B-181670, JAN 16, 1975, 54 COMP GEN 580

B-181670: Jan 16, 1975

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OF BUSINESS WHILE PROVISIONS OF ANTI-ASSIGNMENT STATUTES ARE NOT APPLICABLE TO ASSIGNMENT OF PROPOSALS. RATIONALE FOR POSITION THAT TRANSFER OR ASSIGNMENT OF PROPOSALS IS PROHIBITED UNLESS SUCH TRANSFER IS EFFECTED BY OPERATION OF LAW TO LEGAL ENTITY WHICH IS COMPLETE SUCCESSOR IN INTEREST TO ORIGINAL OFFEROR IS ANALOGOUS TO THAT OF SUCH STATUTES AND "BY OPERATION OF LAW" SHOULD BE INTERPRETED AS INCLUDING BY MERGER. CONTRACTING OFFICER DID NOT ACT UNREASONABLY IN REFUSING TO ALLOW SUBSTITUTION ALTHOUGH PROTESTER COULD HAVE BEEN RECOGNIZED AS SUCCESSOR IN INTEREST IN LIGHT OF ALL CIRCUMSTANCES. AWARD WAS TO TO BE MADE TO THE RESPONSIBLE OFFEROR MAKING THE LOWEST CONFORMING OFFER. THE FIVE OFFERORS SUBMITTING TIMELY PROPOSALS WERE ADVISED THAT THEIR PROPOSALS WERE IN THE COMPETITIVE RANGE AND THAT PRICE NEGOTIATIONS WERE BEING CONDUCTED.

B-181670, JAN 16, 1975, 54 COMP GEN 580

CONTRACTS - NEGOTIATION - ASSIGNMENTS - OFFERS OR PROPOSALS - VALIDITY OF ASSIGNMENT - SALE, ETC., OF BUSINESS WHILE PROVISIONS OF ANTI-ASSIGNMENT STATUTES ARE NOT APPLICABLE TO ASSIGNMENT OF PROPOSALS, RATIONALE FOR POSITION THAT TRANSFER OR ASSIGNMENT OF PROPOSALS IS PROHIBITED UNLESS SUCH TRANSFER IS EFFECTED BY OPERATION OF LAW TO LEGAL ENTITY WHICH IS COMPLETE SUCCESSOR IN INTEREST TO ORIGINAL OFFEROR IS ANALOGOUS TO THAT OF SUCH STATUTES AND "BY OPERATION OF LAW" SHOULD BE INTERPRETED AS INCLUDING BY MERGER, CORPORATE REORGANIZATION, SALE OF AN ENTIRE BUSINESS, OR THAT PORTION OF BUSINESS EMBRACED BY PROPOSAL, OR OTHER MEANS NOT BARRED BY ANTI ASSIGNMENT STATUTES. CONTRACTS - NEGOTIATION - OFFERS OR PROPOSALS - SUBSTITUTE OFFEROR WHERE PROTESTER ATTEMPTED TO SUBSTITUTE ITSELF AS OFFEROR OF PROPOSAL SUBMITTED BY OTHER FIRM BEFORE CONTRACT AWARD, CONTRACTING OFFICER DID NOT ACT UNREASONABLY IN REFUSING TO ALLOW SUBSTITUTION ALTHOUGH PROTESTER COULD HAVE BEEN RECOGNIZED AS SUCCESSOR IN INTEREST IN LIGHT OF ALL CIRCUMSTANCES.

IN THE MATTER OF NUMAX ELECTRONICS, INC., JANUARY 16, 1975:

ON FEBRUARY 8, 1974, THE UNITED STATES ARMY, FRANKFORD ARSENAL, PHILADELPHIA, PENNSYLVANIA, ISSUED REQUEST FOR PROPOSALS (RFP) DAAA25 74-R -0227 DATED FEBRUARY 5, 1974 IN CONTEMPLATION OF A FIRM-FIXED-PRICE CONTRACT FOR LASER TANK GUNNERY TRAINERS. AWARD WAS TO TO BE MADE TO THE RESPONSIBLE OFFEROR MAKING THE LOWEST CONFORMING OFFER.

