B-169140, JUL 8, 1970, 50 COMP GEN 16

B-169140: Jul 8, 1970

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CONTRACTS - COST-PLUS - EVALUATION FACTORS - USE OF POINT SYSTEM ALTHOUGH AN OFFEROR'S ESTIMATED PRICES ARE NOT THE DECIDING FACTOR IN SELECTING A SUCCESSFUL CONTRACTOR UNDER A COST-REIMBURSEMENT TYPE CONTRACT NEGOTIATED PURSUANT TO ARMED SERVICES PROCUREMENT REGULATION (ASPR) 3- 805.2. IS REQUIRED UNDER ASPR 3-805.1 TO CONTINUE NEGOTIATIONS WITH ALL OFFERORS WITHIN A COMPETITIVE RANGE. AN AWARD MADE SOLELY ON THE BASIS OF TECHNICAL SUPERIORITY AS BEING IN THE BEST INTEREST OF THE GOVERNMENT WITHOUT FURTHER NEGOTIATIONS WITH OFFERORS WHO HAVE THE NECESSARY QUALIFICATIONS TO PERFORM THE PROCUREMENT SHOULD BE CANCELED. 1970: REFERENCE IS MADE TO THE LETTERS DATED MARCH 19. THE WORK WAS OUTLINED IN ENCLOSURE I TO THE RFQ AND ENCLOSURE II GAVE THE EVALUATION CRITERIA FOR SELECTION.

B-169140, JUL 8, 1970, 50 COMP GEN 16

CONTRACTS - COST-PLUS - EVALUATION FACTORS - USE OF POINT SYSTEM ALTHOUGH AN OFFEROR'S ESTIMATED PRICES ARE NOT THE DECIDING FACTOR IN SELECTING A SUCCESSFUL CONTRACTOR UNDER A COST-REIMBURSEMENT TYPE CONTRACT NEGOTIATED PURSUANT TO ARMED SERVICES PROCUREMENT REGULATION (ASPR) 3- 805.2, A CONTRACTING AGENCY THAT DURING THE EVALUATION OF PROPOSALS RECEIVED UNDER A REQUEST FOR QUOTATIONS SOLICITING THE PREPARATION OF A GOVERNMENT PUBLICATION ON A COST-PLUS-A-FIXED-FEE BASIS ELIMINATES THE 25 POINTS ASSIGNED TO THE FACTOR OF REASONABLENESS OF COST IN THE EVALUATION CRITERIA, IS REQUIRED UNDER ASPR 3-805.1 TO CONTINUE NEGOTIATIONS WITH ALL OFFERORS WITHIN A COMPETITIVE RANGE. THEREFORE, AN AWARD MADE SOLELY ON THE BASIS OF TECHNICAL SUPERIORITY AS BEING IN THE BEST INTEREST OF THE GOVERNMENT WITHOUT FURTHER NEGOTIATIONS WITH OFFERORS WHO HAVE THE NECESSARY QUALIFICATIONS TO PERFORM THE PROCUREMENT SHOULD BE CANCELED.

TO THE SECRETARY OF THE NAVY, JULY 8, 1970:

REFERENCE IS MADE TO THE LETTERS DATED MARCH 19, APRIL 16, AND MAY 14, 1970, FROM THE NAVAL SUPPLY SYSTEMS COMMAND, REFERENCE: SUP 0232, FURNISHING OUR OFFICE WITH A REPORT ON THE PROTEST FROM INDUSTRIAL TECHNOLOGICAL ASSOCIATES, INCORPORATED (ITA), UNDER REQUEST FOR QUOTATIONS (RFQ) N00174-70-Q-3954, ISSUED ON DECEMBER 19, 1969, BY THE NAVAL ORDNANCE STATION, INDIAN HEAD, MARYLAND.

THE RFQ CALLED FOR QUOTATIONS ON A COST-PLUS-A-FIXED-FEE BASIS; HOWEVER, AN OFFER COULD ALSO BE SUBMITTED ON A TIME-AND-MATERIAL BASIS AS AN ALTERNATE. THE WORK WAS OUTLINED IN ENCLOSURE I TO THE RFQ AND ENCLOSURE II GAVE THE EVALUATION CRITERIA FOR SELECTION.

