B-167075, FEBRUARY 3, 1970, 49 COMP. GEN. 463

B-167075: Feb 3, 1970

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WHICH IS INTENDED TO PREVENT ORGANIZATIONAL CONFLICTS OF INTERESTS AND SUBSEQUENT UNFAIR COMPETITION FROM THE HARDWARE PRODUCER THAT PROVIDES THE SYSTEM ENGINEERING AND TECHNICAL DIRECTION WITHOUT AT THE SAME TIME ASSUMING THE OVERALL CONTRACTUAL RESPONSIBILITY FOR THE PRODUCTION OF THE SYSTEM. THE DIRECTIVE IS NOT SELF-EXECUTING BUT ITS APPLICATION MUST BE NEGOTIATED. CONCLUSIVENESS THE DETERMINATION WHETHER IT WOULD BE IN THE INTERESTS OF THE GOVERNMENT TO NEGOTIATE A CONTRACT TO ASSURE THE AVAILABILITY OF A PARTICULAR MOBILIZATION BASE IS VESTED IN THE HEAD OF THE MILITARY DEPARTMENT INVOLVED. PROVIDES FOR THE SECRETARY TO DETERMINE WHEN IT IS IN THE INTERESTS OF THE NATIONAL DEFENSE TO NEGOTIATE WITH A PARTICULAR MANUFACTURER TO ASSURE THE AVAILABILITY OF PROPERTY OR SERVICES DURING A NATIONAL EMERGENCY.

B-167075, FEBRUARY 3, 1970, 49 COMP. GEN. 463

CONTRACTS -- RESEARCH AND DEVELOPMENT -- CONFLICTS OF INTEREST PROHIBITIONS UNDER A REQUEST FOR PROPOSALS ISSUED PURSUANT TO 10 U.S.C. 2304(A)(11), THE AWARD OF A DEVELOPMENT CONTRACT FOR EXPERIMENTAL ENGINES TO A CONTRACTOR PROPOSING TO USE THE SERVICES OF A FOREIGN FIRM WHO HAD PERFORMED FEASIBILITY STUDIES FOR THE GOVERNMENT TO DETERMINE THE PRACTICALITY OF DEVELOPING THE ENGINES, DOES NOT VIOLATE RULE 1 OF THE DEPARTMENT OF DEFENSE DIRECTIVE 5500.10, WHICH IS INTENDED TO PREVENT ORGANIZATIONAL CONFLICTS OF INTERESTS AND SUBSEQUENT UNFAIR COMPETITION FROM THE HARDWARE PRODUCER THAT PROVIDES THE SYSTEM ENGINEERING AND TECHNICAL DIRECTION WITHOUT AT THE SAME TIME ASSUMING THE OVERALL CONTRACTUAL RESPONSIBILITY FOR THE PRODUCTION OF THE SYSTEM. THE DIRECTIVE IS NOT SELF-EXECUTING BUT ITS APPLICATION MUST BE NEGOTIATED, AND NEITHER THE FEASIBILITY STUDIES CONTRACT NOR THE DEVELOPMENT CONTRACT PROVIDED FOR ITS APPLICATION. CONTRACTS -- NEGOTIATION -- NATIONAL EMERGENCY AUTHORITY -- CONCLUSIVENESS THE DETERMINATION WHETHER IT WOULD BE IN THE INTERESTS OF THE GOVERNMENT TO NEGOTIATE A CONTRACT TO ASSURE THE AVAILABILITY OF A PARTICULAR MOBILIZATION BASE IS VESTED IN THE HEAD OF THE MILITARY DEPARTMENT INVOLVED, AND PARAGRAPH 3-216 OF THE ARMED SERVICES PROCUREMENT REGULATION, WHICH IMPLEMENTS 10 U.S.C. 2304(A)(10), PROVIDES FOR THE SECRETARY TO DETERMINE WHEN IT IS IN THE INTERESTS OF THE NATIONAL DEFENSE TO NEGOTIATE WITH A PARTICULAR MANUFACTURER TO ASSURE THE AVAILABILITY OF PROPERTY OR SERVICES DURING A NATIONAL EMERGENCY. THEREFORE, IN THE ABSENCE OF CONVINCING EVIDENCE OF THE ABUSE OF DISCRETION BY THE PROCURING AGENCY, ITS DETERMINATION OF THE NEEDS OF THE GOVERNMENT, AND THE METHOD OF ACCOMMODATING SUCH NEEDS IS CONCLUSIVE, ESPECIALLY WHERE THE PROCUREMENT IS FOR EQUIPMENT OF A HIGHLY SPECIALIZED NATURE THAT MUST BE BASED ON EXPERT TECHNICAL OPINION.

