B-165573, APRIL 17, 1969, 48 COMP. GEN. 672

B-165573, APRIL 17, 1969, 48 COMP. GEN. 672

CONTRACTS--MODIFICATION--FACILITATION OF DEFENSE EFFORT--REVIEW JURISDICTION OF GENERAL ACCOUNTING OFFICE ALTHOUGH A DENIAL OF RELIEF UNDER THE AUTHORITY TO AMEND OR MODIFY CONTRACTS TO DACILITATE THE NATIONAL DEFENSE (50 U.S.C. 1431-1435) IS NOT SUBJECT TO REVIEW, THE SUSPICION OF A MISTAKE IN THE ONLY OFFER MADE UNDER A REQUEST FOR PROPOSALS IN RESPONSE TO URGING BY THE PROCUREMENT OFFICE THAT WAS MORE THAN 50 PERCENT LESS THAN THE GOVERNMENT'S ESTIMATE AND WHICH THE CONTRACTING OFFICER FAILED TO VERIFY IN ACCORDANCE WITH PARAGRAPH 2-406 OF THE ARMED SERVICES PROCUREMENT REGULATION BUT ACCEPTED ON THE BASIS OF THE CONJECTURAL MANUFACTURING PROCESS GUESSED AT BY THE GOVERNMENT ENGINEER IS A FACTUAL FINDING THAT IS NOT FINAL IN CONNECTION WITH ANY OTHER FORM OF RELIEF, AND THE CONTRACTOR IS ENTITLED TO A PRICE ADJUSTMENT BASED ON AN AUDIT OF ACTUAL CONTRACT COSTS, ABSENT PROOF OF WHAT THE OFFER WOULD HAVE BEEN BUT FOR THE ERROR.

TO THE SECRETARY OF THE ARMY, APRIL 17, 1969:

REFERENCE IS MADE TO A LETTER, WITH ENCLOSURES, DATED NOVEMBER 19, 1968, AMCGC-B, FROM HEADQUARTERS, UNITED STATES ARMY MATERIEL COMMAND, IN RESPONSE TO OUR LETTER TO YOU OF NOVEMBER 13, 1968, REQUESTING A REPORT RELATIVE TO THE CLAIM OF THE HAMILTON WATCHCOMPANY, LANCASTER, PENNSYLVANIA, FOR AN INCREASE IN PRICE UNDER CONTRACT NO. DA-360-38 AMC- 3099A, BASED ON A MISTAKE IN BID ALLEGED AFTER AWARD.

THE CLAIM IN QUESTION WAS PREVIOUSLY CONSIDERED BY THE ARMY MUNITIONS COMMAND, FRANKFORD ARSENAL, ON AUGUST 30, 1968, UNDER PUBLIC LAW 85-804, APPROVED AUGUST 28, 1958, 50 U.S.C. 1431-1435, WHICH AUTHORIZES AMENDMENT OR MODIFICATION OF CONTRACT TO FACILITATE THE NATIONAL DEFENSE. WHILE DENIALS OF CLAIMS UNDER THAT STATUTE ARE NOT SUBJECT TO REVIEW BY THIS OFFICE SO FAR AS ENTITLEMENT TO THE RELIEF AUTHORIZED BY THE STATUTE IS CONCERNED, FACTUAL FINDINGS MADE IN THE COURSE OF CONSIDERING SUCH CLAIMS ARE NOT ENDOWED BY ANY CONTRACTUAL OR STATUTORY PROVISION WITH ANY ATTRIBUTE OF FINALITY WHICH WOULD REQUIRE THEM TO BE CONSIDERED AS BINDING IN CONNECTION WITH THE CONSIDERATION OF ANY OTHER FORM OF REMEDY, AND WE THEREFORE MAY CONSIDER THE CLAIM AS WE WOULD ANY OTHER CLAIM BASED UPON ALLEGED MISTAKE IN BID.

