B-167984, DECEMBER 3, 1969, 49 COMP. GEN. 364

B-167984: Dec 3, 1969

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TRADE AND PROMPT PAYMENT DISCOUNTS A BID OFFERING A 2 PERCENT-20 DAYS PROMPT PAYMENT DISCOUNT AND AN UNIDENTIFIED DISCOUNT OF 2.1 PERCENT-10 DAYS UNDER THE NON-SET-ASIDE PORTION OF A LABOR SURPLUS AREA INVITATION WHICH PROVIDED THAT A DISCOUNT IN EXCESS OF 2 PERCENT AUTOMATICALLY WOULD BE CONSIDERED A TRADE DISCOUNT WAS PROPERLY EVALUATED AS OFFERING BOTH A 2 PERCENT PROMPT PAYMENT DISCOUNT AND A 2.1 PERCENT TRADE DISCOUNT FOR CONSIDERATION AS A PRICE REDUCTION TO MAKE THE BID LOW AND ELIGIBLE FOR CONTRACT AWARD. THE 2.1 PERCENT 10 DAY DISCOUNT OFFERED PROPERLY WAS CONVERTED TO A TRADE DISCOUNT. 1969: FURTHER REFERENCE IS MADE TO YOUR LETTERS OF OCTOBER 7. THE INVITATION WAS ISSUED ON JUNE 30.

B-167984, DECEMBER 3, 1969, 49 COMP. GEN. 364

BIDS -- EVALUATION -- DISCOUNT PROVISIONS -- TRADE AND PROMPT PAYMENT DISCOUNTS A BID OFFERING A 2 PERCENT-20 DAYS PROMPT PAYMENT DISCOUNT AND AN UNIDENTIFIED DISCOUNT OF 2.1 PERCENT-10 DAYS UNDER THE NON-SET-ASIDE PORTION OF A LABOR SURPLUS AREA INVITATION WHICH PROVIDED THAT A DISCOUNT IN EXCESS OF 2 PERCENT AUTOMATICALLY WOULD BE CONSIDERED A TRADE DISCOUNT WAS PROPERLY EVALUATED AS OFFERING BOTH A 2 PERCENT PROMPT PAYMENT DISCOUNT AND A 2.1 PERCENT TRADE DISCOUNT FOR CONSIDERATION AS A PRICE REDUCTION TO MAKE THE BID LOW AND ELIGIBLE FOR CONTRACT AWARD. THE DISCOUNT LIMITATION CLAUSE OF THE INVITATION INTENDED FOR THE PURPOSE OF PRECLUDING BIDDERS FROM OFFERING A PROMPT PAYMENT DISCOUNT IN EXCESS OF NORMAL TRADE PRACTICES IN THE HOPE THE GOVERNMENT WOULD NOT EARN IT, IT NOT WITHIN THE PURVIEW OF PARAGRAPH 2 407.3(A) OF THE ARMED SERVICES PROCUREMENT REGULATION ESTABLISHING A 20 DAY PROMPT PAYMENT DISCOUNT MINIMUM AND, THEREFORE, THE 2.1 PERCENT 10 DAY DISCOUNT OFFERED PROPERLY WAS CONVERTED TO A TRADE DISCOUNT.

TO STASSEN, KEPHART, SARKIS & KOSTOS, DECEMBER 3, 1969:

FURTHER REFERENCE IS MADE TO YOUR LETTERS OF OCTOBER 7, 29, 31, AND NOVEMBER 18, 1969, WITH ENCLOSURES, SUPPLEMENTING THE TELEGRAM OF SEPTEMBER 25, 1969, FROM PROPPER INTERNATIONAL, INC., PROTESTING THE AWARD TO METZ OF CALIFORNIA OF A PART OF THE NON-SET-ASIDE PORTION OR ANY PORTION OF THE SET-ASIDE FOR LABOR SURPLUS AREA UNDER INVITATION FOR BIDS NO. DSA100-69-B-2190.

THE INVITATION WAS ISSUED ON JUNE 30, 1969, AS A PARTIAL LABOR SURPLUS AREA SET-ASIDE AND REQUESTED BIDS FOR THE DELIVERY OF HOT WEATHER FIELD CAPS. OF THE FOUR DESTINATIONS SPECIFIED IN THE NON-SET ASIDE PORTION, TWO DESTINATIONS INVOLVE THE FOLLOWING QUANTITIES SET ASIDE FOR LABOR SURPLUS AREA CONCERNS: DEFENSE DEPOT, MEMPHIS, TENNESSEE--141,660; DEFENSE DEPOT, OGDEN, UTAH--168,240. OTHER DESTINATIONS ARE DEFENSE DEPOT, MECHANICSBURG, PENNSYLVANIA, AND ATLANTA ARMY DEPOT, ATLANTA, GEORGIA. OFFERS WERE RECEIVED FROM EIGHT BIDDERS ON ALL THE DESTINATIONS IN RESPONSE TO THE INVITATION.