BY LETTERS DATED APRIL 8, 1974, THE FIVE OFFERORS SUBMITTING TIMELY PROPOSALS WERE ADVISED THAT THEIR PROPOSALS WERE IN THE COMPETITIVE RANGE AND THAT PRICE NEGOTIATIONS WERE BEING CONDUCTED. EACH OFFEROR WAS REQUIRED TO SUBMIT ITS BEST AND FINAL OFFER NO LATER THAN APRIL 19, 1974. THE RANKING OF THE OFFERORS AFTER RECEIPT OF BEST AND FINAL OFFERS, IN ASCENDING ORDER STARTING WITH THE LOWEST PRICED, WAS AS FOLLOWS:

MAXSON ELECTRONICS CORPORATION

APPLIED DEVICES CORPORATION

PHILADELPHIA SCIENTIFIC CONTROLS, INC.

KOLLSMAN INSTRUMENT COMPANY

FREQUENCY ENGINEERING LABORATORIES

ON APRIL 30, 1974, A PREAWARD SURVEY WAS CONDUCTED AT MAXSON ELECTRONICS CORPORATION (MAXSON) BY THE DEFENSE CONTRACT ADMINISTRATION SERVICES DISTRICT (DCASD), GARDEN CITY, NEW YORK, WITH ENGINEERING AND TECHNICAL PERSONNEL FROM FRANKFORD ARSENAL IN ATTENDANCE. DURING THE SURVEY, GOVERNMENT PERSONNEL WERE INFORMED BY REPRESENTATIVES OF MAXSON THAT THE EQUIPMENT AND PERSONNEL TO BE USED TO PERFORM THE CONTRACT WOULD REMAIN THE SAME BUT WOULD BE TRANSFERRED TO A FACILITY OWNED BY NUMAX ELECTRONICS, INC. (NUMAX), IN HAUPPAUGE, NEW YORK, AND THAT THE CONTRACT WOULD BE PERFORMED AT THE NUMAX FACILITY. THE PREAWARD SURVEY TEAM SURVEYED THE HAUPPAUGE FACILITY TO DETERMINE ITS ADEQUACY.

WE HAVE BEEN INFORMED BY COUNSEL FOR NUMAX THAT "FOR SOME MONTHS PRIOR TO THE SUBMITTAL OF THE *** PROPOSAL BY MAXSON, NEGOTIATIONS HAD BEEN CONDUCTED AMONG THE GOVERNMENT, MAXSON, AND TEMPO INSTRUMENTS AND CONTROLS CORPORATION (TEMPO) TO EXPLORE THE POSSIBILITY OF A TRANSFER OF ASSETS FROM MAXSON TO NUMAX. UNDER THE PLAN, NUMAX WOULD BECOME A SUBSIDIARY OF TEMPO ONCE THE TRANSFER OF ASSETS WAS COMPLETED. THE FIRST FORMALIZATION OF THIS PROPOSED TRANSFER WAS A DOCUMENT DATED MARCH 26, 1974, WHICH WAS IN EFFECT A 'LETTER OF INTENT' EXECUTED BY MAXSON AND NUMAX." BY PREAWARD SURVEY REPORT DATED MAY 9, 1974, MAXSON RECEIVED AN AFFIRMATIVE REPORT ON ALL FACTORS SURVEYED EXCEPT FINANCIAL CAPABILITY. SINCE THE CONTRACT NEGOTIATOR BELIEVED THAT THE PENDING EXECUTION OF A NOVATION AGREEMENT INVOLVING MAXSON AND NUMAX WOULD HAVE THE EFFECT OF MAKING NUMAX ELIGIBLE FOR AWARD, THE DETERMINATION OF MAXSON'S FINANCIAL CAPABILITY HAD BEEN DEFERRED.

EVEN THOUGH THE NOVATION AGREEMENT HAD NOT YET BEEN EXECUTED, THE CONTRACTING OFFICER, ON MAY 30, 1974, REQUESTED THE DCASD TO MAKE AN UNQUALIFIED RECOMMENDATION CONCERNING THE FINANCIAL CAPABILITY OF MAXSON NO LATER THAN JUNE 5, 1974. THIS REQUEST WAS MADE IN THE INTEREST OF EXPEDITING CONTRACT AWARD. BY PREAWARD SURVEY REPORT DATED JUNE 5, 1974, MAXSON RECEIVED A NEGATIVE FINANCIAL CAPABILITY RATING. BASED UPON THIS REPORT, THE CONTRACTING OFFICER DETERMINED MAXSON TO BE NONRESPONSIBLE ON JUNE 12, 1974.

