B-194455.OM, DEC 29, 1980

B-194455.OM: Dec 29, 1980

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SUBJECT: REVIEW OF COMPETITIVELY NEGOTIATED DOD CONTRACTS FOR PS 115 POWER SUPPLIES FOR THE M732 PROXIMITY FUZE (CODE 950531) (FILE B-194455) THIS IS IN REPLY TO YOUR MEMORANDUM DATED MARCH 23. IT IS OUR VIEW THAT THERE WAS NOT "ADEQUATE PRICE COMPETITION" FOR THE PROCUREMENT. THEREFORE COST OR PRICING DATA SHOULD HAVE BEEN REQUESTED. A MORE DETAILED ANALYSIS OF THIS CONCLUSION IS ATTACHED. ATTACHMENT REVIEW OF COMPETITIVELY NEGOTIATED DOD CONTRACTS FOR PS 115 POWER SUPPLIES FOR THE M732 PROXIMITY FUZE DIGEST: NEGOTIATED PROCUREMENT AUTHORIZED UNDER 10 U.S.C. 2304(A)(16) IN INTEREST OF MAINTAINING INDUSTRIAL MOBILIZATION BASE FOR ITEM PROCURED WAS NOT BASED ON ADEQUATE PRICE COMPETITION AS DEFINED IN DAR 3 807.1(B)(1) WHERE SPLIT AWARD WAS MADE TO ONLY TWO OFFERORS TO WHOM COMPETITION WAS RESTRICTED AND THERE WERE NO UNSUCCESSFUL OFFERORS.

B-194455.OM, DEC 29, 1980

SUBJECT: REVIEW OF COMPETITIVELY NEGOTIATED DOD CONTRACTS FOR PS 115 POWER SUPPLIES FOR THE M732 PROXIMITY FUZE (CODE 950531) (FILE B-194455)

THIS IS IN REPLY TO YOUR MEMORANDUM DATED MARCH 23, 1979, REQUESTING OUR LEGAL ADVICE AS TO THE COMPETITIVE ASPECTS OF THE PROCUREMENT, UNDER A SPLIT AWARD, OF 473,000 PS 115 POWER SUPPLIES FOR THE M732 PROXIMITY FUZE BY THE DEPARTMENT OF DEFENSE.

IT IS OUR VIEW THAT THERE WAS NOT "ADEQUATE PRICE COMPETITION" FOR THE PROCUREMENT, AS DEFINED IN DEFENSE ACQUISITION REGULATION (DAR) 3 807.1(B)(1); THEREFORE COST OR PRICING DATA SHOULD HAVE BEEN REQUESTED, AS REQUIRED BY LAW (I.E., PUB. L. NO. 87-653, SEPT. 10, 1962, 10 U.S.C. 2306(F)).

A MORE DETAILED ANALYSIS OF THIS CONCLUSION IS ATTACHED.

ATTACHMENT

REVIEW OF COMPETITIVELY NEGOTIATED DOD CONTRACTS FOR PS 115 POWER SUPPLIES FOR THE M732 PROXIMITY FUZE

DIGEST:

NEGOTIATED PROCUREMENT AUTHORIZED UNDER 10 U.S.C. 2304(A)(16) IN INTEREST OF MAINTAINING INDUSTRIAL MOBILIZATION BASE FOR ITEM PROCURED WAS NOT BASED ON ADEQUATE PRICE COMPETITION AS DEFINED IN DAR 3 807.1(B)(1) WHERE SPLIT AWARD WAS MADE TO ONLY TWO OFFERORS TO WHOM COMPETITION WAS RESTRICTED AND THERE WERE NO UNSUCCESSFUL OFFERORS.

BACKGROUND

ON AUGUST 31, 1978, THE DEPARTMENT OF THE ARMY, UNDER RFP NO. DAAG 39-78- R-9155, MADE A SPLIT AWARD OF TWO FIRM FIXED-PRICE CONTRACTS FOR PROCUREMENT OF A TOTAL QUANTITY OF 473,000 PS 115 POWER SUPPLIES FOR USE IN THE M732 PROXIMITY FUZE. TWO-THIRDS (315,000) OF THE QUANTITY WAS AWARDED TO ACCUDYNE CORPORATION ("ACCUDYNE") OF JANESVILLE, WISCONSIN FOR A TOTAL PRICE OF $3,906,000 OR $12.40 PER UNIT. THE OTHER ONE-THIRD (158,000) OF THE QUANTITY WAS AWARDED TO THE UNION CARBIDE CORPORATION (UNION CARBIDE) OF NEW YORK, NEW YORK, FOR A TOTAL PRICE OF $2,964,396, OR $18.76 PER UNIT.