THE CONTRACT INVOLVED WAS AWARDED ON A PROPOSAL SUBMITTED BY HAMILTON IN RESPONSE TO REQUEST FOR PROPOSAL (RFP) AMC (A) 36038-66 100 (AON), ISSUED BY FRANKFORD ARSENAL ON AUGUST 4, 1965, WHICH INVITED PRICES FOR A REQUIREMENTS CONTRACT FOR THE PRODUCTION OF UP TO 840,000 REDUCTION GEARS (ITEM 1) AND 210,000 PINION SHAFT GEARS (ITEM 2). THE ORIGINAL RFP PROVIDED FOR A DEADLINE OF AUGUST 26, 1965, FOR THE SUBMISSION OF PROPOSALS. IN A LETTER OF AUGUST 9, 1965, HAMILTON REPLIED TO THIS REQUEST, "WE REGRET THAT WE WILL BE UNABLE TO PROVIDE A QUOTATION FOR THE REFERENCED REQUEST."

AS HAS BEEN FOUND, AND THESE FACTS ARE NOT IN DISPUTE HERE, ON THE DATE SET FOR RECEIPT OF PROPOSALS NONE OF THE COMPANIES, INCLUDING HAMILTON, HAD SUBMITTED PROPOSALS. THE COMPONENTS DESCRIBED IN THE PROPOSAL WERE URGENTLY NEEDED BY FRANKFORD ARSENAL TO MEET ITS PRODUCTION REQUIREMENTS. ON AUGUST 23, 1965, THE NEGOTIATOR, BY TELEPHONE, URGED HAMILTON TO RECONSIDER ITS PRIOR "NO BID" RESPONSE AND TO SUBMIT AN IMMEDIATE PROPOSAL. IN ORDER TO ACCOMMODATE THE PROCUREMENT OFFICE A PROPOSAL WAS SUBMITTED BY HAMILTON, THE ONLY OFFEROR, ON AUGUST 25, 1965. THE AMOUNT OF ITS BID WAS ?025 EACH FOR THE REDUCTION GEARS (ITEM 1) AND ?042 EACH FOR THE PINION SHAFT GEARS (ITEM 2). PRIOR TO THE SOLICITATION OF QUOTATIONS AN INDEPENDENT GOVERNMENT ESTIMATE OF ?06 FOR ITEM 1 AND ?10 FOR ITEM 2 WAS FURNIS TO THE CONTRACTING OFFICER BY A GOVERNMENT TECHNICAL REPRESENTATIVE. THE GOVERNMENT NEGOTIATOR, HAVING NOTED THAT HAMILTON'S PRICES WERE MORE THAN 50 PERCENT BELOW THE GOVERNMENT ESTIMATE, REFERRED THE MATTER TO THE GOVERNMENT ENGINEER WHO HAD EARLIER MADE THE INDEPENDENT ESTIMATE FOR HIS CONSIDERATION AND RECOMMENDATION, AND, ACCORDING TO THE FINDINGS MADE BY THE ARMY MUNITIONS COMMAND, "TO RECONSIDER HIS INDEPENDENT GOVERNMENT ESTIMATE." AT PARAGRAPH 12 OF THOSE FINDINGS, IT IS STATED:

UPON REVIEWING THE FIGURES THE GOVERNMENT ENGINEER ADVISED THAT HE HAD NO PRIOR PERSONAL EXPERIENCE WITH THE TYPE OF GEAR BEING PURCHASED. ADVISED THAT HIS ESTIMATE WAS BASED UPON A MULTI OPERATION MANUFACTURE. HE INFORMED THE CONTRACTING OFFICER THAT THE GEAR IN QUESTION WAS A CLOCK TYPE GEAR AND APPARENTLY THE HAMILTON ENGINEERS WHO ESTIMATED THE PROPOSAL BELIEVED THE GEAR COULD BE BLANKED OUT IN A ONE-STEP AUTOMATIC STAMPING MACHINE OPERATION. HE FURTHER ADVISED THAT HIS EXPERIENCE, COMPARED TO HAMILTON ENGINEERS INVOLVED IN GEAR MANUFACTURE, WAS SUCH THAT HIS INDEPENDENT ESTIMATE SHOULD BE IGNORED. HE ADVISED THAT BASED UPON A BLANKING OPERATION THE PRICE OFFERED BY HAMILTON WAS REASONABLE.

