B-175525, MAY 16, 1972, 51 COMP GEN 743

B-175525: May 16, 1972

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THE ESSENTIAL POINT IS NOT THE SELECTION OF THE SUBCONTRACTOR BUT THE MAKE-OR-BUY DECISION. MCDONNELL IS CURRENTLY NEGOTIATING WITH THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION (NASA) UNDER RFP NO. WHICH WAS ISSUED TO AEROJET. WE ARE INFORMED THAT STAGE II OF THE DELTA LAUNCH VEHICLE HAS BEEN DESIGNED AND DEVELOPED BY AEROJET UNDER A RESEARCH AND DEVELOPMENT CONTRACT. WHICH MCDONNELL APPEARS TO HAVE CONSIDERED TOO HIGH. ALL OF WHICH WERE DETERMINED TO BE UNACCEPTABLE EITHER FROM A COST OR PERFORMANCE STANDPOINT. THE RECORD INDICATES THAT THE APOLLO SERVICE MODULE ENGINE MANUFACTURED BY AEROJET WAS INCLUDED AMONG THE SOURCES CONSIDERED BY MCDONNELL. WE ARE INFORMED THAT IT WAS REJECTED BY MCDONNELL BASED ON CONSIDERATIONS OF WEIGHT AND THRUST.

B-175525, MAY 16, 1972, 51 COMP GEN 743

CONTRACTS - SUBCONTRACTS - MAKE-OR-BUY PROPOSALS OF PRIME CONTRACTORS - GOVERNMENT PARTICIPATION IN SUBCONTRACTING UNDER A MAKE-OR-BUY PROPOSAL BY A PRIME CONTRACTOR PURSUANT TO A REQUEST FOR PROPOSALS TO FURNISH LAUNCH VEHICLES, THE PARTICIPATION OF THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION (NASA) IN THE NEGOTIATION OF THE SECOND STEP ENGINE WITH SUBCONTRACTORS DOES NOT MAKE THE PRIME CONTRACTOR AN AGENT OF NASA SO AS TO SUBJECT THE SUBCONTRACTING TO THE GOVERNMENT'S PROCUREMENT STATUTES AND REGULATIONS, FOR IN A MAKE-OR-BUY PROGRAM AS DEFINED IN NASA PR 3.901 1, THE GOVERNMENT BUSY MANAGEMENT, INCLUDING PLACING AND ADMINISTERING SUBCONTRACTS, FROM THE PRIME CONTRACTOR ALONG WITH GOODS AND SERVICES TO ASSURE PERFORMANCE AT THE LOWEST OVERALL COST, WITH THE RIGHT OF REVIEW RESERVED IN THE GOVERNMENT. THEREFORE, THE ESSENTIAL POINT IS NOT THE SELECTION OF THE SUBCONTRACTOR BUT THE MAKE-OR-BUY DECISION, AND THE RECORD SHOWS NASA THOROUGHLY ANALYZED THE VARIOUS TECHNICAL ASPECTS INVOLVED IN THE PRIME CONTRACTOR'S PROPOSAL, INCLUDING THE RELATIVE MERITS OF TWO DIFFERENT SUBCONTRACTOR DESIGN CONFIGURATIONS.

TO VOM BAUR, COBURN, SIMMONS & TURTLE, MAY 16, 1972:

