B-182534, APR 18, 1975, 54 COMP GEN 872

B-182534: Apr 18, 1975

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EQUIPMENT - AUTOMATIC DATA PROCESSING SYSTEMS - SELECTION AND PURCHASE - PROCUREMENT WITH ADP FUND - GENERAL SERVICES ADMINISTRATION CONTROL FEDERAL PROPERTY MANAGEMENT REGULATIONS (FPMR) PROVIDE THAT PROCUREMENT OF COMPUTER EQUIPMENT WITH AUTOMATIC DATA PROCESSING FUND UNDER CONTROL OF GENERAL SERVICES ADMINISTRATION SHALL CONFORM WITH APPLICABLE OFFICE OF MANAGEMENT AND BUDGET (OMB) ISSUANCES. 1972 OMB LETTER INDICATES THAT CONTEMPLATED 40-PERCENT RATE OF RETURN ON INVESTMENT IS DESIRABLE PRIOR TO USING FUND. ASSUMING THAT LESSER RATE OF RETURN IS OBTAINED IN PARTICULAR CASE. THIS DOES NOT MEAN THAT FPMR IS VIOLATED. IT MUST BE SHOWN THAT RFP WAS ISSUED IN BAD FAITH. CLAIM IS DENIED. ALLEGATIONS THAT RFP WAS IMPROPERLY CANCELED PROVIDE NO SUPPORT FOR CLAIM WHERE CANCELLATION IS NOT FOUND TO BE OBJECTIONABLE.

B-182534, APR 18, 1975, 54 COMP GEN 872

CONTRACTS - NEGOTIATION - REQUESTS FOR PROPOSALS - CANCELLATION BEFORE CANCELING A REQUEST FOR PROPOSALS (RFP) INVOLVING LEASE OF COMPUTER EQUIPMENT, NAVY HAD ASCERTAINED THAT ALTERNATIVE SOURCE OF SUPPLY WITHIN GOVERNMENT MIGHT BE AVAILABLE AT LOWER COST. THIS WOULD ELIMINATE NEED FOR SUPPLIES BEING PROCURED UNDER RFP. RECORD SUPPORTS REASONABLENESS OF CANCELING RFP, EVEN THOUGH AT TIME OF CANCELLATION ALTERNATIVE SOURCE HAD NOT YET BECOME AVAILABLE TO NAVY. EQUIPMENT - AUTOMATIC DATA PROCESSING SYSTEMS - SELECTION AND PURCHASE - PROCUREMENT WITH ADP FUND - GENERAL SERVICES ADMINISTRATION CONTROL FEDERAL PROPERTY MANAGEMENT REGULATIONS (FPMR) PROVIDE THAT PROCUREMENT OF COMPUTER EQUIPMENT WITH AUTOMATIC DATA PROCESSING FUND UNDER CONTROL OF GENERAL SERVICES ADMINISTRATION SHALL CONFORM WITH APPLICABLE OFFICE OF MANAGEMENT AND BUDGET (OMB) ISSUANCES. 1972 OMB LETTER INDICATES THAT CONTEMPLATED 40-PERCENT RATE OF RETURN ON INVESTMENT IS DESIRABLE PRIOR TO USING FUND. BUT, ASSUMING THAT LESSER RATE OF RETURN IS OBTAINED IN PARTICULAR CASE, THIS DOES NOT MEAN THAT FPMR IS VIOLATED, BECAUSE OMB STATEMENT APPEARS TO BE FLEXIBLE GUIDELINE RATHER THAN SPECIFIC MINIMUM REQUIREMENT. CONTRACTS - NEGOTIATION - REQUESTS FOR PROPOSALS - PREPARATION COSTS FOR OFFEROR RECOMMENDED FOR AWARD PRIOR TO CANCELLATION OF REQUEST FOR PROPOSALS (RFP) TO RECOVER PROPOSAL PREPARATION COSTS, IT MUST BE SHOWN THAT RFP WAS ISSUED IN BAD FAITH. WHERE IT APPEARS NAVY HAD REASONABLE BASIS TO ISSUE RFP TO SATISFY ITS NEEDS, AND RECORD SHOWS NO BAD FAITH, CLAIM IS DENIED. ALLEGATIONS THAT RFP WAS IMPROPERLY CANCELED PROVIDE NO SUPPORT FOR CLAIM WHERE CANCELLATION IS NOT FOUND TO BE OBJECTIONABLE. EQUIPMENT - AUTOMATIC DATA PROCESSING SYSTEMS - LEASES - EVALATION - SEPARATE CHARGES WHERE CANCELLATION OF REQUEST FOR PROPOSALS (RFP) IS NOT OBJECTIONABLE, PROTEST BASED UPON NAVY'S EVALUATION OF PARTICULAR OFFER IS ACADEMIC. BUT QUESTION RAISED BY PROTEST - WHETHER RFP'S FOR COMPUTER LEASING SHOULD CONTAIN A FEDERAL PROPERTY MANAGEMENT REGULATIONS (FPMR) PROVISION STATING THAT "SEPARATE CHARGES" WILL NOT BE CONSIDERED IN EVALUATING OFFERS - IS OF INTEREST FOR FUTURE PROCUREMENTS. THEREFORE, QUESTION IS REFERRED TO GENERAL SERVICES ADMINISTRATION SO IT CAN CONSIDER WHETHER FPMR PROVISION SHOULD BE REVISED.

IN THE MATTER OF FEDERAL LEASING, INC.; DPF INC., APRIL 18, 1975:

THE CANCELLATION OF REQUEST FOR PROPOSALS (RFP) NO. N66032-75-R-0002 BY THE DEPARTMENT OF THE NAVY'S AUTOMATIC DATA PROCESSING EQUIPMENT SELECTION OFFICE (ADPESO) HAS LED TO PROTESTS BY TWO DISSATISFIED OFFERORS, FEDERAL LEASING, INC. (FLI) AND DPF INCORPORATED. MOST OF THE OBJECTIONS TO THE NAVY'S ACTIONS HAVE BEEN PUT FORWARD BY FLI, WHICH HAS VIGOROUSLY ALLEGED MALADMINISTRATION OF ALMOST EVERY PHASE OF THE PROCUREMENT. DPF'S PROTEST IS MORE LIMITED IN SCOPE AND FOCUSES ON A SPECIFIC QUESTION CONCERNING THE NAVY'S EVALUATION OF ITS PROPOSAL.

THE PROCUREMENT AROSE OUT OF A PREEXISTING CONTRACT UNDER WHICH THE NAVY HAD BEEN LEASING CERTAIN COMPUTER EQUIPMENT FROM THE UNIVAC DIVISION OF SPERRY RAND CORPORATION FOR SEVERAL YEARS. THE RFP, ISSUED AUGUST 1, 1974, CONTEMPLATED THAT THE SELECTED OFFEROR WOULD EXERCISE AN OPTION UNDER THE UNIVAC CONTRACT AND PURCHASE THIS EQUIPMENT FROM UNIVAC FOR $2,853,784. THE OFFEROR WAS TO LEASE THE EQUIPMENT BACK TO THE NAVY FOR 66 MONTHS, AT WHICH TIME THE NAVY WOULD TAKE TITLE. THE NAVY ANTICIPATED THAT THIS THIRD PARTY PURCHASE AND NAVY LEASE-TO OWNERSHIP ARRANGEMENT WOULD BE ADVANTAGEOUS BECAUSE IT WOULD RESULT IN A LOWER MONTHLY RENTAL COST.

HOWEVER, THE CONTEMPLATED ARRANGEMENT WAS NEVER CONSUMMATED BECAUSE THE NAVY CANCELED THE RFP IN LATE OCTOBER 1974. INSTEAD, THE NAVY SOUGHT TO, AND EVENTUALLY DID, MAKE USE OF THE GENERAL SERVICES ADMINISTRATION'S (GSA) ADP FUND. THE ADP FUND IS DEFINED IN FEDERAL PROPERTY MANAGEMENT REGULATIONS (FPMR) 101-32.301-13 (1974 ED.) AS A FINANCING MECHANISM ADMINISTERED BY GSA WHICH, SUBJECT TO GSA APPROVAL, IS AVAILABLE WITHOUT FISCAL YEAR LIMITATION FOR FINANCING THE PROCUREMENT OF ADPE AND RELATED ITEMS BY LEASE, PURCHASE, TRANSFER, OR OTHERWISE. UNDER THIS APPROACH, MONEY FROM THE ADP FUND WAS MADE AVAILABLE BY GSA TO THE NAVY FOR PURCHASE OF THE UNIVAC EQUIPMENT, AND GSA BECAME THE LESSOR OF THE EQUIPMENT TO THE NAVY. NOTWITHSTANDING THE PENDENCY OF THE PROTESTS, THE NAVY PROCEEDED WITH THIS ARRANGEMENT IN FEBRUARY 1975 BASED UPON A DETERMINATION UNDER ARMED SERVICES PROCUREMENT REGULATION (ASPR) SEC. 2-407.8 (1974 ED.) THAT IT WOULD BE IN THE BEST INTERESTS OF THE GOVERNMENT.