BASED UPON THE FOREGOING ADVICE, THE CONTRACTING OFFICER AWARDED THE CONTRACT TO HAMILTON ON SEPTEMBER 9, 1965, WITHOUT REQUESTING A CONFIRMATION OF PRICE, AND IMMEDIATELY PLACED DELIVERY ORDER NO. 1, COVERING 243,000 REDUCTION GEARS AND 61,000 PINION SHAFT GEARS FOR A TOTAL PRICE OF $9,637, INCLUDING THE COST OF INITIAL SET UP.

HAMILTON ITSELF HAS CATEGORICALLY AND UNEQUIVOCALLY DENIED THAT ITS PROPOSAL WAS BASED UPON SUCH A ONE-STEP STAMPING OPERATION AS SUGGESTED BY THE CONTRACTING OFFICER'S ADVISOR. ITS SPECIFIC ALLEGATIONS OF ERROR ARE PERHAPS BEST SUMMARIZED, IN NONTECHNICAL TERMS, IN ITS COUNSEL'S LETTER TO OUR OFFICE OF NOVEMBER 4, 1968, WHERE IT IS STATED:

AS A RESULT OF THE HASTE INVOLVED, AND OF HAVING TO BY-PASS STANDARD REVIEW PROCEDURES, HAMILTON'S METHODS ENGINEER MADE SEVERAL BASIC MISTAKES, INCLUDING A FAILURE TO PRICE CERTAIN WORK ITEMS AND A GROSS UNDERESTIMATION OF THE REQUIREMENTS OF OTHERS. HIS LARGEST AND MOST FUNDAMENTAL MISTAKE WAS IN FAILING TO INCLUDE IN THE BID THE COST OF BURR REMOVAL OPERATIONS.

HAMILTON PRODUCES THE GEARS INVOLVED IN THESE CONTRACTS BY FIRST AUTOMATICALLY STAMPING OUT FLAT BLANKS, HAVING THE APPEARANCE OF AN ORDINARY WASHER. THOSE BLANKS ARE THEN STACKED ON ARBORS, SO THAT THE GEAR TEETH ON THE OUTSIDE CIRCUMFERENCE OF SEVERAL BLANKS CAN BE CUT OR HOBBED AT THE SAME TIME. THE STAMPING PROCESS OF SUCH THICK MATERIAL LEAVES BURRS, WHICH HAVE TO BE REMOVED BY SECONDARY OPERATIONS SUCH AS GRINDING AND TUMBLING. NONE OF THOSE SECONDARY BURR REMOVAL OPERATIONS, WHICH ARE DESCRIBED IN EARLIER CORRESPONDENCE ATTACHED, WERE INCLUDED IN HAMILTON'S BID, DUE WHOLLY TO THE OVERSIGHT OF THE METHODS ENGINEER WHO PREPARED IT.

IN ADDITION, THE BID FAILED TO INCLUDE THE STACKING OPERATION, EVEN THOUGH THIS WAS SPECIFIED IN THE METHODS PROPOSAL. IT ALSO FAILED TO MAKE ALLOWANCE FOR THE ADDITIONAL INSPECTION REQUIRED BY THE CONTRACT AND IT SUBSTANTIALLY UNDER-ESTIMATED THE COST OF NECESSARY MATERIALS DUE TO THE LACK OF TIME TO OBTAIN A FIRM QUOTE FROM PROSPECTIVE SUPPLIERS. THESE MISTAKES AND THE COST ATTRIBUTABLE TO THEM ARE ALSO SET FORTH IN DETAIL IN THE ATTACHED CORRESPONDENCE.

EACH OF THESE MISTAKES OR OMISSIONS WAS THE DIRECT RESULT OF THE PREVIOUSLY MENTIONED LACK OF TIME TO PREPARE THE BID IN ACCORDANCE WITH HAMILTON'S STANDARD PRACTICES. THEY ARE THE MISTAKES WHICH WE ARE CONFIDENT WOULD HAVE BEEN QUICKLY DISCOVERED IF A REQUEST FOR VERIFICATION HAD BEEN RECEIVED.

