B-160226, APR. 26, 1967

B-160226, APR. 26, 1967

TO GENERAL PRODUCTS, INC.:

WE REFER TO YOUR LETTER OF APRIL 4, 1967, WITH ENCLOSURES, AND MEMORANDUM FROM YOUR ATTORNEYS, CRONE AND COHEN, REQUESTING RECONSIDERATION OF OUR DECISION B-160226, NOVEMBER 3, 1966, TO THE DIRECTOR, DEFENSE SUPPLY AGENCY, WHEREIN WE CONCLUDED THAT THE RECORD DID NOT ESTABLISH CONSTRUCTIVE NOTICE TO THE CONTRACTING OFFICER OF A PRICE MISTAKE IN YOUR BID SO AS TO AFFORD A LEGAL BASIS FOR RESCINDING THE SALE OF FIVE ITEMS (9 -13) OF PARTS KITS FOR SPACE HEATERS MADE TO YOUR FIRM IN JULY 1966 UNDER SALE NO. 41-7006.

PARTS KITS WHICH WERE DESCRIBED AS PACKED, UNUSED AND APPEARING TO BE IN GOOD CONDITION WERE OFFERED IN VARIOUS QUANTITIES UNDER THE FIRST THIRTEEN ITEMS OF THE INVITATION FOR BIDS AND THE UNIT PRICES BID THEREON WERE $ .129, $ .17, $ .33, $ .37, $1.1024, AND YOUR PRICE OF $3.032 WHICH YOU STATE WAS INTENDED TO BE $ .032, OR ABOUT A FOURTH OF THE UNIT PRICE OF THE LOWEST BID RECEIVED. THE "CURRENT MARKET APPRAISAL" WAS $ .50 A UNIT.

THE CONTRACTING OFFICER REPORTED THAT IT WAS RECOGNIZED YOUR UNIT PRICE WAS ALMOST THREE TIMES THE NEXT HIGHEST BID RECEIVED UNDER THE THIRTEEN ITEMS, AND YOUR BID WAS CLOSELY SCRUTINIZED BEFORE AWARD TO DETERMINE IF THERE WAS POSSIBLY AN ERROR. SINCE YOUR BID WAS IN ORDER AND AMOUNTED TO APPROXIMATELY 40 PERCENT OF THE ACQUISITION COST, AND SINCE IT WAS CONSIDERED QUITE POSSIBLE THAT YOU HAD AN OUTLET WHICH JUSTIFIED YOUR UNIT PRICE, HE CONCLUDED THAT THE BID COULD PROPERLY BE ACCEPTED WITHOUT VERIFICATION. YOUR BID DID NOT SHOW WHAT USE YOU INTENDED FOR THE KITS, OR CONTAIN ANY INDICATION TO NEGATIVE THE CONTRACTING OFFICER'S SURMISE THAT YOU HAD FOUND AN OUTLET FOR THE KITS.

THE TOTAL OF THE PRICES BID ON THE FIVE ITEMS, $13,025.47, AGREED WITH THE SECURITY TOTALLING $2,625 SUBMITTED TO COVER THE REQUIRED BID DEPOSIT OF 20 PERCENT. YOUR BID ON EACH OF THE ITEMS 9 THROUGH 13 WAS ACCEPTED AND EACH OF THE HIGH BIDS ON ITEMS 1 THROUGH 8 WERE REJECTED BY THE CONTRACTING OFFICER AS NOT REPRESENTING A FAIR PRICE FOR THE PARTS KITS. YOU FAILED TO SUBMIT THE FULL PURCHASE PRICE FOR YOUR ITEMS AND THEY WERE SUBSEQUENTLY READVERTISED AND SOLD TOGETHER WITH THE KITS WHICH HAD BEEN OFFERED IN THE FIRST EIGHT ITEMS.

WITH YOUR LETTER OF APRIL 4, YOU ENCLOSED A COPY OF THE RESULTS OF THE SUBSEQUENT SALE OF THE KITS (SALE NO. 41-7077, MARCH 16, 1967) WHICH HAD BEEN PREVIOUSLY LISTED UNDER THE THIRTEEN ITEMS, SHOWING SALE PRICES RANGING FROM $ .159 TO $ .269 A UNIT. YOU STATE THAT A COMPUTATION OF SUCH AWARDS SHOWS THAT THE AVERAGE PRICE PAID FOR ALL OF THE KITS ( $ .1929 A UNIT) COMPARES CLOSELY WITH THE AVERAGE PRICE BID UNDER SALE NO. 41-7006, EXCLUDING YOUR BID ON ITEMS 9 THROUGH 13, FROM WHICH YOU CONCLUDE AS FOLLOWS:

"IT WOULD SEEM CLEAR THAT THE RESULTS OF THE SUBSEQUENT SALE, 41 7077, AT WHICH THE MATERIAL IN QUESTION WAS ULTIMATELY SOLD, DEFINITELY CONFIRMS THE MARKET VALUE OF THE MATERIAL. THIS MARKET VALUE WAS ORIGINALLY ESTABLISHED FROM THE BIDS ON SALE 41-7006 WHICH AVERAGED ABOUT 19 CENTS, EXCLUDING THE MISTAKEN BID OF $3.02 ($3.032) BY GENERAL PRODUCTS, INC. IN VIEW OF THE WIDE DISPARITY, THE SALES CONTRACTING OFFICER SHOULD HAVE BEEN ON NOTICE THAT AN ERROR HAD BEEN MADE, AND THEREFORE WE RESPECTFULLY REQUEST THAT YOU CONSIDER THE DECISION BY THE SALES CONTRACTING OFFICER AND RESCIND THIS CONTRACT.'

WHILE WE AGREE THAT THE PRICES RECEIVED FOR THE KITS IN THE SUBSEQUENT SALE, NO. 41-7077, ARE PROPERLY FOR CONSIDERATION IN APPRAISING THE GENERAL "MARKET VALUE" OF THE KITS AS OF MARCH 1967, WE DO NOT PERCEIVE HOW SUCH PRICES COULD SERVE AS ANY TYPE OF NOTICE TO THE CONTRACTING OFFICER AT THE TIME YOU WERE AWARDED THE KITS AT $3.032 IN JULY 1966, OR SERVE AS A BASIS FOR EXCLUDING YOUR BID FROM ANY SIMILAR ANALYSIS OF BIDS WHICH MIGHT HAVE BEEN MADE AT THAT TIME. IN THE COMPUTATION OF AN AVERAGE PRICE FOR AN ARTICLE AS YOU SUGGEST, SUCH A PRICE GENERALLY WOULD BE BASED ON VARIOUS PRICES INCLUDING THE HIGHEST AND LOWEST PRICES RECEIVED FROM PAST SALES, AND THE HIGHEST PRICE WOULD BE IN EXCESS OF THE AVERAGE PRICE. WE THEREFORE FAIL TO SEE HOW AN AVERAGE PRICE CAN REASONABLY SERVE AS CONSTRUCTIVE NOTICE OF ERROR IN A PRICE IN EXCESS OF THE PREVIOUSLY ESTABLISHED AVERAGE, SINCE IT MAY STILL BE WELL BELOW THE HIGHEST PRICE FOR WHICH THE ARTICLE HAD BEEN SOLD. IN SUCH CONNECTION WE NOTE THAT THE SECOND HIGH BID OF $1.1024 IN SALE NO. 41-7006 WAS FOR A SUBSTANTIAL QUANTITY AND IS APPROXIMATELY SIX TIMES THE ?19 WHICH YOU COMPUTE AS THE "MARKET VALUE" OF THE MATERIAL.

IN YOUR ATTORNEYS' MEMORANDUM IT IS CONTENDED THAT THE CONTRACTING OFFICER'S STATEMENT THAT YOUR BID "WAS CLOSELY SCRUTINIZED BEFORE AWARD TO DETERMINE IF THERE WAS POSSIBLY AN ERROR IN BID" INDICATES THAT HE HAD REASON TO BELIEVE THAT A MISTAKE HAD BEEN MADE. IT IS FURTHER CONTENDED THEREIN THAT WHILE YOUR BID WAS FORTY PERCENT OF THE ACQUISITION COST, THE REAL SIGNIFICANT FACT PLACING THE CONTRACTING OFFICER ON NOTICE OF PROBABLE ERROR WAS THAT YOUR PRICE WAS SIX TIMES HIGHER THAN THE "CURRENT MARKET APPRAISAL," AND IF SUCH TERM IS TO HAVE ANY REAL SIGNIFICANCE, THEN THE ACQUISITION COST MAY ONLY BE A HISTORICAL ELEMENT IN ARRIVING AT SUCH AN APPRAISAL. VARIOUS DECISIONS OF THE COURT OF CLAIMS AND OF THIS OFFICE, AS WELL AS OTHER AUTHORITIES, ARE CITED IN THE MEMORANDUM AS SUPPORT FOR THE CONCLUSION THAT "THE OBVIOUS DISPARITY IN BID PRICE AND CURRENT MARKET APPRAISAL WAS SUCH AS TO PLACE THE CONTRACTING OFFICER ON NOTICE OF PROBABLE ERROR.'

