B-181811, MAR 14, 1975

B-181811: Mar 14, 1975

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IT WAS PROPER FOR THE GOVERNMENT NEGOTIATOR TO DISCUSS WITH OFFERORS IN A COMPETITIVE RANGE THE REALISM OF THEIR ESTIMATED COSTS AND TO PERMIT THE SUBMISSION OF REVISED OFFERS. 2. SUCCESSFUL OFFEROR'S 1 PERCENT 20-DAY PROMPT PAYMENT DISCOUNT WAS PROPERLY CONSIDERED IN THE EVALUATION OF PROPOSALS. SINCE PROTESTER WAS ON NOTICE THAT ANY OFFERED DISCOUNT WOULD BE EVALUATED AND DECISION TO OFFER DISCOUNT IS MATTER OF BUSINESS JUDGMENT. THE FOLLOWING THREE WERE DETERMINED TO BE WITHIN THE COMPETITIVE PRICE RANGE FOR THE PROCUREMENT. 586.20 THESE THREE PROPOSALS WERE REVIEWED BY PERSONNEL AT THE NAVY PHOTOGRAPHIC CENTER (NPC) WHO FURNISHED TECHNICAL RECOMMENDATIONS TO NRPO AS A BASIS FOR NEGOTIATIONS.

B-181811, MAR 14, 1975

1. DURING NEGOTIATIONS PRECEDING AWARD OF COST-PLUS-FIXED-FEE CONTRACT, IT WAS PROPER FOR THE GOVERNMENT NEGOTIATOR TO DISCUSS WITH OFFERORS IN A COMPETITIVE RANGE THE REALISM OF THEIR ESTIMATED COSTS AND TO PERMIT THE SUBMISSION OF REVISED OFFERS. 2. SUCCESSFUL OFFEROR'S 1 PERCENT 20-DAY PROMPT PAYMENT DISCOUNT WAS PROPERLY CONSIDERED IN THE EVALUATION OF PROPOSALS, SINCE THE SOLICITATION PROVIDED THAT SUCH OFFERED DISCOUNTS WOULD BE EVALUATED. MOREOVER, THE GOVERNMENT NEGOTIATOR HAD NO OBLIGATION TO SUGGEST TO PROTESTER THAT IT WOULD BE TO THAT FIRM'S ADVANTAGE TO OFFER A PROMPT PAYMENT DISCOUNT, SINCE PROTESTER WAS ON NOTICE THAT ANY OFFERED DISCOUNT WOULD BE EVALUATED AND DECISION TO OFFER DISCOUNT IS MATTER OF BUSINESS JUDGMENT.

JERRY FAIRBANKS PRODUCTIONS:

JERRY FAIRBANKS PRODUCTIONS (FAIRBANKS) PROTESTED AGAINST THE AWARD OF A CONTRACT TO TECFILMS, INC., UNDER REQUEST FOR PROPOSALS (RFP) N00600-74-R- 5541, ISSUED BY THE NAVAL REGIONAL PROCUREMENT OFFICE (NRPO), WASHINGTON, D.C.

THE SOLICITATION CONTEMPLATED A COST-PLUS-FIXED-FEE CONTRACT FOR THE PRODUCTION OF FIVE TRAINING FILMS. OF THE FIVE PROPOSALS TIMELY RECEIVED, THE FOLLOWING THREE WERE DETERMINED TO BE WITHIN THE COMPETITIVE PRICE RANGE FOR THE PROCUREMENT.

FAIRBANKS $ 97,352.00

CASCADE PICTURES 105,142.00

TECFILMS 107,586.20

THESE THREE PROPOSALS WERE REVIEWED BY PERSONNEL AT THE NAVY PHOTOGRAPHIC CENTER (NPC) WHO FURNISHED TECHNICAL RECOMMENDATIONS TO NRPO AS A BASIS FOR NEGOTIATIONS. FOLLOWING NEGOTIATIONS, THE FOLLOWING BEST AND FINAL OFFERS WERE RECEIVED:

TECFILMS $103,037.14 MINUS

1 PERCENT 20-DAY

PROMPT PAYMENT

DISCOUNT $102,006.77

FAIRBANKS 102,072.00

CASCADE PICTURES 103,498.00

THE ESTIMATED TOTAL COST OF PROCURING THE TRAINING FILMS FROM EACH OF THE OFFERORS, AFTER THE ADDITION OF EVALUATION FACTORS FOR TRAVEL AND SUBSISTENCE REQUIREMENTS OF GOVERNMENT PERSONNEL, WAS:

TECFILMS $103,906.07

(INCLUDING PROMPT

PAYMENT DISCOUNT)

FAIRBANKS 104,902.00

CASCADE PICTURES 106,328.00

ON JUNE 24, 1974, THE CONTRACT WAS AWARDED TO TECFILMS.

FAIRBANKS' PRINCIPAL CONTENTION IS THAT THE GOVERNMENT'S BUYER IMPROPERLY PROMPTED IT TO MAKE UPWARD REVISIONS TO ITS ESTIMATE COSTS, WHICH CAUSED FAIRBANKS TO LOSE THE COMPETITIVE ADVANTAGE OF ITS INITIAL PROPOSAL. THIS CONNECTION, FAIRBANKS CLAIMS THAT IT INCREASED ITS PRICE SOLELY TO PROTECT THE GOVERNMENT AFTER THE BUYER URGED THAT IT DO SO IN ORDER TO AVOID A POSSIBLE COST OVERRUN, AND THAT IT BELIEVED THIS WOULD NOT AFFECT ITS COMPETITIVE POSITION BECAUSE IT UNDERSTOOD FROM NPC PERSONNEL THAT IT WAS LOW AND THEREFORE IN LINE FOR THE AWARD.

THE RECORD SHOWS THAT AFTER RECEIPT OF PROPOSALS AND NPC'S EVALUATION OF THEM, THE BUYER FOR THE PROCURING ACTIVITY CALLED EACH OFFEROR WITHIN A COMPETITIVE RANGE AND ESSENTIALLY DISCUSSED WITH EACH THE REALISM OF ITS ESTIMATED COSTS. AS A RESULT, THE PROTESTER SUBMITTED A BEST AND FINAL OFFER IN WHICH THOSE COSTS WERE REVISED UPWARD. THE BUYER CONDUCTED A SIMILAR DISCUSSION WITH TECFILMS, DURING WHICH THE LATTER WAS ASKED TO REVIEW THE COSTS OF THE PRODUCTION STAFF AND EFFORT INVOLVED, AS THEY APPEARED TO BE EXCESSIVE. TECFILMS SUBMITTED A BEST AND FINAL OFFER LOWERING ITS ESTIMATED COSTS WHICH, WHEN COMBINED WITH THE PROTESTER'S UPWARD REVISION, RESULTED IN TECFILMS SUPPLANTING THE PROTESTER AS THE LOW OFFEROR.

WE HAVE RECOGNIZED THAT THE GOVERNMENT, IN NEGOTIATING FOR THE AWARD OF A FIXED-PRICE CONTRACT, MAY PROPERLY ATTEMPT TO INSURE THAT A PROPOSED PRICE IS NOT UNREALISTICALLY LOW. 50 COMP. GEN. 788 (1971); SEE ALSO B- 174947(1), AUGUST 30, 1972, A CASE SIMILAR TO THIS ONE, IN WHICH WE HELD THAT ARMY NEGOTIATORS ACTED PROPERLY IN QUESTIONING ONE OFFEROR'S LOW PRICES IN A CERTAIN AREA OF MOTION PICTURE PRODUCTION WHILE ALSO QUESTIONING ANOTHER OFFEROR'S HIGH PRICES IN A DIFFERENT AREA. SIMILARLY, WHEN COST TYPE CONTRACTS ARE INVOLVED, WE HAVE SAID THAT OFFERORS SHOULD BE ADVISED "IN DETAILED TERMS" WHEN ASPECTS OF THEIR COST PROPOSALS ARE REGARDED AS UNREALISTIC. MATTER OF RAYTHEON COMPANY, B-180414, SEPTEMBER 3, 1974, 54 COMP. GEN. . IN THIS CONNECTION, ASPR 3-803(C) (1974 ED.) STATES THAT "AWARD OF COST REIMBURSEMENT TYPE CONTRACTS PRIMARILY ON THE BASIS OF ESTIMATED COSTS MAY ENCOURAGE THE SUBMISSION OF UNREALISTICALLY LOW ESTIMATES AND INCREASE THE LIKELIHOOD OF COST OVERRUNS" AND THAT A PROPOSED COST ESTIMATE IS "IMPORTANT" IN DETERMINING "THE PROSPECTIVE CONTRACTOR'S UNDERSTANDING OF THE PROJECT AND ABILITY TO ORGANIZE AND PERFORM THE CONTRACT."