PARAGRAPH 2 OF ENCLOSURE I PROVIDED THAT FOR A PERIOD OF 12 MONTHS THE CONTRACTOR SHALL MAKE AVAILABLE AND EMPLOY ITS FACILITIES AND PERSONNEL AT THE LEVEL OF EFFORT ESTABLISHED BY THE QUOTATION IN THE PREPARATION OF JOINT SERVICE EXPLOSIVE ORDNANCE DISPOSAL PUBLICATIONS. PARAGRAPH 3 OF ENCLOSURE I INDICATED THE ESTIMATED TYPES AND NUMBERS OF MANUSCRIPT BY TASK.

ENCLOSURE II LISTED THE FOLLOWING DESIGNATED POINT SCORES AND CRITERIA TO BE USED IN EVALUATION OF QUOTATIONS:

A. RECORD OF PAST EXPERIENCE AND WORK ASSOCIATED WITH EXPLOSIVE ORDNANCE DISPOSAL PUBLICATIONS.

15 POINTS

B. RECORD OF PAST PERFORMANCES AND EVIDENCE OF GOOD PROJECT ORGANIZATION AND MANAGEMENT PRACTICES. 20 POINTS

C. QUALIFICATIONS OF KEY PERSONNEL AND NUMBER OF PERSONNEL AVAILABLE TO MANAGE AND PERFORM THE TASK. 30 POINTS

D. ADEQUACY OF FACILITIES. 10 POINTS

E. REASONABLENESS OF COST. 25 POINTS

THE CONTRACTING OFFICER'S REPORT STATES THAT THE CRITERIA FOR EVALUATION AND THE WEIGHTS ASSIGNED TO EACH WERE DEVELOPED BY A PANEL OF HIGHLY QUALIFIED EXPLOSIVE ORDNANCE DISPOSAL AND PUBLICATIONS PERSONNEL.

PROPOSALS WERE RECEIVED FROM THE THREE COMPANIES SOLICITED. A SECOND PANEL OF EXPERIENCED EXPLOSIVE ORDNANCE AND PUBLICATIONS PERSONNEL EVALUATED THE PROPOSALS. THE SCORES RESULTING FROM THE EVALUATION OF PROPOSALS AND THE ESTIMATED PRICES SUBMITTED BY OFFERORS WERE AS FOLLOWS:

ESTIMATED PRICE COMPANY EVALUATION POINT SCORE

$475,896 (CPFF) JOHN I. THOMPSON 63.10

AND COMPANY

246,917 (CPFF) POTOMAC RESEARCH 33.33

168,097 (CPFF) ITA 39.00

173,899 (T&M)) ITA 39.00

THE REPORT DATED APRIL 16, 1970, FROM NAVAL SUPPLY SYSTEMS COMMAND STATES THAT ALL OF THE THREE FIRMS WHICH RESPONDED TO THE RFQ HAVE THE NECESSARY QUALIFICATIONS TO PERFORM THE TASKS INVOLVED IN THIS PROCUREMENT BUT THE THREE ARE NOT EQUAL WITH REGARD TO QUALITY, TIMELINESS, COST EFFECTIVENESS, AND CAPACITY. IT IS URGED BY NAVY THAT SINCE REIMBURSEMENT FOR THIS TYPE IS MADE ON THE BASIS OF COST, IT WAS ESSENTIAL THAT THE FIRM SELECTED BE THE MOST COMPETENT AND TECHNICALLY QUALIFIED. IN THIS REGARD, NAVY ADVISES THAT JOHN I. THOMPSON AND COMPANY (JITCO) HAS HAD APPROXIMATELY 16 YEARS' CONTRACT EXPERIENCE IN PREPARING EXPLOSIVE ORDNANCE DISPOSAL AND RELATED PUBLICATIONS WHILE ITA HAS HAD APPROXIMATELY 2 YEARS' EXPERIENCE DURING WHICH TIME THEY HAVE BEEN PERFORMING ONE CONTRACT PLACED BY THE NAVAL ORDNANCE STATION, INDIAN HEAD. THE LETTER OF APRIL 16, 1970, GOES ON TO GIVE SOME COST INFORMATION AND FROM THIS INFORMATION NAVY DRAWS THE CONCLUSION THAT, WHILE ITA DID IMPROVE DURING THE PERFORMANCE OF ITS PRIOR CONTRACT, ITS OFFERS FOR THE PRESENT CONTRACT WERE CONSIDERED "TOTALLY UNREALISTIC" IN THE LIGHT OF ITS PAST PERFORMANCE AND THE GOVERNMENT'S ESTIMATE.