IN JUNE OF 1978, PRIOR TO ISSUANCE OF THE RFP, THE ASSISTANT SECRETARY OF THE ARMY (RESEARCH, DEVELOPMENT, AND ACQUISITION) AUTHORIZED NEGOTIATION OF THE PROCUREMENT COMPETITION TO BE RESTRICTED TO THE TWO MOBILIZATION BASE PRODUCERS, ACCUDYNE AND UNION CARBIDE. ARMY CONTRACTING OFFICIALS DETERMINED THAT A SPLIT AWARD OF TWO-THIRDS OF THE TOTAL QUANTITY TO ACCUDYNE AND ONE-THIRD TO UNION CARBIDE WAS IN THE BEST INTEREST OF THE GOVERNMENT SINCE IT MAINTAINED A VIABLE MOBILIZATION BASE AND ASSURED THAT PRODUCTION WAS MAINTAINED IN THE GOVERNMENT'S INTEREST WITH THE TWO MOBILIZATION BASE PRODUCERS. THE REASONS GIVEN WERE THAT UNION CARBIDE WAS THEN PRODUCING THE INITIAL PRODUCTION FACILITIES UNDER A SEPARATE CONTRACT, AND ACCUDYNE WAS AT THAT TIME A NEW SOURCE FOR THE PS 115, AND THEREFORE THE RISK OF A TOTAL QUANTITY AWARD TO ACCUDYNE WOULD HAVE BEEN TOO GREAT TO HAVE BEEN IN THE GOVERNMENT'S BEST INTEREST.

ON AUGUST 7, 1978, BEST AND FINAL PROPOSALS WERE RECEIVED FROM BOTH OFFERORS ON A TOTAL PRICE BASIS, AS FOLLOWS:

LINE ITEM QTY UNION CARBIDE TOTAL AMT. ACCUDYNE TOTAL AMT.

0001(W/FAAS) 473,000 $12.241 EA $5,789,993.00 $12.12 EA $4,732,760 0003(W/FAAS) 315,000 13.691 EA 4,312,665.00 12.60 EA 3,969,000 0004(W/FAAS) 236,500 16.673 EA 3,943,165.00 14.35 EA 3,393,775 0005(W/FAAS) 158,000 18.762 EA 2,964,396.00 15.40 EA 2,433,200 0006(W/O FAAS) 473,000 12.241 EA 5,789,993.00 11.92 EA 5,638,100 0007(W/O FAAS) 315,000 13.691 EA 4,312,665.00 12.40 EA 3,906,000 0008(W/O FAAS) 236,500 16.673 EA 3,943,165.00 14.15 EA 3,346,475 0009(W/O FAAS) 158,000 18.762 EA 2,964,396.00 15.20 EA 2,401,600

ACCUDYNE WAS LOW OFFEROR FOR ALL OF THE PROPOSED QUANTITIES. ANALYZING THE COST TO THE GOVERNMENT OF A SPLIT AWARD, SEVERAL COMBINATIONS WERE REVIEWED BY CONTRACTING OFFICIALS. BASED ON THE BEST AND FINAL PROPOSALS CITED ABOVE, THE CONTRACTING OFFICIALS DETERMINED THAT A 50/50 SPLIT (236,000 TO EACH PRODUCER) WOULD HAVE COST THE GOVERNMENT $1,651,480 MORE THAN THE TOTAL AWARD GOING TO THE LOW OFFEROR. AWARDING TWO-THIRDS (315,000) OF THE TOTAL QUANTITY TO ACCUDYNE AND ONE-THIRD (158,000) TO UNION CARBIDE WOULD HAVE RESULTED IN A COST OF $1,232,236 MORE THAN THE AWARD GOING TO THE LOW OFFEROR. A TWO-THIRDS QUANTITY TO UNION CARBIDE AND ONE-THIRD TO ACCUDYNE WOULD HAVE RESULTED IN A TOTAL COST OF $1,076,105 ADDITIONAL COST OVER THE TOTAL AWARD TO THE LOW OFFEROR. THIS LAST COMBINATION REPRESENTED THE LOWEST PRICED COMBINATION ON A SPLIT AWARD.

