B-170996, DEC. 7, 1970

B-170996: Dec 7, 1970

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CORRECTION OF THE ERROR WILL BE ALLOWED AND AS THE PROCURING ACTIVITY HAS NOT FOUND THE ARRANGEMENT OBJECTIONABLE UNDER THE "COVENANT AGAINST CONTINGENT FEES. TO VECTOR AN AYDIN COMPANY: FURTHER REFERENCE IS MADE TO YOUR LETTER DATED OCTOBER 9. THE ABOVE-REFERENCED INVITATION WAS ISSUED ON JULY 22. SEVENTEEN FIRMS WERE SOLICITED. FROM WHICH THE FOLLOWING BIDS WERE RECEIVED BY BID OPENING TIME ON OCTOBER 1. WE SHALL DISCUSS THE THREE BASES OF YOUR PROTEST IN THE ORDER IN WHICH THEY ARE PRESENTED IN YOUR LETTER OF OCTOBER 9. PAGE 2 OF WHICH IS ENTITLED "REPRESENTATIONS. FOR BREACH OR VIOLATION OF THIS WARRANTY THE GOVERNMENT SHALL HAVE THE RIGHT TO ANNUL THIS CONTRACT WITHOUT LIABILITY OR IN ITS DISCRETION.

B-170996, DEC. 7, 1970

BID PROTEST - NEGOTIATIONS - CONTINGENT FEES DENIAL OF PROTEST OF VECTOR AN AYDIN COMPANY AGAINST THE AWARD OF A CONTRACT FOR 210 TELEMETRIC SECTIONS ISSUED BY THE NAVY REGIONAL PROCUREMENT OFFICE, LOS ANGELES, CALIF., TO MICROCOM CORPORATION, LOW BIDDER. WHERE LOW BIDDER RETAINED THE SERVICES OF A MANUFACTURER'S REPRESENTATIVE ON A CONTINGENT FEE ARRANGEMENT BUT FAILED TO NOTE THIS FACT IN THE APPROPRIATE PART OF ITS BID, CORRECTION OF THE ERROR WILL BE ALLOWED AND AS THE PROCURING ACTIVITY HAS NOT FOUND THE ARRANGEMENT OBJECTIONABLE UNDER THE "COVENANT AGAINST CONTINGENT FEES," THE GAO FINDS NO LEGAL BASIS FOR OBJECTION TO THE FINDING.

TO VECTOR AN AYDIN COMPANY:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED OCTOBER 9, 1970, WITH ENCLOSURE, PROTESTING THE PROPOSED AWARD OF A CONTRACT TO MICROCOM CORPORATION UNDER INVITATION FOR BIDS (IFB) NO. N00123-71-B-0140, ISSUED BY THE NAVAL REGIONAL PROCUREMENT OFFICE, LOS ANGELES, CALIFORNIA.

THE ABOVE-REFERENCED INVITATION WAS ISSUED ON JULY 22, 1970, FOR THE SUPPLY OF 210 TELEMETRIC SECTIONS. SEVENTEEN FIRMS WERE SOLICITED, FROM WHICH THE FOLLOWING BIDS WERE RECEIVED BY BID OPENING TIME ON OCTOBER 1, 1970:

MICROCOM $ 597,138.60

VECTOR 790,000.00

TELEDYNE 827,627.00

ELECTRONIC COMMUNICATIONS 866,415.00

IED DIV. OF CONIC 933,577.00

EON INSTRUMENTATION 945,628.00

RADIATION SYSTEMS 1,039,495.00

BASE TEN SYSTEMS 1,115,778.00

TELE-DYNAMICS 1,140,580.00

RAYTHEON 1,399,525.00

UPON EXAMINING THE MICROCOM BID, YOU PROTESTED AGAINST AWARD OF THE CONTRACT TO THAT FIRM, WHICH AWARD HAS BEEN WITHHELD PENDING RESOLUTION OF THE PROTEST BY OUR OFFICE. WE SHALL DISCUSS THE THREE BASES OF YOUR PROTEST IN THE ORDER IN WHICH THEY ARE PRESENTED IN YOUR LETTER OF OCTOBER 9, 1970.