TO LORD, DAY & LORD, FEBRUARY 3, 1970:

REFERENCE IS MADE TO YOUR LETTER DATED NOVEMBER 11, 1969, WITH ENCLOSURES, AND PRIOR CORRESPONDENCE, ON BEHALF OF THE AMERICAN MARC DIVISION OF EON CORPORATION, PROTESTING THE AWARD OF A CONTRACT TO THE HERCULES ENGINE COMPANY OF CANTON, OHIO, UNDER REQUEST FOR QUOTATIONS (RFQ) NO. DAAKO2-69-Q-2793, ISSUED BY THE DEPARTMENT OF THE ARMY, MOBILITY EQUIPMENT RESEARCH AND DEVELOPMENT CENTER, FORT BELVOIR, VIRGINIA. YOU CONTEND THAT THE AWARD TO HERCULES ENGINE COMPANY SHOULD BE REVOKED AND THAT THE CONTRACT SHOULD BE AWARDED TO AMERICAN MARC. IF FOR ANY REASON THE DEVELOPMENT CONTRACT BE AWARDED TO AMERICAN MARC. THE BASES FOR THE 1. THE BASIS OF AWARD IS INCONSISTENT WITH THE REQUIREMENTS OF THE SOLICITATION. 2. THE AWARD CONFLICTS WITH APPENDIX G OF ASPR AND DOD DIRECTIVE 5500.10. 3. THE AWARD IS NOT IN THE BEST INTEREST OF THE GOVERNMENT.

THE FACTS IN THIS CASE ARE AS FOLLOWS. IN THE SPRING OF 1968, THE MOBILITY EQUIPMENT RESEARCH AND DEVELOPMENT CENTER PROCUREMENT OFFICE WAS INSTRUCTED TO INITIATE A PROCUREMENT FOR THE DEVELOPMENT OF A FAMILY OF 10 AND 20 HORSEPOWER MILITARY DESIGN COMPRESSION IGNITION ENGINES. A SOURCE LIST OF NINE SOURCES WAS FURNISHED, ALL OF WHOM WERE CONSIDERED TO HAVE THE TECHNICAL COMPETENCE TO PERFORM RESEARCH AND DEVELOPMENT IN THE FIELD OF COMPRESSION IGNITION ENGINE DEVELOPMENT.

ON APRIL 8, 1968, THE PROPOSED PROCUREMENT WAS SYNOPSIZED IN THE UNITED STATES COMMERCE BUSINESS DAILY. THEREAFTER, ON MAY 2, 1968, RFQ NO. DAAKO2-69-Q-2793 WAS ISSUED TO 20 FIRMS, INCLUDING AMERICAN MARC, FOR QUOTATIONS ON THE FURNISHING OF ALL ENGINEERING, LABOR, SERVICES, SUPPLIES, MATERIALS, EQUIPMENT AND FACILITIES NECESSARY TO DESIGN A TWO MEMBER FAMILY OF COMPRESSION IGNITION ENGINES RATED AT 10 AND 20 HORSEPOWER AND FOR FABRICATING AND TESTING EXPERIMENTAL ENGINES AND COMPONENTS AS SPECIFIED IN ATTACHMENT "A" OF THE RFQ.

THE RFQ WAS ISSUED PURSUANT TO THE NEGOTIATION AUTHORITY IN 10 U.S.C. 2304(A)(11), AS IMPLEMENTED BY PARAGRAPH 3-211 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), WHICH AUTHORIZES THE NEGOTIATION OF CONTRACTS FOR PROPERTY OR SERVICES THAT THE HEAD OF THE AGENCY DETERMINES TO BE FOR EXPERIMENTAL, DEVELOPMENTAL OR RESEARCH WORK, OR FOR MAKING OR FURNISHING PROPERTY FOR EXPERIMENT, TEST, DEVELOPMENT OR RESEARCH. THE JUNE 3, 1968, CLOSING DATE CALLED FOR IN THE RFQ WAS EXTENDED TO JUNE 17, 1968, BY AMENDMENT NO. 1.

INTERESTED OFFERORS WERE ADVISED THAT A COST-PLUS-A-FIXED-FEE CONTRACT WAS CONTEMPLATED AND THAT QUOTATIONS RECEIVED WOULD BE EVALUATED AND RATED IN ACCORDANCE WITH THE EVALUATION PLAN IN ATTACHMENT "G" TO THE RFQ. THE EVALUATION PLAN WAS AS FOLLOWS:

EVALUATION FACTORS 30% I GENERAL QUALITY AND RESPONSIVENESS OF THE PROPOSAL

A. COMPLETENESS AND THOROUGHNESS

B. GRASP OF PROBLEM

C. RESPONSIVENESS TO TERMS, CONDITIONS AND TIME OF PERFORMANCE 30% II ORGANIZATION, PERSONNEL AND FACILITIES

A. EVIDENCE OF GOOD ORGANIZATION AND MANAGEMENT PRACTICES

B. QUALIFICATIONS OF PERSONNEL

C. ADEQUACY OF FACILITIES

D. EXPERIENCE IN SIMILAR OR RELATED FIELDS

E. RECORD OF PAST PERFORMANCE IN ENGINE DEVELOPMENT

F. POTENTIAL AS A PRODUCTION FACILITY

G. GEOGRAPHIC LOCATION 40% III TECHNICAL APPROACH

A. PROJECT PLANNING

B. RELIABILITY

C. MAINTAINABILITY

D. PRODUCIBILITY AND ECONOMY

E. TECHNICAL DATA AND DOCUMENTATION

F. TECHNICAL CHARACTERISTICS

IV FINAL TECHNICAL EVALUATION

TABLE I--GENERAL QUALITY AND RESPONSIVENESS

OF PROPOSAL ------

TABLE II--ORGANIZATION, PERSONNEL AND FACILITIES------

TABLE III--TECHNICAL APPROACH ------

TOTAL ------

IN DETERMINING THE EVENTUAL AWARD OF A CONTRACT, SECTION H-2 OF THE SCHEDULE STATED THAT PRIME CONSIDERATION WOULD BE GIVEN TO THE FOLLOWING FACTORS:

