B-171798(1), AUG 18, 1971

B-171798(1): Aug 18, 1971

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CONTENDING THAT: (1) THE FACTORS ARE UNFAIR. (3) THEY WERE IMPROPERLY APPLIED. THE SELECTION AND APPLICATION OF EVALUATION CRITERIA ARE THE RESPONSIBILITY OF THE PROCURING ACTIVITY. THIS SELECTION AND EVALUATION PROCESS WAS IN LINE WITH THESE PRINCIPLES. GAO AGREES WITH DSA THAT GEOGRAPHIC GROUPING WAS A REASONABLE PROCEDURE TO ALLOW ANY FIRM TO OFFER A PORTION OF THE TOTAL REQUIREMENTS. THE POSSIBILITY OF "ALL OR NONE" OFFERS WAS RAISED BY PARAGRAPH 2. THE INCLUSION OF AN EVALUATION CREDIT FOR EARLY DELIVERY IS IN THE BEST INTERESTS OF THE GOVERNMENT. SINCE THERE IS CURRENTLY NO PRESCRIBED METHOD FOR DETERMINING RESIDUAL VALUES OF ADP EQUIPMENT. BECAUSE THE RESIDUAL VALUE FACTORS WERE THE SAME FOR EACH OFFEROR.

B-171798(1), AUG 18, 1971

BID PROTEST - EVALUATION AND AWARD FACTORS - GEOGRAPHIC "BUNDLING" - "ALL OR NONE" OFFERS - EARLY DELIVERY CREDIT - RESIDUAL VALUE - NONAVAILABILITY OF FUNDING - AWARD WITH PROTEST PENDING DENIAL OF PROTEST ON BEHALF OF STORAGE TECHNOLOGY CORPORATION (STC) AGAINST THE AWARD OF A CONTRACT FOR THE LEASE, WITH AN OPTION TO PURCHASE, OF PERIPHERAL DATA PROCESSING EQUIPMENT UNDER AN RFP ISSUED BY THE DEFENSE SUPPLY AGENCY (DSA). STC PROTESTS THE EVALUATION AND AWARD FACTORS PRESCRIBED IN THE RFP, CONTENDING THAT: (1) THE FACTORS ARE UNFAIR; (2) THEY DO NOT ACCURATELY REFLECT THE LEAST COST TO THE GOVERNMENT; AND (3) THEY WERE IMPROPERLY APPLIED. THE SELECTION AND APPLICATION OF EVALUATION CRITERIA ARE THE RESPONSIBILITY OF THE PROCURING ACTIVITY. THE BASIS FOR EVALUATION MUST BE STATED IN THE RFP WITH SUFFICIENT CLARITY TO GIVE ALL QUALIFIED OFFERORS AN EQUAL OPPORTUNITY TO INTELLIGENTLY SUBMIT OFFERS. THIS SELECTION AND EVALUATION PROCESS WAS IN LINE WITH THESE PRINCIPLES. GAO AGREES WITH DSA THAT GEOGRAPHIC GROUPING WAS A REASONABLE PROCEDURE TO ALLOW ANY FIRM TO OFFER A PORTION OF THE TOTAL REQUIREMENTS, WHILE GIVING THE GOVERNMENT A PRACTICABLE BASIS FOR EVALUATION, AND A WORKABLE NUMBER OF CONTRACTS TO ADMINISTER. THE POSSIBILITY OF "ALL OR NONE" OFFERS WAS RAISED BY PARAGRAPH 2, SECTION "D" OF THE RFP. GAO HAS PREVIOUSLY APPROVED THIS TYPE OF EVALUATION, AND HAS HELD THAT SUCH BIDS MUST BE ACCEPTED IF THEY OFFER THE LOWEST AGGREGATE PRICE. THE INCLUSION OF AN EVALUATION CREDIT FOR EARLY DELIVERY IS IN THE BEST INTERESTS OF THE GOVERNMENT, AND DOES NOT RESULT IN AN UNFAIR COMPETITIVE ADVANTAGE TO ANY ONE OFFEROR. ASPR 1-305.4 PROVIDES FOR THE USE OF SPECIAL PROCEDURES OR PARTICULARLY DESIRED DELIVERY REQUIREMENTS IN THE EVALUATION PROCESS. SINCE THERE IS CURRENTLY NO PRESCRIBED METHOD FOR DETERMINING RESIDUAL VALUES OF ADP EQUIPMENT, THE PROCEDURE USED HERE MUST BE EVALUATED ON THE BASIS OF SOUND LOGIC AND FAIRNESS TO ALL BIDDERS. BECAUSE THE RESIDUAL VALUE FACTORS WERE THE SAME FOR EACH OFFEROR, THEY HAD NO ADVERSE EFFECT IN DECIDING THE SUCCESSFUL PROPOSER. PARAGRAPH 34, SECTION "C" OF THE RFP, WHICH ADVISED OFFERORS THAT PURCHASING FUNDS WERE NOT CURRENTLY AVAILABLE, IS IDENTICAL TO THAT PRESCRIBED IN ASPR 1-318. GAO DOES NOT OBJECT TO THE EXECUTION OF A CONTRACT PRIOR TO APPROPRIATION OF FUNDS, PROVIDING CERTAIN CONDITIONS ARE MET, ONE OF WHICH IS THAT THE CONTRACT, AS HERE, SPECIFICALLY PROVIDES THAT THE GOVERNMENT'S LIABILITY IS CONTINGENT UPON THE FUTURE AVAILABILITY OF FUNDS. IN MAKING THE AWARD PRIOR TO RESOLUTION OF THIS PROTEST, DSA BASED ITS DECISION ON THE ESTIMATED LOSS TO THE GOVERNMENT IN RENTALS TO THE CURRENT SUPPLIER. SUCH A DECISION IS WITHIN THE PURVIEW OF ASPR 2 407.8(B)(3)(I) AND (III) WHICH PERMITS AWARD, NOTWITHSTANDING A PROTEST, WHERE A PROMPT AWARD WOULD BE ADVANTAGEOUS TO THE GOVERNMENT. ON THIS RECORD, GAO CAN FIND NO BASIS TO CONCLUDE THAT THE RFP WAS LEGALLY DEFECTIVE, OR THAT THE METHOD OF EVALUATION WAS PREJUDICIAL TO ANY OFFEROR.

TO MR. WILL J. DAVIS:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 25, 1971, ON BEHALF OF STORAGE TECHNOLOGY CORPORATION (STC), PROTESTING AGAINST THE AWARD OF A CONTRACT FOR THE LEASE WITH OPTION TO PURCHASE PERIPHERAL DATA PROCESSING EQUIPMENT TO POTTER INSTRUMENT COMPANY, INC., UNDER REQUEST FOR PROPOSALS (RFP) NO. DSAHOO-71-R-0010, ISSUED BY THE DEFENSE SUPPLY AGENCY (DSA), DIRECTORATE OF PROCUREMENT & PRODUCTION, CAMERON STATION, ALEXANDRIA, VIRGINIA.

