B-167795, MAR. 16, 1970

B-167795: Mar 16, 1970

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ON BASIS OF ALLEGED MISTAKE IN BID WHICH CONTRACTOR CONTENDS CONTRACTING OFFICER SHOULD HAVE DISCOVERED. IS DENIED. ALTHOUGH CONTRACTOR MAY HAVE MADE MISTAKE IN BID. SUCH MISTAKE WAS DUE SOLELY TO ITS OWN NEGLIGENCE. CONTRACTING OFFICER WAS NOT REQUIRED TO MAKE DETAILED ANALYSIS OF CONTRACTOR'S PRICE BREAKDOWN BUT ONLY TO COMPARE TOTAL PRICE WITH GOVT.'S ESTIMATE. HAROLD BLASKY: REFERENCE IS MADE TO YOUR TELEGRAM AND LETTER DATED AUGUST 25 AND SEPTEMBER 2. WHICH WAS AWARDED TO THAT COMPANY ON JULY 11. THE CONTRACTOR'S FACILITIES WERE DAMAGED TO A CONSIDERABLE EXTENT IN AN ACCIDENT CAUSED BY THE BREAKING OF A SHACKLE ATTACHED TO A LINE HOLDING AN ALMOST COMPLETED BARGE PREPARATORY TO SLIPPING THE BARGE DOWN THE WAYS TO THE WILLAMETTE RIVER.

B-167795, MAR. 16, 1970

CONTRACTS--MISTAKES--CONTRACTING OFFICER'S ERROR DETECTION DUTY--COST ANALYSIS CONTRACTOR'S REQUEST FOR UPWARD CORRECTION OF PRICE FOR CONSTRUCTION AND DELIVERY OF 4 GARBAGE LIGHTERS, ON BASIS OF ALLEGED MISTAKE IN BID WHICH CONTRACTOR CONTENDS CONTRACTING OFFICER SHOULD HAVE DISCOVERED, IS DENIED, SINCE BIDDERS HAD RESPONSIBILITY FOR PREPARATION OF BIDS AT PRICES BELIEVED ACCURATE AND SUFFICIENT FOR REALIZATION OF REASONABLE PROFIT; AND ALTHOUGH CONTRACTOR MAY HAVE MADE MISTAKE IN BID, SUCH MISTAKE WAS DUE SOLELY TO ITS OWN NEGLIGENCE, NOT TO THAT OF GOVT. CONTRACTING OFFICER WAS NOT REQUIRED TO MAKE DETAILED ANALYSIS OF CONTRACTOR'S PRICE BREAKDOWN BUT ONLY TO COMPARE TOTAL PRICE WITH GOVT.'S ESTIMATE. SEE COMP. GEN. DECS. AND CT. CASES CITED.

TO MR. HAROLD BLASKY:

REFERENCE IS MADE TO YOUR TELEGRAM AND LETTER DATED AUGUST 25 AND SEPTEMBER 2, 1969, RESPECTIVELY, CONCERNING A REQUEST MADE BY ZIDELL EXPLORATIONS, INCORPORATED, PORTLAND, OREGON, THAT IT BE RELIEVED FROM ANY OBLIGATION TO PERFORM UNDER CONTRACT NO. N00024-70-C-0204, WHICH WAS AWARDED TO THAT COMPANY ON JULY 11, 1969, ON THE BASIS OF ITS BID SUBMITTED IN RESPONSE TO INVITATION FOR BIDS NO. B00024-69-B-0606, ISSUED APRIL 11, 1969, BY THE NAVAL SHIP SYSTEMS COMMAND, FOR THE CONSTRUCTION AND DELIVERY OF FOUR "NON SELF-PROPELLED" GARBAGE LIGHTERS (YGN 80-83), YGN 80 CLASS.