ON MAY 31, 1974, THE TRANSFER OF ASSETS FROM MAXSON TO NUMAX WAS ACCOMPLISHED PURSUANT TO A BILL OF SALE AND ASSIGNMENT. THE BILL OF SALE EFFECTED A TRANSFER OF ASSETS, SUBJECT TO THE EXECUTION OF A NOVATION AGREEMENT. THE NOVATION AGREEMENT WAS SIGNED ON MAY 31, 1974, BY MAXSON AND NUMAX AND ON JUNE 24, 1974, BY THE GOVERNMENT. IN THE AGREEMENT, THE GOVERNMENT RECOGNIZED NUMAX AS THE LAWFUL SUCCESSOR IN INTEREST TO ALL OF THE CONTRACTS LISTED THEREIN.

BY LETTER DATED JUNE 4, NUMAX INFORMED THE CONTRACTING OFFICER OF THE FOLLOWING:

*** NUMAX ELECTRONICS INCORPORATED HAS PURCHASED CERTAIN ASSETS, RIGHTS AND MATERIALS, AND HAS ABSORBED THE TOTAL WORK FORCE OF MAXSON ELECTRONICS CORPORATION. ACCORDINGLY, NUMAX HAS, IN EFFECT, SUCCEEDED MAXSON AS THE OFFEROR UNDER SUBJECT SOLICITATION, AND NUMAX PLEDGES TO HONOR THE TERMS AND CONDITIONS OF THE BID AS THOUGH NUMAX HAD BEEN THE ORIGINAL OFFEROR.

WE RESPECTFULLY REQUEST, THEREFORE, THAT ANY AWARD TO BE MADE AS THE RESULT OF REFERENCED PROPOSAL BE MADE TO NUMAX ELECTRONICS INCORPORATED.

IN RESPONSE TO AN INQUIRY BY THE CONTRACTING OFFICER, LEGAL COUNSEL FOR FRANKFORD ARSENAL CONCLUDED BY MEMORANDUM DATED JUNE 17, 1974, THAT THE GOVERNMENT COULD NOT CONSIDER THE JUNE 4 OFFER OF NUMAX OR MAKE AWARD TO THAT FIRM IF IT WAS FOUND TO BE RESPONSIBLE. COUNSEL DETERMINED THAT THE OFFER OF NUMAX WAS A LATE PROPOSAL, AND AN ATTEMPTED SUBSTITUTION OF OFFERORS WHICH WAS PROHIBITED.

SINCE THE CONTRACTING OFFICER DETERMINED THAT MAXSON WAS NONRESPONSIBLE, AND UPON THE ADVICE OF COUNSEL THAT NUMAX'S OFFER COULD NOT BE CONSIDERED, AWARD TO EITHER NUMAX OR MAXSON WAS NOT CONTEMPLATED FURTHER.

ON JUNE 21, 1974, AWARD OF THE CONTRACT WAS MADE TO APPLIED DEVICES CORPORATION, THE NEXT LOW OFFEROR. BY LETTER OF THE SAME DATE, THE CONTRACTING OFFICER INFORMED MAXSON OF THE FOLLOWING:

THIS IS TO NOTIFY YOU THAT I HAVE MADE AWARD TO APPLIED DEVICES CORPORATION OF HAUPPAUGE, L.I., NEW YORK OF CONTRACT DAAA25-74-C0656 RESULTING FROM SUBJECT REQUEST FOR PROPOSAL.

YOUR COMPANY'S OFFER WAS NOT CONSIDERED ACCEPTABLE BECAUSE IT WAS DETERMINED THAT YOU LACKED THE FINANCIAL CAPABILITY TO SUCCESSFULLY PERFORM THE CONTRACT. YOU SHOULD ALSO NOTE THAT YOUR COMPANY, NAMELY MAXSON, WOULD PROBABLY NOT BE ABLE TO COMPLY WITH THE WALSH-HEALEY ACT SINCE YOU NO LONGER POSSESS A MANUFACTURING CAPABILITY. I WAS UNABLE TO CONSIDER NUMAX'S OFFER TO TAKE OVER YOUR OFFER SINCE SUBSTITUTION OF OFFERORS IS PROHIBITED. 51 COMP. GEN. 145 (B-171959, 3 SEP 71); 43 COMP. GEN. 353, 372 (B-150978, 10 OCT 63).