WE REFER TO YOUR LETTER DATED MARCH 23, 1972, AND SUBSEQUENT CORRESPONDENCE PROTESTING ON BEHALF OF AEROJET LIQUID ROCKET CO., A DIVISION OF AEROJET-GENERAL CORP. (AEROJET), AGAINST THE PROPOSED AWARD OF A SUBCONTRACT UNDER MCDONNELL DOUGLAS ASTRONAUTICS CO. (MCDONNELL), REQUEST FOR PROPOSALS (RFP) NO. A3-152-72-DSM-121, ISSUED ON FEBRUARY 7, 1971. MCDONNELL IS CURRENTLY NEGOTIATING WITH THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION (NASA) UNDER RFP NO. NP-71-2 ISSUED ON APRIL 30, 1971, FOR THE PROCUREMENT, ON A SOLE SOURCE BASIS, OF 15 DELTA LAUNCH VEHICLES. THE SUBJECT MCDONNELL RFP, WHICH WAS ISSUED TO AEROJET, CONTEMPLATED A "FOLLOW ON" SUBCONTRACT FOR 15 STAGE II ROCKET ENGINE SYSTEMS. WE ARE INFORMED THAT STAGE II OF THE DELTA LAUNCH VEHICLE HAS BEEN DESIGNED AND DEVELOPED BY AEROJET UNDER A RESEARCH AND DEVELOPMENT CONTRACT, AND FOR THE PAST 11 YEARS AEROJET HAS BEEN THE SOLE SOURCE SUPPLIER OF STAGE II SYSTEMS TO THE PRIME CONTRACTOR, MCDONNELL.

IN RESPONSE TO THE SUBJECT MCDONNELL REQUEST, AEROJET PROVIDED A ROUGH PRICE ESTIMATE OF $912,000 PER SECOND STAGE, WHICH MCDONNELL APPEARS TO HAVE CONSIDERED TOO HIGH. BOTH NASA AND MCDONNELL THEN DECIDED TO CONSIDER AND ACTIVELY SEEK AN ALTERNATIVE APPROACH TO THE SECOND STAGE ENGINE. AFTER CONSIDERING A NUMBER OF OTHER SOURCES FOR THE ENGINE, ALL OF WHICH WERE DETERMINED TO BE UNACCEPTABLE EITHER FROM A COST OR PERFORMANCE STANDPOINT, MCDONNELL DISCUSSED WITH TRW, INCORPORATED (TRW), THE POSSIBILITY OF UTILIZING TRW'S LUNAR MODULE DESCENT ENGINE (LMDE) IN THE DELTA SECOND STAGE. THE RECORD INDICATES THAT THE APOLLO SERVICE MODULE ENGINE MANUFACTURED BY AEROJET WAS INCLUDED AMONG THE SOURCES CONSIDERED BY MCDONNELL. WE ARE INFORMED THAT IT WAS REJECTED BY MCDONNELL BASED ON CONSIDERATIONS OF WEIGHT AND THRUST.

ON MAY 28, 1971, AEROJET PROVIDED MCDONNELL WITH TWO PRICE PROPOSALS, ONE AT $847,000 PER STAGE AND THE OTHER AT $771,000 PER STAGE. INITIAL NEGOTIATIONS REDUCED THE AEROJET PROPOSAL TO $750,000 PER STAGE. NEGOTIATIONS CONTINUED UNTIL AUGUST 11 WHEN AEROJET SUBMITTED A FIRM PRICE OF $709,000. AT THIS POINT MCDONNELL, APPARENTLY FEELING THAT THE PRICE COULD NOT BE NEGOTIATED DOWNWARD, ADVISED NASA THAT IT HAD REACHED AN IMPASSE IN THE NEGOTIATIONS WITH AEROJET. NASA PERSONNEL, WITH THE CONSENT OF MCDONNELL, THEN DISCUSSED THE NEGOTIATION PROBLEMS WITH AEROJET. SUBSEQUENTLY, NASA INFORMALLY AUTHORIZED A FEASIBILITY STUDY BY MCDONNELL ON THE USE OF THE TRW LMDE ENGINE. ON SEPTEMBER 15, AEROJET SUBMITTED A REVISED PROPOSAL TO MCDONNELL LOWERING ITS PRICE TO $575,000 PER UNIT BASED ON CERTAIN CHANGES IN SCOPE AND TECHNICAL REQUIREMENTS. AEROJET STATES THAT IT WAS ENCOURAGED BY MCDONNELL TO PROPOSE THESE CHANGES; HOWEVER, IT IS CLEAR FROM THE RECORD THAT MCDONNELL WAS NOT SATISFIED WITH AEROJET'S REVISED PROPOSAL.