THE CONTRACTOR CONTENDED OVER ONE MONTH AFTER THE DATE OF THE CONTRACT AWARD THAT IT HAD MADE A MISTAKE IN BID AND THE CONTRACTOR REQUESTED AT THAT TIME THAT THE CONTRACT BE RESCINDED. SUBSEQUENTLY, ON AUGUST 23, 1969, THE CONTRACTOR'S FACILITIES WERE DAMAGED TO A CONSIDERABLE EXTENT IN AN ACCIDENT CAUSED BY THE BREAKING OF A SHACKLE ATTACHED TO A LINE HOLDING AN ALMOST COMPLETED BARGE PREPARATORY TO SLIPPING THE BARGE DOWN THE WAYS TO THE WILLAMETTE RIVER. THE NAVAL SHIP SYSTEMS COMMAND FOUND NO BASIS FOR RESCINDING CONTRACT NO. N00024 70-C-0204 OR FOR CONSIDERING THAT THE CONTRACTOR SHOULD NOT BE HELD LIABLE FOR A FAILURE TO PERFORM THE CONTRACT BECAUSE OF THE ACCIDENT WHICH OCCURRED ON AUGUST 23, 1969. A TAKE-OVER CONTRACT ARRANGEMENT WAS CONSIDERED AS AN ALTERNATIVE TO TERMINATION OF THE CONTRACT FOR DEFAULT BUT THE CONTRACTOR EVENTUALLY ELECTED TO PERFORM THE CONTRACT AFTER ESTIMATING THAT THERE WOULD BE A PERFORMANCE DELAY OF APPROXIMATELY 14 WEEKS.

WE RECEIVED A REPORT DATED OCTOBER 29, 1969, AND A SUPPLEMENTAL REPORT DATED DECEMBER 19, 1969, FROM THE NAVAL SHIP SYSTEMS COMMAND, RELATIVE TO THE MATTER. COPIES OF THE REPORTS WERE FURNISHED TO YOU AND WE UNDERSTAND THAT YOU ARE SATISFIED TO HAVE THE MATTER DECIDED ON THE BASIS OF THE EXISTING RECORD. IN VIEW OF THE FACT THAT THE CONTRACTOR HAS UNDERTAKEN PERFORMANCE, AND, IN ACCORDANCE WITH YOUR REQUEST, WE WILL CONSIDER THE MATTER AS A REQUEST FOR CORRECTION UPWARD OF THE CONTRACT PRICE RATHER THAN FOR RELIEF FROM THE OBLIGATION TO PERFORM.

SIX BIDS WERE RECEIVED AS OF MAY 14, 1969, THE SCHEDULED BID OPENING DATE. THE BIDS WERE IN THE TOTAL AMOUNTS OF $785,536, $999,777.76, $1,046,816, $1,218,052, $1,783,512 AND $2,039,644. THE LOWEST BIDDER, LOCATED IN SOUTH CAROLINA, REQUESTED PERMISSION TO WITHDRAW ITS BID AND FURNISHED EVIDENCE TO SUBSTANTIATE ITS CONTENTION THAT A GROSS MISTAKE WAS MADE IN THE BID. THE BIDS OF $999,777.76, $1,046,816 AND $2,039,644 WERE SUBMITTED BY THREE WEST COAST CONCERNS, ZIDELL EXPLORATIONS, INCORPORATED, COLBERG, INCORPORATED, STOCKTON, CALIFORNIA, AND CAMPBELL MACHINE, SAN DIEGO, CALIFORNIA. THE BIDS OF $1,218,052 AND $1,783,512 WERE SUBMITTED BY COMPANIES LOCATED IN WISCONSIN AND NORTH CAROLINA. THE GOVERNMENT'S ESTIMATE OF A REASONABLE CONTRACT PRICE PER VESSEL, EXCLUSIVE OF DELIVERY TO THE NEAREST NAVAL SHIPYARD, WAS $231,000. ON THE BASIS OF THAT ESTIMATE, THE ESTIMATE ON FOUR VESSELS WOULD HAVE AMOUNTED TO $924,000, EXCLUSIVE OF DELIVERY CHARGES.

SINCE THE SECOND LOWEST BID OF $999,777.76 WAS IN LINE WITH THE THIRD LOW BID AND THE GOVERNMENT'S ESTIMATE EXCLUSIVE OF ANY DELIVERY CHARGE, THE CONTRACTING OFFICER DID NOT REQUEST ZIDELL EXPLORATIONS, INCORPORATED, TO VERIFY ITS BID PRICE PRIOR TO AWARD TO THAT COMPANY ON JULY 11, 1969. YOUR LETTER DATED SEPTEMBER 2, 1969, YOU STATED THAT THE CONTRACTOR MADE A MISTAKE IN BID AMOUNTING TO THE APPROXIMATE SUM OF $240,000, AND YOU CONTENDED, IN EFFECT, THAT WHEN THE CONTRACTING OFFICER ACCEPTED THE BID HE SHOULD HAVE BEEN ALERTED TO THE PROBABILITY THAT A MISTAKE HAD BEEN MADE.