1. THE ADEQUACY OF THE TECHNICAL APPROACH OR THE PLAN PROPOSED TO ACCOMPLISH THE PROJECT OR PROGRAM. THE APPARENT GRASP AND UNDERSTANDING OF THE WORK TO BE PERFORMED TO INCLUDE CRITICAL PROBLEM AREAS AND THE PROPOSED SOLUTION.

2. THE ABILITY TO MANAGE THE CONTRACT IN A TIMELY, EFFECTIVE AND ECONOMICAL MANNER. YOUR PRESENTATION SHALL INCLUDE THE PHASES OR INCREMENTS INTO WHICH THE WORK WILL BE SEGMENTED FOR MANAGEMENT MONITORING PURPOSES, INDICATING KEY EVENTS, AND THEIR INTERRELATIONSHIP.

3. TOTAL COST TO THE GOVERNMENT.

4. PERIOD OF TIME REQUIRED TO COMPLETE THE WORK AND SERVICES AND THE EVIDENCED CAPABILITY TO MEET THE REQUIRED DELIVERY SCHEDULE.

5. AVAILABILITY OF PERSONNEL (QUANTITY AND CATEGORY ON HAND AND THOSE TO BE EMPLOYED).

6. EXPERIENCE IN THE FIELD OF ENDEAVOR AND PHYSICAL PLANT FACILITIES.

SIX PROPOSALS WERE RECEIVED AND EVALUATED BY A SOURCE SELECTION EVALUATION BOARD. THIS BOARD TECHNICALLY EVALUATED AND SCORED ALL QUOTATIONS IN ACCORDANCE WITH THE EVALUATION PLAN. THE PROPOSAL OF AUTO RESEARCH, INC., WAS CONSIDERED TECHNICALLY UNACCEPTABLE AND WAS REJECTED BY THE BOARD. THE EVALUATION RESULTED IN RATINGS IN THE FOLLOWING ORDER OF DESCENDING TECHNICAL MERIT.

ONAN DIVISION OF STUDEBAKER CORP.

CONTINENTAL AVIATION & ENGINEERING, INC.

HERCULES ENGINES, INC.

ALLIS-CHALMERS MANUFACTURING CO.

AMERICAN MARC DIVISION OF EON CORP. THE EVALUATION BOARD RECOMMENDED AWARD TO ONAN BECAUSE ITS PROPOSAL WAS RATED HIGHEST TECHNICALLY AND WAS THE LOWEST IN ESTIMATED COST.

THE RECORD INDICATES THAT SOON AFTER THIS EVALUATION AND RECOMMENDATION, THE PROCUREMENT WAS DELAYED TO ALLOW A TECHNICAL REEVALUATION BECAUSE OF SIGNIFICANT DEVELOPMENTS IN OTHER POWER SOURCES SUCH AS FUEL CELLS AND GAS TURBINE ENGINES. A DECISION WAS REACHED IN NOVEMBER 1968 TO PROCEED FURTHER AS ORIGINALLY CONTEMPLATED. HOWEVER, DURING THIS PERIOD, ONAN WITHDREW ITS QUOTATION ON DECEMBER 20, 1968, FOR INTERNAL REASONS. UPON DECIDING TO PROCEED WITH THE PROCUREMENT, THE REMAINING QUOTERS WERE CONTACTED FOR THE PURPOSE OF ASSURING THAT EACH QUOTER'S OFFER WAS TIMELY AND TO VERIFY THE ESTIMATED COST AS PREVIOUSLY QUOTED. THESE NEGOTIATIONS DID NOT RESULT IN ANY SUBSTANTIVE CHANGE IN THE TECHNICAL PROPOSALS AND ONLY A SLIGHT REDUCTION IN ESTIMATED COST ON THE PART OF CONTINENTAL AND ALLIS CHALMERS WAS MADE. UPON CONCLUSION OF THESE REOPENED NEGOTIATIONS, THE SOURCE SELECTION EVALUATION BOARD, ACTING THROUGH THE CHIEF OF THE ENGINE GENERATOR DIVISION, RECOMMENDED AWARD TO HERCULES ENGINES, INC., WHICH ORIGINALLY WAS RANKED THIRD. THIS RECOMMENDATION WAS BASED ON THE FACT THAT THE ESTIMATED COST OFFERED BY CONTINENTAL AVIATION AND ENGINEERING, INC.--THE SECOND HIGHEST RATED OFFEROR--WAS $232,000 MORE THAN HERCULES AND THEIR TECHNICAL APPROACH AND ABILITY WAS NOT SIGNIFICANTLY BETTER THAN THAT OF HERCULES. AS A RESULT OF THIS RECOMMENDATION AND ACTION OF THE BOARD OF AWARDS, CONTRACT NO. DAAK02 69-C -0494 WAS AWARDED TO HERCULES ENGINES, INC., ON MAY 13, 1969.

