B-180185, SEP 18, 1974, 54 COMP GEN 215

B-180185: Sep 18, 1974

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PREAWARD AND CANCELLATION COSTS BASED ON ALLEGATION THAT ISSUANCE OF REQUEST FOR PROPOSALS (RFP) FOR AIR CONDITIONERS WAS ARBITRARY. SINCE GOVERNMENT KNEW SIMILAR UNITS WERE AVAILABLE FROM ANOTHER AGENCY'S INVENTORY. IS DENIED. SINCE NO EVIDENCE IS FOUND SHOWING SOLICITATION WAS ISSUED IN BAD FAITH. CONTRACTING OFFICER'S UNEQUIVOCAL STATEMENT THAT HE HAD NO INDICATION WHEN RFP WAS ISSUED THAT SETTLEMENT OF DISPUTE WAS IN PROSPECT. WHICH WOULD HAVE EFFECT OF MAKING AVAILABLE DEFAULT TERMINATION INVENTORY. CONTRACTS - NEGOTIATION - REQUESTS FOR PROPOSALS - CANCELLATION ALLEGATION THAT CANCELLATION OF REQUEST FOR PROPOSALS WAS ARBITRARY BECAUSE AIR CONDITIONERS OBTAINED FROM ANOTHER AGENCY'S INVENTORY WERE MANUFACTURED UNDER DIFFERENT SPECIFICATIONS AND WOULD NOT MEET GOVERNMENT'S NEEDS WITHOUT MODIFICATIONS DOES NOT JUSTIFY RECOVERY OF PROPOSAL PREPARATION AND RELATED COSTS.

B-180185, SEP 18, 1974, 54 COMP GEN 215

CONTRACTS - NEGOTIATION - REQUESTS FOR PROPOSALS - PREPARATION COSTS CLAIM FOR RECOVERY OF $3,530 IN PROPOSAL PREPARATION, PREAWARD AND CANCELLATION COSTS BASED ON ALLEGATION THAT ISSUANCE OF REQUEST FOR PROPOSALS (RFP) FOR AIR CONDITIONERS WAS ARBITRARY, SINCE GOVERNMENT KNEW SIMILAR UNITS WERE AVAILABLE FROM ANOTHER AGENCY'S INVENTORY, IS DENIED, SINCE NO EVIDENCE IS FOUND SHOWING SOLICITATION WAS ISSUED IN BAD FAITH; AND, EVEN IF JUDGED BY REASONABLE BASIS STANDARD, CONTRACTING OFFICER'S UNEQUIVOCAL STATEMENT THAT HE HAD NO INDICATION WHEN RFP WAS ISSUED THAT SETTLEMENT OF DISPUTE WAS IN PROSPECT, WHICH WOULD HAVE EFFECT OF MAKING AVAILABLE DEFAULT TERMINATION INVENTORY, INDICATES REASONABLE BASIS FOR SOLICITING OFFERS. CONTRACTS - NEGOTIATION - REQUESTS FOR PROPOSALS - CANCELLATION ALLEGATION THAT CANCELLATION OF REQUEST FOR PROPOSALS WAS ARBITRARY BECAUSE AIR CONDITIONERS OBTAINED FROM ANOTHER AGENCY'S INVENTORY WERE MANUFACTURED UNDER DIFFERENT SPECIFICATIONS AND WOULD NOT MEET GOVERNMENT'S NEEDS WITHOUT MODIFICATIONS DOES NOT JUSTIFY RECOVERY OF PROPOSAL PREPARATION AND RELATED COSTS, SINCE EXPLICIT JUDICIAL RECOGNITION OF RIGHT TO RECOVER PROPOSAL EXPENSES IN SUCH CIRCUMSTANCES APPEARS TO BE LACKING, AND IN ANY EVENT CANCELLATION WAS NOT MADE IN BAD FAITH OR ARBITRARILY OR CAPRICIOUSLY, SINCE CONTRACTING OFFICER FOUND THAT MODIFIED INVENTORY UNITS WOULD MEET REQUIREMENTS AND RIGHT TO REJECT ALL OFFERS ON UNNEEDED SUPPLIES IS WELL ESTABLISHED.

