B-180113, SEP 6, 1974, 54 COMP GEN 196

B-180113: Sep 6, 1974

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EQUIPMENT - AUTOMATIC DATA PROCESSING SYSTEMS - SELECTION AND PURCHASE - COMPETITIVE BASIS PROTESTER OBJECTING TO ALLEGED SOLE-SOURCE PROCUREMENT IS NOT WITHOUT STANDING TO HAVE PROTEST CONSIDERED BECAUSE OF FAILURE TO PARTICIPATE IN EARLIER. COMPETITIVE PHASE OF PROCUREMENT FOR AUTOMATIC DATA PROCESSING SYSTEMS SINCE IT IS CURRENT NONCOMPETITIVE PROCUREMENT ACTION WHICH IS BASIS OF PROTEST. CONTRACTS - PROTESTS - TIMELINESS - CONTRACT AWARD NOTICE EFFECT PROTEST FILED WITHIN 5 DAYS OF PROTESTER'S READING ANNOUNCEMENT OF PROCUREMENT ACTION IN TRADE PUBLICATION BUT NOT WITHIN 5 DAYS OF EARLIER APPEARANCE IN SAME PUBLICATION OF ARTICLE WHICH REVEALED PROCUREMENT ACTIONS IS NOT UNTIMELY. SINCE TRADE PUBLICATION ARTICLE IS NOT OF NATURE TO HAVE PUT PROTESTER ON ACTUAL OR CONSTRUCTIVE NOTICE OF PROCUREMENT.

B-180113, SEP 6, 1974, 54 COMP GEN 196

EQUIPMENT - AUTOMATIC DATA PROCESSING SYSTEMS - SELECTION AND PURCHASE - COMPETITIVE BASIS PROTESTER OBJECTING TO ALLEGED SOLE-SOURCE PROCUREMENT IS NOT WITHOUT STANDING TO HAVE PROTEST CONSIDERED BECAUSE OF FAILURE TO PARTICIPATE IN EARLIER, COMPETITIVE PHASE OF PROCUREMENT FOR AUTOMATIC DATA PROCESSING SYSTEMS SINCE IT IS CURRENT NONCOMPETITIVE PROCUREMENT ACTION WHICH IS BASIS OF PROTEST. CONTRACTS - PROTESTS - TIMELINESS - CONTRACT AWARD NOTICE EFFECT PROTEST FILED WITHIN 5 DAYS OF PROTESTER'S READING ANNOUNCEMENT OF PROCUREMENT ACTION IN TRADE PUBLICATION BUT NOT WITHIN 5 DAYS OF EARLIER APPEARANCE IN SAME PUBLICATION OF ARTICLE WHICH REVEALED PROCUREMENT ACTIONS IS NOT UNTIMELY, SINCE TRADE PUBLICATION ARTICLE IS NOT OF NATURE TO HAVE PUT PROTESTER ON ACTUAL OR CONSTRUCTIVE NOTICE OF PROCUREMENT. EQUIPMENT - AUTOMATIC DATA PROCESSING SYSTEMS - SELECTION AND PURCHASE - FEDERAL SUPPLY SCHEDULE ARMY'S PROCUREMENT BY RENTING INITIALLY AND THEN PURCHASING AUTOMATIC DATA PROCESSING EQUIPMENT (ADPE) FROM ONE VENDOR PURSUANT TO DELIVERY ORDER ISSUED AGAINST FEDERAL SUPPLY SCHEDULE CONTRACT 6 YEARS EARLIER WAS UNAUTHORIZED SINCE DELIVERY ORDER, WHICH ARMY REGARDED AS LONG-TERM CONTRACTURAL ARRANGEMENT, WAS EFFECTIVE ONLY WITH RESPECT TO EQUIPMENT ACTUALLY ORDERED FOR DELIVERY AND NOT WITH RESPECT TO ADDITIONAL EQUIPMENT LISTED FOR POSSIBLE FUTURE ACQUISITION, WHICH COULD BE ACQUIRED ONLY THROUGH ISSUANCE OF SUBSEQUENT DELIVERY ORDERS OR CONTRACT AWARDS IN ACCORDANCE WITH THEN APPLICABLE REGULATIONS. EQUIPMENT - AUTOMATIC DATA PROCESSING SYSTEMS - LEASE-PURCHASE AGREEMENTS - ACQUISITION OF EQUIPMENT ARMY'S PROCUREMENT OF AUTOMATIC DATA PROCESSING EQUIPMENT (ADPE) WITHOUT RENEWED COMPETITION WAS CONTRARY TO FEDERAL PROPERTY MANAGEMENT REGULATIONS (FPMR) TEMPORARY REG. E-25, BECAUSE ARMY DID NOT HAVE REQUIRED DELEGATION OF AUTHORITY FROM GENERAL SERVICES ADMINISTRATION FOR SOLE- SOURCE ADPE PROCUREMENTS, AND TO MAXIMUM ORDER LIMITATION IN ADP SCHEDULE CONTRACT. THEREFORE, COMPTROLLER GENERAL RECOMMENDS THAT EQUIPMENT CURRENTLY INSTALLED ON RENTAL BASIS, AND ADDITIONAL ADPE PROPOSED TO BE ACQUIRED, NOT BE PURCHASED EXCEPT IN ACCORDANCE WITH COMPTROLLER GENERAL VIEWS AND ALL APPLICABLE REGULATIONS, INCLUDING NEW FPMR TEMPORARY REG. E- 32 PROMULGATED AT 39 FED. REG. 25421.

