B-164761, OCT. 11, 1968

B-164761: Oct 11, 1968

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TO INTERNATIONAL HARVESTER COMPANY: REFERENCE IS MADE TO YOUR LETTERS OF JULY 2 AND AUGUST 30. DSA700-68-B-3336 WHICH WAS ISSUED ON MAY 23. PAGE 11 OF THE INVITATION CONTAINED THE FOLLOWING PARAGRAPH: "TENTATIVE DESTINATIONS "SHIPPING INSTRUCTIONS INCLUDED HEREIN ARE TENTATIVE AND ARE FURNISHED FOR BID EVALUATION PURPOSES ONLY. PACKAGING AND PACKING INCLUDED HEREIN ARE BASED ON ANTICIPATED. PROSPECTIVE BIDDERS WERE WARNED ON PAGE TWO OF THE INVITATION THAT CLAUSES MARKED BY AN "X" WERE INCORPORATED BY REFERENCE FROM THE DCSC CONTRACT CLAUSE BOOK AND MADE APPLICABLE TO THE INVITATION. THAT ALL CLAUSES REQUIRING COMPLETION BY BIDDERS WERE TO BE COMPLETED. BIDDERS WERE WARNED THAT FAILURE TO COMPLETE SUCH A CLAUSE COULD RENDER A BID NONRESPONSIVE.

B-164761, OCT. 11, 1968

TO INTERNATIONAL HARVESTER COMPANY:

REFERENCE IS MADE TO YOUR LETTERS OF JULY 2 AND AUGUST 30, 1968, IN WHICH YOU PROTEST THE AWARD AND REQUEST THE CANCELLATION OF THE CONTRACT BETWEEN ALLIS-CHALMERS COMPANY, WEST ALLIS, WISCONSIN, AND THE DEFENSE SUPPLY AGENCY, DEFENSE CONSTRUCTION SUPPLY CENTER (DCSC), UNDER THAT AGENCY'S INVITATION FOR BIDS NO. DSA700-68-B-3336 WHICH WAS ISSUED ON MAY 23, 1968.

THE INVITATION CALLED FOR BIDS ON 16 TRACTOR-SCRAPERS, CATERPILLAR MODEL 621 OR EQUAL, ALONG WITH OVERPACK KITS AND TECHNICAL LITERATURE. IMMEDIATELY BELOW THE INVITATION'S DESCRIPTION OF THE PRIMARY ITEM BEING PROCURED THERE APPEARED THE FOLLOWING: "F.O.B. ORIGIN - FOR SHIPMENT TO: ONE DESTINATION (OVERSEAS).' PAGE 11 OF THE INVITATION CONTAINED THE FOLLOWING PARAGRAPH:

"TENTATIVE DESTINATIONS

"SHIPPING INSTRUCTIONS INCLUDED HEREIN ARE TENTATIVE AND ARE FURNISHED FOR BID EVALUATION PURPOSES ONLY. REQUEST USAMECOM, ATTN: AMSME-PZK-A, BE CONTACTED SIXTY (60) DAYS PRIOR TO DELIVERY FOR CONFIRMATION OR REVISION OF SHIPPING INSTRUCTIONS. INSTRUCTION FOR LEVELS OF PRESERVATION, PACKAGING AND PACKING INCLUDED HEREIN ARE BASED ON ANTICIPATED, BUT NOT DEFINITELY KNOWN, ULTIMATE DESTINATIONS.' THIS INFORMATION FOLLOWED A THREE-PAGE LIST OF DETAILED INSTRUCTIONS "FOR OVERSEAS MAP SHIPMENT.'