IN THE MATTER OF KECO INDUSTRIES, INC., SEPTEMBER 18, 1974:

KECO INDUSTRIES, INC. (KECO), SEEKS RECOVERY OF EXPENSES IN THE AMOUNT OF $3,530 INCURRED IN CONNECTION WITH ITS OFFER SUBMITTED UNDER REQUEST FOR PROPOSALS (RFP) DAAK02-74-R-0022, ISSUED BY THE UNITED STATES ARMY MOBILITY EQUIPMENT RESEARCH & DEVELOPMENT CENTER. KECO'S CLAIM, PRESENTED TO OUR OFFICE AFTER THE SOLICITATION WAS CANCELED IN JANUARY 1974, IS COMPOSED OF THE FOLLOWING ITEMS:

MICROFILM REPRODUCTION OF DRAWINGS $230.00

PREPARATION OF BILL OF MATERIALS AND VENDOR RFQ'S; POST COSTS TO BILL OF MATERIALS; AND ESTIMATE COST OF RAW MATERIALS (80 MANHOURS) 2,000.00

OBTAINING SAMPLE UNIT AND NEGOTIATION WITH THERM-AIR ON OBSOLETED PARTS

300.00

BID FINALIZATION, INCLUDING LABOR AND OTHER COST FACTORS (8 MANHOURS)

200.00

PRE-AWARD SURVEY (24 MANHOURS) 600.00

FOLLOW-UP AFTER PRE-AWARD SURVEY AND CANCELLATION OF PROCUREMENT (8 MANHOURS)

200.00

TOTAL COSTS* $3,530.00

*EACH COST ELEMENT IS FULLY FACTORED WITH OVERHEAD AND G & A AS APPROPRIATE.

THE RFP WAS ISSUED ON SEPTEMBER 27, 1973, AND CALLED FOR OFFERS ON EIGHT COMPACT HORIZONTAL AIR CONDITIONERS. KECO AND SEVERAL OTHER CONCERNS SUBMITTED OFFERS. A PREAWARD SURVEY OF KECO WAS CONDUCTED ON NOVEMBER 13, 1973. ON NOVEMBER 30, 1973, KECO PROTESTED TO OUR OFFICE AGAINST AWARD TO ANY OTHER OFFEROR, ALLEGING THAT IT WAS THE LOW RESPONSIVE, RESPONSIBLE OFFEROR.

BY LETTERS DATED JANUARY 23, 1974, THE CONTRACTING OFFICER INFORMED ALL OFFERORS THAT THE PROCUREMENT WAS CANCELED. THE REASON GIVEN WAS THAT AN ADEQUATE SUBSTITUTE FOR THE ITEMS SOLICITED HAD RECENTLY BECOME AVAILABLE FROM SOURCES WITHIN THE GOVERNMENT. KECO DID NOT PROTEST AGAINST THE CANCELLATION. HOWEVER, IT REQUESTED ADDITIONAL INFORMATION FROM THE CONTRACTING OFFICER ABOUT THE NATURE OF THE SUBSTITUTE SUPPLIES.

IN RESPONSE, THE CONTRACTING OFFICER, BY LETTER TO KECO DATED APRIL 4, 1974, EXPLAINED THAT IN LATE NOVEMBER 1973, HE BECAME AWARE THAT THE DEFENSE CONSTRUCTION SUPPLY CENTER (DCSC) WAS NEGOTIATING WITH THERM AIR MANUFACTURING COMPANY TO SETTLE A DEFAULT TERMINATION CLAIM UNDER A CONTRACT BETWEEN DCSC AND THERM-AIR. THIS CONTRACT WAS AWARDED ON FEBRUARY 28, 1969, FOR A QUANTITY OF 30 AIR CONDITIONERS, AND WAS DEFAULTED ON NOVEMBER 1, 1972. UPON LEARNING THAT SETTLEMENT HAD BEEN SUBSTANTIALLY AGREED TO, WITH THE RESULT THAT THE TERMINATION INVENTORY UNDER THE DEFAULTED CONTRACT WOULD BECOME AVAILABLE TO THE ARMY, IT WAS DECIDED TO CANCEL THE PRESENT SOLICITATION. THE CONTRACTING OFFICER FURTHER STATED THAT SOME MODIFICATION TO THE THERM-AIR UNITS MIGHT BE NECESSARY.