IN THE CIRCUMSTANCES, I HAD NO ALTERNATIVE BUT TO DETERMINE THAT YOU WERE NOT ABLE TO DEMONSTRATE AFFIRMATIVELY YOUR RESPONSIBILITY TO RECEIVE AWARD UNDER THE CRITERIA SET FORTH IN ASPR 1-902.

IN ADDITION, BY LETTER OF JUNE 21, THE CONTRACTING OFFICER INFORMED NUMAX OF THE FOLLOWING:

WE ARE IN RECEIPT OF YOUR LETTER OF 4 JUNE 74 REGARDING REFERENCED PROPOSAL MAXSON ELECTRONICS CORPORATION UNDER SUBJECT SOLICITATIONS.

YOUR OFFER TO TAKE OVER MAXSON'S OFFER MUST BE TREATED AS A LATE PROPOSAL IN ACCORDANCE WITH SECTION C-1, P. 10 OF THE RFP. WE ARE REQUIRED TO CONSIDER ONLY THOSE COMPANIES WHO SUBMITTED INITIAL TIMELY PROPOSALS. NUMAX WAS NOT ONE OF THOSE COMPANIES. YOUR OFFER WOULD CONSTITUTE A SUBSTITUTION OF OFFERS, A PRACTICE PROHIBITED BY THE COMPTROLLER GENERAL. 51 COMP. GEN. 145 (B-171959, 3 SEP 71); 43 COMP. GEN. 353, 372 (B-150978, 10 OCT 63).

HENCE, MAXSON'S PROPOSAL UNDER THIS REQUEST FOR PROPOSAL HAS BEEN TREATED A SUBMITTED, I.E., AS AN OFFER BY MAXSON ELECTRONICS CORPORATION.

COUNSEL FOR NUMAX PROTESTED THE AWARD OF THE CONTRACT TO ANY OTHER OFFEROR. PURSUANT TO SECTION 20.9 OF OUR INTERIM BID PROTEST PROCEDURES AND STANDARDS, 4 CFR PART 20 (1974), COUNSEL FOR NUMAX REQUESTED A CONFERENCE ON THE PROTEST. ON OCTOBER 2, 1974, A CONFERENCE WAS HELD WITH COUNSEL FOR NUMAX AND REPRESENTATIVES OF THE DEPARTMENT OF THE ARMY AND OUR OFFICE.

THE FUNDAMENTAL ISSUE RAISED IS WHETHER NUMAX SHOULD HAVE BEEN ALLOWED TO SUBSTITUTE ITSELF AS THE OFFEROR OF THE PROPOSAL SUBMITTED BY MAXSON.

WE HAVE COUNTENANCED THE TRANSFER OR ASSIGNMENT OF RIGHTS AND OBLIGATIONS ARISING OUT OF PROPOSALS ONLY WHERE "SUCH TRANSFER IS EFFECTED BY OPERATION OF LAW TO A LEGAL ENTITY WHICH IS THE COMPLETE SUCCESSOR IN INTEREST TO THE ORIGINAL OFFEROR." SEE 43 COMP. GEN. 353, 372 (1963) AND 51 ID. 145, 148 (1971).

THE ANTI-ASSIGNMENT STATUTES, 41 U.S.C. SEC. 15 (1970), AND 31 U.S.C. SEC. 203 (1970), PROHIBIT THE ASSIGNMENT OF GOVERNMENT CONTRACTS AND CLAIMS. THE PURPOSE OF THESE STATUTES IS AS FOLLOWS:

*** TO SECURE TO THE GOVERNMENT THE PERSONAL ATTENTION AND SERVICES OF THE CONTRACTOR; TO RENDER HIM LIABLE TO PUNISHMENT FOR FRAUD OR NEGLECT OF DUTY; AND TO PREVENT PARTIES FROM ACQUIRING MORE SPECULATIVE INTERESTS, FRANCIS V. UNITED STATES, 1875, 11 CT. CL. 638 AND FROM THEREAFTER SELLING THE CONTRACTS AT A PROFIT TO BONA FIDE BIDDERS AND CONTRACTORS, 1888, 19 OP. ATTY. GEN. 187. THOMPSON V. COMMISSIONER OF INTERNAL REVENUE, 205 F.2D 73, 76 (3D CIR. 1953).