IN THE MATTER OF COMDISCO, INC., SEPTEMBER 6, 1974:

THIS CASE CONCERNS THE DEPARTMENT OF THE ARMY'S COURSE OF DEALING WITH INTERNATIONAL BUSINESS MACHINES CORPORATION (IBM) WITH RESPECT TO THE LEASE AND SUBSEQUENT PURCHASE OF DATA PROCESSING SYSTEMS AND RELATED EQUIPMENT FOR THE ARMY MATERIEL COMMAND'S LOGISTICS MANAGEMENT PROGRAM.

THE ARMY'S ACTIONS WERE TAKEN PURSUANT TO A CONTRACTUAL ARRANGEMENT ENTERED INTO WITH IBM IN 1967. HOWEVER, THE PROTESTER ASSERTS THAT THE ARMY'S ACTIONS IN OBTAINING CERTAIN EQUIPMENT FROM IBM IN 1973 RESULTED IN SOLE-SOURCE PROCUREMENTS WHICH WERE NOT PROPERLY AUTHORIZED. THE AUTOMATED DATA AND TELECOMMUNICATIONS SERVICE OF THE GENERAL SERVICES ADMINISTRATION (GSA), UPON REVIEW OF THE SITUATION, HAS DETERMINED THAT THE ARMY ACTED WITHOUT REQUISITE AUTHORITY. FOR THE REASONS INDICATED BELOW, WE AGREE WITH THE PROTESTER AND GSA.

THE PROCUREMENT ACTIONS IN QUESTION HAD THEIR ORIGIN IN THE MID 1960'S, WHEN THE ARMY DEVELOPED SYSTEM SPECIFICATIONS FOR AUTOMATIC DATA PROCESSING EQUIPMENT (ADPE) FOR THE PROGRAM, WHICH WAS ORIGINALLY DESIGNATED "NAPALM" AND NOW IS REFERRED TO AS "ALPHA." THE SPECIFICATIONS WERE PROVIDED TO 17 ADPE MANUFACTURERS, BUT ONLY IBM RESPONDED WITH A DETAILED PROPOSAL. ON MAY 5, 1967, THE ARMY ISSUED A DELIVERY ORDER TO IBM PURSUANT TO IBM'S PROPOSAL FOR THE LEASE AND INSTALLATION OF A PILOT SYSTEM. PRICES WERE SUBJECT TO ADJUSTMENT IN THAT THEY WERE TO CONFORM TO THE THEN CURRENT IBM/GSA FEDERAL SUPPLY SCHEDULE (FSS) CONTRACT. GSA ADVISED THAT AT THAT TIME A "BUNDLED" PRICING APPROACH WAS USED AND EQUIPMENT WAS LEVEL-PRICED ON A GOVERNMENT-WIDE BASIS AND INCLUDED THE COSTS FOR SOFTWARE AND OTHER ASSOCIATED SERVICES. THE DELIVERY ORDER FURTHER PROVIDED FOR POSSIBLE FUTURE ORDERS OF ADDITIONAL SYSTEMS FOR INSTALLATION AT VARIOUS ARMY FACILITIES UPON THE OCCURRENCE OF CERTAIN CONDITIONS. ALL SYSTEMS WERE TO BE SUBJECT TO THE RIGHT OF THE GOVERNMENT TO EXERCISE AN OPTION TO PURCHASE. SUBSEQUENTLY ADDITIONAL EQUIPMENT WAS ORDERED ON A RENTAL BASIS AND IN 1970 THE INSTALLED SYSTEMS WERE PURCHASED PURSUANT TO THE OPTION PROVISION.

ON JANUARY 1, 1973, THE ARMY ISSUED "MODIFICATION NO. AE" WHICH UPGRADED SOME PERIPHERAL EQUIPMENT ASSOCIATED WITH THE SYSTEMS ENCOMPASSED BY THE ORIGINAL DELIVERY ORDER AND PROVIDED THAT THE GOVERNMENT WOULD ISSUE DELIVERY ORDERS FOR RENTAL OF NINE ADDITIONAL SYSTEMS. THREE MORE SYSTEMS WERE THEN ORDERED AND INSTALLED ON A RENTAL BASIS. IN JUNE 1973, IBM PROPOSED THAT THE ARMY PURCHASE THOSE THREE SYSTEMS PLUS AN ADDITIONAL SIX SYSTEMS, ALL AT A REDUCED PRICE. THE ARMY DECIDED IT WOULD BE TO ITS ADVANTAGE TO DO SO, AND ON AUGUST 23, 1973, IT ISSUED "MODIFICATION AG," BY WHICH IT EXERCISED ITS PURCHASE OPTION WITH RESPECT TO THE THREE INSTALLED SYSTEMS AND CERTAIN EQUIPMENT AND AGREED TO ORDER, INITIALLY ON A RENTAL BASIS, THE REMAINING SIX SYSTEMS DURING THE NEXT 6 MONTHS. FURTHER AGREED TO PURCHASE THOSE SIX SYSTEMS UPON SUCCESSFUL COMPLETION OF ACCEPTANCE TESTING. IT IS REPORTED THAT THREE OF THE SIX SYSTEMS WERE ORDERED AND INSTALLED BY JANUARY 1974, AND THAT ONE OF THEM HAS BEEN PURCHASED.

