B-174750, B-174871, B-175117, MAR 27, 1972, 51 COMP GEN 609

B-174750, B-174871, B-175117, MAR 27, 1972, 51 COMP GEN 609

EQUIPMENT - AUTOMATIC DATA PROCESSING SYSTEMS - SELECTION AND PURCHASE - WARRANTIES AND DAMAGES THE REFUSAL OF THE GENERAL SERVICES ADMINISTRATION (GSA) TO CONSIDER THE SEVERAL PROPOSALS BY AN OFFEROR ON AUTOMATIC DATA PROCESSING EQUIPMENT BECAUSE THEY CONTAINED A PROVISION DISCLAIMING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND EXCLUDING LIABILITY TO THE GOVERNMENT FOR CONSEQUENTAL DAMAGE IS A DISCRETIONARY PROCUREMENT POLICY, WHICH IN THE ABSENCE OF A STATUTORY OR REGULATORY PROVISION REQUIRING GSA TO ACCEPT THE EXCLUSIONARY CLAUSES IS NOT SUBJECT TO LEGAL OBJECTION. ALSO DISCRETIONARY IS THE USE OF A "MODEL" CONTRACT BY GSA FOR THE PROCUREMENT OF THE EQUIPMENT, A TECHNIQUE WHICH WAS NOT IMPOSED UPON OFFERORS WITHOUT AN OPPORTUNITY FOR DISCUSSION AND NEGOTIATION; IN FACT THE OFFEROR PROTESTING ITS USE INSTEAD OF DOING SO IMMEDIATELY, URGED THE INCLUSION OF ITS LIMITATION OF LIABILITY CLAUSE UNTIL THE TIME SET FOR SUBMISSION OF FINAL PRICES, AND FURTHER PARTICIPATED BY OFFERING AMENDMENTS TO THE MODEL CONTRACT.

TO COVINGTON & BURLING, MARCH 27, 1972:

REFERENCE IS MADE TO LETTERS DATED DECEMBER 14, 1971, JANUARY 3, 1972, AND FEBRUARY 2, 1972, FROM THE INTERNATIONAL BUSINESS MACHINES CORPORATION (IBM), AND TO YOUR SUBSEQUENT CORRESPONDENCE ON BEHALF OF IBM, PROTESTING THE TERMS OF THE SOLICITATIONS AND THE CONDUCT OF NEGOTIATIONS UNDER REQUESTS FOR PROPOSALS MCS 43-67 AFLC (ALS), 700-68 R-0484 (DIDS) AND ASPESO PROJECT 002-69 (NAV-SHIPS) RESPECTIVELY, ISSUED BY THE GENERAL SERVICES ADMINISTRATION (GSA).

IN EACH OF THESE PROCUREMENTS IBM SUBMITTED A PROPOSAL WHICH INCLUDED A PROVISION DISCLAIMING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND EXCLUDING LIABILITY TO THE GOVERNMENT FOR CONSEQUENTIAL DAMAGES. THIS PROVISION WAS CONSISTENT WITH PRIOR GSA PRACTICE, UNDER WHICH IBM HAD BEEN AWARDED FEDERAL SUPPLY SCHEDULE CONTRACTS CONTAINING SIMILAR PROVISIONS LIMITING ITS LIABILITY WITH RESPECT TO IMPLIED WARRANTIES AND CONSEQUENTIAL DAMAGES. DURING THE FINAL STAGES OF NEGOTIATIONS UNDER EACH OF THE INSTANT PROCUREMENTS, IBM WAS ADVISED THAT THE GOVERNMENT WAS NOT IN A POSITION TO AWARD A CONTRACT TO ANY COMPANY WHOSE OFFER CONTAINED EXCLUSIONARY CLAUSES PERTAINING TO CONSEQUENTIAL DAMAGES OR IMPLIED WARRANTIES, AND THAT IBM'S PROPOSALS WERE NOT BEING CONSIDERED FOR AWARD BECAUSE THE INCLUSION OF SUCH A CLAUSE IN THE PROPOSALS RENDERED THEM NON-RESPONSIVE TO THE REQUIREMENTS OF EACH PROCUREMENT.