FLI ESSENTIALLY CONTENDS THAT THE CANCELLATION OF THE RFP WAS IMPROPER BECAUSE THE ADP FUND WAS NOT ACTUALLY AVAILABLE TO THE NAVY AT THAT TIME, NOR DID THE NAVY HAVE A SUFFICIENT INDICATION THAT IT WAS LIKELY TO BECOME AVAILABLE; THUS, ACCEPTANCE OF FLI'S SUBSISTING OFFER WAS THE MOST ADVANTAGEOUS COURSE OF ACTION OPEN TO THE NAVY. FURTHER, FLI CONTENDS THAT THE USE OF THE ADP FUND BY GSA AND THE NAVY IS UNLAWFUL BECAUSE IT VIOLATES THE FPMR AND APPLICABLE OFFICE OF MANAGEMENT AND BUDGET (OMB) POLICY ISSUANCES. THESE CONTENTIONS AND THE NUMEROUS SPECIFIC OBJECTIONS DISCUSSED INFRA REQUIRE, IN FLI'S VIEW, A DECISION COMPELLING RESCISSION OF THE EXERCISED UNIVAC LEASE OPTION, REINSTATEMENT OF THE CANCELED RFP AND AN AWARD TO FLI. ALSO, FLI MAKES A CLAIM FOR RECOVERY OF THE EXPENSES OF PREPARING ITS PROPOSAL.

IT IS OUR CONCLUSION THAT FLI HAS NOT SHOWN THAT THE NAVY'S ACTIONS IN REGARD TO THE CANCELLATION AND USE OF THE ADP FUND WERE UNLAWFUL. OUR DENIAL OF FLI'S PROTEST IN EFFECT RENDERS DPF'S PROTEST ACADEMIC. ALSO, FLI'S CLAIM FOR PROPOSAL PREPARATION COSTS IS DENIED.

BEFORE PROCEEDING TO A CONSIDERATION OF THE MERITS, IT IS TO BE NOTED THAT BOTH FLI AND DPF REQUESTED THAT OUR OFFICE TREAT CERTAIN INFORMATION SUBMITTED WITH THEIR PROTESTS AS CONFIDENTIAL. ESSENTIALLY, THIS INFORMATION INVOLVES THE PROTESTERS' OFFERED LEASE PRICES. WE UNDERSTAND THAT FLI AND DPF MADE SIMILAR REQUESTS TO THE NAVY AND, TO OUR KNOWLEDGE, THE OFFERED PRICES HAVE NOT BEEN PUBLICLY DISCLOSED. SINCE THIS DECISION DOES NOT MAKE A RECOMMENDATION FOR REINSTATEMENT OF THE RFP AND RENEWED COMPETITION, WE HAVE DIFFICULTY SEEING ANY JUSTIFICATION FOR CONTINUING TO REGARD THIS INFORMATION AS CONFIDENTIAL. HOWEVER, TO THE EXTENT POSSIBLE, OUR TREATMENT OF THE ISSUES IS PRESENTED IN A MANNER WHICH SAFEGUARDS THE CONFIDENTIALITY OF THIS NONDISCLOSED INFORMATION.

BACKGROUND

A NUMBER OF THE FACTS LEADING UP TO THE CANCELLATION ARE IN CONTROVERSY. WHAT FOLLOWS IS A GENERAL DESCRIPTION OF THE PERTINENT FACTS AND CIRCUMSTANCES, DRAWN BOTH FROM THE NAVY'S REPORT AND FROM FLI'S SUBMISSIONS TO OUR OFFICE.

THE NAVY'S REPORT INDICATES THAT ISSUANCE OF THE RFP WAS PRECEDED BY CONSIDERATION DURING 1973 AND 1974 OF PURCHASING THE UNIVAC EQUIPMENT EITHER WITH APPROPRIATED FUNDS OR BY MEANS OF THE GSA ADP FUND. THE USING ACTIVITY REQUESTED OUTRIGHT PURCHASE IN JULY 1973, BUT 1974 NAVY APPROPRIATIONS HAD BEEN COMMITTED TO OTHER PROJECTS. IN SEPTEMBER 1973, THE NAVY REQUESTED USE OF THE ADP FUND FROM GSA. GSA REPLIED IN JANUARY 1974 THAT WHILE THE UNIVAC PURCHASE WOULD BE A "VERY WORTHWHILE INVESTMENT," THE FUND WAS UNAVAILABLE AT THAT TIME. GSA SUGGESTED THAT THE REQUEST BE RENEWED IN THE SPRING OF 1974 WHEN CONDITIONS MIGHT BE MORE FAVORABLE. IT IS REPORTED THAT FISCAL YEAR 1975 OP,N (OTHER PROCUREMENT, NAVY) APPROPRIATED FUNDS WERE COMMITTED TO OTHER PROJECTS OF HIGHER PRIORITY. ON MAY 31, 1974, THE NAVY AGAIN REQUESTED USE OF THE GSA ADP FUND. ON OR BEFORE AUGUST 1, 1974, THE NAVY RECEIVED INFORMATION FROM GSA THAT THE FUND WAS "DEFINITELY" NOT AVAILABLE, WHICH WAS TO BE CONFIRMED BY A LETTER TO FOLLOW. THE RFP WAS ISSUED AUGUST 1, 1974. BY LETTER DATED AUGUST 12, 1974, GSA STATED THAT IT COULD NOT AT THAT TIME CONSIDER THE UNIVAC PURCHASE OFFER WHICH THE NAVY HAD SUBMITTED.

SEVERAL OFFERS WERE RECEIVED AND EVALUATED; SUBSEQUENTLY, FLI AND DPF SUBMITTED BEST AND FINAL OFFERS. ON OCTOBER 17, 1974, ADPESO FORWARDED A RECOMMENDATION THAT FLI'S OFFER BE ACCEPTED TO THE SOURCE SELECTION AUTHORITY (SSA). THE SSA WAS THE INCUMBENT ASSISTANT SECRETARY OF THE NAVY FOR FINANCIAL MANAGEMENT (ASN (FM)), WHO HAD JUST ASSUMED HIS OFFICE ON OCTOBER 15, 1974. THE ADPESO DIRECTOR STATES THAT ON OCTOBER 18, 1974, THE ASN (FM) WAS INFORMED, DURING A VISIT TO THE COMPUTER SITE, OF THE PRESOLICITATION ATTEMPTS TO EFFECT OUTRIGHT PURCHASE, WHICH, ALTHOUGH IMPRACTICABLE FOR THE REASONS ALREADY INDICATED, WAS BELIEVED TO BE THE MOST DESIRABLE ALTERNATIVE. IT IS STATED THAT THE ASN (FM) THEN REVIEWED THE ECONOMICS OF THE ALTERNATIVES. ALTHOUGH THE COMPARATIVE COSTS WERE NOT DISCOUNTED FOR THE TIME VALUE OF MONEY (SEE THE DISCUSSION OF "PRESENT VALUE COST," INFRA), THE ASN (FM) SURMISED THAT DIRECT GOVERNMENT PURCHASE WOULD CONTINUE TO BE THE MOST DESIRABLE ALTERNATIVE. THE ASN (FM) THEREFORE INITIATED A REVIEW OF THE VARIOUS WAYS IN WHICH FUNDS MIGHT BE OBTAINED FOR A DIRECT PURCHASE. FLI STATES THAT ON THIS SAME DATE, IT WAS INFORMED BY AN ADPESO OFFICIAL TO BE PREPARED TO EXECUTE CONTRACT AWARD DOCUMENTS THAT AFTERNOON, BUT THAT NOTHING FURTHER WAS HEARD FROM ADPESO FOR SEVERAL DAYS.

THE ADPESO DIRECTOR STATES THAT ON OCTOBER 22 OR 23, 1974, A GSA OFFICIAL NOTIFIED ADPESO THAT OMB HAD APPORTIONED $4.3 MILLION TO THE ADP FUND AS OF SEPTEMBER 30, 1974, THOUGH THE GSA OFFICIAL HIMSELF HAD NO KNOWLEDGE OF THIS FACT UNTIL ABOUT OCTOBER 21, 1974. ON OCTOBER 23, 1974, THE ADPESO CONTRACTING OFFICER, WHO REPORTEDLY DID NOT YET KNOW OF THE NEW MONIES IN THE ADP FUND, MET WITH FLI OFFICIALS TO REQUEST AN EXTENSION OF ITS OFFER, WHICH WAS TO EXPIRE AT THE CLOSE OF BUSINESS ON THAT DATE. ACCORDING TO THE NAVY, THE FLI OFFICIALS WERE INFORMED THAT ALL ALTERNATIVES HAD TO BE EXPLORED BEFORE PROCEEDING WITH AN AWARD. REPORTEDLY, THE FLI OFFICIALS STATED THAT IF THIS MEANT THAT GOVERNMENT FUNDS MIGHT BE USED TO MAKE A DIRECT PURCHASE, THIS ALTERNATIVE SHOULD HAVE BEEN EXPLORED BEFORE ISSUING THE RFP. THE CONTRACTING OFFICER INDICATED THAT DIRECT PURCHASE WITH GOVERNMENT FUNDS HAD BEEN EXPLORED PRIOR TO ISSUANCE OF THE REP. FLI STATES THAT IT WAS NOT INFORMED AT THIS TIME OF THE ADDITIONAL MONIES IN THE ADP FUND. FLI FURTHER INDICATES THAT SUBSEQUENT TO THIS MEETING, IT TELEPHONED THE CONTRACTING OFFICER AND ORALLY EXTENDED ITS OFFER, AND THAT IT PREPARED AND MAILED A WRITTEN EXTENSION OF THE OFFER THE SAME DAY.

