Protest Against Negotiation of Sole-Source Contract

B-184627, AUGUST 6, 1976

1. NEGOTIATION OF SOLE-SOURCE CONTRACT FOR LAUNDRY EQUIPMENT WAS NOT AUTHORIZED BY 41 U.S.C. 252(C)(11) AS INVOLVING "TEST" OF "RELIABILITY" OF ITEM WHERE CONTRACT DID NOT PRESCRIBE TEST PROCEDURES OR REPORTS, MANUFACTURER HAS EMPHASIZED RELIABILITY OF ITS EQUIPMENT, SOLICITATION CONTAINED ONE-YEAR EXPERIENCE CLAUSE WHICH APPARENTLY WAS SATISFIED, AND REQUISITE DETERMINATIONS AND FINDINGS BY HEAD OF AGENCY WERE ABSENT. 2. CONTRACTING OFFICER'S DETERMINATION TO PROCURE FROM ONE FIRM AS "THE SOLE SOURCE OF SUPPLY" IS NOT JUSTIFIED WHERE RECORD INDICATES THAT SEVERAL MANUFACTURERS COULD SATISFY GOVERNMENT'S NEEDS. HOWEVER, BECAUSE CONTRACT HAS BEEN SUBSTANTIALLY PERFORMED, TERMINATION FOR CONVENIENCE OF GOVERNMENT IS PRECLUDED.

G. A. BRAUN, INCORPORATED:

G. A. BRAUN, INCORPORATED (BRAUN) HAS PROTESTED AGAINST THE SOLE SOURCE AWARD OF CONTRACT NO. V797P-2123A TO PELLERIN MILNOR CORPORATION (PELLERIN) BY THE VETERANS ADMINISTRATION (VA) MARKETING CENTER, HINES, ILLINOIS, FOR AN AUTOMATED LAUNDRY SYSTEM FOR THE VA HOSPITAL AT ALEXANDRIA, LOUISIANA. IN SUBSTANCE, IT IS BRAUN'S POSITION THAT THE SOLE -SOURCE PROCUREMENT REPRESENTED AN UNWARRANTED RESTRICTION ON COMPETITION WHICH IN TURN RESULTED IN AN UNJUSTIFIABLY HIGH PRICE FOR THE LAUNDRY EQUIPMENT.

A COMMERCE BUSINESS DAILY ANNOUNCEMENT OF JUNE 11, 1975 PROVIDED BRAUN WITH NOTICE THAT NEGOTIATIONS WERE BEING CONDUCTED SOLELY WITH PELLERIN. THIS WAS FOLLOWED BY AN ANNOUNCEMENT OF AWARD TO PELLERIN IN THE COMMERCE BUSINESS DAILY FOR JULY 14, 1975. FOLLOWING THE NOTICE OF AWARD, BRAUN PROTESTED THE PROCUREMENT BY MAIL GRAM OF JULY 17 TO THE CONTRACTING OFFICER. THE CONTRACTING OFFICER DENIED THE PROTEST ON THE GROUNDS THAT THE EQUIPMENT CAN BE OBTAINED FROM ONLY A SINGLE SOURCE.

BRAUN CONTESTS THE CONTRACTING OFFICER'S CONCLUSION, ARGUING THAT OTHER PRODUCERS, INCLUDING BRAUN, MANUFACTURE ACCEPTABLE AUTOMATED SYSTEMS WHICH WILL SATISFY THE AGENCY'S REQUIREMENT. IN VIEW OF THE DEFICIENCIES IN THIS PROCUREMENT WHICH WE HAVE NOTED, WE WILL DISCUSS THE PROTEST ON THE MERITS.

IN SUPPORT OF HIS DETERMINATION TO NEGOTIATE SOLELY WITH PELLERIN, THE CONTRACTING OFFICER MADE THE FOLLOWING FINDINGS:

"1. THE VETERANS ADMINISTRATION MARKETING CENTER, HINES, ILLINOIS PROPOSED TO PROCURE BY NEGOTIATION APPROXIMATELY $275,000.00 WORTH OF COMMERCIAL LAUNDRY WASH ROOM EQUIPMENT FROM THE PELLERIN-MILNOR CORP., FOR DELIVERY TO THE VA HOSPITAL, ALEXANDRIA, LA.

"2. PROCUREMENT BY NEGOTIATION OF THE ABOVE DESCRIBED EQUIPMENT IS NECESSARY FOR THE FOLLOWING REASONS:

"A. AT PRESENT, TO PURCHASE AN AUTOMATED WASH SYSTEM, WE SPECIFY THE 'SHELLESS TYPE' WASH EQUIPMENT. THIS IS THE ONLY TYPE EQUIPMENT THAT CAN BE AUTOMATED TO THE EXTENT THAT THE DOORS WILL OPEN, SOILED LINENS FROM AN OVERHEAD HOPPER OR IN SLINGS ON A MONORAIL WILL DUMP INTO THE MACHINE, THE DOORS WILL CLOSE, GO THROUGH THE COMPLETE WASH CYCLE AND THEN OPEN ITS DOOR AND DUMP THE WASHED LINENS IN A SHUTTLE CART OR ON A WET BELT.

