B-169542, JUL 16, 1970, 50 COMP GEN 39

B-169542, JUL 16, 1970, 50 COMP GEN 39

CONTRACTS - UNPROFITABLE - RELIEF A REQUEST FOR RELIEF UNDER SECTION 17 OF THE ARMED SERVICES PROCUREMENT REGULATION AUTHORIZING EXTRAORDINARY CONTRACTUAL ACTIONS TO FACILITATE THE NATIONAL DEFENSE MADE AFTER CONTRACT COMPLETION AND FINAL PAYMENT ON THE BASIS THE BID UNDERPRICING WAS DUE TO UNFORESEEN PRODUCTION DIFFICULTIES AND MISLEADING VENDOR QUOTES IS FOR DENIAL WHERE THE OCCURRENCE OF A MISTAKE "SO OBVIOUS IT WAS OR SHOULD HAVE BEEN APPARENT" IS NOT DEMONSTRATED, AND THE RECORD ESTABLISHES THE PRICE BID WAS ADEQUATELY VERIFIED AND WAS INTENDED, AND ONLY SUBSEQUENT EVENTS RESULTED IN THE UNPROFITABLE CONTRACT. EVEN ASSUMING THE EXISTENCE OF A BONA FIDE MISTAKE, THE FACT THAT THE PRICE BID GREATLY EXCEEDED THE GOVERNMENT'S ESTIMATE INTENDED AS A FUNDING ALLOCATION, OR THAT PRIOR PROCUREMENTS FOR LESSER QUANTITIES WERE PRICED MUCH HIGHER THAN A GROUP OF BIDS IN THE PRICE RANGE OF THE SUCCESSFUL BID DID NOT PLACE THE CONTRACTING OFFICER ON ACTUAL OR CONSTRUCTIVE NOTICE OF ERROR.

TO WITTE AND WITTE, JULY 16, 1970:

FURTHER REFERENCE IS MADE TO YOUR LETTERS DATED APRIL 8 AND 28 AND JUNE 10, 1970, WITH ENCLOSURES, REQUESTING RESCISSION OF CONTRACT NO. DAAG25-67 -C-1005 BETWEEN YOUR CLIENT SAN COLMAR INDUSTRIES, INC. (SCI), AND THE DEPARTMENT OF THE ARMY, ON THE GROUND THAT YOUR CLIENT MADE AN ERROR IN ITS BID "SO GROSS THAT THE GOVERNMENT WAS PLACED ON NOTICE OF THE ERROR AND WAS BOUND TO POINT IT OUT TO SCI (BUT DID NOT) WHEN IT REQUESTED CLARIFICATION OF THE BID."

THE SUBJECT PROCUREMENT WAS FOR 1,512 EACH OF "PLUG, DWG C7305011, REV. D. FOR 155 MM HOWITZER, MIA1," WITH AN OPTION RESERVED TO THE GOVERNMENT FOR AN ADDITIONAL QUANTITY. BIDS AS FOLLOWS WERE RECEIVED FROM NINE BIDDERS:

BIDDER UNIT PRICE OPTION

UNIT PRICE

SAN COLMAR INDUSTRIES, INC. $8.00 $7.80

IMCO PRECISION PRODUCTS 8.20 8.10

UNIVERSAL METAL CHAIN CO. 11.11 11.11

MT. VERNON WELDING AND MACHINE 28.20 28.20

BRISTOL DYNAMICS, INC. 29.95 29.95

CONTINENTAL FABRICATORS CORP. 31.00 31.00

ARGO DEVELOPMENT CORP 32.50 32.50

STELLAR TOOL AND MFG. CO., INC. 38.50 38.50

R & Z PRECISION INDUSTRY, INC. 47.01 47.01

FOLLOWING A FAVORABLE PREAWARD SURVEY AND VERIFICATION OF ITS BID PRICES IN RESPONSE TO A REQUEST BY THE CONTRACTING OFFICER, AWARD WAS MADE TO SCI ON NOVEMBER 4, 1966, AS THE LOWEST RESPONSIVE, RESPONSIBLE BIDDER. DECEMBER 29, 1966, THE CONTRACT QUANTITY WAS INCREASED BY 1,200 UNITS AT A PRICE OF $7.80 EACH IN ACCORDANCE WITH THE CONTRACT OPTION PROVISION, WITH NO OBJECTION FROM SCI AND THE CONTRACT WAS SUBSEQUENTLY FULLY PERFORMED BY SCI AND FINAL PAYMENT WAS MADE.

BY LETTERS DATED AUGUST 11, 1967, BEFORE CONTRACT COMPLETION, AND SEPTEMBER 3, 1969, SUBSTANTIALLY AFTER CONTRACT COMPLETION, SCI REQUESTED AN ADJUSTMENT OF THE CONTRACT PRICE UNDER THE AUTHORITY OF SECTION 17 OF ARMED SERVICES PROCUREMENT REGULATION (ASPR), AUTHORIZING EXTRAORDINARY CONTRACTUAL ACTIONS TO FACILITATE THE NATIONAL DEFENSE, IN THE AMOUNT OF $7.90 PER UNIT FOR THE BASIC AND OPTION QUANTITIES OF THE CONTRACT - A TOTAL OF $21,424.80. THE BASIS FOR THIS REQUEST GENERALLY WAS THAT UNFORESEEN PRODUCTION DIFFICULTIES AND MISLEADING VENDOR QUOTES HAD RESULTED IN AN UNDERPRICING OF THE SCI BID TO THAT EXTENT.

