B-171959, SEP 3, 1971, 51 COMP GEN 145

B-171959: Sep 3, 1971

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AWARDS SHOULD NOT HAVE BEEN MADE TO THE SUCCESSOR IN INTEREST UNDER A NOVATION AGREEMENT ENTERED INTO AFTER BID OPENING SINCE A BIDDER ACQUIRES NO ENFORCEABLE RIGHTS BY SUBMITTING A BID. THE AWARDS MADE WERE PREJUDICIAL TO OTHER BIDDERS. THIS RULING IS IN ACCORD WITH 43 COMP. SINCE IT IS A CASE OF FIRST IMPRESSION. THE CONTRACTING OFFICER LACKED PRECEDENT GUIDANCE AND THE GOOD FAITH AWARDS WILL NOT BE DISTURBED. THE RULE WILL BE APPLIED IN FUTURE PROCUREMENTS. OF BUSINESS THE TRANSFER OF GOVERNMENT CONTRACTS PURSUANT TO A NOVATION AGREEMENT TO THE SUCCESSOR IN INTEREST OF A CONTRACTOR WHO CEASED OPERATIONS BECAUSE OF THE LACK OF FUNDS AND THE LIENS ATTACHED AGAINST IT IS VALID AND MAY BE RECOGNIZED SINCE THE TRANSFER OF RIGHTS AND OBLIGATIONS INCIDENT TO A SALE OR MERGER OF A CONTRACTING CORPORATION OR OTHER ENTITY DOES NOT CONSTITUTE AN ASSIGNMENT IN VIOLATION OF THE ANTI ASSIGNMENT ACT.

B-171959, SEP 3, 1971, 51 COMP GEN 145

BIDS - TRANSFERS - PROPRIETY WHEN THE LOW BIDDER UNDER TWO INVITATIONS FOR BIDS ON FUZES, ONE A LABOR SURPLUS SET-ASIDE, CEASED OPERATIONS DUE TO LACK OF FUNDS AND LIENS PLACED AGAINST IT, AWARDS SHOULD NOT HAVE BEEN MADE TO THE SUCCESSOR IN INTEREST UNDER A NOVATION AGREEMENT ENTERED INTO AFTER BID OPENING SINCE A BIDDER ACQUIRES NO ENFORCEABLE RIGHTS BY SUBMITTING A BID, AND, THEREFORE, THE AWARDS MADE WERE PREJUDICIAL TO OTHER BIDDERS. THIS RULING IS IN ACCORD WITH 43 COMP. GEN. 353, AT PAGE 372, CONCERNING A TRANSFER OF RIGHTS IN A NEGOTIATED PROCUREMENT, AND SINCE IT IS A CASE OF FIRST IMPRESSION, AS NEITHER THE ANTI-ASSIGNMENT ACT, 41 U.S.C. 15, NOR PARAGRAPH 26-402 OF THE ARMED SERVICES PROCUREMENT REGULATION, RE THIRD PARTY INTERESTS, APPLY, THE CONTRACTING OFFICER LACKED PRECEDENT GUIDANCE AND THE GOOD FAITH AWARDS WILL NOT BE DISTURBED, BUT THE RULE WILL BE APPLIED IN FUTURE PROCUREMENTS. CLAIMS - ASSIGNMENTS - CONTRACTS - VALIDITY OF ASSIGNMENT - SALE, ETC., OF BUSINESS THE TRANSFER OF GOVERNMENT CONTRACTS PURSUANT TO A NOVATION AGREEMENT TO THE SUCCESSOR IN INTEREST OF A CONTRACTOR WHO CEASED OPERATIONS BECAUSE OF THE LACK OF FUNDS AND THE LIENS ATTACHED AGAINST IT IS VALID AND MAY BE RECOGNIZED SINCE THE TRANSFER OF RIGHTS AND OBLIGATIONS INCIDENT TO A SALE OR MERGER OF A CONTRACTING CORPORATION OR OTHER ENTITY DOES NOT CONSTITUTE AN ASSIGNMENT IN VIOLATION OF THE ANTI ASSIGNMENT ACT, 41 U.S.C. 15, WHICH RULE IS IMPLEMENTED BY PARAGRAPH 26 402 OF THE ARMED SERVICES PROCUREMENT REGULATION RECOGNIZING A THIRD PARTY INTEREST TO A GOVERNMENT CONTRACT WHERE THE INTEREST IS INCIDENTAL TO THE TRANSFER OF ALL THE ASSETS OF THE CONTRACTOR, OR ALL OF THAT PART OF THE CONTRACTOR'S ASSETS INVOLVED IN PERFORMANCE OF THE CONTRACT.

