B-182228, OCT 23, 1974

B-182228: Oct 23, 1974

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CANCELLATION OF SOLICITATION AFTER EXPOSURE OF BID PRICES WAS PROPER EXERCISE OF ADMINISTRATIVE DISCRETION WHERE IT WAS DETERMINED LOW BID 60 PERCENT HIGHER THAN GOVERNMENT ESTIMATE WAS UNREASONABLE. ALTHOUGH SUCH DETERMINATION WAS BASED UPON GOVERNMENT ESTIMATE LATER DETERMINED FAULTY. IT WAS REASONABLE FOR CONTRACTING OFFICER TO RELY UPON ONLY INFORMATION AVAILABLE TO JUDGE REASONABLENESS OF LOW BID. AN INVITATION FOR BIDS (IFB) WAS ISSUED FOR CONSTRUCTION OF WATER. ONLY ONE BID WAS RECEIVED (FROM A.G. IT WAS REJECTED BECAUSE IT EXCEEDED THE GOVERNMENT ESTIMATE BY APPROXIMATELY $300. IT WAS THEN DECIDED TO ELIMINATE SOME OF THE BUILDING CONSTRUCTION WORK AND READVERTISE SINCE BUILDING MATERIAL WAS CONSIDERED A POSSIBLE CAUSE OF THE EXCESSIVE BID.

B-182228, OCT 23, 1974

CANCELLATION OF SOLICITATION AFTER EXPOSURE OF BID PRICES WAS PROPER EXERCISE OF ADMINISTRATIVE DISCRETION WHERE IT WAS DETERMINED LOW BID 60 PERCENT HIGHER THAN GOVERNMENT ESTIMATE WAS UNREASONABLE. FPR 1 2.404- 1(B)(5); B-175817, AUGUST 14, 1972. ALTHOUGH SUCH DETERMINATION WAS BASED UPON GOVERNMENT ESTIMATE LATER DETERMINED FAULTY, IT WAS REASONABLE FOR CONTRACTING OFFICER TO RELY UPON ONLY INFORMATION AVAILABLE TO JUDGE REASONABLENESS OF LOW BID.

PETE SMITH COMPANY, INC.:

PETE SMITH COMPANY, INC. HAS REFERRED TO OUR OFFICE A MATTER INVOLVING THE BIDDING PROCEDURES FOLLOWED BY THE FOREST SERVICE IN AWARDING A CONTRACT FOR SPECIFIED CONSTRUCTION SERVICES AT THE LAKE WEDINGTON RECREATION AREA.

THE RECORD INDICATES THAT ON FEBRUARY 19, 1974, AN INVITATION FOR BIDS (IFB) WAS ISSUED FOR CONSTRUCTION OF WATER, SEWAGE AND ELECTRICAL UTILITIES ACCORDING TO SPECIFICATIONS. ON MARCH 20, 1974, ONLY ONE BID WAS RECEIVED (FROM A.G. PROCTOR, INC.), AND IT WAS REJECTED BECAUSE IT EXCEEDED THE GOVERNMENT ESTIMATE BY APPROXIMATELY $300,000. THE GOVERNMENT ENGINEERS REVIEWED THEIR ESTIMATE AND DETERMINED IT TO BE REASONABLE. IT WAS THEN DECIDED TO ELIMINATE SOME OF THE BUILDING CONSTRUCTION WORK AND READVERTISE SINCE BUILDING MATERIAL WAS CONSIDERED A POSSIBLE CAUSE OF THE EXCESSIVE BID.

THE PROJECT WAS READVERTISED ON MAY 13, 1974, UNDER REVISED SPECIFICATIONS, RESULTING IN THE RECEIPT OF TWO BIDS AT THE JUNE 12 OPENING. PETE SMITH'S BID WAS LOW AT $262,070, BUT EXCEEDED THE GOVERNMENT ESTIMATE BY APPROXIMATELY 60 PERCENT. ALSO, A. G. PROCTOR SUBMITTED A BID OF $439,800. THE RECORD INDICATES THAT BOTH BIDS WERE REJECTED ON JUNE 19, 1974, AS BEING EXCESSIVE.

A FURTHER RECOMPUTATION OF THE GOVERNMENT ESTIMATE WAS CONDUCTED AND IT WAS DETERMINED THAT THE ORIGINAL ESTIMATE SHOULD BE ADJUSTED UPWARD. ACCORDINGLY, THE PROJECT WAS READVERTISED WITH A SCHEDULED BID OPENING OF JUNE 27, 1974. THE RECORD SHOWS THAT WILLIAM R. AUSTIN WAS THE LOW BIDDER IN THE AMOUNT OF $249,330 (BASE BID PLUS ALTERNATIVE NO. 1), WHILE SMITH'S BID WAS IN THE AMOUNT OF $265,115.30. IT IS STATED THAT SINCE AUSTIN WAS WITHIN 10 PERCENT OF A "REVISED ENGINEER'S ESTIMATE", AND SINCE FUNDS WERE AVAILABLE, A CONTRACT WAS AWARDED TO AUSTIN ON JUNE 29, 1974, AND SMITH WAS SO NOTIFIED BY LETTER OF JULY 3, 1974.

