B-170035, JUL 23, 1970, 50 COMP GEN 54

B-170035: Jul 23, 1970

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

B. THE SYSTEMS ANALYSIS AND DESIGN SERVICES WILL INVOLVE TWO INSTALLATIONS TO DETERMINE SYSTEMS SPECIFICATIONS AND PREPARATION OF RELATED DOCUMENTATION. C. IT IS THE CONSENSUS THAT A HARDWARE MANUFACTURER ENGAGED IN THIS EFFORT WOULD. NOT HAVE THE OBJECTIVITY REQUIRED TO SOLVE THE PROBLEMS ON AN UNBIASED BASIS. D. THE PROPOSED STUDY WILL UNDOUBTEDLY RESULT IN A LARGE HARDWARE PROCUREMENT IN THE FUTURE. E. INASMUCH AS THE PRESENT PROCUREMENT AND FUTURE PROCUREMENTS OF THE HARDWARE WILL INVOLVE A CONFLICT OF INTEREST. IT IS ANTICIPATED THAT ALL HARDWARE PROCUREMENTS WILL BE COMPLETED. DAHC 15-70-Q-0075 WAS ISSUED ON MAY 5. ANY CONTRACT UNDER THIS SOLICITATION WILL CONTAIN AN AVOIDANCE OF ORGANIZATIONAL CONFLICT OF INTEREST CLAUSE.

B-170035, JUL 23, 1970, 50 COMP GEN 54

CONTRACTS - RESEARCH AND DEVELOPMENT - CONFLICTS OF INTEREST PROHIBITION THE DETERMINATION AND FINDINGS OF A CONFLICT OF INTEREST IN THE PROCUREMENT OF THE ANALYSIS AND DESIGN SERVICES TO UPDATE OBSOLESCENT AUTOMATIC DATA PROCESSING EQUIPMENT, AND THE PROPOSAL THAT THE DESIGN CONTRACT BAN THE SUCCESSFUL CONTRACTOR FROM PARTICIPATING IN THE FUTURE PROCUREMENT OF THE HARDWARE SATISFIES THE REQUIREMENT IN DEPARTMENT OF DEFENSE DIRECTIVE 5500.10, RULES FOR THE AVOIDANCE OR ORGANIZATIONAL CONFLICTS OF INTEREST, THAT THE CONTRACTOR "AGREES TO PREPARE AND FURNISH COMPLETE SPECIFICATIONS," NOTWITHSTANDING THE DESIGN CONTRACT DOES NOT CONSTITUTE THE WHOLE SPECIFICATIONS AND THE EXCLUSION FROM THE BAN OF THE PURCHASE OF DATA PROCESSING EQUIPMENT TO BE HANDLED BY OTHER THAN THE PROCURING AGENCY. HOWEVER, TO CARRY OUT THE INTENT OF THE DIRECTIVE, THE BAN SHOULD EXTEND TO THE DATE OF AWARD OF THE FIRST PRODUCTION CONTRACT RATHER THAN THE SPECIFIC DATE PROPOSED.

TO ARENT, FOX, KINTNER, PLOTKIN & KAHN, JULY 23, 1970:

WE REFER TO YOUR LETTERS OF JUNE 12 AND 24, 1970, AND JULY 15, 1970, ON BEHALF OF INFORMATICS, INC., PROTESTING THE PROPOSED AWARD OF A CONTRACT PURSUANT TO REQUEST FOR QUOTATIONS NO. DAHC 15-70-Q-0075, ISSUED BY THE DEFENSE SUPPLY SERVICE - WASHINGTON, WASHINGTON, D.C.

ON APRIL 15, 1970, THE DEFENSE SUPPLY SERVICE - WASHINGTON RECEIVED A REQUEST FROM THE OFFICE OF THE DEPUTY CHIEF OF STAFF FOR MILITARY OPERATIONS FOR ANALYSIS AND DESIGN SERVICES TO ENABLE THE TRANSITION OF OBSOLESCENT AUTOMATIC DATA PROCESSING EQUIPMENT USED BY THE ARMY OPERATIONS CENTER SYSTEM (TARMOCS) TO AN UPDATED SYSTEM DESIGNED AS TARMOCS II.