ACCORDINGLY, THESE STATUTES HAVE BEEN INTERPRETED AS PROHIBITING VOLUNTARY ASSIGNMENTS OF GOVERNMENT CONTRACTS AND CLAIMS. INVOLUNTARY ASSIGNMENTS SUCH AS THOSE EFFECTED BY OPERATION OF LAW ARE NOT PROHIBITED BY THE ABOVE-REFERENCED STATUTES. SEE SHNITZER, "ASSIGNMENT OF CLAIMS ARISING OUT OF GOVERNMENT CONTRACTS," 16 FEDERAL BAR JOURNAL 376 (1956); AND ARMED SERVICES BOARD OF CONTRACT APPEALS NOS. 18304 AND 18218, 74-1 BCA 10,470 (1974). IN ADDITION, THE TRANSFER OF GOVERNMENT CONTRACTS AND CLAIMS INCIDENT TO CORPORATE MERGERS AND REORGANIZATIONS, AND TO THE SALE OF AN ENTIRE BUSINESS OR OF AN ENTIRE PORTION OF A BUSINESS ARE NOT PROHIBITED BY THE ANTI-ASSIGNMENT STATUTES. SEE SEABOARD AIR LINE RAILWAY V. UNITED STATES, 256 U.S. 655 (1921); MITCHELL CANNERIES, INC. V. UNITED STATES, 111 CT. CL. 228 (1948); KINGAN & CO., INC. V. UNITED STATES, 44 F.2D 447 (1930); AND 9 COMP. GEN. 72 (1929).

WHILE THE PROVISIONS OF THE ANTI-ASSIGNMENT STATUTES ARE NOT APPLICABLE TO THE ASSIGNMENT OF PROPOSALS, THE RATIONALE FOR THE POSITION TAKEN BY OUR OFFICE CONCERNING THE ASSIGNMENT OF PROPOSALS IS ANALOGOUS TO THAT OF THE ABOVE-REFERENCED STATUTES.

CONSEQUENTLY, THE PHRASE "UNLESS SUCH TRANSFER IS EFFECTED BY OPERATION OF LAW. ***" AS USED IN 43 COMP. GEN., SUPRA, AND 51 COMP. GEN., SUPRA, SHOULD NOT BE CONSTRUED LITERALLY. RATHER, IT SHOULD BE INTERPRETED AS PERMITTING THE ASSIGNMENT OF PROPOSALS WHEN SUCH TRANSFER IS EFFECTED BY OPERATION OF LAW, OR MERGER, OR CORPORATE REORGANIZATION, OR SALE OF AN ENTIRE BUSINESS, OR SALE OF AN ENTIRE PORTION OF A BUSINESS EMBRACED BY THE PROPOSAL, OR ANY OTHER MEANS NOT BARRED BY 41 U.S.C. SEC. 15 OR 31 U.S.C. SEC. 203.

NUMAX CONTENDS THAT THE TRANSFER OF ASSETS FROM MAXSON TO NUMAX CONSTITUTES A SALE OF AN ENTIRE BUSINESS AND THAT THE RATIONALE FOR PERMITTING SUBSTITUTION OF OFFERORS WHEN TRANSFERS ARE EFFECTED BY OPERATION OF LAW IS APPLICABLE. AS DISCUSSED ABOVE, WE ARE IN AGREEMENT WITH THE POSITION OF NUMAX THAT THE RATIONALE FOR PERMITTING SUBSTITUTION OF OFFERORS WHEN TRANSFERS ARE BY OPERATION OF LAW IS APPLICABLE TO THOSE SITUATIONS IN WHICH THE TRANSFER IS INCIDENT TO THE SALE OF AN ENTIRE BUSINESS.