STC CONTENDS THAT THE EVALUATION AND AWARD FACTORS PRESCRIBED IN THE RFP ARE UNFAIR; THAT THEY DO NOT ACCURATELY REFLECT THE LEAST COST TO THE GOVERNMENT; AND THAT THEY WERE APPLIED CONTRARY TO THE CRITERIA PUBLISHED IN THE RFP. FURTHER, STC CONTENDS THAT THE AWARD CRITERIA, AS APPLIED BY DSA, WILL NOT RESULT IN AN AWARD REPRESENTING THE LEAST COST TO THE GOVERNMENT. IN CONCLUSION, IT IS ARGUED THAT STC, AS WELL AS OTHER OFFERORS, WAS NOT AFFORDED FAIR AND EQUITABLE TREATMENT IN THE DSA SELECTION PROCESS. FOR THE REASONS STATED BELOW, THE PROTEST OF STC IS DENIED.

OUR AUTOMATIC DATA PROCESSING STAFF HAS SUPPLIED TECHNICAL ADVICE RELATING TO THE EVALUATION OF OFFERORS WHICH LEADS US, IN THE MAIN, TO THE CONCLUSION THAT THE AWARD IS NOT SUBJECT TO LEGAL OBJECTION.

THE RFP WAS ISSUED ON AUGUST 17, 1970, PURSUANT TO A CONTRACTING OFFICER'S DETERMINATION AND FINDINGS UNDER 10 U.S.C. 2304(A)(10), AS IMPLEMENTED BY PARAGRAPH 3-210 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), WHICH AUTHORIZES THE NEGOTIATION OF CONTRACTS FOR PROPERTY FOR WHICH IT IS IMPRACTICABLE TO OBTAIN COMPETITION. THE DETERMINATION AND FINDINGS WAS BASED ON TWO FACTORS: (1) THAT IT WAS IMPOSSIBLE TO DRAFT FOR A FORMALLY ADVERTISED SOLICITATION DETAILED SPECIFICATIONS, INCLUDING TESTING REQUIREMENTS FOR THE VARIOUS ALTERNATIVE EQUIPMENT COMPONENTS DESIRED TO ACCOMPLISH THE NECESSARY FUNCTIONS; AND (2) THAT THE FLEXIBILITY AFFORDED BY THE NEGOTIATION TECHNIQUE WAS NECESSARY IN CONDUCTING TECHNICAL DISCUSSIONS AND PREAWARD BENCHMARK TESTING OF THE PROPOSED EQUIPMENT.

IT IS REPORTED THAT OFFERS WERE REQUESTED FOR THE LEASE, PURCHASE, OR LEASE (WITH OPTION TO PURCHASE) OF 172 MAGNETIC TAPE DRIVES AND DISK STORAGE DEVICES. THE EQUIPMENT WAS TO BE COMPATIBLE WITH, ON A PLUG-TO PLUG BASIS, AND EQUIVALENT TO FOUR DESIGNATED SERIES OF INTERNATIONAL BUSINESS MACHINES CORPORATION (IBM) EQUIPMENT. THE REQUIREMENT WAS DEVELOPED IN LINE WITH THE OFFICE OF MANAGEMENT AND BUDGET (OMB) BULLETIN 70-9, SUBJECT: "ACQUISITION OF PERIPHERAL COMPONENTS FOR INSTALLED ADP (AUTOMATIC DATA PROCESSING) SYSTEMS," AND WAS TO REPLACE LEASED IBM UNITS AT 13 DSA INSTALLATIONS IN THE CONTINENTAL UNITED STATES WITH LOWER COST EQUIPMENT. THE INSTALLATIONS WERE GROUPED INTO THREE GEOGRAPHIC AREAS. OFFERORS COULD PROPOSE ANY COMBINATION OF EQUIPMENT SERIES AND GEOGRAPHIC AREAS BUT HAD TO INCLUDE THE ENTIRE REQUIREMENT FOR AN EQUIPMENT SERIES AT EVERY LOCATION WITHIN AN AREA. SINCE OFFERS WERE SOLICITED ON FOUR EQUIPMENT SERIES FOR EACH OF THE THREE GEOGRAPHIC AREAS, AS MANY AS 12 AWARDS COULD BE MADE. OFFERORS WERE REQUIRED TO SUBMIT FIRM FIXED PRICES FOR PURCHASE, OR FOR LEASE FOR A 3-YEAR PERIOD, OR FOR LEASE FOR 3 YEARS WITH OPTION TO PURCHASE. PRICES FOR MAINTENANCE OF THE EQUIPMENT WERE ALSO REQUIRED OVER THE 3 YEAR PERIOD UNDER EITHER OF THE THREE ALTERNATIVES. THE PRINCIPAL BASIS FOR AWARD WAS TO BE THE "LEAST" COST TO THE GOVERNMENT OVER THE 36-CONSECUTIVE-MONTH EVALUATION PERIOD.

DELIVERY WAS SPECIFIED OVER A 60- TO 150-DAY PERIOD. PROPOSALS OFFERING EARLIER DELIVERY AND INSTALLATION WERE CREDITED, FOR EVALUATION PURPOSES, BASED ON THE COST SAVINGS EXPECTED TO BE REALIZED FROM THAT EARLY DELIVERY. SUBSEQUENT AMENDMENTS WERE ISSUED TO CLARIFY AND REVISE CERTAIN REQUIREMENTS AND EVALUATION CRITERIA AND TO REDUCE THE QUANTITY TO 156 UNITS AT 12 LOCATIONS.

PROPOSALS WERE RECEIVED FROM 11 FIRMS ON THE DUE DATE, SEPTEMBER 25, 1970. A TECHNICAL AND COST EVALUATION WAS PERFORMED BY A PROPOSAL EVALUATION BOARD COMPOSED OF TECHNICAL, AUDIT, LEGAL AND PROCUREMENT REPRESENTATIVES. NEGOTIATIONS WITH ALL OFFERORS CONTINUED DURING THE EVALUATION PROCESS. AS A RESULT OF QUESTIONS ARISING DURING NEGOTIATIONS, A TELEGRAM WAS ISSUED TO ALL 11 OFFERORS ON OCTOBER 27, 1970, TO CLARIFY THE EVALUATION CRITERIA CONTAINED IN THE RFP AND ALSO TO ADVISE OFFERORS OF FURTHER EVALUATION CRITERIA. OFFERORS WERE INVITED TO SUBMIT ANY REVISIONS TO PROPOSALS BY NOVEMBER 2, 1970, AT WHICH TIME NEGOTIATIONS WOULD BE CLOSED. THE FURTHER CRITERIA OF EVALUATION ESTABLISHED BY THE OCTOBER 27 TELEGRAM ARE QUOTED INFRA:

" *** FOR EVALUATION PURPOSES, ANY PROPOSAL UNDER WHICH TITLE TO THE EQUIPMENT OFFERED VESTED IN THE GOVERNMENT WILL BE GIVEN A TERMINAL OR RESIDUAL VALUE CREDIT TO REDUCE THE OVERALL COSTS OF THAT PROPOSAL. THE CREDIT WILL BE 25% OF THE PURCHASE PRICE FOR EACH UNIT EXCEPT FOR IBM 729 UNITS (ONE OF THE FOUR EQUIPMENT SERIES) OR THEIR EQUIVALENT, FOR WHICH THE CREDIT WILL BE 10% OF THE UNIT PURCHASE PRICE.

" *** OFFERS OF LEASE WITH OPTION TO PURCHASE *** WILL BE EVALUATED BASED ON THE ASSUMPTION THAT THE GOVERNMENT WILL EXERCISE THE PURCHASE OPTION AT THE END OF THE 18TH MONTH AFTER INSTALLATION OF EACH UNIT AS SPECIFIED IN THE DELIVERY SCHEDULE *** .

