B-173571, MAR 6, 1972

B-173571: Mar 6, 1972

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IN THE CIRCUMSTANCES OF THE SUBJECT PROCUREMENT THE USE OF TANK TRUCK RATES FOR PURPOSES OF EVALUATION WAS PROPER. SINCE IT HAS BEEN CONSISTENTLY HELD THAT THE LOWEST TRANSPORTATION RATE TO BE USED IN EVALUATING BIDS IS THE LOWEST RATE THAT WILL ACTUALLY BE USED UNDER THE CONTRACT. 19 COMP. ALTHOUGH IT NOW APPEARS THAT THE CONTRACTING OFFICER'S DECISION TO USE NEGOTIATION RATHER THAN FORMAL ADVERTISING MAY HAVE BEEN BASED ON ERRONEOUS FINDINGS. IS UNABLE TO CONCLUDE THAT THIS HAD A DETRIMENTAL EFFECT ON PROTESTANT'S COMPETITIVE STANDING. THE APPROPRIATE TIME TO QUESTION SUCH PROCEDURE WAS WHEN THE SOLICITATION WAS FIRST ISSUED AND NOT AFTER THE AWARD TO THE SUCCESSFUL BIDDER. 50 COMP. YOU PROTEST THAT THE LOWEST COST OF TRANSPORTATION BETWEEN THE POINTS OF ORIGIN AND DESTINATION WAS NOT USED IN EVALUATION OF THE OFFERS.

B-173571, MAR 6, 1972

BID PROTEST - ALLEGED IMPROPER EVALUATION - NEGOTIATED PROCUREMENT DECISION DENYING PROTEST OF HERCULES, INC., AGAINST AWARD OF A CONTRACT TO SOUTHWEST POTASH CORPORATION UNDER A SOLICITATION ISSUED BY THE SAN ANTONIO AIR MATERIEL AREA, KELLY AFB, TEX., FOR A PROCUREMENT OF NITROGEN TETROXIDE. IN THE CIRCUMSTANCES OF THE SUBJECT PROCUREMENT THE USE OF TANK TRUCK RATES FOR PURPOSES OF EVALUATION WAS PROPER, SINCE IT HAS BEEN CONSISTENTLY HELD THAT THE LOWEST TRANSPORTATION RATE TO BE USED IN EVALUATING BIDS IS THE LOWEST RATE THAT WILL ACTUALLY BE USED UNDER THE CONTRACT. 19 COMP. GEN. 233 (1939). FURTHER, ALTHOUGH IT NOW APPEARS THAT THE CONTRACTING OFFICER'S DECISION TO USE NEGOTIATION RATHER THAN FORMAL ADVERTISING MAY HAVE BEEN BASED ON ERRONEOUS FINDINGS, THE COMP. GEN. IS UNABLE TO CONCLUDE THAT THIS HAD A DETRIMENTAL EFFECT ON PROTESTANT'S COMPETITIVE STANDING. IN ANY EVENT, THE APPROPRIATE TIME TO QUESTION SUCH PROCEDURE WAS WHEN THE SOLICITATION WAS FIRST ISSUED AND NOT AFTER THE AWARD TO THE SUCCESSFUL BIDDER. 50 COMP. GEN. 193, 200 (1970). FINALLY, IT DOES NOT APPEAR THAT THE IRREGULARITIES WHICH OCCURRED IN THE CONDUCT OF THE NEGOTIATIONS PROVIDE A SUFFICIENT BASIS FOR OVERTURNING THE AWARD, SINCE THEY HAD NO EFFECT ON THE EVALUATION AND SELECTION OF THE SUCCESSFUL OFFEROR. IN VIEW OF THE FOREGOING, THE PROTEST MUST BE DENIED.

