B-165568, NOV. 21, 1968

B-165568: Nov 21, 1968

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IT IS REPORTED THAT UPON RECEIPT OF THE NOTICE OF AWARD ON MAY 28. NOTIFIED THE SALES CONTRACTING OFFICER THAT A MISTAKE IN HIS BID WAS MADE IN THAT HE INTENDED TO BID $36.76 AS THE LOT PRICE FOR ITEM 81 AND $61.76 AS THE LOT PRICE FOR ITEM 83. THE LOT PRICES FOR ITEM 81 AND ITEM 83 WERE SUBMITTED TO THE CONTRACTING SALES OFFICER AS $955.76 AND $1. THE CURRENT MARKET APPRAISALS ESTABLISHED BY THE SALES OFFICE PRIOR TO THE SALE WERE $6.00 EACH FOR ITEM 81 AND $8.00 EACH FOR ITEM 83. THE ADMINISTRATIVE REPORT STATES IN PART AS FOLLOWS: "THE BIDS OF CENTRAL TIRE SERVICE ON ITEM 81 WERE 867 PERCENT GREATER THAN THE NEXT HIGH BID. IT IS THE OPINION OF THIS OFFICE THAT ALTHOUGH THE ERRORS WERE OF UNILATERAL ORIGIN THE RESULTANT BIDS WERE SO MUCH GREATER THAN THE NEXT HIGH BIDS AND THE CURRENT MARKET APPRAISAL AND REPRESENTED SUCH A SUBSTANTIAL RETURN OF THE ACQUISITION COST FOR USED PROPERTY IN FAIR TO POOR CONDITION THAT THE SALES CONTRACTING OFFICER SHOULD HAVE BEEN ON CONSTRUCTIVE NOTICE OF PROBABLE ERRORS THEREBY REQUIRING BID CONFIRMATION PRIOR TO AWARD.

B-165568, NOV. 21, 1968

TO GENERAL HEDLUND:

BY LETTER DATED OCTOBER 31, 1968, WITH ENCLOSURE (YOUR REFERENCE DSAH-G), MR. R. F. S. HOMANN, YOUR ASSISTANT COUNSEL, HAS REQUESTED OUR DECISION WHETHER SURPLUS SALES CONTRACT NO. 21-8109-025, DATED MAY 28, 1968, MAY BE RESCINDED BY THE DEFENSE LOGISTICS SERVICES CENTER BECAUSE OF A MISTAKE IN BID ALLEGED BY THE PURCHASER AFTER AWARD. THE CONTRACT COVERS THE AWARD TO CENTRAL TIRE SERVICE, INC., OF ITEM 81, 26 TIRES OF SIZE 900X20, AND ITEM 83, 29 TIRES OF SIZE 1000X20, OFFERED FOR SALE UNDER SPOT BID SALE INVITATION NO. 21-8109, ISSUED BY THE DEFENSE SURPLUS SALES OFFICE, FOREST PARK, GEORGIA.

IT IS REPORTED THAT UPON RECEIPT OF THE NOTICE OF AWARD ON MAY 28, 1968, MR. PRICE HOWELL, PRESIDENT OF CENTRAL TIRE SERVICE, INC., NOTIFIED THE SALES CONTRACTING OFFICER THAT A MISTAKE IN HIS BID WAS MADE IN THAT HE INTENDED TO BID $36.76 AS THE LOT PRICE FOR ITEM 81 AND $61.76 AS THE LOT PRICE FOR ITEM 83, BUT THAT HIS SECRETARY HAD ENTERED THESE LOT PRICES AS UNIT PRICES ON THE BID SHEET. ACCORDINGLY, THE LOT PRICES FOR ITEM 81 AND ITEM 83 WERE SUBMITTED TO THE CONTRACTING SALES OFFICER AS $955.76 AND $1,791.04, RESPECTIVELY. BY LETTER DATED MAY 29, 1968, THE PURCHASER REQUESTED THAT HE BE PERMITTED TO WITHDRAW HIS BID.

THE ABSTRACT OF BIDS REVEALS THAT THE UNIT PRICES SUBMITTED BY OTHER BIDDERS FOR ITEM 81 RANGED FROM $2.13 TO $3.80, AND FOR ITEM 83 THEY RANGED FROM $1.26 TO $8.60. THE CURRENT MARKET APPRAISALS ESTABLISHED BY THE SALES OFFICE PRIOR TO THE SALE WERE $6.00 EACH FOR ITEM 81 AND $8.00 EACH FOR ITEM 83.