ON OCTOBER 24, 1974, NAVY OFFICIALS CONCLUDED THAT USE OF THE ADP FUND OFFERED "THE MOST PROMISING ALTERNATIVE" TO FLI'S OFFER. THE ADPESO DIRECTOR STATES THAT ON OCTOBER 25, 1974, HE WAS INFORMED BY A GSA OFFICIAL THAT THE UNIVAC OPTION WAS "THE TOP CANDIDATE" FOR PURCHASE BY THE ADP FUND AT THAT TIME IN TERMS OF RATE OF RETURN ON INVESTMENT. THE ADPESO DIRECTOR INFORMED THE CONTRACTING OFFICER OF THIS DEVELOPMENT AND ATTEMPTED, BUT FAILED, TO RETRIEVE A LETTER TO FLI REQUESTING EXTENSION OF ITS OFFER, WHICH HAD ALREADY BEEN MAILED. THE ADPESO DIRECTOR STATES THAT HE DETERMINED IT WOULD BE IMPROPER AND UNFAIR TO OFFERORS TO CONTINUE THE PROCUREMENT, AND THAT HE THEREFORE DIRECTED THE CONTRACTING OFFICER TO NOTIFY OFFERORS THAT THE RFP WAS CANCELED. IT IS STATED THAT THE CONTRACTING OFFICER TELEPHONED FLI AND NOTIFIED IT OF THE CANCELLATION ON OCTOBER 25, 1974, AT APPROXIMATELY 5:30 P.M. IN THIS REGARD, FLI STATES THAT IN THIS CONVERSATION THE CONTRACTING OFFICER MERELY INDICATED THAT A CANCELLATION WAS BEING CONTEMPLATED.

THE NAVY STATES THAT ON OCTOBER 30, 1974, IT RECEIVED A LETTER FROM FLI DATED OCTOBER 23, 1974, AND POSTMARKED OCTOBER 26, 1974, EXTENDING THE FLI OFFER. THE NAVY BELIEVES THAT THIS EXTENSION WAS MADE AFTER THE FLI OFFER HAD EXPIRED AND THE SOLICITATION HAD BEEN CANCELED. FLI BELIEVES ITS OFFER WAS EFFECTIVELY EXTENDED AS OF OCTOBER 23, 1974. FLI HAS ALSO RAISED A QUESTION AS TO WHEN THE CANCELLATION WAS ACTUALLY MADE. FLI DID RECEIVE ON OCTOBER 29, 1974, A NAVY LETTER DATED OCTOBER 25, 1974, WHICH STATED THAT THE SOLICITATION WAS CANCELED; HOWEVER, FLI HAS POINTED TO A NAVY MEMORANDUM DATED OCTOBER 29, 1974, WHICH STATES THAT THE NAVY DECIDED ON OCTOBER 25, 1974, TO NOTIFY FLI THAT ADPESO "INTENDED" TO CANCEL THE SOLICITATION.

IN ADDITION, FLI CONTENDS THAT ON OCTOBER 28, 1974, THE CONTRACTING OFFICER ADVISED IT THAT NO COST OR ECONOMIC ANALYSIS HAD BEEN PERFORMED PRIOR TO THE CANCELLATION. THE NAVY, ON THE OTHER HAND, HAS PROVIDED A COPY OF HANDWRITTEN COST CALCULATIONS WHICH REPORTEDLY WERE PREPARED BY THE ADPESO DIRECTOR AT THE TIME IT WAS DECIDED TO CANCEL THE RFP. THIS DATA COVERED CONSIDERATION OF THREE ALTERNATIVES - DIRECT NAVY PURCHASE FROM UNIVAC; ACCEPTANCE OF THE FLI OFFER; AND USE OF THE ADP FUND. FOR EACH ALTERNATIVE, THE CALCULATIONS SHOW THE "PRESENT VALUE COST." THIS INVOLVES THE ADJUSTMENT OF PAYMENTS MADE OVER A PERIOD OF TIME TO REFLECT THE PRESENT VALUE OF THOSE PAYMENTS AS OF THE DATE OF CONTRACT AWARD, BY MEANS OF APPLYING SPECIFIED DISCOUNT FACTORS. THE CALCULATIONS ALSO SHOW THE "FULL COST" (COST IN CONSTANT DOLLARS) AND THE RATES OF RETURN ON INVESTMENT FOR EACH ALTERNATIVE. OF THE THREE ALTERNATIVES, DIRECT NAVY PURCHASE WAS LOWEST BOTH IN PRESENT VALUE COST AND FULL COST. IT WAS FOLLOWED IN ASCENDING ORDER OF COSTS BY THE ADP FUND AND THE FLI OFFER.

THE NAVY REPORT FURTHER STATES THAT ON NOVEMBER 6, 1974, ADPESO WAS INFORMED THAT THE CONTRACTING OFFICER HAD TAKEN HIS OWN LIFE. SUBSEQUENTLY, THE NAVY FURNISHED TO OUR OFFICE AN UNDATED, HANDWRITTEN NOTE APPARENTLY WRITTEN BY THE CONTRACTING OFFICER SOME TIME BETWEEN OCTOBER 29, 1974, AND NOVEMBER 6, 1974. THIS NOTE DISCUSSES CIRCUMSTANCES SURROUNDING THE CANCELLATION. ALSO, IT IS REPORTED THAT BECAUSE OF THE VERY HIGH SECURITY CLEARANCE HELD BY THE CONTRACTING OFFICER, AN INVESTIGATION OF THE CIRCUMSTANCES INVOLVED IN HIS DEATH WAS REQUIRED TO BE CONDUCTED. ADPESO STATES IT WAS INFORMED BY THE NAVAL INVESTIGATIVE SERVICE THAT THERE WAS NO INDICATION THAT THE CONTRACTING OFFICER HAD BEEN A PARTY TO ANY IMPROPRIETIES WHATSOEVER.

BY LETTER DATED JANUARY 31, 1975, GSA DELEGATED TO THE NAVY AUTHORITY TO USE THE ADP FUND FOR THE UNIVAC PURCHASE, SUBJECT TO A FINAL REVIEW. LETTER DATED FEBRUARY 14, 1975, GSA INFORMED THE NAVY THAT, AFTER FINAL REVIEW OF THE NAVY DOCUMENTS SUBMITTED, IT HAD NO OBJECTION TO THE NAVY'S EXERCISE OF THE PURCHASE OPTION. THE NAVY THEN PROCEEDED TO EXERCISE THE PURCHASE OPTION.

CANCELLATION OF THE RFP

FLI OBJECTS TO THE CANCELLATION BECAUSE AT THE TIME IT TOOK PLACE THE ADP FUND HAD NOT ACTUALLY BEEN MADE AVAILABLE TO THE NAVY, NOR WAS THERE ANY SUFFICIENT INDICATION THAT THE FUND WOULD BECOME AVAILABLE. FLI CONTENDS THAT ITS OFFER HAD BEEN EXTENDED AND REPRESENTED THE MOST ADVANTAGEOUS METHOD OF SATISFYING THE REQUIREMENTS, BUT THAT THE NAVY - BY FAILING TO PERFORM A COST ANALYSIS OF THE VARIOUS ALTERNATIVES AS REQUIRED BY ASPR SEC. 3-801.2(D) (1974 ED.) - ARBITRARILY AND CAPRICIOUSLY CANCELED THE RFP.

FLI FURTHER CONTENDS THAT THE CANCELLATION MUST FIND JUSTIFICATION, IF AT ALL, UNDER THE VARIOUS CRITERIA PRESCRIBED IN ASPR SEC. 2 404.1(B) (1974 ED.) PERTAINING TO CANCELLATIONS OF INVITATIONS FOR BIDS (IFB'S), BECAUSE DECISIONS OF OUR OFFICE HAVE RECOGNIZED THAT THESE CRITERIA ARE EQUALLY APPLICABLE TO CANCELLATIONS OF RFP'S (B 178282, JULY 27, 1973; B-175138, JANUARY 3, 1973). IN THIS REGARD, WHILE THESE DECISIONS DO SO RECOGNIZE, WE DO NOT AGREE WITH FLI'S IMPLICATION THAT THEY NECESSARILY LIMIT THE JUSTIFICATION FOR CANCELING AN RFP TO THE CIRCUMSTANCES DESCRIBED IN ASPR SEC. 2-404.1(B) (1974 ED.). RATHER, WE THINK INQUIRY MUST BE UNDERTAKEN IN LIGHT OF THE RIGHT RESERVED TO THE GOVERNMENT UNDER THE RFP TO REJECT "ANY OR ALL OFFERS" UNDER PARAGRAPH 10(B), (F) OF THE "SOLICITATION INSTRUCTIONS AND CONDITIONS," STANDARD FORM 33A (MARCH 1969 ED.), AS CONSTRUED BY PRIOR DECISIONS OF OUR OFFICE DEALING WITH CANCELLATIONS OF NEGOTIATED PROCUREMENTS. IN ANY EVENT, WE BELIEVE THE CANCELLATION CAN BE JUSTIFIED UNDER TWO OF THE ASPR CRITERIA - I.E., WHERE THE SUPPLIES OR SERVICES BEING PROCURED ARE NO LONGER REQUIRED AND WHERE, FOR OTHER REASONS, CANCELLATION IS CLEARLY IN THE BEST INTERESTS OF THE GOVERNMENT (ASPR SEC. 2-404.1(B) (III) AND (VIII) (1974 ED.), RESPECTIVELY). WE NOTE THAT THE SUPPLIES OR SERVICES SOLICITED UNDER THE PRESENT RFP ESSENTIALLY INVOLVED THE USE OF MONEY. IF, DURING THE PROCUREMENT, THE USE OF MONEY BECAME AVAILABLE FROM AN INTRA-GOVERNMENT SOURCE, THE SITUATION WOULD APPEAR TO BE SIMILAR TO CASES WHERE CANCELLATION OF AN RFP IS PROPER BECAUSE THERE IS NO LONGER A NEED FOR THE SUPPLIES OR SERVICES. SEE, E.G., B-175138, SUPRA. THAT DECISION INVOLVED CIRCUMSTANCES WHERE THE NEED FOR THE SUPPLIES BEING SOLICITED NO LONGER EXISTED BECAUSE OF A DECISION TO CHANGE THE GOVERNMENT'S REQUIREMENTS. EVEN MORE TO THE POINT HERE IS THE SITUATION WHERE THE AGENCY STILL HAS AN UNCHANGED NEED, BUT FINDS THAT IT CAN MEET THAT NEED BY OBTAINING THE NECESSARY SUPPLIES FROM ANOTHER GOVERNMENT AGENCY. MATTER OF KECO INDUSTRIES, INC., 54 COMP. GEN. 215 (1974).