HERE IT IS APPARENT THAT AWARD WAS TO BE MADE PRIMARILY ON THE BASIS OF ESTIMATED COSTS, AND THE NAVY REPORTS THAT SINCE A COST REIMBURSEMENT CONTRACT WAS TO BE AWARDED, IT WANTED TO ASSURE THAT THE "PROPOSED COSTS WERE AS REASONABLE AS POSSIBLE" TO REDUCE THE POSSIBILITY OF A COST OVERRUN WHICH HAD BEEN "A PROBLEM ON PAST CPFF CONTRACTS." IT DENIES, HOWEVER, THAT ITS BUYER SUGGESTED OR URGED THAT FAIRBANKS INCREASE ITS COST ESTIMATE. ACCORDING TO THE NAVY, THE BUYER ONLY INFORMED FAIRBANKS THAT IN THE OPINION OF NAVY'S TECHNICAL PERSONNEL ITS ESTIMATED ANIMATION COSTS WERE TOO LOW AND THEREFORE SHOULD BE REVIEWED. WHILE THERE IS A DISPUTE AS TO THE FORCEFULNESS WITH WHICH THIS OBSERVATION WAS MADE, THE RECORD DOES NOT ESTABLISH THAT THE BUYER ACTED IMPROPERLY. RATHER, IT APPEARS THAT THE NEGOTIATING PROCESS WAS PROPERLY UTILIZED BY THE NAVY TO DETERMINE THE REALISM OF THE COSTS PROPOSED BY THE OFFERORS IN THE COMPETITIVE RANGE.

FAIRBANKS ALSO QUESTIONS THE PROPRIETY OF THE NAVY'S USING A COST REIMBURSEMENT TYPE CONTRACT. 10 U.S.C. 2306(C) PROVIDES THAT A COST CONTRACT MAY BE AWARDED WHERE IT IS DETERMINED THAT SUCH A CONTRACT IS LIKELY TO BE LESS COSTLY THAN ANY OTHER KIND OF CONTRACT OR THAT "IT IS IMPRACTICABLE TO OBTAIN PROPERTY OR SERVICES OF THE KIND OR QUALITY REQUIRED EXCEPT UNDER SUCH A CONTRACT." WE HAVE BEEN ADVISED BY THE NAVY THAT THE CONTRACTING OFFICER DETERMINED, ON JUNE 19, 1974, THAT IT WAS IMPRACTICABLE TO OBTAIN THE DESIRED SERVICES ON A FIXED-PRICE BASIS BECAUSE "ADEQUATE SPECIFICATIONS SUITABLE FOR A FIRM FIXED PRICE CONTRACT" WERE NOT AVAILABLE. ACCORDINGLY, THE USE OF COST TYPE CONTRACTING IN THIS CASE DOES NOT APPEAR TO BE OBJECTIONABLE.

