B-151888, NOVEMBER 22, 1963, 43 COMP. GEN. 451

B-151888: Nov 22, 1963

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ETC. - USE BY GOVERNMENT UNDER AN OPTION CLAUSE IN A NEGOTIATED CONTRACT FOR A THREE-PHASE PROCUREMENT OF SPACECRAFT CHAMBERS WHICH PROVIDES THAT THE GOVERNMENT WILL NEGOTIATE WITH THE FIRST-PHASE CONTRACTOR FOR THE SECOND AND THIRD PHASES. A REQUEST FOR PROPOSALS FROM THE FIRST-PHASE CONTRACTOR WITHOUT FURTHER NEGOTIATION OR EXECUTION OF A WRITTEN CONTRACT OR CONTRACT AMENDMENT WAS A MERE PRELIMINARY STEP TO FURTHER NEGOTIATION AND THE FACT THAT PROCURING AGENCY DID NOT EXECUTE AN AMENDMENT FOR THE SECOND PHASE DOES NOT RESULT IN A BREACH OF CONTRACT OR IMPOSE ANY LEGAL LIABILITY ON THE GOVERNMENT. THE DETERMINATION TO REPROCURE THE OTHER PHASES THROUGH A WIDER BASE OF COMPETITION IS IN THE BEST INTEREST OF THE GOVERNMENT.

B-151888, NOVEMBER 22, 1963, 43 COMP. GEN. 451

CONTRACTS - NEGOTIATION - MULTIPHASE PROCUREMENTS - OPTION TO NEGOTIATE. CONTRACTS - DATA, RIGHTS, ETC. - USE BY GOVERNMENT UNDER AN OPTION CLAUSE IN A NEGOTIATED CONTRACT FOR A THREE-PHASE PROCUREMENT OF SPACECRAFT CHAMBERS WHICH PROVIDES THAT THE GOVERNMENT WILL NEGOTIATE WITH THE FIRST-PHASE CONTRACTOR FOR THE SECOND AND THIRD PHASES, A REQUEST FOR PROPOSALS FROM THE FIRST-PHASE CONTRACTOR WITHOUT FURTHER NEGOTIATION OR EXECUTION OF A WRITTEN CONTRACT OR CONTRACT AMENDMENT WAS A MERE PRELIMINARY STEP TO FURTHER NEGOTIATION AND THE FACT THAT PROCURING AGENCY DID NOT EXECUTE AN AMENDMENT FOR THE SECOND PHASE DOES NOT RESULT IN A BREACH OF CONTRACT OR IMPOSE ANY LEGAL LIABILITY ON THE GOVERNMENT, AND THE DETERMINATION TO REPROCURE THE OTHER PHASES THROUGH A WIDER BASE OF COMPETITION IS IN THE BEST INTEREST OF THE GOVERNMENT. THE USE OF DESIGN DRAWINGS FURNISHED BY A FIRST-PHASE CONTRACTOR UNDER A CONTRACT, WHICH GAVE THE GOVERNMENT THE RIGHT TO USE AND DISCLOSE IN ANY MATTER THE SUBJECT DATA, FOR THE OTHER PHASES OF THE PROCUREMENT IS PROPER FOR ALL SUBJECT DATA DELIVERED UNDER THE FIRST PHASE CONTRACT, EVEN THOUGH THE DATA MAY CONTAIN RESTRICTIVE MARKINGS; HOWEVER, IF PROPRIETARY DATA HAS BEEN FURNISHED, THE CONTRACTOR SHOULD ADVISE THE CONTRACTING OFFICER OF ITS CLAIM TO DATA PROTECTION AND FURNISH SUFFICIENT INFORMATION FOR THE PROCURING AGENCY TO MAKE A PROPER DETERMINATION OF THE CHARACTER OF THE DATA.