" ***PROPOSALS OFFERING EARLY DELIVERY WILL BE EVALUATED ON THE BASIS THAT THE PRICES OFFERED ARE FIRM AND WILL BE AVAILABLE TO THE GOVERNMENT FOR 36 MONTHS AFTER INSTALLATION AS SPECIFIED IN THE DELIVERY SCHEDULE *** AS WELL AS FOR THE PERIOD COVERED BY THE EARLY DELIVERY OFFERED BY THE VENDOR."

ON OCTOBER 26, 1970, THE DAY PRIOR TO DISPATCH OF THE CLARIFYING TELEGRAM, A LATE PROPOSAL WAS RECEIVED FROM STC. THE PROPOSAL WAS CONSIDERED UNDER THE "LATE PROPOSALS AND MODIFICATIONS" PROVISIONS OF THE RFP. THE STC PROPOSAL OFFERED PRICES ONLY FOR ONE SERIES OF EQUIPMENT IN ONE AREA. THE STC PRICES WERE MORE THAN $200,000 HIGHER THAN THE THEN LOW OFFER FOR THE SAME PORTION OF THE REQUIREMENT. ACCORDINGLY, THE CONTRACTING OFFICER CONCLUDED THAT STC WAS NOT WITHIN THE ZONE OF CONSIDERATION AND THAT MEANINGFUL NEGOTIATIONS WITH THE FIRM WERE NOT POSSIBLE. THEREFORE, COPY OF THE OCTOBER 27 TELEGRAM WAS NOT SENT TO STC.

THE EVALUATION OF PROPOSALS WAS COMPLETED ON DECEMBER 1, 1970, AND THE EVALUATION TEAM'S REPORT WAS PRESENTED TO THE DSA ADP EQUIPMENT SELECTION BOARD ON DECEMBER 3, 1970. THE BOARD RECOMMENDED AWARD TO THE LOWEST COMBINATION OF OFFERS TO COVER THE REQUIREMENT. THE DSA SENIOR ADP POLICY OFFICIAL APPROVED THE BOARD'S RECOMMENDATIONS, WHICH CONSISTED OF FOUR AWARDS AT AN EVALUATED TOTAL PRICE OF $4,206,474 OVER THE 3-YEAR EVALUATION PERIOD. ON DECEMBER 21, 1970, JUST PRIOR TO THE ANTICIPATED AWARD DATE, THE FIRM SELECTED TO RECEIVE A MAJOR PORTION OF THE TOTAL REQUIREMENT WITHDREW ITS PROPOSAL. SUBSEQUENT REEVALUATION OF THE REMAINING OFFERS DISCLOSED THAT A COMBINATION OF FIVE OFFERORS, AT A 3- YEAR EVALUATED COST OF $4,219,766, AN INCREASE OF $13,019 OVER THE PREVIOUS COMBINATION, WAS THE MOST ADVANTAGEOUS SELECTION. ON DECEMBER 31, 1970, HOWEVER, POTTER SUBMITTED A LATE MODIFICATION TO ITS PROPOSAL WHICH, IF CONSIDERED, WOULD RESULT IN A 3-YEAR COST SAVINGS OF $107,281. THE CONTRACTING OFFICER UTILIZED THE SAME "LATE PROPOSALS AND MODIFICATIONS" CLAUSE OF THE RFP UNDER WHICH STC'S LATE PROPOSAL WAS CONSIDERED TO REOPEN NEGOTIATIONS WITH ALL OFFERORS FOR THE PURPOSE OF TAKING ADVANTAGE OF POTTER'S LATE MODIFICATION. ALL OFFERORS, INCLUDING STC, WERE GIVEN AN OPPORTUNITY TO REVISE THEIR PROPOSALS BY TELEGRAM DATED JANUARY 13, 1971. ON THAT DATE, A REPRESENTATIVE OF STC CAME TO THE ISSUING OFFICE AND RECEIVED A COPY OF THE OCTOBER 27 TELEGRAM CONTAINING THE ADDITIONAL EVALUATION CRITERIA. MODIFICATIONS TO PROPOSALS AND BEST AND FINAL OFFERS WERE REQUIRED BY JANUARY 21, 1971. THE EVALUATION INDICATED THAT AWARD TO POTTER ON A LEASE-WITH OPTION-TO-PURCHASE BASIS OF THE ENTIRE REQUIREMENT AT AN EVALUATED COST OF $3,526,054 ON AN "ALL OR NONE" BASIS WAS THE MOST ADVANTAGEOUS TO THE GOVERNMENT. THIS PRICE WAS $693,712 LOWER THAN THE PREVIOUS LOW COMBINATION. ON MARCH 15, 1971, AN AWARD UNDER THE RFP WAS MADE TO POTTER FOR THE ENTIRE REQUIREMENT.

PRIOR TO DISCUSSING THE PROPRIETY OF THE EVALUATION FACTORS, WE MUST POINT OUT THAT, IN GENERAL, THE SELECTION AND APPLICATION OF EVALUATION CRITERIA ARE PRIMARILY THE RESPONSIBILITY OF THE PROCURING ACTIVITY. SEE 49 COMP. GEN. 98, 100 (1969); AND B-168366, FEBRUARY 25, 1970. COROLLARY THERETO IS THE PROPOSITION THAT THE BASIS FOR EVALUATION MUST BE CLEARLY AND DEFINITIVELY STATED IN ADVANCE WITHIN THE FOUR CORNERS OF A SOLICITATION WITH SUFFICIENT CLARITY AND EXACTNESS THAT ALL QUALIFIED OFFERORS ARE GIVEN AN EQUAL OPPORTUNITY TO INTELLIGENTLY SUBMIT OFFERS BASED UPON IDENTICAL EVALUATION CRITERIA AND TO HAVE SUCH OFFERS EVALUATED ON AN EQUAL BASIS. 50 COMP. GEN.

(B-170682, MARCH 19, 1971); 47 ID. 272, 274-275 (1967); AND B 171023, DECEMBER 10, 1970. SINCE WE FIND THAT THE SELECTION OF EVALUATION FACTORS AND THE RESULTANT EVALUATION REVIEW THEREON COMPORTED WITH THESE PRINCIPLES, OUR OFFICE, AS STATED ABOVE, WILL INTERPOSE NO OBJECTION TO THE AWARD. B-162062, NOVEMBER 9, 1967. WE BASE THIS FINDING ON THE FACT THAT ALL OFFERORS WERE COMPLETELY APPRISED OF EVERY EVALUATION FACTOR BY DSA IN THE SOLICITATION. FURTHERMORE, IT IS EVIDENT FROM THE RECORD THAT THE ACTUAL EVALUATION STRICTLY CONFORMED TO THE PRESCRIBED EVALUATION CRITERIA. IT IS SIGNIFICANT TO NOTE THAT NO OFFEROR, AND IN PARTICULAR STC, RAISED ANY QUESTION AS TO THE CRITERIA OF EVALUATION EITHER PRIOR TO THE INITIAL SUBMISSION OF PROPOSALS OR DURING THE NEGOTIATION PERIOD, ALTHOUGH PARAGRAPH 3 OF THE RFP INSTRUCTIONS AND CONDITIONS PROVIDED A MEANS WHEREBY OFFERORS COULD OBTAIN A MEANING OR INTERPRETATION OF ANY RFP PROVISION. WE MENTION THIS FACT IN LIGHT OF THE CIRCUMSTANCE THAT STC RAISED NO QUESTIONS RESPECTING THE RFP CRITERIA UNTIL AFTER IT HAD BEEN EXCLUDED FROM THE NEGOTIATIONS BY DSA.