ON NOVEMBER 21, 1973, THIS OFFICE RECEIVED A PROTEST FROM COMDISCO, INC., A COMPANY DEALING IN USED COMPUTER EQUIPMENT, AGAINST THE ARMY'S DECISION TO PURCHASE THE NINE SYSTEMS FROM IBM. IN A BRIEF SUBSEQUENTLY FILED ON ITS BEHALF COMDISCO OBJECTED SPECIFICALLY TO MODIFICATIONS AE AND AG, CLAIMING THAT IT COULD HAVE PROVIDED THE SYSTEMS AND EQUIPMENT AT A SIGNIFICANT COST SAVINGS TO THE GOVERNMENT. COMDISCO FURTHER ASSERTED THAT THE EXECUTION OF THE TWO MODIFICATIONS REPRESENTED SOLE-SOURCE PROCUREMENTS AND WERE THEREFORE CONTRARY TO THE BROOKS ACT, PUBLIC LAW. 89-306, 79 STAT. 1127, 40 U.S.C. 759, AND TO VARIOUS REGULATIONS, DIRECTIVES AND ORDERS PERTAINING TO ADPE PROCUREMENTS. THE ARMY TAKES THE POSITION THAT IT CONDUCTED A COMPETITIVE PROCUREMENT DURING 1965, 1966, AND 1967 WHICH RESULTED IN THE SELECTION OF IBM TO PROVIDE THE ALPHA SYSTEMS AND EQUIPMENT, AND THAT ITS ACTIONS IN 1973 WERE WITHIN THE SCOPE OF ITS CONTRACTUAL ARRANGEMENTS WITH IBM AND WERE NOT NEW SOLE-SOURCE PROCUREMENTS. IT THEREFORE VIEWS THE BROOKS ACT AND IMPLEMENTING DIRECTIVES AS INAPPLICABLE TO THE ACQUISITION OF SYSTEMS AND EQUIPMENT COVERED BY MODIFICATIONS AE AND AG. GSA, HOWEVER, WHICH IS AUTHORIZED BY THE BROOKS ACT TO "COORDINATE AND PROVIDE FOR THE ECONOMIC AND EFFICIENT PURCHASE, LEASE, AND MAINTENANCE" OF ADPE BY ALL FEDERAL AGENCIES AND WHICH SUBSEQUENT TO 1967 HAS PROMULGATED REGULATIONS PURSUANT TO THAT AUTHORITY, HAS REFUSED TO RATIFY OR AGREE TO THE ARMY'S ACTIONS IN THIS CASE AND HAS CONCLUDED THAT "MODIFICATIONS AE AND AG WERE ENTERED INTO BY THE ARMY WITHOUT APPROPRIATE AUTHORITY."

AT THE OUTSET, WE MUST CONSIDER IBM'S ASSERTIONS THAT COMDISCO IS WITHOUT STANDING TO PROTEST AND IN ANY EVENT FILED A PROTEST THAT IS UNTIMELY. IBM QUESTIONS COMDISCO'S STANDING BECAUSE THAT FIRM DID NOT SUBMIT A PROPOSAL IN 1965-1966. HOWEVER, COMDISCO'S PROTEST IS AGAINST WHAT IT VIEWS AS SOLE-SOURCE PROCUREMENT ACTIONS TAKEN BY THE ARMY IN 1973, AND WE FAIL TO SEE THE RELEVANCE OF COMDISCO'S NONPARTICIPATION IN THE EARLIER EQUIPMENT SELECTION STAGES OF THE ALPHA PROGRAM. WITH RESPECT TO THE TIMELINESS ISSUE, OUR INTERIM BID PROTEST PROCEDURES AND STANDARDS REQUIRE THAT PROTESTS BE FILED "NOT LATER THAN 5 DAYS AFTER THE BASIS FOR PROTEST IS KNOWN OR SHOULD HAVE BEEN KNOWN, WHICHEVER IS EARLIER." 4 C.F.R. 20.2(A). COMDISCO STATES THAT IT LEARNED IN NOVEMBER 1973 THAT THE ARMY HAD PURCHASED AN IBM SYSTEM THROUGH AN ANNOUNCEMENT IN A TRADE PUBLICATION. THIS APPARENTLY WAS IN REFERENCE TO THE ARMY'S DELIVERY ORDER BF02 DATED OCTOBER 31, 1973, WHICH EXERCISED THE PURCHASE OPTION ON ANOTHER 360/65 IBM SYSTEM. HOWEVER, IBM HAS REFERRED US TO AN ARTICLE IN THE SEPTEMBER 10, 1973, ISSUE OF THAT SAME TRADE PUBLICATION, WHICH REPORTED THAT THE ARMY HAD RECENTLY CONVERTED LEASED IBM EQUIPMENT "TO PURCHASE" AS PART OF THE ALPHA PROGRAM. IBM SUGGESTS THAT COMDISCO SHOULD HAVE BEEN ON NOTICE OF MODIFICATION AG FROM SEPTEMBER AND THAT ITS NOVEMBER PROTEST THEREFORE WAS UNTIMELY. THE RECORD IS NOT ENTIRELY CLEAR AS TO EXACTLY WHEN COMDISCO LEARNED OF THE ACTIONS SUBSEQUENTLY PROTESTED. HOWEVER, WE ARE NOT CONVINCED THAT THE TRADE PUBLICATION ARTICLE IS OF SUCH NATURE THAT IT SHOULD BE REGARDED AS HAVING PUT COMDISCO ON NOTICE, ACTUAL OR CONSTRUCTIVE, OF THE ARMY'S DECISION TO PURCHASE FROM IBM. IN ANY EVENT, 4 C.F.R. 20.2(B) PROVIDES THAT A BID PROTEST WHICH IS NOT TIMELY FILED MAY BE CONSIDERED IF IT RAISES ISSUES SIGNIFICANT TO PROCUREMENT PRACTICES OR PROCEDURES. WE THINK THIS PROTEST, CALLING INTO QUESTION THE ARMY'S PROCEDURES FOR LONG TERM ACQUISITION OF ADPE, AS WELL AS THE RELATIONSHIP BETWEEN THOSE PROCEDURES AND THE ACQUISITION REQUIREMENTS IMPOSED BY GSA, RAISES SIGNIFICANT ISSUES.

