B-171591, NOV 17, 1971

B-171591, NOV 17, 1971

BID PROTEST - ESCALATION PROVISION - NEGOTIATION PROCEDURES DECISION DENYING PROTEST AGAINST AWARD OF A CONTRACT TO THE AMRON DIVISION OF GULF WESTERN INDUSTRIES, INC. (AMRON), UNDER AN RFP ISSUED BY THE FRANKFORT ARSENAL, PHILA., PA., FOR A QUANTITY OF BRASS CARTRIDGE CASES. ALTHOUGH THE SOLICITATION INCLUDED A "PRICE ESCALATION" CLAUSE, AMRON'S PROPOSAL WHICH DELETED THE UPWARD ESCALATION PROVISION WAS IN THE GOVERNMENT'S BEST INTEREST. ALSO, THE STATEMENT IN THE SOLICITATION THAT "ONE OR MORE" AWARDS WOULD BE MADE CLEARLY INDICATES THAT THE GOVERNMENT MIGHT MAKE A SINGLE AWARD AND COMPETITIVE CONSIDERATIONS DID NOT REQUIRE A REOPENING OF NEGOTIATIONS WHEN IT WAS DECIDED THAT A SINGLE AWARD WOULD BE MADE. SINCE THE COMP. GEN. CANNOT FIND THAT PROTESTANT'S OFFER COULD BE EVALUATED AS THE LOWEST SUBMITTED, EVEN UNDER THE COMPUTATIONS SUBMITTED BY IT, AND SINCE ALL OTHER ARGUMENTS HAVE BEEN ADEQUATELY MET BY THE ADMINISTRATIVE REPORT, THE PROTEST MUST BE DENIED.

TO NATIONAL EASTERN CORPORATION:

THIS IS IN REPLY TO YOUR CORRESPONDENCE PROTESTING THE AWARD OF A CONTRACT TO THE AMRON DIVISION OF GULF WESTERN INDUSTRIES, INC. (AMRON), UNDER REQUEST FOR PROPOSALS (RFP) DAAA25-71-R-0055, ISSUED BY FRANKFORD ARSENAL, PHILADELPHIA, PENNSYLVANIA.

THE SOLICITATION WAS ISSUED AUGUST 3, 1970, FOR "CARTRIDGE CASE, BRASS, M103, 20MM." AS FINALLY AMENDED THE SOLICITATION REQUESTED OFFERS FOR ALTERNATE QUANTITIES OF 28, 21, 14 AND 7 MILLION UNITS ON AN F.O.B. ORIGIN BASIS, AND PROVIDED FOR EVALUATION OF FREIGHT COSTS FOR ESTIMATED QUANTITIES TO BE DELIVERED TO TWO DESTINATIONS WHICH WERE TENTATIVELY ESTABLISHED ONLY FOR PURPOSES OF EVALUATING F.O.B. ORIGIN PROPOSALS PURSUANT TO ARMED SERVICES PROCUREMENT REGULATION (ASPR) 19 208.4.

THE REPORT SUBMITTED BY THE DEPARTMENT OF THE ARMY STATES THAT USE OF NEGOTIATION PROCEDURES WAS AUTHORIZED UNDER 10 U.S.C. 2304(A)(16) BY A CLASS DETERMINATION AND FINDINGS, DATED JULY 1, 1970, AND SIGNED BY THE ASSISTANT SECRETARY OF THE ARMY, INSTALLATION AND LOGISTICS. THIS STATUTORY PROVISION AUTHORIZES THE NEGOTIATION OF CONTRACTS IF THE HEAD OF AN AGENCY " *** DETERMINES THAT (A) IT IS IN THE INTEREST OF NATIONAL DEFENSE TO HAVE A PLANT, MINE, OR OTHER FACILITY, OR A PRODUCER, MANUFACTURER, OR OTHER SUPPLIER, AVAILABLE FOR FURNISHING PROPERTY OR SERVICES IN CASE OF A NATIONAL EMERGENCY; OR (B) THE INTEREST OF INDUSTRIAL MOBILIZATION IN CASE OF SUCH AN EMERGENCY, OR THE INTEREST OF NATIONAL DEFENSE IN MAINTAINING ACTIVE ENGINEERING, RESEARCH, AND DEVELOPMENT, WOULD OTHERWISE BE SUBSERVED *** ." UPON COMPLETION OF THE FINAL ROUND OF NEGOTIATIONS THE ARMY DETERMINED THAT AMRON'S PRICE FOR THE LARGEST QUANTITY SOLICITED WAS LOWER THAN ANY COMBINATION AWARD TO MORE THAN ONE OFFEROR. THE CONTRACTING OFFICER REPORTS THAT THE ARMY MATERIEL COMMAND AND THE ASSISTANT SECRETARY OF THE ARMY, INSTALLATION AND LOGISTICS, DETERMINED THAT ONLY ONE COMMERCIAL MOBILIZATION SOURCE WAS NEEDED, AND ON MARCH 31, 1971, A CONTRACT WAS AWARDED TO AMRON FOR 28 MILLION UNITS, AS PROVIDED IN ALTERNATE A OF THE SOLICITATION.