THESE MISTAKES MADE IN THE PREPARATION OF HAMILTON'S BID WERE BROUGHT TO THE ATTENTION OF HAMILTON'S MANAGEMENT BY ITS TECHNICAL PERSONNEL AT ABOUT THE TIME DELIVERY ORDER NO. 1 WAS COMPLETED. HAMILTON IMMEDIATELY ADVISED FRANKFORD ARSENAL THAT A MISTAKE HAD BEEN MADE IN ITS BID AND THAT IT WAS SUSTAINING EXTREME FINANCIAL HARDSHIP IN PERFORMING THE CONTRACT. MEETING WAS HELD AT THE ARSENAL OF JUNE 7, 1966, AT WHICH TIME FRANKFORD FIRST INFORMED HAMILTON THAT ITS BID WAS THE ONLY ONE RECEIVED AND THAT ITS PRICE WAS ONLY ONE-HALF OF THE GOVERNMENT ESTIMATE. WHEN HAMILTON REQUESTED THAT ITS CONTRACT PRICE BE INCREASED, THE CONTRACTING OFFICER ADVISED HAMILTON THAT IT COULD FILE A CLAIM FOR CONTRACT ADJUSTMENT AND THAT UNTIL SUCH TIME AS AN ADJUSTMENT WAS MADE IT WOULD HAVE TO COMPLETE THE CONTRACT AT THE ORIGINAL PRICE. AS INSTRUCTED, CONTRACTOR COMPLETED PERFORMANCE UNDER THE CONTRACT, COMPLETING DELIVERIES UNDER DELIVERY ORDERS NOS. 2, 3, AND 4 IN FEBRUARY 1967.

ON APRIL 25, 1967, THE CONTRACTOR PRESENTED ITS FORMAL REQUEST FOR RELIEF UNDER PUBLIC LAW 85-804, IN ACCORDANCE WITH SECTION 17-204.3 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR). HAMILTON'S CLAIM, AND ITS PRESENT REQUEST, IS THAT THE CONTRACT PRICE BE REFORMED OR ADJUSTED TO PAY TO IT AN ADDITIONAL $53,14.31, WHICH SUM REPRESENTS CONTRACTOR'S COSTS OMITTED BY THE MISTAKE IN ITS BID, PLUS 10 PERCENT PROFIT, LESS THE AMOUNTS ALREADY PAID OR PAYABLE. THIS SUM IS ALSO THE ADDITIONAL AMOUNT CONTRACTOR WOULD HAVE BEEN PAID UNDER THIS CONTRACT IF ITS PRICES UNDER THIS CONTRACT HAD BEEN THE SAME AS ITS PRICES UNDER A CONTRACT (DAAA25-67- C0564) LATER NEGOTIATED WITH IT BY THE ARSENAL FOR SIGNIFICANT QUANTITIES OF THE SAME GEARS IN MARCH 1967, ON A SOLE SOURCE BASIS, THE PRICES FOR ITEMS 1 AND 2 BEING ?078 AND ?083 RESPECTIVELY. IT SHOULD ALSO BE NOTED THAT A GOVERNMENT TECHNICAL EVALUATION WAS MADE OF THE TWO ITEMS ON OCTOBER 9, 1967, ESTIMATING THE COST OF THE ITEMS IF PRODUCED AT FRANKFORD. ACCORDING TO THIS STUDY, THE COSTS OF THE ITEMS WOULD HAVE BEEN ?1205 AND ?1339 RESPECTIVELY.