THE ADMINISTRATIVE REPORT STATES IN PART AS FOLLOWS:

"THE BIDS OF CENTRAL TIRE SERVICE ON ITEM 81 WERE 867 PERCENT GREATER THAN THE NEXT HIGH BID, AND ON ITEM 83, 618 PERCENT GREATER THAN THE NEXT HIGH BID. THEY EXCEEDED THE CURRENT MARKET APPRAISALS FOR THE ITEMS BY 512.6 PERCENT AND 672 PERCENT RESPECTIVELY. THE BIDS EXCEEDED THE DEFENSE LOGISTICS SERVICES CENTER OVERALL AVERAGES OF PRIOR SALES CONDUCTED BY DEFENSE SURPLUS SALES OFFICES INVOLVING SIMILAR ITEMS BY 399 PERCENT AND 736 PERCENT RESPECTIVELY AND REPRESENTED A RETURN OF 58 PERCENT AND 68 PERCENT RESPECTIVELY OF THE ACQUISITION COST OF PROPERTY DESCRIBED AS BEING IN FAIR TO POOR CONDITION.

"UNDER THE CIRCUMSTANCES, IT IS THE OPINION OF THIS OFFICE THAT ALTHOUGH THE ERRORS WERE OF UNILATERAL ORIGIN THE RESULTANT BIDS WERE SO MUCH GREATER THAN THE NEXT HIGH BIDS AND THE CURRENT MARKET APPRAISAL AND REPRESENTED SUCH A SUBSTANTIAL RETURN OF THE ACQUISITION COST FOR USED PROPERTY IN FAIR TO POOR CONDITION THAT THE SALES CONTRACTING OFFICER SHOULD HAVE BEEN ON CONSTRUCTIVE NOTICE OF PROBABLE ERRORS THEREBY REQUIRING BID CONFIRMATION PRIOR TO AWARD. THEREFORE, THIS OFFICE RECOMMENDS THAT RESCISSION OF CONTRACT NO. 21 8109-025 BE ALLOWED.'

THE BASIC QUESTION FOR CONSIDERATION IS WHETHER THE SALES CONTRACTING OFFICER SHOULD BE CHARGED WITH CONSTRUCTIVE NOTICE OF THE PROBABILITY OF ERROR IN THE PURCHASER'S BID. IF KNOWLEDGE OF THE MISTAKE COULD BE IMPUTED TO THE CONTRACTING OFFICER, THE CONTRACT IS VOIDABLE AT THE PURCHASER'S OPTION. SEE 5 WILLISTON, CONTRACTS SEC. 1578; KEMP V U.S., 38 F.SUPP. 568; WENDER PRESSES, INC. V U.S., 343 F.2D 961. WHILE A WIDE DISPARITY BETWEEN THE HIGH BID ON A SALE OF SURPLUS PROPERTY AND OTHER BIDS IS NOT NECESSARILY SUFFICIENT TO PLACE THE CONTRACTING OFFICER ON NOTICE OF THE PURCHASER'S MISTAKES, ADDITIONAL CIRCUMSTANCES KNOWN TO THE SALES CONTRACTING OFFICER WHICH WOULD STRONGLY TEND TO CREATE DOUBT AS TO WHETHER THE BID COULD REASONABLY HAVE BEEN INTENDED MAY CONSTITUTE CONSTRUCTIVE NOTICE OF MISTAKES, AND OUR OFFICE WILL THEN ALLOW RESCISSION OF THE SALES CONTRACT. SEE B-160208, OCTOBER 28, 1966. FOR INSTANCE, IN OUR DECISION OF JULY 14, 1961, B-146136, WE HELD THAT THE SALES CONTRACTING OFFICER SHOULD HAVE BEEN ON NOTICE OF THE PROBABILITY OF ERROR WHEN THE BID PRICE WAS OVER 88 PERCENT OF THE ACQUISITION COST OF THE SURPLUS EQUIPMENT. RESCISSION HAS ALSO BEEN ALLOWED WHEN THE HIGH BID EXCEEDED THE CURRENT MARKET APPRAISAL OF THE PROPERTY BY OVER 80 PERCENT. B-158334, JANUARY 21, 1966; SEE ALSO B-154203, MAY 26, 1964, AND B-157656, SEPTEMBER 23, 1965.

IN THE INSTANT CASE, THE WIDE DISPARITY BETWEEN CENTRAL TIRE SERVICE'S BIDS AND THE OTHER BIDS RECEIVED FOR ITEMS 81 AND 83, TOGETHER WITH THE FACT THAT THE BIDS EXCEEDED THE CURRENT MARKET APPRAISALS FOR THE ITEMS BY 512.6 AND 672 PERCENT RESPECTIVELY, WAS SUFFICIENT TO PLACE THE SALES CONTRACTING OFFICER ON NOTICE OF MISTAKE IN BID.

SINCE THE ERROR WAS ALLEGED PROMPTLY UPON THE RECEIPT OF THE NOTICE OF AWARD, THE PURCHASER HAS NOT ACCEPTED DELIVERY, AND IT APPEARS THAT A BONA FIDE MISTAKE WAS MADE AS ALLEGED AND THAT THE CONTRACTING OFFICER WAS CHARGEABLE WITH NOTICE OF FACTS SUFFICIENT TO INDICATE THE LIKELIHOOD OF ERROR, CONTRACT NO. 21-8109-025 MAY BE RESCINDED AND THE BID BOND CANCELLED.