TO CUMMINGS AND SELLERS, NOVEMBER 22, 1963:

BY LETTER DATED AUGUST 29, 1963, WITH ENCLOSURES, AND SUBSEQUENT CORRESPONDENCE, PARTICULARLY, YOUR LETTER OF OCTOBER 2, 1963, WITH ENCLOSURES, YOU PROTESTED, ON BEHALF OF THE F. J. STOKES CORPORATION, AGAINST THE CONTEMPLATED ACTION OF THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION (NASA) TO REPROCURE PHASES II AND III OF CONTRACT NO. NAS 10-732 UNDER COMPETITIVE NEGOTIATION PROCEDURES. IT IS YOUR POSITION THAT SINCE CONTRACT NO. NAS 10-732 WAS AWARDED TO STOKES AFTER COMPETITIVE NEGOTIATION TO PERFORM PHASE I, AND SINCE THE GOVERNMENT EXERCISED ITS OPTION UNDER ARTICLE XVIII OF THE CONTRACT TO PROCEED WITH STOKES ON PHASE II OF THE CONTRACT, THAT NASA IS LEGALLY PRECLUDED FROM NEGOTIATING WITH THE CHICAGO BRIDGE AND IRON COMPANY OR ANY OTHER COMPETENT COMPETITIVE OFFERORS FOR PHASE II AND-OR PHASES II AND III OF THE CONTRACT.

REQUESTS FOR PROPOSALS NO. Q-41-3 DATED APRIL 16, 1963, INVITED OFFERS FROM 50 FIRMS FOR THE DESIGN, ENGINEERING, FABRICATION AND INSTALLATION OF TWO SPACECRAFT ALTITUDE CHAMBERS. PROPOSALS WERE REQUESTED IN TWO SEPARATE PARTS; ONE ENTITLED A "TECHNICAL PROPOSAL," AND THE OTHER A ,BUSINESS MANAGEMENT PROPOSAL.' OFFERORS WERE FURTHER ADVISED THAT ANY RESULTING CONTRACT WOULD BE IN THREE PHASES AND THAT THE SUCCESSFUL CONTRACTOR WOULD BE DETERMINED BY HIS CAPABILITY FOR THE TOTAL REQUIREMENTS SET FORTH IN EXHIBIT I TO THE REQUEST. EXHIBIT I PROVIDED THAT THE CONTRACT WILL BE AWARDED IN THREE PHASES AS FOLLOWS:

A. PHASE NO. 1 WILL COVER THE COMPLETE DESIGN OF THE FACILITY.

B. PHASE NO. 2 WILL COVER THE PROCUREMENT OF THE VACUUM PUMPING EQUIPMENT.

C. PHASE NO. 3 WILL COVER THE FABRICATION, INSTALLATION AND TESTING OF THE COMPLETE FACILITY.

NEGOTIATIONS INITIALLY WERE UNDERTAKEN WITH CHICAGO BRIDGE AND APPARENTLY PROCEEDED TO A POINT WHERE THE PROPOSAL OF CHICAGO BRIDGE APPEARED TO BE MOST ADVANTAGEOUS TO THE GOVERNMENT. HOWEVER, PRIOR TO EFFECTING ANY CONTRACTUAL ARRANGEMENT WITH CHICAGO BRIDGE, STOKES VOLUNTARILY PROPOSED TO OFFER CERTAIN CLARIFICATION RESPECTING ITS PROPOSAL. THE CONTRACTING OFFICER DETERMINED THAT SUCH CLARIFICATION SHOULD BE CONSIDERED. THE CLARIFICATION SUBMITTED BY STOKES IDENTIFIED BY DOLLAR AMOUNTS CERTAIN ELEMENTS OF THE SPACECRAFT CHAMBERS WHICH APPARENTLY WERE EXCESS TO THE MINIMUM REQUIREMENTS DESCRIBED IN THE REQUEST FOR PROPOSALS. STOKES' CLARIFICATION WAS IN TWO PARTS. THE FIRST IDENTIFIED A TOTAL ESTIMATED AMOUNT OF $800,000 WHICH REPRESENTED A DELETION OF CERTAIN SOPHISTICATED EQUIPMENT IN EXCESS OF THE STATED MINIMUM REQUIREMENTS. THE SECOND IDENTIFIED AN AMOUNT OF $123,500 AS ADDITIONAL PRICING REDUCTIONS FROM PROPOSED VENDORS OF HARDWARE. THIS SECOND CLARIFICATION BY STOKES ACTUALLY MADE ITS PROPOSAL, AS REVISED, LESS THAN THAT OF CHICAGO BRIDGE. IN THIS CONNECTION, NASA ADVISED THAT THE AMOUNTS IDENTIFIED BY STOKES AS BEING EXCESS TO NASA'S MINIMUM REQUIREMENTS WERE REALISTIC AND CONSISTENT WITH PRICES CHARGED NASA BY STOKES WITH RESPECT TO A SIMILAR SPACECRAFT CHAMBER AT THE GODDARD SPACE FLIGHT CENTER.