THE INSTANT SOLICITATION INCLUDED STANDARD FORM 33, PAGE 2 OF WHICH IS ENTITLED "REPRESENTATIONS, CERTIFICATIONS, AND ACKNOWLEDGMENTS," AND PARAGRAPH 3 OF WHICH READS AS FOLLOWS:

"3. CONTINGENT FEE (SEE PAR. 15 ON SF 33A)

(A)HE HAS, HAS NOT, EMPLOYED OR RETAINED ANY COMPANY OR PERSON (OTHER THAN A FULL-TIME, BONA FIDE EMPLOYEE WORKING SOLELY FOR THE OFFEROR) TO SOLICIT OR SECURE THIS CONTRACT, AND (B) HE

HAS, HAS NOT, PAID OR AGREED TO PAY ANY COMPANY OR PERSON (OTHER THAN A FULL-TIME, BONA FIDE EMPLOYEE WORKING SOLELY FOR THE OFFEROR) ANY FEE, COMMISSION, PERCENTAGE, OR BROKERAGE FEE CONTINGENT UPON OR RESULTING FROM THE AWARD OF THIS CONTRACT; AND AGREES TO FURNISH INFORMATION RELATING TO (A) AND (B) ABOVE, AS REQUESTED BY THE CONTRACTING OFFICER. (FOR INTERPRETATION OF THE REPRESENTATION, INCLUDING THE TERM 'BONA FIDE EMPLOYEE,' SEE CODE OF FEDERAL REGULATIONS, TITLE 41, SUBPART 1-1.5.)" COMPLETING PARAGRAPH 3, MICROCOM CHECKED THE SECOND BOX AFTER BOTH (A) AND (B), THEREBY INDICATING THAT IT HAD NOT EMPLOYED SOMEONE OTHER THAN A "FULL-TIME, BONA FIDE EMPLOYEE" TO SOLICIT AND SECURE THE CONTRACT, AND INDICATING THAT IT HAD NOT PAID OR AGREED TO PAY ANY SUCH PERSON OR COMPANY ANY AMOUNT INCIDENT TO THE AWARD OF THE CONTRACT. THE SOLICITATION ALSO CONTAINED STANDARD FORM 33A AND INCORPORATED BY REFERENCE THE CLAUSE "COVENANT AGAINST CONTINGENT FEES (1958 JAN)" APPEARING AT ARMED SERVICES PROCUREMENT REGULATION (ASPR) 7-103.20, WHICH PROVIDES AS FOLLOWS:

"THE CONTRACTOR WARRANTS THAT NO PERSON OR SELLING AGENCY HAS BEEN EMPLOYED OR RETAINED TO SOLICIT OR SECURE THIS CONTRACT UPON AN AGREEMENT OR UNDERSTANDING FOR A COMMISSION, PERCENTAGE, BROKERAGE, OR CONTINGENT FEE, EXCEPTING BONA FIDE EMPLOYEES OR BONA FIDE ESTABLISHED COMMERCIAL OR SELLING AGENCIES MAINTAINED BY THE CONTRACTOR FOR THE PURPOSE OF SECURING BUSINESS. FOR BREACH OR VIOLATION OF THIS WARRANTY THE GOVERNMENT SHALL HAVE THE RIGHT TO ANNUL THIS CONTRACT WITHOUT LIABILITY OR IN ITS DISCRETION, TO DEDUCT FROM THE CONTRACT PRICE OR CONSIDERATION, OR OTHERWISE RECOVER, THE FULL AMOUNT OF SUCH COMMISSION, PERCENTAGE, BROKERAGE OR CONTINGENT FEE."

