B-180573(1), JUN 19, 1974

B-180573(1): Jun 19, 1974

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

ONLY SCHEDULE II IS RELEVANT TO THE INSTANT PROTEST. TEN BIDS WERE RECEIVED AND OPENED ON SEPTEMBER 28. 859.15 THE GOVERNMENT ESTIMATE FOR SCHEDULE II WAS $337. DURING THE TIME BETWEEN THE REQUEST FOR BID VERIFICATION AND THE DATE IT WAS VERIFIED. A PREAWARD SURVEY WAS CONDUCTED AT THE YANKEE FACILITY. THIS SURVEY REVEALED THAT YANKEE DID NOT HAVE THE FACILITIES TO PERFORM ALL FIVE OF THE SCHEDULES WITHIN THE REQUIRED DELIVERY SCHEDULE AND. DACW87-73-C-9007 WAS AWARDED TO YANKEE FOR SCHEDULE II. YANKEE ADVISED THAT THE ERROR IN ITS BID WAS CAUSED BY USING AN ERRONEOUS AMOUNT OF TRACK FOOTAGE IN COMPUTING ITS BID AND FORWARDED COPIES OF SUPPLIER'S QUOTATIONS AND A SUMMARY SHEET SHOWING THE QUANTITY ON WHICH IT BASED ITS BID.

B-180573(1), JUN 19, 1974

NOTWITHSTANDING VERIFICATION OF EXTREMELY LOW BID BY BIDDER, WHO SUBSEQUENT TO AWARD ALLEGED AN ERROR IN BID DUE TO MISREADING OF SPECIFICATIONS, AND STATEMENT BY PROCURING ACTIVITY THAT DURING PREAWARD SURVEY IT ATTEMPTED UNSUCCESSFULLY TO REVIEW SPECIFICATIONS WITH BIDDER, GAO CONCLUDES THAT IT WOULD BE UNCONSCIONABLE TO REQUIRE CONTRACT PERFORMANCE AT MISTAKEN BID PRICE; THEREFORE, CONTRACT PRICE MAY BE EQUITABLY ADJUSTED TO AMOUNT NOT EXCEEDING THAT OF THE NEXT LOWEST RESPONSIBLE BIDDER.

TO YANKEE ENGINEERING COMPANY, INC.:

ON AUGUST 3, 1972, THE UNITED STATES ARMY ENGINEER DIVISION, HUNTSVILLE, ALABAMA, ISSUED INVITATION FOR BIDS (IFB) NO. DACW87-73-B 9002 FOR THE FURNISHING OF TRAVELING DEFLECTORS FOR THE UNITED STATES POSTAL BULK MAIL CENTERS PROGRAM.

WHILE THE IFB REQUESTED BIDS FOR FIVE SCHEDULES, ONLY SCHEDULE II IS RELEVANT TO THE INSTANT PROTEST. TEN BIDS WERE RECEIVED AND OPENED ON SEPTEMBER 28, 1972, FOR SCHEDULE II:

YANKEE ENGINEERING CO., INC. $199,668.00

SHAFCO INDUSTRIES, INC. 306,645.00

CENTRAL STEEL FABRICATORS 391,035.00

CALIFORNIA BLOWPIPE & STEEL CO. 413,634.72

JERVIS B. WEBB 448,398.00

MID-WEST CONVEYOR CO., INC. 474,526.00

BUTZ ENGINEERING CORPORATION 575,735.00

SHIFFER INDUSTRIAL EQUIP., INC. 587,962.80

LITTON SYSTEMS, INC. 666,620.00

LONGVIEW MACHINE, INC. 689,859.15

THE GOVERNMENT ESTIMATE FOR SCHEDULE II WAS $337,100.

THE CONTRACTING OFFICER, NOTING THE DISPARITY BETWEEN THE BID OF YANKEE ENGINEERING COMPANY, INC. (YANKEE), AND THE NEXT LOW BID AND THE GOVERNMENT ESTIMATE, REQUESTED VERIFICATION OF YANKEE'S BID ON OCTOBER 6, 1972. ON OCTOBER 24, 1972, YANKEE VERIFIED ITS BID PRICE OF $199,668.

