B-171578(2), JUL 28, 1971

B-171578(2): Jul 28, 1971

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IF THE DELIVERY SCHEDULE WAS A MANDATORY REQUIREMENT. A PROVISION SHOULD HAVE BEEN INCLUDED IN THE FIRST STEP ADVISING OFFERORS THAT PROPOSALS CONTAINING NONCONFORMING SCHEDULES WOULD BE REJECTED AS NONRESPONSIVE. SECRETARY: REFERENCE IS MADE TO LETTER DATED FEBRUARY 12. THERE IS ENCLOSED A COPY OF OUR LETTER OF TODAY TO THE COMPANY DENYING ITS PROTEST. WHILE WE HAVE DENIED THE PROTEST. WE ARE CALLING TO YOUR ATTENTION CERTAIN DEFECTS IN THE PROCEDURES FOLLOWED. THE PRINCIPAL ISSUE OF THE PROTEST COULD HAVE BEEN PREVENTED HAD THERE BEEN INCLUDED IN THE FIRST STEP A PROVISION SPECIFICALLY ADVISING OFFERORS THAT PROPOSALS CONTAINING NONCONFORMING SCHEDULES WOULD BE CONSIDERED NONRESPONSIVE AND REJECTED.

B-171578(2), JUL 28, 1971

BID PROTEST - DELIVERY SCHEDULE - LIQUIDATED DAMAGES RECOMMENDATIONS INCIDENT TO DENYING PROTEST BY MEDICAL COACHES, INC. AGAINST AWARD OF A CONTRACT TO PRITCHARD-KING, INC. UNDER AN RFP ISSUED BY HEW. WHILE THE COMP. GEN. HAS DENIED THE PROTEST, ACTION SHOULD BE TAKEN TO PRECLUDE THE RECURRENCE OF SEVERAL PRACTICES IN THE FUTURE. IF THE DELIVERY SCHEDULE WAS A MANDATORY REQUIREMENT, A PROVISION SHOULD HAVE BEEN INCLUDED IN THE FIRST STEP ADVISING OFFERORS THAT PROPOSALS CONTAINING NONCONFORMING SCHEDULES WOULD BE REJECTED AS NONRESPONSIVE. ALSO, THE COMP. GEN. DOES NOT CONSIDER IT PROPER TO INCORPORATE INTO A FIXED-PRICE CONTRACT A LIQUIDATED DAMAGE PROVISION LIMITED, OR DETERMINED BY THE CONTRACTOR'S ANTICIPATED PROFIT ON THE CONTRACT.

TO MR. SECRETARY:

REFERENCE IS MADE TO LETTER DATED FEBRUARY 12, 1971, WITH ENCLOSURE, FURNISHING A REPORT IN THE MATTER OF THE PROTEST MADE BY MEDICAL COACHES, INC., AGAINST THE AWARD OF A CONTRACT TO ANOTHER FIRM UNDER REQUEST FOR PROPOSAL HSM-110-NHS-14, ISSUED BY THE DEPARTMENT OF HEALTH, EDUCATION AND WELFARE.

THERE IS ENCLOSED A COPY OF OUR LETTER OF TODAY TO THE COMPANY DENYING ITS PROTEST.

WHILE WE HAVE DENIED THE PROTEST, WE ARE CALLING TO YOUR ATTENTION CERTAIN DEFECTS IN THE PROCEDURES FOLLOWED, AND WE SUGGEST THAT APPROPRIATE ACTION BE TAKEN TO PRECLUDE THEIR RECURRENCE IN FUTURE PROCUREMENTS.

IT SEEMS EVIDENT THAT, INASMUCH AS YOUR DEPARTMENT CONSIDERED THE DELIVERY SCHEDULE TO BE A MANDATORY REQUIREMENT, THE PRINCIPAL ISSUE OF THE PROTEST COULD HAVE BEEN PREVENTED HAD THERE BEEN INCLUDED IN THE FIRST STEP A PROVISION SPECIFICALLY ADVISING OFFERORS THAT PROPOSALS CONTAINING NONCONFORMING SCHEDULES WOULD BE CONSIDERED NONRESPONSIVE AND REJECTED, SUCH AS PARAGRAPH 6 OF THE INSTRUCTIONS TO OFFERORS PREPARED FOR USE IN THE SECOND STEP.