YOUR FIRST CONTENTION IS THAT THE REPRESENTATIONS MADE BY MICROCOM IN PARAGRAPH 3 OF STANDARD FORM 33 WERE IN ERROR, SINCE MICROCOM HAS RETAINED THE SERVICES OF A MANUFACTURERS' REPRESENTATIVE WHICH REPRESENTED MICROCOM AT THE BID OPENING. UPON RECEIPT OF YOUR PROTEST THE PROCURING ACTIVITY, AS IS CONTEMPLATED BY THE TERMS OF PARAGRAPH 3, REQUESTED FURTHER INFORMATION FROM MICROCOM CONCERNING THE NATURE OF ITS RELATIONSHIP WITH ITS REPRESENTATIVE. THE REASONS ADVANCED BY MICROCOM FOR ITS NEGATIVE REPRESENTATIONS IN PARAGRAPH 3 INDICATE THAT IT CONFUSED THE REQUIREMENTS OF THAT PARAGRAPH WITH THE FACTORS SET FORTH IN ASPR 1-505.3 AND 1-505.4 FOR DETERMINING WHETHER AN INDIVIDUAL WAS A "BONA FIDE EMPLOYEE" OR AN AGENCY WAS A "BONA FIDE ESTABLISHED COMMERCIAL OR SELLING AGENCY MAINTAINED BY THE CONTRACTOR FOR THE PURPOSE OF SECURING BUSINESS." MICROCOM'S NEGATIVE REPRESENTATIONS WERE THEREFORE MADE IN LIGHT OF ITS CONCLUSIONS THAT THE INDIVIDUAL WHO REPRESENTED IT AT BID OPENING WAS A "BONA FIDE EMPLOYEE" WITHIN THE DEFINITION SET OUT IN ASPR 1-505.3, SINCE THE CORPORATION WHICH THAT INDIVIDUAL OWNED, AND WITH WHICH MICROCOM HAD EXECUTED A SALES AGENCY AGREEMENT, QUALIFIED AS A "BONA FIDE ESTABLISHED COMMERCIAL OR SELLING AGENCY" UNDER ASPR 1-505.4. MICROCOM HAS SUBSEQUENTLY SUBMITTED TO THE PROCURING ACTIVITY A STANDARD FORM 119, "CONTRACTOR'S STATEMENT OF CONTINGENT OR OTHER FEES," INCLUDING A COPY OF THE SALES AGENCY AGREEMENT, WHICH IS DESIGNATED AS AN "ENGINEERING REPRESENTATION AGREEMENT", WITH THE SELLING AGENCY IN QUESTION.

THE PROCURING ACTIVITY, UPON EXAMINATION OF THE AGREEMENT, CONCLUDED THAT MICROCOM SHOULD HAVE INDICATED IN PARAGRAPH 3 THAT IT HAD A CONTINGENT FEE ARRANGEMENT. HOWEVER, IT APPEARS THAT THE PROCURING ACTIVITY IS OF THE OPINION THAT THE ARRANGEMENT IS NOT VIOLATIVE OF THE WARRANTY CONTAINED IN ASPR 7-103.20, AND MADE A PART OF THE SOLICITATION. FROM OUR EXAMINATION OF THE SALES AGENCY AGREEMENT WE SEE NO VALID BASIS ON WHICH TO DISAGREE WITH THE POSITION OF THE PROCURING ACTIVITY.

ASPR 1-508.3 PROVIDES IN PERTINENT PART:

"IN CASE OF MISREPRESENTATION CONCERNING CONTINGENT FEES, *** (THE GOVERNMENT) SHALL TAKE ONE OR MORE OF THE FOLLOWING ACTIONS, OR OTHER ACTION, AS MAY BE APPROPRIATE:

"(I) IF AN AWARD HAS NOT BEEN MADE OR BID OR OFFER HAS NOT BEEN ACCEPTED, DETERMINE WHETHER THE BID OR OFFER SHOULD BE REJECTED *** ." MICROCOM MADE SUCH A MISREPRESENTATION AS A RESULT OF AN APPARENT MISUNDERSTANDING OF THE REQUIREMENTS OF THE SOLICITATION. HOWEVER, SINCE MICROCOM HAS SUBSEQUENTLY PROVIDED INFORMATION CONCERNING ITS CONTINGENT FEE ARRANGEMENT, AND THE PROCURING ACTIVITY HAS NOT FOUND THAT ARRANGEMENT OBJECTIONABLE UNDER THE "COVENANT AGAINST CONTINGENT FEES," WE FIND NO LEGAL BASIS FOR OBJECTION TO THE PROCURING ACTIVITY'S DETERMINATION NOT TO REJECT THE MICROCOM BID.

