B-174266, FEB 22, 1972

B-174266, FEB 22, 1972

BID PROTEST - MISTAKE IN BID - RELIEF ALLOWED - BUY AMERICAN ACT DECISION ALLOWING RELIEF TO MCKESSON LABORATORIES FOR AN ALLEGED MISTAKE IN BID ON A CONTRACT WITH THE VETERANS ADMINISTRATION FOR A PROCUREMENT OF MEPROBAMATE TABLETS. THE FAILURE OF MCKESSON TO INDICATE THAT IT INTENDED TO FURNISH A FOREIGN PRODUCT UNDER THE BUY AMERICAN CERTIFICATE WOULD ORDINARILY COMPEL ENFORCEMENT OF THE CONTRACT. HOWEVER, IN VIEW OF THE EXTREME DIFFERENCE IN PRICE BETWEEN MEPROBAMATE POWDER OF DOMESTIC AND FOREIGN MANUFACTURE, IT WOULD BE UNCONSCIONABLE TO REQUIRE THE CONTRACTOR TO FURNISH DOMESTIC TABLETS AT ITS ORIGINAL BID PRICE. 45 COMP. GEN. 305, 308 (1965). ACCORDINGLY, THE CONTRACT MAY BE CANCELLED WITHOUT LIABILITY TO MCKESSON.

TO MR. DONALD E. JOHNSON:

REFERENCE IS MADE TO LETTER 134G DATED JANUARY 14, 1972, WITH ENCLOSURES, FROM THE DIRECTOR, SUPPLY SERVICE, DEPARTMENT OF MEDICINE AND SURGERY, FURNISHING THE CONTRACT FILE RELATIVE TO THE REQUEST OF MCKESSON LABORATORIES FOR RECONSIDERATION OF OUR DECISION B-174266 OF DECEMBER 9, 1971, TO YOU, WHICH DENIED ITS REQUEST FOR RELIEF FROM AN ALLEGED MISTAKE IN BID UPON WHICH VETERANS ADMINISTRATION CONTRACT NO. V797P-5973(A) IS BASED.

OUR DECISION OF DECEMBER 9, 1971, HELD THAT AT THE TIME OF THE AWARD THE CONTRACTING OFFICER WAS NOT ON NOTICE OF THE PROBABILITY OF A MISTAKE IN MCKESSON'S BID AS TO ITEM 13. THE ERROR IN THE BID OF MCKESSON OCCURRED WHEN IT FAILED TO INDICATE UNDER THE BUY AMERICAN CERTIFICATE THAT IT INTENDED TO FURNISH A FOREIGN PRODUCT UNDER ITEM 13 OF ITS BID. WE STATED THAT SINCE MCKESSON FAILED TO MAKE AN ENTRY UNDER THE BUY AMERICAN CERTIFICATE AS TO EXCLUDED END PRODUCTS, ITS BID SHOULD BE REGARDED AS A DOMESTIC BID, ACCEPTANCE OF WHICH BOUND MCKESSON TO FURNISH A DOMESTIC SOURCE END PRODUCT AS DEFINED IN THE BUY AMERICAN CLAUSE.

THE RECORD INDICATES THAT IN ITS BID MCKESSON OFFERED TO FURNISH THE MEPROBAMATE TABLETS UNDER ITEM 13 AT A PRICE OF $2.14 PER BOTTLE OF 500 AND THAT ITS BID WAS CONSIDERED AS OFFERING A DOMESTIC END PRODUCT. THE ONLY OTHER BIDDER, ZENITH LABORATORIES, INC., OFFERED TO FURNISH MEPROBAMATE TABLETS OF FOREIGN ORIGIN AT A UNIT PRICE OF $1.98. IN OUR DECISION OF DECEMBER 9, 1971, WE POINTED OUT THAT THE MOST RECENT PURCHASE OF MEPROBAMATE TABLETS OF DOMESTIC ORIGIN WAS MADE AT A PRICE OF $2.24 PER BOTTLE. WE STATED THAT IN VIEW OF THE PRICE AT WHICH THE MOST RECENT DOMESTIC END ITEM PURCHASE WAS MADE AND THE FACT THAT MCKESSON'S BID PRICE FOR ITEM 13 WAS $0.16 HIGHER THAN THE PRICE QUOTED BY THE ONLY OTHER BIDDER ON THAT ITEM, WE COULD NOT CONCLUDE THAT THE CONTRACTING OFFICER SHOULD HAVE BEEN ON NOTICE OF THE POSSIBILITY OF ERROR IN THE BID.