YOUR PROTEST IS BASED ON ARGUMENTS PRESENTED IN SEVERAL LETTERS TO THIS OFFICE WHICH ARE CONSOLIDATED IN COUNSEL'S MEMORANDUM OF JUNE 29, 1971, AND LETTER OF AUGUST 4, 1971.

FIRST, YOU CONTEND THAT AMRON'S PROPOSAL SHOULD HAVE BEEN REJECTED SINCE IT PROPOSED FIRM PRICES PRECLUDING THE DOWNWARD ESCALATION REQUIRED BY THE SOLICITATION'S PRICE ESCALATION CLAUSE WITH RESPECT TO CERTAIN MATERIALS REQUIRED IN THE PERFORMANCE OF THE CONTRACT.

IN THIS CONNECTION AMRON'S PROPOSAL PROVIDED AS FOLLOWS:

"THE PRICES WE OFFER HEREIN ARE FIRM UNTIL THAT DATE APRIL 1, 1971 BASED UPON FIRM FIXED BRASS CUP PRICES WE HAVE RECEIVED FROM OUR SOURCES OF SUPPLY. THEREFORE, NO UPWARD MATERIAL ESCALATION EVALUATION FACTOR IS APPLICABLE TO OUR PROPOSED PRICING."

IN OUR OPINION, THE ABOVE QUOTED STATEMENT IN THE AMRON PROPOSAL DELETES ONLY THE UPWARD ESCALATION PROVISION AND DOES NOT AFFECT THE DOWNWARD PRICE ADJUSTMENT PROVISIONS OF THE CLAUSE. MOREOVER, THE ELIMINATION BY AMRON OF ANY UPWARD PRICE ADJUSTMENT FOR MATERIALS IS IN THE GOVERNMENT'S BEST INTERESTS, AND SINCE AMRON'S PROPOSAL WAS EVALUATED AS THE LEAST COSTLY ON THE BASIS OF THE STATED PRICES, WITHOUT REGARD TO ESCALATION AS PROVIDED BY SECTION D-2 OF THE RFP, IT IS CLEAR THAT YOU WERE NOT PREJUDICED BY THE GOVERNMENT'S ACCEPTANCE OF SUCH FAVORABLE TERMS AS A PART OF THE CONTRACT.

YOU ALSO CONTEND THAT, UNDER THE TERMS OF THE SOLICITATION, AWARDS SHOULD HAVE BEEN MADE TO AT LEAST TWO OFFERORS OR, IN THE ALTERNATIVE, NEGOTIATIONS SHOULD HAVE BEEN REOPENED AND OFFERS SOLICITED ON THE BASIS OF A SINGLE AWARD. IN THIS REGARD, YOU NOTE THAT THE SOLICITATION STATES THAT "THE GOVERNMENT CONTEMPLATES MAKING ONE OR MORE AWARDS FOR ONE OR MORE OF THE STIPULATED QUANTITIES IN ORDER TO MAINTAIN PRODUCTION BASES." IN ADDITION, YOU BELIEVE IT IS SIGNIFICANT THAT THE STANDARD PREPRINTED SOLICITATION PROVISION STATING THAT ALL ITEMS WOULD BE AWARDED TO ONE OFFEROR WAS NOT CHECKED AS BEING APPLICABLE TO THIS PROCUREMENT. IT IS ARGUED THAT WHEN THE GOVERNMENT SUBSEQUENTLY CONCLUDED THAT A SINGLE AWARD WOULD BE MADE, IT SHOULD HAVE PROVIDED AN OPPORTUNITY TO ALL OFFERORS TO TAKE THAT REVISED CIRCUMSTANCE INTO ACCOUNT BY REOPENING NEGOTIATIONS.

WE BELIEVE THE STATEMENT IN THE SOLICITATION, TO THE EFFECT THAT "ONE OR MORE" AWARDS WOULD BE MADE IN ORDER TO MAINTAIN PRODUCTION BASES, CLEARLY INDICATES THAT THE GOVERNMENT MIGHT MAKE A SINGLE AWARD. MOREOVER, NOTE 3 ON PAGE 24 OF THE SOLICITATION STATES THAT "THE GOVERNMENT RESERVES THE RIGHT TO AWARD ONLY ONE OF THE STIPULATED QUANTITIES TO ANY SINGLE OFFEROR." THESE PROVISIONS PROVIDED ALL OFFERORS WITH AMPLE NOTICE TO PERMIT THEM TO GIVE DUE CONSIDERATION TO THE POSSIBILITY OF A SINGLE AWARD IN THE PREPARATION OF THEIR OFFERS, AND WE THEREFORE DO NOT BELIEVE THAT COMPETITIVE CONSIDERATIONS REQUIRED A REOPENING OF NEGOTIATIONS WHEN IT WAS DECIDED THAT A SINGLE AWARD WOULD BE MADE.