THIS LOWEST PRICED COMBINATION OF SPLIT AWARDS WOULD HAVE RESULTED IN TWO -THIRDS OF THE QUANTITY BEING AWARDED TO UNION CARBIDE AT A UNIT PRICE THAT WAS $1.29 HIGHER THAN ACCUDYNE'S UNIT PRICE FOR THAT QUANTITY. THE RESULT WOULD HAVE BEEN THAT THE TWO-THIRDS (315,000) QUANTITY WOULD HAVE BEEN AWARDED AT A TOTAL COST OF $406,665 MORE THAN THE LOW OFFEROR'S (ACCUDYNE'S) PRICE FOR THAT QUANTITY. THE REASONS GIVEN FOR THE TWO- THIRDS UNION CARBIDE, ONE-THIRD ACCUDYNE COMBINATION BEING HIGHER WAS THAT THE RATE OF INCREASE IN THE UNIT PRICE AS THE QUANTITY DECREASED WAS GREATER WITH UNION CARBIDE THAN WITH ACCUDYNE DUE TO THE COMPARATIVE INEFFICIENCY OF OPERATING THE UNION CARBIDE FACILITY OVER THAT OF ACCUDYNE.

BASED ON THE ABOVE, THE PROCURING ACTIVITY AWARDED TWO-THIRDS OF THE QUANTITY TO ACCUDYNE AT THE LOWER UNIT PRICE FOR THAT QUANTITY ($12.40), AND THE REMAINING ONE-THIRD QUANTITY TO UNION CARBIDE AT ITS PRICE FOR THAT QUANTITY ($18.76). THIS AWARD COMBINATION RESULTED IN A TOTAL COST FOR THE COMBINED PROCUREMENT OF $156,000 MORE THAN THE LOWEST OVERALL COMBINATION (I.E., AWARDING TWO-THIRDS TO UNION CARBIDE AND ONE-THIRD TO ACCUDYNE). HOWEVER, CONTRACTING OFFICIALS REJECTED THE LOWER OVERALL COMBINATION BECAUSE THEY DID NOT CONSIDER IT TO BE CONSISTENT WITH "THE INTEGRITY OF THE COMPETITIVE SYSTEM" SINCE IT WOULD HAVE RESULTED IN THE LARGER QUANTITY (2/3) BEING AWARDED TO THE HIGHER PRICED OFFEROR. SINCE THE 50/50 SPLIT WOULD HAVE RESULTED IN AN EXPENDITURE OF $419,244 MORE THAN THE TWO-THIRDS ACCUDYNE, ONE-THIRD UNION CARBIDE SPLIT, IT WAS ALSO REJECTED AS AN ALTERNATIVE.

COMPETITIVE ASPECTS OF PROCUREMENT

IN REPLY TO YOUR CONCERNS AS TO THE COMPETITIVE ASPECTS OF THE ABOVE PROCUREMENT, WE NOTE THAT 10 U.S.C. 2306(F), AS IMPLEMENTED BY DEFENSE ACQUISITION REGULATION (DAR) 3-807.3, PROVIDES THAT A CONTRACTOR SHALL BE REQUIRED TO SUBMIT COST OR PRICING DATA PRIOR TO THE AWARD OF A NEGOTIATED CONTRACT WHERE THE PRICE IS EXPECTED TO EXCEED $100,000 EXCEPT THAT THIS REQUIREMENT NEED NOT BE APPLIED WHERE THE PRICE IS BASED ON "ADEQUATE PRICE COMPETITION."

IN IMPLEMENTING THE STATUTE, DAR 3-807.1(B)(1) PROVIDES THE CONTRACTING OFFICER WITH THREE SEPARATE STANDARDS FOR EVALUATION OF THE "ADEQUATE PRICE COMPETITION" EXCEPTION, AND THESE GUIDELINES CONTEMPLATE AT LEAST ONE UNSUCCESSFUL OFFEROR FOR EACH AWARD MADE. SEE B-163635-O.M., APRIL 8, 1969; B-118710-O.M., JUNE 1, 1967. THIS CONDITION WOULD BE MET UNDER AN RFP CALLING FOR SPLIT AWARDS IF THE NUMBER OF OFFERORS COMPETING EXCEEDED THE NUMBER OF AWARDS MADE. SEE B-118710, OCTOBER 3, 1969.