TO HERCULES, INCORPORATED:

WE REFER TO YOUR PROTEST AGAINST AWARD OF A CONTRACT ON JUNE 30, 1971, TO SOUTHWEST POTASH CORPORATION UNDER SOLICITATION F41608-71-R 7587, ISSUED BY THE SAN ANTONIO AIR MATERIEL AREA, KELLY AIR FORCE BASE, TEXAS.

YOU PROTEST THAT THE LOWEST COST OF TRANSPORTATION BETWEEN THE POINTS OF ORIGIN AND DESTINATION WAS NOT USED IN EVALUATION OF THE OFFERS, AS PROVIDED IN THE SOLICITATION. YOU ASSERT THAT IF TANK CAR RATES HAD BEEN USED IN THE EVALUATION INSTEAD OF TANK TRUCK RATES, THE OFFER OF YOUR COMPANY WOULD HAVE BEEN LOWER THAN THAT OF SOUTHWEST POTASH. YOU ALSO CONTEND THAT NEGOTIATION OF THE PROCUREMENT WAS NOT JUSTIFIED SINCE ADEQUATE PRICE COMPETITION WAS AVAILABLE AND THAT FORMAL ADVERTISING SHOULD HAVE BEEN USED INSTEAD. YOU FURTHER PROTEST THAT NEGOTIATIONS WERE USED TO "STAGE MANAGE" AN AWARD TO SOUTHWEST POTASH.

THE REPORT FROM THE DEPARTMENT OF THE AIR FORCE DISCLOSES THAT THE SOLICITATION WAS FOR AN ESTIMATED TOTAL ANNUAL REQUIREMENT OF 3,346,000 POUNDS OF NITROGEN TETROXIDE (N204), TYPES MDN-1 AND NTO, IN ACCORDANCE WITH APPLICABLE MILITARY SPECIFICATIONS. NITROGEN TETROXIDE IS USED AS AN OXIDIZER IN THE ROCKET ENGINES OF CERTAIN AIR FORCE LAUNCH VEHICLES AND IN SEVERAL NASA RESEARCH AND DEVELOPMENT PROGRAMS. THE SOLICITATION CONTAINED FOUR ITEMS CALLING FOR SEVEN DIFFERENT ESTIMATED QUANTITIES FOR DELIVERY TO SEVEN DIFFERENT DESTINATIONS. THERE WERE TWO MAJOR QUANTITIES INVOLVED, 890,000 POUNDS FOR PATRICK AFB, FLORIDA, AND 1,900,000 POUNDS FOR VANDENBERG AFB, CALIFORNIA, ON WHICH THE COMPUTATION OF TRANSPORTATION COSTS AFFECTED THE RELATIVE STANDING OF THE OFFERORS.

THE SOLICITATION CALLED FOR DELIVERY F.O.B. ORIGIN INTO GOVERNMENT FURNISHED TANK TRUCKS AND/OR TANK CARS FOR BOTH OF THE ABOVE QUANTITIES. PARAGRAPH D-5 ON PAGE I-19 OF THE SOLICITATION PROVIDES IN PERTINENT PART, AS FOLLOWS:

"D-5. EVALUATION OF OFFERS:

"(A) THE LOWEST EVALUATED PRICE FOR EACH LINE ITEM WILL BE COMPUTED BY MULTIPLYING THE BEQ TIMES THE AVERAGE OF THE UNIT PRICES OFFERED FOR ALL INCREMENTS OF THAT LINE ITEM. THE COST OF TRANSPORTATION WILL THEN BE ADDED TO THE SUM OF SUCH LINE ITEM TOTAL PRICES). IF THIS SOLICITATION SPECIFIED F.O.B. ORIGIN, THE TRANSPORTATION COSTS TO BE USED IN EVALUATION WILL BE ON THE BASIS OF THE LOWEST OVERALL COSTS TO THE GOVERNMENT FOR THE BEQ OF EACH LINE ITEM BETWEEN THE POINT OF ORIGIN AND THE POINT OF DESTINATION."