PROSPECTIVE BIDDERS WERE WARNED ON PAGE TWO OF THE INVITATION THAT CLAUSES MARKED BY AN "X" WERE INCORPORATED BY REFERENCE FROM THE DCSC CONTRACT CLAUSE BOOK AND MADE APPLICABLE TO THE INVITATION, AND THAT ALL CLAUSES REQUIRING COMPLETION BY BIDDERS WERE TO BE COMPLETED. BIDDERS WERE WARNED THAT FAILURE TO COMPLETE SUCH A CLAUSE COULD RENDER A BID NONRESPONSIVE. ON PAGE 17 OF THE INVITATION, CLAUSE 6.118 ENTITLED "ALTERATIONS AND ADDITIONS TO SOLICITATION INSTRUCTIONS AND CONDITIONS - STD. FORM 33-A," WAS MARKED WITH AN "X.' IN THE DCSC CONTRACT CLAUSE BOOK, APRIL 1967 EDITION, REVISION NO. 2, FEBRUARY 1, 1968, CLAUSE 6.118 IS SHOWN TO BE IN FACT COMPOSED OF 15 RATHER UNRELATED CLAUSES, THE LAST ONE (NO. 33) OF WHICH PROVIDES IN FULL:

"FEDERAL EXCISE TAXES

"/A) IF THE SUPPLIES BEING PROCURED UNDER THIS SOLICITATION ARE SUBJECT TO FEDERAL EXCISE TAXES, OFFERORS AS REQUIRED BY ARTICLE 23, GENERAL PROVISIONS, MUST INCLUDE THE AMOUNT OF SUCH TAX IN THE PRICE OFFERED AND STATE THE AMOUNT THEREOF SEPARATELY.

"/B) FOR SUPPLIES SUBJECT TO THE TAX BEING PROCURED FOR EXPORTATION OR SHIPMENT TO A POSSESSION OF THE UNITED STATES, THE GOVERNMENT RESERVES THE RIGHT IN MAKING AWARDS TO DEDUCT THE AMOUNT OF THE TAX FROM THE PRICE OFFERED, TO MAKE AWARDS ON A TAX EXCLUSIVE BASIS, AND TO PROVIDE IN THE AWARD THAT PROOF OF EXPORT CERTIFICATES WILL BE FURNISHED BY THE ADMINISTERING CONTRACT OFFICER.' STANDARD FORM 32 (JUNE 1964) WAS INCORPORATED BY REFERENCE AT PAGE ONE OF THE INVITATION. ADDITIONAL GENERAL PROVISION 23 OF THAT FORM CONTAINS THIS GENERAL STATEMENT:

"EXCEPT AS MAY BE OTHERWISE PROVIDED IN THIS CONTRACT, THE CONTRACT PRICE INCLUDES ALL APPLICABLE FEDERAL, STATE, AND LOCAL TAXES AND DUTIES.'

FIVE BIDS WERE RECEIVED UNDER THE INVITATION. PRIOR TO THE ORIGINAL OPENING DATE, INTERNATIONAL HARVESTER MODIFIED ITS BID BY A TELEGRAM DATED JUNE 10, 1968, THE TEXT OF WHICH READS:

"THIS WILL SUPPLEMENT OUR PROPOSAL DATED JUNE 7, 1968, RELATIVE TO INVITATION FOR BID NO. DSA-700-68-B-3336 SLATED FOR OPENING AT 10:30 AM EDST, JUNE 11, 1968.

"FEDERAL EXCISE TIRE TAX IN THE AMOUNT OF $182.20 PER UNIT AND A TOTAL AMOUNT OF $2,915.20 FOR ALL 16 UNITS HAS BEEN INCLUDED IN THE PRICE QUOTED FOR ITEM NO. 1. THIS TAX INFORMATION IS PROVIDED IN ACCORDANCE WITH PARAGRAPH 33 OF CLAUSE NO. 6.118.

"THE BALANCE OF OUR OFFER REMAINS UNCHANGED.

"THIS TWX FORMS A PART OF OUR PROPOSAL.'

THE BIDS WERE OPENED ON THE AMENDED OPENING DATE OF JUNE 20, 1968. THE ABSTRACT REVEALS THAT FOUR OF THE BIDDERS, INCLUDING ALLIS CHALMERS, QUOTED PRICES WHICH DID NOT AFFIRMATIVELY INDICATE WHETHER THE FEDERAL EXCISE TIRE TAX WAS IN FACT INCLUDED; ONLY INTERNATIONAL HARVESTER'S BID SHOWED THAT THE COMPANY HAD INCLUDED THE TAX AND THE AMOUNT THEREOF. IS ADMINISTRATIVELY REPORTED THAT THE ALLIS CHALMERS BID WAS EVALUATED AT $700,589.46; INTERNATIONAL HARVESTER'S WAS EVALUATED AT $700,070.70 EXCLUSIVE OF THE TIRE TAX, AND $702,985.90 INCLUSIVE OF THE TAX.