YOU HAVE MADE A NUMBER OF ARGUMENTS IN SUPPORT OF THE PROPOSITION THAT THE PRESENT GSA POLICY OF REJECTING PROPOSALS CONTAINING EXCLUSIONARY CLAUSES IS IMPROPER: THAT THE POLICY UNDULY RESTRICTS COMPETITION (AS SHOWN BY IBM'S REFUSAL TO SUBMIT FINAL PRICES IN THE INSTANT PROCUREMENTS); THAT ITS ADOPTION HAS NOT BEEN ACCOMPANIED BY A FORMAL POLICY DETERMINATION IN VIOLATION OF A MEMORANDUM OF UNDERSTANDING BETWEEN GSA AND THE DEPARTMENT OF DEFENSE (DOD); THAT IT IS IN CONFLICT WITH EXISTING DOD POLICY AS EXPRESSED IN ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-330; AND THAT NO CONTRACTOR CAN RESPONSIBLY ASSUME THE RISK OF LIABILITY INHERENT IN THE ALS PROCUREMENT.

ALTHOUGH WE HAVE RESERVATIONS IN THE MATTER, IT MUST BE RECOGNIZED THAT THE POSITION TAKEN BY GSA REGARDING IMPLIED WARRANTIES AND CONSEQUENTIAL DAMAGES IS A MATTER OF PROCUREMENT POLICY. WE ARE AWARE OF NO STATUTORY OR REGULATORY PROVISION WHICH REQUIRES GSA TO DISCLAIM IMPLIED WARRANTIES AND EXCLUDE CONSEQUENTIAL DAMAGES, OR TO ASSERT THE EXISTENCE OF IMPLIED WARRANTIES AND SEEK THE RECOVERY OF CONSEQUENTIAL DAMAGES, OR TO ASSUME SOME INTERMEDIATE POSITION ON THE EXTENT TO WHICH IT WOULD HOLD ITS CONTRACTORS LIABLE FOR CONSEQUENTIAL DAMAGES. AS A MATTER OF POLICY, THEREFORE, THE POSITION TAKEN BY GSA IS WITHIN ITS DISCRETION AND, DESPITE OUR RESERVATIONS, NOT APPROPRIATE FOR A RULING BY OUR OFFICE IN THE CONTEXT OF A BID PROTEST. WE ARE NOT AWARE OF ANY VALID LEGAL BASIS ON WHICH WE COULD PROPERLY INTERPOSE A LEGAL OBJECTION TO THE AWARD OF CONTRACTS UNDER THE INSTANT SOLICITATION. HOWEVER, WE HAVE RECOMMENDED BY LETTER OF TODAY TO THE ACTING ADMINISTRATOR OF GSA, COPY ENCLOSED, THAT GSA'S POLICY REGARDING IMPLIED WARRANTIES AND CONSEQUENTIAL DAMAGES BE GIVEN FURTHER CONSIDERATION.

ADDITIONALLY, IN THE ALS AND NAVSHIPS PROCUREMENTS IBM'S PROPOSALS WERE REJECTED BECAUSE THE PRESENCE THEREIN OF EXCLUSIONARY CLAUSES REGARDING IMPLIED WARRANTIES AND CONSEQUENTIAL DAMAGES WAS DEEMED IN CONFLICT WITH THE TERMS OF "MODEL" OR "STANDARD" CONTRACTS MADE A PART OF THOSE SOLICITATIONS. YOU HAVE OBJECTED TO SUCH USE OF "MODEL" CONTRACTS ON GROUNDS THAT THE MODEL IMPOSES TERMS AND CONDITIONS IN EXCESS OF THE MINIMUM NEEDS OF THE GOVERNMENT; THAT IT PREVENTS MEANINGFUL NEGOTIATIONS AND ELIMINATES THE FLEXIBILITY WHICH SHOULD EXIST IN NEGOTIATED PROCUREMENTS; AND THAT IT PERPETUATES ERRORS AND AMBIGUITIES IN SOLICITATIONS. YOU ASSERT THAT THE MOST SIGNIFICANT ASPECT IN WHICH THE USE OF "MODEL" CONTRACTS HAS HAD THESE UNDESIRABLE EFFECTS IN THE ALS AND NAVSHIPS PROCUREMENTS HAS BEEN IN THE TREATMENT ACCORDED IMPLIED WARRANTIES AND CONSEQUENTIAL DAMAGES.