THE LETTER OF INTENT, EXECUTED BY MAXSON AND NUMAX ON MARCH 26, 1974, PROVIDES IN PERTINENT PART AS FOLLOWS:

1. SALE OF CERTAIN ASSETS. UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS AGREEMENT, THE SELLER (MAXSON) HEREBY AGREES TO CONVEY, ASSIGN AND DELIVER TO PURCHASER (NUMAX), AND PURCHASER HEREBY AGREES TO ACQUIRE AND ACCEPT ASSIGNMENT, TRANSFER AND DELIVERY FROM THE SELLER OF THE FOLLOWING ASSETS, AS SAME SHALL EXIST ON THE CLOSING DATE HEREINAFTER REFERRED TO:

(A) ALL OF SELLER'S RIGHT, TITLE AND INTEREST IN AND TO ALL CONTRACTS LISTED ON SCHEDULE A ANNEXED HERETO (INCLUDES NO REFERENCE TO THE INSTANT PROPOSAL) AND MADE A PART HEREOF; AND ALL OF SELLER'S RIGHT, TITLE AND INTEREST IN AND TO ANY CONTRACT ENTERED INTO BY SELLER BETWEEN THE DATE HEREOF AND THE CLOSING DATE FOR THE MANUFACTURE OR ASSEMBLY OF ANY PRODUCT OR SYSTEM, PROVIDED PURCHASER HAS GIVEN ITS PRIOR WRITTEN CONSENT TO THE EXECUTION OF SUCH CONTRACT BY SELLER;

(B) THE MACHINERY, EQUIPMENT, FURNITURE AND FIXTURES OWNED BY SELLER AND REQUIRED IN THE PERFORMANCE OF THE CONTRACTS LISTED ON SCHEDULE A HERETO OR REQUIRED IN THE PERFORMANCE OF ANY CONTRACT ENTERED INTO BETWEEN THE DATE HEREOF AND THE CLOSING DATE (PROVIDED PURCHASER HAS GIVEN ITS PRIOR WRITTEN CONSENT TO ANY CONTRACT ENTERED INTO BETWEEN THE DATE HEREOF AND THE CLOSING DATE). PRIOR TO CLOSING SELLER AND PURCHASER SHALL AGREE IN WRITING ON THE ITEMS OF MACHINERY, EQUIPMENT, FURNITURE AND FIXTURES TO BE ASSIGNED, TRANSFERRED AND DELIVERED AT CLOSING;

(D) ALL OF SELLER'S RIGHT, TITLE AND INTEREST IN AND TO ALL INVENTORY RELATED TO THE CONTRACTS LISTED ON SCHEDULE A HERETO AND THE INVENTORY RELATED TO ANY CONTRACT ENTERED INTO WITH PURCHASER'S CONSENT BETWEEN THE DATE HEREON AND CLOSING.

2. ASSUMPTION OF LIABILITIES BY PURCHASER. UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS AGREEMENT, PURCHASER WILL ASSUME ON THE CLOSING DATE AND SATISFY AS THEY MATURE AND BECOME DUE (A) ALL ACCOUNTS PAYABLE IN EXISTENCE AT JANUARY 27, 1974 AS SET FORTH ON EXHIBIT 1 HERETO (EXCEPT TO THE EXTENT THAT ANY SUCH PAYABLES HAVE BEEN PAID PRIOR TO THE CLOSING DATE); (B) ALL LIABILITIES AND CONTRACTUAL OBLIGATIONS EMBODIED IN THE CONTRACTS SET FORTH ON SCHEDULE A HERETO; (C) ALL LIABILITIES AND CONTRACTUAL OBLIGATIONS EMBODIED IN CONTRACTS ENTERED INTO BETWEEN THE DATE HEREOF AND THE CLOSING DATE FOR THE MANUFACTURE OR ASSEMBLY OF ANY PRODUCT OR SYSTEM, PROVIDED PURCHASER HAS GIVEN ITS PRIOR WRITTEN CONSENT TO THE EXECUTION OF SUCH CONTRACT BY SELLER, AND (D) ALL LIABILITIES (INCLUDING ACCOUNTS PAYABLE) OF SELLER INCURRED BETWEEN JANUARY 27, 1974 AND THE CLOSING DATE AND IN EXISTENCE ON THE CLOSING DATE, PROVIDED SUCH LIABILITIES ARE RELATED TO THE PERFORMANCE OF THE CONTRACTS LISTED ON SCHEDULE A HERETO OR CONTRACTS ENTERED INTO BETWEEN THE DATE HEREOF AND CLOSING WITH PURCHASER'S CONSENT, AND FURTHER PROVIDED THAT SUCH LIABILITIES ARE INCURRED IN THE ORDINARY COURSE OF SELLER'S BUSINESS. IT IS THE INTENTION OF THE PARTIES HERETO THAT PURCHASER SHALL ASSUME ON THE CLOSING PRIMARILY THOSE LIABILITIES OF SELLER RELATED TO THE PERFORMANCE OF THE CONTRACTS LISTED ON SCHEDULE A HERETO AS SUCH LIABILITIES EXIST ON THE CLOSING DATE. THE LIABILITY RELATED TO THE PERFORMANCE OF SUCH CONTRACTS AS OF JANUARY 27, 1974, ARE SET FORTH IN EXHIBIT 1 HERETO. ***

