B-176564, APR 4, 1973, 52 COMP GEN 653

B-176564: Apr 4, 1973

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PROPERLY ADJUSTED THE HIGHEST UNIT PRICE AWARDED ON THE NON-SET-ASIDE PORTION OF THE PROCUREMENT TO REFLECT TOTAL ANTICIPATED LIFE COST - THE LCC PROCUREMENT METHOD RESTING UPON THE PREMISE THAT IT IS LOGICAL TO CONSIDER THE TOTAL ANTICIPATED LIFE CYCLE OF AN ITEM RATHER THAN MERELY ITS PURCHASE PRICE - AND REDUCED TRANSPORTATION AND OTHER COST FACTORS THAT WERE CONSIDERED IN EVALUATING THE NON-SET-ASIDE PORTION OF THE PROCUREMENT IN ORDER TO COMPLY WITH THE STATUTORY PROHIBITION AGAINST THE PAYMENT OF A PRICE DIFFERENTIAL FOR THE PURPOSE OF RELIEVING ECONOMIC DISLOCATION IN LABOR SURPLUS AREAS. LIFE CYCLE COST (LCC) CONTRACT WAS UNTIMELY FILED. THE PROTEST WILL BE CONSIDERED. "NOT LATER THAN 5 DAYS AFTER THE BASIS FOR THE PROTEST IS KNOWN OR SHOULD HAVE BEEN KNOWN.

B-176564, APR 4, 1973, 52 COMP GEN 653

CONTRACTS - NEGOTIATION - EVALUATION FACTORS - LIFE OF EQUIPMENT IN THE EVALUATION OF THE LABOR SURPLUS SET-ASIDE OFFERS UNDER A REQUEST FOR PROPOSALS (RFB) THAT CONTEMPLATED A MULTI-YEAR, REQUIREMENTS TYPE, LIFE CYCLE COST (LCC) CONTRACT FOR OSCILLOSCOPES ON THE QUALIFIED PRODUCTS LIST, THE CONTRACTING OFFICER, IN ACCORDANCE WITH THE TERMS OF THE RFP, PROPERLY ADJUSTED THE HIGHEST UNIT PRICE AWARDED ON THE NON-SET-ASIDE PORTION OF THE PROCUREMENT TO REFLECT TOTAL ANTICIPATED LIFE COST - THE LCC PROCUREMENT METHOD RESTING UPON THE PREMISE THAT IT IS LOGICAL TO CONSIDER THE TOTAL ANTICIPATED LIFE CYCLE OF AN ITEM RATHER THAN MERELY ITS PURCHASE PRICE - AND REDUCED TRANSPORTATION AND OTHER COST FACTORS THAT WERE CONSIDERED IN EVALUATING THE NON-SET-ASIDE PORTION OF THE PROCUREMENT IN ORDER TO COMPLY WITH THE STATUTORY PROHIBITION AGAINST THE PAYMENT OF A PRICE DIFFERENTIAL FOR THE PURPOSE OF RELIEVING ECONOMIC DISLOCATION IN LABOR SURPLUS AREAS. CONTRACTS - PROTESTS - TIMELINESS - UNTIMELY PROTEST CONSIDERATION BASIS ALTHOUGH THE PROTEST RELATIVE TO AN AWARD OF A LABOR SURPLUS SET ASIDE AT A UNIT PRICE BELOW THAT MADE ON THE NON-SET-ASIDE PORTION OF A PROCUREMENT FOR OSCILLOSCOPES UNDER A REQUEST FOR PROPOSALS CONTEMPLATING A MULTI- YEAR, REQUIREMENTS TYPE, LIFE CYCLE COST (LCC) CONTRACT WAS UNTIMELY FILED, SINCE THE PROTEST RAISES A SIGNIFICANT QUESTION RELATIVE TO THE PROPER METHOD FOR DETERMINING THE UNIT PURCHASE PRICES UNDER THE LABOR SET -ASIDE PORTION OF AN LCC PROCUREMENT, THE PROTEST WILL BE CONSIDERED. HOWEVER, AS ALLEGED IMPROPRIETIES OTHER THAN THOSE CONTAINED IN THE SOLICITATION MUST BE FILED, PURSUANT TO 4 CFR 20.2(A), "NOT LATER THAN 5 DAYS AFTER THE BASIS FOR THE PROTEST IS KNOWN OR SHOULD HAVE BEEN KNOWN," THE ISSUE THAT THE AUCTION TECHNIQUE PROHIBITED BY PARAGRAPH 3-805.1(B) OF THE ARMED SERVICES PROCUREMENT REGULATION WAS EMPLOYED BY THE CONTRACTING AGENCY MAY NOT BE CONSIDERED. CONTRACTS - AWARDS - LABOR SURPLUS AREAS - SET-ASIDES - PRICE COMPARISON WITH NON-SET-ASIDES THE ALLEGATIONS THAT THE LOW UNIT PRICE AND LIFE CYCLE COSTS (LCC) OFFERED ON THE NON-SET-ASIDE PORTION OF A MULTI-YEAR, REQUIREMENTS TYPE, CONTRACT FOR OSCILLOSCOPES ON THE QUALIFIED PRODUCTS LIST (QPL) WERE SO UNREASONABLY LOW THEY SHOULD NOT HAVE BEEN USED AS THE BASIS FOR COMPUTING THE SET-ASIDE OFFERS, AND THAT THE LOW UNIT PRICE RESULTED FROM AN "AUCTION," CONSTITUTED A "BUY-IN," AND WAS A "TOKEN" OFFER, AND THAT THE PROJECTED LIFE CYCLE COSTS WERE UNDERSTATED, ARE NOT SUPPORTED BY THE RECORD. THE USE OF A MULTI-YEAR PROCUREMENT, AS WELL AS THE FACT THE ITEM IS ON THE QPL, ELIMINATES THE PROBABILITY OF A "BUY-IN," AND THE FAILURE OF THE LOW OFFEROR ON THE NON-SET-ASIDE PORTION TO ADVANCE ITS PRIORITY FOR NEGOTIATION OF THE SET-ASIDE PORTION, DOES NOT MAKE THE NON-SET-ASIDE OFFER A "TOKEN" OFFER. FURTHERMORE, THE LCC, CONSISTING OF INITIAL LOGISTIC COSTS AND RECURRING COSTS, MUST BE ACCEPTED AS REALISTIC IN THE ABSENCE OF EVIDENCE THE EVALUATION OF THE LCC INFORMATION WAS ARBITRARY. CONTRACTS - PRICE ADJUSTMENT - LIFE CYCLE COSTS - TARGET V. MEASURED LIFE CYCLE ALTHOUGH THE AWARD OF THE NON-SET-ASIDE PORTION OF A MULTI-YEAR, REQUIREMENTS TYPE, LIFE CYCLE COST CONTRACT FOR OSCILLOSCOPES WAS MADE ON THE BASIS OF THE LOWEST EVALUATED TARGET LIFE CYCLE COST, THE FINAL AMOUNT TO BE PAID THE CONTRACTOR UNDER THE PRICE ADJUSTMENT PROVISION OF THE SOLICITATION WILL BE BASED UPON MEASURED LIFE CYCLE, AND THE TOTAL TARGET PRICE WILL BE PAID ONLY IF THE MEASURED LIFE CYCLE COST IS EQUAL TO OR LESS THAN THE TARGET (BID) LIFE CYCLE COST, AND IF THE MEASURED LIFE CYCLE COST EXCEEDS THE TARGET LIFE CYCLE COST, THE AMOUNT TO BE PAID WILL BE REDUCED PURSUANT TO THE FORMULA IN THE REQUEST FOR PROPOSALS ON THE BASIS THE CONTRACTOR PROVIDED HARDWARE WITH DEMONSTRATED VALUES LESS THAN THE PREDICTED VALUES USED AS THE BASIS FOR AWARD. CONTRACTS - SPECIFICATIONS - QUALIFIED PRODUCTS - CHANGES - APPROVAL THE PRODUCTION CHANGES MADE BY THE MANUFACTURER OF OSCILLOSCOPES ON THE QUALIFIED PRODUCTS LIST (QPL), WHICH WERE ADMINISTRATIVELY APPROVED WITHOUT REQUALIFICATION OR CHANGE IN THE QPL, DID NOT PRECLUDE CONSIDERATION OF THE CHANGED PRODUCT BY THE CONTRACTING AGENCY UNDER A MULTI-YEAR, REQUIREMENTS TYPE, LIFE CYCLE COST, NEGOTIATED PROCUREMENT SINCE SECTION 4-109 OF THE DEFENSE STANDARDIZATION MANUAL 4120.3-M - THE BASIC INSTRUCTION ON QUALIFIED PRODUCTS AND QUALIFICATION PROCEDURES - PLACES THE PRIMARY RESPONSIBILITY TO DECIDE WHAT MODIFICATIONS REQUIRE REEXAMINATION AND RETESTING OF A PRODUCT, AND IN THE ABSENCE OF A CLEAR SHOWING OF ARBITRARY OR CAPRICIOUS ACTION, THE ADMINISTRATIVE DETERMINATION IS ACCEPTABLE TO THE UNITED STATES GENERAL ACCOUNTING OFFICE.