METZ RECEIVED A NON-SET-ASIDE AWARD OF 260,960 EACH ON SEPTEMBER 23, 1969, UNDER CONTRACT NO. DSA100-70-C-0583. PROPPER RECEIVED A NON-SET ASIDE AWARD OF 250,000 EACH ON THE SAME DATE UNDER CONTRACT NO. DSA100 70- C-0584. PROPPER CONTENDS THAT IT WAS ENTITLED TO RECEIVE THE AWARD MADE TO METZ AS WELL AS THE PORTION SET ASIDE FOR LABOR SURPLUS AREA. NO. AWARD OF THE SET-ASIDE PORTION HAS YET BEEN MADE. THE OFFERS SUBMITTED BY METZ AND PROPPER ON THE NON-SET-ASIDE PORTION WERE EVALUATED AS FOLLOWS:

PROMPT

DESTINATION AND UNIT PAYMENT

OFFEROR QUANTITY PRICE DISCOUNT

METZ OF CALIFORNIA OGDEN-168,240 EA. $1.005000

LESS 2.1%-10 DAYS .021105 2%-20 DAYS

(TREATED AS A TRADE

DISCOUNT) $ .983895

MECHANICSBURG--

92,720 EA. $1.01000 2%-20 DAYS

LESS 2.1%-10 DAYS .02121

(TREATED AS A TRADE

DISCOUNT) $ .98879

PROPPER INTERNATIONAL, MEMPHIS--141,660 EA. $ .99 2%-20 DAYS

INC. ATLANTIC--35,940 EA. .99 2%-20 DAYS

MECHANICSBURG--

72,400 EA. .99 2%-20 DAYS

IT WILL BE NOTED FROM THE ABOVE THAT THE 2.1-PERCENT, 10-DAY DISCOUNT OFFERED BY METZ WAS EVALUATED AS A TRADE DISCOUNT WHICH RESULTED IN A REDUCTION OF ITS BID PRICE. THIS EVALUATION WAS MADE PURSUANT TO THE DISCOUNT LIMITATION CLAUSE (CLAUSE 114.9) CONTAINED IN THE INVITATION. THAT CLAUSE PROVIDES AS FOLLOWS: 114.9 DISCOUNT LIMITATION

IT IS UNDERSTOOD AND AGREED THAT, FOR THE PURPOSE OF PAYMENTS UNDER THIS CONTRACT, AN OFFER OF PROMPT PAYMENT DISCOUNT IN EXCESS OF TWO PERCENT SHALL BE CONSIDERED AS A TRADE OR SPECIAL DISCOUNT WHICH SHALL BE AVAILABLE TO THE GOVERNMENT AS A REDUCTION FROM THE PRICES QUOTED, WITHOUT REGARD TO WHETHER INVOICES ARE ACTUALLY PAID WITHIN THE DESIGNATED DISCOUNT PERIOD. OFFERORS WHO DESIRE TO DO SO MAY QUOTE CUSTOMARY TERMS OF DISCOUNT (NOT IN EXCESS OF TWO PERCENT), FOR PROMPT PAYMENT IN ADDITION TO ANY TRADE OR SPECIAL DISCOUNT AVAILABLE TO THE GOVERNMENT, PROVIDED SUCH DISCOUNTS ARE STATED SEPARATELY IN THEIR OFFERS. UNLESS SUCH TRADE OR SPECIAL DISCOUNTS ARE SEPARATELY STATED, THE OFFEROR AGREES THAT, WHEN THE DISCOUNT OFFERED EXCEEDS TWO PERCENT, THE ENTIRE DISCOUNT WILL BE CONSIDERED AS A TRADE OR SPECIAL DISCOUNT AND WILL NOT BE TREATED AS A DISCOUNT FOR PROMPT PAYMENT.