WE HAVE CONSISTENTLY HELD THAT THE RESPONSIBILITY FOR PREPARATION OF A BID RESTS WITH THE BIDDER. THEREFORE, A BIDDER WHO MAKES A MISTAKE IN A BID WHICH HAS BEEN ACCEPTED IN GOOD FAITH BY THE GOVERNMENT MUST BEAR THE CONSEQUENCES UNLESS THE MISTAKE WAS MUTUAL OR THE CONTRACTING OFFICER HAD EITHER ACTUAL OR CONSTRUCTIVE NOTICE OF THE MISTAKE PRIOR TO AWARD. COMP. GEN. 373 AND 532; 20 ID. 652; 23ID. 596. IT IS EQUALLY WELL ESTABLISHED, HOWEVER, THAT IF A MATERIAL MISTAKE IS MADE BY ONE PARTY TO A CONTRACT AND THE MISTAKE IS KNOWN BY THE OTHER PARTY, OR BECAUSE OF ACCOMPANYING CIRCUMSTANCES THE OTHER PARTY HAD REASON TO KNOW OF THE MISTAKE, THE LATTER PARTY HAS NO RIGHT TO TAKE ADVANTAGE OF THE MISTAKE AND THE PARTY MAKING THE MISTAKE HAS THE RIGHT TO RESCISSION AND RESTITUTION. SEE C. N. MONROE MANUFACTURING COMPANY V. UNITED STATES, 143 F. SUPP. 449, 451; UNION PAINTING COMPANY V. UNITED STATES, 198 F. SUPP. 282; UNITED STATES V. METRO NOVELTY MANUFACTURING COMPANY, 125 F. SUPP. 713. SEE ALSO 44 COMP. GEN. 383, 386.

WE ARE SATISFIED FROM THE RECORD BEFORE US THAT HAMILTON MADE AN ERROR IN ITS PROPOSAL AS ALLEGED. THE CONTRACTING OFFICER HIMSELF APPARENTLY CONCEDES THIS, AND HAS STATED, IN EFFECT, THAT THE ERROR WAS DUE TO THE ACCELERATED MANNER IN WHICH THE GOVERNMENT REQUESTED A PROPOSAL FROM HAMILTON AND THE HASTE IN WHICH HAMILTON RESPONDED TO THE REQUEST FOR PROPOSALS. SPECIFICALLY, HE STATED "IT OFFERED A PROPOSAL UNDER GOVERNMENT PRESSURE." HE RECOMMENDED THAT RELIEF BE GRANTED TO THE CONTRACTOR.

THE TASK OF ASCERTAINING WHAT AN OFFICIAL IN CHARGE OF ACCEPTING OFFERS SHOULD HAVE KNOWN OR SUSPECTED IS NOT ALWAYS AN EASY ONE. HOWEVER, THE TEST HERE MUST BE THAT OF REASONABLENESS, I.E; WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF THIS CASE THERE WERE ANY FACTORS WHICH REASONABLY SHOULD HAVE RAISED THE PRESUMPTION OF ERROR IN THE MIND OF THE CONTRACTING OFFICER. THE EMPLOYMENT OF SUCH A TEST IN THIS MATTER REVEALS THAT HAMILTON'S OFFER WAS MORE THAN 50 PERCENT LESS THAN THE GOVERNMENT'S ESTIMATE, AND THE GOVERNMENT'S ESTIMATOR OFFERED ONLY A CONJECTURE AS TO A POSSIBLE BASIS FOR SUCH A LOW BID. IN THESE CIRCUMSTANCES, EVEN THOUGH ONLY ONE BID WAS RECEIVED, WE BELIEVE THAT IT WAS UNREASONABLE FOR THE CONTRACTING OFFICER TO ASSUME THAT THE BID MUST HAVE BEEN BASED ON THE PROCESS GUESSED AT BY THE ESTIMATOR; THE DEFINITE POSSIBILITY OF ERROR WAS STILL PRESENT, AND WE BELIEVE VERIFICATION OF THE BID SHOULD HAVE BEEN REQUESTED BEFORE AWARD. SEE B-157742, OCTOBER 11, 1965.

WHERE, AS IN THE INSTANT CASE, THE CONTRACTING OFFICER HAS REASON TO SUSPECT A MISTAKE, HE MUST TAKE ACTION NECESSARY TO REASONABLY REMOVE ANY SUCH SUSPICION. THIS PRINCIPLE HAS BEEN EXPLICITLY EMBODIED IN SECTION 2- 406 OF ASPR. SECTION 2-406.1 REQUIRES THAT:

AFTER THE OPENING OF BIDS, CONTRACTING OFFICERS SHALL EXAMINE ALL BIDS FOR MISTAKES. IN CASES OF APPARENT MISTAKES, AND IN CASES WHERE THE CONTRACTING OFFICER HAS REASON TO BELIEVE THAT A MISTAKE MAY HAVE BEEN MADE, HE SHALL REQUEST FROM THE BIDDER A VERIFICATION OF THE BID, CALLING ATTENTION TO THE SUSPECTED MISTAKE.