THE BROOKS ACT, SUPRA, AUTHORIZES THE ADMINISTRATOR OF GENERAL SERVICES TO PROVIDE ADPE TO FEDERAL AGENCIES BY "PURCHASE, LEASE, *** OR OTHERWISE." THE ACT FURTHER AUTHORIZES THE ADMINISTRATOR TO DELEGATE TO OTHER FEDERAL AGENCIES HIS AUTHORITY TO LEASE OR PURCHASE SUCH EQUIPMENT. PURSUANT TO THAT EXCLUSIVE AUTHORITY, THE ADMINISTRATOR ISSUED (INITIALLY ON JANUARY 17, 1969) REGULATIONS (SUBPART 101-32.4 OF THE FEDERAL PROPERTY MANAGEMENT REGULATIONS (FPMR), 41 C.F.R. 101-32.400 ET SEQ.) WHICH ARE BINDING ON ALL AGENCIES. 51 COMP. GEN. 457 (1972). THE ARMY REGARDS THESE REGULATIONS AS INAPPLICABLE TO MODIFICATIONS AE AND AG BECAUSE IT VIEWS THE ACQUISITION OF ADPE UNDER THE PROVISIONS OF THE MODIFICATIONS AS CONCOMITANT TO THE "BASIC 1967 'SELECTION' CONTRACT" AND NOT AS NEW PROCUREMENT.

ACCORDING TO THE ARMY, ITS DEALING WITH IBM WAS IN ACCORDANCE WITH BUREAU OF BUDGET (NOW OFFICE OF MANAGEMENT AND BUDGET (OMB)) CIRCULAR A 54 ENTITLED "POLICIES ON SELECTION AND ACQUISITION OF AUTOMATIC DATA PROCESSING (ADP) EQUIPMENT" WHICH, UNLIKE THE FPMR PROVISIONS DEALING WITH ADPE, WAS IN EFFECT IN 1967. THE PURPOSE OF THE CIRCULAR, DATED OCTOBER 14, 1961, IS TO PRESCRIBE POLICIES ON:

(A) MAKING SELECTIONS OF EQUIPMENT ***

(B) MAKING DETERMINATIONS AS TO WHETHER THE ADP EQUIPMENT TO BE ACQUIRED WILL BE LEASED, PURCHASED, OR LEASED WITH AN OPTION TO PURCHASE.

SECTION 4 OF THE CIRCULAR STATES:

THE SELECTION OF ADP EQUIPMENT INCLUDES THE INITIAL SELECTION OF ADP EQUIPMENT, THE SELECTION OF ADP EQUIPMENT ADDITIONAL TO THAT ON HAND, THE SELECTION OF ADP EQUIPMENT TO REPLACE ADP EQUIPMENT ON HAND, THE MODIFICATION OF EQUIPMENT ON HAND, *** OR COMBINATIONS OF THE FOREGOING.

CERTAIN CONSIDERATIONS FOR THE SELECTION PROCESS, INCLUDING THE NEED FOR COMPETITION, ARE THEN SET FORTH. SECTION 5 OF THE CIRCULAR STATES:

THE METHOD OF ACQUIRING ADP EQUIPMENT WILL BE DETERMINED AFTER CAREFUL CONSIDERATION OF THE RELATIVE MERITS OF ALL METHODS AVAILABLE (I.E., PURCHASE, LEASE, OR LEASE-WITH-OPTION-TO-PURCHASE).

SECTION 5 FURTHER STATES:

THE LEASE-WITH-OPTION-TO-PURCHASE METHOD IS INDICATED WHEN IT IS NECESSARY OR ADVANTAGEOUS TO PROCEED WITH THE ACQUISITION OF THE EQUIPMENT THAT MEETS SYSTEM SPECIFICATIONS, BUT IT IS DESIRABLE TO DEFER TEMPORARILY A DECISION ON PURCHASE ***. THIS SITUATION MIGHT ARISE WHEN IT IS DETERMINED THAT A SHORT PERIOD OF OPERATIONAL EXPERIENCE IS DESIRABLE TO PROVE THE VALIDITY OF A SYSTEM DESIGN ON WHICH THERE IS NO PREVIOUS EXPERIENCE, OR WHERE DECISIONS WHICH MIGHT SUBSTANTIALLY ALTER THE SYSTEM SPECIFICATIONS ARE IMMINENT.

THESE PROVISIONS, ACCORDING TO THE ARMY, ADDRESS TWO ASPECTS OF THE PROCUREMENT PROCESS, "SELECTION" (WHICH REQUIRES COMPETITION) AND "ACQUISITION" (WHICH IMPLEMENTS THE SELECTION). FURTHERMORE, THE ARMY STATES, THE CIRCULAR RECOGNIZES LEASE-WITH-OPTION-TO-PURCHASE AS A DISTINCT METHOD OF ACQUISITION. THUS, THE ARMY REGARDS THE ISSUANCE OF THE MAY 1967 DELIVERY ORDER AS THE ACQUISITION OF ITS ALPHA SYSTEMS. REGARD IT OTHERWISE, SAYS THE ARMY, WOULD RENDER THE LEASE-OPTION PURCHASE METHOD OF ACQUISITION RECOGNIZED IN OMB CIRCULAR A-54 "A COMPLETE NULLITY" AND WOULD REQUIRE THE ARMY "TO EMBARK ON A NEW PROCUREMENT PROCESS BEGINNING WITH SOLICITATION - A RESULT NEVER INTENDED." SUCH A RESULT, THE ARMY CONTINUES, WOULD BE "PATENTLY ABSURD" BECAUSE THE BASIC CONTRACT PROVIDED NOT ONLY FOR HARDWARE, BUT ALSO FOR PERIPHERALS, SYSTEMS ENGINEERING TRAINING, MAINTENANCE SERVICE AND FREE TEST TIME. THUS, THE ARMY CONCLUDES, "AN ACQUISITION UNDER THE LEASE-OPTION-PURCHASE PROVISION OF SECTION 5 DOES NOT RESULT IN A 'NEW PROCUREMENT' REQUIRING ANOTHER SELECTION PURSUANT TO THE POLICIES IN SECTION 4 OF OMB CIRCULAR A-54."