CONCERNING THE SPECIFIC COMPLAINTS MADE BY STC, THE COMPANY OBJECTS TO THE GEOGRAPHIC "BUNDLING" OF AWARD ITEMS IN THE RFP. IT IS CONTENDED THAT SUCH "BUNDLING" IS RESTRICTIVE OF COMPETITION BECAUSE IT RESULTS IN SMALL BUSINESS FIRMS BEING UNABLE TO COMPETE WITH LARGE BUSINESS FIRMS AND HIGHER PRICES TO THE GOVERNMENT. AS STATED ABOVE, THE RFP ESTABLISHED THREE GEOGRAPHIC AWARD AREAS. WITHIN ANY OF THESE AREAS, PROPOSALS WERE ACCEPTED FOR REPLACEMENT OF A COMPLETE SERIES OF IBM EQUIPMENT (IBM 729, 2401, 2311 OR 2314). PROPOSALS FOR A PORTION OF THE REQUIREMENTS OF ANY ONE SERIES, E.G., SOME OF THE 729'S WITHIN ANY ONE GEOGRAPHICAL AREA, WERE NOT ACCEPTABLE. DSA GEOGRAPHICAL BUNDLING ACTUALLY REPRESENTS AN "UNBUNDLING" FROM A SINGLE PROPOSER TOTAL REQUIREMENTS AWARD. IN THIS REGARD, UNDER THE RFP A TOTAL OF 12 AWARDS COULD HAVE RESULTED (THREE AREAS WITH FOUR SERIES OF EQUIPMENT PER AREA). ANY FURTHER BREAKDOWN, E.G., TO INDIVIDUAL LOCATIONS, WOULD HAVE RESULTED IN EXCESSIVE CONTRACT ADMINISTRATION COSTS AND COULD HAVE ELIMINATED THE PRICE REDUCTIONS OBTAINED THROUGH A LARGE QUANTITY PROCUREMENT. MOREOVER, WE NOTE THAT SEVERAL OFFERORS SUBMITTED PRICES WELL BELOW THAT CURRENTLY BEING PAID BY THE GOVERNMENT FOR THE DESIRED EQUIPMENT. FURTHER, THE USE OF GEOGRAPHICAL AREA AWARDS HAS BEEN PREVIOUSLY USED IN LARGE PROCUREMENTS FOR PLUG-TO-PLUG COMPATIBLE REPLACEMENTS, E.G., IN DEPARTMENT OF THE NAVY AND GENERAL SERVICES ADMINISTRATION (GSA) AWARDS. IN VIEW THEREOF, WE CONCUR WITH THE DSA POSITION THAT THIS METHOD OF AWARD WAS A REASONABLE MIDDLE GROUND TO ALLOW ANY FIRM TO OFFER A PORTION OF THE TOTAL REQUIREMENTS WHILE GIVING THE GOVERNMENT BOTH A PRACTICABLE BASIS FOR EVALUATION AND A WORKABLE NUMBER OF CONTRACTS TO ADMINISTER.

STC CLAIMS THAT THE ACCEPTANCE AND EVALUATION OF "ALL OR NONE" OFFERS BY DSA SEVERELY RESTRICTED THE ABILITY OF SMALL BUSINESS CONCERNS TO COMPETE. EXPANDING ON THIS, IT IS ARGUED THAT THE RFP DOES NOT SPECIFY WHETHER SUCH OFFERS ARE PERMISSIBLE AND FURTHER THAT THE METHOD OF EVALUATING THE "ALL OR NONE" OFFERS WAS NOT SET FORTH IN THE RFP. HOWEVER, PARAGRAPH 2 OF SECTION "D" OF THE RFP STATED THAT OFFERORS PROPOSING TO FURNISH THE ENTIRE REQUIREMENT FOR MORE THAN ONE SERIES OF EQUIPMENT AND/OR COVERING MORE THAN ONE GEOGRAPHIC AREA WERE INVITED TO SUBMIT ALTERNATE PROPOSALS ON A COMBINED BASIS AT LESSER COST THAN THE SUM OF THE COSTS IN THE PROPOSAL PRICED ON AN INDIVIDUAL SERIES OR AREA BASIS. ALSO, THE POSSIBILITY OF AN "ALL OR NONE" AWARD IS CONTEMPLATED BY PARAGRAPH 10(C) OF STANDARD FORM 33A, ATTACHED TO THE RFP, WHICH MAKES ALLOWANCE FOR SPECIFIC OFFEROR LIMITATIONS WITH RESPECT TO ITEMS ON WHICH OFFERS ARE SUBMITTED. DSA STATED THAT THE EVALUATION OF "ALL OR NONE" OFFERS WAS BASED ON A CONSIDERATION OF THE AGGREGATE COSTS OF EACH "ALL OR NONE" OFFER AS COMPARED WITH THE NEXT BEST POSSIBLE COMBINATION OF AWARDS, REGARDLESS OF ANY ONE LINE ITEM COST.

IN 42 COMP. GEN. 746, 747 (1963), WE APPROVED THIS TYPE OF EVALUATION AND HELD THAT BIDS ON AN "ALL OR NONE" BASIS MUST BE ACCEPTED IF THEY OFFER THE LOWEST AGGREGATE PRICE. THERE, AS HERE, THE TERMS OF THE PARTICULAR SOLICITATION CLEARLY CONTEMPLATED AN AGGREGATE AWARD ON ALL ITEMS IF IT WOULD BE MOST ADVANTAGEOUS TO THE GOVERNMENT. FURTHER, WE HAVE CONSISTENTLY HELD THAT "ALL OR NONE" BIDS SUBMITTED IN RESPONSE TO SOLICITATIONS FOR DEFINITE QUANTITIES ARE FOR CONSIDERATION EVEN IF THERE IS NO PROVISION THEREFOR IN THE SOLICITATION. 35 COMP. GEN. 383, 385 (1956). STC NEXT QUESTIONS THE FACT THAT THE RFP PROVIDED FOR AN EVALUATION CREDIT BASED ON AN OFFEROR'S DELIVERY AND INSTALLATION EARLIER THAN THAT REQUIRED IN THE RFP OF 60 TO 150 DAYS. THE EVALUATION OF SUCH A PROPOSED EARLIER DELIVERY AND INSTALLATION SCHEDULE WAS TO BE BASED ON ANY SAVINGS REALIZED ON RENTALS CURRENTLY BEING PAID, AS A RESULT OF THE EARLY INSTALLATION DATE. STC CONTENDS THAT DSA, IN GRANTING UNSPECIFIED CREDITS FOR EARLY INSTALLATION, IS CLEARLY CONTRIBUTING TO UNREALISTIC DELIVERY SCHEDULES WHICH ARE UNREASONABLY TIGHT OR DIFFICULT OF ATTAINMENT AND TEND TO RESTRICT COMPETITION AGAINST SMALL BUSINESS CONCERNS AND MAY RESULT IN HIGHER PRICES, CITING ASPR 1-305.2. ALSO, IT IS ARGUED THAT THE CURRENT SUPPLIER, IBM, GAINS AN ADVANTAGE OVER OTHER OFFERORS.