RECOGNIZING THE VALIDITY OF THESE PRINCIPLES, THERE MUST STILL BE CONSIDERED THE QUESTION OF WHAT ACTION THE AGENCY SHOULD TAKE IN REGARD TO A CANCELLATION OR AN AWARD WHERE INFORMATION REGARDING THE AVAILABILITY AND COST OF AN ALTERNATIVE SOURCE OF SUPPLY IS NOT YET DEFINITE AND CERTAIN. WHERE, AS HERE, THERE ARE ONE OR MORE SUBSISTING OFFERS UNDER AN OUTSTANDING RFP, AND THE POSSIBILITY ARISES THAT THE REQUIRED SUPPLIES OR SERVICES MAY BECOME AVAILABLE AT A LOWER COST FROM AN INTRA-GOVERNMENT SOURCE - THUS OBVIATING THE NEED TO ACCEPT AN OFFER UNDER THE RFP - THE AGENCY IS FACED WITH THREE ALTERNATIVES. FIRST, IT COULD PROCEED WITH AN AWARD UNDER THE RFP NOTWITHSTANDING THE POSSIBLE AVAILABILITY OF A LESS COSTLY ALTERNATIVE SOURCE WITHIN THE GOVERNMENT; SECOND, IT COULD DELAY TAKING ACTION UNTIL OBTAINING MORE CERTAIN OR ABSOLUTELY CERTAIN INFORMATION REGARDING THE AVAILABILITY AND COST OF THE INTRA-GOVERNMENT SOURCE; OR, THIRD, IT COULD CANCEL THE RFP FORTHWITH AND PURSUE THE INTRA- GOVERNMENT SOURCE.

TO FOLLOW THE FIRST ALTERNATIVE MAY RAISE A SERIOUS QUESTION OF IMPROPRIETY. THE CONTRACTING OFFICER AND OTHER RESPONSIBLE AGENCY OFFICIALS HAVE THE DUTY TO ENSURE THAT ALL APPLICABLE REQUIREMENTS OF LAW HAVE BEEN MET BEFORE ENTERING INTO CONTRACTS. ASPR SECS. 1-402 AND 1-403 (1974 ED.). WHERE SOLICITED SUPPLIES OR SERVICES ARE NO LONGER NEEDED, DECISIONS OF OUR OFFICE SPEAK NOT ONLY OF THE RIGHT, BUT ALSO OF THE CONTRACTING OFFICER'S DUTY, TO CANCEL THE SOLICITATION. SEE MATTER OF KECO INDUSTRIES, INC., SUPRA, AND DECISIONS CITED THEREIN.

WHETHER THE SECOND OR THE THIRD ALTERNATIVE IS APPROPRIATE DEPENDS ON THE PARTICULAR FACTS AND CIRCUMSTANCES AT A GIVEN POINT IN TIME. TO HOLD THE PROCUREMENT IN ABEYANCE WHILE EXPLORING OTHER ALTERNATIVES, OR WHILE WAITING FOR DEFINITE AND CERTAIN INFORMATION CONCERNING THE ALTERNATIVE SOURCE, MAY PREJUDICE OFFERORS UNDER THE RFP. TO CANCEL TOO SOON MAY DEPRIVE THE GOVERNMENT OF THE MOST ADVANTAGEOUS OFFER IF THE ALTERNATIVE SOURCE OF SUPPLY FAILS TO MATERIALIZE AND OFFERORS DECLINE TO RENEW THEIR OFFERS, OR INCREASE THEIR OFFERED PRICES UNDER A REINSTATED RFP OR RESOLICITATION. WE BELIEVE THAT DETERMINATIONS OF THIS KIND MUST BE LEFT IN THE FIRST INSTANCE TO THE SOUND JUDGMENT AND DISCRETION OF RESPONSIBLE AGENCY OFFICIALS, SUBJECT TO OBJECTION UPON REVIEW ONLY IF CLEARLY SHOWN TO BE WITHOUT A REASONABLE BASIS.

AFTER A REVIEW OF THE RECORD IN THE PRESENT CASE, WE CANNOT CONCLUDE THE NAVY LACKED A REASONABLE BASIS TO CANCEL THE RFP AT THE TIME IT DID SO. IN REACHING THIS DECISION, WE TAKE PARTICULAR NOTE OF THE INDICATIONS OF AVAILABILITY OF ADDITIONAL MONIES IN THE ADP FUND; THE CONCLUSION THAT THE ADP FUND OFFERED THE MOST PROMISING ALTERNATIVE TO THE FLI OFFER; THE CONTEMPORANEOUS HANDWRITTEN COST DATA INDICATING THAT THE ADP FUND WOULD BE MORE ADVANTAGEOUS TO THE NAVY THAN ACCEPTANCE OF THE FLI OFFER; THE ADPESO DIRECTOR'S STATEMENT THAT GSA INDICATED ON OCTOBER 25, 1974, THAT THE UNIVAC OPTION WAS "THE TOP CANDIDATE" FOR PURCHASE BY THE FUND; AND THE NAVY'S BELIEF THAT TO CONTINUE THE PROCUREMENT WOULD BE UNFAIR TO OFFERORS. IN REGARD TO THE COST DATA DEVELOPED BY THE NAVY, WE CANNOT AGREE WITH FLI THAT THERE WAS A FAILURE TO COMPLY WITH ASPR SEC. 3- 801.2(D) (1974 ED.), AS THAT PROVISION DEALS WITH THE RESPONSIBILITY OF CONTRACTING OFFICERS IN CONNECTION WITH NEGOTIATION OF PRICES PRIOR TO CONTRACT AWARDS. THE NAVY HAD INDICATED THAT PRIOR TO THE CANCELLATION IT CONDUCTED AN APPROPRIATE ANALYSIS OF COMPARATIVE COSTS IN ACCORDANCE WITH APPLICABLE EXECUTIVE BRANCH POLICY DIRECTIVES RELATING TO ADPE SELECTION. AS INDICATED INFRA, TO THE EXTENT THAT POLICY ISSUES ARE RAISED BY FLI REGARDING THE SCOPE OR CHARACTER OF THE ANALYSIS, WE BELIEVE REVIEW BY OUR OFFICE OF SUCH QUESTIONS IS INAPPROPRIATE.

FLI FURTHER POINTS OUT THAT NAVY DOCUMENTS CONTEMPORANEOUS IN TIME WITH THE CANCELLATION INDICATE CONSIDERATION OF A NUMBER OF ALTERNATIVES, INCLUDING USE OF THE ADP FUND, DIRECT NAVY PURCHASE WITH ADDITIONAL APPROPRIATED FUNDS OBTAINED FROM CONGRESS, OR A POSSIBLE RESOLICITATION. FLI CONTENDS THAT THIS VACILLATION AMONG VARIOUS POSSIBILITIES IS AN INDICATION THAT THE NAVY HAD NO FIRM ALTERNATIVE TO THE FLI OFFER AT THE TIME OF CANCELLATION AND, THEREFORE, THAT THE HASTY CANCELLATION WAS ARBITRARY AND CAPRICIOUS.

WHILE THE RECORD INDICATES THE NAVY DID HAVE SEVERAL ALTERNATIVE SOURCES IN MIND AT THE TIME OF CANCELLATION, IT APPEARS THAT THE ADP FUND WAS CONSIDERED THE PRIMARY ALTERNATIVE. ASSUMING, ARGUENDO, THAT FLI IS CORRECT IN ITS ASSERTION THAT THE NAVY MADE A HASTY AND PREMATURE CANCELLATION, IT IS PERTINENT TO ASK HOW FLI WAS PREJUDICED BY THIS ACTION. IF THE ADP FUND DID NOT ACTUALLY BECOME AVAILABLE TO THE NAVY AFTER THE CANCELLATION, PRESUMABLY FLI COULD COMPLAIN OF DELAY IN RECEIVING ITS RIGHTFUL AWARD, OR THAT ITS COMPETITIVE POSITION UNDER A REINSTATED RFP OR A RESOLICITATION WAS COMPROMISED. HOWEVER, THE ADP FUND DID IN FACT BECOME AVAILABLE TO THE NAVY. FURTHER, WE NOTE THAT FLI HAD NOT, AS FAR AS THE RECORD SHOWS, ACTUALLY BEEN SELECTED BY THE SSA FOR AWARD UNDER THE CANCELED RFP. ALSO, AS NOTED SUPRA, FLI'S OFFERED LEASE PRICES WERE NOT PUBLICLY DISCLOSED AND, THUS, ITS COMPETITIVE POSITION HAS NOT BEEN COMPROMISED.