TO ARNOLD AND PORTER, APRIL 4, 1973:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED JULY 20, 1972, AND SUBSEQUENT CORRESPONDENCE, PROTESTING ON BEHALF OF DUMONT OSCILLOSCOPE LABORATORIES, INC., AGAINST THE AWARD OF A CONTRACT TO TEKTRONIX, INC., UNDER REQUEST FOR PROPOSALS (RFP) F41608-72-R-G590(RFP-G590), ISSUED AT KELLY AIR FORCE BASE, TEXAS.

RFP-G590, ISSUED ON DECEMBER 23, 1971, CONTEMPLATED A MULTI-YEAR, REQUIREMENTS TYPE, LIFE CYCLE COST (LCC) CONTRACT FOR THE SUPPLY OF A TOTAL ESTIMATED QUANTITY OF 3600 OSCILLOSCOPES. THE PROCUREMENT WAS RESTRICTED TO MANUFACTURERS WHOSE PRODUCTS QUALIFIED FOR INCLUSION IN THE APPLICABLE QUALIFIED PRODUCTS LIST (QPL), AND 50 PERCENT OF THE REQUIREMENT WAS SET ASIDE FOR LABOR SURPLUS AREA CONCERNS. TWENTY-TWO PAGES OF THE SOLICITATION WERE DEVOTED TO INSTRUCTIONS AND FORMULAE TO BE APPLIED IN THE EVALUATION OF OFFERS UNDER THE LCC CONCEPT.

RFP-G590, AS AMENDED, ESTABLISHED FEBRUARY 24, 1972, AS THE CLOSING DATE FOR RECEIPT OF INITIAL PROPOSALS. FOLLOWING DISCUSSIONS WITH ALL THREE OFFERORS, THE FOLLOWING BEST AND FINAL OFFERS WERE RECEIVED BY MAY 16, 1972:

UNIT PRICE DATA

TEKTRONIX $1,087 $17,100

DUMONT 1,300 12,165

HEWLETT-PACKARD 1,328 21,000

UPON EVALUATION UNDER THE LCC PROVISIONS, TEKTRONIX WAS DETERMINED TO BE THE LOW OFFEROR AND AWARD OF THE NON-SET-ASIDE PORTION WAS MADE TO IT ON JULY 14, 1972.

DUMONT, A CERTIFIED-ELIGIBLE CONCERN WITH A FIRST PREFERENCE, AND ALSO A SMALL BUSINESS, HAD FIRST PRIORITY FOR NEGOTIATION OF THE SET ASIDE PORTION OF THE PROCUREMENT. THE TEKTRONIX, HEWLETT-PACKARD AND DUMONT OFFERS HAD BEEN EVALUATED AS FOLLOWS PURSUANT TO THE ICC PROVISIONS OF THE RFP:

LCC & TOTAL EVALUATED

UNIT PRICE DATA TRANSPORTATION UNIT COST

TEKTRONIX $1,087 $ 9.50 $ 58.71 $1,155.21

HEWLETT-PACKARD 1,328 11.67 50.79 1,390.46

DUMONT 1,300 6.76 226.77* 1,533.53

*INCORRECTLY STATED IN THE INITIAL ADMINISTRATIVE REPORT AS $220.01, AN ERROR WHICH DID NOT AFFECT THE BASIC POSITIONS OF THE PARTIES.

IN VIEW OF DUMONT'S HIGHER COMBINED LCC AND TRANSPORTATION COSTS, AN AWARD TO IT OF THE SET-ASIDE AT TEKTRONIX' NON-SET-ASIDE UNIT PRICE OF $1,087 WOULD RESULT IN A TOTAL EVALUATED UNIT COST OF $1,320.53:

UNIT PRICE $1,087.00

DATA 6.76

LCC & TRANSPORTATION 226.77

$1,302.53

UNDER THESE CIRCUMSTANCES, THE AWARD OF THE SET-ASIDE WOULD BE AT A TOTAL EVALUATED UNIT COST $165.32 HIGHER THAN THE NON-SET-ASIDE AWARD, WHICH WHEN MULTIPLIED BY THE QUANTITY SET ASIDE, 1800 UNITS, WOULD RESULT IN A COST DIFFERENTIAL OF $297,576.

IT WAS THE AIR FORCE POSITION THAT AWARD OF THE SET-ASIDE PORTION TO DUMONT COULD NOT BE AT A TOTAL EVALUATED LIFE CYCLE COST TO THE GOVERNMENT GREATER THAN THAT UNDER THE NON-SET-ASIDE PORTION. THE ELEMENTS OF DUMONT'S TOTAL EVALUATED COST WERE ACQUISITION COST, INITIAL LOGISTIC COSTS, RECURRING COSTS AND TRANSPORTATION. THE LAST THREE ELEMENTS WERE FIXED, INASMUCH AS THEY WERE DERIVED FROM DATA SUBMITTED WITH DUMONT'S PROPOSAL WHICH WERE INSERTED IN THE LCC FORMULAE SET FORTH IN THE FRP. ACQUISITION COST, THE ONLY FLEXIBLE ELEMENT, WAS COMPOSED OF DUMONT'S UNIT PRICE OF $1,300 AND ITS UNIT TECHNICAL DATA COST OF $6.76. ASSUMING THAT DUMONT'S TECHNICAL DATA COST REMAINED UNCHANGED, ITS UNIT PRICE WOULD HAVE TO BE REDUCED TO $921.68 IN ORDER NOT TO EXCEED TEKTRONIX' TOTAL EVALUATED UNIT COST TO THE GOVERNMENT OF $1,155.21:

LCC & TOTAL EVALUATED

UNIT PRICE DATA TRANSPORTATION UNIT COST

TEKTRONIX $1,087.00 $9.50 $58.71 $1,155.21

DUMONT 921.68 6.76 226.77 1,155.21

THEREFORE, THE PROCURING ACTIVITY OFFERED THE SET-ASIDE PORTION TO DUMONT AT A UNIT PRICE OF $921.68. DUMONT REJECTED THE OFFER AND PROTESTED TO OUR OFFICE, CONTENDING THAT THE OFFER DEVIATED FROM THE TERMS OF THE CLAUSE "NOTICE OF LABOR SURPLUS AREA SET-ASIDE (1970 JUNE)" (ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-804.2(B)(1)), WHICH ESTABLISHED THE PROCEDURES FOR THE NEGOTIATION OF THE SET-ASIDE PORTION OF THE PROCUREMENT. YOU OBSERVE THAT THE CLAUSE PROVIDES FOR AWARD OF THE SET- ASIDE "AT THE HIGHEST UNIT PRICE AWARDED ON THE NON SET-ASIDE PORTION ***." THEREFORE, YOU MAINTAIN, THE SET-ASIDE SHOULD HAVE BEEN OFFERED TO DUMONT AT TEKTRONIX'"UNIT PRICE" OF $1,087. AWARD OF THE SET-ASIDE PORTION HAS BEEN WITHHELD PENDING OUR DECISION.