ON APRIL 27, 1970, THE CONTRACTING OFFICER DECIDED THAT THE CONTRACT SHOULD BE NEGOTIATED PURSUANT TO AUTHORITY IN 10 U.S.C. 2304 (A)(10) AND ARMED SERVICES PROCUREMENT REGULATION (ASPR) 3-210.2(VIII). ON APRIL 28, 1970, THE CONTRACTING OFFICER MADE THE FOLLOWING DECISION:

DETERMINATION AND FINDINGS

CONFLICT OF INTEREST

1. I HEREBY FIND THAT:

A. THE DEFENSE SUPPLY SERVICE - WASHINGTON PROPOSES TO PROCURE BY NEGOTIATION AUTOMATIC DATA PROCESSING SYSTEMS ANALYSIS AND DESIGN SERVICES TO ENABLE THE TRANSITION OF TARMOCS (THE ARMY OPERATIONS CENTER SYSTEM) TO TARMOCS II.

B. THE SYSTEMS ANALYSIS AND DESIGN SERVICES WILL INVOLVE TWO INSTALLATIONS TO DETERMINE SYSTEMS SPECIFICATIONS AND PREPARATION OF RELATED DOCUMENTATION.

C. IT IS THE CONSENSUS THAT A HARDWARE MANUFACTURER ENGAGED IN THIS EFFORT WOULD, IN ALL PROBABILITY, NOT HAVE THE OBJECTIVITY REQUIRED TO SOLVE THE PROBLEMS ON AN UNBIASED BASIS.

D. THE PROPOSED STUDY WILL UNDOUBTEDLY RESULT IN A LARGE HARDWARE PROCUREMENT IN THE FUTURE.

E. INASMUCH AS THE PRESENT PROCUREMENT AND FUTURE PROCUREMENTS OF THE HARDWARE WILL INVOLVE A CONFLICT OF INTEREST, THE ENSUING RFQ AND CONTRACT SHALL CONTAIN A CONFLICT OF INTEREST CLAUSE PURSUANT TO APPENDIX G OF THE ASPR. RULE 2.

2. I HEREBY DETERMINE THAT:

THE SUCCESSFUL CONTRACTOR FOR THE INITIAL PROCUREMENT SHALL BE BARRED FROM BIDDING ON THE HARDWARE REQUIREMENTS UNTIL 30 APRIL 1971, AT WHICH TIME, IT IS ANTICIPATED THAT ALL HARDWARE PROCUREMENTS WILL BE COMPLETED.

REQUEST FOR QUOTATIONS NO. DAHC 15-70-Q-0075 WAS ISSUED ON MAY 5, 1970, FOR THE REQUIRED DESIGN SERVICES AND THE REQUEST CONTAINED THE FOLLOWING CLAUSE:

CONFLICT OF INTEREST. PURSUANT TO DEPARTMENT OF DEFENSE DIRECTIVE 5500.10, JUNE 1, 1963, SUBJECT: RULES FOR THE AVOIDANCE OF ORGANIZATIONAL CONFLICTS OF INTEREST AND ASPR 1-113.2, THE CONTRACTING OFFICER HAS DETERMINED THAT THE SUCCESSFUL CONTRACTOR SHALL BE BARRED FROM PARTICIPATING, EITHER AS PRIME OR SUBCONTRACTOR, IN ANY CONTRACT AWARDED BY AN AGENCY OF THE U.S. GOVERNMENT PRIOR TO 30 APRIL 1971 RELATING TO THE FURNISHING OR MANUFACTURING OF ITEMS FOR THE ARMY OPERATIONS CENTER SYSTEM II (TARMOCS II). ANY CONTRACT UNDER THIS SOLICITATION WILL CONTAIN AN AVOIDANCE OF ORGANIZATIONAL CONFLICT OF INTEREST CLAUSE, SUBSTANTIALLY AS FOLLOWS:

"AVOIDANCE OF ORGANIZATIONAL CONFLICTS OF INTEREST"

"THE CONTRACTOR, AND ITS AFFILIATES, SHALL BE BARRED UNTIL 30 APRIL 1971 FROM FURNISHING EITHER AS PRIME OR SUBCONTRACTOR, TO ANY AGENCY OF THE UNITED STATES GOVERNMENT, ANY ITEM OR COMPONENT FOR THE ARMY OPERATIONS CENTER SYSTEM II (TARMOCS II)."

SHORTLY AFTER RELEASE OF THE REQUEST FOR PROPOSALS A QUESTION WAS RAISED AS TO THE EFFECT OF THE ORGANIZATIONAL CONFLICTS OF INTEREST CLAUSE ON A FORTHCOMING PURCHASE OF AUTOMATIC DATA PROCESSING EQUIPMENT FOR THE WORLD WIDE MILITARY COMMAND AND CONTROL SYSTEM (WWMCCS). THE CONTRACTING OFFICER CONCLUDED THERE WAS NO WAY FOR THE SUCCESSFUL CONTRACTOR TO AFFECT SUCH PURCHASE AND ON MAY 12, 1970, ISSUED THE FOLLOWING AMENDMENT TO THE RFQ:

FIRST: THE FIRST SENTENCE OF THE PARAGRAPH ENTITLED "CONFLICT OF INTEREST" ON PAGE 1 OF THE SF 18 IS HEREBY AMENDED BY ADDING THE WORDS "WITH THE EXCEPTION OF THE WWMCCS ADP EQUIPMENT UPDATE."

SECOND: THE FIRST SENTENCE OF THE PARAGRAPH ENTITLED "AVOIDANCE OF ORGANIZATIONAL CONFLICTS OF INTEREST" ON PAGE 1 OF THE SF 18 IS HEREBY AMENDED BY ADDING THE WORDS "WITH THE EXCEPTION OF THE WWMCCS ADP EQUIPMENT UPDATE."

THE GOVERNMENT'S ESTIMATE OF THE COST OF THE DESIGN WORK WAS $91,000. TOTAL OF 92 FIRMS WERE SOLICITED, FOUR RESPONDED, AND TWO FIRMS, INFORMATICS AND IBM CORPORATION, WERE FOUND TECHNICALLY QUALIFIED. NEGOTIATIONS WERE CONDUCTED WITH BOTH QUALIFIED OFFERORS ON A FIRM FIXED PRICE BASIS AND A CUTOFF DATE FOR NEGOTIATIONS WAS SET FOR JUNE 11, 1970, AT WHICH TIME IBM'S OFFER WAS LOW AS TO PRICE.