IT IS TRUE THAT OMB CIRCULAR A-54, WHICH CONTINUED TO HAVE VALIDITY AFTER ENACTMENT OF THE BROOKS ACT BY VIRTUE OF A PROVISION IN THE ACT MAKING GSA'S AUTHORITY SUBJECT TO THE "FISCAL AND POLICY CONTROL" OF OMB (THE CONTROL OVER POLICY WAS TRANSFERRED TO GSA BY EXECUTIVE ORDER 11717 DATED MAY 9, 1973.), LISTS LEASE-WITH-OPTION-TO-PURCHASE AS A METHOD OF ACQUIRING ADPE. WE ALSO AGREE WITH IBM'S STATEMENT THAT "THE PARTIES CONTEMPLATED A MUTUAL RELATIONSHIP WHICH WOULD EXTEND OVER A NUMBER OF YEARS AND INVOLVE ACQUISITIONS BEYOND THE INITIAL PILOT SYSTEMS." HOWEVER, WE DO NOT AGREE THAT MODIFICATIONS AE AND AG CAN BE REGARDED AS MERE ADMINISTRATIVE IMPLEMENTATIONS OF AN EARLIER PROCUREMENT DECISION AND THUS NOT SUBJECT TO INTERVENING POLICIES AND REGULATIONS APPLICABLE PROSPECTIVELY TO ADPE ACQUISITIONS.

FIRST OF ALL, WE BELIEVE THAT THE OMB CIRCULAR, WHICH ESTABLISHES POLICY GUIDANCE FOR EXECUTIVE AGENCIES, MUST BE READ IN CONJUNCTION WITH THE IMPLEMENTING FPMR PROVISIONS WHICH, AS NOTED ABOVE, ARE BINDING ON ALL FEDERAL AGENCIES. FPMR 101-32.402.5 DEFINES PROCUREMENT AS "THE ACQUISITION OF ADPE, SOFTWARE, MAINTENANCE SERVICE, OR SUPPLIES BY PURCHASE OR LEASE." THUS, UNDER THIS REGULATORY FRAMEWORK, THE VARIOUS FPMR PROVISIONS ARE APPLICABLE TO THE ACQUISITION STAGE AND NOT ONLY TO THE SELECTION STAGE OF ADPE PROCUREMENTS. FURTHERMORE, SINCE THE FPMR PROVISIONS DEFINE PROCUREMENT ONLY IN TERMS OF LEASE OR PURCHASE, IT FOLLOWS THAT BOTH THE INITIAL ACQUISITION BY LEASE (WITH OPTION) AND THE EXERCISE OF AN OPTION TO PURCHASE ARE CLEARLY PROCUREMENT ACTIONS UNDER THE FPMR. ALTHOUGH WE HAVE RECOGNIZED THAT NOT ALL OF THE FPMR AND ADP SCHEDULE PROVISIONS ARE APPLICABLE TO PURCHASES OF LEASED EQUIPMENT PREVIOUSLY INSTALLED (SEE REPORT B 115369, "MORE COMPETITION NEEDED IN THE FEDERAL PROCUREMENT OF AUTOMATED DATA PROCESSING EQUIPMENT," MAY 7, 1974, REGARDING INAPPLICABILITY OF MAXIMUM ORDER LIMITATIONS), NEITHER DO WE BELIEVE THAT THE EXERCISE OF AN OPTION TO PURCHASE ADPE IS A MERE ADMINISTRATIVE MATTER TOTALLY UNFETTERED BY PROCUREMENT POLICIES AND GUIDANCE. WE NOTE THAT GSA HAS LONG BEEN PROVIDING GUIDELINES TO AGENCIES WITH RESPECT TO PURCHASING LEASED EQUIPMENT. FOR EXAMPLE, GSA ALERTED ALL AGENCIES BY LETTER DATED APRIL 26, 1971, THAT RECENT ADPE MARKETING CHANGES COULD OFFER ACQUISITION OPPORTUNITIES MORE ADVANTAGEOUS THAN PURCHASING INSTALLED LEASED EQUIPMENT. ALSO, BY SPECIAL NOTICE NO. 7 DATED NOVEMBER 30, 1973, AND EFFECTIVE FOR FISCAL YEAR 1974, GSA INFORMED AGENCIES THAT THE ON-SITE PRESENCE OF RENTED IBM EQUIPMENT WAS "NOT JUSTIFICATION FOR ITS CONVERSION TO PURCHASE." INSTEAD, THE THIRD PARTY MARKET IN IBM EQUIPMENT ORDINARILY "MUST BE GIVEN AN OPPORTUNITY TO OFFER ON ALL REQUIREMENTS FOR CONVERSION FROM RENTAL TO PURCHASE." SEE, ALSO B- 174414, JULY 19, 1972, IN WHICH WE RECOGNIZED THAT THE AWARDING OF A PURCHASE CONTRACT CONTRARY TO FPMR PROVISIONS AND "THE IMPORT OF THE LETTER OF APRIL 26, 1971" COULD RESULT IN A HOLDING THAT THE CONTRACT WAS ILLEGAL AND SUBJECT TO CANCELLATION. IN ANY EVENT, MODIFICATIONS AE AND AG INVOLVED MORE THAN THE EXERCISE OF AN OPTION TO PURCHASE PREVIOUSLY INSTALLED LEASED EQUIPMENT. THEY ALSO INVOLVED A COMMITMENT BY THE ARMY TO ACQUIRE ADDITIONAL SYSTEMS AND EQUIPMENT BY PURCHASE AFTER AN INITIAL LEASE PERIOD ADEQUATE FOR ACCEPTANCE TESTING. ALTHOUGH THE ARMY APPARENTLY ALSO REGARDS THESE ACTIONS AS MERE ACQUISITIONS NOT SUBJECT TO THE REGULATIONS APPLICABLE TO "SELECTION" OF A PARTICULAR VENDOR'S ADPE, WE BELIEVE THAT THESE ACTIONS MUST BE REGARDED AS DECISIONS TO PROCURE AND THUS SUBJECT TO THE REGULATORY PROVISIONS APPLICABLE TO ADPE PROCUREMENTS.