IN RESPONSE TO YOUR CONTENTION, THE CONTRACTING OFFICER STATED:

THE PROTESTOR DID NOT COMPLETELY QUOTE THE SOLICITATION CLAUSE EXTRACTED FROM ASPR 1-804.2. THE CLAUSE ACTUALLY SAYS THE SET-ASIDE PORTION "*** SHALL BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED ON THE NON-SET-ASIDE PORTION, ADJUSTED TO REFLECT TRANSPORTATION AND OTHER COST FACTORS WHICH ARE CONSIDERED IN EVALUATING BIDS ON THE NON-SET ASIDE PORTION ***" THE PRICE OF $921.68 WAS CALCULATED BY CONSIDERING THE TRANSPORTATION AND OTHER EVALUATION FACTORS, INCLUDING LIFE CYCLE COSTING, USED IN DETERMINING THE LOW OFFEROR ON THE NON-SET-ASIDE PORTION. THE AIR FORCE OF COURSE DESIRES TO PURCHASE AN OSCILLOSCOPE REPRESENTING THE LOWEST OVERALL (LIFE CYCLE) COST TO THE GOVERNMENT. THE SOLICITATION INCLUDED EVALUATION FACTORS WHICH CONVERTED THE CONTRACTOR'S PROPOSAL INFORMATION SUCH AS MEAN TIME BETWEEN FAILURE AND TIME TO CALIBRATE INTO THE PROJECTED LIFE CYCLE COST OF OWNERSHIP. ALL OFFERORS WERE AWARE OF THE EVALUATION PROCEDURES TO BE USED IN DETERMINING THE LOW OFFEROR. ALL KNEW THAT THE NON-SET-ASIDE PORTION COULD BE AWARDED TO A CONTRACTOR NOT OFFERING THE LOWEST UNIT PURCHASE PRICE. THE AWARD INSTEAD WOULD BE MADE TO THE COMPANY WHOSE OFFER REPRESENTED THE LOW LIFE CYCLE COST OF OWNERSHIP. DURING THE AIR FORCE'S MEETINGS WITH CONTRACTOR REPRESENTATIVES OF 10-14 APR. 1972, THE CONTRACTING OFFICER DISCUSSED THESE FACTS WITH EACH REPRESENTATIVE. EACH REPRESENTATIVE WAS PRESENTED AN EXAMPLE OF HOW THE SET-ASIDE UNIT PRICE WOULD BE CALCULATED BASED ON THE CONSIDERATION OF ALL COST FACTORS. IN FACT, IN THE EXAMPLE USED, THE SET-ASIDE PORTION WOULD HAVE BEEN AWARDED AT A UNIT PURCHASE PRICE LOWER THAN ON THE NON-SET-ASIDE PORTION. THE DUMONT REPRESENTATIVE REQUESTED AND WAS PROVIDED A COPY OF THE EXAMPLE. THE AIR FORCE CONTENDS THE CONTRACTOR WAS FULLY AWARE OF HOW THE SET-ASIDE UNIT PRICE CALCULATIONS WOULD BE MADE AND THAT NOT UNTIL AFTER THE AWARD PRICE AND THE SET-ASIDE OFFER WERE REVEALED DID THEY PROTEST THE MANNER OF SET-ASIDE UNIT PRICE CALCULATION. THEY HAVE PROTESTED BECAUSE THEY MAY ACCEPT A PRICE OF $1,087 BUT HAVE REJECTED THE PRICE OF $921.68. THE AIR FORCE CONTENDS THIS "AFTER-THE-FACT" PROTEST IS PREJUDICIAL TO THE OTHER OFFERORS WHO BID IN LIGHT OF THE SAME FACTS IN THE POSSESSION OF DUMONT.

THERE IS NOTHING OF RECORD WHICH CONTRADICTS THAT PART OF THE CONTRACTING OFFICER'S STATEMENT WHICH WE HAVE UNDERSCORED. IT THEREFORE APPEARS THAT 3 MONTHS BEFORE ITS PROTEST WAS FILED, DUMONT WAS EXPLICITLY INFORMED THAT AN AWARD OF THE SET-ASIDE COULD BE MADE AT A UNIT PURCHASE PRICE BELOW THAT MADE ON THE NON-SET-ASIDE PORTION. ALTHOUGH FOR THIS REASON THIS ASPECTS OF YOUR PROTEST WAS UNTIMELY FILED, WE HAVE ELECTED TO CONSIDER IT BECAUSE IT RAISES A FOLLOWING SIGNIFICANT QUESTION RELATIVE TO THE PROPER METHOD FOR DETERMINING THE UNIT PURCHASE PRICES UNDER THE LABOR SURPLUS SET-ASIDE PORTION OF A LIFE CYCLE COST PROCUREMENT.

THE LIFE CYCLE COST PROCUREMENT METHOD RESTS UPON THE PREMISE THAT IT IS LOGICAL, IN PROCURING AN ITEM, TO CONSIDER ITS TOTAL ANTICIPATED LIFE COST, RATHER THAN MERELY ITS PURCHASE PRICE. THE CONCEPT WAS EXPLAINED AS FOLLOWS ON PAGE II-35 OF RFP-G590:

PHILOSOPHY OF LIFE CYCLE COSTING

IN ACCORDANCE WITH THE ARMED SERVICES PROCUREMENT ACT OF 1947, IT IS THE POLICY OF THE DEPARTMENT OF DEFENSE TO PROCURE SUPPLIES AND SERVICES FROM RESPONSIBLE SOURCES AT FAIR AND REASONABLE PRICES CALCULATED TO RESULT IN THE LOWEST OVER-ALL COST TO THE GOVERNMENT. IN FURTHERANCE OF THIS POLICY, AWARD OF THIS CONTRACT WILL BE MADE TO THAT RESPONSIVE AND RESPONSIBLE OFFEROR WHOSE PRODUCT RESULTS IN THE LOWEST TOTAL COST OF OWNERSHIP TO THE GOVERNMENT COMPUTED IN ACCORDANCE WITH THE AWARD EVALUATION CRITERIA CONTAINED HEREIN. COST OF OWNERSHIP IS DEFINED TO INCLUDE THE COMPILATION OF ACQUISITION COSTS, INITAL LOGISTIC COSTS, AND THOSE RECURRING COSTS ASSOCIATED WITH THE MANAGEMENT, OPERATION, AND MAINTENANCE OF THE ITEM CALLED FOR BY THIS SOLICITATION FOR THE PROJECTED LIFE CYCLE PERIOD SET FORTH HEREIN.

ADDITIONALLY, SECTION D-5 OF THE SOLICITATION ADVISED OFFERORS "AWARD SHALL BE MADE ON THE BASIS OF THE LOWEST EVALUATED (LIFE CYCLE COST TARGET) WHETHER THAT TOTAL IS ON THE ONE-YEAR BASIS OR THE MULTI-YEAR BASIS."

THESE PROVISIONS, IN CONJUNCTION WITH THE LCC EVALUATION PROCEDURES SET FORTH IN THE RFP, MAKE IT UNMISTAKABLY CLEAR THAT THE UNIT PURCHASE PRICE OF THE ITEM WAS ONLY ONE OF SEVERAL COST FACTORS TO BE CONSIDERED IN THE EVALUATION OF OFFERS. THE CRITERION FOR AWARD UNDER THE INSTANT RFP WAS NOT THE PURCHASE PRICE OF THE ITEM, BUT THE TARGET LIFE CYCLE COST.

THE LABOR SURPLUS SET-ASIDE PROGRAM IS DESIGNED TO BENEFIT LABOR SURPLUS AREAS BY ASSURING THE PLACEMENT OF CONTRACTS WITH LABOR SURPLUS AREA CONCERNS. THE "NOTICE OF LABOR SURPLUS AREA SET-ASIDE" CLAUSE PROVIDES FOR CONDUCTING "NEGOTIATIONS" WITH LABOR SURPLUS AREA CONCERNS FOR AWARD OF THE SET-ASIDE PORTION. "NEGOTIATION" WITHIN THIS CONTEXT DOES NOT MEAN BARGAINING IN ORDER TO OBTAIN THE LOWEST POSSIBLE PRICE ON THE SET-ASIDE, WHICH WOULD BE INCONSISTENT WITH THE POLICY OF FAVORING LABOR SURPLUS AREA CONCERNS. RATHER IT MEANS OFFERING THE SET ASIDE PORTION TO LABOR SURPLUS AREA CONCERNS AT THE "HIGHEST UNIT PRICE AWARDED ON THE NON-SET-ASIDE PORTION***."

INSOFAR AS THE DEPARTMENT OF DEFENSE IS CONCERNED, HOWEVER, THE POLICY OF BENEFITTING LABOR SURPLUS AREAS IS CIRCUMSCRIBED BY A STATUTORY PROHIBITION AGAINST THE USE OF APPROPRIATED FUNDS FOR THE PAYMENT OF A PRICE DIFFERENTIAL ON CONTRACTS MADE FOR THE PURPOSE OF RELIEVING ECONOMIC DISLOCATIONS. SEE SECTION 724 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1973, PUBLIC LAW 92-570, 86 STAT. 1200, OCTOBER 26, 1972.