BY TELEGRAM AND LETTER DATED MAY 27 AND JUNE 13, 1969, RESPECTIVELY, AMERICAN MARC FILED A PROTEST WITH OUR OFFICE SETTING FORTH THE BASES FOR ITS PROTEST AGAINST THE AWARD OF A CONTRACT TO HERCULES UNDER THE SUBJECT SOLICITATION. THE CONTENTIONS RAISED IN THE CORRESPONDENCE REFERRED TO ABOVE AS SUPPLEMENTED BY BRIEFS FROM YOUR FIRM ARE DISCUSSED BELOW.

IT IS YOUR CONTENTION THAT THE AWARD TO HERCULES MUST BE CANCELED BECAUSE IT VIOLATES DOD DIRECTIVE 5500.10 (APPENDIX "G" OF ASPR) WHICH SETS FORTH "RULES FOR THE AVOIDANCE OF ORGANIZATIONAL CONFLICTS OF INTEREST."

DEPARTMENT OF DEFENSE DIRECTIVE 5500.10, ISSUED ON JUNE 1, 1963, IS INTENDED TO PREVENT CONFLICTS OF INTEREST AND UNFAIR COMPETITION IN INSTANCES WHERE A HARDWARE PRODUCER HAVING RESPONSIBILITY FOR SYSTEM ENGINEERING AND TECHNICAL DIRECTION IS ALSO PERMITTED TO BID ON SUBSEQUENT COMPETITIVE PROCUREMENT OF THE HARDWARE DELINEATED IN THE SYSTEM DESIGN.

IT APPEARS TO BE YOUR POSITION THAT THE AWARD TO HERCULES VIOLATED RULE 1 OF THE DIRECTIVE WHICH PROVIDES:

1. IF A CONTRACTOR AGREES TO PROVIDE SYSTEMS ENGINEERING AND TECHNICAL DIRECTION (SE/TD) FOR A SYSTEM, WITHOUT AT THE SAME TIME ASSUMING OVER-ALL CONTRACTUAL RESPONSIBILITY FOR: (A) DEVELOPMENT, OR (B) INTEGRATION, ASSEMBLY AND CHECKOUT (IAC), OR (C) PRODUCTION OF THE SYSTEM, THEN THAT CONTRACTOR SHALL NOT LATER BE ALLOWED TO SUPPLY THE SYSTEM OR ANY MAJOR COMPONENTS THEREOF, OR TO BE A SUBCONTRACTOR OR CONSULTANT TO A SUPPLIER OF THE SYSTEM OR ANY MAJOR COMPONENTS THEREOF.

EXPLANATION: THE SE/TD CONTRACTOR OCCUPIES A HIGHLY INFLUENTIAL AND RESPONSIBLE POSITION AS AN AGENT OF THE DEPARTMENT OF DEFENSE BOTH IN DETERMINING BASIC CONCEPTS OF A SYSTEM AND IN SUPERVISING THEIR EXECUTION BY OTHER CONTRACTORS. TO ASSURE THE OBJECTIVITY OF ITS SERVICES AND HENCE A MORE SOUNDLY PLANNED SYSTEM, THE SE/TD CONTRACTOR MUST NOT BE IN A POSITION TO MAKE DECISIONS WHICH COULD FAVOR ITS OWN PRODUCTS. FURTHERMORE, IT WOULD BE INCONSISTENT WITH THE MANAGERIAL RESPONSIBILITY OF AN SE/TD CONTRACTOR FOR IT TO BE CONCURRENTLY ONE OF THE COMPONENT SUPPLIERS. THE FACTS UPON WHICH THIS CONTENTION IS BASED ARE SET FORTH IN A MEMORANDUM SUBMITTED WITH YOUR LETTER OF SEPTEMBER 11, 1969, AS FOLLOWS:

AFTER THE AWARD, AT A DEBRIEFING SESSION AT THE FORT BELVOIR OFFICE OF ARMY MOBILITY RESEARCH AND DEVELOPMENT CENTER, EON WAS APPRISED FOR THE FIRST TIME THAT THE SUCCESSFUL BIDDER WOULD USE THE SERVICES (EITHER AS CO -PROPRIETOR, SUB-CONTRACTOR OR CONSULTANT) OF AN AUSTRIAN CONCERN OF ENGINE DESIGNERS KNOWN AS A.V.L. THEREAFTER, UPON COMPETENT AUTHORITY, EON LEARNED THAT THE ARMY HAD IN 1965 RETAINED THIS AUSTRIAN CONCERN TO DEVELOP THE REQUIREMENTS UNDERLYING THE REQUEST FOR QUOTATIONS. THIS FACT DID NOT APPEAR IN THE ADMINISTRATIVE REPORT FURNISHED TO EON. ACCORDINGLY IT IS NOW APPARENT THAT THE AUSTRIAN CONCERN WAS, IN EFFECT, THE SE/TD CONTRACTOR. THE ARMY HAS IN ADDITION AWARDED THE CONTRACT FOR DESIGN AND TESTING OF THE ENGINES TO HERCULES, WITH THE AUSTRIAN CONCERN AS EITHER CO -PROPRIETOR, SUB-CONTRACTOR OR CONSULTANT *** .