THE USE OF "MODEL" CONTRACTS WAS DESCRIBED AS FOLLOWS IN THE ADMINISTRATIVE REPORT OF FEBRUARY 15, 1972:

AS A MATTER OF ADMINISTRATIVE POLICY, GSA DECIDED TO USE A "STANDARD" OR "MODEL" CONTRACT FOR THIS PROCUREMENT. INSTEAD OF EACH OFFEROR SUBMITTING A PROPOSAL WITH HIS VARYING TERMS AND CONDITIONS, GSA PROPOSED, AS A BASIS FOR NEGOTIATIONS, A CONTRACT WITH BASICALLY THE SAME LANGUAGE AND THE SAME TERMS AND CONDITIONS FOR EACH OFFEROR. HOWEVER, THE PROPOSED CONTRACT UPON WHICH GSA FINALLY REQUESTED THE OFFERORS TO SUBMIT THEIR PRICES WAS THE RESULT OF NUMEROUS NEGOTIATING SESSIONS WITH EACH OFFEROR. IN NO SENSE DID THIS PROCEDURE RESULT IN THE "IMPOSITION" OF AN ENTIRE CONTRACT. UNTIL THE TIME SET FOR THE CLOSE OF NEGOTIATIONS EVERY CONTRACT ITEM WAS SUBJECT TO DISCUSSION. EVERY CONTRACT ITEM WAS ALSO SUBJECT TO AMENDMENT, EXCEPT (1) FINAL USER AGENCY-DETERMINED MINIMUM REQUIREMENTS FOR EQUIPMENT AND SERVICES, (2) CONTRACTUAL ITEMS MADE MANDATORY BY STATUTE OR REGULATION, AND (3) ADMINISTRATIVELY-DETERMINED, REASONABLE, AND NECESSARY CONTRACTUAL REQUIREMENTS TO EFFECTIVELY PROTECT GOVERNMENT INTERESTS AND TO PROVIDE FOR ORDERLY AND EFFICIENT CONTRACT NEGOTIATION AND ADMINISTRATION. EVERY AMENDMENT OR CHANGE REQUESTED BY OFFERORS WAS IN FACT SERIOUSLY AND CAREFULLY CONSIDERED. THE GREATER NUMBER OF REQUESTS FOR CHANGE, INCLUDING THOSE FROM IBM, WERE GRANTED, RESULTING IN EXTENSIVE REVISIONS OF THE "MODEL CONTRACT". CHANGES MADE AT THE REQUEST OF ONE OFFEROR WERE GRANTED TO ALL OFFERORS, THUS MAINTAINING THE SAME BASIC TERMS AND CONDITIONS IN ALL PROPOSALS. THERE WERE SEVERAL ROUNDS OF NEGOTIATIONS (EACH GENERALLY LASTING A DAY) WITH EACH OFFEROR. ***