BY LETTER OF JUNE 27, 1974, THE DATE OF BID OPENING UNDER THE LATEST READVERTISEMENT, SMITH PROTESTED TO THE FOREST SERVICE THAT ITS BID HAD BEEN DETERMINED EXCESSIVE AT THE PREVIOUS BID OPENING BUT THAT THE FOREST SERVICE NEVERTHELESS PROPOSED TO MAKE AN AWARD TO A CONTRACTOR (AUSTIN) WHOSE BID WAS ONLY $13,000 BELOW SMITH'S BID UNDER THE PRIOR SOLICITATION. IT WAS CONTENDED THAT THE SOLICITATION AND RECEIPT OF BIDS, THE DIVULGENCE OF BID PRICES, AND THE SUBSEQUENT READVERTISEMENT WAS NEITHER LEGITIMATE NOR SOUND PROCUREMENT PRACTICE. THE FOREST SERVICE REPLIED BY LETTER OF SEPTEMBER 4, 1974, THAT THE FOREGOING SITUATION WAS ATTRIBUTABLE IN PART TO COMMUNICATION AND COORDINATION FAILURES; THAT THE ESTIMATING PROCEDURES AND SUBSEQUENT ESTIMATE REVIEWS HAD NOT BEEN ENTIRELY SATISFACTORY; BUT THAT STEPS HAD BEEN TAKEN TO IMPROVE THOSE PROCEDURES WITH REGARD TO FUTURE PROJECTS.

BY LETTER OF SEPTEMBER 11, 1974, SMITH REFERRED THE FOREGOING MATTER TO OUR OFFICE FOR CONSIDERATION, CONTENDING THAT INASMUCH AS A CONTRACT WAS AWARDED TO ANOTHER CONCERN PURSUANT TO THE JUNE 27 OPENING FOR "APPROXIMATELY THE SAME AMOUNT" WHICH SMITH HAD BID AT THE JUNE 12 OPENING, THE CONTRACT SHOULD HAVE BEEN AWARDED TO SMITH PURSUANT TO THE JUNE 12 BID OPENING.

WE HAVE EXAMINED THE RECORD WITH REGARD TO THE CIRCUMSTANCES ATTENDANT TO THE REJECTION OF BIDS FOLLOWING THE JUNE 12 OPENING AND THE SUBSEQUENT READVERTISEMENT OF THE PROJECT. THE FOREST SERVICE REPORTS THAT SMITH'S LOW BID WAS REVIEWED IN THE LIGHT OF THE AGENCY'S EXISTING OFFICIAL ESTIMATE AND DETERMINED TO EXCEED THAT ESTIMATE BY A TOTAL OF 60 PERCENT. ACCORDINGLY, IT IS STATED THAT THIS DIFFERENCE PLACED THE FOREST SERVICE IN THE POSITION OF REJECTING SMITH'S BID UNLESS IT COULD BE ESTABLISHED THAT THE OFFICIAL ESTIMATE WAS INVALID. SINCE NO OTHER BIDS WERE RECEIVED WITHIN WHAT WAS CONSIDERED A REASONABLE RANGE OF EITHER SMITH'S BID OR THE OFFICIAL ESTIMATE, IT WAS DETERMINED THAT AN ITEMIZED BREAKDOWN OF SMITH'S BID WOULD BE OF HELP IN REEVALUATING THE GOVERNMENT ESTIMATE. THEREFORE, WITH THE CONCURRENCE OF THE CONTRACTING OFFICER SMITH WAS CONTACTED BY THE FOREST ENGINEER, AND SMITH FURNISHED THE REQUESTED BREAKDOWN. AS A RESULT OF COMPARING SMITH'S COST BREAKDOWN WITH THE GOVERNMENT ESTIMATE, IT BECAME APPARENT TO THE FOREST AND REGIONAL OFFICE ENGINEERING UNITS THAT MATERIAL COST INCREASES AND OTHER INFLATIONARY FACTORS HAD TRANSPIRED SINCE THE PREPARATION OF THE ORIGINAL ESTIMATE, AND WHILE AN ESTIMATE REVISION WAS APPROPRIATE, SUCH REVISION WAS NOT JUSTIFIABLE IN A MAGNITUDE THAT WOULD BRING THE OFFICIAL ESTIMATE TO WITHIN 10 PERCENT OF SMITH'S BID SO AS TO JUSTIFY AN AWARD PURSUANT TO THE JUNE 12 OPENING.