YOUR OFFER QUOTED A TOTAL PRICE OF $290,597 F.O.B. ORIGIN, HERCULES, CALIFORNIA, AND SOUTHWEST POTASH QUOTED A TOTAL PRICE OF $209,280 F.O.B. ORIGIN, VICKSBURG, MISSISSIPPI. NO OTHER OFFERS WERE RECEIVED. THE CONTRACTING OFFICER STATES THAT DELIVERIES TO VANDENBERG AFB CAN BE MADE ONLY BY TANK TRUCK AND, CONSEQUENTLY, THE RATE FOR TRANSPORTATION BY TANK TRUCK WAS USED FOR COMPUTATION OF TRANSPORTATION COSTS TO THAT DESTINATION.

WITH REGARD TO THE TRANSPORTATION TO FLORIDA, THE CONTRACTING OFFICER STATES THAT THE NITROGEN TETROXIDE REQUIREMENTS FORECAST WAS SUBMITTED BY SPACE AND MISSILE SYSTEMS ORGANIZATION, AIR FORCE EASTERN TEST RANGE, PATRICK AFB, AND INDICATED THE METHOD OF SHIPMENT AS TRUCK. WHILE PATRICK AFB WAS DESIGNATED AS THE DESTINATION UNDER ITEM 1, THE NITROGEN TETROXIDE WAS INTENDED FOR USE AT CAPE KENNEDY AFS, WHICH HAS BOTH TRUCK AND RAIL FACILITIES. THE TITAN III AREA IS SERVED BY RAIL AND THE BULK STORAGE AREA, SIX MILES AWAY, IS SERVED EXCLUSIVELY BY TRUCK. ALTHOUGH THE GOVERNMENT RESERVED THE RIGHT TO SHIP BY EITHER RAIL OR TRUCK, THERE HAD BEEN NO RAIL SHIPMENTS OF NITROGEN TETROXIDE TO CAPE KENNEDY AFS SINCE JUNE 1970 AND THE NORMAL METHOD OF REPLENISHMENT HAD BEEN, AND WAS EXPECTED TO CONTINUE, TO BE BY TANK TRUCK TO THE BULK STORAGE AREA, AS WAS REQUIRED BY THEN-EXISTING LAUNCH CONDITIONS. THE CONTRACTING OFFICER THEREFORE USED TANK TRUCK RATES IN EVALUATION OF THE OFFERS SINCE THERE WAS NO EXPECTATION THAT ANY RAIL SHIPMENTS WOULD BE USED DURING THE CONTRACT PERIOD.

THE TOTAL EVALUATED COST OF YOUR OFFER, USING THE TANK TRUCK RATES, IS $438,824.70, WHILE THE TOTAL EVALUATED COST OF SOUTHWEST POTASH'S OFFER, USING THE SAME RATES, IS $420,022.33. AWARD WAS THEREFORE MADE TO SOUTHWEST POTASH ON THE BASIS OF THE LOWER EVALUATED COST. THE CONTRACTING OFFICER AGREES WITH YOUR ASSERTION THAT IF TANK CAR RATES HAD BEEN USED FOR THE DELIVERIES TO FLORIDA, YOUR OFFER WOULD HAVE BEEN LOWER. HOWEVER, IT IS HIS OPINION THAT USE OF TANK CAR RATES IN THE EVALUATION WOULD HAVE BEEN IMPROPER IN VIEW OF THE ABOVE-DESCRIBED CIRCUMSTANCES.