RATHER THAN INDICATING A SUSPICION OF ERROR, AS CONTENDED IN YOUR ATTORNEYS' MEMORANDUM, A CLOSE SCRUTINY OR CAREFUL EXAMINATION BY THE CONTRACTING OFFICER OF THE HIGHEST BID RECEIVED ON AN ITEM IS A NORMAL AND REQUIRED PROCEDURE PRIOR TO THE MAKING OF AN AWARD. SEE PART 3, CHAPTER VIII, PARAGRAPH F 3E, OF THE DEFENSE DISPOSAL MANUAL (DEFENSE SUPPLY AGENCY MANUAL 4160.1, JANUARY 1964) WHICH PRESCRIBES SUCH ACTION TO INSURE THAT THE HIGH BID IS "NOT SO FAR IN EXCESS OF" THE NEXT HIGHEST BID OR OF THE CURRENT MARKET APPRAISAL AS TO INDICATE A MISTAKE. THAT PARAGRAPH DOES NOT DEFINE THE TERM "NOT SO FAR IN EXCESS OF" NOR DOES IT PRESCRIBE ANY RATIO AT WHICH THE HIGH BID SHOULD BE REGARDED AS SO FAR IN EXCESS OF THE NEXT HIGHEST BID OR OF THE CURRENT MARKET APPRAISAL AS TO REQUIRE VERIFICATION. SUCH DETERMINATIONS, WHICH REQUIRE CONSIDERATION OF A VARIETY OF FACTORS, ARE LEFT TO THE SOUND PERSONAL JUDGMENT OF THE CONTRACTING OFFICERS, AND WE BELIEVE PROPERLY SO, PARTICULARLY WHERE GOOD CONDITION ITEMS THAT MAY HAVE VALUE FOR USE AS ORIGINALLY INTENDED ARE INVOLVED.

UNDER PART 3, CHAPTER VIII, PARAGRAPH C 16B, OF THE MANUAL IT IS STATED THAT CURRENT MARKET APPRAISALS WILL BE DEVELOPED FROM INFORMATION AVAILABLE FROM DEFENSE SURPLUS SALES OFFICE STATISTICS BASED ON PAST SALES EXPERIENCE, CURRENT MARKET PRICES AND TRENDS, DEGREE OF MARKET SATURATION, AND VALUE OF BASIC MATERIAL CONTENT. IT IS TO BE NOTED THAT, CONTRARY TO THE VIEW EXPRESSED IN YOUR ATTORNEYS' MEMORANDUM, ORIGINAL ACQUISITION COST IS NOT INCLUDED AS A FACTOR. THUS, IN DETERMINING WHETHER A HIGH BID ON AN ITEM SO FAR EXCEEDS THE POSSIBLE VALUE OF THE ITEM AS TO INDICATE A MISTAKE, WE BELIEVE CONSIDERATION MAY PROPERLY BE GIVEN TO THE ORIGINAL VALUE OF THE ITEM AS REPRESENTED BY THE ACQUISITION COST THEREOF. WHILE THE IMPORT OF THE ACQUISITION COST MAY VARY WITH THE NATURE OF THE ITEM CONCERNED, THAT SUCH COST IS REGARDED AS A MATERIAL FACTOR FOR CONSIDERATION IN DETERMINING THE REASONABLE VALUE OF AN ITEM OFFERED FOR SALE IS CLEARLY SHOWN BY THE ESTABLISHED PRACTICE OF FURNISHING SUCH INFORMATION TO PROSPECTIVE BIDDERS IN THE INVITATIONS FOR BIDS. LIKEWISE THE COURTS IN DECIDING QUESTIONS OF CONSTRUCTIVE NOTICE OF BID MISTAKES HAVE CONSISTENTLY CONSIDERED THE ACQUISITION COST OF THE ITEM. SEE WENDER PRESSES, INC. V. UNITED STATES, 343 F.2D 961, CITED BY YOUR ATTORNEYS, WHEREIN IT IS STATED AT PAGE 964:

"* * * AS THE COURT SAID IN ALABAMA SHIRT AND TROUSER CO. V. UNITED STATES, SUPRA: "THE BID WAS LOW, BUT THE WHOLE SET OF BIDS COVERED SO WIDE A RANGE OF PRICES THAT THE PRICE, IN ITSELF, WOULD NOT NECESSARILY HAVE PUT THE GOVERNMENT'S AGENTS ON NOTICE THAT IT WAS MADE BY MISTAKE.' (121 CT.CL. P. 331.) AND THIS IS ESPECIALLY SO WHEN PLAINTIFF'S BID OF APPROXIMATELY $7,700 IS RELATED TO AN ORIGINAL ACQUISITION COST OF OVER $50,000.'

