554, 559; 36 ID. 364, 365; 37 ID. 760, 761; 39 ID. 86, 88.

PARAGRAPH 10 (B) OF STANDARD FORM 33A, JULY 1966, UNDER THE "SOLICITATION INSTRUCTIONS AND CONDITIONS" PROVIDES THAT THE GOVERNMENT RESERVES THE RIGHT TO REJECT ANY OR ALL OFFERS. THIS PROVISION IS IN CONFORMITY WITH 41 U.S.C. 253 (B) WHICH PROVIDES THAT ALL BIDS MAY BE REJECTED IF THE HEAD OF THE AGENCY DETERMINES THAT REJECTION IS IN THE PUBLIC INTEREST. BY 41 U.S.C. 257 (A) THE HEAD OF AN AGENCY MAY DELEGATE THE AUTHORITY TO MAKE SUCH DETERMINATION TO ANY OTHER OFFICER OR OFFICIAL OF THAT AGENCY, AND SECTION 1-2.404-1 (B) OF THE FEDERAL PROCUREMENT REGULATIONS PROVIDES FOR CANCELLATION OF AN INVITATION WHERE SUCH ACTION IS DETERMINED BY THE CONTRACTING OFFICER TO BE IN THE BEST INTEREST OF THE GOVERNMENT. WE HAVE STATED THAT SUCH AUTHORITY TO REJECT ANY OR ALL BIDS IS EXTREMELY BROAD, INVOLVING PRIMARILY A MATTER OF ADMINISTRATIVE JUDGMENT, AND WE WILL NOT UNDERTAKE TO QUESTION ITS EXERCISE IN THE ABSENCE OF A CLEAR SHOWING OF ABUSE OF DISCRETION. SEE B-161331, MAY 15, 1967; B-161797, SEPTEMBER 6, 1967.

THUS WE SAID IN B-161608, AUGUST 23, 1967:

"WHILE THE INTEREST OF THE GOVERNMENT AND THE INTEGRITY OF THE COMPETITIVE BIDDING SYSTEM REQUIRE THAT INVITATIONS BE CANCELED AFTER OPENING ONLY FOR COGENT AND COMPELLING REASONS, THERE NECESSARILY IS RESERVED IN THE CONTRACTING OFFICIALS A SUBSTANTIAL AMOUNT OF DISCRETION IN DETERMINING WHETHER OR NOT AN INVITATION SHOULD BE CANCELED. THE NECESSITY FOR THIS DISCRETION IS NOWHERE BETTER EVIDENCED THAN IN THE SITUATION WHERE A DETERMINATION AS TO THE REASONABLENESS' OF BID PRICES MUST BE MADE. IN MAKING HIS DETERMINATION, THE CONTRACTING OFFICER MUST RELY ON ALL RELEVANT CONSIDERATIONS.'

WHILE IT IS TRUE THAT SECTION 1-3.214 OF FPR, CITED BY YOU, AUTHORIZES THE CONTRACTING OFFICER TO EXERCISE HIS DISCRETION IN MAKING PARTIAL AWARDS ON SUCH ITEMS OF BIDS AS TO WHICH HE FINDS THE PRICES TO BE REASONABLE, WE DO NOT FEEL THAT YOUR SUGGESTION THAT, SINCE THE NEGOTIATED PROCUREMENT RESULTED IN A SAVINGS OF ONLY $8,241, OUT OF A TOTAL AMOUNT OF $352,288, AS COMPARED WITH THE BIDS SUBMITTED IN RESPONSE TO THE INVITATION FOR BIDS, THE CONTRACTING OFFICER SHOULD HAVE ACCEPTED YOUR BIDS COVERING FLATBACK MASKING TAPES, IS SUPPORTED BY THE RECORD HEREIN. PRICES ORIGINALLY BID ON THOSE ITEMS AVERAGED 19 PERCENT HIGHER THAN THE CURRENT CONTRACT PRICES. THUS, THE CONTRACTING OFFICER HAD AN ADEQUATE BASIS ON WHICH TO JUDGE THEM EXCESSIVE. ALTHOUGH THE PRICES FINALLY ARRIVED AT THROUGH NEGOTIATION RESULTED IN SAVINGS OF SOMEWHAT LESS THAN ON OTHER ITEMS, WE FIND NO BASIS ON WHICH THE CONTRACTING OFFICER COULD HAVE ANTICIPATED THAT RESULT. EVEN IF THE ACTUAL SAVINGS OF $8,241, OR 3 PERCENT LESS THAN THE PRICE BID UNDER THE INVITATION ON THOSE ITEMS ALONE ARE NOT REGARDED AS SUBSTANTIAL IN RELATION TO THE COST OF THE PROCUREMENT, WE BELIEVE THAT THE TOTAL SAVINGS OF $287,373 RESULTING FROM THE CANCELLATION OF THE INVITATION AND THE PROCUREMENT BY NEGOTIATION COMPLETELY VINDICATES THE JUDGMENT OF THE CONTRACTING OFFICER.