THE REPORT OF APRIL 16, 1970, FURTHER STATES THAT THE EVALUATION PANEL CONSIDERED THAT OFFERS WHICH VARIED FROM THE GOVERNMENT'S ESTIMATE FOR THIS PROCUREMENT BY MORE THAN 10 PERCENT WERE UNREALISTIC AND UNREASONABLE. IT WAS DETERMINED THAT ITA'S OFFER ON A COST-PLUS-A FIXED- FEE BASIS WAS 53 PERCENT BELOW THE GOVERNMENT'S ESTIMATE AND THAT ITA'S OFFER ON A TIME AND MATERIALS BASIS WAS 51 PERCENT BELOW THE GOVERNMENT'S ESTIMATE. THE PRICES IN THE PROPOSALS FROM THE OTHER OFFERORS ALSO VARIED FROM THE GOVERNMENT'S ESTIMATE BY MORE THAN 10 PERCENT. THE PRICES IN THE PROPOSALS FROM ITA AND POTOMAC RESEARCH WERE SO FAR BELOW THE GOVERNMENT'S ESTIMATE THAT IT WAS DETERMINED THAT ANY CONSIDERATION OF PRICE WOULD HAVE RESULTED IN THEIR BEING GIVEN A MINUS SCORE AND THE PRICE IN JITCO'S PROPOSAL WAS TOO HIGH TO EARN POINTS. WE ARE ADVISED THAT SINCE NONE OF THE OFFERS APPROACHED THE GOVERNMENT'S ESTIMATE, ALL OFFERS WERE RATED AS "ZERO" WITH RESPECT TO THE FACTOR OF COST. NAVY'S LETTER OF APRIL 16 CONCLUDES THAT, WHILE THE NAVY HAS TAKEN NO EXCEPTION TO ITA'S CLAIM THAT SUCH FIRM IS "CAPABLE," IT WAS IN THE BEST INTEREST OF THE GOVERNMENT TO MAKE THE AWARD TO THE BEST QUALIFIED OFFEROR. AS INDICATED, IT IS NAVY'S VIEW THAT BASED ON PAST EXPERIENCE WITH THE FIRMS, UNDER CONTRACTS THEN IN EFFECT, AND THE EVALUATION FACTORS IN THE SOLICITATION, JITCO WAS THE BEST QUALIFIED, COST AND TECHNICAL CAPABILITIES CONSIDERED, AND NEGOTIATIONS WERE UNDERTAKEN WITH THAT FIRM ONLY. NAVY'S REPORT STATES THAT IN THE CIRCUMSTANCES IT WOULD HAVE SERVED NO USEFUL PURPOSE TO NEGOTIATE WITH ANY BUT THE FIRM CONSIDERED TO BE BEST QUALIFIED TO PERFORM THE REQUIRED WORK.

THE CONTRACTING OFFICER'S REPORT STATES THAT SINCE IT WAS APPARENT DURING NEGOTIATIONS WITH JITCO THAT THE CONTRACT AND THE EFFORT REQUIRED LENT ITSELF TO SOME ADDITIONAL CONTRACTOR MANAGEMENT OF RESOURCES, IT WAS DETERMINED THAT AN INCENTIVE TYPE CONTRACT WOULD BE MOST APPROPRIATE IN THIS SITUATION.