YOU SUBMITTED COPIES OF THE CONTRACTOR'S WORKING PAPERS TO SHOW THAT THE CONTRACTOR HAD MADE A MISTAKE AMOUNTING TO $60,000 PER VESSEL BY FAILING TO INCLUDE ANY ESTIMATED LABOR AND OVERHEAD COSTS FOR PAINTING, INSTALLATION OF WOOD LINING AND MACHINING OF VARIOUS FITTINGS TO CONTRACT TOLERANCES. YOU CONTENDED THAT CONSIDERATION OF THE 5,000 HOUR DIFFERENCE BETWEEN THE TOTAL OF ESTIMATED DIRECT LABOR HOURS SHOWN IN THE CONTRACTOR'S PRICE BREAKDOWN SUBMITTED WITH ITS BID AND THE TOTAL IN THE GOVERNMENT'S ESTIMATE SHOULD HAVE PLACED THE CONTRACTING OFFICER ON NOTICE OF THE PROBABILITY OF ERROR. YOU ALSO CONTENDED THAT THE CONTRACTING OFFICER WOULD HAVE BEEN PLACED ON NOTICE OF THE PROBABILITY OF MISTAKE IN THE CONTRACTOR'S BID IF HE HAD MADE A REALISTIC COMPARISON OF THE SECOND TO THE FIFTH LOWEST BIDS AND THE HIGHEST BID RECEIVED IN RESPONSE TO THE INVITATION FOR BIDS.

WITH RESPECT TO A COMPARISON OF FIVE OF THE SIX BIDS IN THIS CASE, YOU CONTENDED THAT THE CONTRACTING OFFICER SHOULD HAVE NOTED IN PARTICULAR THAT THERE WAS A DIFFERENCE OF OVER $1 MILLION BETWEEN THE BID OF ZIDELL EXPLORATIONS, INCORPORATED, AND THE BID OF CAMPBELL MACHINE. YOU SUGGESTED, IN EFFECT, THAT ONLY THE BIDS OF OTHER WEST COAST BIDDERS SHOULD HAVE BEEN COMPARED WITH THE BID OF ZIDELL EXPLORATIONS, INCORPORATED, BECAUSE WAGE RATES ON THE WEST COAST ARE HIGHER THAN IN OTHER AREAS OF THE UNITED STATES. YOU ALSO SUGGESTED THAT IN SUCH COMPARISON THE CONTRACTING OFFICER SHOULD HAVE ELIMINATED THE BID OF COLBERG, INCORPORATED, BECAUSE THAT COMPANY APPARENTLY WOULD NOT HAVE QUALIFIED AS A RESPONSIBLE PROSPECTIVE CONTRACTOR FOR THE CONSTRUCTION OF FOUR GARBAGE LIGHTERS OF THE YGN 80 CLASS.

IN THE DECEMBER 19, 1969, REPORT OF THE NAVAL SHIP SYSTEMS COMMAND, IT IS STATED THAT, WHILE A PREAWARD SURVEY OF COLBERG, INCORPORATED, WAS NOT MADE BECAUSE THE BID OF ZIDELL EXPLORATIONS, INCORPORATED, WAS LOWER, THE CONTRACTING OFFICER HAD NO BASIS FOR QUESTIONING THE REASONABLENESS AND VALIDITY OF THE BID SUBMITTED BY COLBERG, INCORPORATED. THE REPORT ALSO STATES THAT IF A WEST COAST SHIPBUILDING CONCERN IS COMPETING WITH COMPANIES IN OTHER GEOGRAPHICAL AREAS, IT MUST ABSORB OR OFFSET ITS HIGHER LABOR RATE THROUGH EFFICIENCY, LOWER OVERHEAD OR OTHERWISE IN ORDER TO BE COMPETITIVE. FOR THOSE REASONS, WE FIND NO BASIS FOR CONCLUDING THAT THE CONTRACTING OFFICER WAS IN ANY MANNER REQUIRED TO ADOPT THE PROCESS OF ELIMINATION SUGGESTED BY YOU WHEN COMPARING FIVE OF THE SIX BIDS RECEIVED IN RESPONSE TO THE INVITATION FOR BIDS.

