B-173482, OCT 1, 1971

B-173482: Oct 1, 1971

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(2) THE CHANGE IN REQUIREMENTS WAS NOT SUBSTANTIAL. GAO IS NOT AWARE OF ANY REGULATORY PROVISION PRECLUDING THE REOPENING OF NEGOTIATIONS BASED UPON CHANGES IN GOVERNMENT REQUIREMENTS WHERE ALL OFFERORS ARE PROVIDED AN OPPORTUNITY TO COMPETE ON THE BASIS OF SUCH CHANGES. THIS DISCRETION IS A NATURAL INCIDENT TO THE NEGOTIATION AUTHORITY IN 10 U.S.C. 2304(A) AND THE REQUIREMENT TO CONDUCT DISCUSSIONS IN 10 U.S.C. 2304(G). THERE IS NO SPECIFIC STATUTORY OR REGULATORY PROVISION ESTABLISHING THE CRITERIA TO BE APPLIED IN DETERMINING WHAT CONSTITUTES A SUBSTANTIAL CHANGE. GAO DOES NOT THINK THAT REOPENING NEGOTIATIONS ON THE BASIS OF A CHANGE WHOSE ESTIMATED VALUE IS 3 PERCENT OF THE BID PRICE IS AN ARBITRARY EXERCISE OF DISCRETION.

B-173482, OCT 1, 1971

BID PROTEST - REOPENED NEGOTIATIONS - CHANGE IN REQUIREMENTS - "AUCTION" TECHNIQUE DENIAL OF PROTEST AGAINST THE AWARD OF A CONTRACT TO THE GENERAL ELECTRIC COMPANY UNDER AN RFP ISSUED BY THE NAVAL ORDNANCE STATION, LOUISVILLE, KY. PROTESTANT CONTENDS THAT: (1) THE CONTRACTING OFFICER LACKED AUTHORITY TO REOPEN NEGOTIATIONS AFTER CLOSING AND RECEIPT OF FINAL OFFERS; (2) THE CHANGE IN REQUIREMENTS WAS NOT SUBSTANTIAL; (3) THE REOPENING OF NEGOTIATIONS CONSTITUTED AN "AUCTION." GAO IS NOT AWARE OF ANY REGULATORY PROVISION PRECLUDING THE REOPENING OF NEGOTIATIONS BASED UPON CHANGES IN GOVERNMENT REQUIREMENTS WHERE ALL OFFERORS ARE PROVIDED AN OPPORTUNITY TO COMPETE ON THE BASIS OF SUCH CHANGES. CONTRACTING AGENCIES MUST BE PERMITTED WIDE DISCRETION IN SUCH MATTERS. THIS DISCRETION IS A NATURAL INCIDENT TO THE NEGOTIATION AUTHORITY IN 10 U.S.C. 2304(A) AND THE REQUIREMENT TO CONDUCT DISCUSSIONS IN 10 U.S.C. 2304(G). WHILE PROTESTANT'S CONTENTION WOULD APPEAR TO BE SUPPORTED BY ASPR 3 805.1(E), THERE IS NO SPECIFIC STATUTORY OR REGULATORY PROVISION ESTABLISHING THE CRITERIA TO BE APPLIED IN DETERMINING WHAT CONSTITUTES A SUBSTANTIAL CHANGE. GAO DOES NOT THINK THAT REOPENING NEGOTIATIONS ON THE BASIS OF A CHANGE WHOSE ESTIMATED VALUE IS 3 PERCENT OF THE BID PRICE IS AN ARBITRARY EXERCISE OF DISCRETION, OR THAT IT CAN BE CONSTRUED TO IMPLY BAD FAITH. A REVIEW OF THE RECORD DOES NOT REVEAL ANY EVIDENCE WHICH WOULD INDICATE THAT THE PROCEDURE FOLLOWED HERE CONSTITUTED AN "AUCTION." GAO SEES NO NEED TO SPECULATE ON THE REASONS FOR THE EXTENT OF THE REDUCTIONS IN GENERAL ELECTRIC'S OFFERS.