"B. THIS HAS BEEN A VERY NARROW FIELD FOR PURCHASE OF THE 'SHELLESS TYPE' SYSTEM BECAUSE THERE ARE ONLY THREE MANUFACTURERS OF THIS TYPE EQUIPMENT AND ONLY TWO OF THOSE HAVE BEEN BIDDING ON OUR PROJECTS. WE WOULD LIKE TO HAVE MORE MANUFACTURERS PARTICIPATE AS THEY MOVE INTO THE AUTOMATED WASH SYSTEM FIELD.

"C. ABOUT A YEAR AGO PELLERIN MILNOR CORPORATION MOVED TO THE AUTOMATED SYSTEM WITH THEIR WASHER-EXTRACTORS. THEY NOW HAVE WHAT THEY REFER TO AS 'THE HANDS OFF SYSTEM'. AT PRESENT, THE SYSTEM CONSISTS OF 275 LB. CAPACITY, OPEN POCKET, WASH-EXTRACTORS THAT CAN BE AUTOMATED COMPARABLE TO THAT OF THE SHELLESS TYPE WASH SYSTEM. PELLERIN MILNOR IS THE ONLY MANUFACTURER CURRENTLY MARKETING THIS SYSTEM. (LAST SENTENCE HANDWRITTEN WITH THE NOTATION "PER GEN. COUNSEL")

"D. IN ORDER TO BROADEN OUR SCOPE FOR THE PURCHASE OF CAPABLE AND RELIABLE AUTOMATED WASH SYSTEMS, A 'HANDS OFF SYSTEM' WILL BE PURCHASED ON A SOLE-SOURCE BASIS FROM PELLERIN MILNOR CORPORATION FOR THE LAUNDRY AT VAH ALEXANDRIA, LOUISIANA. THE PARENT COMPANY IS LOCATED IN NEW ORLEANS. IF THE SYSTEM IS RELIABLE, WE WILL BE ABLE TO CONSIDER ANOTHER SYSTEM FOR FUTURE COMPETITIVE BIDDING."

EARLY IN OUR REVIEW, IT APPEARED THE CONTRACTING OFFICER HAD MISTAKENLY RELIED UPON THE SOLE-SOURCE NEGOTIATING AUTHORITY OF 41 U.S.C. 252(C)(10) (1970) AND FEDERAL PROCUREMENT REGULATIONS (FPR) SEC. 1-3.210(A)(1) (1964 ED.). THE EMPHASIS IN THE FINDINGS QUOTED ABOVE UPON DETERMINING THE "RELIABILITY" OF THE PELLERIN SYSTEM SUGGESTED THAT THE PROCUREMENT MORE APPROPRIATELY MIGHT HAVE BEEN NEGOTIATED PURSUANT TO 41 U.S.C. 252(C)(11) (1970) AND FPR SEC. 1-3.211 (1964 ED.). THE LATTER AUTHORIZES PROCUREMENT BY NEGOTIATION OF LIMITED QUANTITIES OF EQUIPMENT FOR "EXPERIMENTATION, DEVELOPMENT, RESEARCH, OR TEST."

HOWEVER, THE RECORD DOES NOT SUPPORT THE CONCLUSION THAT THE SOLE SOURCE PROCUREMENT WAS NECESSARY IN ORDER TO "TEST" THE EQUIPMENT'S "RELIABILITY". THE SOLICITATION PRESCRIBED NO TESTING PROCEDURES NOR DID IT REQUIRE THE SUBMITTAL OF ANY TEST REPORTS. FURTHERMORE, IN ITS COMMENTS BEFORE OUR OFFICE AS A PARTY INTERESTED IN BRAUN'S PROTEST, PELLERIN EMPHASIZED THE RELIABILITY OF ITS EQUIPMENT. PELLERIN ADVISED US THAT "ALL THE COMPONENTS SELECTED FOR THIS SYSTEM HAVE BEEN IN USE IN COMMERCIAL OR INSTITUTIONAL LAUNDRIES FOR SEVERAL YEARS"; THAT "THE BASIC WASHER EXTRACTOR * * * HAS BEEN SOLD BOTH HERE AND ABROAD WITH OUTSTANDING RESULTS" AND THAT "THE AIR HANDLING SYSTEM AND THE TUMBLERS SELECTED BY THE PLANNING UNIT HAVE BEEN USED SUCCESSFULLY BY THE VA IN OTHER HOSPITAL INSTALLATIONS."