ANOTHER FACTOR WHICH CONTRIBUTED TO THE FOREGOING DECISION WAS THE FOREST SERVICE'S KNOWLEDGE THAT IT HAD RECEIVED AN EXCELLENT RESPONSE TO A BID SOLICITATION ISSUED AT THE OUACHITA NATIONAL FOREST FOR A SIMILAR PROJECT FOR WHICH BIDS WERE OPENED JUNE 10. FIVE BIDS WERE RECEIVED FOR THAT PROJECT, FOUR OF WHICH RANGED FROM $209,271 TO $309,786. THE GOVERNMENT'S ESTIMATE FOR THAT PROJECT WAS $212,450.

IN LIGHT OF THESE FACTORS, THE DECISION WAS MADE TO REJECT THE LAKE WEDINGTON BIDS AND READVERTISE IN THE HOPE THAT MORE REASONABLE PRICES MIGHT BE OBTAINED THROUGH INCREASED COMPETITION. THE BID ISSUING UNIT WAS INSTRUCTED TO READVERTISE AND PERSONALLY CONTACT PROSPECTIVE BIDDERS TO STIMULATE INTEREST IN THE PROJECT. PURSUANT THERETO SOLICITATION R8-10-74 -43 WAS ISSUED WITH A SCHEDULED OPENING ON JUNE 27.

DURING THE PERIOD OF JUNE 14 - 18, A REGIONAL OFFICE ENGINEER, WHO HAD NO KNOWLEDGE OF THE COST BREAKDOWN FURNISHED BY SMITH ON JUNE 13, WAS ASSIGNED THE RESPONSIBILITY OF PREPARING A NEW INDEPENDENT ESTIMATE FOR THE PROJECT. ON JUNE 18 THE ESTIMATE WAS COMPLETED AS FOLLOWS:

BASIC BID ITEM 1 - $212,245.00

ADD ALTERNATE 1 - 18,071.00

TOTAL $230,316.00

THE NEW ESTIMATE WAS GIVEN TO THE FOREST ENGINEER FOR HIS CONSIDERATION. AFTER REVIEWING THIS LATEST ESTIMATE ON JUNE 20 THE FOREST ENGINEER MADE SEVERAL MINOR UPWARD ADJUSTMENTS TO ACCOUNT FOR LOCAL CONDITIONS AND THE FINAL ESTIMATE WAS:

BASIC BID ITEM 1 - $222,385.00

ADD ALTERNATE 1 - 21,366.00

TOTAL $243,751.00

UPON BID OPENING, THREE BIDS WERE RECEIVED: AUSTIN AT $249,330.00; LAMAR COMPANY AT $264,250 AND SMITH AT $265,115.30. SINCE ALL THREE BIDS WERE WITHIN 9 PERCENT OR LESS OF THE REVISED ESTIMATE OF JUNE 20, AND FUNDS WERE AVAILABLE TO MAKE AN AWARD TO THE LOW BIDDER, THE AWARD WAS MADE ACCORDINGLY.

THE FOREST SERVICE STATES THAT WHILE TOTAL BID PRICES RECEIVED UNDER ADVERTISED PROCUREMENTS ARE CONSIDERED PUBLIC INFORMATION AND ARE THEREFORE AVAILABLE FOR EXAMINATION BY THE PUBLIC, NO INFORMATION PERTAINING TO SMITH'S PRICE BREAKDOWN WAS EVER DIVULGED TO ANY OTHER BIDDER, AS IT IS THE FOREST SERVICE'S POLICY TO MAINTAIN SUCH INFORMATION IN STRICT CONFIDENCE.

ALTHOUGH IT IS REGRETTABLE THAT THE SOLICITATION WAS CANCELED AFTER EXPOSURE OF SMITH'S BID PRICE, WE ARE UNABLE TO CONCLUDE THAT SUCH ACTION RESULTED FROM OTHER THAN A GOOD FAITH DETERMINATION THAT SMITH'S BID WAS UNREASONABLE. SECTION 1-2.404-1(B)(5) OF THE FEDERAL PROCUREMENT REGULATIONS PERMITS THE CANCELLATION OF A SOLICITATION WHERE ALL OTHERWISE ACCEPTABLE BIDS ARE UNREASONABLE AS TO PRICE, AND OUR OFFICE HAS OFTEN STATED THAT WHETHER A BID IS UNREASONABLE AS TO PRICE IS A MATTER OF ADMINISTRATIVE DISCRETION NOT SUBJECT TO QUESTION UNLESS ARBITRARY. 175817, AUGUST 14, 1972, AND CASES CITED. WHILE SUCH DETERMINATION WAS BASED UPON AN ESTIMATE LATER DETERMINED FAULTY, WE BELIEVE IT WAS REASONABLE FOR THE CONTRACTING OFFICER TO RELY UPON THE ONLY AVAILABLE INFORMATION TO JUDGE THE REASONABLENESS OF SMITH'S BID. IN THIS CONNECTION, THE FOREST SERVICE REPORTS THAT IT HAS TAKEN ACTION TO REMEDY ANY DEFECTS IN ITS ESTIMATING PROCEDURES.

IN THESE CIRCUMSTANCES, IT APPEARS THAT NO FURTHER ACTION BY OUR OFFICE IS REQUIRED.