B-168015, MAY 22, 1970

B-168015: May 22, 1970

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ADEQUACY OF INFORMATION CONTRACTOR WHO ALLEGED MISTAKE IN BID 6 MONTHS AFTER AWARD AND REQUESTED RESCISSION OF CONTRACT AND ADJUSTMENT OF CONTRACT PRICE TO REFLECT ACTUAL BID INTENDED IS NOT ENTITLED TO ADDITIONAL COMPENSATION- CONTRACTING OFFICER HAVING REQUESTED VERIFICATION OF BID PROPERLY ADVISING BIDDER OF POSSIBLE ERROR DUE TO VARIANCE IN BID PRICES AS REQUIRED BY FEDERAL PROCUREMENT REGULATIONS AND HAVING CONTRACTOR VERIFY BID AS "FIRM AND CORRECT.". ACCEPTANCE OF BID WITHOUT KNOWLEDGE OF ERROR CONSTITUTED VALID AND BINDING CONTRACT AND REQUEST FOR RELIEF IS DENIED. NO BASIS FOR RELIEF ADDITIONAL COMPENSATION REQUESTED DUE TO ERROR IN BID ALLEGED 6 MONTHS AFTER AWARD AND AFTER PARTIAL PERFORMANCE IS DENIED SINCE SUBSTANTIAL INCREASE OVER ESTIMATED QUANTITIES SET OUT IN INVITATION IS NO INDICATION THAT AGENCY SHOULD HAVE BEEN AWARE OF CLAIMED "EXTRAORDINARY LOW" PRICES AND.

B-168015, MAY 22, 1970

CONTRACTS--MISTAKES--VERIFICATION PRIOR TO ALLEGATION OF ERROR--ADEQUACY OF INFORMATION CONTRACTOR WHO ALLEGED MISTAKE IN BID 6 MONTHS AFTER AWARD AND REQUESTED RESCISSION OF CONTRACT AND ADJUSTMENT OF CONTRACT PRICE TO REFLECT ACTUAL BID INTENDED IS NOT ENTITLED TO ADDITIONAL COMPENSATION- CONTRACTING OFFICER HAVING REQUESTED VERIFICATION OF BID PROPERLY ADVISING BIDDER OF POSSIBLE ERROR DUE TO VARIANCE IN BID PRICES AS REQUIRED BY FEDERAL PROCUREMENT REGULATIONS AND HAVING CONTRACTOR VERIFY BID AS "FIRM AND CORRECT." ACCEPTANCE OF BID WITHOUT KNOWLEDGE OF ERROR CONSTITUTED VALID AND BINDING CONTRACT AND REQUEST FOR RELIEF IS DENIED. SEE COMP. GEN. DECS. AND CT. CASES CITED. CONTRACTS- AMOUNTS--ESTIMATES--VARIATIONS--NO BASIS FOR RELIEF ADDITIONAL COMPENSATION REQUESTED DUE TO ERROR IN BID ALLEGED 6 MONTHS AFTER AWARD AND AFTER PARTIAL PERFORMANCE IS DENIED SINCE SUBSTANTIAL INCREASE OVER ESTIMATED QUANTITIES SET OUT IN INVITATION IS NO INDICATION THAT AGENCY SHOULD HAVE BEEN AWARE OF CLAIMED "EXTRAORDINARY LOW" PRICES AND, WHILE ERROR WAS COMPOUNDED BY ORDERS GREATLY EXCEEDING ESTIMATED QUANTITIES, IT IS WELL SETTLED THAT VARIATIONS FROM ESTIMATED QUANTITIES PROVIDE NO ENTITLEMENT TO RELIEF, IN ABSENCE OF BAD FAITH AND NO LEGAL BASIS EXISTS FOR PAYMENT OF ADDITIONAL SUMS WITHOUT CONSIDERATION WHERE VALID ENFORCEABLE CONTRACT EXISTS. SEE COMP. GEN. DECS. AND CT. CASES CITED.