TO ROBERT SHERIFFS MOSS & ASSOCIATES:

THIS IS IN REPLY TO YOUR LETTERS OF JULY 2 AND AUGUST 24, 1971, PROTESTING ON BEHALF OF MAUSER ENTWICKLUNGSANSTALT THE AWARD OF A CONTRACT TO THE GENERAL ELECTRIC COMPANY UNDER REQUEST FOR PROPOSAL (RFP) N00197-71 -R-0044, ISSUED BY THE NAVAL ORDNANCE STATION, LOUISVILLE, KENTUCKY.

THE RFP WAS ISSUED ON MAY 19, 1971, WITH PROPOSALS TO BE SUBMITTED BY JUNE 1, 1971, AND CALLED FOR THE FURNISHING OF EIGHT 30 MM AUTOMATIC GUNS AND DATA REQUIREMENTS AS SPECIFIED. TWO AMENDMENTS WERE ISSUED PRIOR TO THE DATE FOR SUBMISSION OF INITIAL PROPOSALS.

AT THE CLOSE OF THE TECHNICAL REVIEW OF INITIAL PROPOSALS, NEGOTIATIONS WERE UNDERTAKEN WITH MAUSER AND GENERAL ELECTRIC, THE ONLY TECHNICALLY ACCEPTABLE OFFERORS, TO CLARIFY CERTAIN ASPECTS OF THEIR PROPOSALS AND TO REQUEST FURTHER INFORMATION. THEREAFTER, BY LETTER OF JUNE 7, OFFERORS WERE REQUESTED TO SUBMIT WRITTEN ANSWERS TO QUESTIONS ASKED DURING THE NEGOTIATIONS, AS WELL AS THEIR BEST AND FINAL OFFERS, BY JUNE 9, 1971, THE DATE SET FOR THE CLOSE OF NEGOTIATIONS. SUBSEQUENTLY NEGOTIATIONS WERE REOPENED BY THE GOVERNMENT SINCE THE GOVERNMENT HAD DETERMINED THAT IT WOULD SUPPLY THE TEST AMMUNITION, RATHER THAN HAVE THE CONTRACTOR SUPPLY IT, AND SINCE ADDITIONAL DATA WAS CONSIDERED TO BE NECESSARY. BEST AND FINAL OFFERS WERE REQUESTED TO BE SUBMITTED BY JUNE 25, 1971, ON THE BASIS OF THE REVISED SOLICITATION. AWARD WAS MADE TO GENERAL ELECTRIC, THE LOWEST OFFEROR, ON JUNE 28. GENERAL ELECTRIC'S OFFER OF JUNE 25 WAS FOR $659,000 AS COMPARED TO MAUSER'S $930,814.

YOUR PROTEST IS MADE ON THE BASIS THAT (1) THE CONTRACTING OFFICER LACKED AUTHORITY TO REOPEN NEGOTIATIONS SUBSEQUENT TO JUNE 9 AT WHICH TIME NEGOTIATIONS WERE CLOSED AND BEST AND FINAL OFFERS WERE RECEIVED; (2) THE CHANGE IN THE GOVERNMENT REQUIREMENTS, WHICH WAS USED AS A BASIS FOR REOPENING NEGOTIATIONS, WAS NOT SUBSTANTIAL; (3) AUCTION TECHNIQUE WAS ENGAGED IN BY THE USE OF THE DEVICE OF REOPENING NEGOTIATIONS AFTER THEY WERE CLOSED.

IN CONNECTION WITH YOUR POSITION THAT THE CONTRACTING OFFICER LACKED AUTHORITY TO REOPEN NEGOTIATIONS SUBSEQUENT TO JUNE 9 BY AMENDING THE SPECIFICATIONS, YOU SUBMIT THAT PURSUANT TO ARMED SERVICES PROCUREMENT REGULATION (ASPR) 3-805.1(E) AMENDMENT OF THE SOLICITATION IS AUTHORIZED ONLY DURING NEGOTIATIONS.

