B-160576, JUNE 13, 1967, 46 COMP. GEN. 849

B-160576, JUNE 13, 1967, 46 COMP. GEN. 849

CONTRACTS - MULTI-YEAR PROCUREMENTS - SERVICE CONTRACTS THE PROCUREMENT OF SECURITY GUARD SERVICES UNDER A MULTI-YEAR CONTRACT, EVALUATED LOW BY ADDING THE ADMINISTRATIVE COSTS TO AWARD ANNUAL CONTRACTS AND WHICH OMITTED A LABOR COST ESCALATION CLAUSE, IS INCONSISTENT WITH THE ARMED SERVICES PROCUREMENT REGULATION PROVISIONS PRESCRIBING MULTI-YEAR CONTRACTS FOR THE PROCUREMENT OF MILITARY "SUPPLIES" NOT REGULARLY MANUFACTURED AND OFFERED IN THE COMMERCIAL MARKET IN ORDER TO OBTAIN LOWER PRICES, AND THE MULTI-YEAR CONTRACT PROCEDURES INAPPLICABLE TO THE PROCUREMENT OF THE SERVICES OF HUMAN BEINGS UNRELATED TO ANY MECHANICAL APPLIANCES OR EQUIPMENT, OR TO THE PRODUCTION OF TANGIBLE ARTICLES, THE USE OF MULTI-YEAR DOMESTIC SERVICE CONTRACTS SHOULD BE DISCONTINUED UNTIL THE MATTER IS STUDIED AND APPROPRIATE REGULATIONS ISSUED. BIDDERS - QUALIFICATIONS - SECURITY CLEARANCE WHERE SECURITY CLEARANCE OF PERSONNEL IS REQUIRED, BIDS OR PROPOSALS SHOULD BE SOLICITED IN AMPLE TIME, AND CONTAIN SUFFICIENTLY DEFINITE STATEMENTS TO ENABLE PROSPECTIVE CONTRACTORS TO TAKE WHATEVER ACTION IS NECCESSARY TO ESTABLISH THEIR ABILITY TO SATISFY REQUIREMENTS RESPECTING RESPONSIBILITY FOR AND TIMELINESS OF INITIATING SECURITY CLEARANCE PROCEDURES, AND MAKING ARRANGEMENTS FOR THE EMPLOYMENT OF REQUIRED PERSONNEL PRIOR TO THE AWARD OF A CONTRACT.

TO THE SECRETARY OF THE AIR FORCE, JUNE 13, 1967:

ENCLOSED IS A COPY OF OUR DECISION OF TODAY ON A PROTEST BY METROPOLITAN SECURITY SERVICES, C., AGAINST THE AWARD OF A MULTI-YEAR CONTRACT TO INDUSTRIAL SECURITY SYSTEMS, INC., UNDER IFB NO. 04-693-66 19, FOR SECURITY GUARD AND RELATED SERVICES. THE DECISION QUESTIONS THE ADEQUACY OF THE GROUNDS RELIED ON BY THE CONTRACTING OFFICER IN DETERMINING THAT METROPOLITAN, THE LOW BIDDER ON A ONE YEAR CONTRACT BASIS, WAS NOT A RESPONSIBLE FIRM, BUT CONCLUDES THAT WE WOULD NOT BE JUSTIFIED IN NOW DIRECTING CANCELLATION OF THE CONTRACT AWARDED.

WHILE THE PROTEST IS DENIED, WE FEEL THAT WE SHOULD ADVISE YOU THAT WE ARE CONCERNED WITH OTHER FEATURES OF THIS PROCUREMENT. ASPR 1-322, THE REGULATION GOVERNING MULTI-YEAR CONTRACTS, STATES THAT THE PROCEDURE DESCRIBED THEREIN IS ONE FOR PROCURING MILITARY "SUPPLIES," APPLICABLE WHERE REDUCED UNIT PRICES CAN REASONABLY BE ANTICIPATED OVER ANNUAL BUYS BECAUSE OF THE ELIMINATION OF REPETITIVE HIGH STARTUP COSTS. FURTHER REASONS ENUMERATED IN THE LAST REVISION OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-322.1 (OCTOBER 1, 1966) FOR USE OF THIS PROCEDURE ARE STATED TO BE THAT NONRECURRING COSTS ARE DISTRIBUTED OVER A LARGER NUMBER OF UNITS, THUS NARROWING ANY PRICE ADVANTAGE OF A FIRM ALREADY IN PRODUCTION; THERE IS GREATER ASSURANCE OF DEPRECIATION RECOVERY FOR CAPITAL INVESTMENT; AND THE COMPETITIVE BASE IS BROADENED WITH BETTER PROSPECTS FOR LOWER PRICES. (1-322.1 (B) (2) ). ANOTHER MAJOR OBJECTIVE IS TO OBTAIN LOWER PRICES AND SUBSTANTIAL COST SAVINGS THROUGH ASSURANCE OF CONTINUITY OF PRODUCTION. IN DETERMINING WHETHER SUBSTANTIAL COST SAVINGS MAY BE REALIZED, CONSIDERATION MAY BE GIVEN TO: (1) PRODUCTION CLOSE OUT; (2) STABILIZATION OF WORK FORCES TO IMPROVE PRODUCTION EFFICIENCY AND PRODUCT QUALITY; (3) OPPORTUNITY TO AVOID "PROVING OUT" QUALITY CONTROL TECHNIQUES EACH YEAR; (4) AVOIDING COSTLY TESTING; (5) AVOIDING COSTS OF REPEATEDLY RETRAINING HIGHLY SKILLED PERSONNEL; (6) THE ABILITY TO VARY PRODUCTION RATES TO OBTAIN PRODUCTION ECONOMIES; AND (7) SAVINGS THROUGH STANDARDIZATION OF SUPPLIES. (1-322.1 (B) (3) ).