KECO CONTENDS IT IS ENTITLED TO RECOVER ITS PROPOSAL PREPARATION AND RELATED EXPENSES BECAUSE THE CONTRACTING OFFICER ACTED ARBITRARILY AND IN ABUSE OF HIS PROCUREMENT DISCRETION IN TWO RESPECTS. FIRST, KECO STATES THAT THE ARMY'S PROJECT ENGINEER KNEW OF THE THERM-AIR INVENTORY PRIOR TO THE ISSUANCE OF THE RFP ON SEPTEMBER 27, 1973; THE CONTRACTING OFFICER KNEW OR SHOULD HAVE KNOWN THAT THE THERM-AIR UNITS WERE AVAILABLE BEFORE THE RFP WAS ISSUED. KECO ALLEGES THAT THE ARMY THUS PUT IT TO THE EXPENSE OF PROPOSAL AND PREAWARD COSTS WHILE AWAITING THE OUTCOME OF AN INTERAGENCY REQUISITION. SECONDLY, KECO HAS CONTENDED THAT THE CANCELLATION ITSELF WAS ARBITRARY. THE CLAIMANT POINTS OUT THAT THE SOLICITATION CALLED FOR A 10-MONTH DEVELOPMENT PROGRAM, YET IT WAS CANCELED BECAUSE A "SUPPLY ITEM PRODUCT" HAD BECOME AVAILABLE. MOREOVER, KECO POINTS OUT THAT THE THERM-AIR UNITS HAVE BEEN MANUFACTURED IN ACCORDANCE WITH DIFFERENT SPECIFICATIONS AND DRAWINGS (MIL-A-52605A AND NO. TA13216E-6310, RESPECTIVELY) THAN THOSE APPLICABLE IN THE CANCELED SOLICITATION (MIL-A-52605B AND NO. TA13216E 6320). ALSO, SINCE THE THERM- AIR UNITS ARE 50-60 HERTZ, AND THE SOLICITATION CALLED FOR 400-HERTZ UNITS, THEY WILL HAVE TO BE MODIFIED IN ORDER TO MEET THE ARMY'S REQUIREMENTS.

THE CONTRACTING OFFICER HAS CONSIDERED KECO'S CONTENTIONS AND FOUND THEM TO BE WITHOUT MERIT. IN A LETTER TO KECO DATED MAY 7, 1974, THE CONTRACTING OFFICER STATED:

THE AIR CONDITIONER PRODUCED UNDER THE THERM-AIR CONTRACT WAS SUBSTANTIALLY THE SAME AS THE AIR CONDITIONER DESCRIBED IN DAAK02-74-R 0022 EXCEPT FOR THE TYPE OF POWER TO BE USED. WITH THIS MODIFICATION THE THERM-AIR PRODUCT WAS CAPABLE OF MEETING THE SAME GOVERNMENT REQUIREMENTS THAT WOULD HAVE BEEN SATISFIED BY A UNIT PRODUCED IN ACCORDANCE WITH THIS SOLICITATION. THE SIMILARITY OF THESE TWO AIR CONDITIONERS IS FURTHER BORN-OUT BY YOUR ADMITTED INTENTION OF USING CERTAIN PARTS FROM THE THERM- AIR INVENTORY IN YOUR PRODUCTION EFFORT.

THE PROJECT ENGINEER AND SEVERAL OTHER GOVERNMENT PEOPLE WERE AWARE OF THE THERM-AIR DEFAULT INVENTORY. HOWEVER, IN NO WAY COULD THIS KNOWLEDGE OF THE EXISTENCE OF THIS INVENTORY BE EQUIVALENT TO HAVING THE INVENTORY AVAILABLE TO THIS INSTALLATION. ON THE CONTRARY, THESE ITEMS DID NOT BECOME AVAILABLE TO ANY INSTALLATION IN THE GOVERNMENT FROM DCSC UNTIL THE DISPOSAL OF THE LITIGATED APPEAL FROM SAID DEFAULT ACTION. THERE WAS NO INDICATION ON 27 SEPTEMBER 1973 THAT THIS INVENTORY WOULD BECOME AVAILABLE TO OTHER GOVERNMENT INSTALLATIONS. ON THE CONTRARY, A TIME CONSUMING TRIAL BEFORE THE ASBCA WAS CONTEMPLATED AND FURTHER TIME EXPECTED PRIOR TO A DECISION BEFORE THIS INVENTORY WOULD BECOME AVAILABLE.

THE ABOVE FACTUAL STATEMENTS CLEARLY SHOW THAT AT THE TIME OF THE RFP, AT THE TIME THE PROPOSAL WAS SUBMITTED, AND AT THE TIME OF THE PREAWARD SURVEY THE ADEQUATE SUBSTITUTE IN THE FORM OF ITEMS FROM THE THERM-AIR CONTRACT INVENTORY WERE NOT AVAILABLE. IN FACT, THE POSSIBILITY OF SUCH AVAILABILITY WAS NOT KNOWN UNTIL LATE NOVEMBER AND THE ACTUAL AVAILABILITY WAS SOME TIME LATER. THEREFORE, I CONCLUDE THAT THE CANCELLATION OF SUBJECT RFP WAS LEGITIMATE BECAUSE THE REQUIREMENTS OF THE GOVERNMENT CHANGED IN THAT THE ITEMS BECAME AVAILABLE FROM SOURCES WITHIN THE GOVERNMENT SEVERAL MONTHS AFTER THE RFP WAS ISSUED. THEREFORE, OBVIOUSLY THE DECISION TO CANCEL WAS IN NO WAY ARBITRARY.