IN ORDER TO AVOID PAYING A DIFFERENTIAL, COSTS TO THE GOVERNMENT OTHER THAN THE UNIT PURCHASE PRICE MUST BE CONSIDERED. THEREFORE, THE "NOTICE OF LABOR SURPLUS AREA SET-ASIDE" CLAUSE PROVIDES THAT "THE SET ASIDE PORTION SHALL BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED ON THE NON-SET- ASIDE PORTION, ADJUSTED TO REFLECT TRANSPORTATION AND OTHER COST FACTORS WHICH ARE CONSIDERED IN EVALUATING BIDS ON THE NON-SET ASIDE PORTION ***." FOR EXAMPLE, UNDER AN F.O.B. ORIGIN SOLICITATION, IF A SET-ASIDE CONCERN IS FARTHER FROM THE DESTINATION THAN THE CONCERN WHICH WAS AWARDED THE NON-SET-ASIDE PORTION, THE SET-ASIDE CONCERN MUST ACCEPT A LOWER UNIT PURCHASE PRICE IN ORDER TO OFFSET ITS HIGHER FREIGHT COST TO THE GOVERNMENT.

WE BELIEVE A PARALLEL SITUATION EXISTS WITH REGARD TO THE LIFE CYCLE COST FACTORS WHICH WERE CONSIDERED IN THE EVALUATION OF OFFERS ON THE NON-SET- ASIDE PORTION. AS WE OBSERVED ABOVE, AWARD OF THE SET-ASIDE TO DUMONT AT THE NON-SET-ASIDE UNIT PURCHASE PRICE OF $1,087 WOULD RESULT IN A COST DIFFERENTIAL OF $297,576. IN OTHER WORDS, THE PROJECTED TOTAL COST TO THE GOVERNMENT OF THE SET-ASIDE AWARD MADE FOR THE PURPOSE OF RELIEVING ECONOMIC DISLOCATION WOULD EXCEED THE COST UNDER THE UNRESTRICTED AWARD BY ALMOST $300,000. BY ADJUSTING THE UNIT PURCHASE PRICE OFFERED TO DUMONT ON THE SET-ASIDE TO $921.68, THE AIR FORCE AVOIDED THE PAYMENT OF THIS DIFFERENTIAL. WE REGARD THIS ACTION AS BEING REQUIRED BY THE STATUTORY PROHIBITION AGAINST THE PAYMENT OF PRICE DIFFERENTIALS, AND THEREFORE YOUR PROTEST, AS TO THIS ISSUE, IS DENIED.

APART FROM THE METHOD FOR DETERMINING THE UNIT PURCHASE PRICE AT WHICH THE SET-ASIDE WOULD BE OFFERED, YOU CONTEND THAT TEKTRONIX' UNIT PRICE AND LIFE CYCLE COSTS ARE SO UNREASONABLY LOW THAT THEY SHOULD NOT BE USED AS THE BASIS FOR COMPUTING THE SET-ASIDE OFFER. YOU MAINTAIN THAT TEKTRONIX' UNIT PRICE OF $1,087 WAS UNREASONABLY LOW BECAUSE IT RESULTED FROM AN "AUCTION," CONSTITUTED A "BUY-IN," WAS A "TOKEN" OFFER, AND THAT TEKTRONIX' PROJECTED LIFE CYCLE COSTS ARE UNDERSTATED. WE REJECTED THESE ARGUMENTS FOR THE REASONS SET FORTH BELOW.

IT HAS BEEN ADMINISTRATIVELY REPORTED THAT DURING:

*** NEGOTIATIONS WITH EACH OF THE OFFERORS DURING THE WEEK OF 10-14 APR 1972(THE) AIR FORCE DID, AS ALLOWED BY ASPR 3-805.1(B) INFORM EACH OFFEROR THAT THE GOVERNMENT CONSIDERED HIS PRICE HIGH BASED ON A RECENT AWARD (TO HEWLETT-PACKARD) OF A MULTI-YEAR REQUIREMENTS CONTRACT FOR RUGGEDIZED 50 MHZ OSCILLOSCOPES. THE GOVERNMENT'S POSITION WAS THAT THE NONRUGGEDIZED OSCILLOSCOPE SHOULD LOGICALLY COST LESS THAN THE RUGGEDIZED MODEL. ALL OFFERORS WERE TOLD THE GOVERNMENT WOULD CAREFULLY WEIGH ALL FACTORS IN CONSIDERING THE COMMERCIAL OSCILLOSCOPE VIS-A-VIS THE RUGGEDIZED OSCILLOSCOPE ON THE HEWLETT-PACKARD REQUIREMENTS CONTRACT. * * * * *

*** THE AIR FORCE ONLY AVAILED ITSELF OF THE OPPORTUNITY OF INFORMING EACH OFFEROR THAT THEIR PRICE WAS CONSIDERED HIGH. WE USED THE PRICE FOR THE RUGGEDIZED OSCILLOSCOPE ONLY AS A BASIS FOR SUPPORTING OUR POSITION. WE SPECIFICALLY CAUTIONED THE OFFERORS NOT TO THINK THE PRICE OF $1338(UNDER THE HEWLETT-PACKARD CONTRACT) WAS THE HIGHEST AT WHICH AN AWARD WOULD BE MADE.

IT IS YOUR POSITION THAT THESE DISCUSSIONS INDICATED TO OFFERORS "A PRICE WHICH MUST BE MET TO OBTAIN FURTHER CONSIDERATION," AN AUCTION TECHNIQUE WHICH IS PROHIBITED BY ASPR 3-805.1(B).

OUR INTERIM BID PROTEST PROCEDURES AND STANDARDS REQUIRE PROTESTS ALLEGING IMPROPRIETIES OTHER THAN THOSE CONTAINED IN A SOLICITATION TO BE FILED "NOT LATER THAN 5 DAYS AFTER THE BASIS FOR PROTEST IS KNOWN OR SHOULD HAVE BEEN KNOWN, WHICHEVER IS EARLIER." 4 CFR 20.2(A). WE BELIEVE IT WAS OBLIGATORY UPON DUMONT, IF IT REGARDED ITSELF TO HAVE BEEN SUBJECTED TO AN "AUCTION" IN MID-APRIL, TO HAVE PROTESTED AT THAT TIME AND NOT 3 MONTHS THEREAFTER. ACCORDINGLY, WE REGARD THIS ISSUE AS UNTIMELY RAISED.

YOU NEXT MAINTAIN THAT TEKTRONIX' PRICE REPRESENTS A "BUY-IN," WHICH IS DEFINED AS FOLLOWS IN ASPR 1-311(A):

(A) "BUYING IN" REFERS TO THE PRACTICE OF ATTEMPTING TO OBTAIN A CONTRACT AWARD BY KNOWINGLY OFFERING A PRICE OR COST ESTIMATE LESS THAN ANTICIPATED COSTS WITH THE EXPECTATION OF EITHER (I) INCREASING THE CONTRACT PRICE OR ESTIMATED COST DURING THE PERIOD OF PERFORMANCE THROUGH CHANGE ORDERS OR OTHER MEANS, OR (II) RECEIVING FUTURE "FOLLOW ON" CONTRACTS AT PRICES HIGH ENOUGH TO RECOVER ANY LOSSES ON THE ORIGINAL "BUY-IN" CONTRACT. SUCH A PRACTICE IS NOT FAVORED BY THE DEPARTMENT OF DEFENSE SINCE ITS LONG-TERM EFFECTS MAY DIMINISH COMPETITION AND IT MAY RESULT IN POOR CONTRACT PERFORMANCE. WHERE THERE IS REASON TO BELIEVE THAT "BUYING IN" HAS OCCURRED, CONTRACTING OFFICERS SHALL ASSURE THAT AMOUNTS THEREBY EXCLUDED IN THE DEVELOPMENT OF THE ORIGINAL CONTRACT PRICE ARE NOT RECOVERED IN THE PRICING OF CHANGE ORDERS OR OF FOLLOW-ON PROCUREMENTS SUBJECT TO COST ANALYSIS.