ON OCTOBER 17, 1972, DURING THE TIME BETWEEN THE REQUEST FOR BID VERIFICATION AND THE DATE IT WAS VERIFIED, A PREAWARD SURVEY WAS CONDUCTED AT THE YANKEE FACILITY. THIS SURVEY REVEALED THAT YANKEE DID NOT HAVE THE FACILITIES TO PERFORM ALL FIVE OF THE SCHEDULES WITHIN THE REQUIRED DELIVERY SCHEDULE AND, THEREFORE, THE SURVEY TEAM RECOMMENDED AWARD FOR SCHEDULE II ONLY. PURSUANT TO THE INFORMATION CONTAINED IN THE PREAWARD SURVEY, THE CONTRACTING OFFICER DETERMINED YANKEE NONRESPONSIBLE FOR SCHEDULES I, III, AND IV BUT RESPONSIBLE FOR SCHEDULE II. ON NOVEMBER 2, 1972, CONTRACT NO. DACW87-73-C-9007 WAS AWARDED TO YANKEE FOR SCHEDULE II.

ON JANUARY 15, 1973, YANKEE ALLEGED A MISTAKE IN ITS BID AND REQUESTED MODIFICATION OF THE CONTRACT TO COMPENSATE IT FOR THE MISTAKE. IN VIEW OF THIS ALLEGATION, THE CONTRACTING OFFICER ADVISED YANKEE ON JANUARY 20, 1973, TO SUBMIT ITS WORKSHEETS, SUPPLIERS QUOTES AND ANY OTHER MATERIAL WHICH WOULD ESTABLISH THAT A MISTAKE HAD BEEN MADE AND THE AMOUNT OF THE INTENDED BID.

BY LETTER DATED FEBRUARY 9, 1973, YANKEE ADVISED THAT THE ERROR IN ITS BID WAS CAUSED BY USING AN ERRONEOUS AMOUNT OF TRACK FOOTAGE IN COMPUTING ITS BID AND FORWARDED COPIES OF SUPPLIER'S QUOTATIONS AND A SUMMARY SHEET SHOWING THE QUANTITY ON WHICH IT BASED ITS BID. THE SUPPLIER'S QUOTATIONS SHOWED THAT THE BID WAS BASED ON 6,025 FEET AS OPPOSED TO 10,180 FEET REQUIRED BY THE SPECIFICATIONS.

IN THIS REGARD, A CERTIFIED PUBLIC ACCOUNTANT EVALUATED THE COST AND DATA RELATIVE TO THE YANKEE CONTRACT AND REPORTED THE FOLLOWING FINDINGS TO COUNSEL FOR YANKEE:

"*** OUR EVALUATION OF THIS DATA SHOWS THAT THE UNIT COST OF PRODUCTION IS $4,675 AND THAT A TOTAL CONTRACT PRICE IN THE AMOUNT OF $486,560 WOULD PROVIDE A 12% PROFIT AMOUNTING TO $730 PER UNIT.

"THE TOTAL COST OF PRODUCING AND SHIPPING THE EIGHTY (80) END ITEMS AND THE RELATED G & A EXPENSE IS $428,160. THE PRESENT CONTRACT PRICE OF $199,668 WILL RESULT IN A LOSS AMOUNTING TO $228,492.

"IN OUR OPINION, THE CONTRACT BID SUBMISSION WAS TOTALLY UNREALISTIC."