TO THE I.D. PRECISION COMPONENTS CORPORATION, SEPTEMBER 3, 1971:

WE REFER TO YOUR TELEGRAM OF FEBRUARY 19, 1971, AND YOUR LETTER OF MARCH 5, 1971, PROTESTING AGAINST THE AWARD TO DEFENSE ORDNANCE CORPORATION (DOC), OF CONTRACTS UNDER INVITATION FOR BIDS NO. DAAA09-71 B-0067 (IFB- 0067) AND INVITATION FOR BIDS NO. DAAA09-71-B-0101 (IFB 0101) ISSUED BY THE UNITED STATES ARMY AMMUNITION PROCUREMENT AND SUPPLY AGENCY, JOLIET, ILLINOIS.

IFB-0067 WAS ISSUED ON AUGUST 26, 1970, FOR 263,550 FUZES. BIDS WERE OPENED ON OCTOBER 7, 1970, AND AWARD WAS MADE TO DOC AS SUCCESSOR IN INTEREST TO THE LOW BIDDER, BRAD'S MACHINE PRODUCTS (BRAD'S) ON FEBRUARY 19, 1971, FOR A TOTAL PRICE OF $677,323.50.

IFB-0101 WAS ISSUED ON OCTOBER 21, 1970, FOR 3,045,030 BOOSTERS (LABOR SURPLUS SET-ASIDE PORTION OF A TOTAL QUANTITY OF 10,150,100). BIDS WERE OPENED ON DECEMBER 10, 1970, AND AWARD MADE UNDER THE SET ASIDE PORTION TO DOC, SUCCESSOR IN INTEREST TO BRAD'S ON FEBRUARY 19, 1971, AT A TOTAL PRICE OF $3,237,561.16.

THE RATHER COMPLEX SERIES OF EVENTS LEADING TO THIS PROTEST MAY BE SUMMARIZED AS FOLLOWS:

ON DECEMBER 17, 1970, BRAD'S CEASED OPERATIONS DUE TO A LACK OF OPERATING FUNDS AND DUE TO LIENS PLACED AGAINST THE FIRM BY THE INTERNAL REVENUE SERVICE. AT THIS TIME THE GOVERNMENT HAD AN UNLIQUIDATED BALANCE OF PROGRESS PAYMENTS DUE ON THREE CONTRACTS TOTALING $996,547.60.

PRIOR TO THE OWNER'S DEPARTURE, WHICH PRECIPITATED THE SHUTDOWN HE HAD EXECUTED A POWER OF ATTORNEY TO HIS LAWYER AUTHORIZING HIM TO MAKE ANY AND ALL DECISIONS ON BEHALF OF BRAD'S AND TO TRANSFER ALL OF ITS PROPERTY.

ON JANUARY 19, 1971, A NOVATION AGREEMENT WAS SIGNED AMONG THE ATTORNEY FOR BRAD'S DOC AND THE GOVERNMENT TO THE EFFECT THAT ALL THE ASSETS OF BRAD'S WERE TO BE TRANSFERRED TO DOC INCLUDING EIGHT GOVERNMENT CONTRACTS (SIX OF WHICH WERE UNDER PERFORMANCE), FOUR BIDS (INCLUDING THE TWO BIDS WHICH ARE THE SUBJECT OF THIS PROTEST) AND ONE PROPOSAL.

THE CONTRACTING OFFICER DETERMINED THAT DOC WAS FINANCIALLY RESPONSIBLE AND A TRUE SUCCESSOR IN INTEREST TO BRAD'S, AND DOC WAS AWARDED CONTRACTS UNDER THE SUBJECT IFBS. PERFORMANCE HAS BEGUN AND IS CONTINUING.

YOUR FIRM FILED A PROTEST WITH THE CONTRACTING OFFICER BY A TELETYPE DATED JANUARY 26, 1971. THE CONTRACTING OFFICER DENIED YOUR PROTEST BY LETTER DATED FEBRUARY 19, 1971. YOU PROTESTED THE CONTRACTING OFFICER'S DETERMINATION TO THIS OFFICE BY A TELEGRAM OF THE SAME DATE.

YOUR PROTEST IS BASED ON THE FOLLOWING CONTENTIONS: (1) THE ATTEMPTED NOVATION OF THE SUBJECT BIDS AFTER OPENING BUT BEFORE AWARD VIOLATES PROCUREMENT POLICY BECAUSE DOC WAS NOT THE ORIGINAL BIDDER AND DID NOT HAVE TO ACCEPT THE BIDS IF IT DID NOT WANT THE AWARDS; (2) SINCE THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) PROVIDES NO AUTHORITY FOR A NOVATION OF BIDS, THE NOVATION WAS BEYOND THE CONTRACTING OFFICER'S AUTHORITY AND NOT BINDING ON THE GOVERNMENT AND (3) OUR DECISION, B- 154351, JUNE 16, 1964, IS APPLICABLE TO THIS SITUATION SINCE THE ORIGINAL BIDDER WAS NOT IN EXISTENCE AT THE TIME AWARD WAS MADE.