THE REPORT OF MAY 14, PRESENTS A BREAKDOWN OF THE NUMBER OF PROJECTS ASSIGNED TO ITA AND THE TOTAL PAGES DELIVERED. THIS BREAKDOWN AMPLIFIES THE COST DATA IN THE APRIL 16 REPORT AND GIVES A COMPARISON BETWEEN THE COSTS INCURRED BY ITA PER PAGE IN 1968 VERSUS THE COSTS INCURRED IN 1969. NAVY HAS MADE THIS COMPARISON FOR THE PURPOSE OF REFUTING ITA'S CONTENTION THAT THEY HAD IMPROVED IN THE PERFORMANCE OF THE PRIOR CONTRACT. FOR 1968 THE AVERAGE COST PER PAGE WAS $1,598 AND FOR 1969 THE AVERAGE COST PER PAGE WAS $1,230. CONSIDERING ITA'S COST PER PAGE FOR 1968 AND 1969, IT IS NAVY'S VIEW THAT ITA HAS NOT SHOWN IMPROVEMENT TO THE EXTENT URGED BY THE CONCERN. IT IS FURTHER ARGUED BY NAVY THAT CONSIDERING ITA'S COST PER PAGE FOR 1968 AND 1969, ITA'S ESTIMATE OF $227.16 PER PAGE FOR THE PRESENT PROCUREMENT DOES NOT SEEM REALISTIC.

ITA HAS ADVISED THAT IT HAS KEPT INDIVIDUAL COST RECORDS FOR CERTAIN TASKS UNDER ITS PRIOR CONTRACT; THAT THESE RECORDS INDICATE AN IMPROVEMENT IN ITA'S LEARNING CURVE WITH RESULTING INCREASED EFFICIENCY; AND THAT ITA'S COSTS DECREASED DURING THE PERFORMANCE OF THE LATTER STAGES OF ITS PRIOR CONTRACT. THE NAVY DID NOT KEEP COST RECORDS FOR INDIVIDUAL TASKS. THE COST DATA FURNISHED TO OUR OFFICE TO ESTABLISH ITA'S COST PER PAGE UNDER ITA'S PRIOR CONTRACT IS AN AVERAGE COST DERIVED BY DIVIDING THE TOTAL COSTS INCURRED BY ITA UNDER ITS PRIOR CONTRACT BY THE NUMBER OF PAGES, AND IT IS NOT SHOWN THAT EVEN THIS DATA WAS AVAILABLE AT THE TIME THE AWARD DECISION WAS MADE.

BY LETTER OF APRIL 17, 1970, WITH ATTACHMENTS, COUNSEL FOR JITCO SUBMITTED COMMENTS ON BEHALF OF THAT CONCERN. BASICALLY THE ARGUMENTS IN THAT LETTER ARE THAT BOTH ITA AND POTOMAC WERE NOT IN A COMPETITIVE RANGE; THAT THE DETERMINATION NOT TO NEGOTIATE WITH ITA OR POTOMAC WAS NOT AN ABUSE OF ADMINISTRATIVE DISCRETION AND THAT THE AWARD TO JITCO RESULTED IN A VALID AND BINDING CONTRACT.

THE CONTRACTING OFFICER MADE THE AWARD TO JITCO ON FEBRUARY 11, 1970, PURSUANT TO 10 U.S.C. 2304(A)(10). THE CONTRACT AWARDED WAS A COST PLUS- INCENTIVE-FEE TYPE OF CONTRACT IN THE TOTAL ESTIMATED AMOUNT OF $346,125, COMPRISED OF A TARGET COST OF $325,000 AND A TARGET FEE OF $21,125. WAS PROVIDED THAT IN NO EVENT WOULD THE ADJUSTED FEE BE GREATER THAN $24,375 (7.5 PERCENT OF TARGET COST) OR LESS THAN $17,875 (5.5 PERCENT OF TARGET COST).