ASPR 3-805.1(E) PROVIDES AS FOLLOWS:

"WHEN, DURING NEGOTIATIONS, A SUBSTANTIAL CHANGE OCCURS IN THE GOVERNMENT'S REQUIREMENTS OR A DECISION IS REACHED TO RELAX, INCREASE OR OTHERWISE MODIFY THE SCOPE OF THE WORK OR STATEMENT OF REQUIREMENTS, SUCH CHANGE OR MODIFICATION SHALL BE MADE IN WRITING AS AN AMENDMENT TO THE REQUEST FOR PROPOSAL OR REQUEST FOR QUOTATIONS, AND A COPY SHALL BE FURNISHED TO EACH PROSPECTIVE CONTRACTOR. SEE 3-505 AND 3-507. ORAL ADVICE OF CHANGE OR MODIFICATION MAY BE GIVEN IF (I) THE CHANGES INVOLVED ARE NOT COMPLEX IN NATURE, (II) ALL PROSPECTIVE CONTRACTORS ARE NOTIFIED SIMULTANEOUSLY (PREFERABLY BY A MEETING WITH THE CONTRACTING OFFICER), AND (III) A RECORD IS MADE OF THE ORAL ADVICE GIVEN. IN SUCH INSTANCES, HOWEVER, THE ORAL ADVICE SHOULD BE PROMPTLY FOLLOWED BY A WRITTEN AMENDMENT VERIFYING SUCH ORAL ADVICE PREVIOUSLY GIVEN. THE DISSEMINATION OF ORAL ADVICE OF CHANGES OR MODIFICATIONS SEPARATELY TO EACH PROSPECTIVE BIDDER DURING INDIVIDUAL NEGOTIATION SESSIONS SHOULD BE AVOIDED UNLESS PRECEDED, ACCOMPANIED, OR IMMEDIATELY FOLLOWED BY A WRITTEN AMENDMENT TO THE REQUEST FOR PROPOSAL OR REQUEST FOR QUOTATIONS EMBODYING SUCH CHANGES OR MODIFICATIONS."

IN OUR OPINION, THE ABOVE PROVISION LIMITS THE CONTRACTING OFFICER'S DISCRETION BY MAKING THE ISSUANCE OF AMENDMENTS TO SOLICITATIONS MANDATORY IN THE CIRCUMSTANCES OUTLINED IN THE REGULATION. WE SEE NO REASONABLE BASIS FOR CONSTRUING THIS REGULATION AS LIMITING THE OTHERWISE BROAD DISCRETION OF CONTRACTING OFFICERS TO CONDUCT NEGOTIATIONS IN CIRCUMSTANCES NOT CONTEMPLATED BY THE REGULATION SUCH AS FOR LESS SUBSTANTIVE REASONS DURING NEGOTIATIONS OR FOR CHANGES IN CIRCUMSTANCES SUBSEQUENT TO THE CUTOFF DATE FOR NEGOTIATIONS. WE ARE NOT AWARE OF ANY REGULATORY PROVISION PRECLUDING THE REOPENING OF NEGOTIATIONS BASED UPON CHANGES IN THE GOVERNMENT REQUIREMENTS WHERE ALL OFFERORS ARE PROVIDED AN OPPORTUNITY TO COMPETE ON THE BASIS OF SUCH CHANGES. WE BELIEVE CONTRACTING AGENCIES MUST BE PERMITTED WIDE DISCRETION IN SUCH MATTERS AND THAT SUCH DISCRETION IS A NATURAL INCIDENT TO THE BASIC NEGOTIATION AUTHORITY IN 10 U.S.C. 2304(A) AND THE REQUIREMENT FOR THE CONDUCT OF DISCUSSIONS IN 10 U.S.C. 2304(G). THE ABSOLUTE AND INFLEXIBLE RESTRAINTS AGAINST NEGOTIATIONS WITHOUT CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE PARTICULAR CASE, WHICH YOUR INTERPRETATION OF THE ABOVE REGULATION SUGGESTS, COULD, WE BELIEVE, NEEDLESSLY OPERATE AGAINST THE GOVERNMENT'S BEST INTERESTS IN MANY PROCUREMENT SITUATIONS.

YOU ALSO ARGUE THAT THE CHANGES MADE IN THE SOLICITATION AFTER JUNE 9 WERE NOT SUBSTANTIAL AND DID NOT JUSTIFY REOPENING OF NEGOTIATIONS AFTER THE FIRST DATE SET FOR CLOSING AND SUBMISSION OF BEST AND FINAL OFFERS.