YOU PRESENT SEVERAL ARGUMENTS TO SUPPORT YOUR ASSERTION THAT THE GOVERNMENT ERRONEOUSLY DETERMINED THAT AMRON'S PRICE WAS LOW, AND THOSE WHICH ARE CONSIDERED TO BE THE MOST SIGNIFICANT ARE ADDRESSED HEREINAFTER. YOU SAY THAT YOUR F.O.B. DESTINATION PROPOSAL SHOULD HAVE BEEN CONSIDERED IN THE EVALUATION OF PRICES, ON THE BASIS OF STATEMENTS MADE BY THE CONTRACTING OFFICER, EVEN THOUGH THE SOLICITATION REQUESTED OFFERS ONLY ON AN F.O.B. ORIGIN BASIS. IN ADDITION, YOU BELIEVE THAT AN INCREASE IN FREIGHT RATES, WHICH WAS NOT IN EFFECT AT THE TIME OF AWARD BUT WAS DUE TO TAKE EFFECT PRIOR TO DELIVERIES UNDER THE CONTRACT, SHOULD HAVE BEEN EVALUATED IN DETERMINING FREIGHT COSTS TO THE GOVERNMENT. ALSO, ON THE ASSUMPTION THAT THE ARMY WAS REQUIRED TO EVALUATE AND COMPARE YOUR DESTINATION PRICES WITH AMRON'S ORIGIN PRICES, YOU BELIEVE THE FREIGHT COST FOR THE WEIGHT OF WOODEN PALLETS ON WHICH THE CARTRIDGE CASES ARE SHIPPED SHOULD BE ADDED TO THE AMRON PROPOSAL. YOU FURTHER NOTE THAT IN CONTRAST TO NATIONAL'S PROPOSAL TO SHIP BY MOTOR, AMRON WOULD SHIP BY RAIL TO INDEPENDENCE, MISSOURI, REQUIRING THE GOVERNMENT TO INCUR SWITCHING COSTS, WHICH ALSO SHOULD BE CONSIDERED IN EVALUATING COSTS. FINALLY, YOU CONTEND THAT AN ADDITIONAL $3,141.52, REPRESENTING A RENTAL FACTOR FOR GOVERNMENT FURNISHED EQUIPMENT NOT INCLUDED IN THE AMRON PRICE, SHOULD BE ADDED TO THE AMRON OFFER FOR EVALUATION PURPOSES.

THE FIRST FOUR OF YOUR ABOVE ARGUMENTS ARE RESPONDED TO BY THE CONTRACTING OFFICER, AS FOLLOWS:

"THE CONTRACTING OFFICER HAS BEEN MISQUOTED; HE NEITHER SOLICITED FROM, NOR GRANTED 'PERMISSION' TO NATIONAL EASTERN TO SUBMIT F.O.B. DESTINATION PRICES. ON THE CONTRARY, WHEN ASKED OF F.O.B. DESTINATION PRICES COULD BE SUBMITTED, THE CONTRACTING OFFICER EXPRESSLY WARNED NATIONAL EASTERN TO SUBMIT A RESPONSIVE OFFER, I.E., TO PROPOSE EXPRESSLY IN ACCORDANCE WITH THE TERMS OF THE SOLICITATION. THE OFFEROR WAS ADVISED THAT THE QUANTITIES TO THE EVALUATION DESTINATIONS WERE NOT FIRM, SO THAT F.O.B. DESTINATION PRICES WERE NOT APPROPRIATE AND, ACCORDINGLY, WERE NOT BEING SOLICITED. THIS IS VERIFIED BY THE TERMS OF THE OFFER SOLICITED BY TT ON 9 MARCH 1971. OF COURSE, THE FIRM WAS ADVISED THAT ANY KIND OF UNSOLICITED ALTERNATE OFFER COULD BE SUBMITTED THAT WAS DESIRED, AND THE CONTRACTING OFFICER WOULD BE UNDER AN OBLIGATION TO CONSIDER SAME TO SEE IF IT WAS IN THE BEST INTERESTS OF THE GOVERNMENT, I.E., WHETHER RESOLICITATION ON THE BASIS OF ANY SUCH ALTERNATE WOULD BE APPROPRIATE. IT IS AN ELEMENTARY RULE OF PROCUREMENT THAT UNSOLICITED ALTERNATE OFFERS MUST BE 'CONSIDERED' TO SEE IF RESOLICITATION IS NECESSARY.

"THE CONTENTION THAT THE GOVERNMENT'S EVALUATION OF FREIGHT RATES DID NOT TAKE INTO ACCOUNT AN INCREASE IN RATES IS WITHOUT MERIT. FREIGHT RATES USED IN EVALUATING AMRON'S F.O.B. ORIGIN PROPOSAL WERE IN ACCORDANCE WITH THE REQUIREMENTS OF ASPR 19-301.1(A). THIS PROVISION REQUIRES THAT F.O.B. ORIGIN PROPOSALS BE EVALUATED ON THE BASIS OF RATES IN EFFECT AND ON FILE (OR PUBLISHED) AT THE TIME OF EVALUATION WITH THE RATE QUOTING OFFICE, THE MILITARY TRAFFIC MANAGEMENT AND TERMINAL SERVICES, BROOKLYN, N.Y. (MTMTS). THE FRANKFORD ARSENAL TRANSPORTATION AND TRAFFIC MANAGEMENT DIVISION USED FREIGHT RATES FURNISHED BY MTMTS. THIS MATTER HAS PREVIOUSLY BEEN LITIGATED AND THE COMPTROLLER GENERAL HAS APPROVED THIS REGULATORY PROVISION ON EVALUATION FREIGHT RATES. (SEE: CG DEC. NO. B- 142381, 16 MAY 1960, 39 CG 774; CG DEC. NO. B-158570, 25 JULY 1966, 46 CG 77.) IT IS ACKNOWLEDGED THAT THERE IS A PALLET COST INVOLVED. THIS COST IS NOT CONSIDERED WHEN EVALUATING TWO F.O.B. ORIGIN OFFERS SINCE THE TWO OFFERORS MUST INCUR THE SAME ITEM OF COST. OF COURSE, WHEN COMPARING AN F.O.B. ORIGIN OFFER AND AN F.O.B. DESTINATION OFFER FROM ANOTHER SOURCE, THEN THE PALLET COST MUST BE ADDED AS AN EVALUATION FACTOR TO THE F.O.B. ORIGIN OFFER TO EQUALIZE THE EVALUATION. IT IS CONSIDERED THAT THE MAXIMUM ESTIMATED PALLET COST IS $2,300. AS WILL BE ILLUSTRATED BELOW, THE ADDITION OF THIS COST TO AMRON'S F.O.B. ORIGIN OFFER DOES NOT MAKE NATIONAL EASTERN'S F.O.B. DESTINATION OFFER THE LOW OFFER.

