B-169977, JUL 23, 1970, 50 COMP GEN 50

B-169977: Jul 23, 1970

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THERE IS NO LEGAL BASIS UPON WHICH AN AWARD MAY BE PRECLUDED OR DISTURBED BECAUSE A LOW BIDDER SUBMITTED AN UNPROFITABLE PRICE. AWARD WAS MADE UNDER IFB-0039 ON JUNE 30. THE FIRST INVITATION WAS ISSUED ON MARCH 18. BIDDERS WERE REQUESTED TO QUOTE PRICES ON THE BASIS OF A FIRM 20-MAN-YEAR LEVEL OF EFFORT FOR THE REQUIRED SERVICES. 10 FIRMS RESPONDED AND YOUR FIRM WAS DETERMINED TO BE THE LOW RESPONSIVE BIDDER. A PREAWARD SURVEY WAS INITIATED TO DETERMINE YOUR FIRM'S RESPONSIBILITY. GOVERNMENT REPRESENTATIVES REALIZED THAT THE 20-MAN-YEAR LEVEL OF EFFORT SPECIFIED IN THE INVITATION WAS ERRONEOUS. ALL BIDDERS WERE ADVISED THAT IFB-0019 WAS CANCELED DUE TO "INADVERTENT AMBIGUITIES IN THE SCHEDULE.".

B-169977, JUL 23, 1970, 50 COMP GEN 50

BIDS - DISCARDING ALL BIDS - NEEDS OF GOVERNMENT NOT PROPERLY STATED AN INVITATION FOR BIDS THAT STATES THE REQUIRED MAN-YEAR LEVEL OF EFFORT TO PERFORM ENGINEERING SERVICES FOR SYSTEMS AND PROGRAM DEFINITION OF A COMBAT SYSTEMS MAINTENANCE TRAINING FACILITY AT AN ERRONEOUSLY FIXED RATHER THAN AN ESTIMATED LEVEL, FAILS TO SHOW THE GOVERNMENT'S MINIMUM NEEDS, AND, THEREFORE, THE SUCCESSFUL CONTRACTOR WOULD BE UNABLE TO PRODUCE THE RESULTS REQUIRED IN VIEW OF THE CORRELATION BETWEEN THE LEVEL OF EFFORT AND THE ULTIMATE WORK PRODUCT. THE FAILURE TO ACCURATELY REFLECT THE MAN-YEAR LEVEL OF EFFORT REQUIRED CONSTITUTES THE COMPELLING REASON FOR CANCELING THE INVITATION CONTEMPLATED BY PARAGRAPH 2-404.1(A) OF THE ARMED SERVICES PROCUREMENT REGULATION AND FOR THE READVERTISEMENT OF THE PROCUREMENT. HOWEVER, CANCELLATION EMPHASIZES THE NEED FOR EFFECTIVE ADMINISTRATIVE DEFINITION AND EXPRESSION OF THE GOVERNMENT'S REQUIREMENTS DURING THE PROCUREMENT PLANNING PROCESS. BIDS - COMPETITIVE SYSTEM - "BUYING IN" PRICES WHERE THE LOW BID PRICE HAD BEEN CONFIRMED, NEGATING THE EXISTENCE OF A MISTAKE, THE SUSPICION OF "BUYING IN" DOES NOT REQUIRE REJECTION OF THE BID BECAUSE THE LOW BIDDER SUBMITTED AN UNPROFITABLE PRICE. PARAGRAPH 1- 311(A) OF THE ARMED SERVICES PROCUREMENT REGULATION IN DEFINING "BUYING IN" AS THE PRACTICE OF ATTEMPTING TO OBTAIN A CONTRACT AWARD BY KNOWINGLY OFFERING A PRICE OR COST ESTIMATE LESS THAN ANTICIPATED COSTS WITH THE EXPECTATION OF RECOVERING ANY LOSSES, EITHER DURING CONTRACT PERFORMANCES OR IN FUTURE "FOLLOW-ON" CONTRACTS, DOES NOT PROVIDE FOR BID REJECTION AND, THEREFORE, THERE IS NO LEGAL BASIS UPON WHICH AN AWARD MAY BE PRECLUDED OR DISTURBED BECAUSE A LOW BIDDER SUBMITTED AN UNPROFITABLE PRICE.