YOU PROTEST ON BEHALF OF PROPPER THAT THE 2.1-PERCENT, 10-DAY DISCOUNT OFFER TENDERED BY METZ SHOULD NOT HAVE BEEN EVALUATED SINCE THE INVITATION PROVIDES (CLAUSE 400.1.17, PAGE 45) THAT ONLY 20 DAYS ORIGIN AND 30 DAYS DESTINATION WILL BE CONSIDERED IN THE EVALUATION OF PROMPT PAYMENT DISCOUNTS. IN YOUR LETTER OF OCTOBER 6, 1969, TO OUR OFFICE, YOU STATE THAT THE ISSUE INVOLVED IS: "CAN THE GOVERNMENT COMBINE TWO DISCOUNT PERIODS (TREATING ONE AS A TRADE DISCOUNT AND THE OTHER AS A PROMPT PAYMENT DISCOUNT) IN EFFECTING A REDUCTION IN PRICE WHICH IS THEREBY PREJUDICIAL TO ANOTHER BIDDER?" YOU STATE FURTHER THAT IT IS UNKNOWN IN THE GARMENT INDUSTRY DEALING WITH THE DEFENSE PERSONNEL SUPPORT CENTER FOR BIDDERS TO OFFER TRADE DISCOUNTS; THAT WHEN A BIDDER OFFERS A DISCOUNT FOR PAYMENT IN VARYING PERIODS, IT DOES NOT INTEND THIS TO BE A CUMULATIVE OFFER BUT RATHER INDEPENDENT OFFERS FOR EACH PERIOD; AND THAT THE PROCUREMENT AGENCY GAVE EFFECT TO METZ OFFERS OF DISCOUNTS BY TREATING THE 10-DAY PERIOD AS A TRADE DISCOUNT AND THE 20-DAY PERIOD AS A PROMPT PAYMENT DISCOUNT WHICH IS A CONTRADICTION OF CLAUSE 114.9 BECAUSE METZ DID NOT "SEPARATELY STATE" IT WAS OFFERING A TRADE DISCOUNT AND ALSO A PROMPT PAYMENT DISCOUNT.

YOU MAINTAIN THAT AN INTERPRETATION OF TENDERED DISCOUNT SHOULD BE LIMITED TO JUST ONE DISCOUNT PERIOD; THAT A 10-DAY DISCOUNT PERIOD WAS NEVER A PROBLEM TO THE GOVERNMENT SINCE SUCH DISCOUNT IS NOT INCLUDED IN BID EVALUATION; AND THAT THE GOVERNMENT IS NOT ENTITLED TO BOTH TRADE DISCOUNT AND PROMPT PAYMENT DISCOUNT UNLESS SEPARATELY STATED BY THE BIDDER. YOU CONCEDE THAT THERE ARE NO SIGNIFICANT FACTUAL DISPUTES OR INCONSISTENCIES WHEN COMPARISON IS MADE BETWEEN YOUR COMMENTS AND THE ADMINISTRATIVE REPORT, A COPY OF WHICH HAS BEEN FURNISHED TO YOU, BUT THAT THE ONLY ISSUE INVOLVED IN YOUR PROTEST IS FUNDAMENTALLY ONE REGARDING THE PROPER AND REASONABLE INTERPRETATION OF THE PERTINENT DISCOUNT PROVISIONS.

WITH REGARD TO YOUR VIEW THAT THE 2.1-PERCENT, 10-DAY DISCOUNT OFFER SHOULD NOT HAVE BEEN EVALUATED SINCE CLAUSE 400.1.17 PROVIDES THAT ONLY 20 DAYS ORIGIN AND 30 DAYS DESTINATION WILL BE CONSIDERED IN THE EVALUATION OF PROMPT PAYMENT DISCOUNTS, THE CONTRACTING OFFICE ACKNOWLEDGES THAT 20 DAYS IS THE MINIMUM PERIOD ESTABLISHED BY THE INVITATION FOR EVALUATION OF PROMPT PAYMENT DISCOUNTS. IT IS POINTED OUT, HOWEVER, THAT BY REASON OF THE TERMS OF THE DISCOUNT LIMITATION CLAUSE QUOTED ABOVE, THE 2.1-PERCENT, 10-DAY DISCOUNT OFFERED BY METZ WAS CONSIDERED TO BE A TRADE DISCOUNT UNDER WHICH THE BID PRICE IS REDUCED BY 2.1 PERCENT REGARDLESS OF THE TIME PERIOD INVOLVED. CONSEQUENTLY, A TRADE DISCOUNT IS CONSIDERED IN BID EVALUATION AS A TENDERED PRICE REDUCTION AND IS NOT AFFECTED BY PARAGRAPH 2-407.3(A) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), SINCE THIS PROVISION HAS REFERENCE ONLY TO PROMPT PAYMENT DISCOUNTS. SPECIFICALLY ASPR 2 407.3(A) PROVIDES THAT THE DISCOUNT CLAUSE OF THE TYPE CONTAINED ON PAGE 3, PARAGRAPH 9 OF THE "SOLICITATION INSTRUCTIONS AND CONDITIONS" (STANDARD FORM 33A) ESTABLISHES A 20-CALENDAR DAY MINIMUM PERIOD FOR PROMPT PAYMENT DISCOUNT, UNLESS OTHERWISE SPECIFIED IN THE INVITATION. OTHER MINIMUM PERIOD FOR EVALUATION OF PROMPT PAYMENT DISCOUNT IS SPECIFIED IN THE INVITATION. UNDER ASPR 2-407.3(A), THE 2-PERCENT DISCOUNT OFFERED BY METZ QUALIFIES AS A PROMPT PAYMENT DISCOUNT AND PROPERLY IS A FACTOR IN BID EVALUATION. THUS, WE CONCLUDE THAT THERE WAS NO ACCUMULATION OF PROMPT PAYMENT DISCOUNTS CONSIDERED IN THE EVALUATION OF BIDS.