"IT IS ACKNOWLEDGED THAT THERE MAY BE A RAIL SWITCHING COST WHEN SHIPMENTS ARE MADE TO LAKE CITY ARMY AMMUNITION PLANT, INDEPENDENCE, MISSOURI. HOWEVER, SUCH AN ALLEGED COST IS SPECULATIVE AND INDEFINITE. BECAUSE OF THE VOLUME AND FREQUENCY OF SHIPMENTS FROM AND TO LAKE CITY ARMY AMMUNITION PLANT, IT IS NOT POSSIBLE FROM A PRACTICAL STANDPOINT TO SEGREGATE AND ASCERTAIN A TRUE EVALUATION COST FOR SWITCHING. SUCH A COST IS AN OVERHEAD COST OF OPERATING A GOCO PLANT. IT IS AN ELEMENTARY PROCUREMENT RULE THAT SPECULATIVE EVALUATION COSTS ARE NOT CONSIDERED."

WE CONSIDER THE ABOVE EXPLANATIONS BY THE CONTRACTING OFFICER TO BE REASONABLE, AND WE ACCEPT THEM AS CONSTITUTING AN ADEQUATE RESPONSE TO YOUR ARGUMENTS ON THE POINTS INVOLVED.

WHILE WE AGREE WITH ARMY'S POSITION THAT AN EVALUATION OF YOUR F.O.B. DESTINATION OFFER FOR PURPOSES OF AWARD WOULD HAVE BEEN IMPROPER, WE NOTE THAT YOUR COMPUTED F.O.B. DESTINATION PRICE OF $8,129,026.50 IS $731.05 LOWER THAN AMRON'S EVALUATED F.O.B. ORIGIN PRICE, WHICH YOU HAVE COMPUTED AS $8,129,757.55 BY ADDING TO AMRON'S PROPOSAL PRICE THE $3,141.52 ADDITIONAL RENTAL, WHICH YOU MAINTAIN IS APPROPRIATE, AND OTHER AMOUNTS FOR TRANSPORTATION COSTS AND SWITCHING CHARGES. WE CANNOT AGREE WITH YOUR CONTENTION THAT YOUR EVALUATED PRICE WAS LOWER THAN AMRON'S, WHEN PROPERLY COMPUTED, AND TO DEMONSTRATE THIS CONCLUSION WE NEED ONLY CONSIDER THE ADDITIONAL RENTAL CHARGE OF $3,141.52 FOR GOVERNMENT FURNISHED EQUIPMENT WHICH YOU HAVE INCLUDED IN THE AMRON EVALUATED PRICE. IF IT IS DETERMINED THAT INCLUSION OF THE ADDITIONAL RENTAL FACTOR IS IMPROPER, THE AMOUNT AT WHICH YOU EVALUATE AMRON'S OFFER WOULD DROP TO $2,410.47 BELOW THE AMOUNT AT WHICH YOU HAVE COMPUTED YOUR TOTAL EVALUATED F.O.B. DESTINATION PRICE.