IN A SERIES OF CASES BEGINNING WITH HEYER PRODUCTS COMPANY V. UNITED STATES, 140 F. SUPP. 409; 135 CT. CL. 63, THE FEDERAL COURTS HAVE RECOGNIZED THAT BECAUSE BIDDERS AND OFFERORS ARE ENTITLED TO HAVE THEIR BIDS AND PROPOSALS CONSIDERED FAIRLY AND HONESTLY FOR AWARD, THE PREPARATION COSTS OF A BID OR PROPOSAL WHICH WAS NOT SO CONSIDERED MAY BE RECOVERABLE IN CERTAIN CIRCUMSTANCES. HEYER HELD THAT RECOVERY COULD BE HAD ONLY WHERE CLEAR AND CONVINCING PROOF SHOWED A FRAUDULENT INDUCEMENT OF BIDS, THAT IS, THAT BIDS WERE NOT INVITED IN GOOD FAITH, BUT AS A PRETENSE TO CONCEAL THE PURPOSE TO AWARD THE CONTRACT TO SOME FAVORED BIDDER OR BIDDERS, AND WITH THE INTENT TO WILLFULLY, CAPRICIOUSLY, AND ARBITRARILY DISREGARD THE OBLIGATION TO LET THE CONTRACT TO THE BIDDER WHOSE BID WAS MOST ADVANTAGEOUS TO THE GOVERNMENT. 140 F. SUPP., SUPRA, AT 414. OUR OFFICE HAS NOTED THAT THE COURT IN HEYER DID NOT EXTEND THE PRINCIPLE ESTABLISHED THERE, EITHER EXPRESSLY OR BY INFERENCE, TO SITUATIONS WHERE ALL BIDS ARE PROPERLY REJECTED IN GOOD FAITH PURSUANT TO THE AUTHORITY VESTED IN THE PROCUREMENT AGENCY BY LAW AND REGULATION. 169425, JUNE 12, 1970; B 164653, SEPTEMBER 10, 1968; B-150159, DECEMBER 6, 1963.

IN ITS DECISION IN THE CASE OF ROBERT F. SIMMONS & ASSOCIATES V. UNITED STATES, 360 F.2D 962; 175 CT. CL. 510, THE COURT OF CLAIMS CONSIDERED A CLAIM FOR BID PREPARATION COSTS ARISING OUT OF A CANCELLATION SITUATION. AFTER PASSAGE OF A LAW REQUIRING CONGRESSIONAL APPROVAL PRIOR TO THE AWARD OF CERTAIN CONSTRUCTION AND LEASE CONTRACTS, THE AGENCY RECEIVED AND OPENED BIDS, DECLINED TO SEEK THE REQUIRED CONGRESSIONAL APPROVAL FOR THE CONTEMPLATED CONTRACT, AND CANCELED THE SOLICITATION. IN HOLDING THAT THE PLAINTIFF HAD FAILED TO STATE A CAUSE OF ACTION, THE COURT STATED:

THERE IS NO ALLEGATION IN THE PRESENT PLEADINGS THAT GSA SHOWED ANY FAVORITISM TOWARD ANY BIDDER, OR THAT GSA HARBORED ANY PRECONCEIVED INTENTION TO IGNORE THE MERITS OF THE BIDS SUBMITTED AND DISCRIMINATELY AWARD THE CONTRACT TO A SELECT BIDDER. THE PLEADINGS LACK ANY SHOWING OF ARBITRARY, CAPRICIOUS, OR BAD FAITH ACTIONS ON THE PART OF GSA. YET THIS IS WHAT IS REQUIRED TO COME WITHIN THE DECISION IN HEYER PRODUCTS CO V. UNITED STATES ***

SEE 360 F.2D, SUPRA, AT 965.

SUBSEQUENT DECISIONS WHICH HAVE DEVELOPED AND APPLIED THE HEYER PRINCIPLE TO DIFFERENT FACTUAL CIRCUMSTANCES DO NOT INDICATE THAT ITS APPLICATION TO A CLAIM ARISING OUT OF A CANCELLATION SITUATION HAS BEEN EXPANDED OR MODIFIED. SEE KECO INDUSTRIES, INC. V. UNITED STATES, 428 F.2D 1233, 1237 (192 CT. CL. 773) (KECO I), AND KECO INDUSTRIES, INC. V. UNITED STATES, 492 F.2D 1200 (CT. CL. 1974) (KECO II).