TO THE WOOD-IVEY SYSTEMS CORPORATION, JULY 23, 1970:

WE REFER TO YOUR LETTER OF JUNE 3, 1970, AND SUBSEQUENT CORRESPONDENCE, PROTESTING AGAINST THE CANCELLATION OF INVITATION FOR BIDS (IFB) NO. N00039-70-B-0019 (IFB-0019) AND THE SUBSEQUENT AWARD OF A CONTRACT TO VITRO CORPORATION OF AMERICA UNDER RESOLICITATION NO. N00039-70-B-0039 (IFB-0039). AWARD WAS MADE UNDER IFB-0039 ON JUNE 30, IN ACCORDANCE WITH PARAGRAPH 2-407.8(B)(2) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR).

THE FIRST INVITATION WAS ISSUED ON MARCH 18, 1970, AND COVERED, INSOFAR AS RELEVANT HERE, ENGINEERING SERVICES FOR SYSTEMS AND PROGRAM DEFINITION OF A COMBAT SYSTEMS MAINTENANCE TRAINING FACILITY (ITEM 1), INCLUDING THE FURNISHING OF CERTAIN TECHNICAL DATA (ITEM 1AA). BIDDERS WERE REQUESTED TO QUOTE PRICES ON THE BASIS OF A FIRM 20-MAN-YEAR LEVEL OF EFFORT FOR THE REQUIRED SERVICES.

BY THE APRIL 21, 1970, BID OPENING DATE, 10 FIRMS RESPONDED AND YOUR FIRM WAS DETERMINED TO BE THE LOW RESPONSIVE BIDDER. IN ACCORDANCE WITH PRESCRIBED PROCEDURES, A PREAWARD SURVEY WAS INITIATED TO DETERMINE YOUR FIRM'S RESPONSIBILITY. THE ADMINISTRATIVE REPORT DATED JUNE 26, 1970, FROM THE DIRECTOR OF CONTRACTS, NAVAL ELECTRONIC SYSTEMS COMMAND, INDICATES THAT DURING THE COURSE OF THE PREAWARD SURVEY, GOVERNMENT REPRESENTATIVES REALIZED THAT THE 20-MAN-YEAR LEVEL OF EFFORT SPECIFIED IN THE INVITATION WAS ERRONEOUS, AND THAT ON THE BASIS OF ITS REVISED ESTIMATE, 39 MAN-YEARS OF EFFORT WOULD BE NECESSARY TO FULFILL THE REQUIREMENTS OF THE INVITATION.

ON MAY 26, 1970, THE PROCURING ACTIVITY CANCELED IFB-0019 AND READVERTISED UNDER IFB-0039. BY LETTERS OF THE SAME DATE, ALL BIDDERS WERE ADVISED THAT IFB-0019 WAS CANCELED DUE TO "INADVERTENT AMBIGUITIES IN THE SCHEDULE." YOU MAINTAIN IN YOUR LETTER OF JUNE 3, 1970, THAT AN EXAMINATION OF THE CHANGES MADE BY THE REVISED INVITATION IN LIGHT OF IFB- 0019 DOES NOT DEMONSTRATE THE EXISTENCE OF THE ASSERTED "INADVERTENT AMBIGUITIES," AND THAT CANCELLATION OF THE INVITATION VIOLATED THE REQUIREMENTS OF ASPR 2-404.1.