BY DECISION OF THE HEAD OF THE PROCURING ACTIVITY DATED NOVEMBER 8, 1969, THE REQUEST FOR ADJUSTMENT WAS DENIED ON THE GROUND THAT THE CONTRACTOR HAD NOT DEMONSTRATED, PURSUANT TO ASPR 17-204.3(II), THAT IT WAS A MISTAKE "SO OBVIOUS THAT IT WAS OR SHOULD HAVE BEEN APPARENT TO THE CONTRACTING OFFICER." THE DECISION NOTED THAT THE CONTRACTOR'S LETTER OF SEPTEMBER 3, 1969, STATED THAT ITS MISTAKE "MAY NOT HAVE APPEARED AS APPARENT TO THE CONTRACTING OFFICER." ALSO, THE DECISION HELD THAT "ANY MISTAKE WHICH THE CONTRACTOR MAY HAVE MADE WAS UNILATERAL IN NATURE, FOR WHICH THE CONTRACTOR ALONE MUST BEAR THE SOLE RESPONSIBILITY."

IT IS YOUR CONTENTION THAT THE DIFFERENCE BETWEEN THE SCI UNIT PRICE OF $8 EACH AND THE GOVERNMENT'S ESTIMATE OF $25 EACH BASED ON A PRIOR PROCUREMENT HISTORY OF $29.80 AND $34.72 EACH WAS SUFFICIENT, NOTWITHSTANDING TWO OTHER BIDS IN THE SAME GENERAL RANGE AS THE SCI BID AND A WRITTEN VERIFICATION BY SCI, TO PUT THE CONTRACTING OFFICER ON NOTICE "OF THE POSSIBILITY OF A GROSS ERROR IN BID." YOU ALSO POINT OUT THAT THE ONLY PRIOR MANUFACTURER OF THE PLUG IN QUESTION BID $28.20 EACH UNDER THE INSTANT INVITATION. YOU CONTEND, THEREFORE, THAT THE CONTRACTING OFFICER WAS OBLIGED IN SEEKING VERIFICATION OF THE SCI BID TO POINT OUT THESE DIFFERENCES AND THAT HIS FAILURE TO DO SO VIOLATED THE RULE ENUNCIATED IN UNITED STATES V METRO NOVELTY MANUFACTURING CO., INC., 125 F. SUPP. 713 (1954). THAT CASE HELD THAT THE CONTRACTING OFFICER, WHERE ERROR IS SUSPECTED, IS OBLIGED TO ADVISE THE BIDDER OF ALL FACTS AND CIRCUMSTANCES LEADING TO HIS SUSPICION OF ERROR.

THE FACTS OF RECORD DO NOT ESTABLISH THAT A MISTAKE, AS SUCH, WAS MADE BY SCI IN ITS BID INASMUCH AS IT APPEARS THAT SCI BID EXACTLY AS IT INTENDED BUT THAT SUBSEQUENT EVENTS UNFORESEEN AT THE TIME OF AWARD RESULTED IN AN UNPROFITABLE CONTRACT. HOWEVER, ASSUMING THE EXISTENCE OF A BONA FIDE MISTAKE ON THE PART OF SCI, IT IS OUR OPINION THAT THE CONTRACTING OFFICERS WAS NOT ON ACTUAL OR CONSTRUCTIVE NOTICE OF POSSIBLE ERROR AND THAT A BINDING ENFORCEABLE CONTRACT RESULTED FROM ACCEPTANCE OF SCI'S BID. IN THIS REGARD, THE DEPARTMENT OF THE ARMY HAS ADVISED US THAT THE ESTIMATE OF $25 EACH MENTIONED IN THE NOVEMBER 8, 1969, ADMINISTRATIVE DECISION WAS IN REALITY A FUNDING ALLOCATION PROVIDING FOR A COMMITMENT OF FUNDS UP TO $25 EACH. THE ARMY ALSO POINTS OUT THAT THE PRIOR PROCUREMENT HISTORY OF $34.72 AND $29.80 EACH REPRESENTED PROCUREMENTS OF 72 AND 312 PLUGS, WHILE THE INSTANT PROCUREMENT CALLED FOR A TOTAL BASIC QUANTITY OF 1,512 UNITS, INDICATING THAT LOWER PRICES WOULD BE BID IN VIEW OF THE SUBSTANTIALLY LARGER QUANTITY. FINALLY, ARMY TAKES THE POSITION THAT THE EXISTENCE OF THREE BIDS IN THE RELATIVE SAME PRICE RANGE (I.E., $8., $8.20 AND $11.11 EACH) PROVIDED THE CONTRACTING OFFICER WITH SUFFICIENT BASIS FOR ASSUMING THAT NO APPARENT ERROR EXISTED.