HOW MUCH REAL SIGNIFICANCE MAY BE PROPERLY ATTACHED TO A CURRENT MARKET APPRAISAL, FOR CONSTRUCTIVE NOTICE OF ERROR PURPOSES IN SITUATIONS SUCH AS HERE INVOLVED, IS DIFFICULT TO ASCERTAIN. WHILE IT IS STATED IN PART 3, CHAPTER VIII, PARAGRAPH C 16A OF THE MANUAL THAT CURRENT MARKET APPRAISALS SHOULD APPROXIMATE THE CURRENT MARKET VALUE OF THE PROPERTY, CLEARLY THE APPRAISAL DID NOT REPRESENT AN APPROXIMATE MEASUREMENT OF THE VALUE OF THE ITEM TO ALL BIDDERS AS SHOWN BY THEIR BIDS, NOR DOES THE BASIC PURPOSE OF SUCH AN APPRAISAL APPEAR TO BE THE ESTABLISHMENT OF A MAXIMUM AMOUNT ABOVE WHICH BIDS WILL BE SUSPECTED OF ERROR. TO THE CONTRARY, A CURRENT MARKET APPRAISAL IS DEFINED IN PART 1, CHAPTER II, PARAGRAPH B 23 AS THE LOWEST PRICE, AS PREDETERMINED, FOR WHICH A SPECIFIC ITEM OR LOT OF PERSONAL PROPERTY WILL NORMALLY BE SOLD, AND THE ESTABLISHMENT OF SUCH APPRAISALS APPEARS TO BE ONLY FOR GUIDANCE PURPOSES TO THE CONTRACTING OFFICER IN DECIDING THE ABSOLUTE MINIMUM ACCEPTABLE PRICE IN MAKING CONTRACT AWARD DETERMINATIONS. SEE PART 3, CHAPTER VIII, PARAGRAPH C 16D OF THE MANUAL. WE DO NOT AGREE THEREFORE THAT THE FACT THAT YOUR BID WAS APPROXIMATELY SIX TIMES THE "CURRENT MARKET APPRAISAL," OR LOWEST PRICE FOR WHICH THE KIT WOULD NORMALLY BE SOLD, PLACING THE CONTRACTING OFFICER ON NOTICE OF PROBABLE ERROR.

IN THE THIRTEEN ITEMS OF KITS OFFERED UNDER SALE NO. 41-7006, YOUR UNIT PRICE OF $3.032 WAS APPROXIMATELY THREE TIMES THE UNIT PRICE OF $1.1024 IN THE NEXT HIGHEST BID, WHICH WAS, IN TURN, ABOUT THREE TIMES THE NEXT HIGHEST BID OF ?37, AFTER WHICH THE PRICES RANGED DOWN TO THE LOW PRICE OF $0.129, ABOUT A THIRD OF THAT AMOUNT. HAD YOU SUBMITTED YOUR PRICE AS INTENDED AT ?032 IT WOULD HAVE BEEN APPROXIMATELY A FOURTH OF THE LOWEST ?129 PRICE. ALSO, IF THE HIGH BIDS ON ITEMS 1 THROUGH 8 HAD NOT BEEN REJECTED SUCH ITEMS WOULD HAVE BEEN SOLD AT UNIT PRICES OF ?129, .17, ?33, ?37 AND $1.1024. WE BELIEVE THAT SUCH A WIDE RANGE IN BIDS IS TYPICAL OF THOSE FOUND IN THE SALE OF SURPLUS PROPERTY, AS WAS RECOGNIZED IN THE SABIN METAL CORPORATION CASE (CITED IN OUR DECISION OF NOVEMBER 3) WHEREIN IT IS STATED:

"ALTHOUGH THE DEFENDANT CONTENDS THAT THE DISCREPANCY IN BIDS BETWEEN THE SECOND HIGHEST BID AND ITS BID WAS SUCH THE PLAINTIFF SHOULD HAVE KNOWN THERE WAS AN ERROR, I FIND THAT IN THE SALE OF SALVAGE PROPERTY A WIDE RANGE OF VARIATION AMONG THE BIDS IS CUSTOMARY.'