ASPR 2-404.1(A) RECOGNIZES AND EXPRESSES THE BASIC PRINCIPLE GUIDING OUR REVIEW OF AN ADMINISTRATIVE DECISION TO CANCEL IN THE FOLLOWING TERMS: "THE PRESERVATION OF THE INTEGRITY OF THE COMPETITIVE BID SYSTEM DICTATES THAT AFTER BIDS HAVE BEEN OPENED, AWARD MUST BE MADE TO THAT RESPONSIBLE BIDDER WHO SUBMITTED THE LOWEST RESPONSIVE BID, UNLESS THERE IS A COMPELLING REASON TO REJECT ALL BIDS AND CANCEL THE INVITATION." MOREOVER, THE DETERMINATION OF WHETHER THERE EXISTS A COMPELLING OR "COGENT" REASON FOR CANCELLATION IS A MATTER PRIMARILY WITHIN THE DISCRETION OF THE ADMINISTRATIVE AGENCY AND WILL NOT BE DISTURBED IN THE ABSENCE OF CLEAR PROOF OF ABUSE OF DISCRETION. 47 COMP. GEN. 103 (1967); 39 ID. 396 (1959).

FROM OUR REVIEW OF THE RECORD, WE ARE, HOWEVER, UNABLE TO CONCLUDE THAT THE DECISION TO CANCEL IFB-0019 WAS AN ABUSE OF ADMINISTRATIVE DISCRETION. WHILE YOUR CORRESPONDENCE NOTES OTHER CHANGES IN THE REVISED INVITATION (WHICH ARE ALSO RELIED ON BY THE PROCURING ACTIVITY TO SUPPORT ITS DECISION TO CANCEL IFB-0019), WE WILL CONFINE OUR DISCUSSION TO THE REVISION DESIGNED TO REMEDY THE GOVERNMENT'S DETERMINATION THAT THE 20-MAN -YEAR LEVEL OF EFFORT WAS ERRONEOUS.

IFB-0039, AS ISSUED, DELETED ANY REFERENCE TO THE LEVEL OF EFFORT REQUIRED AND ADDED THE FOLLOWING "NOTE A" TO EXPLAIN THE PRICING REQUIREMENTS FOR ITEMS 1 AND 1AA:

NOTE A: THE BID FOR ITEM 1 SHALL BE A LUMP SUM AMOUNT TO COVER ENTIRE SCOPE OF WORK AS PRESENTED BY THE STATEMENT OF WORK WS-W022 02130-M DATED 13 FEBRUARY 1970 AND ITEM 1AA DATA REQUIREMENTS.

SUBSEQUENTLY, ON JUNE 11, 1970 THE PROCURING ACTIVITY ISSUED AMENDMENT 0001, WHICH EXTENDED THE BID OPENING UNDER THE REVISED INVITATION TO JUNE 22, 1970, AND ADDED THE FOLLOWING SENTENCE TO "NOTE A":

THE GOVERNMENT ESTIMATES, BUT DOES NOT REPRESENT, THE FOREGOING EFFORT TO CONSIST OF APPROXIMATELY 39 (THIRTY-NINE) MAN YEARS OF EFFORT. HOWEVER EACH OFFEROR IS TO ESTIMATE HIS OWN LABOR MIX TO ACHIEVE FULL AND COMPLETE COVERAGE OF THE REQUIREMENTS.

IT MUST BE EMPHASIZED THAT IN CONTRAST TO IFB-0039, AS AMENDED, IFB 0019 WOULD NOT, IN OUR VIEW, HAVE REQUIRED A SUCCESSFUL CONTRACTOR TO EXPEND MORE THAN 20 MAN-YEARS OF EFFORT IN PERFORMANCE OF A CONTRACT ISSUED THEREUNDER. THIS CIRCUMSTANCE IS PARTICULARLY SIGNIFICANT SINCE THERE APPEARS TO BE NO QUESTION THAT IN SERVICES OF THE NATURE INVOLVED IN THIS PROCUREMENT, THE LEVEL OF EFFORT EXPENDED IN MEETING THE GOVERNMENT'S REQUIREMENTS MAY HAVE A SUBSTANTIAL IMPACT ON THE QUALITY OF THE SUCCESSFUL CONTRACTOR'S PRODUCT AND ITS RESULTANT ACCEPTABILITY TO THE GOVERNMENT. AS STATED IN YOUR LETTER OF JUNE 24, 1970:

*** A PAPER STUDY OF THE TYPE DEFINED CAN BE COMPLETED FOR EITHER LEVEL OF EFFORT; HOWEVER, THE AMOUNT OF DETAIL ANALYSIS AND DESIGN ANTICIPATED IS WELL INDICATED BY THE ESTIMATED LEVEL OF EFFORT DESIRED.

THUS, IN VIEW OF THE CORRELATION BETWEEN THE LEVEL OF EFFORT AND THE ULTIMATE WORK PRODUCT, A PROVISION EXPRESSING A FIXED LEVEL OF EFFORT, AS OPPOSED TO AN ESTIMATED LEVEL, IS, IN EFFECT, A CRITICAL SPECIFICATION REQUIREMENT. WHERE, AS IN THE CASE OF THE ORIGINAL INVITATION, A SUCCESSFUL CONTRACTOR'S OBLIGATION IS LIMITED TO AN ERRONEOUS LEVEL OF EFFORT - THAT IS, A LEVEL WHICH WILL NOT PRODUCE THE RESULTS REQUIRED BY THE GOVERNMENT - THERE IS, IN ESSENCE, A FAILURE TO STATE THE GOVERNMENT'S MINIMUM NEEDS.

UNDER THE CIRCUMSTANCES, THIS FAILURE PRESENTS A COMPELLING REASON FOR CANCELLATION AND READVERTISEMENT. HOWEVER, IN REACHING THIS CONCLUSION, WE RECOGNIZE THAT THE NECESSITY FOR CANCELLATION IN THIS CASE EMPHASIZES THE NEED FOR EFFECTIVE ADMINISTRATIVE DEFINITION AND EXPRESSION OF THE GOVERNMENT'S REQUIREMENTS DURING THE PROCUREMENT PLANNING PROCESS. ALSO AGREE THAT THE PROCURING ACTIVITY'S NOTICE OF CANCELLATION DOES NOT ADEQUATELY INDICATE THE BASES FOR THE ACTION TAKEN. ACCORDINGLY, WE ARE BRINGING THESE MATTERS TO THE ATTENTION OF THE SECRETARY OF THE NAVY FOR SUCH CORRECTIVE ACTION AS MAY BE WARRANTED TO AVOID A RECURRENCE OF THIS SITUATION.

WITH RESPECT TO YOUR FINAL CONTENTION THAT VITRO'S BID ON THE RESOLICITATION EVIDENCES "BUY-IN" PRACTICES, AN EXAMINATION OF THE ABSTRACTS FOR BIDS INDICATES THE FOLLOWING PRICES FOR THE FIRMS RESPONDING TO BOTH INVITATIONS:

BIDDER IFB-0019 IFB 0039

WOOD-IVEY SYSTEMS CORPORATION $402,400 $598,000

VITRO CORPORATION OF AMERICA 424,914 439,902

DIGITRON SYSTEMS, INC. 496,000 539,520

LOGICON, INC. 605,400 470,199

ITT RESEARCH INSTITUTE 695,000 1,362,132

F&M SYSTEMS DIVISION 697,486 599,171

STANWICK CORPORATION 975,646 775,996

THE GOVERNMENT ESTIMATE WAS $350,000 FOR IFB-0019 AND $500,000 FOR IFB- 0039.