HOWEVER, THE AIR FORCE REGARDS THE USE OF A MULTI-YEAR PROCUREMENT UNDER RFP-G590 TO HAVE EFFECTIVELY ELIMINATED THE PROBABILITY OF A "BUY IN." ALSO OBSERVES THAT THE ONLY "FOLLOW-ON" CONTRACT TEKTRONIX COULD HOPE TO OBTAIN WOULD BE THE SET-ASIDE PORTION OF THE INSTANT PROCUREMENT, WHICH WOULD BE AWARDED TO IT AT THE SAME PRICE AS THE NON SET-ASIDE AWARD, THUS PRECLUDING THE "RECOVERY" OF ANY "LOSSES." ADDITIONALLY, SINCE THE ITEM BEING PROCURED IS ON A QPL, THE AIR FORCE CONSIDERS THAT "THE OPPORTUNITY FOR RECOVERY OF COSTS THROUGH THE MEDIUM OF CHANGE ORDERS IS REMOTE." FURTHER SUBSTANTIATION FOR ITS BELIEF THAT TEKTRONIX' PRICE WAS NOT BELOW COST, THE AIR FORCE STATES THAT HEWLETT-PACKARD HAS INFORMALLY SHOWN AN INTEREST IN ACCEPTING AWARD OF THE SET-ASIDE AT A UNIT PURCHASE PRICE OF $1,092.75, ONLY $5.75 PER UNIT HIGHER THAN TEKTRONIX', AND WHICH REFLECTS HEWLETT PACKARD'S LOW PROJECTED LIFE CYCLE COSTS.

IN VIEW OF THE ABOVE, WE CANNOT CONCLUDE THAT A "BUY-IN" HAS OCCURRED. IN THIS CONNECTION, HOWEVER, IT SHOULD ALSO BE NOTED THAT OUR OFFICE WOULD NOT BE IN A POSITION TO LEGALLY OBJECT TO THE AWARD OF A CONTRACT EVEN IF IT WERE ESTABLISHED THAT TEKTRONIX HAD "BOUGHT INTO" THE PROCUREMENT. SEE 50 COMP. GEN. 50, 54(1970); 50 ID. 788, 790 91(1971).

YOU ALSO CONTEND THAT TEKTRONIX' UNIT PURCHASE PRICE OF $1,087 WAS A "TOKEN" OFFER. A "TOKEN" OFFER IS GENERALLY CONSTRUED TO MEAN AN UNREALISTICALLY LOW OFFER ON A SMALL PART OF THE NON-SET-ASIDE PORTION OF A PROCUREMENT, DESIGNED TO ENTITLE THE OFFEROR TO FIRST PRIORITY FOR AWARD OF THE SET-ASIDE PORTION AT THE HIGHEST PRICE AWARDED FOR ANY PART OF THE NON-SET-ASIDE PORTION. THIS PRACTICE, AND THE UNFAIR ADVANTAGE IT HAS AFFORDED BIDDERS ON PARTIALLY SET-ASIDE PROCUREMENTS, WERE DESCRIBED IN OUR DECISION WHICH IS REPORTED AT 38 COMP. GEN. 686(1959). THE "NOTICE OF LABOR SURPLUS AREA SET-ASIDE" CLAUSE APPEARING IN RFP-G590 SPECIFICALLY RESERVES THE GOVERNMENT'S "RIGHT NOT TO CONSIDER TOKEN BIDS OR OTHER DEVICES DESIGNED TO SECURE AN UNFAIR ADVANTAGE OVER BIDDERS ELIGIBLE FOR THE SET-ASIDE PORTION."

UNDER THE TERMS OF THE "NOTICE OF LABOR SURPLUS AREA SET-ASIDE" CLAUSE, THE OFFERORS FALL WITHIN THE FOLLOWING ORDER OF PRIORITY FOR NEGOTIATION OF THE SET-ASIDE PORTION:

1. DUMONT (GROUP 1. CERTIFIED-ELIGIBLE CONCERNS WITH A FIRST PREFERENCE WHICH ARE ALSO SMALL BUSINESS CONCERNS.)

2. HEWLETT-PACKARD (GROUP 4. OTHER CERTIFIED-ELIGIBLE CONCERNS WITH A SECOND PREFERENCE.)

3. TEKTRONIX (GROUP 6. OTHER PERSISTENT OR SUBSTANTIAL LABOR SURPLUS AREA CONCERNS.)

WE THEREFORE AGREE WITH THE AIR FORCE'S OBSERVATION THAT THE AMOUNT OF TEKTRONIX' OFFER ON THE NON-SET-ASIDE PORTION DID NOT ADVANCE ITS PRIORITY FOR NEGOTIATION OF THE SET-ASIDE PORTION. ADDITIONALLY, SHOULD DUMONT AND HEWLETT-PACKARD DECLINE THE OFFER OF THE SET-ASIDE, TEKTRONIX WOULD BE OFFERED THE SET-ASIDE AT THE SAME, NOT A HIGHER, PRICE THAN WAS AWARDED ON THE NON-SET-ASIDE PORTION. UNDER THESE CIRCUMSTANCES, WE BELIEVE THE AIR FORCE WAS CORRECT IN NOT REGARDING TEKTRONIX' OFFER AS "TOKEN" IN NATURE.

THE EVALUATION FACTOR OF $58.71 PER UNIT ADDED TO TEKTRONIX' OFFER REPRESENTS PROJECTED UNIT LIFE CYCLE COSTS OF $52.64 AND UNIT TRANSPORTATION COSTS OF $6.07. YOU CONTEND THAT TEKTRONIX' PROJECTED LIFE CYCLE COSTS ARE SO LOW AS TO FORM AN INVALID BASIS AGAINST WHICH TO EVALUATE THE DUMONT OFFER. TEKTRONIX' LIFE CYCLE COSTS ARE "CONJECTURAL," YOU ASSERT, BECAUSE TEKTRONIX HAS MODIFIED ITS PRODUCT SINCE THE PERFORMANCE OF PREVIOUS LIFE CYCLE TESTS, IN WHICH THE AIR FORCE STATES "ALMOST THE SAME RESULTS" WERE OBTAINED. FURTHERMORE, YOU STATE THAT A PROJECTED UNIT COST OF $52.64 FOR ITEM MANAGEMENT AND MAINTENANCE OVER A 10-YEAR PERIOD IS SIMPLY SO LOW AS TO "RAISE SERIOUS QUESTIONS OF CREDIBILITY" AND TO BE "UNREALISTIC" AND "INCAPABLE OF ACCOMPLISHMENT."

LIFE CYCLE COSTS ARE DIVIDED INTO INITIAL LOGISTICS COSTS AND RECURRING COSTS. INITIAL LOGISTICS COSTS INCLUDE THE COST OF INITIAL REPRODUCTION AND DISTRIBUTION OF TECHNICAL DATA, COST OF FILE MAINTENANCE FOR THE FIRST YEAR, AND MANAGEMENT COSTS FOR NEW ITEMS INTRODUCED INTO THE INVENTORY. DUMONT'S INITIAL LOGISTICS COSTS, WHICH WERE SLIGHTLY MORE THAN $1 PER UNIT ABOVE TEKTRONIX', DID NOT SIGNIFICANTLY AFFECT THE LCC EVALUATION AND ARE NOT TRULY AT ISSUE IN THE PROTEST.

RECURRING COSTS INCLUDE TECHNICAL DATA MANAGEMENT, ITEM MANAGEMENT AND MAINTENANCE COSTS. DUMONT'S RECURRING TECHNICAL DATA MANAGEMENT AND ITEM MANAGEMENT COSTS, ALTHOUGH OVER $7 PER UNIT MORE THAN TEKTRONIX', WERE ALSO NOT A DECISIVE FACTOR.

THE PREDOMINANT RECURRING COST ELEMENT WAS MAINTENANCE, I.E., WHAT IT WAS PROJECTED TO COST THE AIR FORCE, OVER A PERIOD OF 10 YEARS, FOR REPAIR LABOR AND MATERIALS AND PREVENTIVE MAINTENANCE LABOR. THESE COSTS WERE DERIVED FROM A SERIES OF 8 EQUATIONS SET FORTH IN THE SOLICITATION. ALTHOUGH MANY OF THE VALUES USED IN THE EQUATIONS WERE ENTERED BY THE GOVERNMENT, SOME VALUES WERE ENTERED BY EACH OFFEROR IN ITS PROPOSAL.

EQUATION 1, ALL VALUES IN WHICH WERE ENTERED BY THE GOVERNMENT, ESTABLISHED FOR ALL OFFERORS THAT EACH ITEM TO BE PROCURED WAS EXPECTED TO BE USED A TOTAL OF 13,200 HOURS.