THIS DOD DIRECTIVE STATES THAT THE TERM SYSTEMS ENGINEERING "INCLUDES A COMBINATION OF SUBSTANTIALLY ALL THE FOLLOWING ACTIVITIES: DETERMINATION OF SPECIFICATIONS, IDENTIFICATION AND SOLUTION OF INTERFACES BETWEEN PARTS OF THE SYSTEM, DEVELOPMENT OF TEST REQUIREMENTS, OR PLANS AND EVALUATION OF TEST DATA, AND SUPERVISION OF DESIGN WORK." THE TERM TECHNICAL DIRECTION, "INCLUDES A COMBINATION OF SUBSTANTIALLY ALL OF THE FOLLOWING ACTIVITIES: PREPARATION OF WORK STATEMENTS FOR CONTRACTORS, DETERMINATION OF PARAMETERS, DIRECTION OF CONTRACTORS' OPERATIONS, AND RESOLUTION OF TECHNICAL CONTROVERSIES."

IN A SUPPLEMENTAL REPORT FURNISHED OUR OFFICE, WE ARE ADVISED THAT IN 1965, THE ARMY AWARDED FIVE SMALL CONTRACTS FOR CONCEPT FEASIBILITY STUDIES FOR SMALL, LIGHTWEIGHT COMPRESSION IGNITION ENGINES. ONE OF THESE CONTRACTS, IN THE SUM OF $14,750 WAS AWARDED TO THE AUSTRIAN FIRM OF A.V.L. IT IS THE POSITION OF THE ARMY THAT THE SMALL CONCEPT STUDY CANNOT BE INTERPRETED AS SYSTEMS ENGINEERING OR TECHNICAL DIRECTION FOR A SYSTEM. FURTHER, WE ARE ADVISED THAT A.V.L.'S PARTICIPATION IN BASIC CONCEPT STUDIES OF SMALL INTERNAL COMBUSTION ENGINES DID NOT PLACE THEM IN ANY KIND OF A PREFERRED COMPETITIVE POSITION IN THIS OR ANY OTHER PROCUREMENT.

WE ARE ADVISED BY THE ARMY THAT CONCEPT FEASIBILITY STUDY MEANS INVESTIGATING THE PRACTICALITY FROM A TECHNICAL ENGINEERING STANDPOINT OF AN UNPROVEN IDEA IN WHICH THE IDEA IS CLEARLY STATED. WE ARE ALSO ADVISED THAT THE A.V.L. CONTRACT REQUIRED MATHEMATICAL ANALYSIS OF A THERMODYNAMIC CYCLE INCLUDING AIR-COOLING SYSTEMS, TECHNICAL DESCRIPTION OF COMBUSTION SYSTEM, GRAPHS FROM MATHEMATICAL ANALYSIS SHOWING ESTIMATED PERFORMANCE CHARACTERISTICS CURVES, A TABULATION OF PHYSICAL OR CONFIGURATION PARAMETERS, SCHEMATIC OR OUTLINE OVERALL DRAWINGS, TIME AND COST ESTIMATES FOR FOLLOW-ON DEVELOPMENT TO INCLUDE DETAILED DESIGN AND FABRICATION OF EXPERIMENTAL MODELS. THERE WAS NO REQUIREMENT IN THE CONTRACT WITH A.V.L. FOR ANY SUPERVISION OF DESIGN WORK OR PREPARATION OF WORK STATEMENTS FOR OTHER CONTRACTORS. MOREOVER, NO SPECIFICATIONS WERE TO BE PRODUCED UNDER THIS CONTRACT, AND INTERFACE PROBLEMS HAD NOT BEEN DEVELOPED; HENCE, THEY COULD NOT BE SOLVED BY A.V.L. WE ARE FURTHER ADVISED THAT THERE WAS NO REQUIREMENT FOR TEST PROCEDURES OR TEST EVALUATION, ALL OF WHICH ARE NECESSARY FOR A CONTRACT TO BE CLASSIFIED SE/TD UNDER RULE 1 OF THE DOD DIRECTIVE.