ON SEPTEMBER 21 TRW SUBMITTED ITS FORMAL PROPOSAL TO MCDONNELL FOR THE DELIVERY OF 15 LMDE ENGINES, THE FIRST 8 OF WHICH WERE TO BE GOVERNMENT- FURNISHED PROPERTY. THIS APPROACH WAS THEN INCORPORATED IN MCDONNELL'S "MAKE OR BUY" PROPOSAL SUBMITTED TO NASA. THE MAKE-OR-BUY PROPOSAL CONTEMPLATED A CHANGE FROM THE ARRANGEMENT USED IN ITS PRIOR CONTRACT (UNDER WHICH THE PROPULSION UNIT CONSISTING OF TANKS, PIPING, AND AIRFRAME NEEDED FOR THE DELTA SECOND STAGE, AS WELL AS THE SECOND STAGE ENGINE, WERE SUBCONTRACTED TO AEROJET, TO WHICH MCDONNELL THEN ADDED THE GUIDANCE AND CONTROL SYSTEMS AND PROVIDED THE REQUIRED INTEGRATION, CHECKOUT, AND LAUNCH SERVICES) TO AN ARRANGEMENT UNDER WHICH MCDONNELL WOULD SUBCONTRACT THE ENGINE TO TRW AND ASSEMBLE THE ENTIRE SECOND STAGE ITSELF, AS WELL AS PROVIDE ASSOCIATED SUPPORT EFFORT. WE ARE ADVISED THAT UNDER THE PRIOR ARRANGEMENT MCDONNELL DID ONE-THIRD OF THE WORK WHILE AEROJET DID TWO- THIRDS, WHEREAS UNDER THE NEW PROPOSED ARRANGEMENT MCDONNELL WOULD DO TWO- THIRDS AND TRW WOULD DO ONE-THIRD.

NASA THEN ESTABLISHED A BOARD TO EVALUATE MCDONNELL'S MAKE-OR-BUY PROPOSAL. THIS BOARD DETERMINED THAT THE MCDONNELL/TRW PROPOSAL WAS TECHNICALLY FEASIBLE.

AT THE URGING OF NASA PERSONNEL AND CONCURRENT WITH NASA'S EVALUATION OF MCDONNELL'S MAKE-OR-BUY PROPOSAL, NEGOTIATIONS WERE RESUMED IN LATE JANUARY 1972 BETWEEN MCDONNELL AND AEROJET. FINALLY, ON FEBRUARY 11, 1972, MCDONNELL AND AEROJET NEGOTIATED A "NOT TO EXCEED" UNIT PRICE OF $682,000; HOWEVER, NEITHER PARTY ACCEPTED THE OTHER'S PROPOSED AGREEMENT. MEANWHILE, MCDONNELL HAD SUBMITTED ITS MAKE-OR-BUY PLAN WHICH NASA IS PROPOSING TO APPROVE AS PART OF THE AWARD OF THE PRIME CONTRACT TO MCDONNELL. YOU URGE THAT AEROJET SHOULD BE GIVEN FURTHER OPPORTUNITY TO NEGOTIATE WITH NASA ON STAGE II.

IN THIS REGARD YOU CONTEND THAT NASA HAS SO INVOLVED ITSELF IN THIS PROCUREMENT THAT MCDONNELL IN EFFECT ACTED AS A MERE AGENT OF NASA, RATHER THAN AN INDEPENDENT CONTRACTOR AND THEREFORE IN ACCORDANCE WITH B-170324, APRIL 19, 1971, THIS PROCUREMENT IS SUBJECT TO THE GOVERNMENT PROCUREMENT STATUTES AND THE IMPLEMENTING REGULATIONS. YOU SUBMIT THAT EVEN IF THE PROCUREMENT STATUTES DO NOT LITERALLY APPLY TO THIS PROCUREMENT, IT SHOULD NEVERTHELESS BE JUDGED BY THE FEDERAL STANDARDS. YOU URGE THAT THE MATTER SHOULD BE VIEWED IN THE FRAMEWORK OF A COMPETITION BETWEEN AEROJET AND MCDONNELL FOR THE SECOND STAGE.