WITH REFERENCE TO THE APPLICABILITY OF THE DISCOUNT LIMITATION CLAUSE TO THIS PROCUREMENT, THE RECORD SHOWS THAT THE CLAUSE WAS FIRST AUTHORIZED FOR USE BY LETTER DATED AUGUST 26, 1966, FROM HEADQUARTERS DEFENSE SUPPLY AGENCY TO ALL OF ITS SIX SUPPLY CENTERS. PARAGRAPHS 1 AND 2 OF THIS LETTER STATED AS FOLLOWS:

1. A PROBLEM HAS BEEN ENCOUNTERED BY DSA WHEREIN PROMPT PAYMENT DISCOUNTS IN EXCESS OF NORMAL TRADE PRACTICES ARE BEING OFFERED WITH THE KNOWLEDGE THAT FAVORABLE BID EVALUATION OF THE DISCOUNT MAY RESULT AND THAT ANY SUBSEQUENT FAILURE BY THE GOVERNMENT TO EARN THE DISCOUNT WILL PRODUCE A "WINDFALL PROFIT."

2. THIS HEADQUARTERS REQUESTED AND RECEIVED APPROVAL FROM THE ASPR COMMITTEE TO UTILIZE A DISCOUNTS LIMITATIONS CLAUSE IN ADDITION TO THE ONE PRESCRIBED IN ASPR. THE APPROVED CLAUSE WILL PROVIDE THAT EXCESSIVE PROMPT PAYMENT DISCOUNTS (IN EXCESS OF 2% OF CONTRACT PRICE) WILL BE CONSIDERED AS A TRADE OR SPECIAL DISCOUNT NOT SUBJECT TO TIME LIMITATIONS FOR EVALUATION AND PAYMENT PURPOSES.

BY PRESS RELEASE DATED DECEMBER 5, 1968, THE COMMANDER, DEFENSE PERSONNEL SUPPORT CENTER, ANNOUNCED TO INDUSTRY THAT EFFECTIVE DECEMBER 18, 1968, A DISCOUNT LIMITATION CLAUSE WOULD BE INCLUDED IN APPLICABLE SOLICITATIONS. IN ADDITION, AN APPROPRIATE CAUTIONARY NOTICE WAS PLACED IN THOSE SOLICATIONS, AS HERE, WHERE THE DISCOUNT LIMITATION CLAUSE WAS INCLUDED.

RESPECTING YOUR CONTENTION THAT WHEN A BIDDER OFFERS PROMPT PAYMENT DISCOUNTS FOR VARYING PERIODS, THE BIDDER DOES NOT INTEND ITS OFFER TO BE CUMULATIVE BUT RATHER AS INDEPENDENT OFFERS, WE MUST OBSERVE THAT THE SUBJECTIVE INTENT OF THE BIDDER IS IMMATERIAL AND ONLY ITS MANIFESTED INTENT IS CONTROLLING. SEE 3 CORBIN ON CONTRACTS SEC. 538, PAGE 57 (1960). IN THE INSTANT CASE, THE INTENT TO BE DERIVED IS RESTRICTED TO THE BIDDER'S WRITTEN RESPONSE TO THE INVITATION TERMS AND CONDITIONS INCLUDING THE DISCOUNT LIMITATION CLAUSE.