AN EXAMINATION OF DOD DIRECTIVE 5500.10 INDICATES THAT IT IS NOT SELF EXECUTING, BUT SPECIFICALLY PROVIDES THAT PROSPECTIVE CONTRACTORS WILL BE ADVISED OF THE APPLICABILITY OF THE ORGANIZATIONAL CONFLICT OF INTEREST RULES BY A NOTICE IN THE SOLICITATION AND BY A CLAUSE IN THE RESULTING CONTRACT. SEE 48 COMP. GEN. 702, APRIL 25, 1969. ASPR 1 113.2(A), DEALING WITH ORGANIZATIONAL CONFLICTS OF INTEREST, PROVIDES THAT "THE DIRECTIVE CANNOT OF ITSELF IMPOSE ANY OBLIGATIONS ON THE CONTRACTOR; SUCH OBLIGATIONS MUST BE IMPOSED BY A CONTRACT CLAUSE DESIGNED TO CARRY OUT THE INTENT OF THE DIRECTIVE." IT IS FURTHER PROVIDED THAT PROSPECTIVE CONTRACTORS MUST BE ADVISED OF THE APPLICABILITY OF SUCH RULES AND BE GIVEN AN OPPORTUNITY TO NEGOTIATE THE TERMS OF THE CLAUSE AND ITS APPLICATION. THE CONTRACT AWARDED TO A.V.L. IN 1965 CONTAINED NO CLAUSE RESTRICTING A.V.L.'S ACTIVITIES ON LATER PROCUREMENTS OR THE DEVELOPMENT OF THE SMALL, LIGHTWEIGHT COMPRESSION ENGINE IN QUESTION. WE ARE ADVISED THAT A HARDWARE EXCLUSION CLAUSE WOULD NOT HAVE BEEN APPROPRIATE IN THE A.V.L. CONTRACT, SINCE THE TYPE OF STUDY CALLED FOR BY THE CONTRACT WOULD NOT HAVE CAUSED A.V.L. TO FALL WITHIN THE AMBIT OF THE DIRECTIVE, OR PLACE A.V.L. IN A POSITION OF PREFERENCE WHICH WOULD HAVE VIOLATED THE GENERAL PRINCIPLES OF THE DIRECTIVE. HERCULES, LIKEWISE, IS UNDER NO "HARDWARE EXCLUSION" CLAUSE OR ANY OTHER RESTRICTION ON FOLLOW-ON PROCUREMENTS WHICH MAY HAVE PREVENTED IT FROM ACCEPTING THE AWARD OF THE INSTANT CONTRACT.

ASPR 1-113.2(C) PROVIDES THAT:

THE CONTRACTING OFFICER SHALL NOT IMPOSE RESTRICTIONS UNDER THE DIRECTIVE IN FOLLOW-ON PROCUREMENTS ON ANY PROSPECTIVE CONTRACTOR IN THE ABSENCE OF A SPECIFIC CONTRACTUAL AGREEMENT WITH THE CONTRACTOR.

THE CONTRACT CLAUSE IS THE CONTROLLING FACTOR. THIS CONCLUSION IS SUPPORTED BY THE HOUSE REPORT CONCERNING "AVOIDING CONFLICTS OF INTERESTS IN DEFENSE CONTRACTING AND EMPLOYMENT" (HOUSE COMMITTEE ON GOVERNMENT OPERATIONS, H. R. REPT. 917, 88TH CONG., 1ST SESS. (1963)), AT PAGE 72:

IT WOULD SEEM TO FOLLOW *** THAT THE CONTRACT CLAUSE IS THE CONTROLLING FACTOR. IF THE PROHIBITIONS CITED AND ILLUSTRATED IN THE DIRECTIVE DO NOT APPLY IN ANY GIVEN CASE, THEY WILL NOT BE EMBODIED IN THE TERMS OF THE CONTRACT. IN SUCH CASES, THE CONTRACTOR NEED NOT BE CONCERNED ABOUT THE PRESENT OR FUTURE RESTRICTIONS OR PROHIBITIONS. THUS, AS EACH INDIVIDUAL CONTRACT IS WRITTEN, A DETERMINATION IS MADE WHETHER EXCLUSION CLAUSES ARE RELEVANT AND HENCE APPLICABLE.

IT IS THEREFORE CLEAR THAT THE DIRECTIVE CANNOT BE APPLIED IN THE ABSENCE OF AN APPROPRIATE CONTRACT CLAUSE AND NEITHER A.V.L. NOR HERCULES WAS SUBJECT TO A CONTRACTUAL RESTRICTION ON FUTURE PROCUREMENTS. UNDER THESE CIRCUMSTANCES, THE AWARD TO HERCULES DID NOT VIOLATE THE PROVISIONS OF DOD DIRECTIVE 5500.10.