WHILE COMMENTING GENERALLY ON THE IMPLICATIONS THAT MAY BE DRAWN FROM THE CONTRASTS IN THE BIDS RECEIVED, YOU MAINTAIN SPECIFICALLY THAT THE MAN- YEARS OFFERED BY VITRO ARE INADEQUATE TO MEET THE GOVERNMENT'S REQUIREMENTS. THIS CONCLUSION IS BASED ON THE PREMISE, STATED IN YOUR LETTER OF JUNE 24, 1970, THAT:

*** IN ORDER TO INCREASE THE AMOUNT OF DETAIL IN THE EFFORT TO THAT DESIRED BY THE GOVERNMENT (APPROXIMATELY THE 39 MAN-YEAR EFFORT), THE WISCO (WOOD-IVEY) PRICE FOR IFB-0039 WAS INCREASED TO $598,000. THE PRICE INCREASE WAS NOT STRICTLY PROPORTIONAL TO MAN-YEAR EFFORT SINCE MUCH OF THE DETAIL WORK ADDED CAN BE ACCOMPLISHED WITH LOWER GRADE LEVEL PERSONNEL. NEVERTHELESS, THE POINT IS THAT A SUBSTANTIALLY HIGHER PRICE RESULTS FOR A 39 MAN-YEAR EFFORT THAN FOR A 20 MAN-YEAR EFFORT. THIS FACT IS NOT BORNE OUT IN THE OTHER BIDS.

HOWEVER, THE DIRECTOR OF CONTRACTS' ADMINISTRATIVE REPORT ADVISES THAT VITRO HAS CONFIRMED ITS BID IN ALL RESPECTS, THEREBY NEGATING THE EXISTENCE OF A MISTAKE, AND FURTHER EXPRESSES THE OPINION THAT VITRO'S BID IS "NOT UNREASONABLY LOW FOR THE WORK TO BE PERFORMED."

ACKNOWLEDGING, OF COURSE, THE GENERAL VALIDITY OF YOUR PREMISE, AND ASSUMING THE DIRECTOR OF CONTRACTS' OPINION MAY BE INCORRECT, WE ARE UNABLE TO INTERPOSE A LEGAL OBJECTION TO THE AWARD OF A CONTRACT TO VITRO. ASPR 1-311(A) OFFERS THE FOLLOWING DEFINITION OF "BUYING IN":

"BUYING IN" REFERS TO THE PRACTICE OF ATTEMPTING TO OBTAIN A CONTRACT AWARD BY KNOWINGLY OFFERING A PRICE OR COST ESTIMATE LESS THAN ANTICIPATED COSTS WITH THE EXPECTATION OF EITHER (I) INCREASING THE CONTRACT PRICE OR ESTIMATED COST DURING THE PERIOD OF PERFORMANCE THROUGH CHANGE ORDERS OR OTHER MEANS, OR (II) RECEIVING FUTURE "FOLLOW ON" CONTRACTS AT PRICES HIGH ENOUGH TO RECOVER ANY LOSSES ON THE ORIGINAL "BUY-IN" CONTRACT. ***

AND FURTHER PROVIDES THAT:

*** WHERE THERE IS REASON TO BELIEVE THAT "BUYING IN" HAS OCCURRED, CONTRACTING OFFICERS SHALL ASSURE THAT AMOUNTS THEREBY EXCLUDED IN THE DEVELOPMENT OF THE ORIGINAL CONTRACT PRICE ARE NOT RECOVERED IN THE PRICING OF CHANGE ORDERS OR OF FOLLOW-ON PROCUREMENTS SUBJECT TO COST ANALYSIS.

SINCE THE PERTINENT REGULATION DOES NOT PROVIDE FOR THE REJECTION OF A BID WHERE "BUYING IN" IS SUSPECTED, WE HAVE RECOGNIZED IN A NUMBER OF DECISIONS THAT THERE IS NO LEGAL BASIS UPON WHICH "AN AWARD MAY BE PRECLUDED OR DISTURBED MERELY BECAUSE THE LOW BIDDER SUBMITTED AN UNPROFITABLE PRICE." B-169465, JUNE 19, 1970, CITING B-150318, MARCH 25, 1963, AND B-149551, AUGUST 16, 1962.

ACCORDINGLY, YOUR PROTEST IS DENIED.

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