FIRST, DAR 3-807.1(B)(1A PROVIDES THAT PRICE COMPETITION EXISTS IF THERE ARE AT LEAST TWO RESPONSIBLE OFFERORS, WHOSE BIDS ARE RESPONSIVE, WHO SATISFY THE GOVERNMENT'S REQUIREMENTS, AND ARE INDEPENDENTLY IN CONTENTION FOR THE AWARD ON THE BASIS OF THE LOWEST PRICE.

SECOND, DAR 3-807.1(B)(1B STATES THAT IF THE CONDITIONS SET OUT IN SUBSECTION (1A, ABOVE, ARE MET, PRICE COMPETITION MAY BE PRESUMED TO BE ADEQUATE, UNLESS A KNOWN SOURCE WAS UNREASONABLY DENIED AN OPPORTUNITY TO COMPETE OR THE LOW COMPETITOR HAD A DETERMINATIVE ADVANTAGE OVER THE OTHER COMPETITORS, OR THE LOWEST FINAL PRICE IS NOT REASONABLE.

THIRD, DAR 3-807.1(B)(1C STATES THAT A PRICE IS BASED ON ADEQUATE COMPETITION IF IT RESULTS DIRECTLY FROM SUCH COMPETITION, OR IF PRICE ANALYSIS (NOT COST ANALYSIS) SHOWS CLEARLY THAT THE COST IS REASONABLE IN COMPARISON WITH CURRENT OR RECENT PRICES FOR THE SAME OR SUBSTANTIALLY THE SAME ITEMS PROCURED IN COMPARABLE QUANTITIES UNDER CONTRACTS AWARDED AS A RESULT OF ADEQUATE PRICE COMPETITION.

IN THE PRESENT CASE, COMPETITION FOR THE PS 115 POWER SUPPLIES WAS RESTRICTED TO ACCUDYNE AND UNION CARBIDE IN ORDER TO MAINTAIN A MOBILIZATION BASE FOR THE ITEM. BOTH OFFERORS WERE AWARE THAT COMPETITION WAS RESTRICTED TO THEMSELVES ALONE, AND THE FACTS IN YOUR POSSESSION SUGGEST THAT EACH KNEW, PRIOR TO SUBMITTING ITS BEST AND FINAL PROPOSAL, THAT IT WOULD RECEIVE A PORTION OF A SPLIT AWARD ON THE PROCUREMENT. SINCE THE NUMBER OF OFFERORS WAS EQUAL TO THE NUMBER OF AWARDS MADE, THERE WERE NO UNSUCCESSFUL OFFERORS. IN THIS SENSE, THE TWO OFFERORS WERE, IN EFFECT, GUARANTEED AN AWARD. UNDER SUCH CIRCUMSTANCES, WE DO NOT BELIEVE THAT THERE WAS ADEQUATE PRICE COMPETITION FOR THE PROCUREMENT AS DEFINED IN DAR 3-807.1(B)(1).

IN ADDITION, WE NOTE THAT ACCUDYNE WAS AWARDED TWO-THIRDS OF THE TOTAL QUANTITY OF THE PROCUREMENT EVEN THOUGH IT WAS A NEW SOURCE FOR THE PS 115, HAVING NEVER PREVIOUSLY PRODUCED THE ITEM. UNDER SUCH CIRCUMSTANCES, IT WOULD APPEAR THAT NO COST OR PRICE HISTORY WAS AVAILABLE AS A BASIS FOR COMPARING ACCUDYNE'S PRICES FOR PRICE ANALYSIS PURPOSES UNDER DAR 3- 807.1(B)(1C. IN THIS RESPECT, A QUESTION MAY BE RAISED AS TO THE REASONABLENESS OF ACCUDYNE'S UNIT PRICE OF $12.40 FOR THE 315,000 UNITS, ALTHOUGH WE LACK SUFFICIENT INFORMATION TO DRAW ANY DEFINITE CONCLUSIONS ON THIS POINT.

BASED ON THE ABOVE, WE BELIEVE THAT THE PRICE COMPETITION FOR THE PS 115 POWER SUPPLIES WAS NOT ADEQUATE AS CONTEMPLATED BY DAR 3 807.1(B)(1), AND THEREFORE COST OR PRICING DATA SHOULD HAVE BEEN REQUESTED AS REQUIRED BY THE LAW AND REGULATIONS.