AS STATED IN OUR DECISION, WE DO NOT CONSIDER IT PROPER TO INCORPORATE INTO A FIXED-PRICE CONTRACT A LIQUIDATED DAMAGE PROVISION UNDER WHICH THE EXTENT OF THE DAMAGES RECOVERABLE BY THE UNITED STATES IS LIMITED, OR DETERMINED, BY THE CONTRACTOR'S ANTICIPATED PROFIT ON THE CONTRACT. CONTRACTS OF THIS NATURE, LIQUIDATED DAMAGE PROVISIONS SERVE AS THE ONLY PRACTICAL MEASURE OF COMPENSATION TO THE GOVERNMENT FOR DAMAGE INCIDENT TO DELAY IN DELIVERY. THE RATE OF LIQUIDATED DAMAGES STIPULATED MUST BE REASONABLE IN RELATION TO ANTICIPATED DAMAGES (SEE SECTION 1-1.315-2(C) OF THE FEDERAL PROCUREMENT REGULATIONS) AND SUCH CONTRACT PROVISIONS HAVE BEEN UNIFORMLY UPHELD EVEN THOUGH THE LIQUIDATED DAMAGES INCURRED EXCEED THE CONTRACT PRICE, 46 COMP. GEN. 252 (1966). WE FIND THE "INCENTIVE/PENALTY" CLAUSE USED IN THE INSTANT CONTRACT TO BE PARTICULARLY OBJECTIONABLE BECAUSE IT IS BASED ON THE PREMISE OF ALLOWING THE CONTRACTOR TO RETAIN A PERCENTAGE OF ITS ANTICIPATED PROFIT ON THE CONTRACT EVEN THOUGH THE GOVERNMENT MAY SUSTAIN EXTENSIVE UNRECOVERABLE DAMAGES BY REASON OF THE CONTRACTOR'S FAILURE TO DELIVER IN ACCORDANCE WITH THE CONTRACT TERMS. IN ADDITION, ALTHOUGH "PENALTY" PROVISIONS WILL BE CONSTRUED IN A MANNER TO GIVE EFFECT TO THE INTENTION OF THE PARTIES, 18 COMP. GEN. 503 (1938), THE USE OF THAT TERM RATHER THAN "LIQUIDATED DAMAGES" IN CLAUSES PERTAINING TO DELIVERY PROVISIONS OF GOVERNMENT CONTRACTS IS OBJECTIONABLE INASMUCH AS TRUE PENALTY PROVISIONS ARE NOT ENFORCEABLE, 16 COMP. GEN. 344 (1936) AND FPR 1-1.315-2(C).

FPR 1-1.315-2(B) PROVIDES THAT IN MAKING DECISIONS AS TO WHETHER LIQUIDATED DAMAGES PROVISIONS ARE TO BE USED, CONSIDERATION SHOULD BE GIVEN TO THEIR PROBABLE EFFECT ON SUCH MATTERS AS PRICING, COMPETITION, ETC. IT IS CLEAR THAT ONLY THE GOVERNMENT IS IN THE POSITION OF DETERMINING THE MEASURE OF DAMAGES IT IS LIKELY TO INCUR BY REASON OF A LATE DELIVERY, OR THE ADVANTAGES IT WILL DERIVE FROM AN EARLY DELIVERY. IT IS ALSO AN ELEMENTARY PRINCIPLE OF COMPETITION FOR GOVERNMENT CONTRACTS THAT THE SAME CONTRACT MUST BE OFFERED TO ALL COMPETITORS. HOWEVER, NOT ONLY DID THE PROCURING ACTIVITY, IN PREPARING THE MATERIAL FOR THE SOLICITATION OF FIXED-PRICE PROPOSALS UNDER THE SECOND STEP, FAIL TO ESTABLISH AND INFORM PROSPECTIVE OFFERORS OF THE AMOUNTS WHICH WOULD BE APPLICABLE FOR EARLY AND LATE DELIVERIES, BUT SUCH AMOUNTS WERE TO BE SOLICITED FROM THE INDIVIDUAL OFFERORS UNDER A NOTICE IN THE GENERAL PROVISIONS, ALTERATIONS, AND BILLING INSTRUCTIONS STATING:

" *** OFFERORS ARE REQUESTED TO SUBMIT, AS PART OF THEIR COST PROPOSAL, A DAILY RATE TO BE ADDED TO THEIR PROFIT IN THE CASE OF EARLY DELIVERY AND A DAILY RATE TO BE DEDUCTED FROM THEIR PROFIT FOR EACH DAY OF LATE DELIVERY."

WE ALSO NOTE THAT ALTHOUGH YOUR DEPARTMENT APPEARS TO HAVE CONSIDERED THE SPECIFIED DELIVERY REQUIREMENTS TO BE ESSENTIAL FOR ALL THREE CENTERS, THE THIRD CENTER IS NOT INCLUDED IN THE INCENTIVE AND LIQUIDATED DAMAGES PROVISIONS OF THE CONTRACT.