IN ORDER TO ELIMINATE THE COMPETITIVE ADVANTAGE FLOWING TO AMRON FOR USE OF GOVERNMENT PROPERTY, THE SOLICITATION CONTAINED, PURSUANT TO ASPR 13- 501 ET SEQ., A USE AGREEMENT CLAUSE. THIS CLAUSE REQUIRES OFFERORS TO ENTER INTO AGREEMENTS WITH THE COGNIZANT AGENCY PRIOR TO THE CLOSING DATE FOR RECEIPT OF PROPOSALS FOR THE PAYMENT OF A FAIR RENTAL VALUE FOR THE USE OF ANY GOVERNMENT PROPERTY. AMRON PROPOSED TO USE EITHER 10 OR 12 PIECES OF GOVERNMENT EQUIPMENT, DEPENDING UPON WHICH ALTERNATE PROPOSAL WAS ACCEPTED BY THE GOVERNMENT, AND IT ATTACHED TO ITS PROPOSAL A LIST OF THOSE ITEMS, AND A LETTER FROM THE COGNIZANT CONTRACTING OFFICER AUTHORIZING RENTAL OF THE ITEMS AND CONFIRMING THAT AMRON'S RENTAL COMPUTATIONS WERE CORRECT. PURSUANT TO THE USE AND CHARGES CLAUSE SET FORTH IN ASPR 7-702.12, A MONTHLY RENTAL RATE IS TO BE DETERMINED BASED UPON THE AGE AND ACQUISITION COST OF THE EQUIPMENT. WHILE THE CONTRACTING OFFICER EVALUATED AND DETERMINED AMRON'S OFFER TO BE THE LOWEST ON THE BASIS OF PRICES WHICH INCLUDED APPROVED RENTAL COSTS, IT APPEARS THAT PRIOR TO AWARD THE ARMY ULTIMATELY DECIDED TO CONSERVE ITS APPROPRIATION BY AUTHORIZING RENT FREE USE OF THE EQUIPMENT WHICH AMRON CONTEMPLATED USING SO THAT THE CONTRACT PRICE COULD BE REDUCED BY THE RENTAL PAYMENTS WHICH AMRON HAD FIGURED INTO ITS PRICE. THUS, AT THE TIME OF THE AWARD THE GOVERNMENT APPROVED RENT-FREE USE OF THE EQUIPMENT EFFECTIVELY REDUCED AMRON'S LOW UNIT PRICE BY $.00028 PER UNIT FOR A PERIOD OF SEVEN MONTHS, MAKING TOTAL CONTRACT REDUCTION OF $7,840. SEE ASPR 13-402(A)(II)(B).

YOU HAVE INDEPENDENTLY COMPUTED THE RENTAL COSTS AND YOU BELIEVE THAT THE PROPER RENT IS $10,981.52. YOU SUBMIT THAT THE DIFFERENCE IN THESE FIGURES REPRESENTS ADDITIONAL COST TO THE GOVERNMENT WHICH WAS NOT CONSIDERED IN EVALUATING AMRON'S OFFER, AND WHICH SHOULD NOW BE FIGURED INTO AMRON'S OFFER FOR PURPOSES OF PRICE EVALUATION.

IT APPEARS THAT THE DIFFERENCE BETWEEN YOUR FIGURES AND THE GOVERNMENT'S IS DUE TO THE FACT THAT YOUR COMPUTATIONS ARE BASED ON A HIGHER MONTHLY RENTAL RATE AND A LONGER RENTAL PERIOD OF EIGHT MONTHS. THE HIGHER MONTHLY RENTAL RATE USED IN YOUR COMPUTATION IS ERRONEOUS IN THAT IT ASSUMES THAT 12 PIECES OF EQUIPMENT WOULD BE USED WHEREAS THE RECORD SHOWS THAT AMRON PROPOSED TO USE ONLY 10 PIECES OF EQUIPMENT FOR THE ALTERNATE QUANTITY ACCEPTED BY THE GOVERNMENT. ON THE RECORD BEFORE US, WE FIND THAT THE GOVERNMENT USED THE CORRECT MONTHLY RENTAL RATE, BASING ITS COMPUTATION UPON THE ACQUISITION COST AND THE AGE OF THE CORRECT NUMBER OF PIECES OF EQUIPMENT TO BE USED BY AMRON. WE DISAGREE WITH YOUR POSITION THAT AMRON'S OFFER, WHICH INCLUDED RENTAL ARRANGEMENTS, SHOULD HAVE BEEN INCREASED FOR EVALUATION PURPOSES. AMRON'S OFFER WAS FIRM AND ITS LIABILITY WAS FIXED FOR PAYMENT OF RENT AT THE CORRECT MONTHLY RATE. THIS IS ALL THAT THE USE AGREEMENT CLAUSE, AND THE PERTINENT ASPR PROVISIONS, REQUIRE FOR ELIMINATION OF THE COMPETITIVE ADVANTAGE THAT MIGHT ARISE FROM THE USE OF GOVERNMENT EQUIPMENT, AND THE TOTAL AMOUNT OF RENT WHICH MAY BE INVOLVED IS MATERIAL FOR EVALUATION PURPOSES ONLY WHEN RENTAL EQUIVALENTS ARE TO BE USED INSTEAD OF THE CHARGING OF RENT. IN ANY EVENT, IT IS NOTED THAT UNDER YOUR COMPUTATIONS, EVEN IF AMRON'S EVALUATED PRICE IS INCREASED BY AN ADDITIONAL MONTH'S RENT OF $1,123.56, AMRON'S PRICE WOULD STILL BE LOWER THAN YOUR EVALUATED PRICE.

FOR THE REASONS STATED ABOVE WE DO NOT FIND THAT YOUR F.O.B. DESTINATION OFFER CAN BE EVALUATED AS THE LOWEST SUBMITTED EVEN UNDER THE COMPUTATIONS WHICH YOU HAVE SUBMITTED.

YOUR LETTER OF AUGUST 4, 1971, RAISES THE ISSUE WHETHER THE GOVERNMENT HAS AGREED TO PERMIT RENT-FREE USE OF ALL ITEMS OF GOVERNMENT-OWNED EQUIPMENT COVERED UNDER AMRON'S FACILITIES CONTRACT (ESTIMATED BY YOU AT 3,602 ITEMS), WHICH ACTION WOULD HAVE BEEN TO YOUR PREJUDICE SINCE AMRON'S OFFER INCLUDED A RENTAL FACTOR FOR ONLY 10 ITEMS OF EQUIPMENT. YOU STATE THAT THE CONTRACT AWARD PERMITTED SUCH EXTENSIVE RENT-FREE USE OF GOVERNMENT EQUIPMENT, AND IN SUPPORT THEREOF YOU REFER TO THE FOLLOWING STATEMENT IN THE AWARD DOCUMENT:

"NOTE: CONTRACTOR IS AUTHORIZED RENT-FREE USE OF EQUIPMENT FROM FACILITIES CONTRACT DAAA-09-68-C0026 DURING THE PERFORMANCE OF THIS CONTRACT."