IN REGARD TO YOUR OTHER CONTENTION CONCERNING THE CONTRACTOR'S PRICE BREAKDOWN AND THE GOVERNMENT'S ESTIMATE, THE DIRECT LABOR HOUR ESTIMATES IN THE CONTRACTOR'S PRICE BREAKDOWN AND IN THE GOVERNMENT'S ESTIMATE TOTAL 13,011 AND 18,000 HOURS, RESPECTIVELY. HOWEVER, THE PARTIES DID NOT USE THE SAME CATEGORIES FOR ESTIMATED COSTS IN SOME INSTANCES AND IN THE CATEGORIES USED BY BOTH PARTIES THEIR ESTIMATES VARIED CONSIDERABLY. THE CATEGORY OF DESIGN AND ENGINEERING SERVICE COSTS THE GOVERNMENT ESTIMATED THAT 5,000 DIRECT LABOR HOURS WOULD BE REQUIRED. THE CONTRACTOR ESTIMATED ONLY 150 HOURS. IT WOULD APPEAR REASONABLE FOR THE CONTRACTING OFFICER TO HAVE ASSUMED, IF HE HAD MADE A THOROUGH ANALYSIS OF THE CONTRACTOR'S PRICE BREAKDOWN AND OF THE REVISED GOVERNMENT ESTIMATE, THAT MOST OF THE CONTRACTOR'S DESIGN AND ENGINEERING SERVICE COSTS WERE INTENDED TO BE ACCOUNTED FOR AS OVERHEAD EXPENSES AND NOT AS DIRECT LABOR COSTS. THAT FEATURE OF THE CASE IS DISCUSSED AT PAGE 8 OF THE ADMINISTRATIVE REPORT DATED DECEMBER 19, 1969, WHEREIN THE FOLLOWING STATEMENTS ARE MADE:

"* * * SUBSEQUENT TO AWARD, THIS COMMAND REQUESTED THE DEFENSE CONTRACT AUDIT AGENCY TO REVIEW ZIDELL'S ACCOUNTING TREATMENT OF DESIGN COSTS. THAT AGENCY CONCLUDED THAT ZIDELL CHARGES ALL COSTS OF DESIGN AND ENGINEERING TO INDIRECT LABOR AND THAT IT IS IMPOSSIBLE TO ALLOCATE SUCH COSTS TO A PARTICULAR CONTRACT. FURTHER, THIS AGENCY REPORTED THAT ZIDELL'S INCLUSION OF 150 DIRECT LABOR HOURS IN COST GROUP 8 WAS A DEPARTURE FROM ZIDELL'S ACCOUNTING PRACTICES AND A MISTAKE IN ZIDELL'S FAVOR AND THAT ZIDELL CONCURRED THAT SUCH A MISTAKE WAS MADE. THUS, WHEN THE DESIGN AND ENGINEERING COSTS ARE ELIMINATED BECAUSE OF DIRECT VERSUS INDIRECT TREATMENT IN THE TWO ANALYSES, THERE IS ONLY A DIFFERENCE OF 139 DIRECT LABOR HOURS. SUCH A MINUTE DIFFERENCE IS HARDLY NOTICE OF ANY MISTAKE."

THE REPORT DISCUSSES OTHER FEATURES OF THE CONTRACTOR'S BREAKDOWN OF ITS $242,694.44 PRICE PER VESSEL, EXCLUSIVE OF A DELIVERY CHARGE, AND OF THE GOVERNMENT'S PRICING ESTIMATE OF $231,000. THE GOVERNMENT'S ESTIMATE WAS REAFFIRMED AFTER CONTRACT AWARD, ALTHOUGH THE NAVAL SHIP SYSTEMS COMMAND MADE A SEPARATE ESTIMATE FOR WEST COAST CONCERNS, USING A HIGHER LABOR RATE, AND THAT ESTIMATE WAS $261,000 PER VESSEL, EXCLUSIVE OF A DELIVERY CHARGE. HOWEVER, AFTER REVIEW OF THE CONTRACTOR'S WORKING PAPERS RELATED TO ITS BID IN THIS CASE, THE COMMAND WAS UNABLE TO CONCLUDE THAT A MISTAKE WAS MADE IN THE BID AND IT CONSIDERED THAT, IN ANY EVENT, THE CONTRACTING OFFICER SHOULD NOT BE PRESUMED TO HAVE BEEN ON NOTICE OF THE PROBABILITY OF ANY SUCH MISTAKE WHEN HE ACCEPTED THE CONTRACTOR'S BID.

AS ALREADY NOTED, NO ERROR WAS ALLEGED BY THE CONTRACTOR UNTIL AFTER AWARD. IN SUCH CIRCUMSTANCES ACCEPTANCE OF THE BID RESULTED IN A VALID AND BINDING CONTRACT INASMUCH AS THE RECORD CLEARLY INDICATES THAT THE CONTRACTING OFFICER WAS NOT ON ACTUAL NOTICE OF THE MISTAKE AND IT REASONABLY COULD NOT BE HELD THAT THE CONTRACTING OFFICER OTHERWISE SHOULD HAVE KNOWN OF THE MISTAKE AS OF THE TIME OF MAKING THE CONTRACT AWARD.