HOWEVER, WHEN ITEMS ARE REGULARLY MANUFACTURED AND OFFERED FOR SALE IN SUBSTANTIAL QUANTITIES IN THE COMMERCIAL MARKET, MULTI-YEAR PROCEDURE WILL NOT BE USED EXCEPT IN UNUSUAL CIRCUMSTANCES NOT HERE RELEVANT (1-322.1 (B) (4) ). MOREOVER, THE PROCEDURE SHOULD BE USED ONLY IF REDUCED UNIT PRICES CAN BE REASONABLY ANTICIPATED OVER ANNUAL BUYS BECAUSE OF CONTINUITY OF PRODUCTION OR ELIMINATION OF REPETITIVE SUBSTANTIAL STARTUP COSTS, INCLUDING SUCH COSTS AS PREPRODUCTION ENGINEERING, SPECIAL TOOLING, PLANT REARRANGEMENT, INITIAL REWORK, INITIAL SPOILAGE, AND PILOT RUNS. (1-322.1 (C) (I) ).

WE THINK IT IS SUFFICIENTLY CLEAR FROM THE LANGUAGE OF THE ASPR PROVISIONS, WHETHER BEFORE OR AFTER THE OCTOBER 1966 REVISION, THAT THE DESCRIBED PROCEDURES ARE INAPPLICABLE TO THE PROCUREMENT OF SERVICES OF HUMAN BEINGS UNRELATED TO ANY MECHANICAL APPLIANCES OR EQUIPMENT OR TO PRODUCTION OF TANGIBLE ARTICLES. THE DISTINCTION BETWEEN SUPPLIES AND SUCH SERVICES AS GUARD SERVICES IS CLEAR AND WELL ESTABLISHED (SEE ASPR 1- 201.19 AND 10 U.S.C. 2303), AND IS SIGNIFICANT WITH RESPECT TO THE PROBABILITY OF ANTICIPATING LOWER PRICES OVER A LONG TERM CONTRACT.

IN A CONTRACT FOR GUARD SERVICES--- CERTAINLY IN A DENSELY POPULATED AREA --- IT IS DIFFICULT TO IMAGINE HOW A CONTRACTOR WOULD INCUR ANY GREATER STARTUP OR MAKE-READY EXPENSES THAN ONE CONTRACTING TO DELIVER THE MOST COMMON OF SUPPLIES. THEREFORE, WE SEE NO SOUND BASIS FOR REASONABLY ANTICIPATING LOWER BID PRICES ON A MULTI-YEAR CONTRACT FOR GUARD SERVICES, AS A RESULT OF THE LENGTH OF THE CONTRACT, THAN ON A 1 YEAR CONTRACT FOR SUCH SERVICES. IN THIS REGARD, SECTION 1-322.1 (B) (4) NOW PROVIDES THAT WHERE A SUPPLY ITEM BEING PROCURED IS REGULARLY MANUFACTURED AND OFFERED FOR SALE IN SUBSTANTIAL QUANTITIES IN THE COMMERCIAL MARKET, MULTI-YEAR PROCEDURE WILL NOT BE USED. WHILE THIS PARTICULAR PROVISION DID NOT APPEAR IN THE ASPR UNTIL OCTOBER 1966 IT IS NOT IN CONFLICT WITH ANY PRIOR PROVISION AND WE CONSIDER IT TO BE MERELY CONFIRMATORY OF THE INTERPRETATION WHICH WOULD BE PLACED UPON THE AUTHORIZING REGULATION IN ANY EVENT. EVEN IF THE MULTI-YEAR PROCEDURE WAS INTENDED TO APPLY TO THE PROCUREMENT OF SERVICES, IT IS AT LEAST QUESTIONABLE WHETHER ITS USE FOR THE SERVICES INVOLVED IN THIS CASE WOULD BE CONSISTENT WITH THIS STANDARD, SINCE SUCH SERVICES ARE REGULARLY OFFERED AND FURNISHED BY A SUBSTANTIAL NUMBER OF ESTABLISHED FIRMS.