THE ABOVE-QUOTED PROVISION DOES NOT SPECIFICALLY STATE THAT ALL OF THE EQUIPMENT FROM THE FACILITIES CONTRACT MAY BE USED RENT FREE, NOR DOES IT IDENTIFY THE EXACT ITEMS OF EQUIPMENT INVOLVED. IN OUR VIEW, THE QUOTED PROVISION CANNOT BE DIVORCED FROM THE LEASE ARRANGEMENTS SET OUT IN AMRON'S OFFER FOR USE OF ONLY 10 ITEMS OF GOVERNMENT EQUIPMENT. MOREOVER, WE HAVE BEEN INFORMALLY ADVISED BY THE ADMINISTRATIVE CONTRACTING OFFICER FOR AMRON'S FACILITIES CONTRACT THAT AMRON'S USE OF GOVERNMENT-OWNED EQUIPMENT UNDER THE PROTESTED CONTRACT IS LIMITED TO THE 10 ITEMS OF EQUIPMENT AS AUTHORIZED FOR USE IN THE LEASE ARRANGEMENTS SUBMITTED WITH AMRON'S OFFER ON THE SUBJECT RFP.

IT IS ALSO YOUR POSITION THAT AN APPEARANCE OF UNFAIRNESS AND FAVORITISM EMERGES IN THIS CASE FROM THE FACT THAT REPEATED NEGOTIATIONS WERE CONDUCTED, WHICH REQUIRED EACH OFFEROR TO SUBMIT SIX PROPOSALS DURING THE COURSE OF THE PROCUREMENT. YOU ALSO ALLEGE THAT AMRON WAS FAVORED BY SUCH ACTION SINCE YOU BELIEVE THAT NATIONAL WAS LOW ON EACH OF THE FIRST FIVE PROPOSALS. MOREOVER, YOU CONTEND THAT THE GOVERNMENT'S INTRODUCTION OF TRANSPORTATION COSTS AS AN EVALUATION FACTOR ON THE FINAL ROUND GAVE AMRON A TREMENDOUS ADVANTAGE IN THE BIDDING BECAUSE OF ITS GEOGRAPHICAL LOCATION, AND YOU STATE THAT TO YOUR KNOWLEDGE COST OF TRANSPORTATION HAS NOT BEEN AN EVALUATION FACTOR IN ANY PREVIOUS PROCUREMENT FOR THIS ITEM.

THE ARMY HAS SUBMITTED A REPORT TO THIS OFFICE, A COPY OF WHICH HAS BEEN FURNISHED TO YOU, GIVING ITS REASONS FOR CONDUCTING REPEATED NEGOTIATIONS. IN BRIEF, THE REASONS GIVEN FOR EACH NEGOTIATION AFTER SUBMISSION OF INITIAL PROPOSALS ARE: (1) TO SECURE THE BEST COMPETITIVE PRICE FOR THE VARIOUS ALTERNATE QUANTITIES; (2) TO SECURE A COMPETITIVE PRICE ON AN UNSOLICITED ALTERNATE QUANTITY SO THAT A LOWER PRICED COMBINATION OF AWARDS MIGHT BE POSSIBLE; (3) TO SECURE THE BENEFITS OF A SUBSTANTIAL MONETARY SAVING IN A LATE PRICE REVISION, AS APPROVED BY HIGHER AUTHORITY; (4) TO EFFECT THE ARMY POLICY OF "COMPETING" GOVERNMENT- OWNED CONTRACTOR-OPERATED FACILITIES WITH COMMERCIAL PRODUCERS; AND (5) TO SECURE COMPETITIVE PRICES ON THE BASIS OF EVALUATING TRANSPORTATION COSTS AND ON THE BASIS OF THE CHANGE IN QUANTITY AND RATE OF DELIVERY REQUIREMENTS.