WITH REGARD TO THE DECISION TO USE NEGOTIATION RATHER THAN FORMAL ADVERTISING, THE CONTRACTING OFFICER STATES THAT ALTHOUGH ADEQUATE PRICE COMPETITION EXISTED IN PRIOR PROCUREMENTS, THE REDUCTION OF THE REQUIREMENTS FROM 11,012,000 POUNDS OF NITROGEN TETROXIDE IN THE PREVIOUS YEAR TO 3,346,000 POUNDS IN THE PRESENT YEAR CAUSED HIM TO BE CONCERNED THAT ONE OR BOTH OF THE TWO KNOWN SOURCES OF SUPPLY WOULD FAIL TO RESPOND TO THE SOLICITATION DUE TO THE REDUCED REQUIREMENTS. THE PRODUCTION OF NITROGEN TETROXIDE REQUIRES SPECIAL FACILITIES AND EQUIPMENT WHICH CANNOT BE COMMITTED TO OTHER PRODUCTION. THE CONTRACTING OFFICER CONCLUDED THAT THE COMPANIES WHICH PRODUCE NITROGEN TETROXIDE MIGHT CONSIDER IT UNECONOMICAL TO CONTINUE DEVOTING RESOURCES TO THE MANUFACTURE OF THE PRODUCT, AND THEREFORE ADEQUATE PRICE COMPETITION MIGHT NOT BE AVAILABLE. WE NOTE PARENTHETICALLY AT THIS POINT THAT YOU HAVE INFORMALLY ADVISED THAT IT IS YOUR UNDERSTANDING THAT SOUTHWEST POTASH PLANS NO FURTHER PRODUCTION OF NITROGEN TETROXIDE AFTER COMPLETION OF THE PRESENT CONTRACT AND THAT YOUR COMPANY IS ALSO CONSIDERING DISCONTINUANCE OF SUCH PRODUCTION.

BASED ON THE ABOVE CONSIDERATIONS, A DETERMINATION WAS MADE BY THE CONTRACTING OFFICER, PURSUANT TO THE AUTHORITY OF 10 U.S.C. 2304(A)(10), THAT THE PROCUREMENT SHOULD BE NEGOTIATED AS IT WAS BELIEVED TO BE IMPRACTICABLE TO ATTEMPT TO OBTAIN COMPETITION THROUGH FORMAL ADVERTISING. WHILE IT WOULD NOW APPEAR THAT THE DETERMINATION WAS BASED UPON ERRONEOUS FINDINGS, WE CANNOT CONCLUDE FROM THE INFORMATION OF RECORD THAT THE COMPETITIVE STANDINGS OF YOUR FIRM AND SOUTHWEST POTASH WOULD HAVE BEEN DIFFERENT HAD THE PROCUREMENT BEEN EFFECTED THROUGH FORMAL ADVERTISING INSTEAD OF BY NEGOTIATION. IN ANY EVENT IT HAS BEEN OUR CONSISTENT POSITION THAT THE APPROPRIATE TIME TO QUESTION SUCH MATTERS, FOR RELIEF BY THIS OFFICE, IS WHEN THE SOLICITATION IS FIRST ISSUED, INSTEAD OF AFTER THE DISCLOSURE OF THE APPARENT SUCCESSFUL OFFEROR OR BIDDER. 50 COMP. GEN. 193, 200 (1970). TO THE SAME EFFECT, SEE SECTION 20.2(A) OF OUR INTERIM BID PROTEST PROCEDURES AND STANDARDS, PUBLISHED DECEMBER 23, 1971, IN THE FEDERAL REGISTER, VOLUME 36, PAGE 24791.