IN THIS CONNECTION, WE NOTE THAT THE SOLICITATION CONTAINED THE FOLLOWING PROVISION:

"SUCCESSFUL COMMERCIAL OPERATION: NO ITEM OF EQUIPMENT WILL BE ACCEPTABLE UNLESS THE MANUFACTURE HAS HAD EQUIPMENT OF APPROXIMATELY THE SAME TYPE, AND CLASS AS THAT OFFERED WHICH SHALL HAVE OPERATED SUCCESSFULLY IN A COMMERCIAL OR INSTITUTIONAL LAUNDRY FOR AT LEAST ONE YEAR. EQUIPMENT INSTALLED FOR TEST PURPOSES IN A MANUFACTURER'S PLANT OR LABORATORY WILL NOT BE CONSIDERED AS COMPLYING WITH THIS REQUIREMENT."

WE ASSUME THAT THE AWARD TO PELLERIN WAS PRECEDED BY A DETERMINATION THAT IT SATISFIED THIS CLAUSE.

IN VIEW OF PELLERIN'S CLAIMS OF ITS EQUIPMENT'S RELIABILITY, ITS APPARENT SATISFACTION OF A ONE-YEAR EXPERIENCE CLAUSE, AND THE ABSENCE OF THE REQUISITE DETERMINATIONS AND FINDINGS BY THE AGENCY HEAD (SEE FPR SEC. 1- 3.303), WE ARE UNABLE TO CONCLUDE THAT THE PROCUREMENT PROPERLY COULD HAVE BEEN NEGOTIATED UNDER THE AUTHORITY OF 41 U.S.C.252(C)(11) (1970 ED.).

APART FROM THE CONCEPT OF TESTING PELLERIN'S EQUIPMENT FOR "RELIABILITY", WHICH APPEARS FROM THE RECORD TO BE UNNECESSARY, THE PRINCIPAL THOUGHT REFLECTED IN THE CONTRACTING OFFICER'S FINDINGS IS THAT PELLERIN NEEDED THIS SALE IN ORDER TO BECOME A VIABLE COMPETITOR OF OTHER MANUFACTURERS OF AUTOMATED LAUNDRY EQUIPMENT. THE MILITARY DEPARTMENTS ARE PERMITTED TO MAKE USE OF NONCOMPETITIVE AWARDS TO ASSURE PARTICULAR SOURCES OF SUPPLY IN TIMES OF NATIONAL EMERGENCY (10 U.S.C. 2304(A)(16) (1970 ED.). HOWEVER, WE BELIEVE IT IS AN ABUSE OF THE AUTHORITY CONTAINED IN 41 U.S.C. 252(C)(10) (1970 ED.) AND FPR SEC. 1-3.210(A)(1) (1964 ED.) TO MAKE AN AWARD THEREUNDER FOR THE PURPOSE OF ESTABLISHING OR MAINTAINING A FIRM AS A SOURCE OF SUPPLY.

FPR SEC. 1-3.210(A)(1) (1964 ED.), CITED BY THE CONTRACTING OFFICER IN HIS DETERMINATION THAT PROCUREMENT BY NEGOTIATION WAS AUTHORIZED, PERMITS THE USE OF THAT METHOD "WHEN PROPERTY OR SERVICES CAN BE OBTAINED FROM ONLY ONE PERSON OR FIRM (SOLE SOURCE OF SUPPLY)." THE TEST REQUIRED BY THAT SECTION IS WHETHER PELLERIN IS THE ONLY MANUFACTURER CAPABLE OF SATISFYING THE GOVERNMENT'S NEEDS. WE DO NOT BELIEVE THAT TEST HAS BEEN MET.

THE CLEAR IMPLICATION OF THE CONTRACTING OFFICER'S FINDINGS 2.(B) AND (C) IS THAT THE "SHELLESS" SYSTEM MANUFACTURED BY THE PROTESTER AND PELLERIN'S "HANDS OFF" SYSTEM REPRESENT DIFFERING DESIGN APPROACHES TO PERFORMING THE SAME FUNCTION OF LAUNDERING LINENS IN AN AUTOMATED FASHION. IT DOES NOT APPEAR FROM THE CORRESPONDENCE EXCHANGED BY THE PARTIES TO THIS PROTEST THAT ANY DESIGN DIFFERENCES WHICH MAY EXIST MATERIALLY AFFECT THE MACHINES' PERFORMANCE. NOT ONLY DO THE FINDINGS QUOTED ABOVE CONTEMPLATE FUTURE COMPETITION BETWEEN THE "SHELLESS" AND "HANDS OFF" SYSTEMS, THERE ALSO IS NO INDICATION IN THE RECORD THAT EITHER SYSTEM COULD NOT HAVE SATISFIED THE PRESENT NEEDS OF THE ALEXANDRIA HOSPITAL.

BECAUSE THE CONTRACT HAS BEEN SUBSTANTIALLY PERFORMED WE ARE NOT RECOMMENDING THAT THE CONTRACT BE TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT. HOWEVER, WE ARE ADVISING THE ADMINISTRATOR OF THE VETERANS ADMINISTRATION OF OUR VIEWS WITH THE REQUEST THAT WE BE INFORMED OF STEPS TAKEN TO PRECLUDE A RECURRENCE OF THE PROCUREMENT DEFICIENCIES NOTED.