EQUATION 2 ESTABLISHED A MEAN TIME BETWEEN FAILURE (MTBF) FOR EACH PRODUCT. BASED UPON A TBF SUBMITTED BY EACH OFFEROR FOR HIS PRODUCT, WHICH WAS THEN DIVIDED BY A UNIFORM DISCRIMINATION RATIO, IT WAS PROJECTED THAT TEKTRONIX' AND HEWLETT-PACKARD'S INSTRUMENTS WOULD HAVE A MEAN TIME BETWEEN FAILURE 2 1/2 TIMES LONGER THAN DUMONT'S PRODUCT.

UNDER EQUATION 3, EQUATION 1 WAS DIVIDED BY EQUATION 2 IN ORDER TO OBTAIN THE EXPECTED NUMBER OF FAILURES OF EACH ITEM DURING 10 YEARS OF USE. VIEW OF ITS SHORTER MTBF, DUMONT'S PRODUCT WAS EXPECTED TO FAIL 2 1/2 TIMES MORE FREQUENTLY THAN THE PRODUCTS OF THE OTHER OFFERORS.

EQUATION 4 WAS USED TO DETERMINE THE REPAIR LABOR COST PER FAILURE. THE SIX VALUES USED IN THIS EQUATION, TWO WERE ENTERED BY THE OFFERORS. DUMONT'S REPAIR LABOR COST PER FAILURE WAS APPROXIMATELY TWO TO THREE TIME THAT OF THE OTHER OFFERORS.

SIMILARLY, EQUATION 5 ESTABLISHED THE PROJECTED REPAIR MATERIAL COST PER FAILURE. THE OFFERORS INSERTED TWO OF THE FOUR VALUES USED IN THIS EQUATION. DUMONT'S REPAIR MATERIAL COST PER FAILURE WAS APPROXIMATELY 10 PERCENT BELOW HEWLETT-PACKARD'S AND 60 PERCENT ABOVE TEKTRONIX'.

FROM EQUATION 6 WAS DERIVED THE ESTIMATED MANHOURS PER MONTH REQUIRED FOR PREVENTIVE MAINTENANCE. THE SOLICITATION RESTRICTED "PREVENTIVE MAINTENANCE" TO THE COST OF RECALIBRATION OF EACH INSTRUMENT AT 6-MONTH INTERVALS. EACH OFFEROR INSERTED THE MANHOURS REQUIRED FOR CALIBRATION OF ITS INSTRUMENT. FROM THIS EQUATION, IT WAS PROJECTED THAT DUMONT'S PRODUCT WOULD REQUIRE APPROXIMATELY FOUR TO FIVE TIMES MORE MANHOURS FOR PREVENTIVE MAINTENANCE THAN THOSE OF THE OTHER OFFERORS.

HAVING OBTAINED THE TIME REQUIRED FOR PREVENTIVE MAINTENANCE UNDER EQUATION 6, EQUATION 7 WAS USED TO DETERMINE THE COST OF PREVENTIVE MAINTENANCE PER ITEM PROCURED. UTILIZING THE PREVENTIVE MAINTENANCE MANHOURS PER MONTH DERIVED FROM EQUATION 6, TOGETHER WITH OTHER VALUES (INCLUDING BASE LABOR RATE) ENTERED BY THE GOVERNMENT, IT WAS CONCLUDED THAT THE COST OF PREVENTIVE MAINTENANCE OF THE DUMONT ITEM WOULD EXCEED THAT OF THE OTHER OFFERORS BY FACTORS OF APPROXIMATELY FOUR TO FIVE.

EQUATION 8, USED TO COMPUTE THE MAINTENANCE COST PER ITEM PROCURED, WAS STATED AS FOLLOWS ON PAGE II-27 OF THE RFP:

MAINTENANCE COST PER UNIT (EXPECTED FAILURES DURING PROJECTED INVENTORY USAGE PERIOD - 1)(LABOR COST/FAILURE MATERIAL COST/FAILURE) (PREVENTIVE MAINTENANCE COST/ITEM)

THE RESULT OF THIS COMPUTATION WAS THAT THE TOTAL MAINTENANCE COST PER UNIT FOR DUMONT'S PRODUCT WAS FROM APPROXIMATELY 4 1/2 TO SLIGHTLY MORE THAN 5 TIMES ITS COMPETITORS' COSTS. IN THIS CONNECTION, WE NOTE THAT HEWLETT-PACKARD'S PROJECTED LIFE CYCLE COSTS WERE EVEN LOWER THAN THOSE OF TEKTRONIX.

THUS, IT CAN BE SEEN THAT COST INFORMATION SUBMITTED BY THE OFFERORS IN THEIR PROPOSALS EITHER CONSTITUTED OR INFLUENCED THE CALCULATION OF THE FOLLOWING LIFE CYCLE COST ELEMENTS:

INITIAL LOGISTICS COSTS

1. TECHNICAL DATA MANAGEMENT

2. ITEM MANAGEMENT COSTS

RECURRING COSTS

3. TECHNICAL DATA MANAGEMENT

4. ITEM MANAGEMENT

5. REPAIR LABOR COST PER FAILURE

6. REPAIR MATERIAL COST PER FAILURE

TEKTRONIX' COST UNDER EACH OF THESE ELEMENTS WERE LESS THAN DUMONT'S. HOWEVER, EVEN IF TEKTRONIX' LOWER COSTS FOR THESE SIX ELEMENTS WERE APPLIED TO DUMONT'S OFFER, DUMONT'S TOTAL LIFE CYCLE COSTS WOULD REMAIN SUBSTANTIALLY HIGHER THAN TEKTRONIX'.

THEREFORE, THE DETERMINATIVE OFFEROR-ENTERED VALUES IN THE LCC EVALUATION WERE TIME BETWEEN FAILURE AND MANHOURS TO ACCOMPLISH CALIBRATION:

TIME BETWEEN FAILURE. WITH RESPECT TO THEIR PRODUCTS, TEKTRONIX AND HEWLETT-PACKARD EACH ENTERED A TIME BETWEEN FAILURE WHICH WAS 2 1/2 TIMES GREATER THAN THAT OF DUMONT. EQUATION 3 OF THE MAINTENANCE LIFE CYCLE COST EVALUATION CONVERTED THIS INFORMATION INTO A PROJECTION THAT DUMONT'S PRODUCT WOULD FAIL 2 1/2 TIMES MORE FREQUENTLY THAN THE PRODUCTS OF ITS COMPETITORS DURING 10 YEARS OF USE. EQUATION 8 EMBODIED THE ASSUMPTION THAT EACH FAILURE WOULD BE ATTENDED BY REPAIR LABOR AND MATERIAL COSTS. TEKTRONIX' REPAIR LABOR AND MATERIAL COSTS WERE LOWER THAN DUMONT'S. HOWEVER, AS WE OBSERVED IN THE PRECEDING PARAGRAPH, THIS DIFFERENCE DID NOT DETERMINE THE ULTIMATE RESULT OF THE LCC EVALUATION. THE CRITICAL ASPECT WAS THE PROJECTED HIGHER FREQUENCY OF FAILURE OF THE DUMONT PRODUCT.

MANHOURS TO ACCOMPLISH CALIBRATION. PREVENTIVE MAINTENANCE COST PER ITEM WAS ANOTHER ELEMENT OF THE MAINTENANCE LIFE CYCLE COST EVALUATION. THE SOLICITATION RESTRICTED "PREVENTIVE MAINTENANCE" TO THE RECALIBRATION OF INSTRUMENTS AND FIXED THE FREQUENCY OF RECALIBRATION AND BASE LABOR RATE. THE ONLY VARIABLE ELEMENT IN THE CALCULATION WAS THE MANHOURS REQUIRED TO ACCOMPLISH CALIBRATION, WHICH WAS ENTERED BY EACH OFFEROR WITH RESPECT TO HIS PRODUCT. BASED UPON THE OFFERORS' ENTRIES, IT APPEARED THAT THE MANHOURS REQUIRED TO CALIBRATE DUMONT'S INSTRUMENT WERE ALMOST FOUR TIMES GREATER THAN TO CALIBRATE TEKTRONIX', AND FIVE TIMES GREATER THAN FOR HEWLETT-PACKARD'S PRODUCT. SINCE ALL OTHER VALUES OF EQUATION 7 WERE UNIFORMLY PREDETERMINED, IT FOLLOWED THAT THE PROJECTED PREVENTIVE MAINTENANCE COSTS OF DUMONT'S PRODUCT WERE APPROXIMATELY FOUR TO FIVE TIMES GREATER THAN THOSE OF THE OTHER OFFERORS.