WITH RESPECT TO YOUR CONTENTION THAT THE AWARD TO HERCULES WAS BASED ON A MAJOR MISTAKE OF FACT (I.E., THAT HERCULES WAS FARTHER ADVANCED IN DEVELOPMENT OF THE ENGINE THAN WAS SUPPOSED), WE ARE ADVISED AS FOLLOWS. AMERICAN MARC'S ORIGINAL PROPOSAL, SEVERAL TECHNICAL CONFERENCES, AND A VISIT TO ITS PLANT BY GOVERNMENT PERSONNEL FAILED TO DISCLOSE ANY ENGINE OR ENGINE DEVELOPMENT PROGRAM THAT WOULD APPLY TO THE SPECIFIC ENGINE DESCRIBED IN THE GOVERNMENT'S RFQ. THE GOVERNMENT DENIES THAT THE AMERICAN MARC'S ENGINE IS OR WAS FARTHER DEVELOPED THAN HERCULES. WHEN THERE IS A CONFLICT BETWEEN THE STATEMENT OF A CLAIMANT AND THE REPORT OF THE ADMINISTRATIVE OFFICE, IT IS THE LONG-ESTABLISHED RULE OF OUR OFFICE TO ACCEPT THE ADMINISTRATIVE REPORT IN THE ABSENCE OF EVIDENCE SUFFICIENT TO OVERCOME THE PRESUMPTION OF ITS CORRECTNESS. SEE 37 COMP. GEN. 568 (1968). FURTHER, WE ARE ADVISED THAT AT NO TIME PRIOR TO THIS PROTEST DID AMERICAN MARC EVER CLAIM TO HAVE AN ENGINE THAT COULD BE THE BASIS OF DEVELOPMENT AND DESIGN FOR THE ENGINE AS SPECIFIED IN THE RFQ. THE CONTRACTING OFFICER STATES THAT THE GOVERNMENT DID EXAMINE ENGINES BEING DEVELOPED AND/OR PRODUCED BY AMERICAN MARC PRIOR TO THE CONTRACT AWARD AND THAT THESE ENGINES WERE NOT COMPARABLE TO THE ENGINE TO BE DEVELOPED UNDER THE RFQ. WE ARE ADVISED THAT AMERICAN MARC REPEATEDLY ADMITTED THAT A LENGTHY ENGINEERING DEVELOPMENT PROGRAM WOULD BE NECESSARY PRIOR TO INITIATING A SPECIFIC DESIGN, MUCH LESS FABRICATION OF AN EXPERIMENTAL MODEL. AMERICAN MARC DOES NOT CLAIM THAT THE ENGINE IT HAS ALLEGEDLY DEVELOPED COULD BE THE BASIS FOR DESIGN AND FABRICATION OF A TEST MODEL OF AN ENGINE MEETING THE REQUIREMENTS OF THE RFQ. HOWEVER, SINCE THE ARMY IS INTERESTED IN ANY INDEPENDENT DEVELOPMENT OF AN ITEM OF HARDWARE THAT IT REQUIRES, THE COGNIZANT TECHNICAL AGENCY HAS ADVISED US THAT IT WOULD WITNESS A DEMONSTRATION OF AMERICAN MARC'S ENGINE IF TIMELY NOTICE THEREOF IS GIVEN TO THE AGENCY.

THE NEGOTIATION PROCEDURES FOLLOWED HERE WERE GENERALLY IN ACCORDANCE WITH SECTION IV, PART 2, ASPR, WHICH IS CONCERNED WITH THE PROCUREMENT OF RESEARCH AND DEVELOPMENT SERVICES PURSUANT TO THE NEGOTIATION AUTHORITY OF 10 U.S.C. 2304(A)(11).

THE RECORD INDICATES THAT AFTER A THOROUGH EVALUATION OF THE AMERICAN MARC PROPOSAL AND A SURVEY OF THEIR FACILITIES IT WAS THE UNQUALIFIED RECOMMENDATION OF THE SOURCE SELECTION EVALUATION BOARD THAT AMERICAN MARC WAS NOT AS HIGHLY QUALIFIED OR EXPERIENCED AND DID NOT HAVE THE DEPTH OF ENGINEERING TALENT OR EXPERIENCE TO EQUAL THAT OF HERCULES. THE FINDINGS OF THE SOURCE SELECTION EVALUATION BOARD WERE THOROUGHLY EVALUATED BY THE SOURCE SELECTION ADVISORY COUNCIL AND IT WAS FOUND THAT THE FIRST FIVE OF THE SIX OFFERORS WERE TECHNICALLY QUALIFIED AND THEY WERE RANKED AS FOLLOWS:

TOTAL

WEIGHTED TOTAL ESTIMATED

OFFEROR SCORE CPFF COST ONAN---------- ----------------------------- 89.2 $974,739 CONTINENTAL----- --------------------------- 87.2 2,172,999 HERCULES----------- ------------------------ 84.1 1,641,788 ALLIS-CHALMERS -------- --------------------- 82.0 2,099,827 AMERICAN MARC--------------- --- ------------ 80.0 1,505,479

TECHNICAL DISCUSSIONS WERE HELD WITH THE OFFERORS TO INSURE A THOROUGH UNDERSTANDING OF THE PROPOSED TECHNICAL APPROACH. THE RECORD INDICATES THAT WITH RESPECT TO THE EVALUATION FACTORS ENTITLED "ORGANIZATION, PERSONNEL AND FACILITIES" AND "TECHNICAL APPROACH," AMERICAN MARC SCORED SUBSTANTIALLY LOWER THAN HERCULES. AMERICAN MARC WAS CONSIDERED TO BE TECHNICALLY ACCEPTABLE BUT TO A LESSER DEGREE THAN OTHER OFFERORS WHICH WERE EVALUATED ON THE SAME BASIS AND CONSIDERED BY THE EVALUATION BOARD TO OFFER A GREATER PROBABILITY OF SUCCESS. THEREFORE, THE SOURCE SELECTION EVALUATION BOARD RECOMMENDED AWARD TO ONAN DIVISION OF STUDEBAKER AND, UPON THE WITHDRAWAL OF THEIR PROPOSAL, RECOMMENDED AWARD TO HERCULES. SEE ASPR 4-106.4. IN THE ABSENCE OF A CLEAR SHOWING OF UNREASONABLENESS, FAVORITISM, OR A VIOLATION OF THE PROCUREMENT STATUTES OR REGULATIONS, SUCH DETERMINATIONS AS TO WHICH PROPOSAL IS TECHNICALLY SUPERIOR WILL NOT BE QUESTIONED BY OUR OFFICE. SEE B-167259, SEPTEMBER 11, 1969, AND THE CASES CITED THEREIN.