WE FIND NO EVIDENCE IN THE RECORD, NOR HAVE YOU SUBMITTED ANY, TO SUPPORT YOUR ALLEGATION THAT THE NEGOTIATIONS WERE "STAGE MANAGED" TO EFFECT AN AWARD TO SOUTHWEST POTASH. WHILE THERE WERE CERTAIN IRREGULARITIES IN THE CONDUCT OF THE NEGOTIATIONS IN THAT DISCUSSIONS WERE HELD WITH BOTH OFFERORS ON DIFFERENT MATTERS AFTER THE CLOSING DATE FOR SUBMISSION OF BEST AND FINAL OFFERS, IT DOES NOT APPEAR THAT YOU WERE PREJUDICED IN ANY WAY BY SUCH DISCUSSIONS. THE DISCUSSIONS WITH SOUTHWEST POTASH WERE ADMINISTRATIVE IN NATURE AND DID NOT AFFECT THE PRICE QUOTED. WE DO NOT REGARD THE IRREGULARITIES AS PROVIDING A SUFFICIENT BASIS FOR OVERTURNING THE AWARD SINCE THEY HAD NO EFFECT ON THE EVALUATION AND SELECTION OF THE SUCCESSFUL OFFEROR. WE CONCUR, HOWEVER, WITH ADMINISTRATIVE ACTION TAKEN BY THE AIR FORCE TO PRECLUDE A RECURRENCE OF THIS SITUATION.

THE MAIN THRUST OF YOUR PROTEST IS DIRECTED TOWARD THE USE OF TANK TRUCK RATES IN THE EVALUATION, WHICH RESULTED IN SOUTHWEST POTASH HAVING THE LOWER EVALUATED PRICE, RATHER THAN USE OF THE TANK CAR RATES WHICH WOULD HAVE RESULTED IN YOUR PRICE BEING LOWER. OUR OFFICE HAS LONG HELD THE VIEW THAT THE LOWEST TRANSPORTATION RATE TO BE USED IN EVALUATING BIDS IS THE LOWEST RATE THAT WILL ACTUALLY BE USED, NOT SOME OTHER POSSIBLE RATE WHICH MAY BE LOWER BUT WHICH WILL NOT, IN FACT, BE USED UNDER THE CONTRACT. IN 19 COMP. GEN. 233 (1939) WE STATED THAT IN BID EVALUATION:

" *** THERE SHOULD BE CONSIDERED THE FACT THAT IF THERE BE USED IN THE EVALUATION A RATE WHICH MAY ULTIMATELY BE FOUND CANNOT BE OBTAINED ON THE SHIPMENT, THE RESULT MAY BE THAT THE WRONG CONTRACTOR WOULD GET THE BUSINESS AND THAT THE DELIVERED COST TO THE GOVERNMENT WILL BE GREATER THAN IF THE AWARD HAD BEEN MADE TO ANOTHER BIDDER *** IT WOULD SEEM THAT THE INTERESTS OF THE GOVERNMENT AS WELL AS THE INTERESTS OF COMPETING BIDDERS WOULD REQUIRE THAT THERE BE USED IN THE EVALUATING OF BIDS ONLY THE LOWEST RATES WHICH THERE IS SOUND REASON FOR BELIEVING WILL BE OBTAINABLE BY THE GOVERNMENT IN MAKING THE PARTICULAR SHIPMENT INVOLVED."

THIS PRINCIPLE WAS ALSO APPLIED IN 37 COMP. GEN. 174 (1957) AND 46 ID. 83 (1966).

IN LINE WITH THE PRINCIPLE SET FORTH IN THE ABOVE-CITED DECISIONS, WE BELIEVE PARAGRAPH D-5, EVALUATION OF OFFERS, MAY REASONABLY BE INTERPRETED TO REQUIRE EVALUATION ON THE BASIS OF THE LOWEST OVERALL COSTS TO THE GOVERNMENT FOR THE METHOD OF TRANSPORTATION WHICH IS INTENDED TO BE USED UNDER THE CONTRACT. IN VIEW THEREOF, AND SINCE DELIVERY BY TANK TRUCK WAS EXPECTED TO CONTINUE AT CAPE KENNEDY AFS, AND CONSTITUTED THE ONLY METHOD OF DELIVERY TO VANDENBERG AFB, WE FIND NO LEGAL BASIS FOR OBJECTION TO THE USE OF TANK TRUCK RATES IN EVALUATION OF THE OFFERS IN THIS PROCUREMENT.

ACCORDINGLY, YOUR PROTEST IS DENIED.