FINALLY, FAIRBANKS QUESTIONS THE EVALUATION OF TECFILM'S PROPOSAL ON THE BASIS OF AN OFFERED PROMPT PAYMENT DISCOUNT. SECTION D OF THE SOLICITATION ADVISED OFFERORS THAT IN ACCORDANCE WITH PARAGRAPH 9(A) OF STANDARD FORM 33A (MARCH 1969 ED.), "PROMPT PAYMENT DISCOUNTS WILL BE CONSIDERED IN THE EVALUATION OF BIDS, PROVIDED THE MINIMUM PERIOD FOR THE OFFERED DISCOUNT IS 20 DAYS ***." TECFILMS' PROPOSAL WAS EVALUATED BY DEDUCTING FROM ITS PROPOSED ESTIMATED COSTS (AS EVALUATED WITH THE ADDITION OF FACTORS FOR TRAVEL AND SUBSISTENCE) A 1 PERCENT 20 DAY DISCOUNT OFFERED BY THAT FIRM. IF THE DISCOUNT HAD NOT BEEN EVALUATED, FAIRBANKS' BEST AND FINAL OFFER WOULD HAVE BEEN LOW.

FAIRBANKS DID NOT OFFER A DISCOUNT, IT HAS ADVISED OUR OFFICE, BECAUSE THE GOVERNMENT HAD NOT TAKEN ADVANTAGE OF SUCH A DISCOUNT UNDER PRIOR CONTRACTS AND IT THEREFORE REGARDED THE DISCOUNT AS ILLUSORY. IT THEN ASSERTS THAT IF THE GOVERNMENT WAS TO EVALUATE PROMPT PAYMENT DISCOUNTS, THE NAVY BUYER HAD AN OBLIGATION DURING THE NEGOTIATIONS TO SUGGEST TO IT THE ADVISABILITY OF PROPOSING SUCH A DISCOUNT. HOWEVER, IT IS CLEAR THAT THE SOLICITATION PLAINLY PUT OFFERORS ON NOTICE THAT PROMPT PAYMENT DISCOUNTS WOULD BE CONSIDERED, AND WE THINK THE DECISION TO OFFER OR NOT OFFER SUCH A DISCOUNT WAS ESSENTIALLY A BUSINESS JUDGMENT FOR EACH OFFEROR TO MAKE.

THE SITUATION HERE IS SOMEWHAT UNUSUAL IN THAT THE PROMPT PAYMENT DISCOUNT WAS OFFERED ON A COST-REIMBURSEMENT CONTRACT. ALTHOUGH DISCOUNTS ARE NOT COMMONLY OFFERED IN CONNECTION WITH COST TYPE CONTRACTS, ASPR DOES NOT PROHIBIT CONSIDERATION OF OFFERED DISCOUNTS IN SUCH CIRCUMSTANCES (ALTHOUGH IT ONLY SPECIFICALLY PROVIDES FOR USE OF DISCOUNT CLAUSES IN FIXED PRICE CONTRACTS. SEE ASPR 7-103.14 AND 7 1902.11). IN THIS REGARD, WE HAVE HELD THAT OFFERED DISCOUNTS SHOULD BE EVALUATED WHEN A SOLICITATION PROVIDES FOR IT, EVEN THOUGH DISCOUNT PROVISIONS ARE NOT NORMALLY INCLUDED IN SOLICITATIONS FOR THE TYPE OF PROCUREMENT INVOLVED. B-167993(1), OCTOBER 28, 1969. WE HAVE ALSO HELD THAT OFFERED DISCOUNTS SHOULD BE CONSIDERED EVEN WHEN SOLICITATIONS ARE SILENT AS TO DISCOUNT SINCE THE GOVERNMENT IS ENTITLED TO ACCEPT THE OFFER MOST ADVANTAGEOUS TO IT. 40 COMP. GEN. 518 (1961); 48 ID. 256 (1968); 49 ID. 364 (1969). FURTHERMORE, ALTHOUGH FAIRBANKS BELIEVES THE DISCOUNT IS ILLUSORY, THE NORMAL PRESUMPTION IS THAT THE GOVERNMENT WILL TAKE ADVANTAGE OF AN OFFERED DISCOUNT. MATTER OF LINOLEX SYSTEMS, INC. AND AMERICAN TERMINALS AND COMMUNICATIONS, INC., 53 COMP. GEN. 895 (1974). ACCORDINGLY, WE CANNOT OBJECT TO EVALUATION OF TECFILMS' DISCOUNT. IN VIEW OF THE FOREGOING, THE PROTEST IS DENIED.