CONCERNING THE ASSIGNMENT OF BRAD'S CONTRACT TO DOC, IT MUST BE NOTED THAT ALTHOUGH THE TRANSFER OF A GOVERNMENT CONTRACT, OR ANY INTEREST THEREIN, IS PROHIBITED BY THE ANTI-ASSIGNMENT ACT, 41 U.S.C. 15, IT HAS BEEN RECOGNIZED THAT THE TRANSFER OF RIGHTS AND OBLIGATIONS INCIDENT TO A SALE OR MERGER OF A CONTRACTING CORPORATION OR OTHER ENTITY DOES NOT CONSTITUTE AN ASSIGNMENT IN VIOLATION OF THE ANTI-ASSIGNMENT ACT. SEE SEABOARD AIR LINE RAILWAY V UNITED STATES, 256 U.S. 655 (1921), AND 48 COMP. GEN. 196 (1968). THIS RULE IS IMPLEMENTED BY ASPR 26-402 WHICH ESTABLISHES A PROCEDURE FOR THE GOVERNMENT TO RECOGNIZE A THIRD PARTY IN INTEREST TO A GOVERNMENT CONTRACT WHERE SUCH INTEREST IS INCIDENTAL TO THE TRANSFER OF ALL THE ASSETS OF THE CONTRACTOR, OR ALL OF THAT PART OF THE CONTRACTOR'S ASSETS INVOLVED IN THE PERFORMANCE OF THE CONTRACT. THEREFORE, WE CONCLUDE THAT THE ASSIGNMENT OF THE CONTRACTS WAS VALID.

WITH REGARD TO THE TRANSFER OF THE BIDS YOU CITE B-154351, SUPRA, WHERE WE HELD THAT A BID COULD NOT BE TRANSFERRED TO A THIRD PARTY FOR PURPOSE OF AWARD AFTER THE DEATH OF THE BIDDER. THE THIRD PARTY (A CORPORATION) HAD ALLEGED THAT THE DECEASED BIDDER (AN INDIVIDUAL) IN FACT WAS ITS AGENT BIDDING ON BEHALF OF THE CORPORATION. OUR DECISION STATED THAT THE CORPORATION COULD NOT BE REGARDED AS THE TRUE BIDDER IN PLACE OF THE DECEASED, "FOR THE GOVERNMENT DOES NOT CONTRACT WITH UNDISCLOSED PRINCIPALS. 15 COMP. GEN. 566."

YOU CONTEND THERE IS AN ANALOGY TO THE CITED CASE HERE BECAUSE WHEN BRAD'S "WENT OUT OF BUSINESS" ITS BIDS LAPSED AND, THEREFORE, WERE NOT TRANSFERRABLE TO BRAD'S SUCCESSOR IN INTEREST. HOWEVER, IT IS WELL SETTLED THAT A CORPORATION DOES NOT CEASE TO EXIST AS AN ENTITY MERELY BECAUSE IT BECOMES INSOLVENT, LOSES ITS PROPERTY OR CEASES TO CARRY ON BUSINESS. UNLESS IT IS DISSOLVED OR SURRENDERS ITS CHARTER, A CORPORATION WITHIN THE CONTEMPLATION OF LAW IS CONSIDERED TO BE AN EXISTING REAL ENTITY WITH A CAPACITY TO ENTER INTO CONTRACTS WHETHER OR NOT IT POSSESSES ASSETS. SEE LUCAS V SWAN, 67 F.2D 106, 109 (1933), AND 19 AM. JUR. CORPORATIONS SECTION 1585. THUS, IT APPEARS THAT BRAD'S WAS IN EXISTENCE AT THE TIME OF THE TRANSFER OF BIDS AND AT THE TIME OF THE AWARDS, AND PRESUMABLY IT HAS NEVER CEASED TO EXIST. ACCORDINGLY, WE DO NOT FIND THE RULE IN B-154351, SUPRA, TO BE APPLICABLE HERE.