THE CASES OF UNITED STATES V. METRO NOVELTY MANUFACTURING COMPANY, 125 F. SUPP. 713 (1954), AND ALLIED CONTRACTORS, INC. V. UNITED STATES, 159 CT. CL. 548 (1962), ARE CITED IN YOUR LETTER OF SEPTEMBER 2, 1969. WE DO NOT CONSIDER THE FIRST CASE TO BE APPLICABLE HERE BECAUSE THE CONTRACTING OFFICER IN THAT CASE SUSPECTED OR SURMISED BEFORE MAKING AN AWARD THAT THE DEFENDANT HAD MADE A MISTAKE IN BID. HE REQUESTED VERIFICATION OF THE BID BUT THE UNITED STATES DISTRICT COURT HELD THE REQUEST FOR VERIFICATION TO HAVE BEEN INADEQUATE.

WE ALSO DO NOT CONSIDER THE ALLIED CONTRACTORS CASE TO BE APPLICABLE OR, IF SO, THAT IT WOULD SUPPORT THE CONTRACTOR'S MISTAKE IN BID CLAIM. THE COURT OF CLAIMS DISMISSED THE PETITION FILED BY ALLIED CONTRACTORS, INCORPORATED, AND STATED IN ITS DECISION THAT:

"THE CONTRACTING OFFICER'S ATTENTION WAS DIRECTED PRIMARILY TO THE OVERALL BID; SINCE ON THIS BASIS PLAINTIFF'S BID WAS IN LINE WITH OTHERS, THERE WAS NOTHING HERE TO MAKE THE CONTRACTING OFFICER SUSPECT THAT PLAINTIFF HAD MADE A MISTAKE."

SO FAR AS THE COURT OF CLAIMS INDICATED THAT THE CONTRACTING OFFICER WAS NOT REQUIRED TO COMPARE THE BIDS ON AN ITEM BY ITEM BASIS, THE COURT'S DECISION TENDS TO SUPPORT RATHER THAN TO PRECLUDE A DETERMINATION IN THIS CASE THAT THE CONTRACTING OFFICER WAS NOT REQUIRED TO MAKE A DETAILED ANALYSIS OF THE CONTRACTOR'S PRICE BREAKDOWN BUT ONLY TO COMPARE ITS TOTAL PRICE, EXCLUSIVE OF A DELIVERY CHARGE, WITH THE GOVERNMENT'S ESTIMATE OF $231,000 AS A REASONABLE PRICE FOR CONSTRUCTION OF A "NON SELF-PROPELLED" GARBAGE LIGHTER (YGN 80-83), YGN 80 CLASS.

THE BIDDERS IN THIS CASE HAD THE RESPONSIBILITY FOR THE PREPARATION OF BIDS AT PRICES WHICH THEY BELIEVED TO BE ACCURATE AND SUFFICIENT FOR THE REALIZATION OF A REASONABLE PROFIT IN PERFORMING THE PROPOSED CONTRACT. SEE FRAZIER-DAVIS CONSTRUCTION COMPANY V. UNITED STATES, 100 CT. CL. 120 (1943); AND 47 COMP. GEN. 616 (1968). ALTHOUGH IT IS POSSIBLE THAT ZIDELL EXPLORATIONS, INCORPORATED, MADE A MISTAKE IN BID, IT IS APPARENT THAT ANY SUCH MISTAKE WAS DUE SOLELY TO ITS OWN OVERSIGHT OR NEGLIGENCE AND THE MISTAKE WAS IN NO MANNER INDUCED OR CONTRIBUTED TO BY THE GOVERNMENT. ANY ERROR THAT WAS MADE IN THE BID APPEARS TO HAVE BEEN UNILATERAL--NOT MUTUAL --AND, THEREFORE, NOT SUCH AS TO JUSTIFY THE GRANTING OF RELIEF TO THE CONTRACTOR. SEE EDWIN DOUGHERTY AND M. H. OGDEN V. UNITED STATES, 102 CT. CL. 249 (1944); SALIGMAN ET AL. V. UNITED STATES, 56 F. SUPP. 505 (1944); 20 COMP. GEN. 652 (1941); 26 ID. 415 (1946); AND 47 ID. 365 (1968).

ACCORDINGLY, THE CONTRACTOR'S CLAIM IN THE MATTER IS HEREBY DENIED.