IN THE INSTANT CASE IT IS OUR OPINION THAT AN AFTER THE FACT GOVERNMENT ESTIMATE BASED ON A SPECULATIVE METHOD OF MANUFACTURE COULD NOT DISPEL THE CONTRACTING OFFICER'S ADMITTED INITIAL SUSPICIONS OF A MISTAKE IN HAMILTON'S BID OR JUSTIFY HIS FAILURE TO FOLLOW THE ASPR REQUIREMENT FOR VERIFICATION. TO RULE OTHERWISE WOULD PERMIT GOVERNMENT ESTIMATES TO BE RATIONALIZED AWAY AT ANY TIME A CONTRACTOR MADE A SUBSTANTIAL ERROR, ESPECIALLY IN A SOLE BIDDER SITUATION, MERELY BY EVOLVING A POSSIBLE HYPOTHESIS WHICH MIGHT EXPLAIN A LOWER BID.

SINCE WE CONCLUDE THAT THE CONTRACTING OFFICER WAS CHARGEABLE WITH NOTICE OF HAMILTON'S ERROR, IT FOLLOWS THAT HAMILTON CANNOT LEGALLY BE HELD TO THE CONTRACT PRICE. IN THE ABSENCE OF PROOF OF WHAT HAMILTON'S BID WOULD HAVE BEEN IN THE ABSENCE OF ERROR, WE BELIEVE THAT THE AMOUNT OF THE ADJUSTMENT IS BEST DETERMINED BY AN AUDIT OF THE ACTUAL COSTS UNDER THE CONTRACT. AS BEARING ON THEIR REASONABLENESS, THE ESTIMATE MADE OF THE COST OF PRODUCING THESE TWO ITEMS AT FRANKFORD ARSENAL IS HELPFUL. ALSO, AS STATED EARLIER, CONTRACT DAAA-25-67 C0654 WAS AWARDED TO HAMILTON IN MARCH 1967 ON A SOLE SOURCE BASIS, THE NEGOTIATED PRICES FOR THESE IDENTICAL ITEMS BEING ?078 AND ?083 RESPECTIVELY. APPLYING THE PRICES UNDER THAT CONTRACT TO THE NUMBER OF ITEMS DELIVERED UNDER THE INSTANT CONTRACT WOULD RESULT IN A PRICE DIFFERENTIAL IN EXCESS OF THE CLAIMED AMOUNT. IN ADDITION, HAMILTON'S CLAIM WAS AUDITED BY THE DEFENSE CONTRACT AUDIT AGENCY, AS WELL AS BY THE ARSENAL, AND IN BOTH INSTANCES THE AUDIT REPORTS VERIFIED THE COST FIGURES SUBMITTED BY HAMILTON. THERE WERE EARLIER ATTEMPS MADE TO COMPROMISE THIS MATTER, BUT SINCE ALL SUCH EFFORTS PROVED FRUITLESS, THEY HAVE NO BEARING NOW AS TO THE AMOUNT OF THE ADJUSTMENT PREVIOUSLY FOUND TO BE REASONABLE. ACCORDINGLY, WE APPROVE PAYMENT OF THE AMOUNT OF $53,147.31, IN ADDITION TO INVOICES WE UNDERSTAND HAVE NOT YET BEEN PAID IN THE SUM OF $2,103.68, AS THE BALANCE DUE HAMILTON AS REASONABLE COMPENSATION FOR THE ARTICLES DELIVERED UNDER THE SEVERAL PURCHASE ORDERS ISSUED UNDER THE CONTRACT OF SEPTEMBER 9, 1965. REFERENCE SHOULD BE MADE TO THIS DECISION IN THE VOUCHER ON WHICH SUCH PAYMENT IS MADE.