IN OUR DECISION WE EXPLAINED THE RATIONALE INVOLVED AS BEING THAT PRICES BID ON SURPLUS PROPERTY GENERALLY REFLECT THE JUDGMENT AND ACTUAL USE INTENDED FOR IT AS KNOWN BY ONLY THE INDIVIDUAL BIDDER. WHERE, AS HERE, THE VALUE OF THE PROPERTY TO PROSPECTIVE BIDDERS MAY BE IN A VARIETY OF USES THE DIFFICULTIES ATTENDANT TO THE ESTABLISHMENT OF A MEANINGFUL VALUE BY GOVERNMENT SALES PERSONNEL, ABOVE WHICH PRICES ON SUCH ITEMS WOULD BE CONCLUSIVELY REGARDED AS A MATTER OF LAW TO BE OUT OF PROPORTION TO THE POSSIBLE VALUE OF THE ITEM TO THE PARTICULAR BIDDER CONCERNED AND CONSTITUTE NOTICE OF ERROR, IS READILY APPARENT. WE FEEL, THEREFORE, THAT OUR DECISION OF NOVEMBER 3, BASED PRINCIPALLY ON CONSIDERATION OF THE PARTICULAR CIRCUMSTANCES RELATING TO THE NATURE AND CONDITION OF THE PROPERTY, ANALYSIS OF THE BIDS, AND THE ACQUISITION COST OF THE PROPERTY, IS AMPLY SUPPORTED BY JUDICIAL PRECEDENT.

ANOTHER FACTOR PRESENT IN YOUR CASE WHICH WE REGARD AS HAVING CONSIDERABLE BEARING ON THE SUBJECT ISSUE, AND WHICH IS NOT PRESENT IN THE VARIOUS DECISIONS AND AUTHORITIES CITED IN THE ATTORNEYS' MEMORANDUM, IS THAT THE ERRONEOUS PRICE DID NOT APPEAR ON AN ISOLATED OR SINGLE ITEM BUT, INSTEAD, YOU QUOTED THE SAME UNIT PRICE FOR THE KITS UNDER FIVE SEPARATE ITEMS. EVEN IF THE CONTRACTING OFFICER COULD HAVE BEEN PROPERLY CHARGED WITH CONSTRUCTIVE NOTICE OF ERROR IN YOUR PRICE HAD ONLY A SINGLE ITEM BEEN INVOLVED, WE BELIEVE THAT ANY SUCH NOTICE MAY LOGICALLY BE CONSIDERED AS DISSOLVING WITH YOUR SUBSEQUENT REPETITION OF THAT SAME PRICE, AND THAT IT WOULD BE UNREASONABLE TO SAY THAT THE CONTRACTING OFFICER SHOULD HAVE SUSPECTED THAT YOU DID NOT INTEND TO BID SUCH PRICE WHEN IT WAS BID INITIALLY AND THEREAFTER REPEATED ON FOUR MORE ITEMS COMPRISING THE BULK OF THE KITS OFFERED UNDER THE SALE. WE BELIEVE THAT SUCH REPETITION CONTRIBUTED MATERIALLY TO THE CONTRACTING OFFICER'S DETERMINATION THAT YOU MUST HAVE ANTICIPATED SOME USE OR OUTLET FOR ALL THE KITS AT A SUBSTANTIAL PRICE, AND WAS LARGELY RESPONSIBLE FOR HIS DECISION TO REJECT THE HIGH BIDS ON THE FIRST EIGHT ITEMS, EVEN THOUGH ONE OF SUCH BIDS WAS MORE THAN TWICE THE PREDETERMINED "CURRENT MARKET APPRAISAL," OR LOWEST PRICE FOR WHICH THE ITEM WOULD NORMALLY BE SOLD. WE HAVE CONSIDERED ALL THE PREVIOUS DECISIONS OF OUR OFFICE CITED BY YOUR ATTORNEYS AND FIND THEM ALL TO BE READILY DISTINGUISHABLE IN MATERIAL FACTS FROM THE CASE UNDER CONSIDERATION.

FOR THE FOREGOING REASONS, WE FIND NO BASIS FOR MODIFICATION OF OUR DECISION OF NOVEMBER 3, 1966, AND IT IS THEREFORE SUSTAINED.