DSA SUPPORTS THE USE OF THIS EVALUATION BY STATING THAT:

"F. EVALUATION OF EARLY INSTALLATION: THE DELIVERY SCHEDULE OF THE RFP WAS ESTABLISHED ON THE BASIS OF THE USUAL DELIVERY TERMS OFFERED IN THE INDUSTRY, ADJUSTED IN RECOGNITION OF THE UNUSUALLY LARGE QUANTITY INVOLVED. TO RECOGNIZE AND ENCOURAGE EARLIER DELIVERY, IT WAS CONSIDERED APPROPRIATE TO OFFER AN EVALUATION CREDIT. THE CREDIT WAS CALCULATED BY DETERMINING THE AVERAGE MONTHLY BASIC AND EXTRA USE CHARGES PAID FOR EACH EQUIPMENT SERIES TO IBM DURING THE PRECEDING SIX MONTHS. THE MONTHLY RENTALS IN EACH PROPOSAL OFFERING EARLY DELIVERY (ALL OFFERED LOWER PRICES) WERE THEN COMPARED WITH THE IBM AVERAGE CHARGE FOR THE SAME TIME PERIOD AND THE DIFFERENCE WAS CREDITED AGAINST THE OFFEROR'S TOTAL COST MODEL. EACH 'EARLY INSTALLATION' OFFEROR ALSO AGREED DURING NEGOTIATIONS TO AN EXTENSION OF THE TERM OF ANY CONTRACT BY THE SAME NUMBER OF DAYS AS OFFERED FOR EARLY INSTALLATION. SEE PARAGRAPH 4 OF SECTION D, PAGE D-1 OF THE RFP IN THIS REGARD. STC STATES THAT THE EARLY DELIVERY FACTOR FAVORS THE CURRENT VENDOR AND OTHER LARGE FIRMS. IT IS, HOWEVER, IN THE BEST INTEREST OF THE GOVERNMENT TO REDUCE PRESENT RENTAL COSTS AT THE EARLIEST DATE. REGARDLESS OF THE EARLY DELIVERY FACTOR, AN IBM PROPOSAL OFFERING LOWER PRICES FOR THE INSTALLED MACHINES, EFFECTIVE UPON AWARD, WOULD BE EVALUATED WITH REGARD TO THE SAVINGS REALIZED BY THE GOVERNMENT THROUGH THAT IMMEDIATE 'INSTALLATION.' THE EARLY INSTALLATION FACTOR EXTENDS THE SAME BENEFITS TO ALL OTHER OFFERORS, THEREBY MINIMIZING THE INHERENT IBM ADVANTAGE, WHILE BENEFITING THE GOVERNMENT THROUGH THE EARLIER AVAILABILITY OF LOWER PRICES."

FURTHER, WHILE DSA ADMITS THAT THE PRECISE FIGURES TO BE USED IN THE CALCULATION OF THE EARLY DELIVERY CREDIT WERE NOT IN THE RFP, IT TAKES THE POSITION THAT "OFFERORS WERE ADVISED OF THE BROAD SCHEME OF EVALUATION AND WERE GIVEN REASONABLY DEFINITE INFORMATION AS TO HOW THEIR PROPOSALS WOULD BE EVALUATED."

WE FEEL THAT INCLUSION OF AN EVALUATION CREDIT FOR EARLY DELIVERY WAS IN THE BEST INTERESTS OF THE GOVERNMENT AND DID NOT RESULT IN AN UNFAIR COMPETITIVE ADVANTAGE TO ANY ONE PROPOSER. AS NOTED IN OUR REPORT "STUDY OF THE ACQUISITION OF PERIPHERAL EQUIPMENT FOR USE WITH AUTOMATIC DATA PROCESSING SYSTEMS" (B-115369, JUNE 24, 1969), IMMEDIATE SAVINGS ARE ATTAINABLE THROUGH REPLACEMENT WITH PLUG-TO-PLUG COMPATIBLES. INCLUSION IN THE SOLICITATION OF INCENTIVES FOR EARLY DELIVERY WOULD MAXIMIZE SUCH SAVINGS AND DOES NOT APPEAR TO UNDULY RESTRICT COMPETITION.

IN B-168599, FEBRUARY 12, 1970, WE REVIEWED AND DID NOT OBJECT TO A NEGOTIATED SOLICITATION FOR ADP BY THE DEPARTMENT OF THE NAVY WHICH CONTAINED, AS HERE, AS A DESIRABLE RFP FEATURE A VENDOR-PROPOSED EARLY DELIVERY COST FACTOR IN THE EVALUATION OF PROPOSALS TO DETERMINE THE LOWEST OVERALL SYSTEM LIFE COST TO THE GOVERNMENT. ALSO, ASPR 1-305.4 CONTEMPLATES THE POSSIBLE USE OF SPECIAL PROCEDURES OR PARTICULARLY DESIRED DELIVERY REQUIREMENTS TO BE CONSIDERED IN THE EVALUATION PROCESS AS REGARDS TIME OF DELIVERY. WE THEREFORE AGREE WITH DSA THAT USE OF THE EARLY DELIVERY FACTOR WAS NOT OBJECTIONABLE AND PROVIDED MEASURABLE BENEFITS TO THE GOVERNMENT.

RESPECTING STC'S OBJECTIONS TO DSA'S LIMITATION OF A 15-PERCENT VARIATION IN COSTS OVER THE CONTRACT PERIOD TO AVOID THE SUBMISSION OF UNBALANCED OFFERS AND DSA'S IMPOSITION OF MAINTENANCE CREDITS FOR POSSIBLE EQUIPMENT MALFUNCTION, WE SEE NO BASIS UPON WHICH TO OBJECT TO THESE SOLICITATION PROVISIONS IN VIEW OF THE EXPLANATION CONTAINED IN DSA REPORTS ON STC'S PROTEST WHICH HAVE BEEN FURNISHED TO YOU BY OUR OFFICE.

STC QUESTIONS THE USE AND APPLICATION OF THE TERMINAL OR RESIDUAL VALUE CREDIT AS SET FORTH IN THE OCTOBER 27 TELEGRAM AS FOLLOWS:

"2. RESIDUAL VALUE.

"A. DOES NOT SPECIFY WHICH PURCHASE PRICE WILL BE USED AS THE BASIS FOR DETERMINING RESIDUAL VALUE.

"B. ENCOURAGES 'NUMBERS GAMES' BY THE VENDORS IN INFLATING PURCHASE PRICES IN ORDER TO RECEIVE CREDIT FOR THE RESIDUAL VALUE.

"C. ENCOURAGES 'NUMBERS GAMES' BY EXPRESSING THE RESIDUAL VALUE AS A PERCENTAGE RATHER THAN AS AN ABSOLUTE AMOUNT.

"D. MAKES NO ALLOWANCE FOR THE FACT THAT USED EQUIPMENT SHOULD HAVE A LOWER RESIDUAL VALUE THAN NEW EQUIPMENT.

"E. ENCOURAGES LOADING MAINTENANCE CHARGES INTO THE PURCHASE PRICE IN ORDER TO RECEIVE RESIDUAL VALUE CREDIT FOR SUCH CHARGES."

OUR REVIEW SHOWS THAT DSA DEVELOPED A PERCENTAGE FACTOR FOR USE IN DETERMINING THE RESIDUAL VALUE OF ALL BIDDERS' EQUIPMENT. RESIDUAL VALUES FOR ALL BIDDERS' EQUIPMENT WAS DETERMINED AS FOLLOWS:

" - THE VENDORS' PURCHASE PRICES WERE REDUCED BY THE AMOUNT OF THE PROMPT PAYMENT DISCOUNT PROPOSED, IF ANY, TO OBTAIN A NET PURCHASE PRICE.