CONCERNING THE REPEATED ROUNDS OF NEGOTIATIONS, YOU TAKE PARTICULAR EXCEPTION TO NUMBER (3) ABOVE, WHICH INVOLVED THE REOPENING OF NEGOTIATIONS TO GIVE CONSIDERATION TO AMRON'S LATE PRICE MODIFICATION, SINCE ACCEPTANCE THEREOF WOULD RESULT IN SAVINGS OF $393,359.28 TO THE GOVERNMENT. SUCH MODIFICATION WAS OFFERED AFTER THE CLOSING DATE OF OCTOBER 2, 1970, AND BY AMRON'S LETTER OF OCTOBER 19, 1970, WHICH STATED THAT THE FIRM HAD DECIDED TO SACRIFICE PROFIT POTENTIAL AS A LAST RESORT TO MAINTAIN ITS PRODUCTION CAPABILITY INTACT, AND AVERT THE SERIOUS IMPACT THAT THE FIRM, AND THE COMMUNITY IN WHICH IT IS SITUATED, WOULD SUFFER IF IT DID NOT RECEIVE THE AWARD. THE QUESTION OF WHETHER AMRON'S LATE MODIFICATION COULD BE CONSIDERED WAS REFERRED TO THE ASSISTANT SECRETARY OF THE ARMY (INSTALLATIONS AND LOGISTICS) BY THE ARMY MATERIEL COMMAND, WHICH POINTED OUT AMRON'S REASONS FOR THE PROPOSED REDUCTION IN ITS PROPOSAL; THE POTENTIAL SAVINGS TO THE GOVERNMENT; THAT AMRON HAD BEEN UNSUCCESSFUL IN BIDDING ON RECENT PROCUREMENTS; AND RECOMMENDED THAT NEGOTIATIONS BE REOPENED. WE HAVE BEEN INFORMALLY ADVISED THAT THE REFERRAL WAS BASED ON THE PROVISIONS OF ASPR 3-506(C)(II).

YOU SAY THAT AMRON'S UNSUCCESSFUL EFFORTS TO SECURE OTHER GOVERNMENT CONTRACTS, AS WELL AS THE ECONOMIC IMPACT ON AMRON AND THE LOCAL COMMUNITY OF A FAILURE TO OBTAIN THE SUBJECT CONTRACT WERE NOT APPROPRIATE FACTORS FOR CONSIDERATION IN THE AWARDING OF THE CONTRACT. YOU FURTHER STATE THAT OUR DECISIONS REPORTED AT 47 COMP. GEN. 279 (1967) AND 48 COMP. GEN. 323 (1968), AND CITED BY THE ARMY MATERIEL COMMAND AS SUPPORT FOR REOPENING THE NEGOTIATIONS, ARE NOT CONTROLLING FOR THE CASE AT HAND, AND THAT THE LATE PROPOSAL PROVISIONS OF ASPR 3 506 WERE DISTORTED BY ARMY TO ALLOW CONSIDERATION OF AMRON'S LATE MODIFICATION.

WE AGREE WITH YOUR POSITION THAT AMRON'S UNSUCCESSFUL EFFORTS TO OBTAIN GOVERNMENT CONTRACTS, AND THE ECONOMIC IMPACT ON AMRON AND ITS LOCAL COMMUNITY IF AN AWARD WAS MADE TO ANOTHER CONCERN, ARE NOT PROPER FACTORS ON WHICH THE AWARD OF THE INSTANT CONTRACT SHOULD BE BASED. HOWEVER, THE RECORD DOES NOT INDICATE THAT THE DECISION OF THE ASSISTANT SECRETARY OF THE ARMY AUTHORIZING THE REOPENING OF NEGOTIATIONS WAS BASED ON SUCH FACTORS, RATHER THAN THE POTENTIAL SAVINGS TO THE GOVERNMENT AS STATED IN THE ADMINISTRATIVE REPORT. IN THIS CONNECTION, IT SHOULD BE NOTED THAT ASPR 3-506(C)(II), PURSUANT TO WHICH THE ASSISTANT SECRETARY'S DECISION APPEARS TO HAVE BEEN MADE, PROVIDES FOR THE CONSIDERATION OF LATE PROPOSALS AND MODIFICATIONS (ASPR 3-506(G)) ONLY WHEN THE SECRETARY CONCERNED DETERMINES THAT CONSIDERATION OF A LATE PROPOSAL IS OF EXTREME IMPORTANCE TO THE GOVERNMENT. HOWEVER, THE RECORD CLEARLY INDICATES THAT CIRCUMSTANCES AROSE SUBSEQUENT TO AMRON'S LATE PRICE MODIFICATION WHICH JUSTIFIED TWO ADDITIONAL REOPENINGS OF NEGOTIATIONS, AND FURTHER NEGOTIATIONS WERE CONDUCTED ON THE BASIS THEREOF. THE QUESTION YOU RAISE AS TO THE PROPRIETY OF THE PRIOR REOPENING OF NEGOTIATIONS ON THE BASIS OF AMRON'S LATE PRICE MODIFICATION IS THEREFORE ACADEMIC AND PROVIDES NO BASIS FOR QUESTIONING THE AWARD TO AMRON.

WITH REGARD TO YOUR OBJECTION TO THE INTRODUCTION OF TRANSPORTATION COSTS AS AN EVALUATION FACTOR, WE NOTE THAT YOUR F.O.B. ORIGIN PRICE WAS HIGHER THAN AMRON'S WITHOUT REGARD TO TRANSPORTATION COSTS AND, IN ANY CASE, THE INCLUSION OF TRANSPORTATION COSTS AS AN EVALUATION FACTOR WAS AUTHORIZED PURSUANT TO ASPR 19-208.4.