THE USE OF THIS "MODEL CONTRACT" TECHNIQUE HAS MANY ADVANTAGES IN THE NEGOTIATION OF LARGE AND COMPLEX ADPE PROCUREMENTS, ESPECIALLY WHERE, AS IN THIS CASE, THE ONLY CRITERION FOR AWARD IS THE LOWEST OVERALL COST TO THE GOVERNMENT. THE USE OF THIS TECHNIQUE ASSURES PARTICIPATION BY ALL OFFERORS IN THE DEVELOPMENT OF THE FINAL MANDATORY TERMS AND CONDITIONS OF THE "MODEL CONTRACT". ALSO, THIS TECHNIQUE (1) ASSURES EQUAL TREATMENT AND FAIREST COMPETITIVE EVALUATION OF PROPOSALS, (2) PLACES THE COMPETITION ON THE LOWEST OVERALL COST TO THE GOVERNMENT RATHER THAN ON "OTHER FACTORS", (3) SHORTENS THE NEGOTIATION PROCESS BY STARTING ALL OFFERORS FROM THE SAME ADVANCED POSITION, (4) EASES BURDEN OF AND IMPROVES THE ADMINISTRATION OF CONTRACT NEGOTIATION BY PERMITTING CONCENTRATION OF EFFORT ON ONE SET OF UNIFORM PROVISIONS, AND (5) PERMITS A HIGHER STANDARD OF "DRAFTSMANSHIP" AND A LESS ERROR PRONE FINAL CONTRACT. WE BELIEVE THAT OFFERORS ALSO BENEFIT FROM THESE ADVANTAGES. AT THE SAME TIME THE "MODEL CONTRACT" PERMITS OFFERORS WIDE LATITUDE IN STRUCTURING PRICE PROPOSALS AS THEY SEE FIT, SUCH AS BY INCLUDING OR EXCLUDING MAINTENANCE IN THE RENTAL PRICE OR IMPOSING EXTRA-USE RENTAL CHARGES FOR USE IN EXCESS OF ONE SHIFT DAILY, ETC. THESE DIFFERENCES CAN BE READILY "COSTED-OUT" AND DO NOT DETRACT FROM THE ADVANTAGES OF GENERAL UNIFORMITY. THIS PRACTICE IS CONSISTENT WITH THE REQUIREMENTS OF BOB (OMB) CIRCULAR A-54 AS AMENDED (OCTOBER 14, 1961, REVISED AND/OR AMENDED ON JUNE 27, 1967, JANUARY 7, 1969, AND AUGUST 26, 1971).

THE RECORD SHOWS THAT THE "STANDARD FORM OF CONTRACT" WAS ISSUED ON FEBRUARY 26, 1971, AS AMENDMENT NO. 23 TO THE SOLICITATION. THE AMENDMENT ADVISED OFFERORS:

1. OFFERORS ARE REQUESTED TO CAREFULLY REVIEW THE CONTENT OF THE STANDARD FORM OF CONTRACT AND ALL REFERENCED DOCUMENTS, SINCE THE GOVERNMENT INTENDS THAT ANY CONTRACT TO BE AWARDED AS A RESULT OF THIS SOLICITATION WILL BE THE STANDARD FORM OF CONTRACT AND ANY AMENDMENTS ISSUED PURSUANT TO PARAGRAPH 3. BELOW, ALL COMPLETED IN ACCORDANCE WITH THE SELF-CONTAINED INSTRUCTIONS.

2. IF THIS STANDARD CONTRACT CONTAINS PROVISIONS WHICH AN OFFEROR FEELS CANNOT BE COMPLIED WITH, OR WHICH HE FEELS MAY NOT BE IN THE BEST INTEREST OF THE GOVERNMENT, HE IS REQUESTED TO IMMEDIATELY COMMUNICATE SUCH CONDITIONS, ALONG WITH HIS PROPOSED LANGUAGE FOR ANY RECOMMENDED CHANGES TO THE CONTRACTING OFFICER *** .

3. THE GOVERNMENT WILL EVALUATE ALL SUGGESTED CHANGES AND/OR COMMENTS. ANY CHANGES CONSIDERED DESIRABLE WILL BE INCORPORATED AS A SUBSEQUENT AMENDMENTS) TO THE STANDARD FORM OF CONTRACT.

5. OFFERORS WHO DO NOT SUBMIT THEIR PROPOSALS IN ACCORDANCE WITH THE SPECIFIC TERMS PROVIDED FOR IN THE STANDARD FORM OF CONTRACT WILL BE CONSIDERED NON-RESPONSIVE AND MAY NOT RECEIVE FURTHER CONSIDERATION UNDER THIS SOLICITATION.

6. THE GOVERNMENT DOES NOT INTEND TO UNDERTAKE NEGOTIATIONS WITH INDIVIDUAL OFFERORS FOR THE PURPOSE OF DEVELOPING UNIQUE PROVISIONS TO SUIT AN INDIVIDUAL OFFEROR'S DESIRES OTHER THAN FOR TERMS WHICH MAY APPLY TO PRICEABLE ITEMS *** .