IN ADDITION, ASPR 1-322.2 (A) PROVIDES THAT WHERE THE PERIOD FOR "PRODUCTION" IS SUCH THAT A CONTINGENCY FOR LABOR OR MATERIAL COSTS IS LIKELY OTHERWISE TO BE INCLUDED IN THE MULTI-YEAR CONTRACT PRICE, THE CONTRACTING OFFICER SHOULD NORMALLY USE A PROVISION FOR PRICE ESCALATION. WE BELIEVE THERE COULD BE FEW, IF ANY, PROCUREMENTS IN WHICH IT WOULD BE MORE LIKELY THAT BID PRICES WOULD INCLUDE ALLOWANCES FOR INCREASES IN LABOR COSTS OVER A 3-YEAR PERIOD THAN IN THE SUBJECT PROCUREMENT OF GUARD SERVICES, WHICH PRESUMABLY INVOLVE NO SUBSTANTIAL DIRECT COSTS EXCEPT FOR LABOR.

THE ULTIMATE TEST OF THE VALUE OF THE MULTI-YEAR TECHNIQUE, AND THE PRIMARY CONSIDERATION IN ITS CREATION, IS ITS CAPACITY TO GENERATE LOWER PRICES FOR THE GOVERNMENT. IN POINT OF FACT, THE PRICES BID BY INDUSTRIAL, THE ONLY RESPONSIVE BIDDER FOR A MULTI-YEAR CONTRACT, WERE $14,751 HIGHER ON A MULTI-YEAR BASIS THAN THE AMOUNT OBTAINED BY PRORATING ITS BID FOR THE 1-YEAR CONTRACT. THE MULTI-YEAR BID WAS EVALUATED LOW SOLELY BY VIRTUE OF THE ADDITION TO THE SINGLE-YEAR RATE OF THE "$15,000 WHICH IS CONSIDERED TO BE THE ADMINISTRATIVE COSTS TO THE GOVERNMENT TO AWARD ANNUAL CONTRACTS.'

FOR THE FOREGOING REASONS WE BELIEVE THAT USE OF THE MULTI-YEAR PROCEDURE FOR THE PROCUREMENT IN QUESTION WAS INCONSISTENT WITH THE PROVISIONS OF THE ASPR. WE ALSO BELIEVE THAT FAILURE TO INCLUDE AN ESCALATION CLAUSE TO PROVIDE FOR CHANGES IN LABOR COSTS DURING THE PERIOD OF THE CONTRACT MUST HAVE TENDED EITHER TO CAUSE A SUBSTANTIAL CONTENGENCY ALLOWANCE IN THE PRICE BID FOR THE SERVICES, OR TO LEAVE THE CONTRACTOR EXPOSED TO A SUBSTANTIAL RISK OF LOSS, WITH THE CONSEQUENT THREAT OF UNSATISFACTORY SERVICE TO THE GOVERNMENT IN THE LATER YEARS OF THE CONTRACT. IN VIEW OF OUR DOUBTS AS TO THE PROPRIETY OF THE METHOD OF PROCUREMENT USED, WE ARE RECOMMENDING TO THE SECRETARY OF DEFENSE THAT USE OF MULTI-YEAR TYPE CONTRACTS FOR DOMESTIC SERVICES SHOULD BE DISCONTINUED UNTIL A STUDY CAN BE MADE OF THE DESIRABILITY OF USING THE MULTI-YEAR TYPE OF CONTRACTS FOR THE VARIOUS TYPES OF DOMESTIC SERVICES, AND UNTIL APPROPRIATE PROVISIONS GOVERNING SUCH USE HAVE BEEN PROMULGATED IN THE ASPR.

IN VIEW OF THE QUESTIONS RAISED IN THIS PROCUREMENT AS TO THE RESPONSIBILITY FOR AND TIMELINESS OF THE INITIATION OF NECESSARY SECURITY CLEARANCE PROCEDURES, AND AS TO THE OBLIGATIONS OF BIDDERS WITH RESPECT TO SHOWING ARRANGEMENTS FOR EMPLOYMENT OF REQUIRED CLEARED PERSONNEL PRIOR TO AWARD OF A CONTRACT, IT IS FURTHER RECOMMENDED THAT FUTURE SOLICITATIONS OF BIDS OR PROPOSALS FOR SUCH SERVICES BE ISSUED IN AMPLE TIME, AND CONTAIN SUFFICIENTLY DEFINITE STATEMENTS, TO ENABLE PROSPECTIVE CONTRACTORS TO TAKE WHATEVER ACTION MAY BE NECESSARY TO ESTABLISH THEIR ABILITY TO SATISFY THE REQUIREMENTS OF THE CONTRACT IN THESE RESPECTS.

THE FILE FORWARDED WITH THE REPORT RECEIVED FROM THE DIRECTORATE, PROCUREMENT POLICY CONCERNING THE PROTEST IS RETURNED.