BASED ON THE ABOVE-CITED PREMISE, YOU ASSERT THAT MCDONNELL'S ACTIONS IN OBTAINING AEROJET'S TECHNICAL AND COST PROPOSALS AND UTILIZING THEM AS A BASE UPON WHICH TO DEVELOP ITS MAKE-OR-BUY PROPOSAL CONSTITUTE A VIOLATION OF THE PROHIBITION AGAINST THE USE OF AN AUCTION TECHNIQUE CONTAINED IN NASA PR3-805.1(C) AND A VIOLATION OF THE NASA POLICY AGAINST "TRANSFUSION" OF INFORMATION BETWEEN COMPETITORS AS EVIDENCED BY NASA PROCUREMENT REGULATION DIRECTIVE NO. 70-15, DATED DECEMBER 1, 1970. IN ADDITION YOU ALLEGE THAT MCDONNELL'S POSITION AS JUDGE OF THE AEROJET PROPOSAL AND ADVOCATE OF ITS OWN MAKE-OR-BUY PROPOSAL EVIDENCES AN IRREMEDIABLE CONFLICT OF INTEREST.

NASA, ON THE OTHER HAND, IS OF THE VIEW THAT SINCE A MAKE-OR-BUY PROPOSAL IS THE FOCAL POINT OF THIS CONTROVERSY THE SITUATION IS TO BE EVALUATED WITHIN THE FRAMEWORK OF THE REGULATIONS APPLICABLE TO SUCH PROPOSALS. MAKE-OR-BUY PROGRAM IS DEFINED BY NASA PR3.901-2(A) AS THAT PART OF A CONTRACTOR'S WRITTEN PLAN FOR THE DEVELOPMENT OF AN END ITEM WHICH IDENTIFIES THE MAJOR SUBSYSTEMS, ASSEMBLIES, SUBASSEMBLIES, AND COMPONENTS TO BE MANUFACTURED, DEVELOPED, OR ASSEMBLED IN HIS OWN FACILITIES, AND THOSE WHICH WILL BE OBTAINED ELSEWHERE BY SUBCONTRACT.

THE GENERAL POLICY IN REGARD TO THESE PROGRAMS IS SET FORTH AS FOLLOWS IN NASA PR3.901-1:

GENERAL. THE GOVERNMENT BUYS MANAGEMENT FROM THE PRIME CONTRACTOR ALONG WITH GOODS AND SERVICES, AND PLACES RESPONSIBILITY ON HIM TO MANAGE PROGRAMS TO THE BEST OF HIS ABILITY, INCLUDING PLACING AND ADMINISTERING SUBCONTRACTS AS NECESSARY TO ASSURE PERFORMANCE AT THE LOWEST OVERALL COST TO THE GOVERNMENT. ALTHOUGH THE GOVERNMENT DOES NOT EXPECT TO PARTICIPATE IN EVERY MANAGEMENT DECISION, IT MAY RESERVE THE RIGHT TO REVIEW THE CONTRACTOR'S MANAGEMENT EFFORTS, INCLUDING THE PROPOSED MAKE-OR-BUY PROGRAM. IN REVIEWING THE CONTENT OF THE PROPOSED MAKE-OR-BUY PROGRAM EFFORT SHOULD BE MADE TO HAVE THE PRIME CONTRACTOR ESTABLISH ANY NEW FACILITY IN OR NEAR SECTIONS OF CONCENTRATED UNEMPLOYMENT OR UNDEREMPLOYMENT AND IN AREAS OF PERSISTENT OR SUBSTANTIAL LABOR SURPLUS.