THE NOTICE OF AWARD HAD BEEN PREPARED AND WAS READY FOR MAILING TO ALLIS- CHALMERS WHEN ON JUNE 28, 1968, THE AGENCY WAS REQUESTED BY INTERNATIONAL HARVESTER TO EVALUATE ITS BID EXCLUSIVE OF THE TIRE TAX BECAUSE THE TAX WAS ASSERTEDLY INAPPLICABLE IN THE CASE OF FOREIGN DELIVERIES. THE ALLIS- CHALMERS BID HAD BEEN CONSTRUED BY THE AGENCY TO INCLUDE THE TIRE TAX, BUT SINCE THE ISSUE HAD BEEN RAISED, THE AGENCY IMMEDIATELY CONTACTED ALLIS- CHALMERS BY TELEPHONE FOR VERIFICATION THAT ITS BID PRICE INCLUDED THE TAX. THE AGENCY REPORT INDICATES THAT CONFIRMATION OF TAX INCLUSION WAS GIVEN VERBALLY AT THAT TIME. IN ADDITION, IN A TELEGRAM DATED JULY 1, 1968, ALLIS CHALMERS STATED:

"CONFIRMING TELEPHONE NOTICE OF AWARD OF CONTRACT DSA-700-68-C-9863 AND CONVERSATION OF JUNE 28TH. OUR BID INCLUDED ALL FEDERAL EXCISE TAXES AS WELL AS ALL APPLICABLE STATE AND LOCAL TAXES. FEDERAL EXCISE TAX ON TIRES AMOUNTS TO $182.20 PER UNIT INCLUDED IN OUR BID PRICE.' IN ACCORDANCE WITH THE VERBAL VERIFICATION, THE CONTRACT WAS AWARDED TO ALLIS-CHALMERS AS ORIGINALLY CONTEMPLATED.

THE FOUNDATION OF THE INTERNATIONAL HARVESTER CONTENTION IS THAT ALLIS- CHALMERS FAILED TO COMPLY WITH THE REQUIREMENTS OF ABOVE-QUOTED CLAUSE 33 BY NOT INDICATING IN ITS BID WHETHER THE TIRE TAX WAS INCLUDED AND IF SO INCLUDED, THE AMOUNT THEREOF. THE POSITION OF DCSC, ON THE OTHER HAND, IS THAT ALLIS-CHALMERS DID COMPLY WITH CLAUSE 33 BECAUSE THE WORD "SUPPLIES" IS CONSTRUED TO MEAN THE END-ITEM AND, THEREFORE, THE TIRE TAX NEED NOT HAVE BEEN SEPARATELY STATED. THESE OPPOSING CONTENTIONS PRESENT THIS QUESTION: WHAT DID CLAUSE 33 REQUIRE OF BIDDERS IN THE CIRCUMSTANCES OF THIS PROCUREMENT?

IT IS TRUE THAT THERE IS NO FEDERAL EXCISE TAX ON TRACTOR-SCRAPERS AS SUCH. IN THAT SENSE THEY MAY NOT BE "SUBJECT TO" AN EXCISE TAX. HOWEVER, RATHER PERSUASIVE ARGUMENTS CAN BE MUSTERED TO SUPPORT ANOTHER VIEW; THAT IS, WHEN ANY COMPONENT OF A FINISHED PRODUCT IS SUBJECT TO AN EXCISE TAX, THE FINISHED PRODUCT IS TO THAT EXTENT A "SUPPLY" SUBJECT TO THE TAX. FOR EXAMPLE, IT WILL BE NOTED THAT CLAUSE 33 CONTAINS THE PHRASE "AS REQUIRED BY ARTICLE 23, GENERAL PROVISIONS.' THAT ARTICLE REQUIRES OFFERORS TO INCLUDE "ALL APPLICABLE FEDERAL, STATE, AND LOCAL TAXES AND DUTIES" WITHOUT ANY DISTINCTION CONCERNING TAX APPLICABILITY TO END-ITEMS AS OPPOSED TO THEIR COMPONENTS. IT WOULD SEEM THEREFORE THAT THE REQUIREMENT IN CLAUSE 33 TO INCLUDE ALL APPLICABLE TAXES IS CO-EXTENSIVE WITH THE SIMILAR REQUIREMENT IN ARTICLE 23.