THE ORIGINAL DELIVERY ORDER OBLIGATED THE GOVERNMENT TO ORDER ONLY THE PILOT SYSTEM (AND EVEN THAT WAS MADE CONTINGENT ON THE AVAILABILITY OF FUNDS). IT SPECIFICALLY PROVIDED THAT THE "GOVERNMENT MAY PLACE DELIVERY ORDERS" FOR ADDITIONAL SYSTEMS, BUT THAT "THE GOVERNMENT SHALL NOT BE OBLIGATED TO PLACE ANY SUCH DELIVERY ORDER OR ORDERS, OR BE UNDER ANY OTHER OBLIGATION IN CONNECTION THEREWITH." WHILE IT IS CLEAR FROM THE DELIVERY ORDER THAT IT WAS BASED ON IBM'S DETAILED PROPOSAL TO FURNISH SYSTEMS, PERIPHERAL EQUIPMENT, AND SERVICES OVER A PERIOD OF YEARS, IT IS ALSO CLEAR THAT NO DECISIONS REGARDING SUBSEQUENT ACQUISITIONS HAD BEEN MADE AND NO RIGHTS ACCRUED TO IBM TO HAVE THE GOVERNMENT ORDER ADDITIONAL EQUIPMENT OR EXERCISE A PURCHASE OPTION WITH RESPECT TO THE SYSTEM LEASED INITIALLY. FURTHERMORE, THE DELIVERY ORDER ITSELF CLEARLY PROVIDED THAT IT WAS ISSUED PURSUANT TO IBM'S FSS CONTRACT NO. GS-OOS-58109, AND THAT THE TERMS, CONDITIONS AND PRICES WERE TO BE IN ACCORDANCE WITH THE FISCAL YEAR 1968 FSS CONTRACT THEN BEING NEGOTIATED BY IBM AND GSA. APPARENTLY, THE ARMY VIEWS THIS DELIVERY ORDER AS AN ALL-ENCOMPASSING CONTRACTUAL ARRANGEMENT PROVIDING FOR IBM TO PROVIDE WHATEVER ADPE THE ARMY WOULD SUBSEQUENTLY DECIDE TO OBTAIN FOR THE ALPHA PROGRAM. WE BELIEVE, HOWEVER, THAT THE DELIVERY ORDER, ALTHOUGH ENVISIONING SUBSEQUENT ORDERS, CANNOT BE REGARDED AS A LONG-TERM PROCUREMENT CONTRACT. RATHER, IT MUST BE CONSTRUED AS AN ORDER AGAINST A CURRENT FSS SCHEDULE CONTRACT FOR SPECIFIED EQUIPMENT TO BE DELIVERED BY A PARTICULAR TIME, WITH THE RESULT THAT ANY DESIRED ACQUISITION OF ADDITIONAL EQUIPMENT WOULD NECESSITATE FOLLOW-ON PROCUREMENT ACTION SUCH AS A CONTRACT AWARD OR ISSUANCE OF A DELIVERY ORDER PURSUANT TO THE THEN CURRENT SCHEDULE CONTRACT. THIS IS CONSISTENT WITH OMB CIRCULAR A-54, WHICH RECOGNIZES THAT WHILE PURCHASE/DELIVERY ORDERS ISSUED PURSUANT TO FSS SCHEDULE CONTRACTS NORMALLY CONTAIN DETAILED PROVISIONS TO INSURE THAT SPECIFIC AGENCY REQUIREMENTS ARE MET, THEY ARE SUBJECT TO AND CONTROLLED BY THE TERMS, CONDITIONS AND PRICES CONTAINED IN THE SCHEDULE CONTRACTS. THIS IS ALSO CONSISTENT WITH THE VIEWS OF GSA, WHICH WE THINK ARE ENTITLED TO SIGNIFICANT WEIGHT SINCE THAT AGENCY HAS THE STATUTORY RESPONSIBILITY AND AUTHORITY FOR GOVERNMENT ADPE PROCUREMENTS. GSA REGARDS THE ARMY'S ACQUISITION OF SYSTEMS AND EQUIPMENT SUBSEQUENT TO 1967 AS HAVING BEEN ACCOMPLISHED THROUGH THE ISSUANCE OF DELIVERY ORDERS AGAINST THEN CURRENT SCHEDULE CONTRACTS RATHER THAN PURSUANT TO THE ORIGINAL DELIVERY ORDER.