ARMED SERVICES PROCUREMENT REGULATION (ASPR) 3-805.2 PROVIDES AS FOLLOWS REGARDING THE NEGOTIATIONS OF COST-REIMBURSEMENT TYPE CONTRACTS:

3-805.2 COST-REIMBURSEMENT TYPE CONTRACTS. IN SELECTING THE CONTRACTOR FOR A COST-REIMBURSEMENT TYPE CONTRACT, ESTIMATED COSTS OF CONTRACT PERFORMANCE AND PROPOSED FEES SHOULD NOT BE CONSIDERED AS CONTROLLING, SINCE IN THIS TYPE OF CONTRACT ADVANCE ESTIMATES OF COST MAY NOT PROVIDE VALID INDICATORS OF FINAL ACTUAL COSTS. THERE IS NO REQUIREMENT THAT COST -REIMBURSEMENT TYPE CONTRACTS BE AWARDED ON THE BASIS OF EITHER (1) THE LOWEST PROPOSED COST, (2) THE LOWEST PROPOSED FEE, OR (3) THE LOWEST TOTAL ESTIMATED COST PLUS PROPOSED FEE. THE AWARD OF COST-REIMBURSEMENT TYPE CONTRACTS PRIMARILY ON THE BASIS OF ESTIMATED COSTS MAY ENCOURAGE THE SUBMISSION OF UNREALISTICALLY LOW ESTIMATES AND INCREASE THE LIKELIHOOD OF COST OVERRUNS. THE COST ESTIMATE IS IMPORTANT TO DETERMINE THE PROSPECTIVE CONTRACTOR'S UNDERSTANDING OF THE PROJECT AND ABILITY TO ORGANIZE AND PERFORM THE CONTRACT. THE AGREED FEE MUST BE WITHIN THE LIMITS PRESCRIBED BY LAW AND APPROPRIATE TO THE WORK TO BE PERFORMED (SEE 3-808). BEYOND THIS, HOWEVER, THE PRIMARY CONSIDERATION IN DETERMINING TO WHOM THE AWARD SHALL BE MADE IS: WHICH CONTRACTOR CAN PERFORM THE CONTRACT IN A MANNER MOST ADVANTAGEOUS TO THE GOVERNMENT.

THE LETTER OF APRIL 17, FROM COUNSEL FOR JITCO STATES THAT THE ABOVE PROVISION REFLECTS THE TRADITIONAL RULE THAT AWARD OF A COST-TYPE CONTRACT IS TO BE MADE CHIEFLY ON THE BASIS OF PERFORMANCE MOST ADVANTAGEOUS TO THE GOVERNMENT. WE AGREE WITH THIS TRADITIONAL VIEW; HOWEVER, THERE IS NOTHING IN THE CITED PROVISION WHICH SANCTIONS A PROCEDURE WHEREBY THE MOST ADVANTAGEOUS CONTRACTOR IS SELECTED WITHOUT NEGOTIATING WITH ALL THOSE OFFERORS SUBMITTING PROPOSALS WITHIN A COMPETITIVE RANGE. THE REQUIREMENT FOR NEGOTIATING WITH ALL OFFERORS WITHIN A COMPETITIVE RANGE IS APPLICABLE TO THE SITUATION WHERE A COST TYPE CONTRACT WILL BE AWARDED. SEE E-162062, NOVEMBER 9, 1967.

WITH REGARD TO THE NATURE AND EXTENT OF NEGOTIATIONS TO BE CONDUCTED WITH OFFERORS, ASPR 3-805.1, IN IMPLEMENTATION OF 10 U.S.C. 2304(G), REQUIRES THAT "WRITTEN OR ORAL DISCUSSIONS SHALL BE CONDUCTED WITH ALL RESPONSIBLE OFFERORS WHO SUBMIT PROPOSALS WITHIN A COMPETITIVE RANGE, PRICE, AND OTHER FACTORS CONSIDERED." ALSO, ASPR 3-805.1(A)(V) REQUIRES THAT " *** IN ANY CASE WHERE THERE IS UNCERTAINTY AS TO THE PRICING OR TECHNICAL ASPECTS OF ANY PROPOSALS, THE CONTRACTING OFFICER SHALL NOT MAKE AWARD WITHOUT FURTHER EXPLORATION AND DISCUSSION PRIOR TO AWARD." IN CONNECTION WITH WHAT CONSTITUTES A COMPETITIVE RANGE THE RULE IS THAT A PROPOSAL MUST BE CONSIDERED TO BE WITHIN A COMPETITIVE RANGE SO AS TO REQUIRE NEGOTIATIONS UNLESS IT IS SO TECHNICALLY INFERIOR OR OUT OF LINE WITH REGARD TO PRICE THAT MEANINGFUL NEGOTIATIONS ARE PRECLUDED. WE HAVE RECOGNIZED THAT THE DETERMINATION OF COMPETITIVE RANGE, PARTICULARLY AS REGARDS TECHNICAL CONSIDERATIONS, IS PRIMARILY A MATTER OF ADMINISTRATIVE DISCRETION WHICH WILL NOT BE DISTURBED IN THE ABSENCE OF A CLEAR SHOWING THAT SUCH DETERMINATION WAS AN ARBITRARY ABUSE OF DISCRETION. SEE 48 COMP. GEN. 314 (1968).