THE EVALUATION OF THESE PROGRAMS IS TO BE CONDUCTED IN ACCORDANCE WITH THE STANDARDS PROMULGATED BY NASA PR3.901-3(B):

(B) IN REVIEWING AND EVALUATING A PROPOSED MAKE-OR-BUY PROGRAM, THE CONTRACTING OFFICER SHALL ASSURE THAT ALL APPROPRIATE ITEMS ARE INCLUDED AND SHALL DELETE ITEMS WHICH SHOULD NOT BE INCLUDED. IN CONDUCTING HIS REVIEW, THE CONTRACTING OFFICER SHALL OBTAIN THE ADVICE OF APPROPRIATE PERSONNEL INCLUDING TECHNICAL, SMALL BUSINESS AND LABOR SURPLUS AREA SPECIALISTS, WHOSE KNOWLEDGE WOULD CONTRIBUTE TO THE ADEQUACY OF THE REVIEW. DURING SUCH REVIEW PRIMARY CONSIDERATION SHALL BE GIVEN TO THE EFFECT OF THE CONTRACTOR'S PROPOSED MAKE-OR-BUY PROGRAM ON PRICE, QUALITY, DELIVERY, AND PERFORMANCE. THE CONTRACTOR HAS THE BASIC RESPONSIBILITY FOR MAKE-OR-BUY DECISIONS. THE CONTRACTOR'S RECOMMENDATIONS SHALL THEREFORE BE ACCEPTED UNLESS THEY ADVERSELY AFFECT THE GOVERNMENT'S INTEREST OR ARE INCONSISTENT WITH GOVERNMENT POLICY. THE EVALUATION OF "MUST MAKE" AND "MUST BUY" ITEMS SHOULD NORMALLY BE CONFINED TO THAT NECESSARY TO ASSURE THAT THE ITEMS ARE PROPERLY CATEGORIZED. THE EFFECT OF THE FOLLOWING FACTORS ON THE INTERESTS OF THE GOVERNMENT SHALL ALSO BE CONSIDERED:

(I) WHETHER THE CONTRACTOR HAS JUSTIFIED THE PERFORMANCE OF WORK IN PLANT WHICH DIFFERS SIGNIFICANTLY FROM HIS OPERATIONS;

(II) THE CONSEQUENCE OF THE CONTRACTOR'S PROJECTED PLANT WORK LOADING WITH RESPECT TO OVERHEAD COSTS;

(III) THE CONTRACTOR'S CONSIDERATION OF THE COMPETENCE, ABILITY, EXPERIENCE, AND CAPACITY AVAILABLE IN OTHER FIRMS, ESPECIALLY SMALL BUSINESS AND LABOR SURPLUS AREA CONCERNS (THIS IS PARTICULARLY SIGNIFICANT IF THE CONTRACTOR PROPOSES TO REQUEST ADDITIONAL GOVERNMENT FACILITIES IN ORDER TO PERFORM IN-PLANT WORK);

(IV) THE CONTRACTOR'S MAKE-OR-BUY HISTORY AS TO THE TYPE OF ITEM CONCERNED;

(V) WHETHER SMALL BUSINESS AND LABOR SURPLUS AREA CONCERNS WILL BE ABLE TO COMPETE FOR SUBCONTRACTS; AND

(VI) OTHER ELEMENTS, SUCH AS THE NATURE OF THE ITEMS, EXPERIENCE WITH SIMILAR ITEMS, FUTURE REQUIREMENTS, ENGINEERING, TOOLING, STARTING LOAD COSTS, MARKET CONDITIONS, AND THE AVAILABILITY OF PERSONNEL AND MATERIALS.

THE EXTENT TO WHICH THE STATUTES AND REGULATIONS GOVERNING PROCUREMENTS BY THE GOVERNMENT APPLY TO THE AWARD OF SUBCONTRACTS DEPENDS ON THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE CASE. SEE 49 COMP. GEN. 668 (1970). IN THIS CASE, WE DO NOT AGREE THAT THE SELECTION OF A SUBCONTRACTOR IS PRIMARILY AT ISSUE; RATHER, WE BELIEVE WITH NASA THAT THE ESSENTIAL POINT IS THE MAKE-OR-BUY DECISION.