WHILE A BIDDER MAY OFFER A DISCOUNT FOR PAYMENT IN VARYING PERIODS, THE DISCOUNT LIMITATION CLAUSE IS QUITE SPECIFIC THAT IF ANY OF THESE DISCOUNTS EXCEEDS 2 PERCENT AND A TRADE DISCOUNT IS NOT SEPARATELY STATED, SUCH DISCOUNT SO OFFERED SHALL BE CONSIDERED A TRADE OR SPECIAL DISCOUNT. A BIDDER WHO SUBMITS AN OFFER SUBJECT TO THE INVITATION DISCOUNT LIMITATION CLAUSE MAY NOT THEREAFTER CONTEND SUCCESSFULLY THAT IT SUBJECTIVELY INTENDED A RESULT CONTRARY TO THE EXPRESS WORDING OF THE CLAUSE.

YOUR CONTENTION THAT A BIDDER CAN QUOTE BOTH A TRADE DISCOUNT AND A PROMPT PAYMENT ONLY IF THE TRADE DISCOUNT IS SEPARATELY STATED IS NOT TENABLE SINCE IT FAILS TO GIVE EFFECT TO THE PLAIN LANGUAGE OF THE DISCOUNT LIMITATION CLAUSE. THE CLAUSE PROVIDES, IN PERTINENT PART, "UNLESS SUCH TRADE OR SPECIAL DISCOUNTS ARE SEPARATELY STATED, THE OFFEROR AGREES THAT, WHEN THE DISCOUNT OFFERED EXCEEDS TWO PERCENT, THE ENTIRE DISCOUNT WILL BE CONSIDERED AS A TRADE OR SPECIAL DISCOUNT AND WILL NOT BE TREATED AS A DISCOUNT FOR PROMPT PAYMENT."

UNDER THIS PROVISION, METZ OFFER MET THE CRITERIA CONCERNING TRADE DISCOUNTS WHEN IT DID NOT SEPARATELY STATE A TRADE DISCOUNT, AND WHEN IT OFFERED A PROMPT PAYMENT DISCOUNT IN EXCESS OF 2 PERCENT. THERE IS NO OBLIGATION ON THE PART OF THE GOVERNMENT TO RECOGNIZE A 10-DAY PROMPT PAYMENT DISCOUNT ONLY AS A PROMPT PAYMENT DISCOUNT IN THE PRESENCE OF THE CLEAR WORDING OF THE CLAUSE WHICH CONVERTS SUCH PROMPT PAYMENT DISCOUNTS TO A TRADE DISCOUNT WHEN IT IS IN EXCESS OF 2 PERCENT.

IT HAS LONG BEEN AN ESTABLISHED POLICY OF THE GOVERNMENT TO CONSIDER DISCOUNTS IN EVALUATING BIDS FOR CONTRACTS TO BE AWARDED UNDER FORMAL ADVERTISEMENTS AND WE HAVE FREQUENTLY HELD THAT CONSIDERATION OF DISCOUNT OFFERS IS AN ESSENTIAL LEGAL REQUIREMENT IN EVALUATING BIDS. SUCH HAS BEEN OUR HOLDING EVEN WHERE THE INVITATION DID NOT INCLUDE ANY PROVISIONS FOR THE PARTICULAR TYPE OF DISCOUNT WHICH WAS OFFERED. SEE 40 COMP. GEN. 518(1961). THE REASON FOR SUCH A POLICY IS THAT AN AWARD OF A GOVERNMENT CONTRACT SHALL BE MADE TO THE RESPONSIBLE BIDDER WHOSE BID CONFORMS TO THE INVITATION AND WILL BE THE ONE "MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED." BIDDERS ARE EXPECTED TO QUOTE THEIR BEST PRICES AND USE THEIR OWN JUDGMENT IN QUALIFYING SUCH PRICES IN ANY MATTER WHERE THE PRICES ARE SUSCEPTIBLE TO ADJUSTMENT, AS IN THE CASE OF ALLOWANCES FOR DISCOUNTS.

THERE IS NO EVIDENCE TO SHOW THAT CONSIDERATION OF THE DISCOUNTS OFFERED BY METZ WAS CONTRARY TO THE INVITATION PROVISIONS AND IT MUST BE CONCLUDED, THEREFORE, THAT THE ACTION TAKEN BY THE CONTRACTING OFFICER IS NOT SUBJECT TO LEGAL OBJECTION BY OUR OFFICE.

IN VIEW OF THE FOREGOING, YOUR PROTEST IS DENIED.