THE CONTRACTING OFFICER'S STATEMENT REGARDING THE YANKEE BID PRICE IS AS FOLLOWS:

"IT IS RECOGNIZED THAT THE CONTRACTING OFFICER WAS GIVEN CONSTRUCTIVE NOTICE OF A POSSIBLE MISTAKE IN BID AS A RESULT OF THE DISPARITY OF THE YANKEE ENGINEERING BID AS COMPARED TO ALL OTHER BIDS AND TO THE GOVERNMENT ESTIMATE. BECAUSE OF THIS DISPARITY, YANKEE ENGINEERING WAS REQUESTED TO VERIFY THEIR BID PRICE WHICH (AS INDICATED IN PARAGRAPH 2) ABOVE WAS REAFFIRMED ON 24 OCTOBER 1972. ALTHOUGH THE CONTRACTING OFFICER DID NOT CONDUCT A DETAILED "WALK-THROUGH" OF THE SPECIFICATION REQUIREMENTS FOR THE YANKEE ENGINEERING COMPANY DURING THE PREAWARD SURVEY, AN EFFORT WAS MADE TO DETERMINE WHETHER ALL THE REQUIREMENTS OF THE SOLICITATION WERE UNDERSTOOD BY YANKEE ENGINEERING AND THROUGH THE AFFIRMATIONS MADE BY MR. *** WHO WAS THE DULY AUTHORIZED REPRESENTATIVE OF YANKEE ENGINEERING, HE ACKNOWLEDGED THAT HE COMPLETELY UNDERSTOOD ALL THE REQUIREMENTS OF THE SOLICITATION. NORMALLY IT WOULD BE UNREASONABLE TO EXPECT TO PROCURE A SCHEDULE AS INDICATED IN THE INVITATION FOR BIDS FOR $199,688 EXCEPT THROUGH A MISTAKE ESPECIALLY IN VIEW OF NINE OTHER BIDS RANGING FROM $306,645 TO $689,859 AND THE GOVERNMENT ESTIMATE WAS $337,100. HOWEVER, IT MUST ALSO BE RECOGNIZED THAT THE CONTRACTING OFFICER DID ATTEMPT TO RESOLVE WHAT WOULD APPEAR TO BE A MISTAKE IN BID PRIOR TO AWARD, BUT BECAUSE OF THE POSITIVE AFFIRMATIONS BY (THE YANKEE ENGINEER WHO WAS RESPONSIBLE FOR THE BID) *** AS TO HIS COMPLETE UNDERSTANDING OF ALL THE REQUIREMENTS OF THE SOLICITATION AND IN RECOGNITION THAT HE WAS THE DULY AUTHORIZED REPRESENTATIVE OF YANKEE ENGINEERING, THE CONTRACTING OFFICER ELECTED TO ACCEPT YANKEE'S CONFIRMATION OF BID PRICE AS BEING VALID. THE CONTRACTING OFFICER ALSO CONSIDERED THAT BECAUSE OF THE LIMITED PHYSICAL FACILITIES OF YANKEE ENGINEERING AND THE SOMEWHAT SMALL ORGANIZATION OF THAT COMPANY, IT WAS ASSUMED THAT PERHAPS THE YANKEE ENGINEERING BID COULD BE CONSIDERED AS VALID BY VIRTUE OF LOW OVER-HEAD OR BURDEN ACCOUNTS AND ALSO THAT PERHAPS THAT YANKEE ENGINEERING WAS ALSO SATISFIED TO WORK ON A SMALL PROFIT MARGIN. THESE ARE SOME OF THE FACTORS THAT CANNOT BE DETERMINED DURING A PREAWARD SURVEY ON A FORMALLY ADVERTISED PROCUREMENT. ADDITIONALLY THE ONE INDIVIDUAL WHO WAS THEN A MEMBER OF YANKEE ENGINEERING COMPANY, INCORPORATED, *** WHO PREPARED THE BID, REPRESENTED YANKEE AT THE PREAWARD SURVEY AND REAFFIRMED THAT THERE WAS NO MISTAKE IN THE BID, CONCEIVABLY MAY HAVE HAD ULTERIOR MOTIVES IN FAILING TO DISCLOSE A MISTAKE PRIOR TO AWARD BUT SUBSEQUENT TO BID OPENING. HOWEVER, IN THIS REGARD IT IS THE OPINION OF THE CONTRACTING OFFICER THAT THE GOVERNMENT SHOULD NOT BE HELD LIABLE FOR ANY ULTERIOR MOTIVES ON THE PART OF THE DULY AUTHORIZED REPRESENTATIVES OF ANY COMPANY SUBMITTING A BID UNDER FORMALLY ADVERTISED PROCUREMENTS. THE EXISTENCE OF ILL WILL BETWEEN THIS FORMER EMPLOYEE AND YANKEE OFFICIALS IS INDICATED. AGAIN THIS TENDS TO LEND CREDENCE TO THE EVIDENCE THAT CONCEIVABLY THERE WERE ERRORS MADE IN THE PREPARATION OF THE YANKEE ENGINEERING BID; HOWEVER, BECAUSE OF THE LACK OF DOCUMENTATION AND THE INADEQUACIES OF THE AUDIT TRAIL IN THE PREPARATION OF THE BID, IT IS IMPOSSIBLE TO FACTUALLY DETERMINE THAT A MISTAKE WAS IN FACT COMMITTED IN BID PREPARATION. UNDER THE CIRCUMSTANCES AND IN THE CONSIDERATION OF THE AMOUNT CLAIMED BY YANKEE ENGINEERING AS A MISTAKE IN BID, WHICH INCIDENTALLY WHEN ADDED TO THE BID PRICE AS SUBMITTED BY YANKEE ENGINEERING, FAR EXCEEDS THE BID PRICE OF THE NEXT LOW RESPONSIVE BIDDER, THE CONTRACTING OFFICER RECOMMENDS THAT THE REQUEST FOR CORRECTION OF BID BE DENIED. NEVERTHELESS SHOULD IT BE DETERMINED THAT CORRECTION OF BID IS IN ORDER, THE DOLLAR AMOUNT OF CORRECTION SHOULD NOT EXCEED THE DIFFERENCE BETWEEN THE BID SUBMITTED BY YANKEE ENGINEERING AND THE NEXT LOW RESPONSIVE BIDDER."