IT WOULD SEEM THAT IF IBM VIEWED THIS APPROACH AS FUNDAMENTALLY DEFECTIVE, THE APPROPRIATE TIME TO HAVE PROTESTED AGAINST ITS USE WAS IN FEBRUARY 1971. HOWEVER, IT APPEARS THAT ON MARCH 9 AND APRIL 2, 1971, IBM REQUESTED CHANGES TO THE "STANDARD FORM OF CONTRACT." ON APRIL 27, 1971, IBM SUBMITTED ITS "STANDARD FORM OF CONTRACT" UNDER COVER OF A LETTER SETTING FORTH EIGHT PARAGRAPHS OF "ASSUMPTIONS, INTERPRETATIONS AND ADDITIONS." APPARENTLY, ANOTHER SUBMISSION WAS MADE BY IBM ON MAY 5, 1971, AND ON MAY 25, 1971, IBM SUBMITTED REVISED PAGES OF THE CONTRACT AND REASSERTED ALL BUT ONE OF THE "ASSUMPTIONS, INTERPRETATIONS AND ADDITIONS" OF ITS LETTER OF APRIL 27. BY LETTER OF JUNE 16, 1971, THE CONTRACTING OFFICER RESPONDED TO THE IBM LETTER OF APRIL 27, AND ADVISED THAT THE GOVERNMENT "STILL DOES NOT AGREE WITH THE LIMITATIONS" OF IBM'S CLAUSE REGARDING IMPLIED WARRANTIES AND CONSEQUENTIAL DAMAGES.

THE "STANDARD FORM OF CONTRACT" WAS AMENDED FOUR TIMES BEFORE APRIL 30, 1971, AT WHICH TIME A COMPLETE REVISION, INCORPORATING ALL PRIOR CHANGES, WAS ISSUED. A FIFTH AMENDMENT WAS ISSUED ON JUNE 18, 1971, AFTER REVIEW OF THE OFFERORS' PROPOSALS, SUPPLYING ADDITIONAL MODIFICATIONS, CLARIFICATIONS, AND INTERPRETATIONS OF THE SOLICITATION. IBM CONTINUED TO INSIST, WITHOUT SUCCESS, UPON THE INCLUSION OF ITS LIMITATION OF LIABILITY CLAUSE AND ON AUGUST 26, 1971, FORMALLY ADVISED THE CONTRACTING OFFICER OF ITS POSITION:

*** THAT THE LIMITATION OF LIABILITY CLAUSE WE PROPOSED, AND WHICH REPRESENTS THE ONLY CONTRACT CLAUSE UPON WHICH AGREEMENT HAS NOT BEEN REACHED, MUST BE INCLUDED IN THE MODEL CONTRACT.

IBM'S EFFORTS TO OBTAIN ACCEPTANCE OF ITS LIMITATION OF LIABILITY CLAUSE CONTINUED UNTIL THE TIME SET FOR SUBMISSION OF FINAL PRICES, WHICH IBM REFUSED TO SUPPLY IN LIGHT OF THE GOVERNMENT'S REJECTION OF THE CLAUSE.

WE DO NOT VIEW THIS RECORD AS ONE OF "IMPOSITION" OF AN ENTIRE CONTRACT UPON OFFERORS WITHOUT THE OPPORTUNITY FOR DISCUSSION AND NEGOTIATION THEREOF. RATHER, THE RECORD INDICATES THAT THE MODEL CONTRACT WAS AMENDED SEVERAL TIMES IN RESPONSE TO OFFERORS' SUGGESTIONS. IBM PARTICIPATED IN SUGGESTING AMENDMENTS TO THE MODEL CONTRACT AND IT APPEARS THAT ALL OF IBM'S OBJECTIONS TO ITS TERMS WERE MET, EXCEPT WITH REGARD TO THE LIMITATION OF LIABILITY CLAUSE, WHICH WE HAVE CONCLUDED ABOVE WAS A MATTER OF PROCUREMENT POLICY. UNDER THESE CIRCUMSTANCES, AND IN VIEW OF THE BROAD DISCRETION ACCORDED AGENCIES OF THE GOVERNMENT IN DETERMINING THE CONDITIONS UNDER WHICH THEY MAY CONTRACT, WE MUST DENY YOUR PROTEST AGAINST THE USE OF THE "MODEL" CONTRACT IN THE INSTANT PROCUREMENTS.