" - A FACTOR OF 10 PERCENT WAS APPLIED TO THE NET PURCHASE PRICE OF IBM 729 REPLACEMENTS AND 25 PERCENT WAS APPLIED TO IBM 2401, 2311, AND 2314 REPLACEMENTS.

" - THE RESULTANT RESIDUAL VALUES WERE DISCOUNTED FROM THE END OF THE CONTRACT PERIOD (3 YEARS) TO A PRESENT VALUE BY USING A DISCOUNT FACTOR OF 75 PERCENT.

" - THE DISCOUNTED RESIDUAL VALUES WERE CREDITED AGAINST THE VENDORS' TOTAL THREE YEAR COSTS IN THE EVALUATION OF THE PURCHASE PROPOSALS AND IN THE EVALUATION OF THE LEASE-WITH-PURCHASE OPTION PROPOSALS."

CURRENTLY, THERE IS NO PRESCRIBED METHOD OR PROCEDURE FOR DETERMINING RESIDUAL VALUES OF ADP EQUIPMENT; THEREFORE, THE PROCEDURE USED BY DSA MUST BE EVALUATED ON THE BASIS OF SOUND LOGIC AND FAIRNESS TO ALL BIDDERS. (SEE GENERAL ACCOUNTING OFFICE REPORT ON "PROBLEMS IN DEVELOPING THE CORPS OF ENGINEERS' AUTOMATED MANAGEMENT INFORMATION SYSTEM," B- 163074, APRIL 21, 1971.) THE BASIC REASON FOR INCLUDING AN AMOUNT FOR RESIDUAL VALUE IS TO REFLECT A VALUE FOR THE USEFUL LIFE OF THE EQUIPMENT BEYOND THE INITIAL CONTRACT LIFE PERIOD. AS STATED ABOVE, A 25-PERCENT FACTOR WAS ESTABLISHED FOR THREE OF THE EQUIPMENT SERIES AND A 10-PERCENT FACTOR FOR THE 729 TYPE ITEMS (DUE TO THEIR LESSER POTENTIAL FOR REUSE AS COMPARED TO SIMILAR EQUIPMENT OF LATER DESIGN). THESE PERCENTAGES, WHICH ARE UNDISPUTED, WERE ESTABLISHED BY DSA BASED ON EQUIPMENT ESTIMATES OF ECONOMIC AND TECHNOLOGICAL USEFULNESS.

THE QUANTIFICATION OF THE RESIDUAL VALUE BY APPLICATION OF A PERCENTAGE FACTOR TO COST DOES NOT NECESSARILY REFLECT THE THEORETICAL VALUE OF THE EQUIPMENT TO THE GOVERNMENT AT THE END OF THE CONTRACT PERIOD. SUCH VALUE MAY BE AFFECTED BY MANY FACTORS, SUCH AS THE AVAILABILITY OF EQUIPMENT FROM OTHER SOURCES, THE CONDITION OF THE EQUIPMENT, ETC. HOWEVER, APPLICATION OF THE PERCENTAGE FACTOR IN THIS AWARD DID NOT RESULT IN A COMPETITIVE ADVANTAGE TO ANY ONE PROPOSER; THE SAME PERCENTAGE FACTORS WERE APPARENTLY APPLIED TO ALL EQUIPMENT OF THE SAME SERIES PROPOSED BY EACH OF THE PROPOSERS. USE OF THE SAME RESIDUAL VALUE FACTORS FOR EACH PROPOSER IS SUPPORTED BY THE NATURE OF THE EQUIPMENT BEING PROCURED - ALL THE EQUIPMENT IS TO BE PLUG-TO-PLUG COMPATIBLE WITH THE UNITS BEING REPLACED. THE PRIMARY REASON FOR THE REPLACEMENT PROGRAM WAS APPARENTLY TO OBTAIN COST REDUCTIONS THROUGH COMPETITION RATHER THAN TO OBTAIN TECHNOLOGICALLY SUPERIOR EQUIPMENT. HOWEVER, BECAUSE THE RESIDUAL VALUE FACTORS WERE THE SAME FOR EACH OFFEROR, THEY HAD NO ADVERSE EFFECT IN DECIDING THE SUCCESSFUL PROPOSER. THE DIFFERENCES AMONG THE RESIDUAL VALUE CREDITS GRANTED TO THE PROPOSERS WERE A RESULT OF DIFFERENCES IN PURCHASE PRICES.

WITH RESPECT TO STC'S OBJECTIONS DIRECTED TO THE DETERMINATION OF THE PURCHASE PRICES AS TO WHICH THE RESIDUAL VALUE FACTORS WERE APPLIED, SPECIFICALLY IN THE PURCHASE-AFTER-LEASE OF 18 MONTHS, WE OBSERVE THAT THE PROPOSAL BY POTTER FOR PURCHASE-AFTER-LEASE FOR 18 MONTHS INCLUDED THE FOLLOWING:

" - FREE RENTAL FOR MONTHS 1, 17 AND 18.

" - FULL CREDIT OF 18 MONTHS' RENTAL PAYMENTS AGAINST THE PURCHASE PRICE.

" - FREE MAINTENANCE OF THE PURCHASED EQUIPMENT FOR THE REMAINDER OF THE CONTRACT TERM (18 MONTHS).

" - A 2 PERCENT, 20-DAY PROMPT PAYMENT DISCOUNT ON ALL BILLS."

IN EVALUATING THE POTTER PROPOSAL, DSA APPLIED THE RESIDUAL VALUE FACTORS TO POTTER'S OUTRIGHT PURCHASE BID NET OF THE 2-PERCENT, 20-DAY PROMPT PAYMENT DISCOUNT. IN OTHER WORDS, POTTER'S PROMPT PAYMENT DISCOUNT COULD HAVE NO EFFECT ON THE COMPUTATION OF RESIDUAL VALUE AS THE COMPUTATION WAS NOT MADE UNTIL AFTER DEDUCTION OF THE DISCOUNT FROM THE QUOTED PURCHASE PRICE. THIS WAS DONE BOTH IN THE PURCHASE PROPOSAL AND THE LEASE-WITH- OPTION-TO-PURCHASE PROPOSAL. STC CLAIMS THAT POTTER'S PURCHASE PRICE, AND THEREFORE ITS RESIDUAL VALUE CREDIT, WAS INFLATED BY THE VALUE OF THE PROMPT PAYMENT DISCOUNT, THE 3 MONTHS' FREE RENTAL AND THE 18 MONTHS' FREE MAINTENANCE. DSA STATES THAT THE POTTER PRICE FOR OUTRIGHT PURCHASE HAD BEEN SEPARATELY NEGOTIATED AND THAT THE TERMS NEGOTIATED FOR FREE RENTAL, FREE MAINTENANCE AND PROMPT PAYMENT DISCOUNT WERE NOT AN ADJUSTMENT OF THE PURCHASE PRICE FOR PURPOSES OF COMPUTATION OF RESIDUAL VALUE. WE CONCUR (THIS IS SIMILAR TO TERMS AND CONDITIONS NEGOTIATED BY GSA IN THE FEDERAL SUPPLY CONTRACTS FOR ADP EQUIPMENT).