IT IS CLEAR THAT NEITHER THE ANTI-ASSIGNMENT ACT NOR THE ASPR PROVISION GERMANE TO ASSIGNMENTS COVERS THE QUESTION OF THE TRANSFER OF BIDS OR OFFERS. IN ADDITION, WE HAVE NOT BEEN ABLE TO DISCOVER ANY DECISIONS OF THIS OFFICE OR COURT CASES DIRECTLY IN POINT. WE ARE NOT, HOWEVER, TOTALLY WITHOUT GUIDANCE IN SEEKING A SOLUTION TO THIS PROBLEM. IT IS WELL SETTLED THAT A BIDDER ACQUIRES NO ENFORCEABLE CONTRACT RIGHTS MERELY BY SUBMITTING A BID. SUCH RIGHTS ARISE ONLY UPON VALID ACCEPTANCE BY AUTHORIZED GOVERNMENT PERSONNEL. THE ONLY RIGHT WHICH ACCRUES TO THE BIDDER IS TO HAVE THE BID FAIRLY AND HONESTLY CONSIDERED FOR AWARD. SEE HEYEN PRODUCTS COMPANY V. UNITED STATES, 140 F. SUPP. 409, 135 CT. CL. 63 (1956), 177 F. SUPP. 251, 147 CT. CL. 256 (1959), AND KECO INDUSTRIES, INCORPORATED V UNITED STATES, 192 CT. CL. 733 (1970).

IN 43 COMP. GEN. 353, 372 (1963), WE STATED THAT THE TRANSFER OR ASSIGNMENT OF RIGHTS AND OBLIGATIONS ARISING OUT OF PROPOSALS SUBMITTED IN NEGOTIATED PROCUREMENTS IS TO BE AVOIDED, BOTH AS A MATTER OF PUBLIC POLICY AND A MATTER OF SOUND PROCUREMENT POLICY, UNLESS SUCH A TRANSFER IS EFFECTED BY OPERATION OF LAW (E.G., BANKRUPTCY) TO A LEGAL ENTITY WHICH IS THE COMPLETE SUCCESSOR IN INTEREST TO THE ORIGINAL OFFEROR. IF THIS RULE IS TO BE APPLIED IN NEGOTIATED PROCUREMENTS, IT SHOULD CERTAINLY CONTROL IN FORMALLY ADVERTISED PROCUREMENTS SINCE IN THE FORMER A PROPOSAL MAY NORMALLY BE WITHDRAWN AT ANY TIME PRIOR TO AWARD WHILE UNDER THE LATTER PROCEDURE BIDS ARE FIXED AS OF THE TIME OF OPENING AND MAY NOT THEREAFTER BE WITHDRAWN OR AMENDED UNTIL THEY ARE REJECTED OR EXPIRE BY THEIR OWN TERMS. TO PERMIT A PARTY TO ENTER INTO THE COMPETITION AFTER BIDS HAVE BEEN OPENED BY VIRTUE OF TAKING OVER THE BID OF ONE WHOSE SITUATION MAKES ITS RESPONSIBILITY QUESTIONABLE WOULD SEEM TO PROVIDE AN UNWARRENTED OPTION TO THE PREJUDICE OF OTHER BIDDERS. IN THIS CONNECTION IT SHOULD BE NOTED THAT THE ASSIGNMENT OF THE BIDS WAS NOT BY OPERATION OF LAW.

IN LIGHT OF THE FOREGOING, WE CONCLUDE THAT IT IS NOT PROPER TO PERMIT A PARTY TO TAKE OVER ANOTHER'S BID AFTER BID OPENING AND THEREBY BECOME ELIGIBLE FOR AWARDS. THEREFORE, WE CONCLUDE THAT NO AWARD SHOULD HAVE BEEN MADE TO DOC UNDER IFB-0067. WE ARE NOT UNMINDFUL OF THE FACT THAT THE AWARD UNDER IFB-0101 WAS FOR A PORTION OF THE SET ASIDE QUANTITY AND THAT THE ELIGIBLE BIDDER HAS THE OPTION OF ACCEPTING AWARD ON A PARTIAL SET-ASIDE. HOWEVER, IN LIGHT OF OUR LANGUAGE IN 43 COMP. GEN. 353 AND THE FACT THAT ELIGIBILITY TO PARTICIPATE IN THE SET ASIDE IS BASED ON THE RULES OF FORMAL ADVERTISING, WE REACH THE SAME RESULT AS TO THE AWARD TO DOC UNDER IFB-0101.

WE HAVE ALREADY NOTED THAT THIS APPEARS TO BE A CASE OF FIRST IMPRESSION. THE CONTRACTING OFFICER HAD NO FIRM GUIDANCE AVAILABLE TO HIM EITHER IN PRIOR PRECEDENT OR APPLICABLE REGULATION. NOR IS THERE ANY INDICATION THAT THE PARTIES ACTED IN OTHER THAN GOOD FAITH. IN THE CIRCUMSTANCES, WE CONCLUDE THAT IT WOULD NOT BE APPROPRIATE TO DISTURB THE AWARDS ALREADY MADE. WITH RESPECT TO FUTURE CASES, HOWEVER, THE RULE SET OUT IN THE PRECEDING PARAGRAPH WILL BE APPLIED.