YOU HAVE NOTED THAT THE CONTRACTING OFFICER'S LETTER OF JUNE 7 ADVISED, IN PERTINENT PART, THAT NEGOTIATIONS WOULD BE CLOSED AS OF 3:00 P.M. ON JUNE 9, AND RESERVED TO THE GOVERNMENT THE RIGHT TO REOPEN NEGOTIATIONS IF ONE OR MORE OFFERORS WERE SUBSEQUENTLY FOUND TO BE NONRESPONSIBLE OR IF THEIR OFFERS WERE FOUND TO BE UNACCEPTABLE. YOU STATE THAT SHORTLY FOLLOWING THE CLOSE OF NEGOTIATIONS, TWO GOVERNMENT REPRESENTATIVES MET WITH THE MAUSER AND GENERAL ELECTRIC REPRESENTATIVES AND ADVISED THAT THEY INTENDED TO REOPEN NEGOTIATIONS. YOU STATE THAT AT THAT POINT THE MAUSER REPRESENTATIVE INQUIRED WHETHER ANY OFFEROR HAD BEEN FOUND TO BE NONRESPONSIBLE OR THEIR OFFERS UNACCEPTABLE, WHEREUPON THE GOVERNMENT REPRESENTATIVES ANSWERED IN THE NEGATIVE AND CONCEDED THAT THEY HAD NO RIGHT TO REOPEN NEGOTIATIONS AND STATED THAT NEGOTIATIONS WOULD REMAIN CLOSED. THE RECORD SHOWS, HOWEVER, THAT NEGOTIATIONS WERE REOPENED ON JUNE 17 WITH THE ISSUANCE OF AN AMENDMENT TO THE SOLICITATION WHICH ELIMINATED THE REQUIREMENT FOR TEST AMMUNITION, PROVIDED THAT IT WOULD BE FURNISHED BY THE GOVERNMENT, AND ADDED A REQUIREMENT FOR INCREASED DATA DOCUMENTATION.

YOU ARGUE THAT THE ADDITION OF THE REQUIREMENT FOR FURNISHING "CATEGORY E" MANUFACTURING DRAWINGS RESULTS IN AN ADDITIONAL ENGINEERING AND MECHANICAL OPERATION OF NO GREAT MAGNITUDE SINCE THE PREVIOUS OFFERS WOULD HAVE GIVEN THE GOVERNMENT ALL THE NECESSARY INFORMATION AND DATA RIGHTS TO COMPLETELY REPRODUCE THE GUN, SUBJECT ONLY TO AN EXAMINATION OF THE DELIVERED GUN IN THE LIGHT OF THE DELIVERED DATA PACKAGE AND A CERTAIN AMOUNT OF REVERSE ENGINEERING. YOU NOTE THAT GENERAL ELECTRIC'S PRICE FOR THE MANUFACTURING DRAWINGS WAS $22,000 OUT OF A TOTAL BID OF $659,000, WHICH IS APPROXIMATELY 3 PERCENT OF THE ENTIRE BID, AND THAT THE CONTRACTING OFFICER FOUND GENERAL ELECTRIC'S PRICE FOR THE MANUFACTURING DRAWINGS TO BE REASONABLE. IT IS YOUR CONTENTION THAT THESE FACTS INDICATE THE UNSUBSTANTIAL NATURE OF THE CHANGE.