TO DOW, LOHNES AND ALBERTSON:

BY LETTER DATED OCTOBER 24, 1969, YOU COMMENTED ON THE REPORT OF THE POST OFFICE DEPARTMENT DATED SEPTEMBER 29, 1969, CONCERNING THE REQUEST OF THE ERIEZ CORPORATION THAT POST OFFICE DEPARTMENT CONTRACT NO. 8-1 00861 BE RESCINDED ON THE GROUND THAT A MISTAKE WAS MADE IN THE FORMULATION OF ITS BID, AND THAT RESTITUTION BE GRANTED "FOR UNCOMPENSATED AND EXTRA COSTS ASSOCIATED WITH COMPLETION OF THE CONTRACT."

THE SUBJECT CONTRACT WAS FOR 3 SIZES OF ALUMINUM PORTABLE BELT CONVEYORS AND WAS DIVIDED INTO TWO SCHEDULE ITEMS, THE FIRST FOR A SPECIFIC QUANTITY OF THE 3 SIZES OF CONVEYORS AND THE SECOND FOR AN ESTIMATED QUANTITY OF 150 CONVEYORS TO BE SUPPLIED ON A REQUIREMENTS BASIS DURING THE PERIOD BEGINNING FROM THE DATE OF THE CONTRACT TO JUNE 30, 1969. THE CONTRACT PROVIDED WITH REGARD TO ITEM II THAT:

"THE QUANTITIES OF ITEM II ARE ESTIMATED ONLY AND THE POST OFFICE DEPARTMENT RESERVES THE RIGHT TO ORDER MORE OR LESS, AS REQUIRED, DURING THE PERIOD BEGINNING WITH THE DATE OF CONTRACT AWARD AND ENDING JUNE 30, 1969."

OF THE 13 BIDS RECEIVED, THE ERIEZ BID WAS THE LOWEST RECEIVED ON BOTH ITEMS I AND II. THE ERIEZ BID PRICES AND THE BID PRICES OF THE NEXT LOWEST BIDDER, ERMANCO, INC; ARE SET OUT BELOW:

ITEM I

ERIEZ ERMANCO QUANTITY MODEL PRICE EACH TOTAL PRICE PRICE EACH TOTAL PRICE

14 L-12 $685 $ 9,590 $761.69 $10,663.66

59 L-16 685 40,415 897.90 52,976.10

100 L-20 685 68,500 990.99 99,099.00

TOTAL $118,505 TOTAL $162,738.76

ITEM II

ERIEZ ERMANCO QUANTITY MODEL PRICE EACH ESTIMATED PRICE EACH ESTIMATED

TOTAL PRICE TOTAL PRICE

40 L-12 $570 $22,800 $722.26 $28,890.40

60 L-16 630 37,800 845.82 50,749.20

50 L-20 700 35,000 946.41 47,320.50

ESTIMATED TOTAL $95,600 ESTIMATED TOTAL $126,960.10

THE DISCREPANCY BETWEEN THE ERIEZ BID AND THE ERMANCO BID CAUSED THE CONTRACTING OFFICER TO SUSPECT A MISTAKE AND HE ACCORDINGLY REQUESTED VERIFICATION OF THE ERIEZ BID BY TELEGRAM DATED JANUARY 10, 1969, SET OUT BELOW:

"RE YOUR BID SOLICITATION NO. 1124 FOR PORTABLE CONVEYORS PLS CONFIRM ALL UNIT PRICES QUOTED VARIANCE BETWEEN YOUR BID AND OTHERS RECD SUGGESTS POSSIBILITY OF ERROR ALSO SUBMIT AS SOON AS POSSIBLE CERTIFIED FINANCIAL STATEMENT RESUME OR CURRENT OR PAST GOVT CONTRACTS NUMBER OF EMPLOYEES CURRENTLY ENGAGED IN MANUFACTURING CONVEYORS AND DETAILED DESCRIPTION OF PLANT FACILITIES."