IN ADDITION, FLI COULD CONCEIVABLY CONTEND THAT IT WAS PREJUDICED BY A PREMATURE CANCELLATION IN THE EVENT THAT A MORE DETAILED ANALYSIS REVEALED THAT THE NAVY'S COST CALCULATIONS MADE AT THE TIME OF CANCELLATION WERE IN ERROR - I.E., IF IT APPEARED, UPON CLOSER ANALYSIS, THAT THE ADP FUND WAS NOT MORE ADVANTAGEOUS TO THE GOVERNMENT IN TERMS OF COST THAN ACCEPTANCE OF FLI'S OFFER.

HOWEVER, THE NAVY MAINTAINS THAT ITS COST DATA, AS DEVELOPED IN GREATER DETAIL SUBSEQUENT TO THE CANCELLATION, CONTINUES TO DEMONSTRATE THAT USE OF THE ADP FUND IS CONSIDERABLY MORE ADVANTAGEOUS THAN ACCEPTANCE OF FLI'S OFFER.

FLI CONTESTS, ON A NUMBER OF GROUNDS, CERTAIN ASSUMPTIONS OR FACTORS BUILT INTO THE NAVY'S COST ANALYSIS AND CONTENDS THAT ITS OWN ANALYSES ARE MORE ACCURATE. THE NAVY HAS RESPONDED TO AND REFUTED THESE ALLEGATIONS:

FLI: THE NAVY ANALYSIS FAILS TO ACCOUNT FOR A 10-PERCENT TO 30 PERCENT FACTOR FOR RESIDUAL VALUE OF THE EQUIPMENT, AS PROVIDED IN A GSA DRAFT DOCUMENT ENTITLED

GUIDANCE TO FEDERAL AGENCIES ON THE PREPARATION OF SPECIFICATIONS, SELECTION, AND ACQUISITION OF AUTOMATIC DATA PROCESSING SYSTEMS

NAVY: THE NAVY BROUGHT THIS POINT UP WITH GSA, WHICH CONCLUDED THAT THERE WOULD BE NO BASIS FOR ESTIMATING A SIGNIFICANT VALUE OF THIS EQUIPMENT IN 1980. ALSO, WHATEVER RESIDUAL VALUE MIGHT EXIST IS NOT AFFECTED BY THE SOURCE OF FUNDS UTILIZED TO MAKE THE PURCHASE.

FLI: THE NAVY FAILED TO NEGOTIATE WITH FLI CONCERNING AN ADVANCE PAYMENT PLAN, WHICH WOULD HAVE FURTHER REDUCED COSTS UNDER THE FLI OFFER.

NAVY: FLI'S RECENT REQUEST FOR ADVANCE PAYMENTS UNDER A DIFFERENT CONTRACT WAS REFUSED BY THE NAVY COMPTROLLER, AND ADPESO'S INFORMAL INQUIRY TO THE NAVY COMPTROLLER INDICATED THAT ADVANCE PAYMENTS UNDER THE PRESENT OFFER WOULD LIKEWISE BE REJECTED. THEREFORE, FLI WAS NOTIFIED BY THE CONTRACTING OFFICER THAT THIS MATTER WAS NOT NEGOTIABLE.

FLI: THE NAVY ANALYSIS FAILS TO CONSIDER THE CONTINUING RENTAL COSTS UNDER THE UNIVAC LEASE BETWEEN THE TIME OF THE CANCELLATION AND THE TIME OF PURCHASE; THAT IS, IN THE SEVERAL MONTHS AFTER THE CANCELLATION AND BEFORE THE USE OF THE ADP FUND, THE NAVY CONTINUED TO PAY MONTHLY RENTAL CHARGES TO UNIVAC, AND THESE SHOULD HAVE BEEN INCLUDED IN THE COST OF THE ADP FUND ALTERNATIVE.

NAVY: THIS FACTOR HAS NO PLACE IN THE ANALYSIS; BUT FOR THE PROTESTS, THE NAVY COULD HAVE OBTAINED USE OF THE ADP FUND MORE EXPEDITIOUSLY, THUS LESSENING INTERIM LEASE COSTS; EVEN IF THE DIFFERENCE BETWEEN THE FLI OFFER'S MONTHLY LEASE COST AND THE UNIVAC MONTHLY LEASE COST FOR THE INTERIM PERIOD IS ADDED TO THE ADP FUND COST, THE ADP FUND IS STILL LESS COSTLY THAN THE FLI OFFER.

FLI: FLI'S OWN COST ANALYSES SHOW THAT ITS OFFER IS LESS COSTLY THAN DIRECT GOVERNMENT PURCHASE.

NAVY: THESE ANALYSES ARE INCORRECT FOR VARIOUS REASONS, INCLUDING INCORRECT INCLUSION OF A RESIDUAL VALUE FACTOR; IMPROPER APPLICATION OF DISCOUNT FACTORS IN MAKING THE PRESENT VALUE ANALYSIS; AND INCORRECT INCLUSION OF A 25-PERCENT "ROUTINE MODIFICATION TO SYSTEM" FACTOR.

WE DO NOT BELIEVE THAT FLI, IN ITS COMMENTS ON THE NAVY'S REPORT, HAS EFFECTIVELY RESPONDED TO THE NAVY'S POSITION ON THESE POINTS.

IN ITS LETTER TO OUR OFFICE DATED JANUARY 16, 1975, FLI DOES CRITICIZE THE NAVY'S ANALYSIS ON AN ADDITIONAL BASIS - NAMELY, THAT IN MID-OCTOBER, AT THE TIME WHEN THE FLI OFFER WAS UNDER CONSIDERATION FOR AWARD, THE ADPESO CALCULATIONS USED A $128,500 FIGURE AS REPRESENTING THE MONTHLY LEASE COST UNDER THE UNIVAC LEASE, WHEREAS, IN NOVEMBER, AFTER THE CANCELLATION, THE MONTHLY LEASE COST USED IN THE CALCULATIONS IS $117,956. FLI CONTENDS, ESSENTIALLY, THAT ADPESO HAS JUGGLED THE FIGURES AT DIFFERENT POINTS IN TIME, DEPENDING ON WHETHER IT WANTED TO JUSTIFY AN AWARD TO FLI OR TO JUSTIFY A DIRECT GOVERNMENT PURCHASE.

HOWEVER, AT THE CONFERENCE ON THE PROTEST, THE ADPESO DIRECTOR EXPLAINED THAT THE CHECKPOINT MONTHLY LEASE COST FIGURE IS ADJUSTED PERIODICALLY TO REFLECT CHANGES IN THE STATUS OF INDIVIDUAL ITEMS OF EQUIPMENT UNDER THE UNIVAC LEASE. IN ANY EVENT, WE THINK THAT THE DECISIVE FACT IS THAT USING EITHER FIGURE, THE FLI OFFER IS STILL MORE COSTLY THAN USE OF THE ADP FUND FOR DIRECT PURCHASE.

FROM THE FOREGOING CONSIDERATIONS, THERE APPEARS TO BE NO BASIS TO CONCLUDE THAT FLI SUFFERED PREJUDICE TO ITS POSITION EVEN IF IT IS ASSUMED THAT THE NAVY ACTED PREMATURELY IN CANCELING THE RFP.

ACCORDINGLY, SINCE REVIEW OF THE RECORD PROVIDES A SUFFICIENT SHOWING OF THE AVAILABILITY OF AN ALTERNATIVE SOURCE AT A LOWER COST, THUS OBVIATING THE NEED TO ACCEPT AN OFFER UNDER THE RFP AND INDICATING THAT CANCELLATION WOULD BE IN THE BEST INTERESTS OF THE GOVERNMENT, WE CANNOT CONCLUDE THAT THE CANCELLATION OF THE RFP HAS BEEN SHOWN TO BE WITHOUT A REASONABLE BASIS.

USE OF THE ADP FUND

FLI'S CONTENTION THAT THE USE OF THE ADP FUND WAS IMPROPER RESTS ON FPMR SEC. 101-32.408(C), WHICH STATES THAT THE PROCUREMENT OF ADPE SHALL BE ACCOMPLISHED IN CONFORMANCE WITH THE POLICIES AND GUIDANCE STATED IN APPLICABLE OMB ISSUANCES. FLI HAS CITED AN OMB LETTER TO GSA DATED MARCH 7, 1972, AND PARAGRAPH 6B OF OMB CIRCULAR NO. A-54, AS AMENDED, AS DEMONSTRATING THREE REQUIREMENTS FOR USE OF THE ADP FUND WHICH WERE NOT MET HERE:

1. THE EXISTENCE OF A "SPECIAL OPPORTUNITY" TO PURCHASE ADPE;

2. THE EXHAUSTION OF INTERNAL SOURCES OF AGENCY FUNDING, INCLUDING EFFORTS TO REPROGRAM FUNDS (SEE ALSO FPMR SEC. 101-32.403-4(A) (1974 ED.)); AND

3. THE OFFERING OF A SIGNIFICANT RATE OF RETURN ON INVESTMENT, ON THE ORDER OF 40 PERCENT OR MORE.

FLI ARGUES THAT THE UNIVAC PURCHASE IS NOT A SPECIAL OPPORTUNITY, SINCE THE OPTION TO PURCHASE HAS BEEN AVAILABLE FOR THE PAST 16 MONTHS; THAT THE NAVY DID NOT EXHAUST ITS INTERNAL FUNDING POSSIBILITIES; AND THAT THE RATE OF RETURN ON INVESTMENT IS ONLY 21 PERCENT WHEN COMPARED TO THE RATE OF RETURN AVAILABLE ON FLI'S OFFER.