ASIDE FROM THE MATTER OF THE QUANTUM OF BID ERROR, WE BELIEVE THAT THE ABOVE RECORD PROVIDES A BASIS TO CONCLUDE THAT THE YANKEE BID WAS IN ERROR AND, NOTWITHSTANDING VERIFICATION OF THE BID OR THE EXTENT THEREOF, ACCEPTANCE OF THE EXCEEDINGLY LOW BID RESULTED IN AN UNCONSCIONABLY PRICED CONTRACT. IN 45 COMP. GEN. 305, 307 (1965), WE SAID CITING KEMP V. UNITED STATES, 38 F. SUPP. 568 (1941), WHERE A MISTAKE IN BID WAS SO GROSS - AS HERE - THAT IT COULD BE SAID THE GOVERNMENT "WAS OBVIOUSLY GETTING SOMETHING FOR NOTHING," RELIEF FROM THE CONSEQUENCES OF THE MISTAKE MAY BE GRANTED. CONSISTENT WITH THIS THEORY, WE HAVE ALLOWED A REMEDY WHERE ENFORCEMENT OF A CONTRACT AT THE ERRONEOUS BID PRICE WAS CONSIDERED TO BE UNCONSCIONABLE. B-170691, JANUARY 28, 1971; 53 COMP. GEN. 187 (1973). BELIEVE THAT YANKEE IS ENTITLED TO RELIEF TO COMPENSATE IT FOR THE CONSEQUENCES OF ITS ERROR ON THE BASIS THAT ENFORCEMENT OF ITS CONTRACT WOULD BE OVERREACHING UNCONSCIONABLE CONDUCT ON THE PART OF THE GOVERNMENT.

COUNSEL FOR YANKEE HAS QUESTIONED THE ADEQUACY OF THE REQUEST FOR VERIFICATION OF YANKEE'S BID BY THE CONTRACTING OFFICER. WE HAVE REVIEWED THE RECORD AND FIND THAT THE REQUEST FOR VERIFICATION WAS ADEQUATE AND, IN VIEW OF THE HOLDING ABOVE, IT IS UNNECESSARY TO DISCUSS THIS POINT FURTHER.

