B-167547, DEC. 1, 1969

B-167547: Dec 1, 1969

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QUESTION PRESENTED IS WHETHER DISCOUNT SHOULD BE APPLIED IN DETERMINING DOLLAR VALUE. GAO FINDS NO INDICATION THAT DISCOUNTS ARE TO BE DISREGARDED. IN VIEW OF UNCERTAINTY AND GOVT.'S POLICY REGARDING DISCOUNTS WHICH ARE CONSIDERED IN BID EVALUATIONS. GAO DOES NOT BELIEVE ORDER SHOULD BE PLACED OUTSIDE SCHEDULE AND SINCE THERE IS CONSIDERABLE QUESTION WHETHER PROCUREMENT EXCEEDS MAXIMUM ORDER LIMITATION. THESE ITEMS ARE INCLUDED IN THE CURRENT FEDERAL SUPPLY SCHEDULE (FSS) FOR HOUSEHOLD FURNITURE (FSC GROUP 71. LETCHER MANUFACTURING COMPANY IS THE LISTED CONTRACTOR FOR THESE ITEMS. VIOLATION MAY RESULT IN TERMINATION OF THE CONTRACT PURSUANT TO THE CLAUSE OF THE GENERAL PROVISIONS ENTITLED DEFAULT.-" IT IS APPARENT THAT IF THE 2 ITEMS OF FURNITURE WERE ORDERED UNDER THE FSS CONTRACT FROM LETCHER.

B-167547, DEC. 1, 1969

FEDERAL SUPPLY SCHEDULE--ORDER LIMITATION--DISCOUNT EVALUATION WHERE BID UNDER INVITATION FOR ITEMS IN FEDERAL SUPPLY SCHEDULE WHICH LIMITS ORDERS TO $25,000 WITH SINGLE ITEM DOLLAR VALUE NOT EXCEEDING $15,000 TOTALED $25,100 EXCLUSIVE OF DISCOUNT OR $24,598 INCLUDING DISCOUNT, QUESTION PRESENTED IS WHETHER DISCOUNT SHOULD BE APPLIED IN DETERMINING DOLLAR VALUE. WHILE MAXIMUM ORDER LIMITATION CLAUSE FAILS TO INDICATE THAT CASH DISCOUNTS SHOULD BE APPLIED IN DETERMINING LIMITATION, GAO FINDS NO INDICATION THAT DISCOUNTS ARE TO BE DISREGARDED. IN VIEW OF UNCERTAINTY AND GOVT.'S POLICY REGARDING DISCOUNTS WHICH ARE CONSIDERED IN BID EVALUATIONS, GAO DOES NOT BELIEVE ORDER SHOULD BE PLACED OUTSIDE SCHEDULE AND SINCE THERE IS CONSIDERABLE QUESTION WHETHER PROCUREMENT EXCEEDS MAXIMUM ORDER LIMITATION, GAO RECOMMENDS THAT INVITATION BE CANCELED. SEE 45 COMP. GEN. 447 (1965).

TO MR. KUNZIG:

WE REFER TO THE LETTER REPORT DATED OCTOBER 21, 1969, REGARDING THE PROTEST FROM THE LETCHER MANUFACTURING COMPANY AGAINST AWARD UNDER INVITATION FOR BIDS NO. FPNFH-J-17874-A-7-21-69 ISSUED ON JUNE 30, 1969.

THE INVITATION CALLS FOR 2 ITEMS OF UPHOLSTERED LIVING ROOM FURNITURE CONSISTING OF 100 SOFAS (ITEM 1) AND 200 CHAIRS (ITEM 2). THESE ITEMS ARE INCLUDED IN THE CURRENT FEDERAL SUPPLY SCHEDULE (FSS) FOR HOUSEHOLD FURNITURE (FSC GROUP 71, PART II, SECTION A). LETCHER MANUFACTURING COMPANY IS THE LISTED CONTRACTOR FOR THESE ITEMS, QUOTING $125 EACH FOR THE SOFA AND $63 EACH FOR THE CHAIR, WITH 2 PERCENT DISCOUNT FOR PAYMENT WITHIN 20 DAYS FROM DATE OF DELIVERY. THE FSS CONTRACT PROVIDES THAT IN GENERAL THE SUPPLIES COVERED SHALL BE ORDERED FROM THE SCHEDULE CONTRACTOR. HOWEVER, PARAGRAPH 1 (A) (2) OF THE FSS CONTRACT STATES:

"/2) MAXIMUM ORDER LIMITATIONS. - THE TOTAL DOLLAR VALUE OF ANY ORDER PLACED UNDER THIS CONTRACT SHALL NOT EXCEED $25,000; PROVIDED, THAT THE DOLLAR VALUE FOR ANY SINGLE ITEM ORDERED, WHETHER ORDERED SEPARATELY OR IN COMBINATION WITH OTHER ITEMS, SHALL NOT EXCEED $15,000. THE CONTRACTOR AGREES NOT TO ACCEPT OR FULFILL ANY ORDERS IN VIOLATION OF THIS PROVISION. VIOLATION MAY RESULT IN TERMINATION OF THE CONTRACT PURSUANT TO THE CLAUSE OF THE GENERAL PROVISIONS ENTITLED DEFAULT.-"

IT IS APPARENT THAT IF THE 2 ITEMS OF FURNITURE WERE ORDERED UNDER THE FSS CONTRACT FROM LETCHER, THE TOTAL PRICE WOULD BE $25,100 EXCLUSIVE OF DISCOUNT, OR $24,598 WITH DISCOUNT APPLIED. THE QUESTION PRESENTED IS WHETHER THE DISCOUNT SHOULD BE APPLIED IN DETERMINING THE DOLLAR VALUE OF THIS ORDER.

IT HAS BEEN ADMINISTRATIVELY CONCLUDED, BASED ON THE LANGUAGE IN THE CLAUSE REFERRING TO THE ,TOTAL DOLLAR VALUE," THAT THE DISCOUNT SHOULD NOT BE APPLIED. IN THAT VIEW, THE TOTAL DOLLAR VALUE OF AN ORDER, AS DISTINGUISHED FROM THE NET DOLLAR VALUE, IS TO BE DETERMINED WITHOUT REGARD TO ANY PROMPT PAYMENT DISCOUNT PROVIDED FOR IN THE CONTRACT. LETCHER CONTENDS, ON THE OTHER HAND, THAT SINCE THE DISCOUNT WAS CONSIDERED IN EVALUATING ITS BID FOR THE FSS CONTRACT, THE DISCOUNT SHOULD ALSO BE CONSIDERED IN DETERMINING THE MAXIMUM ORDER LIMITATION FOR PLACING ORDERS UNDER THE SCHEDULE. IT URGES THAT THE SUBJECT INVITATION SHOULD BE CANCELLED AND THE REQUIREMENT PLACED UNDER THE SCHEDULE WITH THE LETCHER FIRM.

WE DO NOT AGREE WITH YOUR AGENCY'S INTERPRETATION OF THE WORD "TOTAL" AS USED IN THE MAXIMUM ORDER LIMITATION CLAUSE. IN OUR OPINION, THE WORD IS USED IN THE CLAUSE MERELY TO INDICATE THAT THE DOLLAR VALUE OF ALL THE ITEMS INCLUDED IN AN ORDER SHALL NOT EXCEED THE $25,000 LIMITATION. THUS, THE CLAUSE GOES ON TO STATE "THAT THE DOLLAR VALUE FOR ANY SINGLE ITEM ORDERED, WHETHER ORDERED SEPARATELY OR IN COMBINATION WITH OTHER ITEMS, SHALL NOT EXCEED $15,000.' THE WORD "TOTAL" IS NOT USED WITH RESPECT TO THE $15,000 LIMITATION. WHILE THERE IS NO INDICATION IN THE CLAUSE THAT CASH DISCOUNTS SHOULD BE APPLIED IN DETERMINING THE MAXIMUM ORDER LIMITATION, WE FIND NO INDICATION THAT DISCOUNTS ARE TO BE DISREGARDED.

DISCOUNTS, OF COURSE, ARE CONSIDERED IN BID EVALUATIONS. THE DISCOUNT CLAUSE (CLAUSE 9) OF THE ,SOLICITATION INSTRUCTIONS AND CONDITIONS" , STANDARD FORM 33A, ESTABLISHES 20 CALENDAR DAYS AS THE MINIMUM PERIOD FOR PROMPT PAYMENT DISCOUNTS TO BE CONSIDERED IN A BID EVALUATION UNLESS OTHERWISE SPECIFIED IN THE SOLICITATION. AS STATED IN FPR 1-2.407-3 (B), A PROMPT PAYMENT DISCOUNT IS CONSIDERED IN THE BID EVALUATION ON THE ASSUMPTION THAT THE DISCOUNT WILL BE TAKEN, UNLESS THE DISCOUNT OFFERED IS FOR A LESSER PERIOD THAN THE MINIMUM NUMBER OF DAYS SPECIFIED IN THE INVITATION FOR BIDS. IN THIS REGARD, IT SHOULD BE NOTED THAT THE GOVERNMENT'S POLICY IS TO TAKE ADVANTAGE OF CASH DISCOUNTS WHENEVER POSSIBLE. SEE 45 COMP. GEN. 447, 449 (1965).