AS FOR THE FIRST TWO CONTENTIONS, WE NOTE THAT IN THE POST CANCELLATION SITUATION FACING THE NAVY, IT APPEARS THAT THE POSSIBILITY OF OBTAINING ADDITIONAL OP,N APPROPRIATIONS WAS GIVEN CONSIDERATION BEFORE THE ADP FUND WAS UTILIZED. IN THIS REGARD, FEDERAL MANAGEMENT CIRCULAR 74-5, JULY 30, 1974, WHICH SUPERSEDES OMB CIRCULAR NO. A-54, SPEAKS IN PARAGRAPH F(2) MERELY OF EFFORTS TO REPROGRAM CURRENT AGENCY FUNDS "IF POSSIBLE." SIMILAR PERMISSIVE TERMS, FPMR SEC. 101-32.403-4(A) (1974 ED.) REFERS TO PURSUIT OF THE ADP FUND ALTERNATIVE WHERE FUNDS ARE "NOT READILY AVAILABLE" WITHIN THE AGENCY. ALSO, WE BELIEVE THAT WHETHER THE UNIVAC OPTION WAS A "SPECIAL OPPORTUNITY" MUST BE JUDGED AS OF THE TIME THE NAVY AND GSA WERE IN A POSITION TO MAKE SUCH A DETERMINATION, NOT IN LIGHT OF A PRIOR TIME WHEN FUNDS WERE UNAVAILABLE. UNDER THE CIRCUMSTANCES, WE BELIEVE THAT GSA - THE AGENCY CHARGED WITH THE PRIMARY AUTHORITY AND RESPONSIBILITY TO PROCURE ADPE FOR THE GOVERNMENT - WAS IN THE BEST POSITION TO DETERMINE IF THE UNIVAC OPTION AS OF FEBRUARY 14, 1975 (THE EXPIRATION DATE OF THE UNIVAC LEASE PURCHASE OPTION OFFER), WAS AN APPROPRIATE "SPECIAL OPPORTUNITY." GSA CONSIDERED THE NAVY'S REQUEST FOR DELEGATION OF AUTHORITY TO USE THE ADP FUND AND GRANTED THE AUTHORITY. REGARD TO THE RATE OF RETURN ON INVESTMENT, THE RECORD INDICATES THAT THIS CONCEPT IS DEFINED AS THE COMPOUND INTEREST RATE THAT THE CAPITAL INVESTMENT (PURCHASE PRICE) WOULD HAVE TO EARN IN ORDER THAT THE INVESTMENT PLUS THE INTEREST EARNED THEREON WOULD EQUAL THE MONTHLY PAYMENTS (RENTAL) AS THEY BECOME DUE OVER THE EXPECTED LIFE OF THE SYSTEM. FLI ARGUES, FIRST, THAT THE 1972 OMB LETTER, SUPRA, ESTABLISHES A REQUIREMENT THAT USE OF THE ADP FUND IN A PARTICULAR SITUATION MUST YIELD A 40-PERCENT RATE OF RETURN. FURTHERMORE, AS FLI POINTS OUT, SEVERAL NAVY DOCUMENTS IN THE RECORD, INCLUDING THE CONTRACTING OFFICER'S UNDATED, HANDWRITTEN NOTE, REFERRED TO SUPRA, INDICATE THAT AVAILABILITY OF THE ADP FUND WAS BELIEVED TO BE CONTINGENT UPON THE NAVY HAVING NO VALID OFFER UNDER THE RFP WHICH WOULD REDUCE THE FUND'S RATE OF RETURN ON INVESTMENT BELOW THE 40 PERCENT THRESHOLD. FLI POINTS OUT THAT UNDER THE NAVY'S PRECANCELLATION COST ANALYSIS, USE OF THE ADP FUND AS COMPARED TO THE PREEXISTING UNIVAC LEASE WOULD YIELD A 44-PERCENT RATE OF RETURN ON INVESTMENT. HOWEVER, THE FIGURES SHOW THAT USE OF THE FUND AS COMPARED TO FLI'S OFFER WOULD YIELD ONLY A 21-PERCENT RATE OF RETURN.

IN ADDITION, FLI ALLEGES THAT A GSA OFFICIAL INFORMED IT IN FEBRUARY 1975 THAT THE NAVY ADVISED GSA THAT THERE WAS NO VALID AND OUTSTANDING FLI OFFER BECAUSE THE OFFER HAD EXPIRED PRIOR TO THE CANCELLATION AND, THEREFORE, THAT GSA WAS FREE TO IGNORE THE OFFER IN REVIEWING THE NAVY'S REQUEST FOR USE OF THE ADP FUND. FURTHER, THE OFFICIAL ALLEGEDLY STATED TO FLI THAT GSA IN ITS DELIBERATIONS PROCEEDED ON THIS BASIS. IN THIS REGARD, GSA WAS INFORMED - PRIOR TO THE TIME THAT A FINAL DELEGATION OF AUTHORITY TO USE THE FUND WAS MADE - THAT THE QUESTION OF WHETHER FLI'S OFFER HAD EXPIRED, OR WAS STILL VALID AND SUBSISTING, WAS AN ISSUE INVOLVED IN THE PROTEST BEFORE OUR OFFICE.

WE FIND IT UNNECESSARY TO DECIDE WHETHER OR WHEN FLI'S OFFER EXPIRED. THINK IT SUFFICIENT TO NOTE THAT BY FILING ITS PROTEST - REQUESTING REINSTATEMENT OF THE RFP AND ACCEPTANCE OF ITS OFFER - FLI INDICATED ITS INTENT TO EXTEND ITS OFFER. IN THIS LIGHT, THE FACT THAT THE SOLICITATION HAD BEEN CANCELED IS IRRELEVANT AS TO THE PROBLEM OF MAKING ANY NECESSARY COMPARISONS OF THE DESIRABILITY OF OTHER ALTERNATIVES VIS-A-VIS THE FLI OFFER. THE SIMPLE FACT IS THAT IF SUCH COMPARISONS HAD LED TO A DECISION THAT PURSUIT OF OTHER ALTERNATIVES WAS INAPPROPRIATE, THE RFP COULD HAVE BEEN REINSTATED; THE SSA COULD HAVE SELECTED THE FLI OFFER FOR AWARD; AND FLI WOULD HAVE BEEN IN A POSITION TO ACCEPT THE AWARD. SEE, IN THIS REGARD, 46 COMP. GEN. 371 (1966), WHERE WE HELD THAT A BID WHICH HAD EXPIRED COULD BE EXTENDED AND ACCEPTED; AND 34 ID. 535 (1955), WHERE IT WAS FOUND PROPER TO REINSTATE A CANCELED SOLICITATION AND ACCEPT THE LOW BID. SEE, ALSO, MATTER OF SPICKARD ENTERPRISES, INC., ET AL., 54 COMP. GEN. 145 (1974).

HOWEVER, GIVEN THESE CIRCUMSTANCES, AND ASSUMING THAT, AS FLI CONTENDS, THE PROPER BASIS OF COMPARISON FOR DETERMINING RATE OF RETURN WOULD BE THE FLI OFFER VERSUS THE ADP FUND, WE NEVERTHELESS CANNOT FIND THAT GSA'S DELEGATION OF THE FUND UNDER THESE CIRCUMSTANCES WAS UNLAWFUL. IN THIS REGARD, THE PORTION OF THE MARCH 7, 1972, OMB LETTER DEALING WITH RATES OF RETURN STATES:

IN GENERAL, IN VIEW OF THE LIMITED FUNDS AVAILABLE TO THE FUND, WE BELIEVE THAT WITH RESPECT TO THE PURCHASE OF EQUIPMENT, YOU SHOULD CONTINUE TO CONCENTRATE ON THOSE OPPORTUNITIES WHICH OFFER PROSPECTS OF SIGNIFICANT RATES OF RETURN, SAY ON THE ORDER OF 40 PERCENT OR MORE, AND THAT EACH OPPORTUNITY SHOULD BE EVALUATED IN LIGHT OF WHETHER OTHER OPPORTUNITIES WITH GREATER RATES OF RETURN EXIST SO THAT MAXIMUM ADVANTAGE IS TAKEN OF THE FUNDS AVAILABLE.