ACCORDINGLY, IT IS OUR CONSIDERED OPINION THAT ALTHOUGH THE ARMY AND IBM VIEWED THE 1967 DELIVERY ORDER AS THE CREATION OF A LONG-TERM CONTRACTUAL ARRANGEMENT (BASED AT LEAST IN PART ON IBM'S POSITION AS THE SOLE COMPANY WILLING OR ABLE, IN 1967, TO PROVIDE WHAT THE ARMY REQUIRED), THAT DOCUMENT, AS A DELIVERY ORDER AGAINST AN FSS SCHEDULE CONTRACT, EFFECTED THE PROCUREMENT ONLY OF THE PROTOTYPE SYSTEM THAT WAS ORDERED FOR DELIVERY. THEREFORE, PROCUREMENT OF THE REMAINING EQUIPMENT LISTED IN THE DELIVERY ORDER FOR POTENTIAL FUTURE ORDERS NECESSARILY WAS DEPENDENT UPON SUBSEQUENT PURCHASE OR DELIVERY ORDERS, THE ISSUANCE OF WHICH WAS SUBJECT TO REGULATIONS APPLICABLE TO ADPE PROCUREMENTS. THUS, WHILE WE HAVE EXPRESSED THE OPINION THAT REGULATIONS IN EFFECT AT THE TIME OF THE EXECUTION OF A CONTRACT FIX THE RIGHTS OF THE PARTIES UNDER THAT CONTRACT AND THE ADOPTION OF SUBSEQUENT REGULATIONS CANNOT INCREASE OR DECREASE A PARTY'S VESTED RIGHTS, 44 COMP. GEN. 472 (1965), WE DO NOT VIEW GSA'S REGULATIONS PROMULGATED SUBSEQUENT TO THE ISSUANCE OF THE 1967 DELIVERY ORDER AS HAVING ANY RETROACTIVE EFFECT ON THAT DELIVERY ORDER, BUT ONLY A PROSPECTIVE EFFECT ON PROCUREMENT ACTIONS TAKEN SUBSEQUENT TO THEIR PROMULGATION.

UNDER THE REGULATIONS IN EFFECT DURING 1973, AGENCIES WERE AUTHORIZED TO PROCURE ADPE WITHOUT PRIOR GSA APPROVAL IF THE PROCUREMENT WAS TO BE EFFECTED BY PLACING A PURCHASE/DELIVERY ORDER AGAINST AN ADP (FORMERLY FSS) SCHEDULE CONTRACT; IF UNDER A SEPARATE CONTRACT NOT EXCEEDING THE MAXIMUM ORDER LIMITATION (MOL) OF THE SCHEDULE CONTRACT, AN AGENCY COULD NEGOTIATE SOME BETTER TERMS OR CONDITIONS THAN THOSE AVAILABLE UNDER THE SCHEDULE CONTRACT; OR IF THE VALUE OF THE PROCUREMENT DID NOT EXCEED $50,000. FPMR 101.32.403-1. HOWEVER, THE EXISTENCE OF AN ADP SCHEDULE CONTRACT DID "NOT PRECLUDE OR WAIVE THE REQUIREMENTS FOR FULL AND COMPLETE COMPETITION IN OBTAINING ADPE, SOFTWARE, OR MAINTENANCE SERVICES." FPMR 101-32.407(C). "EXCEPT IN THOSE INSTANCES WHERE A DETERMINATION AS TO THE LOWEST OVERALL COST CAN BE REACHED AND DOCUMENTED WITHOUT FURTHER SOLICITATION OR NEGOTIATION, PROPOSALS OR BIDS SHOULD BE SOLICITED TO DETERMINE THE ADPE, SOFTWARE, OR MAINTENANCE SERVICES WHICH WOULD SATISFY AGENCY REQUIREMENTS AT THE LOWEST OVERALL COST TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED." FPMR 101-32.407(D). FURTHERMORE, NOTWITHSTANDING THE PROVISIONS OF FPMR 101-32.403-1, ANY SOLE-SOURCE PROCUREMENT OF ADPE IN EXCESS OF $10,000 BY EITHER LEASE OR PURCHASE REQUIRED A SPECIFIC DELEGATION OF AUTHORITY. FPMR TEMPORARY REG. E-25 (EFFECTIVE OCTOBER 11, 1972 THROUGH DECEMBER 31, 1973).

MODIFICATIONS AE AND AG TOGETHER REPRESENT THE ARMY'S DECISION TO PROCURE FROM IBM SYSTEMS AND EQUIPMENT FOR THE ALPHA PROGRAM. IT IS UNDISPUTED THAT THE ARMY DEALT ONLY WITH IBM. THE ARMY CLAIMS TO HAVE PERFORMED COST STUDIES RESULTING IN A DETERMINATION, PURSUANT TO FPMR 101-32.407(D), THAT THE LOWEST OVERALL COST AVAILABLE TO IT WAS THROUGH PURCHASE FROM IBM, THEREBY NEGATING THE NEED FOR A COMPETITIVE SOLICITATION. HOWEVER, PURSUANT TO FPMR TEMPORARY REG. E-25, WHICH DEFINED SOLE-SOURCE PROCUREMENT AS ANY PROCUREMENT ACTION IN WHICH EQUAL OPPORTUNITY AND APPROPRIATE CONSIDERATION ARE NOT PROVIDED "TO ALL RESPONSIBLE AND RESPONSIVE OFFERORS CAPABLE OF MEETING THE GOVERNMENT'S REQUIREMENTS," THE ARMY WAS STILL REQUIRED TO OBTAIN A DELEGATION OF AUTHORITY FROM GSA BEFORE PROCURING ADPE FROM IBM. THE ARMY DID NOT OBTAIN THIS DELEGATION OF AUTHORITY. MOREOVER, THE AUTHORITY IN FPMR 101-32.403-1 IS LIMITED TO PLACEMENT OF AN ORDER AGAINST A SCHEDULE CONTRACT UNDER THE TERMS OF THE CONTRACT AND GSA POINTS OUT THAT THE SYSTEMS AND EQUIPMENT ORDERED PURSUANT TO THESE MODIFICATIONS EXCEEDED THE MAXIMUM ORDER LIMITATION CONTAINED IN THE THEN CURRENT ADP SCHEDULE CONTRACTS. UNDER THESE CIRCUMSTANCES, WE MUST CONCLUDE THAT THE ARMY'S PROCUREMENT OF ADDITIONAL ADPE AND RELATED ITEMS THROUGH THE EXECUTION OF MODIFICATIONS AE AND AG AND THE ISSUANCE OF DELIVERY ORDERS PURSUANT THERETO WAS CONTRARY TO THE APPLICABLE REGULATIONS AND THEREFORE WAS UNAUTHORIZED.