IT SHOULD BE NOTED THAT HAD DSA PURCHASED THE EQUIPMENT OUTRIGHT WITHOUT PRIOR LEASE, THE RESIDUAL VALUE FACTOR WOULD HAVE BEEN APPLIED TO THE FULL PURCHASE PRICE NET OF THE PROMPT PAYMENT DISCOUNT. IF IN THE LEASE-WITH- OPTION-TO-PURCHASE PROPOSAL DSA HAD DEDUCTED FROM THE PURCHASE PRICE THE FREE RENTAL AND MAINTENANCE ALLOWABLE UNDER THE OPTION, A DIFFERENT RESIDUAL VALUE WOULD HAVE RESULTED. BY ITS INHERENT NATURE, RESIDUAL VALUE SHOULD NOT DIFFER BECAUSE OF THE CONTRACTUAL METHOD USED IN PROCURING EQUIPMENT. GIVEN A FIRM PRICE FOR OUTRIGHT PURCHASE, IT IS OUR OPINION THAT THE RESIDUAL VALUE FACTORS SHOULD BE APPLIED AGAINST THIS PRICE, AS WAS DONE HERE, AND THAT THE FREE RENTAL AND MAINTENANCE AVAILABLE UNDER THE LEASE-WITH-OPTION-TO PURCHASE PROPOSAL NOT BE REGARDED AS A REDUCTION IN THE PURCHASE PRICE FOR CALCULATING THE RESIDUAL VALUE. IN THIS REGARD, ALL OFFERORS SHOULD BE TREATED EQUALLY IN MAKING THE EVALUATION.

WE CONCUR WITH DSA THAT THE BASIC OVERRIDING ARGUMENT AGAINST THE ALLEGED INFLATION OF PURCHASE PRICE TO TAKE ADVANTAGE OF A HIGHER RESIDUAL VALUE IS THAT BY SO DOING AN OFFEROR RUNS THE RISK OF PRICING HIMSELF OUT OF A FAVORABLE COMPETITIVE POSITION DESPITE THE EVALUATION CREDIT FOR RESIDUAL VALUE.

STC OBJECTS TO DSA'S APPLICATION OF THE VALUE OF MONEY FACTOR OR THE COST OF MONEY (INTEREST) ADDED TO THE CAPITAL INVESTED IN THE PURCHASE OF THE EQUIPMENT. OUR REVIEW OF THE APPLICATION OF THE VALUE OF MONEY FACTOR REVEALED THAT IT WAS PERFORMED IN ACCORDANCE WITH DEPARTMENT OF DEFENSE INSTRUCTION 7041.3, FEBRUARY 26, 1969. THE OBJECTION RAISED THAT THE AMOUNT OF FREE MAINTENANCE OFFERED BY POTTER SHOULD BE DISCOUNTED IS WITHOUT MERIT SINCE SUCH MAINTENANCE DID NOT CREATE EXPENDITURES AND COULD NOT BE DISCOUNTED.

NEXT, STC POINTS OUT THAT PARAGRAPH 34 OF SECTION "C" OF THE RFP ADVISED ALL OFFERORS THAT FUNDS WERE NOT PRESENTLY AVAILABLE FOR THE PROCUREMENT. THE GOVERNMENT'S OBLIGATION WAS MADE EXPRESSLY CONTINGENT UPON THE AVAILABILITY OF APPROPRIATED FUNDS FROM WHICH PAYMENT FOR CONTRACT PURPOSES COULD BE MADE. THE PARAGRAPH CONCLUDED AS FOLLOWS:

" *** NO LEGAL LIABILITY ON THE PART OF THE GOVERNMENT FOR PAYMENT OF ANY MONEY SHALL ARISE UNLESS AND UNTIL FUNDS ARE MADE AVAILABLE TO THE CONTRACTING OFFICER FOR THIS PROCUREMENT AND NOTICE OF SUCH AVAILABILITY, TO BE CONFIRMED IN WRITING BY THE CONTRACTING OFFICER, IS GIVEN TO THE CONTRACTOR."

IN THIS REGARD, STC URGES THAT THE AWARD TO POTTER IS BASED ON THE CAPRICIOUS ASSUMPTION THAT PURCHASE MONEY WOULD BE AVAILABLE IN 18 MONTHS. ALSO IMPLIED IN THIS STATEMENT IS THE POSSIBLE IMPROPRIETY OF THE DSA AWARD TO POTTER PREDICATED ON PURCHASE AFTER 18 MONTHS OF RENTAL WHEN PROCUREMENT FUNDS WERE NOT PRESENTLY AVAILABLE. DSA EXPLAINS THAT THE PRIMARY REASON FOR SELECTING A CONVERSION TO PURCHASE AT 18 MONTHS WAS TO PROVIDE ADEQUATE TIME FOR BUDGETING AND TO AVOID COMPLEX COMPUTATIONS WHICH MIGHT BE REQUIRED TO DETERMINE VARIABLE OPTIMUM CONVERSION DATES FOR DIFFERENT VENDORS, POSSIBLY AT POINTS WHEN FUNDS WERE NOT AVAILABLE. ALSO, DSA STATES THAT IT HAS EXPERIENCED LITTLE, IF ANY, DIFFICULTY IN OBTAINING APPROVAL FOR FUNDING OF ADP PURCHASES AND THAT THERE WAS EVERY GOOD FAITH REASON TO BELIEVE THAT SUCH APPROVAL WOULD BE SECURED IN THIS CASE.

IT IS CLEARLY DSA'S INTENT TO EXERCISE THE PURCHASE OPTION AFTER 18 MONTHS OF LEASE, SUBJECT, OF COURSE, TO THE AVAILABILITY OF FUNDS. PROCUREMENTS DIRECTLY CONTINGENT UPON THE FUTURE AVAILABILITY OF FUNDS ARE NOT UNIQUE. THE "AVAILABILITY OF FUNDS" PROVISION IN THE RFP IS IDENTICAL TO THAT PRESCRIBED IN ASPR 1-318, ENTITLED "CONTRACTS CONDITIONED UPON THE AVAILABILITY OF FUNDS." IN ADDITION, WE HAVE NOT OBJECTED TO THE EXECUTION OF A CONTRACT PRIOR TO THE APPROPRIATION OF FUNDS, AS LONG AS CERTAIN CONDITIONS WERE MET, ONE OF WHICH WAS THAT THE CONTRACT, AS HERE, SPECIFICALLY PROVIDES BY ITS TERMS THAT THE GOVERNMENT'S LIABILITY THEREUNDER IS CONTINGENT UPON THE FUTURE AVAILABILITY OF APPROPRIATED MONIES WITH WHICH TO MAKE PAYMENT FOR THE CONTRACT PURPOSES. SEE 39 COMP. GEN. 340, 342 (1959); AND ID. 776, 778 779 (1960). IN THIS REGARD, THE AWARD TO POTTER COVERED ONLY THE LEASE OF THE EQUIPMENT UNTIL THE END OF THE FISCAL YEAR, JUNE 30, 1971, AND INCLUDED FIRM FIXED-PRICE OPTIONS FOR ACCEPTING ADDITIONAL PARTS OF THE OFFER AT THE BEGINNING OF EACH FISCAL YEAR AS FUNDS WERE EXPECTED TO BECOME AVAILABLE. THE CONTRACT TO POTTER WAS RENEWABLE AT THE OPTION OF THE GOVERNMENT BY REQUIRING AFFIRMATIVE ACTION IN THE FORM OF NOTICE TO THE CONTRACTOR BUT DID NOT IMPOSE LIABILITY ON THE GOVERNMENT BEYOND THE CURRENT FISCAL YEAR. THIS IS IN ACCORD WITH THE REQUIREMENT THAT ANY CONTRACT FOR ADP EQUIPMENT UNDER FISCAL YEAR APPROPRIATIONS, AS HERE, MUST BE RESTRICTED TO THE PERIOD OF AVAILABILITY OF THE APPROPRIATIONS INVOLVED. POTTER'S CONTRACT DEMONSTRATES A VALID CONTRACTUAL ARRANGEMENT WHICH COMPLIES WITH ALL STATUTORY REQUIREMENTS IN THAT IT IS A CONTRACT FOR THE CURRENT FISCAL YEAR'S NEEDS WITH AN OPTION FOR RENEWAL FOR EACH SUCCEEDING YEAR UPON THE GIVING OF NOTICE TO THE CONTRACTOR. SEE 48 COMP. GEN. 497, 501-502 (1969), AND CASES AND STATUTES THEREIN; AND 42 ID. 272, 276 (1962).