AS NASA PR3-900(B) STATES, ALTHOUGH THERE IS A RELATIONSHIP BETWEEN THE REVIEW AND APPROVAL OF A PRIME CONTRACTOR'S MAKE-OR-BUY PROGRAM AND THE REVIEW AND APPROVAL OF HIS SUBCONTRACTING PROGRAM, EACH IS A SEPARATE AND DISTINCT ACTION AND THE FACTORS TO BE CONSIDERED IN EACH VARY. THEREFORE, WE THINK THE PROPRIETY OF A CONTRACTING AGENCY'S APPROVAL OF A CONTRACTOR'S MAKE-OR-BUY PROGRAM SHOULD BE JUDGED IN THE CONTEXT OF THE RULES AND REGULATIONS APPLICABLE TO SUCH ACTIONS, AND NOT IN THE CONTEXT OF A SUBCONTRACT AWARD OR OF A DIRECT GOVERNMENT CONTRACT AWARD.

IN THE CONTEXT OF THE REGULATIONS GOVERNING THE SUBMISSION AND EVALUATION OF MAKE-OR-BUY PROPOSALS IT IS CLEAR THAT THE PRIME CONTRACTOR HAS THE BASIC RESPONSIBILITY FOR MAKE-OR-BUY DECISIONS (SEE NASA PR3.901-3(B)). IT IS THE CONTRACTOR'S RESPONSIBILITY TO DEVELOP AND PRESENT TO THE GOVERNMENT ALL OF THE RELEVANT INFORMATION IN REGARD TO THE IMPACT OF THE MAKE-OR-BUY DECISION UPON THE PRICE, QUALITY, DELIVERY AND PERFORMANCE OF THE PRIME CONTRACT. WHERE THE PROPOSAL INVOLVES THE REPLACEMENT OF AN INCUMBENT SUBCONTRACTOR, THE PRIME CONTRACTOR MUST EVALUATE THE COST AND TECHNICAL FACTORS IMPLICIT IN SUCH A CHANGE. TO FACILITATE THIS EVALUATION THE PRIME CONTRACTOR REASONABLY WOULD ATTEMPT TO OBTAIN THE LATEST COST AND TECHNICAL INFORMATION FROM THE INCUMBENT SUBCONTRACTOR. IT IS, OF COURSE, CLEAR THAT THE INCUMBENT SUBCONTRACTOR IS UNDER NO OBLIGATION TO SUPPLY THIS INFORMATION. WE KNOW OF NO LIMITATION ON THE PRIME CONTRACTOR'S RIGHT TO USE SUCH INFORMATION IN ARRIVING AT A MAKE-OR- BUY DECISION. ANY LIMITATION WHICH DID EXIST WOULD BE A MATTER BETWEEN THE PRIME CONTRACTOR AND THE SUBCONTRACTOR OVER WHICH THE GOVERNMENT AGENCY WOULD HAVE NO PROPER JURISDICTION. CF. B-158125, JUNE 30, 1966.

NEXT YOU ATTACK THE ADEQUACY AND VALIDITY OF NASA'S EVALUATION OF MCDONNELL'S MAKE-OR-BUY PROPOSAL. IN REGARD TO THE NASA COST EVALUATION YOU ALLEGE THAT NO ACCURATE PRICE COMPARISON COULD HAVE BEEN MADE BECAUSE THE MOST RECENT MCDONNELL RFP MERELY SPECIFIED A "NOT TO EXCEED" PRICE SUBJECT ONLY TO DOWNWARD NEGOTIATIONS. IN ADDITION, YOU ALLEGE THAT AEROJET IS WILLING AT THIS TIME, AND HAS ALWAYS BEEN WILLING, TO NEGOTIATE A PRICE DIRECTLY WITH NASA.