WE BELIEVE FIRST OF ALL THAT TO VIEW THIS 1972 LETTER AS A DEFINITIVE AND CONCLUSIVE POLICY STATEMENT, INTENDED TO BE UNIFORMLY APPLICABLE TO ALL FUTURE PURCHASE OPPORTUNITIES, REGARDLESS OF CHANGED CIRCUMSTANCES OVER THE COURSE OF TIME, IS SOMEWHAT TENUOUS. FURTHER, EVEN ASSUMING THAT THE STATEMENT IS OF THIS CHARACTER, WE NOTE THAT IT APPEARS TO SPEAK IN GENERAL TERMS OF THE DESIRABILITY OF OBTAINING A 40-PERCENT RATE OF RETURN; THIS APPEARS TO BE IN THE NATURE OF A FLEXIBLE GUIDELINE, RATHER THAN A CLEAR AND SPECIFIC MINIMUM REQUIREMENT. UNDER THE CIRCUMSTANCES, WE DO NOT SEE A SUFFICIENT BASIS TO CONCLUDE THAT THERE WAS IN THIS CASE A MARKED DEPARTURE FROM APPLICABLE POLICIES SUCH AS WOULD RAISE A SERIOUS QUESTION THAT FPMR SEC. 101-32.408(C) WAS VIOLATED. IN THIS REGARD, FLI HAS NOT CALLED OUR ATTENTION TO ANY STATUTE OR REGULATION WHICH ESTABLISHES THE 40-PERCENT RATE OF RETURN AS A CLEAR AND SPECIFIC MINIMUM REQUIREMENT WHICH MUST BE MET BEFORE THE ADP FUND CAN LEGALLY BE UTILIZED. AS WE DO NOT FIND A VIOLATION OF APPLICABLE LAW OR REGULATIONS, THE QUESTION OF TO WHAT EXTENT, IF ANY, THE NAVY OR GSA FAILED TO PROPERLY IMPLEMENT APPLICABLE ADPE POLICIES PER SE IS A MATTER FOR RESOLUTION WITHIN THE EXECUTIVE BRANCH OF THE GOVERNMENT. CF. 53 COMP. GEN. 86 (1973); B-161862, SEPTEMBER 14, 1967.

FLI CLAIM FOR PROPOSAL PREPARATION COSTS

FLI CONTENDS THAT WHERE, AS HERE, A SOLICITATION IS ISSUED WITHOUT THE GOOD FAITH INTENT TO MAKE AN AWARD UNDER IT, OFFERORS ARE ENTITLED TO THE COSTS OF PROPOSAL PREPARATION, CITING A NUMBER OF AUTHORITIES BEGINNING WITH HEYER PRODUCTS COMPANY V. UNITED STATES, 140 F. SUPP. 409, 135 CT. CL. 63 (1956), AND CONCLUDING WITH MCCARTY CORPORATION V. UNITED STATES, 499 F.2D 633, 204 CT. CL. 768 (1974). FLI ARGUES THAT THE COURSE OF EVENTS IN THE PRESENT CASE - INITIAL NAVY ATTEMPTS TO PURCHASE DIRECTLY WITH APPROPRIATED OR ADP FUNDS, SUBSEQUENT ISSUANCE OF THE RFP, AND LATER ABANDONMENT OF THE RFP TO PURSUE USE OF THE ADP FUND - DEMONSTRATE THAT THE RFP WAS ISSUED WITHOUT THE BONA FIDE INTENT TO MAKE AN AWARD TO THE SUCCESSFUL OFFEROR. THE REAL PURPOSE OF THE RFP, IN FLI'S VIEW, WAS INFORMATIONAL IN NATURE - I.E., TO DEMONSTRATE THAT PROPOSED OFFERS FOR THIRD PARTY PURCHASE AND LEASEBACK WOULD BE MORE COSTLY THAN GOVERNMENT- FUNDED PURCHASE. FLI CONTENDS THAT, HAVING ACCOMPLISHED THIS, THE NAVY COULD THEN USE THE PROCUREMENT RESULTS TO "PRESSURE" THE RELEASE OF GOVERNMENT FUNDS FOR A DIRECT PURCHASE.

THE ALLEGATION THAT IMPROPER ISSUANCE OF THE RFP PROVIDES A BASIS FOR RECOVERY OF PROPOSAL PREPARATION COSTS IS TO BE CONSIDERED IN LIGHT OF THE PRINCIPLES ESTABLISHED IN THE HEYER CASE. SEE, IN THIS REGARD, MATTER OF KECO INDUSTRIES, INC., SUPRA. THE HEYER STANDARD CALLS FOR CLEAR AND CONVINCING PROOF OF A FRAUDULENT INDUCEMENT OF OFFERS, THAT IS, THAT OFFERS WERE NOT SOLICITED IN GOOD FAITH, BUT AS A PRETENSE TO CONCEAL THE PURPOSE TO AWARD THE CONTRACT TO SOME FAVORED OFFEROR OR OFFERORS, AND WITH THE INTENT TO WILLFULLY, CAPRICIOUSLY AND ARBITRARILY DISREGARD THE OBLIGATION TO LET THE CONTRACT TO THE OFFEROR WHOSE OFFER WAS MOST ADVANTAGEOUS TO THE GOVERNMENT.

ON THE RECORD BEFORE US, FLI HAS NOT MET THIS HIGH STANDARD OF PROOF. INITIALLY, WE NOTE THAT EVIDENCE OF THE NAVY'S INTENT TO AWARD A CONTRACT UNDER THE RFP TO A PRESELECTED OFFEROR OTHER THAN FLI IS LACKING. ALSO, AS NOTED PREVIOUSLY, THE RECORD INDICATES THAT IN THE TIME PRIOR TO THE ISSUANCE OF THE RFP, THE NAVY MADE TWO ATTEMPTS TO OBTAIN USE OF THE ADP FUND AND ALSO GAVE CONSIDERATION TO THE POSSIBILITY OF USING APPROPRIATED FUNDS FOR A DIRECT PURCHASE. THESE ALTERNATIVES PROVING UNAVAILING, AND FACED WITH A PERCEIVED NEED TO REDUCE MONTHLY LEASE COSTS, THE ISSUANCE OF AN RFP TO SOLICIT OFFERS FOR A THIRD PARTY PURCHASE AND LEASEBACK DOES NOT APPEAR TO BE AN UNREASONABLE EXERCISE OF PROCUREMENT JUDGMENT. IN SHORT, WE THINK THAT IN LIGHT OF THE CIRCUMSTANCES REFLECTED IN THE RECORD, FLI'S ALLEGATION THAT THE SOLICITATION WAS ISSUED IN BAD FAITH IS MERE SPECULATION. ALSO, IN LIGHT OF OUR CONCLUSION, SUPRA, THAT THE CANCELLATION OF THE RFP AND USE OF THE ADP FUND HAVE NOT BEEN SHOWN TO BE LEGALLY OBJECTIONABLE, THE COURSE OF EVENTS VIEWED AS A WHOLE DOES NOT PROVIDE CLEAR EVIDENCE OF BAD FAITH ISSUANCE OF THE RFP.

DPF PROTEST

DPF OBJECTS TO THE REJECTION OF ITS OFFER BY THE NAVY. THE DPF OFFER WAS REJECTED BECAUSE IT CONTAINED CERTAIN SEPARATE CHARGES WHICH WOULD BE INCURRED IN THE EVENT THE NAVY DID NOT RENEW THE OPTIONS THROUGHOUT THE 66 MONTHS' PERIOD. DPF STATES THAT THE SEPARATE CHARGES WERE CONSTRUCTED SO AS TO PUT IT IN THE SAME POSITION UPON FAILURE TO RENEW THE OPTIONS AS IT WOULD HAVE BEEN IF THE OPTIONS WERE RENEWED. DPF BELIEVES THAT WITHOUT SUCH SEPARATE CHARGES, A CONTRACTOR WOULD STAND A HIGH PROBABILITY OF LOSING MONEY IF THE OPTIONS ARE NOT RENEWED, AND THAT TO REJECT AN OFFER CONTAINING SUCH SEPARATE CHARGES DAMAGES THE INTEGRITY OF THE PROCUREMENT PROCESS, BECAUSE RESPONSIBLE OFFERORS WILL BE DISCOURAGED FROM SUBMITTING OFFERS TO MEET THE GOVERNMENT'S NEEDS.

ALSO, DPF CITES FPMR SEC. 101-32.408-5 (1974 ED.), WHICH PROVIDES A CLAUSE FOR INSERTION IN ADPE SOLICITATIONS PROVIDING, INTER ALIA, THAT "SEPARATE CHARGES, IF ANY, WHICH WILL INCUR TO THE GOVERNMENT SHOULD THE LATTER FAIL TO EXERCISE THE OPTIONS, WILL NOT BE CONSIDERED IN THE EVALUATION ***." THE NAVY OMITTED THIS PORTION OF THE CLAUSE FROM THE RFP TERMS AND ADVISED OFFERORS THAT ANY PRICING FACTOR INCLUDED TO COVER THE POSSIBILITY THAT ANY OR ALL OPTIONS FOR RENEWAL MIGHT NOT BE EXERCISED WAS TO BE INCLUDED IN THE BASIC MONTHLY CHARGE. DPF BELIEVES THAT BY CONSIDERING ITS SEPARATE CHARGES IN THE EVALUATION, THE NAVY HAS DEPARTED FROM THE REQUIREMENTS OF FPMR SEC. 101-32.408-5 (1974 ED.).