IN VIEW OF THE FOREGOING, WE BELIEVE KECO'S ALLEGATION THAT THE CONTRACTING OFFICER IMPROPERLY ISSUED THE RFP WITH KNOWLEDGE THAT THE THERM-AIR UNITS WERE AVAILABLE MUST BE CONSIDERED IN LIGHT OF THE HEYER RULE. BASED ON THE FACTS OF RECORD, WE FIND NO INDICATION THAT THE CONTRACTING OFFICER ACTED IN BAD FAITH IN ISSUING THE SOLICITATION. THERE IS NO EVIDENCE SHOWING A PRECONCEIVED INTENTION TO WILLFULLY, CAPRICIOUSLY, AND ARBITRARILY DISREGARD THE OBLIGATION TO AWARD THE CONTRACT TO THE OFFEROR WHOSE PROPOSAL WAS MOST ADVANTAGEOUS TO THE GOVERNMENT. EVEN IF JUDGED BY THE STANDARD OF WHETHER THERE WAS ANY REASONABLE BASIS FOR THE CONTRACTING OFFICER'S ACTION, WE THINK THE CLAIM MUST FAIL. WE BELIEVE THERE IS A REASONABLE BASIS TO SOLICIT OFFERS FOR SUPPLIES WHERE AVAILABILITY OF POSSIBLE SUBSTITUTE ITEMS IS CONTINGENT UPON ANOTHER AGENCY'S SETTLEMENT OF A DISPUTE, ESPECIALLY IN VIEW OF THE CONTRACTING OFFICER'S UNEQUIVOCAL STATEMENT THAT HE HAD NO INDICATION THAT SUCH SETTLEMENT WAS IN PROSPECT AT THE TIME THE SOLICITATION WAS ISSUED.

IN REGARD TO KECO'S ALLEGATION THAT THE CANCELLATION ITSELF WAS ARBITRARY, IN VIEW OF THE AUTHORITIES DISCUSSED SUPRA WE HAVE SOME DOUBT WHETHER EXPLICIT JUDICIAL RECOGNITION HAS BEEN GIVEN TO A RIGHT TO RECOVER PROPOSAL PREPARATION EXPENSES ARISING OUT OF SUCH CIRCUMSTANCES. IN ANY EVENT, WE DO NOT FIND THAT THE CANCELLATION WAS MADE IN BAD FAITH OR IN AN ARBITRARY OR CAPRICIOUS MANNER. IN A NUMBER OF DECISIONS OUR OFFICE HAS OBSERVED THAT CONTRACTING OFFICERS NOT ONLY HAVE THE RIGHT TO REJECT BIDS ON SUPPLIES WHICH ARE NO LONGER NEEDED, BUT WOULD, INDEED, BE DERRELICT IN THEIR DUTY IF THEY DID NOT DO SO. B 159865, OCTOBER 6, 1966; CF. 49 COMP. GEN. 683 (1970). IN THE PRESENT CASE, WE SEE NO BASIS TO OBJECT TO THE CONTRACTING OFFICER'S FINDING THAT THE MODIFIED THERM-AIR UNITS WOULD FULFILL THE GOVERNMENT'S NEEDS, THUS ELIMINATING THE NEED FOR THE SOLICITED SUPPLIES.

LASTLY, IT IS NOTED THAT $600 OF KECO'S CLAIM IS ALLOCATED TO PREAWARD SURVEY COSTS AND $200 TO "FOLLOW-UP AFTER PRE-AWARD SURVEY AND CANCELLATION OF PROCUREMENT." WHETHER SUCH COSTS MAY BE INCLUDED WITHIN THE CONCEPT OF RECOVERABLE BID OR PROPOSAL PREPARATION COSTS HAS NOT BEEN DETERMINED TO OUR KNOWLEDGE. KECO II, SUPRA, SPEAKS OF "*** THE RIGHT TO BE COMPENSATED FOR THE EXPENSE OF UNDERTAKING THE BIDDING PROCESS," WHICH SUGGESTS THAT COSTS OF THE TYPE DESCRIBED ABOVE MIGHT BE REGARDED AS RECOVERABLE BID PREPARATION COSTS. 492 F.2D, SUPRA, AT 1203. IN ANY EVENT, WE BELIEVE SUCH COSTS ARE ANALOGOUS TO BID PREPARATION COSTS, AND THAT NO GREATER BASIS EXISTS FOR REIMBURSING THEM. SEE, IN THIS REGARD, B -174225, NOVEMBER 22, 1971, AND B-168917, OCTOBER 6, 1970.

IN VIEW OF THE FOREGOING, KECO'S CLAIM IS DENIED.