THE RECORD INDICATES THAT PRICE HAS BEEN THE SUBJECT OF NEGOTIATIONS BETWEEN AEROJET AND MCDONNELL SINCE MAY 1971. IN ADDITION, BOTH MCDONNELL AND NASA HAVE THE BENEFIT OF A COST HISTORY OF THE DELTA SECOND STAGE REACHING BACK 11 YEARS. ALTHOUGH AEROJET MAINTAINS THAT THEIR LOWEST PRICE HAS BEEN WITHHELD FROM MCDONNELL LEST THAT INFORMATION BE USED TO MCDONNELL'S ADVANTAGE, WE ARE NOT PREPARED TO CONCLUDE IN THE CIRCUMSTANCES THAT NASA DID NOT POSSESS SUFFICIENT INFORMATION TO CONDUCT AN ACCURATE COST ANALYSIS.

ANY OFFER BY AEROJET TO NEGOTIATE DIRECTLY WITH NASA IS NOT SUBJECT TO OUR REVIEW. THE COURSE OF ACTION IS OPEN TO NASA AND ITS GOOD FAITH DECISION IN REGARD TO AEROJET'S OFFER WILL NOT BE QUESTIONED BY US FROM A LEGAL STANDPOINT.

NEXT YOU ASSERT THAT MCDONNELL HAS RECEIVED AN UNFAIR COST ADVANTAGE BECAUSE OF NASA'S APPROVAL OF THE USE OF EIGHT EXCESS LMDE ENGINES AS NO- COST GOVERNMENT FURNISHED PROPERTY (GFP). YOU ALLEGE THAT MCDONNELL'S SHOULD-COST FIGURE FOR THE AEROJET ENGINE IS ACTUALLY LESS THAN THE COST OF THE TRW ENGINE IF THE GFP ENGINES ARE NOT MADE AVAILABLE TO MCDONNELL. YOU STATE THAT MCDONNELL'S SHOULD-COST FIGURE CANNOT BE ACCURATE BECAUSE NEITHER MCDONNELL NOR NASA OBTAINED A QUOTE FROM AEROJET BASED ON THE ENGINE ALONE. WE HAVE BEEN INFORMED BY NASA THAT, BASED ON THE LATEST PRICE NEGOTIATED BETWEEN MCDONNELL AND TRW (LOWER THAN THE PRICE INDICATED IN NASA'S INITIAL REPORT), THE COST OF THE TRW ENGINE WITHOUT THE BENEFIT OF THE GFP IS LOWER THAN THE "SHOULD COST" FIGURE OF $287,000 FOR THE AEROJET ENGINE. IN ADDITION, A THOROUGH ANALYSIS SHOWED THAT THE MCDONNELL PROPOSAL ENJOYED A COST ADVANTAGE REGARDLESS OF THE GFP. CONCERNING THE ALLEGED INACCURACY OF MCDONNELL'S "IN-HOUSE STUDY" OF THE COST OF THE AEROJET ENGINE, THIS IS ESSENTIALLY A MANAGEMENT JUDGMENT AND WE CANNOT CONCLUDE THAT EITHER MCDONNELL OR NASA SHOULD HAVE OBTAINED A PROPOSAL FROM AEROJET AS PART OF THIS "IN-HOUSE STUDY," PARTICULARLY IN VIEW OF THE CIRCUMSTANCES AT THE TIME.