MOREOVER, THE REQUIREMENT IN CLAUSE 33 THAT IF FEDERAL EXCISE TAXES ARE INCLUDED IN THE PRICE OFFERED THEY SHOULD BE STATED SEPARATELY WOULD SEEM TO INDICATE THAT IT IS IN THE GOVERNMENT'S INTEREST TO KNOW IN ADVANCE WHETHER, AND TO WHAT EXTENT, THE GOVERNMENT MAY BE ENTITLED TO TAX REFUNDS OR EXEMPTIONS. UNDER THE END-ITEM CONSTRUCTION OF THE WORD "SUPPLIES," THE GOVERNMENT CAN HAVE THIS ADVANCE KNOWLEDGE ONLY WHERE THE FINISHED END -PRODUCT IS ITSELF SPECIFICALLY TAXED. THE ALTERNATIVE CONSTRUCTION, HOWEVER, GIVES THE GOVERNMENT ADVANCE INFORMATION WHERE THERE IS INCLUDED APPLICABLE FEDERAL EXCISE TAXES ON COMPONENTS OF THE END-ITEM. FINALLY, IT IS AN ECONOMIC REALITY THAT AN EXCISE TAX ON A COMPONENT OF A PRODUCT IS PASSED ON TO THE PURCHASER JUST AS SURELY AS A TAX DIRECTLY ON THE PRODUCT ITSELF. AS FAR AS THE BUYER IS CONCERNED, THE DOLLAR IMPACT OF A $10 TAX ON TIRES IS IDENTICAL TO A $10 TAX ON TRACTOR-SCRAPERS.

FOR THE ABOVE REASONS, IT COULD REASONABLY BE SAID THAT CLAUSE 33 DOES NOT REFER ONLY TO THE END-ITEM AND THAT ALLIS-CHALMERS, HAVING INCLUDED THE FEDERAL EXCISE TAX ON TIRES, SHOULD HAVE STATED IT SEPARATELY IN ITS BID. HOWEVER, SINCE IT CANNOT BE SAID THAT THE DCSC INTERPRETATION OF CLAUSE 33 IS WITHOUT MERIT, IT REASONABLY FOLLOWS THAT CLAUSE 33 IS AT LEAST AMBIGUOUS AND MISLEADING.

INTERNATIONAL HARVESTER ALSO ARGUES THAT THE FEDERAL EXCISE TAX ON TIRES IS IN ANY EVENT NOT AN APPLICABLE TAX SINCE THE TRACTOR-SCRAPERS WERE BEING PROCURED FOR EXPORT. ARTICLE 23 REQUIRES ONLY THAT APPLICABLE TAXES BE INCLUDED, AND IT MAY BE THAT AN EXEMPTION EXISTS FROM THE EXCISE TIRE TAX IN THIS SITUATION. HENCE, IT MAY BE SAID THAT THE ALLIS-CHALMERS' BID SHOULD HAVE BEEN EVALUATED ON A TAX EXCLUSIVE BASIS. ON THIS BASIS, INTERNATIONAL HARVESTER WOULD HAVE BEEN THE LOWEST EVALUATED BIDDER.

HOWEVER, IN VIEW OF THE FACT THAT THE BIDS ACTUALLY WERE EVALUATED ON AN EQUIVALENT BASIS AS INCLUDING THE FEDERAL EXCISE TAX ON TIRES, AND SINCE DCSC HAS REPORTED THAT POSSIBLE MISUNDERSTANDINGS WILL BE AVOIDED THROUGH DELETION OF CLAUSE 33 FROM FUTURE INVITATIONS, WE DO NOT BELIEVE THAT THE AWARD MADE TO ALLIS-CHALMERS IN GOOD FAITH SHOULD BE DISTURBED.