ERIEZ REPLIED TO THIS TELEGRAM CONFIRMING ITS BID PRICES AS "FIRM AND CORRECT" IN A LETTER DATED JANUARY 12, 1968, AND AWARD WAS MADE TO ERIEZ ON FEBRUARY 16, 1968. ERIEZ PERFORMED UNDER ITS CONTRACT UNTIL ABOUT AUGUST 21, 1968, WITHOUT COMPLAINT, EVEN THOUGH 286 CONVEYORS HAD BEEN ORDERED UNDER ITEM II AS OF THAT DATE AND NOTWITHSTANDING THE ORIGINAL GOVERNMENT ESTIMATE THAT 150 OF THE THREE CONVEYOR MODELS WOULD BE ORDERED UNDER ITEM II. A TOTAL OF 441 CONVEYORS WERE DELIVERED UP TO THE TIME THE CONTRACT WAS TERMINATED ON JANUARY 7, 1969. ON OR ABOUT AUGUST 21, 1968, ERIEZ CONTACTED THE POST OFFICE DEPARTMENT AND ADVISED THAT A BID MISTAKE HAD BEEN MADE AND FOLLOWED UP THAT ADVICE WITH LETTERS DATED SEPTEMBER 6, 1968, AND OCTOBER 4, 1968, REQUESTING AN ADJUSTMENT IN THE CONTRACT PRICE TO REFLECT THE PRICE WHICH ERIEZ STATED IT ACTUALLY INTENDED TO BID. THE ADJUSTED PRICES REQUESTED BY ERIEZ, INCLUDING A "PROFIT FACTOR WHICH WOULD BRING THE PRICES BELOW THOSE OF THE NEXT HIGHEST BIDDER," ARE SET OUT BELOW:

MODEL PRICE

L-12 $722

L-16 846

L-20 924

THIS REQUEST WAS DENIED BY THE CONTRACTING OFFICER AND APPEALED BY ERIEZ TO THE POST OFFICE DEPARTMENT BOARD OF CONTRACT APPEALS. THE APPEAL WAS DISMISSED WITHOUT PREJUDICE ON JULY 15, 1969, IN ORDER THAT THE MATTER COULD BE CONSIDERED BY OUR OFFICE. THE DISMISSAL BY THE BOARD PRESERVES THE RIGHT OF THE APPELLANT TO REQUEST REINSTATEMENT BEFORE THE BOARD WITHIN 30 DAYS AFTER THE DECISION OF OUR OFFICE, ALTHOUGH THE REPORT FURNISHED US BY THE DEPARTMENT EXPRESSES THE OPINION THAT THE BOARD IS WITHOUT JURISDICTION IN THE MATTER.

IT IS YOUR CONTENTION THAT THE RULE ESTABLISHED IN UNITED STATES V. METRO NOVELTY MFG. CO; 125 F. SUPP. 713, THAT A REQUEST FOR VERIFICATION MUST BE SUFFICIENTLY EXPLICIT TO PUT THE BIDDER ON NOTICE THAT A MISTAKE IS ACTUALLY SUSPECTED, IS FOR APPLICATION IN THE INSTANT CASE BECAUSE THE REQUEST FOR VERIFICATION MERELY STATED THAT THERE WAS A "VARIANCE" BETWEEN THE ERIEZ BID AND THE OTHERS RECEIVED WITHOUT STATING WHETHER THE ERIEZ BID WAS HIGHER OR LOWER THAN THE OTHERS RECEIVED. YOU ALSO MAINTAIN THAT THE CONTRACTING OFFICER SHOULD HAVE BEEN ON NOTICE OF A MISTAKE IN THE ERIEZ BID NOTWITHSTANDING THE VERIFICATION OF THE ERIEZ BID PRICES BECAUSE, IN ADDITION TO THE DISPARITY BETWEEN THE ERIEZ BID AND THE OTHERS RECEIVED, HIS KNOWLEDGE OF PAST PRICES AND COST ESTIMATES IN THE PROCUREMENT OF CONVEYORS SHOULD HAVE MADE THE ERROR EVIDENT.

FINALLY, YOU POINT OUT THAT WHILE NOTICE OF THE MISTAKE WAS FURNISHED THE POST OFFICE DEPARTMENT IN LATE AUGUST 1968, AT WHICH TIME 286 UNITS HAD BEEN ORDERED UNDER ITEM II, A DECISION TO ORDER NO MORE CONVEYORS UNDER THE CONTRACT WAS NOT REACHED UNTIL EARLY JANUARY 1969, WHEN ORDERS FOR 441 CONVEYORS HAD BEEN PLACED. YOU CONTEND, THEREFORE, THAT AT THE VERY LEAST ERIEZ SHOULD RECEIVE ADDITIONAL COMPENSATION FOR THE 155 UNITS DELIVERED AFTER INITIAL NOTICE OF THE MISTAKE WAS FURNISHED TO THE GOVERNMENT.