YOU ALSO ARGUE THAT THERE WAS INADEQUATE PRICE COMPETITION BY REASON OF AMRON'S DETERMINATIVE ADVANTAGE IN HAVING ABSORBED, OR LARGELY ABSORBED, ITS START-UP COSTS ON PRIOR CONTRACTS. IN THIS CONNECTION YOU CITE ASPR 3 -807.1(B) AS APPLICABLE TO THIS CASE. IN PERTINENT PART, THAT REGULATION WARNS CONTRACTING OFFICERS THAT THERE IS REASON TO QUESTION THE ADEQUACY OF PRICE COMPETITION IF THE LOW COMPETITOR HAS SUCH A DETERMINATIVE ADVANTAGE (E.G., PRIOR ABSORPTION OF START-UP COSTS) OVER OTHER COMPETITORS THAT HE IS PRACTICALLY IMMUNE TO THE STIMULUS OF COMPETITION.

IT IS OUR OPINION THAT THE CITED PROVISION IS FOR THE GOVERNMENT'S PROTECTION, THAT IS, FOR THE PURPOSE OF DETERMINING WHETHER THE LOW OFFER IS REASONABLE. WE SEE NO BASIS THEREIN, AS YOU IMPLY, FOR JUSTIFYING AN AWARD TO A HIGHER PRICED OFFEROR.

IT IS ALSO YOUR CONTENTION THAT THE GOVERNMENT ACTION IN INCREASING THE REQUIRED RATE OF DELIVERY ON THE FINAL ROUND OF NEGOTIATIONS FROM 3 MILLION TO 4 MILLION CASES PER MONTH CONTRIBUTED TO YOUR INABILITY TO COMPETE EFFECTIVELY. WE DO NOT BELIEVE YOUR OBJECTION IS WELL TAKEN SINCE YOU SUBMITTED AN OFFER FOR ALL ALTERNATES AND WE NOTE THAT AMRON OFFERED LOWER ORIGIN PRICES FOR ALL ALTERNATIVE QUANTITIES, ALL BUT ONE OF WHICH CALLED FOR DELIVERIES OF 3 MILLION ITEMS, OR LESS, PER MONTH.

FINALLY, IT IS YOUR POSITION THAT, PURSUANT TO ASPR 3-805.1(A), NEGOTIATIONS SHOULD HAVE BEEN HELD AFTER SUBMISSION OF THE LAST ROUND OF PROPOSALS, NOT ONLY TO OBTAIN PRICE CONCESSIONS BUT ALSO TO CLARIFY THE COMPARISON OF YOUR F.O.B. DESTINATION PRICES TO THE F.O.B. ORIGIN PRICES. IN THIS CONNECTION YOU ALSO NOTE THAT THE FINAL ROUND PROPOSALS WERE THE FIRST TO BE SUBMITTED ON THE REVISED TERMS UTILIZING TRANSPORTATION COST AS AN EVALUATION FACTOR AND RESTRUCTURING QUANTITIES AND DELIVERY RATES.

THE ABOVE-CITED ASPR PROVISION PROVIDES, IN PERTINENT PART, THAT AFTER RECEIPT OF INITIAL PROPOSALS, WRITTEN OR ORAL DISCUSSIONS SHALL BE CONDUCTED WITH ALL RESPONSIBLE OFFERORS WHO SUBMIT PROPOSALS WITHIN A COMPETITIVE RANGE, WITH CERTAIN STATED EXCEPTIONS. WE DO NOT BELIEVE THAT THIS REGULATION REQUIRES ADDITIONAL WRITTEN OR ORAL DISCUSSIONS AFTER EACH MODIFICATION TO THE TERMS OF THE REQUEST FOR PROPOSALS PURSUANT TO WHICH THE INITIAL PROPOSALS WERE RECEIVED. AND EVEN IF THE MARCH 9, 1971, REQUEST FOR BEST AND FINAL OFFERS WERE TO BE CONSIDERED AS A NEW PROCUREMENT BECAUSE OF THE NEW FACTORS INTRODUCED INTO THE EVALUATION OF OFFERS, THE REGULATION PERMITS ACCEPTANCE OF INITIAL PROPOSALS WITHOUT DISCUSSIONS WHERE IT CAN BE DEMONSTRATED BY ADEQUATE COMPETITION THAT ACCEPTANCE OF THE MOST FAVORABLE INITIAL PROPOSAL WOULD RESULT IN A FAIR AND REASONABLE PRICE. IN OUR VIEW, THE PRIOR ROUNDS OF NEGOTIATIONS WITH THE COMPETITIVE OFFERORS ON THE ITEM WERE SUFFICIENT TO ADEQUATELY DEMONSTRATE TO THE PROCUREMENT OFFICIALS WHAT A FAIR AND REASONABLE PRICE TO THE GOVERNMENT WOULD BE. MOREOVER, WE CANNOT CONCLUDE THAT YOUR SUBMISSION OF F.O.B. DESTINATION IN ADDITION TO ORIGIN PRICES WOULD OPERATE TO REQUIRE THE CONTRACTING OFFICER TO OBTAIN FURTHER CLARIFICATION BY WAY OF NEGOTIATIONS SINCE, AS SHOWN ABOVE, HIS ONLY OBLIGATION CONCERNING SUCH ALTERNATE WAS TO DETERMINE WHETHER IT WOULD BE IN THE BEST INTERESTS OF THE GOVERNMENT TO SOLICIT NEW PROPOSALS ON THE BASIS OF THAT ALTERNATE.

FOR THE REASONS STATED ABOVE, WE PERCEIVE NO LEGAL BASIS ON WHICH WE COULD REQUIRE CANCELLATION OF THE CONTRACT AWARDED IN THIS CASE.