IT IS YOUR POSITION THAT ONCE NEGOTIATIONS HAVE BEEN CLOSED AND BEST AND FINAL OFFERS RECEIVED, ANY MODIFICATION OF THE SOLICITATION MUST BE BASED UPON A SUBSTANTIAL CHANGE IN REQUIREMENTS TO JUSTIFY THE REOPENING OF NEGOTIATIONS. WHILE YOUR POSITION WOULD APPEAR TO BE SUPPORTED BY THE PROVISIONS OF ASPR 3-805.1(E), THERE IS NO SPECIFIC STATUTORY OR REGULATORY PROVISION ESTABLISHING THE CRITERIA TO BE APPLIED IN DETERMINING WHAT CONSTITUTES A SUBSTANTIAL CHANGE IN THE GOVERNMENT'S REQUIREMENTS. IN THE ABSENCE OF SUCH SPECIFIC CRITERIA WE BELIEVE THE DECISION AS TO WHETHER A SOLICITATION SHOULD BE REVISED IS A DISCRETIONARY MATTER WHICH THE AGENCY MUST RESOLVE IN THE LIGHT OF ALL THE CIRCUMSTANCES OF THE CASE. IN REVIEWING SUCH MATTERS THIS OFFICE WOULD NOT BE JUSTIFIED IN QUESTIONING THE LEGALITY OF THE CONTRACT AWARDED WHERE THE SOLICITATION HAS BEEN MODIFIED AND NEGOTIATIONS CONDUCTED SUBSEQUENT TO A CLOSING DATE AND SUBMISSION OF BEST AND FINAL OFFERS, UNLESS SUCH ACTION IS FRAUDULENT, CAPRICIOUS, ARBITRARY, OR IS SO GROSSLY ERRONEOUS AS TO IMPLY BAD FAITH. WE DO NOT THINK THAT REOPENING NEGOTIATIONS ON THE BASIS OF A CHANGE IN THE SOLICITATION WHOSE REASONABLE VALUE IS ESTIMATED AT $22,000 AND 3 PERCENT OF THE BID PRICE, WAS SUCH AN ARBITRARY EXERCISE OF DISCRETION, OR THAT IT CAN BE CONSTRUED TO IMPLY BAD FAITH. IN THIS RESPECT WE NOTE THAT MAUSER'S PRICE FOR THE ADDITIONAL DATA ITEM WAS THE CONSIDERABLY GREATER SUM OF $175,000, WHICH FACT TENDS TO VERIFY THE WISDOM OF NAVY'S DECISION TO COMPETE THE DATA REQUIREMENT RATHER THAN RELY UPON POST AWARD NEGOTIATIONS WITH MAUSER.

NOR DO WE QUESTION THE SOUNDNESS OF THE DECISION TO MODIFY THE SOLICITATION AND REOPEN NEGOTIATIONS, SINCE WE DO NOT BELIEVE THAT THE CHANGE WAS EITHER TRIVIAL OR SPECIOUS. WE ALSO FEEL THAT IN VIEW OF THE ADDITIONAL REQUIREMENTS FOR MANUFACTURING DRAWINGS, NAVY'S ACTIONS IN REOPENING NEGOTIATIONS WAS WITHIN THE CONTEMPLATION OF THE ADVICE TO OFFERORS IN THE LETTER OF JUNE 7 WHICH RESERVED THE OPTION OF REOPENING NEGOTIATIONS IF OFFERS WERE FOUND TO BE UNACCEPTABLE. IT IS REASONABLE TO ASSUME THAT IN VIEW OF THE CHANGE OF THE GOVERNMENT'S REQUIREMENTS, THE NAVY WAS UNABLE TO ACCEPT ANY OF THE JUNE 9 OFFERS AND THE REOPENING OF NEGOTIATIONS WAS THEREFORE PROPER. SINCE WE DO NOT OBJECT TO THE REOPENING OF NEGOTIATIONS FOR THE ABOVE-STATED REASONS, WE NEED NOT GIVE DETAILED CONSIDERATION TO YOUR ALLEGATIONS REGARDING THE UNSUBSTANTIAL NATURE OF THE OTHER CHANGES MADE IN THE SOLICITATION.