IN SUBSTANTIATION OF YOUR CONTENTION THAT THE CONTRACTING OFFICER WAS ON ACTUAL OR CONSTRUCTIVE NOTICE OF ERROR, YOU CITE OUR DECISION B 148325, MARCH 23, 1962, FOR THE PROPOSITION THAT THE DIFFERENCE BETWEEN THE SCI BID AND THE GOVERNMENT ESTIMATE PROVIDED SUCH NOTICE, AND DECISION B- 150902, MARCH 12, 1963, FOR THE PROPOSITION THAT THE DIFFERENCE BETWEEN THE SCI BID AND PRIOR PROCUREMENTS ALSO PROVIDED SUCH NOTICE. ALSO, YOU CITE C. N. MONROE MFG. CO. V UNITED STATES, 143 F. SUPP. 449 (1956), AD B- 144300, NOVEMBER 4, 1960, FOR THE PROPOSITION THAT OTHER BIDS IN THE RANGE OF THE SCI BID DID NOT SERVE TO JUSTIFY THE CONTRACTING OFFICER'S FAILURE TO SUSPECT ERROR.

THESE PRECEDENTS, HOWEVER, ARE NOT CONTROLLING HERE. IN B-148325, THE SOLE BID RECEIVED WAS ONLY 76 PERCENT OF THE GOVERNMENT ESTIMATE FOR THE PARTICULAR PROCUREMENT. HERE, NINE BIDS WERE RECEIVED, THE THREE LOWEST OF WHICH WERE CLOSELY GROUPED. FURTHER, THE GOVERNMENT FUNDING ALLOCATION, WHICH WAS NOT A PROCUREMENT ESTIMATE, ONLY INDICATED THE UPPER LIMIT OF POSSIBLE BID PRICES. WE THINK THESE PARTICULAR FACTORS DISTINGUISH THE CITED CASE FROM THE ONE INVOLVED HERE.

SIMILARLY, OUR DECISION B-150902 INVOLVED A SOLE-SOURCE AWARD WHEREIN THE SAME CONTRACTOR HAD QUOTED AN IDENTICAL PRICE ON THREE PRIOR CONTRACTS BUT NEGLECTED TO TAKE INTO ACCOUNT ON THE CONTRACT IN QUESTION A CHANGE IN SPECIFICATIONS RESULTING IN AN INCREASE IN HIS COSTS. WE THINK THAT SITUATION IS SIGNIFICANTLY DIFFERENT FROM ONE, AS HERE, WHERE COMPETITION WITH ITS UNQUESTIONED EFFECT ON PRICING EXISTS AND WHERE PRIOR PROCUREMENTS WERE FOR SUBSTANTIALLY LESSER QUANTITIES THAN INVOLVED HERE.

FINALLY, BOTH C. N. MONROE MFG. CO. AND B-144300 INVOLVED SITUATIONS WHERE TWO BIDS WERE SIGNIFICANTLY OUT OF LINE WITH OTHER BIDS SUBMITTED. HERE, THERE WERE THREE CLOSELY GROUPED BIDS WHICH, WHEN COMPARED WITH THE OTHER SIX BIDS IN A HIGHER PRICE RANGE, WERE NOT INDICATIVE OF PATENT ERROR. WE THINK THAT THE EXISTENCE OF THESE THREE CLOSELY GROUPED BIDS, COUPLED WITH THE LARGER QUANTITY OF PLUGS BEING PROCURED, REASONABLY LED THE CONTRACTING OFFICER TO THE CONCLUSION THAT NO APPARENT ERROR WAS EVIDENT.

AS FURTHER JUSTIFICATION FOR THE CONCLUSION THAT THE CONTRACTING OFFICER SHOULD NOT BE HELD TO CONSTRUCTIVE NOTICE OF ERROR, IT IS NOTED THAT SCI APPARENTLY DID NOT BECOME AWARE OF ITS ALLEGED ERROR UNTIL APRIL 1967, ALMOST 1-1/2 YEARS AFTER AWARD. FURTHER, WE ARE ADVISED THAT AN IDENTICAL CONTRACT FOR THE SAME ITEM WAS AWARDED BY THE SAME CONTRACTING OFFICER TO ANOTHER CONTRACTOR ON MAY 24, 1967, AT A UNIT PRICE OF $7.35, AND THAT SUCH CONTRACT HAS BEEN SUCCESSFULLY COMPLETED WITHOUT ANY INTIMATION OF FINANCIAL DIFFICULTIES.

SINCE WE CONCLUDE THAT NO BASIS EXISTS FOR CHARGING THE CONTRACTING OFFICER WITH ACTUAL OR CONSTRUCTIVE NOTICE OF SCI'S ALLEGED ERROR, NO BASIS EXISTS FOR CHALLENGING THE ADEQUACY OF THE BID VERIFICATION REQUESTED OF SCI BEFORE THE AWARD WAS MADE. ACCORDINGLY, YOUR REQUEST FOR RELIEF MUST BE DENIED. SEE 47 COMP. GEN. 732 (1968).