FOR REASONS SET OUT BELOW WE MUST CONCLUDE THAT NO LEGAL BASIS EXISTS FOR RESCISSION OF THE INSTANT CONTRACT.

FEDERAL PROCUREMENT REGULATION (FPR) 1-2.406-3 (D) (1) REQUIRES THAT A VERIFICATION REQUEST SHALL INFORM THE BIDDER "THAT A MISTAKE IS SUSPECTED AND THE BASIS FOR SUCH SUSPICION; E.G; THAT THE BID IS SIGNIFICANTLY OUT OF LINE WITH THE NEXT LOW OR OTHER BIDS OR WITH THE GOVERNMENT'S ESTIMATE." THE METRO NOVELTY CASE, SUPRA, ALLOWED CORRECTION OF THE ADMITTED MISTAKE NOTWITHSTANDING A REQUEST BY THE GOVERNMENT PURCHASING AGENT FOR "VERIFICATION" BECAUSE THE PURCHASING AGENT "DID NOT PUT DEFENDANT ON NOTICE OF THE MISTAKE WHICH IT SURMISED" BUT RATHER MERELY REQUESTED CONFIRMATION OF THE BID PRICES. IN THE INSTANT CASE, THE ABOVE- QUOTED TELEGRAM FROM THE CONTRACTING OFFICER SPECIFICALLY STATED THAT THE REASON VERIFICATION WAS BEING REQUESTED WAS THAT THE VARIANCE BETWEEN THE ERIEZ BID AND THE OTHERS RECEIVED SUGGESTED THE "POSSIBILITY OF ERROR." IN OUR OPINION, THIS TELEGRAPHIC REQUEST WAS SUFFICIENT TO MEET THE REQUIREMENTS OF THE CITED FPR PROVISION AND OF METRO NOVELTY AS IT ADVISED OF THE SUSPICION OF A MISTAKE AND, UNLIKE METRO NOVELTY, IT STATED THAT THE BASIS FOR SUCH SUSPICION WAS THE "VARIANCE" BETWEEN THE ERIEZ BID AND THE OTHERS RECEIVED. SEE 47 COMP. GEN. 616 (1968); B-165273, JANUARY 15, 1969. WE DO NOT THINK THAT MORE WAS REQUIRED, PARTICULARLY IN VIEW OF THE FACT THAT THE PRIMARY DUTY FOR ASSURING THAT BID PRICES ARE CORRECT RESTS WITH THE BIDDER.

WITH RESPECT TO YOUR CONTENTION THAT THE CONTRACTING OFFICER SHOULD BE HELD TO NOTICE OF THE ERIEZ MISTAKE NOTWITHSTANDING THE BID PRICE VERIFICATION, THE REPORT SUBMITTED TO OUR OFFICE BY THE POST OFFICE DEPARTMENT STATES AS FOLLOWS:

"THE CONTRACTOR'S ALLEGATION IS DENIED THAT IT SHOULD HAVE BEEN CLEAR THAT THE PRICES BID WERE IN ERROR. THE DEPARTMENT HAD NO KNOWLEDGE OF THE BIDDERS' COST AND PROFIT POLICIES IN BIDDING. FREQUENTLY BIDDERS OFFER PRICES WHICH ARE SUBSTANTIALLY BELOW THE LEVELS EXPECTED BECAUSE OF DECISIONS TO CUT PROFIT AND EVEN TO ABSORB SOME OF THE COSTS OF PRODUCTION (ESPECIALLY INDIRECT EXPENSE) IN ORDER TO MAXIMIZE PROFIT OR MINIMIZE LOSSES IN A SHORT RUN PERIOD. THERE ARE OTHER INSTANCES WHERE BIDDERS EXCLUDE PROFITS AND EVEN SOME COSTS IN BIDDING IN ORDER TO ENTER NEW FIELDS. IN OTHER CASES SOME BIDDERS FIND WAYS TO DRASTICALLY REDUCE COSTS OF PRODUCTION WHICH ARE UNKNOWN TO OTHERS."