IT IS YOUR CONTENTION THAT THE AWARD TO HERCULES DEPARTED FROM THE RFQ IN SIGNIFICANT RESPECTS BECAUSE THE NORMAL PRACTICE OF REQUIRING CLOSE, DAY- TO-DAY CONSULTATION BETWEEN DESIGN ENGINEERS AND TEST AND PRODUCTION ENGINEERS WAS IGNORED (HERCULES' ENGINEERS BEING PARTLY IN AUSTRIA AND PARTLY IN THE UNITED STATES). THE RECORD INDICATES THAT HERCULES DISCLOSED ADEQUATE PLANNED LIAISON BETWEEN A.V.L., ITS CONTEMPLATED SUBCONTRACTOR, AND GOVERNMENT TECHNICAL PERSONNEL. THIS COMBINATION WAS CONSIDERED SUPERIOR TO THE ENGINEERING TALENT OFFERED BY AMERICAN MARC. THE CONTRACTING OFFICER STATES THAT UNDER THE CONTRACT, AS AWARDED, HERCULES WILL PERFORM ALL FABRICATION AT ITS PLANT AND WILL FURNISH TO THE GOVERNMENT COMPLETE ENGINEERING DESIGN DATA SUFFICIENT FOR ANY COMPETENT MANUFACTURER TO REPRODUCE THE FINAL DEVELOPED AND ACCEPTED ENGINE.

IN THE MEMORANDUM SUBMITTED WITH YOUR LETTER OF NOVEMBER 11, 1969, YOU MAKE REFERENCE TO THE GOVERNMENT'S POLICY FOR REQUIRING MULTIPLE SOURCES OF SUPPLY WHEN LARGE-SCALE PROCUREMENT OF ITEMS IS CONTEMPLATED. YOU CONTEND THAT MUCH OF THE ENGINEERING "KNOW-HOW" WHICH WILL BE NEEDED EVENTUALLY BY CONTRACTORS SUPPLYING THE ENGINE WILL BE LOCATED IN AUSTRIA IF HERCULES IS THE SOLE RESEARCH AND DEVELOPMENT CONTRACTOR, AND THAT THE GOVERNMENT WILL BE GREATLY HANDICAPPED IN OBTAINING MULTIPLE SOURCES OF SUPPLY IN THIS COUNTRY. YOU STATE THE COMPETITION IN RESEARCH AND DEVELOPMENT OF NEW MATERIALS AND NEW ENGINEERING CONCEPTS FOR INCORPORATION INTO THE ENGINE WOULD BENEFIT THE GOVERNMENT. THEREFORE, IF FOR ANY REASON THE HERCULES AWARD IS NOT TO BE REVOKED, YOU STATE THAT IT WOULD BE PATENTLY IN THE BEST INTEREST OF THE UNITED STATES GOVERNMENT TO AWARD A PARALLEL RESEARCH AND DEVELOPMENT CONTRACT TO AMERICAN MARC NOW.

THE DETERMINATION WHETHER IT WOULD BE IN THE INTERESTS OF THE GOVERNMENT TO NEGOTIATE A CONTRACT TO ASSURE THE AVAILABILITY OF A PARTICULAR INDUSTRIAL MOBILIZATION BASE IS VESTED IN THE HEAD OF THE MILITARY DEPARTMENT INVOLVED. SEE, IN THIS CONNECTION, ASPR 3-216 WHICH IMPLEMENTS 10 U.S.C. 2304(A)(10) AND PROVIDES THAT THE SECRETARY SHALL DETERMINE WHEN IT IS IN THE INTEREST OF THE NATIONAL DEFENSE TO NEGOTIATE A CONTRACT WITH A PARTICULAR MANUFACTURER IN ORDER TO ASSURE THAT PROPERTY OR SERVICES WILL BE AVAILABLE TO THE GOVERNMENT DURING A NATIONAL EMERGENCY. 163131, JULY 15, 1968.

AS A GENERAL RULE, WE HAVE HELD THAT A DETERMINATION OF THE NEEDS OF THE GOVERNMENT AND THE METHOD OF ACCOMMODATING SUCH NEEDS IS PRIMARILY THE RESPONSIBILITY OF THE PROCURING AGENCY AND, IN THE ABSENCE OF CONVINCING EVIDENCE THAT ADMINISTRATIVE DISCRETION WAS ABUSED, WE HAVE NO BASIS FOR FURTHER INQUIRY, ESPECIALLY WHERE, AS HERE, THE PROCUREMENT IS FOR EQUIPMENT OF A HIGHLY SPECIALIZED NATURE AND THE DETERMINATIONS MUST BE BASED ON EXPERT TECHNICAL OPINION. SEE B 152001, JANUARY 10, 1964.

OUR REVIEW OF THIS PROCUREMENT, AS SUPPLEMENTED BY PRESENTATIONS MADE ON BEHALF OF AMERICAN MARC DIVISION, REQUIRES THE CONCLUSION THAT THE AWARD TO HERCULES IS NOT SUBJECT TO LEGAL OBJECTION BY OUR OFFICE. ACCORDINGLY, YOUR PROTEST IS DENIED.