THE BILL OF SALE AND ASSIGNMENT EXECUTED BY MAXSON AND NUMAX ON MAY 31, 1974, PROVIDES THAT MAXSON FOR CONSIDERATION PAID BY NUMAX DOES -

*** HEREBY GRANT, BARGAIN, SELL, ASSIGN, ALIEN, REMISE, RELEASE, BARGAIN AND SELL, AND BY THESE PRESENTS DOES GRANT AND CONVEY UNTO THE PURCHASER, ITS SUCCESSORS AND ASSIGNS, FOREVER, THE FOLLOWING ASSETS:

(A) ALL OF THE SELLER'S RIGHT TITLE AND INTEREST IN AND TO ALL CONTRACTS LISTED ON SCHEDULE A ANNEXED HERETO AND MADE A PART HEREOF;

(B) ALL OF SELLER'S RIGHT, TITLE AND INTEREST IN AND TO THE MACHINERY, EQUIPMENT, FURNITURE AND FIXTURES LISTED ON SCHEDULE B ANNEXED HERETO AND MADE A PART HEREOF;

(C) ALL OF SELLER'S RIGHT, TITLE AND INTEREST IN AND TO ALL INVENTORY RELATED TO THE CONTRACTS LISTED ON SCHEDULE A HERETO; ***

THE NOVATION AGREEMENT SIGNED BY NUMAX AND MAXSON ON MAY 31, 1974, AND EXECUTED BY THE GOVERNMENT ON JUNE 24, 1974, PROVIDES, IN PERTINENT PART, AS FOLLOWS:

11. THE GOVERNMENT HEREBY RECOGNIZES THE TRANSFEREE (NUMAX) AS THE TRANSFEROR'S (MAXSON'S) SUCCESSOR IN INTEREST IN AND TO THE CONTRACTS (LISTED IN SCHEDULE A). THE TRANSFEREE HEREBY BECOMES ENTITLED TO ALL RIGHT, TITLE AND INTEREST OF THE TRANSFEROR IN AND TO THE CONTRACTS IN ALL RESPECTS AS IF THE TRANSFEREE WERE THE ORIGINAL PARTY TO THE CONTRACTS. THE TERM "CONTRACTOR" AS USED IN THE CONTRACTS SHALL BE DEEMED TO REFER TO THE TRANSFEREE RATHER THAN TO THE TRANSFEROR.

17. THE GOVERNMENT SHALL HAVE NO CLAIM AGAINST TRANSFEREE AND TRANSFEREE SHALL HAVE NO LIABILITY TO THE GOVERNMENT BY RIGHT OF OFFSET OR OTHERWISE UNDER ANY CONTRACTS OR PURCHASE ORDERS BETWEEN THE GOVERNMENT AND TRANSFEROR, EXCEPT WITH RESPECT TO THE CONTRACTS AND PURCHASE ORDERS SET FORTH ON EXHIBIT A (THE NOVATED CONTRACTS). ***

IN SUPPORT OF ITS CONTENTION THAT THE SALE CONSTITUTED THE SALE OF AN ENTIRE BUSINESS, NUMAX HAS INFORMED US THAT ALL EMPLOYEES FORMERLY AT MAXSON HAVE BEEN TRANSFERRED TO NUMAX; THAT ALL THE GOVERNMENT CONTRACTS OF MAXSON WHICH WERE IN AN ACTIVE STATUS WERE ASSIGNED TO NUMAX; AND THAT MAXSON CONTINUES TO EXIST ONLY AS A CORPORATE SHELL FOR THE PURPOSE OF WINDING UP OUTSTANDING CONTRACTS (ALL OF WHICH WERE IN AN INACTIVE STATUS). HOWEVER, COUNSEL FOR THE PROCUREMENT ACTIVITY ADVISED THE CONTRACTING OFFICER TO THE CONTRARY AS FOLLOWS:

A. THE DATE FOR RECEIPT OF INITIAL PROPOSALS WAS 1 APRIL 1974. NEGOTIATIONS CLOSED, 19 APRIL 1974. THEREFORE, IF THE RELATIONSHIP BETWEEN NUMAX AND MAXSON IS IGNORED, IT IS APPARENT THAT NUMAX'S AND MAXSON IS IGNORED, IT IS APPARENT THAT NUMAX'S 4 JUNE 74 LETTER IS A LATE PROPOSAL AND MUST BE REJECTED.

B. HOWEVER, THE FILE SHOWS THAT THE GOVERNMENT IS GOING TO APPROVE A NOVATION AGREEMENT BETWEEN NUMAX AND MAXSON. THE IMPORTANT POINT IS THAT THIS AGREEMENT WILL NOT TRANSFER BIDS AND OFFERS SUBMITTED BY MAXSON. FACT THE COMPTROLLER GENERAL PROHIBITS SUBSTITUTION OF OFFERORS AND BIDDERS BECAUSE OF CONSIDERATIONS OF PUBLIC AND PROCUREMENT POLICY. COMP. GEN. 145 (B-171959, 3 SEP 71), 43 COMP. GEN. 353, 372 (B-150978, 10 OCT 63).

C. THIS IS NOT A CHANGE OF NAME SITUATION. MAXSON IS SELLING MOST OF ITS ASSETS AND MOVING ITS LABOR FORCE TO A DIFFERENT AND NON-AFFILIATED CORPORATION. THAT CORPORATION WAS NOT LEGALLY OBLIGATED TO CARRY OUT THE PROMISES MADE BY NUMAX (MAXSON) BY ITS INITIAL OFFER.

4. THEREFORE, THE GOVERNMENT MAY NOT CONSIDER NUMAX'S OFFER AND MUST DETERMINE RESPONSIBILITY BY ANALYSIS OF MAXSON'S CAPABILITY AS THE RESPONSIBLE ENTITY. THIS HAS BEEN DONE.

WE BELIEVE THAT THE CONTRACTING ACTIVITY COULD HAVE RECOGNIZED THAT NUMAX WAS A SUCCESSOR IN INTEREST TO THE MAXSON PROPOSAL IN LIGHT OF ALL THE CIRCUMSTANCES FLOWING FROM THE LETTER OF INTENT AND BILL OF SALE AND ASSIGNMENT, CONSIDERING ALSO THE PRACTICAL ASPECTS OF THE PURPORTED SUBSTITUTION OF OFFERORS. BUT WE CANNOT SAY THAT THE CONTRACTING OFFICER ACTED UNREASONABLY IN REFUSING TO ALLOW THE SUBSTITUTION.

OUR VIEW IS, OF COURSE, BASED ON A RECORD WHICH REFLECTS NOT ONLY THE ADMINISTRATIVE POSITION BUT ALSO THE OPPOSING COMMENTS OF THE PROTESTER'S COUNSEL. AS INDICATED ABOVE, THE ADMINISTRATIVE DECISION WAS ARRIVED AT AFTER REVIEW OF EXISTING PRECEDENT AS INTERPRETED BY COUNSEL. THOUGH IT NOW APPEARS TO US FROM THE ENTIRE RECORD THAT THE ACTION TAKEN WAS BOTTOMED UPON AN OVERLY TECHNICAL INTERPRETATION OF PRECEDENT WITHOUT REGARD TO THE PRACTICAL, VIABLE ASPECTS OF THE ATTEMPTED SUBSTITUTION, WE DO NOT FEEL THAT THE AWARD MADE TO THE APPLIED DEVICES CORPORATION SHOULD BE QUESTIONED BY OUR OFFICE.

FOR THE REASONS SET FORTH ABOVE, THE PROTEST OF NUMAX IS DENIED.