SINCE WE HOLD THAT IT WOULD BE INEQUITABLE TO REQUIRE YANKEE TO PERFORM AT THE CONTRACT PRICE WHICH PATENTLY REFLECTS A GROSS PRICING ERROR, THERE IS FOR CONSIDERATION THE EXTENT OF RELIEF TO WHICH YANKEE IS ENTITLED. COUNSEL FOR YANKEE MAINTAINS THAT THE CONTRACT PRICE SHOULD BE INCREASED BY $191,367, OR THE DIFFERENCE BETWEEN YANKEE'S BID OF $199,668 AND THAT OF THE THIRD LOW BIDDER IN THE AMOUNT OF $391,035. THIS IS REQUESTED ON THE BASIS THAT THE SECOND LOW BIDDER, SHAFCO, HAD BEEN DETERMINED TO BE FINANCIALLY NONRESPONSIBLE FOR ALL IFB SCHEDULES EXCEPT FOR SCHEDULE II. NO RESPONSIBILITY DETERMINATION WAS MADE FOR SCHEDULE II AS TO SHAFCO, SINCE YANKEE WAS THE SUCCESSFUL BIDDER FOR THAT SCHEDULE. IT IS SIGNIFICANT, IN THIS REGARD, TO NOTE THAT SHAFCO'S BID FOR SCHEDULE II WAS SUBSTANTIALLY HIGHER THAN ITS BIDS FOR SCHEDULES I, III AND IV. SCHEDULE V COVERED OPERATING SPARES ON WHICH SHAFCO OFFERED THE LOWEST PRICE OF ALL 12 BIDDERS.

WE HAVE OFTEN STATED THE RULE THAT THE LIMIT OF RELIEF AVAILABLE TO A CONTRACTOR WHO HAS MADE A BONA FIDE ERROR IN BID IS THE AMOUNT OF THE NEXT LOWEST CORRECT BID. 37 COMP. GEN. 685, 686 (1958), AND THE CASES CITED THEREIN; B-173618, SEPTEMBER 21, 1971; CHERNICK V. UNITED STATES, 178 CT. CL. 498, 506 (1967). THE RATIONALE FOR SUCH LIMITATION IS THAT THE CONTRACTING OFFICER IS BOUND BY 10 U.S.C. 2305(B) TO MAKE AWARD TO THE LOWEST RESPONSIBLE BIDDER SINCE HE HAS NO AUTHORITY TO BIND THE GOVERNMENT TO OTHER THAN THE LOWEST ACCEPTABLE BID. WHILE IN THE ORDINARY CASE, THIS WOULD BE THE NEXT LOW RESPONSIVE BIDDER, WHERE AS HERE, A CONTEMPORANEOUS DETERMINATION OF NONRESPONSIBILITY IS MADE REGARDING THE NEXT LOW BIDDER, THE PRICE OF THAT BIDDER SHOULD BE DISREGARDED AS THE LIMIT OF RELIEF. THE INSTANT CASE, WE BELIEVE IT IS REASONABLE TO SAY THAT SHAFCO WOULD NOT HAVE BEEN ENTITLED TO AWARD CONSIDERATION FOR SCHEDULE II IN LIGHT OF ITS NONRESPONSIBILITY.

APPLYING THIS LIMITATION HERE, WE BELIEVE THAT YANKEE'S CONTRACT PRICE SHOULD BE CORRECTED TO AN AMOUNT NOT TO EXCEED THE BID OF THE NEXT LOWEST RESPONSIBLE BIDDER. SINCE THE RECORD BEFORE US DOES NOT PROVIDE A SUFFICIENT BASIS TO FIX THE MAXIMUM AMOUNT OF PRICE ADJUSTMENT AND YANKEE HAS FAILED TO PROVE ITS INTENDED BID PRICE, WE RECOMMEND THAT NEGOTIATIONS BE UNDERTAKEN WITH YANKEE TO ARRIVE AT A MUTUALLY ACCEPTABLE QUANTUM OF - ELIEF.