THE CRITERIA FOR EVALUATION IN THE RFQ STATED THAT 25 POINTS WERE ASSIGNED TO REASONABLENESS OF COST. DURING THE EVALUATION OF PROPOSALS IT WAS DECIDED THAT THE FACTOR OF PRICE SHOULD BE CONSIDERED AS "ZERO" FOR ALL OFFERORS DIFFERING BY MORE THAN 10 PERCENT FROM THE GOVERNMENT'S ESTIMATE AND THAT THEREFORE ON A TECHNICAL BASIS ONLY JITCO WAS QUALIFIED FOR NEGOTIATIONS SINCE JITCO'S PROPOSAL WAS CLEARLY SUPERIOR TO THE OTHER PROPOSALS. WE FIND NO BASIS TO SUPPORT THIS TYPE OF REASONING, AT LEAST NOT WITHOUT GIVING OFFERORS WHOSE PRICES WERE CONSIDERED TOO LOW A CHANCE TO ATTEMPT TO JUSTIFY THE VALIDITY OF THEIR PRICES. NAVY'S REASONING RESULTED, IN EFFECT, IN DELETION OF THE PRICE EVALUATION FACTOR STATED IN THE SOLICITATION.

GIVING PRICE 25 POINTS IN EVALUATING PROPOSALS FOR A COST REIMBURSEMENT TYPE CONTRACT WAS POSSIBLY TOO MUCH WEIGHT FOR THIS FACTOR AND IT MAY HAVE BEEN FOR THE PURPOSE OF ATTEMPTING TO RECTIFY THIS THAT NAVY DECIDED TO ELIMINATE PRICE IN EVALUATING PROPOSALS. WE REALIZE THAT THE AWARD IN THIS CASE WAS OF A COST-REIMBURSEMENT TYPE CONTRACT AND THAT THEREFORE AN OFFEROR'S ESTIMATED PRICES SHOULD NOT BE THE DECIDING FACTOR IN SELECTING THE SUCCESSFUL OFFEROR. HOWEVER, NAVY SHOULD HAVE CONSIDERED THAT IN VIEW OF ITS DECISION TO EVALUATE PROPOSALS ON A BASIS OTHER THAN AS INDICATED IN THE RFQ, THERE SHOULD HAVE BEEN A NEW ROUND OF NEGOTIATIONS ON THIS BASIS.