THE NAVY'S REPORT HAS RESPONDED TO DPF AS FOLLOWS:

*** DPF'S OFFER WAS SO STRUCTURED AS TO EITHER (I) FORCE THE NAVY INTO A FIVE YEAR CONTRACT, OR (II) ENTER INTO AN INSTALLMENT PURCHASE IN THE NATURE OF A MULTI-YEAR CONTRACT. DPF DID THIS THROUGH THE MECHANISM OF REQUIRING THE NAVY TO PAY THEM A BALLOON PAYMENT IF THE NAVY SHOULD ELECT NOT TO EXERCISE ANY ONE OF THE RENEWAL OPTIONS. UPON RECEIPT OF SUCH PAYMENT, CLEAR TITLE WOULD HAVE VESTED IN THE NAVY, AND THE CONTRACT WOULD BE AT AN END. THIS OFFER WAS CONSIDERED TO REQUIRE AT BEST A MULTI-YEAR CONTRACT, AN ILLEGAL USE FOR ADPE PROCUREMENT OF THE ANNUAL APPROPRIATION O&M,N, AND ITS ACCEPTANCE WAS CONSIDERED IMPRUDENT FOR POLICY REASONS AS WELL. ACCORDINGLY, DPF WAS ADVISED THAT ITS OFFER WOULD NOT BE ACCEPTED AS STRUCTURED AT THAT TIME. DPF'S BEST AND FINAL OFFER CONTAINED THE SAME UNACCEPTABLE CONDITIONS, AND WAS TO BE REJECTED HAD THE SOLICITATION NOT BEEN CANCELED. THIS IS, OF COURSE, THE BASIS OF DPF'S PROTEST.

AS FLI'S PROTEST AND ITS REQUESTED REMEDY OF REINSTATEMENT OF THE RFP HAVE BEEN DENIED, WE THINK THE ISSUE RAISED BY DPF'S PROTEST HAS BEEN RENDERED ACADEMIC. THE "SEPARATE CHARGES" PROVISION PRESCRIBED IN THE FPMR CLAUSE RAISES A QUESTION OF THE PROPER DRAFTING OF THE RFP, WHICH MAY BE OF INTEREST IN CONNECTION WITH FUTURE PROCUREMENTS OF THIS KIND. THIS REGARD, COUNSEL FOR THE NAVY HAS STATED THAT SINCE ONLY GSA HAS THE AUTHORITY TO ENTER INTO MULTIYEAR LEASES, AND SINCE THE FPMR PROVISION, IF APPLIED, COULD HAVE THE EFFECT OF FORCING OTHER AGENCIES TO ENTER INTO MULTIYEAR LEASES, THE FPMR CLAUSE AS PRESENTLY CONSTITUTED REPRESENTS AN OVERSIGHT IN DRAFTMANSHIP BY GSA. IN THIS REGARD, BY LETTER OF TODAY WE ARE FURNISHING A COPY OF THIS DECISION TO GSA AND CALLING ITS ATTENTION TO THIS POINT FOR CONSIDERATION WHETHER REVISION OF FPMR SEC. 101-32.408-5 (1974 ED.) IS WARRANTED.

CONCLUSION

IN ADDITION TO THE ABOVE POINTS, FLI HAS ALSO MADE REFERENCE TO A NUMBER OF INCIDENTS WHICH IT BELIEVES INDICATE AN OVERALL PATTERN OF MALADMINISTRATION BY THE NAVY WHICH IS SO PERVASIVE AS TO GIVE RISE TO AN APPEARANCE THAT NAVY OFFICIALS HAVE ACTED IN BAD FAITH. FOR INSTANCE, FLI COMPLAINS OF ALLEGED IMPROPER AND/OR INACCURATE NAVY TRANSCRIPTION OF SEVERAL NAVY - FLI MEETINGS WHICH WERE HELD TO DISCUSS THE PROTEST. ALSO, FLI COMPLAINS OF THE NAVY'S ACTIONS IN REGARD TO NAVY - FLI NEGOTIATIONS DURING THE PENDENCY OF THE PROTEST REGARDING THE POSSIBLE AWARD OF AN INTERIM CONTRACT TO FLI COVERING 1 OR 2 MONTHS. NO SUCH AWARD WAS MADE, AND THE UTILIZATION OF THE ADP FUND ALTERNATIVE IN FEBRUARY 1975 ELIMINATED ANY POSSIBILITY OF AN INTERIM CONTRACT AWARD. FLI STATES THAT IT IS COMPELLED TO EXPRESS ITS BELIEF THAT THE NAVY, ACTING OSTENSIBLY IN BAD FAITH, USED THESE NEGOTIATIONS AS A BARGAINING LEVER TO EXTRACT PRICE REDUCTIONS IN CONTEMPORANEOUS NAVY-UNIVAC NEGOTIATIONS ON THE SUBJECT OF THE PRICE OF THE UNIVAC LEASE OPTION. THE EXERCISE OF THE UNIVAC LEASE OPTION IN FEBRUARY 1975 WAS AT A LOWER PURCHASE PRICE THAN UNIVAC HAD PREVIOUSLY OFFERED. IT SHOULD BE NOTED THAT, OWING TO THE CIRCUMSTANCES OF THE DEVELOPMENT OF THIS CASE, THE NAVY DID NOT HAVE AN OPPORTUNITY TO RESPOND TO THIS LAST ALLEGATION.

WE BELIEVE THESE ALLEGATIONS ARE BASICALLY IRRELEVANT TO THE ISSUES INVOLVED IN THE PROTEST EXCEPT FOR THE LIGHT, IF ANY, WHICH THEY SHED ON THE COURSE OF EVENTS IN THE PROCUREMENT. IN ANY EVENT, IN OUR REVIEW OF THE ENTIRE RECORD, WE HAVE TAKEN THESE ALLEGATIONS INTO CONSIDERATION. ALSO, WE HAVE GIVEN FULL CONSIDERATION TO THE CONTENTS OF THE CONTRACTING OFFICER'S UNDATED HANDWRITTEN NOTE, REFERRED TO PREVIOUSLY.

WE DO NOT BELIEVE THAT FLI'S ALLEGATIONS OF BIAS AND BAD FAITH ON THE NAVY'S PART CAN BE SUBSTANTIATED ON THE RECORD. IT IS OUR CONCLUSION THAT THE CANCELLATION AND USE OF THE ADP FUND HAVE NOT BEEN SHOWN TO BE LEGALLY OBJECTIONABLE. THIS IS NOT TO SAY, HOWEVER, THAT ALL OF THE NAVY'S ACTIONS ARE ABOVE CRITICISM FROM A STANDPOINT OF SOUND PROCUREMENT POLICY. PARTICULAR, WE TAKE NOTE OF THE 3-WEEK DELAY BETWEEN THE AVAILABILITY OF NEW MONIES IN THE ADP FUND (SEPTEMBER 30, 1974) AND ADPESO'S AWARENESS OF THIS FACT (OCTOBER 22 OR 23, 1974). DURING THIS TIME, FLI AND DPF WERE PREPARING AND SUBMITTING REVISED PROPOSALS. WE FURTHER NOTE THAT THE ADPESO DIRECTOR HAS MADE REFERENCE TO THE "VERY CLOSE CONTACT" BETWEEN ADPESO AND GSA ADPE OFFICIALS SINCE ADPESO'S ESTABLISHMENT IN 1968. THINK IT IS FAIR TO SAY THAT ADPESO OFFICIALS SHOULD HAVE BEEN MORE SENSITIVELY ATTUNED TO THE POSSIBILITY THAT A CHANGE IN INTRA-GOVERNMENT FUNDING MIGHT OBVIATE THE NEED FOR ACCEPTING AN OFFER UNDER THE RFP. PROMPTER AWARENESS BY ADPESO OF THE CHANGE IN THE ADP FUND CIRCUMSTANCES - BY CLOSER CONTACT WITH GSA AND/OR OMB - MIGHT AT LEAST HAVE SPARED THE OFFERORS SOME MEASURE OF PROPOSAL PREPARATION EXPENSES.

IN ADDITION, WE BELIEVE SOME COMMENT IS CALLED FOR CONCERNING THE DEGREE OF COMMUNICATION BETWEEN THE NAVY AND THE OFFERORS DURING THE PERIOD FROM ABOUT OCTOBER 18, 1974, TO OCTOBER 29, 1974 - THE TIME DURING WHICH THE NAVY WAS CONSIDERING THE ALTERNATIVES AND DECIDING TO CANCEL THE RFP. RECOGNIZE THE ADMINISTRATIVE DIFFICULTIES INVOLVED IN MAKING A TIMELY ANALYSIS OF VARIOUS ALTERNATIVES AND DECIDING UPON AN APPROPRIATE COURSE OF ACTION IN A SITUATION OF THIS KIND, AS WELL AS THE PROBLEMS INVOLVED IN EXPLAINING TO OFFERORS THE GOVERNMENT'S POSITION. ALSO, THE AGENCY CANNOT, OF COURSE, DISCLOSE INFORMATION WHICH WOULD VIOLATE THE PROHIBITION AGAINST AUCTION TECHNIQUES. SEE ASPR SEC. 3-805.1(B) (1974 ED.). HOWEVER, UNDER CIRCUMSTANCES SUCH AS THOSE INVOLVED HERE, COMMUNICATION WITH THE OFFERORS REGARDING THE INTRA-GOVERNMENT FUNDING ALTERNATIVES BEING INVESTIGATED AND THE REASONS FOR THE INVESTIGATION IS A DESIRABLE POLICY IN ORDER THAT OFFERORS' CONFIDENCE IN THE INTEGRITY OF THE PROCUREMENT PROCESS MAY BE FURTHERED. WHILE THE RECORD SHOWS THAT THERE WAS SOME DISCUSSION BETWEEN THE NAVY AND FLI ALONG THESE LINES, WE BELIEVE IT ALSO INDICATES THAT GREATER EFFORTS BY THE NAVY TO CANDIDLY COMMUNICATE TO THE OFFERORS THE CHANGES IN THE PROCUREMENT SITUATION WOULD HAVE BEEN APPROPRIATE.

IN VIEW OF THE FOREGOING, THE PROTESTS OF FLI AND DPF ARE DENIED.