WE HAVE REVIEWED STC'S ALLEGATION THAT POTTER WILL ENJOY A WINDFALL IN EXCESS OF $2.5 MILLION IF DSA DOES NOT PURCHASE THE EQUIPMENT AFTER 18 MONTHS OF USE. DSA HAS DEMONSTRATED THAT POTTER'S TOTAL REVENUE WILL BE $230,268 LESS IF DSA RENTS FOR 36 MONTHS THAN IF DSA PURCHASES AT THE END OF THE 18TH MONTH. THE PROJECTED CONTRACT PRICE OF POTTER, NOT CONSIDERING EVALUATION CREDITS SUCH AS RESIDUAL VALUE AND ASSUMING THE CONTRACT RUNS FOR THE ENTIRE 36-MONTH PERIOD, WILL RESULT IN COST SAVINGS OF APPROXIMATELY $3,100,000 BASED ON THE RENTALS THAT WOULD HAVE ACCRUED TO THE CURRENT SUPPLIER, IBM, DURING THE SAME PERIOD. FURTHERMORE, DSA HAS THE RIGHT TO DISCONTINUE USAGE FOR ANY OR ALL OF THE EQUIPMENT UPON 30 DAYS' PRIOR WRITTEN NOTICE TO POTTER AS PROTECTION AGAINST ANY POSSIBLE SUSPECTED MONETARY DISADVANTAGES.

STC FURTHER COMPLAINS THAT AWARD WAS IMPROPERLY MADE ON A LEASE-WITH OPTION-TO-PURCHASE BASIS RATHER THAN ON THE LOWEST-LEASE-COST BASIS AS REQUIRED BY PARAGRAPH 3 OF SECTION "D" OF THE RFP, WHICH STATED AS FOLLOWS:

"3. LEASE VERSUS PURCHASE. COST EVALUATIONS WILL BE MADE ON THE BASIS OF 'LEAST COST' OVER THE BASIC THREE YEAR EVALUATION PERIOD, WITH RESPECT TO PURCHASE/LEASE CONSIDERATIONS. HOWEVER, IF PURCHASE IS THE 'LEAST COST,' BUT FUNDS ARE NOT AVAILABLE AT THE TIME OF AWARD TO PURCHASE THE EQUIPMENT, SELECTION WILL BE MADE ON THE BASIS OF THE LOWEST LEASE COST."

DSA TAKES THE POSITION ON THIS POINT THAT THE QUOTED LANGUAGE REFERS ONLY TO THE SITUATION WHERE THE LOWEST EVALUATED COST IS FOR OUTRIGHT PURCHASE AT THE TIME OF AWARD BUT WHERE NO FUNDS ARE AVAILABLE FOR SUCH PURCHASE. WE AGREE WITH THIS POSITION. IN SUCH SITUATION NO PURPOSE WOULD BE SERVED BY GIVING EFFECT TO A LOW EVALUATED PRICE FOR OUTRIGHT PURCHASE SINCE AWARD ON THAT BASIS WOULD BE PRECLUDED BY LACK OF FUNDS. THEREFORE, THE LOWEST ACTUAL COST TO THE GOVERNMENT WOULD BE ON A LEASE BASIS AND THE QUOTED SECTION MERELY RECOGNIZES THIS FACT. THE FACT THAT THE LEASE BASIS ON WHICH SELECTION IS MADE IN THIS CIRCUMSTANCE TAKES INTO CONSIDERATION THE EFFECT OF AN OPTION TO PURCHASE DURING THE LEASE TERM IN ESTIMATING THE LEAST COST WOULD NOT APPEAR TO BE PRECLUDED BY THE QUOTED SECTION.

ALSO, WE PERCEIVE NO BASIS UPON WHICH TO OBJECT TO DSA'S CONCLUSION THAT IT IS ECONOMICALLY ADVANTAGEOUS TO DEFER PURCHASE FOR WHATEVER PERIOD THE PROPOSER WILL PERMIT RENTAL CREDITS ON PURCHASE, AS POTTER DID IN THIS CASE.

STC QUESTIONS DSA'S MOTIVES IN EXTENDING NEGOTIATION CLOSING DATES OVER A 7-MONTH PERIOD AND THEN MAKING AN AWARD NOTWITHSTANDING THE FACT THAT THE PROTEST HAD NOT BEEN RESOLVED. WE VIEW DSA'S CONDUCT OF THE NEGOTIATIONS, AS SET FORTH ABOVE, TO HAVE BEEN IN ACCORDANCE WITH APPLICABLE LAW AND REGULATIONS. AS TO THE AWARD PRIOR TO THE RESOLUTION OF THE PROTEST, DSA BASED ITS DECISION TO AWARD ON THE ESTIMATED LOSS TO THE GOVERNMENT OF $20,000 PER WEEK FOR EACH WEEK THE CURRENT SUPPLIER, IBM, WAS PERMITTED TO COLLECT RENTALS. SUCH A DECISION IS WITHIN THE PURVIEW OF ASPR 2- 407.8(B)(3)(I) AND (III) WHICH PERMIT AWARD NOTWITHSTANDING A PROTEST BEFORE AWARD WHERE THE ITEMS TO BE PROCURED ARE URGENTLY REQUIRED OR WHERE A PROMPT AWARD WILL OTHERWISE BE ADVANTAGEOUS TO THE GOVERNMENT.

THE DETERMINATION OF HOW BEST TO SATISFY THE GOVERNMENT'S REQUIREMENTS MUST BE LEFT TO THE SOUND DISCRETION OF THE CONTRACTING AGENCY INVOLVED. HERE DSA SOLICITED OFFERS ON THREE OPTIONAL BASES IN ACCORDANCE WITH APPLICABLE DIRECTIVES IN ORDER TO OBTAIN THE LOWEST POSSIBLE COST TO THE GOVERNMENT OF THE DESIRED EQUIPMENT. ON THE RECORD, WE FIND NO BASES TO CONCLUDE THAT THE RFP WAS LEGALLY DEFECTIVE OR THAT THE METHOD OF EVALUATION WAS PREJUDICIAL TO ANY OFFEROR. B 171023, SUPRA. SEE 50 COMP. GEN. (B-170268, NOVEMBER 9, 1970).

ENCLOSED ARE COPIES OF OUR DECISIONS OF TODAY TO MEMOREX CORPORATION AND CALIFORNIA COMPUTER PRODUCTS, INC. ..END :