YOUR SECOND CONTENTION IS THAT MICROCOM SHOULD BE REJECTED AS A NONRESPONSIBLE PROSPECTIVE CONTRACTOR UNDER ASPR 1-903.1(III) BECAUSE IT HAS AN UNSATISFACTORY RECORD OF PERFORMANCE. IN THIS CONNECTION, YOU STATE IT IS YOUR UNDERSTANDING THAT MICROCOM IS DELINQUENT IN DELIVERY UNDER CONTRACTS N00123-70-C-0891, N66001-70-C-1111 AND N00123 71-C-0131.

ON OCTOBER 9, 1970, THE PROCURING ACTIVITY REQUESTED THE DEFENSE CONTRACT ADMINISTRATION SERVICES REGION (DCASR), PHILADELPHIA, TO CONDUCT A PREAWARD SURVEY OF MICROCOM. THE PROCURING ACTIVITY SPECIFICALLY DIRECTED THE ATTENTION OF DCASR, PHILADELPHIA, TO YOUR ALLEGATIONS REGARDING MICROCOM'S RESPONSIBILITY. IN ITS PREAWARD SURVEY REPORT OF OCTOBER 27, 1970, DCASR RECOMMENDED THAT THE COMPLETE AWARD BE MADE TO MICROCOM.

THE DCASR PREAWARD SURVEY TEAM IN THE INSTANT CASE INVESTIGATED MICROCOM'S TECHNICAL CAPABILITY, PRODUCTION CAPABILITY, PLANT FACILITIES AND EQUIPMENT, FINANCIAL CAPABILITY, PURCHASING AND SUBCONTRACTING, ACCOUNTING SYSTEM, QUALITY ASSURANCE CAPABILITY, TRANSPORTATION, PLANT SAFETY, PERFORMANCE RECORD AND ABILITY TO MEET THE REQUIRED SCHEDULE. WITH REGARD TO MICROCOM'S PERFORMANCE RECORD, THE PREAWARD SURVEY TEAM REPORTED THAT NONE OF THE FOUR CONTRACTS UNDER THE PRODUCTION SURVEILLANCE OF DCASR, PHILADELPHIA, WERE DELINQUENT. CONTRACT NO. N00123-70-C-0891 WAS COMPLETED UNDER A DELIVERY SCHEDULE WHICH WAS EXTENDED BECAUSE OF DIFFICULTIES ENCOUNTERED BY MICROCOM IN OBTAINING ACCEPTABLE MATERIALS FROM A SUPPLIER. UNDER CONTRACT NO. N00123-71-C-0131, MICROCOM WAS AWAITING FIRST ARTICLE APPROVAL BY THE GOVERNMENT, AND WAS EXPECTED TO MAKE TIMELY DELIVERY UPON RECEIPT OF NOTICE OF ACCEPTANCE. PERFORMANCE UNDER CONTRACT NO. N66001-70-C-1111 WAS DELAYED WHEN A NEW SOURCE FOR ISOLATORS HAD TO BE LOCATED AFTER THE ORIGINAL SOURCE WAS ACQUIRED BY ANOTHER COMPANY. DELIVERY IS EXPECTED WITHIN THE EXTENDED DELIVERY SCHEDULE. MICROCOM'S DIFFICULTIES WITH SUPPLIERS WERE NOT OF SUCH GRAVITY AS TO WARRANT AN "UNSATISFACTORY" RATING OF ITS PERFORMANCE RECORD.

IT IS THE ESTABLISHED POSITION OF OUR OFFICE THAT THE RESPONSIBILITY OR NONRESPONSIBILITY OF A PROSPECTIVE CONTRACTOR IS A MATTER PRIMARILY FOR DETERMINATION BY THE CONTRACTING OFFICER, AND HIS JUDGMENT WILL BE QUESTIONED BY OUR OFFICE ONLY UPON A SHOWING OF BAD FAITH OR LACK OF A REASONABLE BASIS FOR THE DECISION REACHED. 37 COMP. GEN. 430, 435 (1957). IN VIEW OF THE WHOLLY FAVORABLE RECOMMENDATION OF THE PREAWARD SURVEY TEAM, WHOSE INVESTIGATION WAS CONDUCTED WITH KNOWLEDGE OF THE ALLEGATIONS MADE IN YOUR PROTEST, WE CANNOT CONCLUDE THAT THE DETERMINATION BY THE CONTRACTING OFFICER THAT MICROCOM IS A RESPONSIBLE BIDDER IS SUBJECT TO OBJECTION BY OUR OFFICE.