IN REACHING THIS CONCLUSION, WE ARE AWARE THAT IN OUR DECISION REPORTED AT 47 COMP. GEN. 29 (1967) WE HELD THAT THE SELECTION OF AN ADPE SUPPLIER BY A PROCURING AGENCY WAS A PART OF THE PROCUREMENT PROCESS AND THAT TO VIEW THE PROCUREMENT STATUTES AND REGULATIONS AS INAPPLICABLE WOULD BE CONTRARY "TO THE INTENT OF THE POLICIES AND LAWS GOVERNING THE PROCUREMENT OF" ADPE. 47 COMP. GEN. 29, 51, SUPRA. ALTHOUGH THERE WAS NO DISCUSSION IN THAT CASE OF THE APPLICABILITY OF PROCUREMENT LAWS AND REGULATIONS TO AGENCY ACQUISITION ACTIONS TAKEN SUBSEQUENT TO SOURCE SELECTION, WE THINK IT IS CLEAR FROM THE FPMR PROVISIONS PROMULGATED SINCE THAT DECISION AND THE VARIOUS GSA POLICY AND GUIDANCE DOCUMENTS WHICH DEAL EXPLICITLY WITH ACQUISITION AND WITH DECISIONS TO PURCHASE INSTALLED EQUIPMENT THAT THE PROTESTED ACQUISITION ACTIONS TAKEN BY THE ARMY IN THIS CASE WERE SUBJECT TO AND NOT CONSISTENT WITH THE LEGAL REQUIREMENTS FOR GOVERNMENT ACQUISITION OF ADPE.

AS INDICATED ABOVE, FOUR SYSTEMS HAVE BEEN PURCHASED BY THE ARMY PURSUANT TO MODIFICATION AG, ANOTHER TWO HAVE BEEN DELIVERED AND INSTALLED ON A RENTAL BASIS AND ANOTHER THREE SYSTEMS HAVE YET TO BE ORDERED. WE DO NOT BELIEVE THAT OUR OFFICE WOULD BE JUSTIFIED IN RECOMMENDING, ON THE PRESENT RECORD, REMEDIAL ACTION WITH RESPECT TO THE PURCHASED SYSTEMS OR TO THE LEASE FOR THE OTHER TWO SYSTEMS. HOWEVER, WE BELIEVE NO FURTHER ACTION SHOULD BE TAKEN WITH RESPECT TO EXERCISING PURCHASE OPTIONS OR ACQUIRING ADDITIONAL SYSTEMS OR EQUIPMENT FOR THE ALPHA PROGRAM UNLESS IN ACCORDANCE WITH CURRENT APPLICABLE REGULATIONS AND POLICY GUIDANCE AND THE VIEWS EXPRESSED IN THIS DECISION, AND, IN THIS CONNECTION, ATTENTION IS DIRECTED TO FPMR TEMPORARY REG. E-32, DATED JUNE 28, 1974, WHICH PROVIDES NEW COMPETITIVE REQUIREMENTS FOR ADPE ACQUISITION WITHIN THE UNITED STATES. SEE 39 FED. REG. 25421. UNDER THESE CURRENT REGULATIONS IT APPEARS THAT A DELEGATION OF AUTHORITY FROM GSA WOULD BE REQUIRED BEFORE THE ARMY COULD ACQUIRE, BY RENTAL OR PURCHASE, ADDITIONAL ADPE. THEREFORE, IT IS OUR VIEW THAT IT IS INCUMBENT UPON THE ARMY TO REQUEST A GSA DELEGATION OF AUTHORITY TO COMPLETE THE ALPHA PROGRAM. WE RECOGNIZE, OF COURSE, THAT THE ARMY'S REQUIREMENTS MIGHT BE SATISFIED ONLY BY THE IBM EQUIPMENT IDENTIFIED IN THE DELIVERY ORDER AND MODIFICATIONS THERETO. WE ALSO RECOGNIZE THAT IT MIGHT NOT BE ECONOMICALLY FEASIBLE FOR THE ARMY TO ACQUIRE THE REMAINING IBM EQUIPMENT FROM ANY SUPPLIER OTHER THAN IBM AT THIS POINT. WE AGREE THAT, SHOULD THIS BE THE CASE, ACQUISITION FROM IBM WOULD BE IN THE GOVERNMENT'S BEST INTERESTS AND WOULD NOT BE PRECLUDED BY ANY APPLICABLE REGULATIONS. HOWEVER, THOSE REGULATIONS CONTEMPLATE THAT GSA, IN GRANTING A DELEGATION OF AUTHORITY, WILL DETERMINE WHETHER OR NOT COMPETITION IS TO BE REQUIRED. ACCORDINGLY, WE EXPECT THAT THE ARMY, IN REQUESTING THAT DELEGATION OF AUTHORITY, WILL PROVIDE GSA WITH ALL RELEVANT DATA CONCERNING POSSIBLE COST TO THE GOVERNMENT OF ACQUIRING ADDITIONAL IBM EQUIPMENT FOR THE ALPHA PROGRAM FROM A FIRM OTHER THAN IBM.