IT IS YOUR POSITION THAT A PATTERN OF AUCTION TECHNIQUE FAVORING GENERAL ELECTRIC EVOLVES FROM THE RECORD OF THIS CASE. IN SUPPORT OF THIS POSITION YOU HAVE NOTED SEVERAL FACTS: (1) AS INITIALLY ISSUED THE SOLICITATION PROVIDED FOR GOVERNMENT-FURNISHED TEST AMMUNITION WHICH WAS DELETED PRIOR TO SUBMISSION OF INITIAL OFFERS, AGAINST WHICH MAUSER BID $856,814 AND GENERAL ELECTRIC BID $1,061,212; (2) THAT GENERAL ELECTRIC'S BEST AND FINAL OFFER ON JUNE 9 WAS FOR $935,412 (I.E., $795,000 FOR THE GUN AND DATA AND $140,412 FOR AMMUNITION) AND MAUSER'S OFFER OF JUNE 9 DID NOT CHANGE FROM ITS INITIAL SUBMISSION OF $856,814; AND (3) THAT WITH THE SUBSEQUENT DELETION OF THE REQUIREMENT FOR CONTRACTOR FURNISHED TEST AMMUNITION AND THE ADDITION OF THE REQUIREMENTS FOR MANUFACTURING DRAWINGS GENERAL ELECTRIC BID $659,000 TO MAUSER'S $930,814. YOU STATE "IT IS OBVIOUS" THAT GENERAL ELECTRIC MUST HAVE HAD INFORMATION AS TO MAUSER'S BEST AND FINAL OFFER OF JUNE 9.

WHILE THE REOPENING OF NEGOTIATIONS PROVIDED GENERAL ELECTRIC ANOTHER OPPORTUNITY TO BECOME THE LOW OFFEROR, OUR REVIEW HAS REVEALED NO EVIDENCE THAT INFORMATION AS TO MAUSER'S PRICE OF JUNE 9 WAS LEAKED TO GENERAL ELECTRIC BY THE GOVERNMENT, NOR DO WE FIND ANY EVIDENCE TENDING TO INDICATE "INSIDE" KNOWLEDGE OR FRAUD ON THE PART OF GENERAL ELECTRIC, AND WE SEE NO NEED TO SPECULATE ON THE REASONS FOR THE EXTENT OF THE PRICE REDUCTIONS IN GENERAL ELECTRIC'S OFFER. IN THIS REGARD, HOWEVER, WE NOTE THAT THE CONTRACTING OFFICER HAS FOUND NO INDICATION THAT PRICES SUBMITTED BY EITHER COMPANY WERE REVEALED EXCEPT TO GOVERNMENT PERSONNEL ON A NEED- TO-KNOW BASIS. MOREOVER, IT APPEARS THAT A "TENDER OFFER" OF $800,000 SUBMITTED BY MAUSER IN MARCH 1971 IN RESPONSE TO AN INFORMAL REQUEST FOR INFORMATION BY THE NAVY, WAS MADE AVAILABLE BY MAUSER TO REPRESENTATIVES OF OTHER FIRMS.

FINALLY, YOU CONTEND THAT FAVORITISM TOWARDS GENERAL ELECTRIC IS APPARENT FROM THE FACT THAT THE AMMUNITION REQUIREMENTS OF THE CONTRACT HAVE BEEN CHANGED SUBSEQUENT TO AWARD AND WILL PERMIT THE COMPANY TO FURNISH TEST AMMUNITION OUT OF ITS OWN INVENTORY, WHICH IS NOT INTERCHANGEABLE WITH THAT CALLED OUT BY THE SPECIFICATIONS. IN THIS REGARD THE NAVY HAS ADVISED THAT BY MEMORANDUM OF JULY 23, 1971, THE DEPARTMENT OF DEFENSE HAS DIRECTED THE ARMY AND NAVY TO EMPLOY THE AIR FORCE 30MM AX AMMUNITION IN ANY 30MM GUN DEVELOPMENT. AS A RESULT OF THIS DEVELOPMENT THE NAVY INTENDS TO PROCURE 30MM AX AMMUNITION FROM THE AIR FORCE, AND THE AMMUNITION WHICH GENERAL ELECTRIC WILL USE IN THE GUN DEVELOPMENT WILL BE PROVIDED BY THE NAVY AS SPECIFIED IN THE SOLICITATION. FURTHERMORE, WE HAVE BEEN ADVISED BY THE NAVY THAT, CONTRARY TO YOUR CONTENTION, NO CONTRACT CHANGE HAS BEEN MADE SUBSEQUENT TO AWARD WHICH WOULD PERMIT THE USE OF OERLIKON 30MM AMMUNITION WHICH IS NOT INTERCHANGEABLE WITH THAT CALLED OUT BY THE SPECIFICATIONS.

FOR THE REASONS STATED ABOVE, WE PERCEIVE NO LEGAL OBJECTION TO THE CONTRACT AWARDED IN THIS CASE.