IT IS CLEAR THAT THE MTBF AND MANHOURS REQUIRED FOR CALIBRATION WHICH TEKTRONIX ASCRIBED TO ITS PRODUCT WERE THE DECISIVE ELEMENTS CONTRIBUTING TO ITS FAVORABLE LIFE CYCLE COST POSITION. ANY ALLEGATION BY DUMONT THAT TEKTRONIX' PROJECTED LIFE CYCLE COSTS RAISED "SERIOUS QUESTIONS OF CREDIBILITY," OR WERE "CONJECTURAL," "UNREALISTIC" OR "INCAPABLE OF ACCOMPLISHMENT" MUST ADDRESS THOSE ELEMENTS TO A SIGNIFICANT DEGREE. HOWEVER, DUMONT HAS ADDUCED NO SPECIFIC EVIDENCE THAT TEKTRONIX OVERSTATED THE MTBF OF ITS INSTRUMENT OR UNDERSTATED THE TIME NECESSARY TO CALIBRATE IT. RATHER, DUMONT'S ALLEGATION THAT TEKTRONIX' PROJECTED LIFE CYCLE COSTS ARE SO UNREALISTIC THAT THEY SHOULD BE DISREGARDED RESTS UPON TWO BASES: (1) A COMPARISON WITH DUMONT'S LIFE CYCLE COSTS AND (2) THE FACT THAT TEKTRONIX' PRODUCT HAS BEEN MODIFIED SINCE PREVIOUS LIFE CYCLE COST TESTING. THE FIRST BASIS UPON WHICH DUMONT RELIES IS THAT ITS PROJECTED LIFE CYCLE COSTS ARE "REALISTIC" AND TEKTRONIX' ARE "UNREALISTIC." THIS IS NO MORE THAN AN ASSERTION THAT DUMONT'S LIFE CYCLE COSTS SHOULD BE ACCEPTED AS THE STANDARD OF REALISM. HOWEVER, DUMONT HAS PRESENTED NO PERSUASIVE REASON WHY HEWLETT-PACKARD'S LIFE CYCLE COSTS, WHICH ARE THE LOWEST OF ALL, ARE NOT AN EQUALLY VALID STANDARD OF REALISM.

DUMONT'S ARGUMENT THAT TEKTRONIX' PROJECTED LIFE CYCLE COSTS ARE "CONJECTURAL" IS BASED UPON THE FACT THAT TEKTRONIX' PRODUCT HAS BEEN MODIFIED SINCE PREVIOUS LIFE CYCLE TESTS. WITH KNOWLEDGE OF THESE MODIFICATIONS, THE AIR FORCE HAS CONCLUDED:

*** THERE WILL BE NO OR ONLY A SMALL DIFFERENCE BETWEEN (TEKTRONIX') ACTUAL AND PROPOSED RECURRING COSTS. ANY DIFFERENCE WOULD NOT COME CLOSE TO THE DIFFERENCE BETWEEN TEKTRONIX' AND DUMONT'S PROJECTED RECURRING COSTS.

THE PROCURING AGENCY HAS THE EXPERTISE AND THE PRIMARY RESPONSIBILITY FOR THE EVALUATION OF THE TECHNICAL INFORMATION UPON WHICH THIS CONCLUSION RESTS. IN THE ABSENCE OF EVIDENCE THAT THE EVALUATION OF THIS INFORMATION WAS ARBITRARY, WE ARE NOT IN A POSITION TO ADVISE THE AIR FORCE THAT IT SHOULD REJECT AS "UNREALISTIC" THE PROJECTION OF TEKTRONIX' LIFE CYCLE COSTS.

WE ALSO OBSERVE THAT THE SOLICITATION CONTAINS PROVISIONS FOR PRICE ADJUSTMENT AND PRODUCT TESTING WHICH WOULD DETER AN OFFEROR FROM DELIBERATELY UNDERSTATING THE PROJECTED LIFE CYCLE COST OF HIS PRODUCT. AWARD UNDER RFP-G590 WAS MADE ON THE BASIS OF THE LOWEST EVALUATED TARGET LIFE CYCLE COST, I.E., THE PREAWARD COMPUTATION OF LIFE CYCLE COST BASED UPON THE OFFEROR'S PREDICTED VALUES AS SET FORTH IN THE EQUATIONS WE HAVE DISCUSSED ABOVE. THE FINAL AMOUNT TO BE PAID THE CONTRACTOR, HOWEVER, IS BASED UPON MEASURED LIFE CYCLE COST. UNDER ITS CONTRACT FOR THE NON-SET- ASIDE PORTION OF THIS PROCUREMENT, TEKTRONIX WILL BE PAID ITS TOTAL TARGET PRICE ($1,087 FOR EACH UNIT PLUS $9.50 PER UNIT FOR DATA) ONLY IF ITS MEASURED LIFE CYCLE COST IS EQUAL TO OR LESS THAN ITS TARGET (BID) LIFE CYCLE COST. IF TEKTRONIX' MEASURED LIFE CYCLE COST EXCEEDS ITS TARGET LIFE CYCLE COST, THE AMOUNT TO BE PAID IT SHALL BE REDUCED, PURSUANT TO A FORMULA SET FORTH IN THE RFP, "BECAUSE THE CONTRACTOR HAS PROVIDED HARDWARE WITH DEMONSTRATED VALUES LESS THAN HIS PREDICTED VALUES WHICH WERE USED AS THE BASIS FOR AWARD."

WITH REGARD TO THE DETERMINATION OF MEASURED LIFE CYCLE COST, THE CONTRACTOR IS REQUIRED TO SUBMIT HIS PRODUCT FOR RELIABILITY ACCEPTANCE TESTING BY THE GOVERNMENT. IF NO FAILURES OCCUR DURING THIS TESTING, THE VALUES SUBMITTED BY THE CONTRACTOR IN HIS PROPOSAL WILL BE USED IN THE POST AWARD COMPUTATION OF MEASURED LIFE CYCLE COST. IF FAILURES DO OCCUR, RECORDS ARE KEPT OF THE MATERIALS REQUIRED AND MANHOURS SPENT TO CORRECT THE FAILURES. THIS INFORMATION IS THEN UTILIZED IN THE POST AWARD COMPUTATION OF MEASURED LIFE CYCLE COST. SIMILARLY, IF THE MTBF COMPUTED FROM FAILURES OBSERVED DURING THE POST AWARD TESTING MEETS SPECIFICATION REQUIREMENTS BUT IS LESS THAN THAT BID BY THE CONTRACTOR, THE DEGRADATION TO RELIABILITY WILL RESULT IN A DOWNWARD PRICE ADJUSTMENT. ADDITIONALLY, A SERIES OF POST AWARD MAINTENANCE TESTS ARE TO BE PERFORMED ON THE CONTRACTOR'S PRODUCT, INCLUDING DISASSEMBLY AND REASSEMBLY OF THE OSCILLOSCOPE; CORRECTION OF FIVE SIMULATED FAULTS; AND THE REALIGNMENT AND RECALIBRATION OF INTENTIONALLY MISALIGNED INSTRUMENTS. THE TIME REQUIRED FOR THESE PROCEDURES IS ALSO USED IN THE POST AWARD COMPUTATION OF MEASURED LIFE CYCLE COST.

SUBSEQUENT TO THE FILING OF YOUR INITIAL PROTEST, IN WHICH THE ABOVE ISSUES WERE RAISED, YOU MADE THE ADDITIONAL ALLEGATION THAT THE PRODUCT BEING PROCURED FROM TEKTRONIX UNDER THE SET-ASIDE PORTION WAS NOT THAT WHICH WAS ON THE QPL. TEKTRONIX' FAILURE TO SUPPLY ITS QUALIFIED PRODUCT, YOU ASSERT, SHOULD RESULT IN THE CANCELLATION OF TEKTRONIX' CONTRACT FOR THE NON-SET-ASIDE PORTION AND THE AWARD OF THE REMAINING NON-SET-ASIDE AND ENTIRE SET-ASIDE QUANTITIES TO DUMONT AS THE LOWEST RESPONSIBLE, RESPONSIVE OFFEROR.