YOUR FINAL ARGUMENT IS THAT MICROCOM'S BID SHOULD BE REJECTED BECAUSE ITS PRICE IS SO LOW AS TO CONSTITUTE A "BUY-IN." YOU HAVE COMPARED MICROCOM'S BID PRICE WITH YOUR OWN BID PRICE AND THOSE OF THE OTHER BIDDERS IN SUPPORT OF THIS CONTENTION. IN THIS REGARD, DCASR, PHILADELPHIA, CONFIRMED MICROCOM'S BID PRICES DURING THE PREAWARD SURVEY, THUS ELIMINATING THE POSSIBILITY OF MISTAKE.

FURTHER, ASPR 1-311(B) PROVIDES:

"TO AVOID OR MINIMIZE THE OPPORTUNITY FOR 'BUYING IN' ON A PROCUREMENT WHICH IS LIKELY TO BE SUCCEEDED BY ONE OR MORE 'FOLLOW ON' PROCUREMENTS, THE GOVERNMENT SHOULD OBTAIN FROM THE CONTRACTOR A BINDING PRICE COMMITMENT COVERING AS MUCH OF THE ENTIRE PROGRAM CONCERNED AS IS PRACTICABLE. SUCH A COMMITMENT MAY BE SECURED THROUGH EMPLOYMENT OF ONE OF THE FOLLOWING PROCUREMENT TECHNIQUES:

"(2) PRICED OPTIONS FOR ADDITIONAL QUANTITIES WHICH, TOGETHER WITH THE QUANTITIES BEING FIRMLY CONTRACTED FOR, EQUAL THE ANTICIPATED TOTAL PROGRAM REQUIREMENTS (SEE 1-1504)." THE TECHNIQUE DESCRIBED ABOVE WAS USED IN THE INSTANT SOLICITATION, SINCE UNDER PARAGRAPHS J-2 AND J-3 OF THE SPECIAL PROVISIONS BIDDERS WERE REQUIRED TO SUBMIT PRICES ON OPTIONS FOR ADDITIONAL QUANTITIES ON ALL LINE ITEMS EXCEPT SPARE PARTS. MICROCOM'S OPTION UNIT PRICES WERE THE SAME AS ITS BASIC BID PRICES.

WITH RESPECT TO YOUR SUGGESTION THAT "AN AUDIT BY THE GOVERNMENT OF MICROCOM'S QUOTATION" WOULD SUPPORT YOUR CONTENTION, WE ARE AWARE OF NO PROVISION IN THIS FORMALLY ADVERTISED SOLICITATION PERMITTING SUCH AUDIT BY THE DEPARTMENT OF THE NAVY OR THIS OFFICE. HOWEVER, A COMPARISON OF MICROCOM'S BID ON LINE ITEMS 14, 15, 16, 19 AND 20, CONSISTING OF SPARE PARTS, WITH MICROCOM'S VENDORS' QUOTATIONS PROVIDED TO THE PREAWARD SURVEY TEAM INDICATE THAT MICROCOM WAS NOT OFFERING A PRICE BELOW COST. IN VIEW THEREOF, WE CANNOT CONCLUDE THAT A "BUY-IN" HAS OCCURRED. IN THIS CONNECTION, HOWEVER, IT SHOULD ALSO BE NOTED THAT OUR OFFICE WOULD NOT BE IN A POSITION TO LEGALLY OBJECT TO THE AWARD OF A CONTRACT EVEN IF IT WERE ESTABLISHED THAT MICROCOM HAD "BOUGHT INTO" THE PROCUREMENT. AS WE STATED IN OUR DECISION 50 COMP. GEN. (B-169977(1), JULY 23, 1970):

"(ASPR 1-311(A)) 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."

FOR THE FOREGOING REASONS, YOUR PROTEST MUST BE DENIED.