NEXT YOU ASSERT THAT SINCE AEROJET'S DESIGN IS FLIGHT PROVEN AND HAS A RECORD OF EXTREMELY HIGH RELIABILITY, NASA'S SELECTION OF THE MCDONNELL/TRW DESIGN IS ERRONEOUS BECAUSE ITS SYSTEM HAS NEVER BEEN DEVELOPED, MUCH LESS FLOWN. IN THIS CONNECTION, ATTENTION HAS BEEN CALLED TO OUR REPORT TO THE CONGRESS, B-163058, DATED NOVEMBER 19, 1970, ENTITLED "ADVERSE EFFECTS OF LARGE-SCALE PRODUCTION OF MAJOR WEAPONS BEFORE COMPLETION OF DEVELOPMENT AND TESTING," WHERE WE WERE CRITICAL OF CONTRACTING DECISIONS TO GO INTO PRODUCTION BEFORE COMPLETION OF FULL SCALE TESTING. WE CONCLUDED IN THIS REPORT THAT SINCE THE CONSEQUENCES OF CONCURRENCY COULD SERIOUSLY AFFECT COST AND READINESS, IT WAS PRUDENT TO LIMIT ITS USE TO THOSE CASES WHERE THE RISK WAS NECESSARY AND THERE WAS A GOOD CHANCE OF SUCCESS. IT IS SUGGESTED THAT IN THIS CASE PRUDENCE DICTATES CONTINUED USE OF THE "FLIGHT PROVEN" AEROJET DESIGN THEREBY AVOIDING THE PROBLEMS OF CONCURRENCY INHERENT IN THE ALTERNATE APPROACH.

OUR REPORT TO THE CONGRESS PRIMARILY DEALT WITH THE PROBLEM OF CONCURRENCY IN THE DEVELOPMENT AND LARGE-SCALE PRODUCTION OF NEW MAJOR WEAPON SYSTEMS. IN THE INSTANT CASE WE ARE CONCERNED WITH A RELATIVELY SMALL NUMBER OF PRODUCTION UNITS(15) BASED ON COMPONENTS WHICH HAVE BEEN IN PRODUCTION AND USE FOR A NUMBER OF YEARS. WE DO NOT THINK THE CRITICISMS AND RECOMMENDATIONS CONTAINED IN OUR REPORT ARE PARTICULARLY APPLICABLE TO THIS PROCUREMENT ACTION.

IT IS BASICALLY YOUR CONTENTION THAT THE FLIGHT PROVEN AEROJET DESIGN SHOULD BE PREFERRED BY NASA OVER THE UNPROVEN MCDONNELL/TRW DESIGN. YOU SUPPORT THIS CONTENTION BY A POINT-BY-POINT REBUTTAL OF NASA'S TECHNICAL EVALUATION OF THE MCDONNELL/TRW DESIGN, AND YOU REFUTE MCDONNELL'S AND NASA'S TECHNICAL CRITICISMS OF YOUR SYSTEM.

IN REGARD TO THE TECHNICAL EVALUATIONS OF THE SUBJECT MAKE-OR-BUY PROPOSAL IT HAS LONG BEEN THE POLICY OF THIS OFFICE, EVEN IN REVIEWING PROCUREMENTS SUBJECT TO THE FULL FORCE OF THE PROCUREMENT STATUTES AND REGULATIONS, THAT THE AGENCY HAS BROAD DISCRETION IN EVALUATING TECHNICAL PROPOSALS. WHERE, AS HERE, A REASONABLE DIFFERENCE OF OPINION EXISTS IN REGARD TO THE RELATIVE TECHNICAL MERITS OF TWO DESIGN CONFIGURATIONS, WE WILL NOT SUBSTITUTE OUR JUDGMENT FOR THAT OF THE AGENCY UNLESS IT IS CLEAR FROM THE RECORD THAT THE AGENCY IS IN ERROR. SEE 51 COMP. GEN. 621 (1972).

THE RECORD SHOWS THAT NASA CONDUCTED A THOROUGH AND COMPLETE ANALYSIS OF THE VARIOUS TECHNICAL ASPECTS INVOLVED IN THE APPROVAL OF MCDONNELL'S PROPOSAL. ALTHOUGH YOU OFFER ARGUMENTS PURPORTING TO REFUTE NASA'S EVALUATION WE CANNOT CONCLUDE THAT THE AGENCY'S APPROVAL OF THE MCDONNELL PROPOSAL WAS ARBITRARY.

BASED ON A THOROUGH CONSIDERATION OF THE RECORD BEFORE US WE FIND NO LEGAL BASIS UPON WHICH WE MAY OBJECT TO THE AGENCY'S APPROVAL OF MCDONNELL'S MAKE-OR-BUY PROPOSAL.