SECTION B-31 OF RFP-G590, ENTITLED "NOTICE - QUALIFIED END PRODUCTS (1969 DEC)," PROVIDES IN PERTINENT PART:

AWARDS FOR ANY END ITEMS WHICH ARE REQUIRED TO BE QUALIFIED PRODUCTS WILL BE MADE ONLY WHEN SUCH ITEMS HAVE BEEN TESTED AND ARE QUALIFIED FOR INCLUSION IN A QUALIFIED PRODUCTS LIST IDENTIFIED BELOW *** AT THE TIME SET FOR OPENING OF BIDS, OR THE TIME OF AWARD IN THE CASE OF NEGOTIATED CONTRACTS.

PRIOR TO THE ISSUANCE OF RFP-G590, THE AIR FORCE HAD TESTED AND APPROVED FOR INCLUSION ON THE APPLICABLE QPL TEKTRONIX' 453 MOD 703H OSCILLOSCOPE. BY LETTERS DATED OCTOBER 12 AND NOVEMBER 15, 1971, AND JANUARY 18, 1972, TEKTRONIX REQUESTED THE AIR FORCE TO APPROVE CERTAIN PROPOSED CHANGES TO THE 453 MOD 703H. THE PROPOSED CHANGES INCLUDED A LARGER CATHODE-RAY TUBE (CRT) VIEWING AREA, INCREASED THE ACCELERATION POTENTIAL FOR THE CRT FROM 10KV TO 14KV, ELIMINATED PANEL CONTROLS AND FEATURES NOT REQUIRED BY THE GOVERNING SPECIFICATIONS, SIMPLIFIED CALIBRATION, AND REPLACED CERTAIN PARTS WITH LESS COSTLY ONES.

ALL OF THE PROPOSED CHANGES WERE DESCRIBED IN DETAIL BY TEKTRONIX AND A 453 MOD 703H INCORPORATING THE CHANGES WAS OFFERED TO THE AIR FORCE FOR TESTING. HOWEVER, AFTER REVIEWING THE PROPOSED CHANGES, THE AIR FORCE ADVISED TEKTRONIX BY LETTER OF JANUARY 25, 1972:

YOU ARE HEREBY NOTIFIED THAT THE PRODUCTION CHANGES TO THE TEXTRONIX 453 MOD703H THAT ARE CONTAINED IN YOUR LETTERS DATED 12 OCT 1971, 15 NOV 71, AND 18 JAN 1972 ARE APPROVED. NO REQUALIFICATION OR QUALIFIED PRODUCTS LIST (QPL) CHANGE IS REQUIRED FOR THESE PRODUCTION CHANGES.

THEREFORE, IT IS THE AIR FORCE'S POSITION THAT TEKTRONIX' 453 MOD 703H WAS AN APPROVED QPL ITEM WHEN THE NON-SET-ASIDE PORTION OF THE INSTANT PROCUREMENT WAS AWARDED APPROXIMATELY 6 MONTHS LATER.

YOU CONTEND THAT THE AIR FORCE HAS PERMITTED TEKTRONIX TO MAKE, WITHOUT QUALIFICATION TESTING, CHANGES IN ITS 453 MOD 703H WHICH ARE SO SUBSTANTIAL AS TO RESULT IN ESSENTIALLY A NEW PRODUCT. IN EFFECT, YOU STATE, TEKTRONIX HAS SUBSTITUTED AN UNTESTED NEW PRODUCT FOR THAT WHICH WAS PREVIOUSLY TESTED AND APPROVED FOR LISTING ON THE QPL.

DEFENSE STANDARDIZATION MANUAL 4120.3-M, WHICH IS THE BASIC INSTRUCTION CONCERNING QUALIFIED PRODUCTS AND QUALIFICATION PROCEDURES, PROVIDES IN SECTION 4-109:

RE-EXAMINATION OF A QUALIFIED PRODUCT SHALL BE REQUIRED BY THE PREPARING ACTIVITY UNDER ANY OF THE FOLLOWING CONDITIONS:

A. THE MANUFACTURER HAS MODIFIED THE PRODUCT OR CHANGED THE MATERIAL OR PROCESSING SUFFICIENTLY SO THAT THE VALIDITY OF PREVIOUS QUALIFICATION IS QUESTIONABLE.

RETEST WILL BE REQUIRED, AS NECESSARY, BASED ON THE DETERMINATION FROM EXAMINATION OF DATA. THE PREPARING ACTIVITY WILL DETERMINE, BASED UPON THE EXTENT OF SPECIFICATION OR PRODUCT CHANGES AND OTHER AVAILABLE DATA, WHETHER PRODUCTS ARE TO BE REMOVED FROM THE QPL UNTIL RETESTED AND WHETHER SUCH ACTION IS TO BE DELAYED PENDING THE OUTCOME OF THE TESTS OR RECEIPT OF ADDITIONAL DATA, AS APPROPRIATE. IF IT IS DETERMINED THAT THE PRODUCTS SHOULD REMAIN ON THE QPL, A MAXIMUM TIME LIMIT WILL BE ESTABLISHED FOR SUBMISSION OF THE SAMPLES OR TEST DATA, AS APPLICABLE, BEFORE REMOVAL.

IN OUR VIEW, THESE PROVISIONS ESTABLISH THAT IT IS PRIMARILY THE RESPONSIBILTY OF THE AGENCY TO DECIDE WHAT MODIFICATIONS ARE SUFFICIENT TO REQUIRE A REEXAMINATION AND TO DETERMINE FROM SUCH REEXAMINATION WHETHER A RETEST IS NECESSARY. FURTHER, WE NOTE THAT, BASED UPON ITS TECHNICAL JUDGMENT AS TO THE SIGNIFICANCE OF THE CHANGES, AN AGENCY MAY DETERMINE THAT REMOVAL OF THE PRODUCT FROM THE QPL IS NOT REQUIRED EVEN WHEN RETESTING IS CONSIDERED TO BE NECESSARY.

THE INSTANT CASE IS NOT ONE IN WHICH CHANGES WERE MADE IN A QUALIFIED PRODUCT WITHOUT THE KNOWLEDGE AND APPROVAL OF THE AGENCY. TEKTRONIX DESCRIBED THE PROPOSED CHANGES TO THE AIR FORCE, WHICH AFTER CONSIDERATION THEREOF, CLEARLY DETERMINED THAT THE MODIFICATIONS TO TEKTRONIX' PRODUCT DID NOT MAKE THE VALIDITY OF ITS PREVIOUS QUALIFICATION QUESTIONABLE. OUR OFFICE IS NOT EQUIPPED TO CONSIDER THE TECHNICAL SUFFICIENCY OF SUCH DETERMINATIONS, AND SINCE SUCH DETERMINATIONS ARE MATTERS PRIMARILY OF ADMINISTRATIVE DISCRETION, WE WILL NOT SUBSTITUTE OUR OPINION FOR THAT OF THE TECHNICAL ACTIVITY ASSIGNED THE DUTY OF DETERMINING PRODUCT ACCEPTABILITY, ABSENT A CLEAR SHOWING OF ARBITRARY OR CAPRICIOUS ACTION.

AS INDICATED ABOVE, WE HAVE CONCLUDED THAT THE METHOD USED BY THE AIR FORCE TO COMPUTE THE UNIT PURCHASE PRICE ON THE SET-ASIDE PORTION WAS PROPER; THAT TEKTRONIX' UNIT PURCHASE PRICE AND PROJECTED LIFE CYCLE COSTS ARE A VALID BASIS FROM WHICH TO MAKE THAT COMPUTATION; AND THAT OUR OFFICE WILL NOT DISTURB THE DETERMINATION OF THE PROCURING AGENCY THAT TEKTRONIX IS SUPPLYING A QUALIFIED PRODUCT. IT FOLLOWS THAT IF DUMONT SHOULD DECLINE THE OFFER OF THE SET-ASIDE AT A UNIT PURCHASE PRICE OF $921.68, THE SET-ASIDE MAY BE OFFERED TO HEWLETT-PACKARD AT A UNIT PURCHASE PRICE OF $1,092.75. IF HEWLETT-PACKARD IN TURN REJECTS THE OFFER OF THE SET- ASIDE, IT MAY BE AWARDED TO TEKTRONIX AT THE SAME UNIT PURCHASE PRICE OF $1,087 OBTAINED UNDER THE NON-SET-ASIDE PORTION.

IN VIEW OF THE FOREGOING, YOUR PROTEST IS DENIED.