IN RESPONSE TO YOUR ALLEGATION THAT THE CONDUCT OF GSA AFTER CANCELLATION OF THE IFB CONSTITUTED AN "AUCTION TECHNIQUE," IT IS ADMINISTRATIVELY REPORTED THAT:

"3M'S ALLEGATION THAT WE HAD EMBARKED UPON AN -AUCTION TECHNIQUE- WITH RESPECT TO THE REQUEST FOR PROPOSALS FOLLOWING CANCELLATION OF THE INVITATION HAS NO BASIS IN FACT.

"FOLLOWING THE EVALUATION OF THE OFFERS RECEIVED IN RESPONSE TO THE REQUEST FOR PROPOSALS, WE REQUESTED EACH OFFEROR TO REVIEW ITS OFFER AND FURNISH INFORMATION AS TO WHETHER THE -OFFER SUBMITTED IS BEST POSSIBLE.- AT NO TIME PRIOR TO AWARD WAS ANY OFFEROR ADVISED AS TO THE PRICE OF ANY OTHER OFFEROR OR OF ANY PRICE WHICH HAD TO BE MET IN ORDER TO OBTAIN FURTHER CONSIDERATION. NOR WAS ANY OFFEROR ADVISED OF ITS RELATIVE STANDING WITH OTHER OFFERORS AS TO PRICE. NEGOTIATIONS WERE CONDUCTED IN STRICT COMPLIANCE WITH THE REQUIREMENTS OF FPR SEC. 1-3.805-1.'

NEGOTIATION PROCEDURES, UNLIKE THOSE REQUIRED FOR FORMAL ADVERTISING, ARE DESIGNED TO BE FLEXIBLE AND INFORMAL. THESE PROCEDURES PROPERLY PERMIT THE CONTRACTING OFFICER TO DO THINGS IN THE AWARDING OF A NEGOTIATED CONTRACT THAT WOULD BE A RADICAL VIOLATION OF THE LAW IF THE PROCUREMENT WERE BEING ACCOMPLISHED BY FORMAL ADVERTISING. CF. 47 COMP. GEN. 279. THE GOVERNMENT'S REQUEST, AFTER RECEIPT OF INITIAL PROPOSALS, AS TO WHETHER YOUR PRICES MIGHT BE LOWERED STILL FURTHER, AND ITS ULTIMATE REQUEST FOR CONFIRMATION THAT PRICES SUBMITTED BY YOU WERE YOUR "BEST OFFER," WERE IN FULL CONFORMITY WITH WHAT WE REGARD AS PROPER NEGOTIATING PROCEDURE, AND IN THE ABSENCE OF ANY DISCLOSURE OF PRICES OFFERED BY OTHER OFFERORS IT CANNOT BE CONSIDERED THAT ANY "AUCTION TECHNIQUES" WERE INVOLVED.

IN 36 COMP. GEN. 364, AT PAGE 365, WE SAID, WITH RESPECT TO THE REJECTION OF BIDS CONSIDERED EXCESSIVE IN PRICE: "* * * WE HAVE * * * CONSTANTLY SOUGHT TO PROTECT AND MAINTAIN THE PRINCIPLES OF IMPARTIALITY AND FAIR PLAY UPON WHICH THE COMPETITIVE BIDDING SYSTEM DEPENDS, AND HAVE NEVER COUNTENANCED THE REJECTION OF BIDS MERELY FOR THE PURPOSE OF AFFORDING THE BIDDERS AN OPPORTUNITY TO BETTER THE PRICES OF THEIR COMPETITORS. CANNOT, HOWEVER, CONSIDER THE MATTER OF COMPETITIVE BIDDING FOR GOVERNMENT CONTRACTS SOLELY AS A GAME, IN WHICH THE CONTRACT MUST AUTOMATICALLY GO TO THE LOWEST BIDDER WITHOUT REGARD TO THE REASONABLENESS OF HIS PRICE OR TO OTHER ATTEMPTED BIDS WHICH CANNOT FOR TECHNICAL REASONS BE ACCEPTED. WHEN IN THE LIGHT OF ALL THE FACTS, INCLUDING THOSE DISCLOSED BY THE BIDDING, IT IS ADMINISTRATIVELY DETERMINED THAT THE LOWEST ACCEPTABLE BID IS IN EXCESS OF THE AMOUNT FOR WHICH THE GOVERNMENT SHOULD BE ABLE TO OBTAIN THE SUPPLIES OR SERVICES SOUGHT, WE BELIEVE THAT THE REJECTION OF ALL BIDS AND READVERTISING OF THE CONTRACT IS A PROPER EXERCISE OF THE ADMINISTRATIVE DISCRETION, IN CONFORMITY WITH THE DUTY OF THE ADMINISTRATIVE OFFICIALS TO ACT IN THE BEST INTEREST OF THE GOVERNMENT. * * *.'

SINCE THE PROCUREMENT STATUTES ALSO CONTAIN SPECIFIC AUTHORIZATION FOR NEGOTIATION AFTER REJECTION OF BIDS AS EXCESSIVE, WE CANNOT OBJECT TO THE DECISION TO NEGOTIATE RATHER THAN READVERTISE.

WE HAVE CAREFULLY SCRUTINIZED THE RECORD PERTAINING TO THE SUBJECT PROCUREMENT AND WE PERCEIVE NO VIOLATION OF LAW OR ABUSE OF DISCRETION ON THE PART OF THE GENERAL SERVICES ADMINISTRATION IN ITS CONDUCT OF SAME.