BY LETTER DATED JUNE 12, 1970, YOU PROTESTED ON BEHALF OF INFORMATICS, INC., AGAINST AN AWARD TO IBM CORPORATION OR ANY OTHER COMPUTER MANUFACTURER. THE BASIS FOR YOUR PROTEST WAS THAT A MANUFACTURER COULD DESIGN A SYSTEM IN WHICH ONLY HIS EQUIPMENT COULD BE UTILIZED, AND THAT THE HARDWARE BAN AS SET FORTH IN THE RFQ IS INADEQUATE TO PREVENT A MANUFACTURER FROM DESIGNING A RESTRICTIVE SYSTEM, WAITING UNTIL THE END OF THE HARDWARE BAN, AND THEN SELLING THE GOVERNMENT THE ONLY EQUIPMENT WHICH CAN BE USED UNDER THE DESIGN. YOU POINTED OUT THAT THE DESIGN CONTRACT WOULD BE COMPLETED IN MID-MARCH 1971 AND THE HARDWARE BAN WOULD LAST ONLY UNTIL APRIL 30, 1971. YOU FURTHER PROTESTED THE EXCLUSION OF THE WWMCCS EQUIPMENT PURCHASE FROM THE HARDWARE BAN ON THE THEORY THAT IF A MANUFACTURER DESIGNED A RESTRICTIVE SYSTEM FOR THE ARMY OPERATIONS CENTER, HE WILL BE MORE LIKELY TO BE GIVEN THE WWMCCS EQUIPMENT CONTRACT TO INSURE COMPATIBILITY BETWEEN THE TWO SYSTEMS. YOUR LETTER OF JUNE 24, 1970, TO THE SECRETARY OF THE ARMY, A COPY OF WHICH WAS FURNISHED TO OUR OFFICE, WAS PRIMARILY AN EXPANSION OF YOUR ARGUMENT THAT AN EQUIPMENT MANUFACTURER COULD BIAS THE RESULTS OF THE DESIGN CONTRACT AND THEREAFTER SELL HIS OWN EQUIPMENT UPON EXPIRATION OF THE INADEQUATE HARDWARE BAN.

THE DEPARTMENT OF THE ARMY'S REPORT OF JULY 9, 1970, TO THIS OFFICE DISCLOSES THAT THE EQUIPMENT PURCHASE FOR THE WWMCCS WILL BE HANDLED BY THE AIR FORCE, USING SPECIFICATIONS ALREADY IN EXISTENCE, PREPARED IN THE OFFICE OF THE JOINT CHIEFS OF STAFF AND APPROVED BY THE DEPARTMENT OF DEFENSE. THE ESTIMATE FOR VENDOR SELECTION FOR THE WWMCCS EQUIPMENT IS FEBRUARY 1971, WHICH IS PRIOR TO THE ESTIMATED COMPLETION DATE OF MARCH 15, 1971, FOR THE DESIGN CONTRACT IN QUESTION. THE REPORT ALSO ADVISES THAT EACH ORGANIZATION PARTICIPATING IN THE WWMCCS WILL BUY ITS EQUIPMENT FROM THE CONTRACTOR WHO IS SUCCESSFUL IN THE AIR FORCE NEGOTIATIONS, AND THE ONLY CIRCUMSTANCE IN WHICH THE ARMY DESIGN CONTRACT WOULD RESULT IN AN INDEPENDENT PURCHASE OF AUTOMATIC DATA PROCESSING EQUIPMENT WOULD BE IN THE EVENT THAT THE WWMCCS IS NOT IMPLEMENTED. IN THIS CONNECTION WE ARE ADVISED THAT THE ARMY'S TARMOCS HAS REACHED A POINT OF OBSOLESCENCE AND WILL BE UPDATED REGARDLESS OF WHETHER THE WWMCCS IS IMPLEMENTED.

THE ARMY'S REPORT ALSO POINTS OUT THAT EVEN FOR AN INDEPENDENT PURCHASE THE SUCCESSFUL DESIGN CONTRACTOR WILL BE WORKING ON ONLY TWO OF SEVEN PARTS OF THE SYSTEMS SPECIFICATIONS SET FORTH IN APPENDIX E OF ARMY REGULATION 18-2. THE ARMY DOES NOT CONSIDER THESE TWO PARTS TO BE A MAJOR PORTION OF THE SPECIFICATIONS AND POINTS OUT THAT THE TWO PARTS OF THE SPECIFICATIONS PRODUCED BY THE DESIGN CONTRACT WILL BE COMBINED WITH THE OTHER FIVE PARTS AND THEN REVIEWED BY THE U.S. ARMY COMPUTER SUPPORT AND EVALUATION COMMAND.