IN A LETTER DATED JANUARY 6, 1972, IN WHICH IT REQUESTED CANCELLATION OF THE CONTRACT, MCKESSON STATED THAT IF IT IS REQUIRED TO FURNISH DOMESTIC INSTEAD OF IMPORTED MEPROBAMATE POWDER UPON WHICH ITS BID PRICE OF $2.14 PER BOTTLE WAS BASED, IT WILL SUFFER A LOSS OF $56,614.16 ON A PURCHASE ORDER IN THE AMOUNT OF $11,556. THE COMPANY STATED THAT THE FOREIGN MEPROBAMATE POWDER WOULD COST APPROXIMATELY $2 PER POUND WHEREAS THE DOMESTIC MEPROBAMATE POWDER WOULD COST APPROXIMATELY $25.30 PER POUND. LETTER DATED JANUARY 13, 1972, MCKESSON SUBMITTED COPIES OF INVOICES IT RECEIVED FROM GYMA LABORATORIES OF AMERICA, INC., AND WALLACE PHARMACEUTICALS, A DIVISION OF CARTER-WALLACE, INC. THE INVOICE FROM GYMA, WHICH COVERS THE SALE OF FOREIGN MEPROBAMATE POWDER, SHOWS A PRICE OF $4 PER KILO (KILOGRAM) FOR THE POWDER AND THE INVOICE FROM WALLACE, WHICH COVERS THE SALE OF DOMESTIC MEPROBAMATE POWDER, SHOWS A PRICE OF $24.75 PER POUND. IN A COST BREAKDOWN WHICH IT SUBMITTED WITH ITS LETTER OF JANUARY 13, 1972, MCKESSON HAS INDICATED THAT BY USING FOREIGN MEPROBAMATE POWDER THE ACTUAL PRODUCTION COST FOR ONE BOTTLE OF 500 TABLETS WOULD BE $1.8463 EACH AND THAT BY USING DOMESTIC MEPROBAMATE POWDER THE ACTUAL PRODUCTION COST OF ONE BOTTLE OF 500 TABLETS WOULD BE $12.3417.

IN ITS LETTER OF JANUARY 13, 1972, MCKESSON POINTS OUT THAT THE REASON FOR THE SUBSTANTIAL DIFFERENCE BETWEEN THE COST OF FOREIGN AND DOMESTIC MEPROBAMATE POWDER IS THAT CARTER-WALLACE, INC., IS THE PATENT HOLDER ON THE DOMESTIC POWDER AND IS THEREFORE ABLE TO CONTROL THE PRICE. THE PRICE OF $24.75 PER POUND IS SET BY CARTER-WALLACE IN ACCORDANCE WITH A CONSENT DECREE IN AN ANTITRUST CASE BROUGHT AGAINST THE COMPANY AND A CODEFENDANT BY THE GOVERNMENT THE TERMS OF WHICH REQUIRE THE COMPANY TO SELL ITS PRODUCT IN THE OPEN MARKET AT A PRICE NOT TO EXCEED THAT STIPULATED IN THE DECREE. SEE UNITED STATES V CARTER PRODUCTS, INC., 211 F. SUPP. 144 (1962). THE VALIDITY OF THE CARTER-WALLACE PATENT IS FURTHER EVIDENCED BY A RECENT CASE IN WHICH CARTER-WALLACE PROVED PATENT INFRINGEMENT BY A COMPETITOR. SEE CARTER WALLACE, INC. V RIVERTON LABORATORIES, INC., 433 F. 2D 1034 (1970). ALTHOUGH OUR DECISION OF DECEMBER 9, 1971, POINTED OUT THAT DOMESTIC MEPROBAMATE TABLETS HAD PREVIOUSLY BEEN PURCHASED AT A PRICE OF $2.24 PER BOTTLE, THE RECORD INDICATES THAT AN INFRINGEMENT SUIT IS PRESENTLY PENDING AGAINST THE DAVIS-EDWARDS PHARMACAL CORPORATION, THE COMPANY FROM WHICH THIS REDUCED PRICE WAS OBTAINED.

IT THEREFORE APPEARS THAT DOMESTIC MEPROBAMATE POWDER MAY BE PROCURED ONLY FROM CARTER-WALLACE, INC., AT A PRICE OF $24.75 PER POUND. IN VIEW OF THIS AND THE STATEMENT OF MCKESSON THAT THE ACTUAL PRODUCTION COST OF A BOTTLE OF 500 MEPROBAMATE TABLETS WOULD THEREFORE BE $12.3417 INSTEAD OF ITS BID PRICE OF $2.14 PER BOTTLE, WE BELIEVE THAT IT WOULD BE UNCONSCIONABLE TO REQUIRE MCKESSON TO FURNISH DOMESTIC MEPROBAMATE TABLETS AT ITS ORIGINAL BID PRICE. SEE 45 COMP. GEN. 305, 308 (1965). ACCORDINGLY, CONTRACT NO. V797P-5973(A) MAY BE CANCELED WITHOUT LIABILITY TO MCKESSON.

THE PAPERS SUBMITTED WITH THE DIRECTOR'S LETTER OF JANUARY 14, 1972, ARE RETURNED.