ALSO, THE DEPARTMENT DENIES YOUR CONTENTION THAT THE INCREASE OF CONVEYOR ORDERS OVER THE ESTIMATED QUANTITIES IS AN INDICATION THAT THE POST OFFICE REGIONAL OFFICES WERE AWARE THAT THE ERIEZ PRICES WERE "EXTRAORDINARILY LOW" AND STATES THAT THE INCREASE WAS DUE INSTEAD TO A CHANGE FROM RAIL TO TRUCK MAIL TRANSPORT, THE ESTABLISHMENT OF SECTIONAL CENTERS THROUGHOUT THE COUNTRY, AND THE INCREASED VOLUME OF MAIL.

ON THE QUESTION OF PRIOR PROCUREMENT HISTORY AND THE GOVERNMENT'S PRICE ESTIMATE AND THE RELATION OF THESE FACTS TO ANY DUTY ON THE GOVERNMENT TO REQUEST VERIFICATION A SECOND TIME, THE POST OFFICE DEPARTMENT STATES:

"THE GOVERNMENT ESTIMATES WERE CONSIDERABLY HIGHER THAN THE THREE LOW BIDS, SO THE COMPETITIVE BIDS, UNDER THE CIRCUMSTANCES, PERMITTED A MUCH MORE VALUABLE COMPARISON AS A BASIS FOR ANY INITIAL DECISION REGARDING THE LIKELIHOOD OF ERROR THAN DID THE ESTIMATES. IN OTHER WORDS, THE BID PRICES SHOW THAT THE GOVERNMENT ESTIMATES WERE EXCESSIVE, AND IT WOULD NOT HAVE BEEN REASONABLE TO CONTINUE TO USE THIS INFORMATION WHEN BETTER INFORMATION WAS AVAILABLE."

ON THE BASIS OF THE ABOVE-SUMMARIZED FACTS, WE MUST CONCLUDE THAT THERE WAS NO DUTY ON THE PART OF THE CONTRACTING OFFICER TO REQUEST VERIFICATION OF THE ERIEZ BID A SECOND TIME. SEE, IN THIS REGARD, 47 COMP. GEN. 616 (1968); B-168306, DECEMBER 23, 1969. THE FURTHER CONCLUSION FOLLOWS, THEREFORE, THAT THE ERIEZ ERROR WAS UNILATERAL AND THAT AN ENFORCEABLE CONTRACT CAME INTO BEING AT THE TIME OF AWARD. THE FACT THAT THE ERIEZ ERROR WAS NOT SO EVIDENT TO HAVE PLACED THE GOVERNMENT ON NOTICE NOTWITHSTANDING VERIFICATION IS SUBSTANTIATED BY THE FACT THAT THE ERRONEOUS PRICING DID NOT EVEN COME TO THE COMPANY'S ATTENTION UNTIL SOME TIME AFTER PERFORMANCE HAD BEGUN.

WHILE IT IS UNFORTUNATE THAT THE ERROR WAS COMPOUNDED BY THE FACT THAT THE CONVEYORS ORDERED UNDER THE CONTRACT GREATLY EXCEEDED THE ESTIMATED QUANTITIES SET OUT IN THE INVITATION, IT IS WELL SETTLED THAT VARIATIONS FROM ESTIMATED QUANTITIES PROVIDE NO ENTITLEMENT TO RELIEF SO LONG AS THERE IS, AS HERE, AN ABSENCE OF BAD FAITH. IN THIS REGARD, THE FOLLOWING STATEMENT WAS MADE IN 47 COMP. GEN. 365 (1968) AT PAGE 370:

"UNDER A REQUIREMENTS CONTRACT, SUCH AS HERE, WHERE THE CONTRACT PROVIDES THAT THE QUANTITIES MENTIONED ARE ESTIMATES ONLY AND THE MEASURE OF GOODS TO BE ORDERED MUST BE THE NEEDS OF THE BUYER, THE COURTS HAVE HELD THAT THERE MAY BE SUBSTANTIAL VARIATIONS FROM THE ESTIMATES AS LONG AS THE BUYER ACTS IN GOOD FAITH. BRAWLEY V. UNITED STATES, 96 US168; JAMES D. WALTERS V. UNITED STATES, 131 CT. CL. 218; SHADER CONTRACTORS, INC; ET AL V. UNITED STATES, 149 CT. CL. 535; STANDARD MAGNESIUM CORPORATION V. UNITED STATES, 241 F 2D 677; AND 37 COMP. GEN. 688."