BUT THE FACT THAT A DISCOUNT IS CONSIDERED IN A BID EVALUATION DOES NOT NECESSARILY MEAN THAT THE DISCOUNT SHOULD BE APPLIED FOR THE PURPOSE OF DETERMINING THE DOLLAR VALUE OF AN ORDER IN CONNECTION WITH THE MAXIMUM LIMITATION ORDER CLAUSE. THE CLAUSE ESTABLISHES THE EXTENT AND LIMITS OF THE GOVERNMENT'S OBLIGATION TO PLACE ORDERS UNDER THE CONTRACT AND THE CONTRACTOR'S DUTY TO ACCEPT SUCH ORDERS, AND THE CLAUSE SHOULD BE INTERPRETED IN ACCORDANCE WITH THE INTENT OF THE PARTIES. UNFORTUNATELY, WE FIND THAT THE MAXIMUM ORDER LIMITATION CLAUSE EXPRESSES NO INTENTION WITH REGARD TO THE MATTER AT HAND. WE THINK IT LIKELY THAT THE PARTIES TO THE CONTRACT NEVER CONTEMPLATED THE INSTANT SITUATION WHERE THE DISCOUNT WOULD MAKE A DIFFERENCE IN WHETHER OR NOT THE $25,000 MAXIMUM ORDER LIMITATION WAS EXCEEDED.

IT IS CLEAR, HOWEVER, THAT THE GOVERNMENT IS UNDER NO CONTRACTUAL DUTY TO TAKE THE DISCOUNT. IT CAN ELECT TO FORGO THE DISCOUNT, AND THE CONTRACTOR HAS NO CAUSE TO COMPLAIN. THE CONTRACTOR CANNOT COMPEL THE GOVERNMENT TO MAKE PAYMENT WITHIN THE DISCOUNT PERIOD. IN VIEW OF THIS, AND IN THE ABSENCE OF ANY EXPRESSION IN THE CONTRACT TO THE CONTRARY, IT MAY BE ARGUED THAT THE GOVERNMENT HAS THE RIGHT TO DETERMINE THE DOLLAR VALUE OF AN ORDER EITHER WITH OR WITHOUT THE DISCOUNT APPLIED. IF THE SUBJECT ORDER WERE PLACED WITH LETCHER BASED ON THE NET DOLLAR VALUE OF $24,598, THE CONTRACTOR MIGHT BE OBLIGATED TO ACCEPT THE ORDER. ON THE OTHER HAND, IT MAY BE URGED WITH EQUAL VALIDITY THAT YOUR AGENCY ALSO HAS A RIGHT TO IGNORE THE DISCOUNT AND PLACE THE ORDER ELSEWHERE BASED ON THE GROSS DOLLAR VALUE OF $25,100. IN VIEW OF THE UNCERTAINTY AND OF THE GOVERNMENT'S POLICY IN REGARD TO DISCOUNTS, WE DO NOT BELIEVE THAT THIS ORDER SHOULD BE PLACED OUTSIDE THE SCHEDULE. WE ARE AWARE OF THE PROVISION IN THE FSS STATING THAT "WHENEVER FEASIBLE, AGENCIES SHOULD CONSOLIDATE THEIR REQUIREMENTS SO AS TO TAKE ADVANTAGE OF PRICE SAVINGS AVAILABLE THROUGH SEPARATE PROCUREMENTS OF QUANTITIES WHICH EXCEED THE MAXIMUM ORDER LIMITATION.' HOWEVER, AS NOTED WE THINK THERE IS CONSIDERABLE QUESTION WHETHER THIS PROCUREMENT EXCEEDS THE MAXIMUM ORDER LIMITATION. FURTHERMORE, WE ARE NOT PREPARED TO SAY THAT LETCHER'S CLAIM OF CONTRACT VIOLATION CAN BE ENTIRELY DISMISSED. WE THINK THAT A COURT OF LAW MIGHT WELL RESOLVE THE AMBIGUITY IN THE MAXIMUM ORDER LIMITATION CLAUSE AGAINST THE GOVERNMENT WHICH WAS RESPONSIBLE FOR ITS FORM. UNDER THE CIRCUMSTANCES, WE RECOMMEND THAT THE INVITATION BE CANCELLED, ASSUMING THAT NO AWARD HAS YET BEEN MADE. ANOTHER INVITATION MAY BE ISSUED, OF COURSE, IF ADDITIONAL QUANTITIES ARE NOW NEEDED AND ARE INCLUDED IN THE ORDER. IN ANY CASE, WE BELIEVE THAT THE LANGUAGE OF THE REFERENCED CLAUSE SHOULD BE CLARIFIED TO AVOID FUTURE INSTANCES OF THIS KIND.