WITH RESPECT TO THE HARDWARE BAN, THE REPORT STATES:

FINALLY, THE ARMY HAS IMPOSED A BAN ON THE SUCCESSFUL CONTRACTOR'S PARTICIPATION IN A HARDWARE PROCUREMENT FOR TARMOCS. ADMITTEDLY THE BAN REMAINS IN EFFECT FOR ONLY A SHORT PERIOD OF TIME BUT THE ADP EXPERTS IN THE ARMY'S ADP POLICY MAKING ORGANIZATION, THE MANAGEMENT INFORMATION SYSTEMS DIRECTORATE AND THE TECHNICAL ADP PERSONNEL IN THE HEADQUARTERS, U.S. ARMY COMMAND AND CONTROL SUPPORT DETACHMENT AGREED THAT THE TIME SPECIFIED WAS ADEQUATE TO PROTECT THE INTERESTS OF ALL.

YOUR LETTER OF JULY 15, 1970, AND ATTACHED BRIEF, COMMENTING ON THE ADMINISTRATIVE REPORT, STATES THE ISSUE BEFORE OUR OFFICE IS WHETHER THE HARDWARE BAN INCLUDED IN THE RFQ AND PROPOSED TO BE INCLUDED IN THE CONTRACT COMPLIES WITH ASPR REQUIREMENTS AND IS APPROPRIATE UNDER THE CIRCUMSTANCES.

DEPARTMENT OF DEFENSE DIRECTIVE 5500.10 OF JUNE 1, 1963, AS CONTAINED IN APPENDIX G OF ASPR, PROVIDES, INSOFAR AS IT IS PERTINENT TO THE INSTANT CASE, AS FOLLOWS:

2. IF A CONTRACTOR AGREES TO PREPARE AND FURNISH COMPLETE SPECIFICATIONS COVERING NONDEVELOPMENT ITEMS TO BE USED IN COMPETITIVE PROCUREMENT, THAT CONTRACTOR SHALL NOT BE ALLOWED TO FURNISH SUCH ITEMS, EITHER AS A PRIME OR SUBCONTRACTOR, FOR A REASONABLE PERIOD OF TIME INCLUDING, AT LEAST, THE INITIAL PROCUREMENT.

ON THE RECORD BEFORE US, THE QUESTION OF WHETHER THE DESIGN CONTRACTOR "AGREES TO PREPARE AND FURNISH COMPLETE SPECIFICATIONS" MUST BE CONSIDERED IN THE CONTEXT OF THE POSSIBILITY OF AN INDEPENDENT PURCHASE OF AUTOMATIC DATA PROCESSING EQUIPMENT BY THE ARMY FOR TARMOCS II IN THE EVENT THE WWMCCS IS NOT IMPLEMENTED, SINCE THE HARDWARE BAN HAS NO EFFECT IF THE WWMCCS PROCEEDS AS SCHEDULED. THE TWO PARTS OF THE SPECIFICATIONS COVERED BY THE INSTANT DESIGN CONTRACT DO NOT CONSTITUTE THE WHOLE OF THE ARMY SPECIFICATIONS, BUT THE CONTRACTING OFFICER APPARENTLY FOUND THAT THE SPECIFICATIONS FOR THOSE TWO PARTS WERE COMPLETE ENOUGH TO PRODUCE A CONFLICT OF INTEREST BETWEEN THE DESIGN CONTRACTOR AND THE HARDWARE SUPPLIER. IN OUR OPINION, THIS FINDING IS ADEQUATELY SUPPORTED BY THE FACTS OF RECORD. ONCE THE PROVISIONS OF THE DIRECTIVE HAVE BEEN INVOKED, HOWEVER, THERE REMAINS A QUESTION OF WHETHER THE DETERMINATION OF THE EXTENT OF THE EXCLUSION CARRIES OUT THE INTENT OF THE DIRECTIVE.