NAVY HAS ARGUED THAT THE PRICE IN ITA'S PROPOSAL WAS UNREALISTIC CONSIDERING ITA'S COST IN PERFORMING ITS PRIOR CONTRACT AND THE GOVERNMENT'S ESTIMATE AND THAT THEREFORE PRICE DISCUSSIONS WITH ITA WOULD HAVE SERVED NO USEFUL PURPOSE. IN ANSWER TO THIS, ITA'S ARGUMENT WAS THAT IT HAD COST DATA ON INDIVIDUAL TASKS PERFORMED IN THE LATTER PERIOD OF ITS PRIOR CONTRACT; THAT THIS DATA INDICATED THAT ITA'S LEARNING CURVE IMPROVED DURING PERFORMANCE OF ITS PRIOR CONTRACT WITH A RESULTING INCREASE IN EFFICIENCY AND THAT ITA'S COSTS DECREASED IN THE LATTER STAGES OF ITS PRIOR CONTRACT. NAVY WAS GIVEN THE OPPORTUNITY OF REFUTING THIS ARGUMENT BY ITA; HOWEVER, NAVY APPARENTLY DOES NOT HAVE COST DATA ON INDIVIDUAL TASKS PERFORMED IN THE LATTER STAGES OF ITA'S PRIOR CONTRACT. WE DO NOT CONSIDER THE COST DATA FURNISHED BY NAVY WHICH IS AN AVERAGE COST OVER THE ENTIRE TERM OF ITA'S CONTRACT AS REFUTING ITA'S ARGUMENT THAT ITS COSTS DECREASED DURING THE LATTER PORTION OF ITS CONTRACT. THE GOVERNMENT'S ESTIMATE BY ITSELF DOES NOT SEEM TO BE A SOUND BASIS FOR REJECTING ITA'S PROPOSAL WITHOUT NEGOTIATIONS SINCE IF THERE HAD BEEN NEGOTIATIONS WITH ITA AND CERTAIN AREAS HAD BEEN CLARIFIED, THE PRICE OFFERED BY THAT CONCERN MIGHT WELL HAVE BEEN CLOSE TO THE GOVERNMENT'S ESTIMATE. IF BEING WITHIN 10 PERCENT OF THE GOVERNMENT'S ESTIMATE WAS THE BASIS FOR DETERMINING WHETHER TO NEGOTIATE PRICE WITH AN OFFEROR, JITCO'S PROPOSAL WHICH WAS MORE THAN 10 PERCENT OF THE GOVERNMENT'S ESTIMATE WAS ALSO OUT OF THIS RANGE, YET PRICE NEGOTIATIONS WERE CONDUCTED WITH THAT CONCERN.

THE PRICE IN ITA'S PROPOSAL DOES BEAR SOME RELATIONSHIP TO ITA'S UNDERSTANDING OF THE WORK INVOLVED. IT COULD BE THAT NAVY FELT THAT THE PRICE IN ITA'S PROPOSAL SHOWED SUCH A LACK OF UNDERSTANDING OF THE WORK INVOLVED THAT NEGOTIATIONS WITH ITA WOULD SERVE NO USEFUL PURPOSE. HOWEVER, IF AS WE UNDERSTAND IT THE WORK TO BE DONE WAS ALL "ORIGINAL" WORK, RATHER THAN A COMBINATION OF "ORIGINAL" AND "REVISION" WORK SUCH AS ITA HAD BEEN PERFORMING, ITS LOW PRICE MAY HAVE BEEN DUE TO THE FAILURE OF THE SOLICITATION TO MAKE THIS CLEAR. THIS, TOO, PROBABLY WOULD HAVE BEEN CLARIFIED IN NEGOTIATIONS WITH ITA. MOREOVER, NAVY SEEMS TO CONCEDE THAT ITA HAD THE CAPABILITY TO PERFORM THE CONTRACT FOR THIS PROCUREMENT.

ONE FURTHER OBSERVATION IS THAT NAVY APPARENTLY FELT IT WAS NECESSARY TO PROTECT ITSELF FROM A COST STANDPOINT AND THEREFORE MADE THE AWARD ON AN INCENTIVE-FEE BASIS TO GIVE THE CONTRACTOR INCENTIVE TO REDUCE COST. THIS ALSO SEEMS TO STEM FROM THE FAILURE TO NEGOTIATE PRICE WITH ITA.

IN THE CIRCUMSTANCES WE DO NOT AGREE WITH NAVY'S POSITION THAT THERE WAS A BASIS FOR REJECTING ITA'S PROPOSAL WITHOUT NEGOTIATIONS AND NEGOTIATING ONLY WITH JITCO. ACCORDINGLY, WE BELIEVE THAT THE AWARD TO JITCO SHOULD BE CANCELED.

THE ENCLOSURES FORWARDED WITH THE LETTER OF MARCH 19, 1970, ARE RETURNED AS REQUESTED.