THE CASE OF WOMACK V. UNITED STATES, 389 F. 2D 793 (CT. CL. 1968), CITED BY YOU FOR THE PROPOSITION THAT THE GOVERNMENT CANNOT NEGLIGENTLY OR INTENTIONALLY PLACE MISLEADING ESTIMATES IN INVITATIONS FOR BIDS INVOLVED A FIXED-PRICE CONTRACT WHERE MORE WORK WAS REQUIRED THAN WAS ESTIMATED BUT WHERE THE CONTRACTOR WAS BOUND BY THE PRICE QUOTED FOR THE ESTIMATED WORK. THAT CASE IS NOT ANALOGOUS TO ONE, AS HERE, INVOLVING A REQUIREMENTS CONTRACT WHERE EACH ITEM ORDERED WILL BE PAID FOR AT A STIPULATED PRICE AND WHERE THE GOVERNMENT SPECIFICALLY RESERVED THE RIGHT TO ORDER MORE OR LESS THAN THE ESTIMATED QUANTITY.

FINALLY, WITH REGARD TO YOUR CONTENTION THAT PURCHASES UNDER ITEM II OF THE CONTRACT SHOULD HAVE BEEN TERMINATED UPON NOTICE OF THE MISTAKE, THE POST OFFICE DEPARTMENT POINTS OUT THAT THE AUGUST NOTICE OF ERROR WAS INFORMAL AND WAS NOT FOLLOWED UP WITH ANY WRITTEN NOTICE UNTIL TWO SOMEWHAT CONTRADICTORY LETTERS, BOTH DATED OCTOBER 4, 1968, WERE RECEIVED. FOLLOWING THESE LETTERS, A REQUEST WAS MADE IN LATE NOVEMBER BY ERIEZ FOR THE CONTRACTING OFFICER TO ISSUE A FINAL DECISION SUBJECT TO APPEAL UNDER THE CONTRACT DISPUTES CLAUSE. ERIEZ DID NOT APPEAL THE CONTRACTING OFFICER'S DECEMBER 3, 1968, DECISION UNTIL DECEMBER 31, 1968. AT ABOUT THIS TIME, REPORTEDLY WITHOUT ANY REQUEST FROM ERIEZ, IT WAS DETERMINED THAT QUANTITIES OF CONVEYORS IN EXCESS OF THOSE ALREADY DELIVERED OR IN THE PROCESS OF MANUFACTURE WOULD NOT BE PURCHASED UNDER THE CONTRACT AND BY LETTER DATED JANUARY 7, 1970, THE PARTIES AGREED THAT 441 UNITS WOULD BE THE CUT-OFF NUMBER OF CONVEYORS TO BE FURNISHED UNDER ITEM II OF THE CONTRACT. WE CANNOT CONCLUDE THAT ANY FURTHER CONCESSIONS WERE DUE ERIEZ AND WE ARE OF THE OPINION THAT THE ACTION OF THE GOVERNMENT IN NOT HOLDING ERIEZ TO FULL COMPLETION OF ITS CONTRACT THROUGH JUNE 30, 1969, WAS REASONABLE UNDER THE CIRCUMSTANCES. FURTHER, WE ARE AWARE OF NO LEGAL BASIS FOR THE PAYMENT OF ADDITIONAL SUMS WITHOUT CONSIDERATION WHERE A VALID ENFORCEABLE CONTRACT EXISTS. 40 COMP. GEN. 684 (1961). ACCORDANCE WITH THE ABOVE CONSIDERATIONS, YOUR REQUESTS FOR RELIEF MUST BE DENIED.