WE HAVE CONSIDERED QUESTIONS INVOLVING THE APPLICABILITY OF THE CONFLICTS OF INTEREST PROVISIONS OF DOD DIRECTIVE 5500.10 IN TWO RECENT DECISIONS, 48 COMP. GEN. 702 (1969) AND 49 COMP. GEN. 463 (1970). THE PROTESTANTS IN EACH OF THOSE CASES ADVOCATED APPLICATION OF THE DIRECTIVE TO SUCCESSFUL BIDDERS BUT IN NEITHER CASE HAD THE CONTRACTING OFFICER MADE A FINDING THAT A CONFLICT EXISTED. WE HELD IN BOTH CASES THAT THE PROVISIONS OF THE DIRECTIVE WERE NOT SELF EXECUTING, BUT DEPENDED UPON EXERCISE OF JUDGMENT OR DISCRETION ON THE PART OF THE CONTRACTING OFFICER.

ASPR 1-113.2 POINTS OUT IN SUBSECTION (A) THAT THE DIRECTIVE CANNOT OF ITSELF IMPOSE ANY OBLIGATIONS ON THE CONTRACTOR, AND SUCH OBLIGATIONS MUST BE IMPOSED BY A CONTRACT CLAUSE DESIGNED TO CARRY OUT THE INTENT OF THE DIRECTIVE. SUBSECTION (B) FURTHER PROVIDES THAT THE CONTRACTING OFFICER IS RESPONSIBLE FOR APPLYING THE RULES IN THE DIRECTIVE TO CONTRACTS UNDER HIS COGNIZANCE. PARAGRAPH 1-113.2(B)(2) STATES THAT A CLAUSE WHICH EXCLUDES A CONTRACTOR FROM A SUBSEQUENT PROCUREMENT "MAY RUN TO THE DATE OF AWARD OF THE FIRST PRODUCTION CONTRACT OR FOR A STATED PERIOD."

ALTHOUGH EXCLUSION TO THE DATE OF AWARD OF THE FIRST PRODUCTION CONTRACT IS STATED FIRST IN ORDER OF PREFERENCE IN ASPR 1-113.2(B)(2), THE CONTRACTING OFFICER CHOSE THE SECOND ALTERNATIVE OF SETTING THE EXCLUSION FOR A STATED PERIOD IN THE EXPECTATION THAT ALL HARDWARE PROCUREMENTS WILL BE COMPLETED BY THE EXPIRATION OF THE EXCLUSION. THE ARMY'S ASSIGNED PRIORITY IN THE WWMCCS PHASING SCHEDULE MAKES THIS A REASONABLE EXPECTATION, SINCE THE ARMY MUST BE PREPARED TO SET FORTH ITS REQUIREMENTS SHORTLY AFTER APRIL 1, 1971, ALTHOUGH IT IS POSSIBLE THAT SUBSEQUENT CHANGES IN PLANS OR PROGRAMS COULD DELAY THE PROCUREMENT AND RENDER THE EXCLUSION INEFFECTIVE. THE CONTRACTING OFFICER WAS, HOWEVER, WITHIN THE BOUNDS OF HIS ADMINISTRATIVE DISCRETION SINCE THE APPLICABLE REGULATION ALLOWS HIM TO SET THE EXCLUSION FOR A FIXED PERIOD.

ACCORDINGLY, WE FIND NO LEGAL BASIS UPON WHICH TO OBJECT TO THE ACTIONS OF THE CONTRACTING OFFICER AND YOUR PROTEST MUST THEREFORE BE DENIED. ARE, HOWEVER, SENDING A COPY OF OUR DECISION OF TODAY TO THE SECRETARY OF THE ARMY WITH A LETTER SUGGESTING THAT A MODIFICATION OF THE EXCLUSION DATE FROM APRIL 30, 1971, TO THE DATE OF AWARD OF THE FIRST PRODUCTION CONTRACT IN ACCORD WITH ASPR 1-113.2(B)(2) WOULD BE A MORE CERTAIN MEANS OF CARRYING OUT THE INTENT OF DOD DIRECTIVE 5500.10.