THE TWO PROPOSALS WERE THEN TECHNICALLY EVALUATED WITH THE RESULT THAT STOKES RECEIVED A POINT EVALUATION OF 92 AS COMPARED TO 91.5 FOR CHICAGO BRIDGE. HENCE, NEGOTIATIONS WERE UNDERTAKEN SOLELY WITH STOKES. BUT NO OPPORTUNITY WAS AFFORDED CHICAGO BRIDGE TO REVISE ITS PROPOSAL SINCE THE CONTRACTING OFFICER BELIEVED THAT STOKES' CLARIFICATION DID NOT CONSTITUTE A CHANGE IN ITS ORIGINAL PROPOSAL.

AWARD OF THE CONTRACT WAS MADE TO STOKES ON JUNE 18, 1963, IN THE AMOUNT OF $112,970. THE FACE SHEET OF THE CONTRACT STATED THAT THE TYPE OF CONTRACT WAS "COST-PLUS-A-FIXED-FEE (PHASE I).' ARTICLE XIX OF THE CONTRACT PROVIDED THAT THE ESTIMATED COST OF PHASE I WAS $106,810, EXCLUSIVE OF THE FIXED FEE OF $6,160 AND THAT THE TOTAL ESTIMATED COST AND FIXED FEE FOR PHASE I OF THE CONTRACT WAS $112,970.

ARTICLE I, ENTITLED "STATEMENT OF WORK AND WORK PHASES," PROVIDED:

THE CONTRACTOR SHALL PROVIDE MANAGEMENT, PERSONNEL, SERVICES, MATERIALS, EQUIPMENT AND FACILITIES (OTHER THAN THAT FURNISHED BY THE GOVERNMENT) TO PERFORM THE SUCCESSFUL COMPLETION OF THE DESIGN, ENGINEERING, FABRICATION, INSTALLATION, AND TESTING OF SPACECRAFT ALTITUDE CHAMBERS AND RELATED EQUIPMENT AS SET FORTH HEREIN AND ATTACHED HERETO AS EXHIBIT "A," "CRITERIA FOR SPACECRAFT ALTITUDE CHAMBERS.' WORK PHASES ARE GENERALLY SET FORTH BELOW AND AS OTHERWISE PROVIDED HEREIN.

PHASE I SHALL CONSIST OF THE FOLLOWING:

(A) COMPLETE DESIGN DRAWINGS, SHOP DRAWINGS AS APPLICABLE, AND COMPLETE SPECIFICATIONS OF THE SPACECRAFT ALTITUDE CHAMBERS AND ASSOCIATED EQUIPMENT.

(B) MODEL (SEE PAR 3 C, PAGE C2 OF EXHIBIT "A").

(C) RECOMMENDED SPARE PARTS LIST.

(D) MANUAL FORMATS, LAYOUTS AND CORRELATION FOR A SYSTEM CONCEPT BEGINNING AT THE 25 PERCENT DESIGN REVIEW.

(E) PARTS LIST FOR EQUIPMENT.

PHASE II SHALL CONSIST OF THE PROCUREMENT OF LONG LEAD TIME ITEMS REQUIRED FOR THE PERFORMANCE OF THE CONTRACT.

PHASE III SHALL CONSIST OF THE FOLLOWING:

(A) FABRICATION, INSTALLATION AND TESTING OF THE SPACECRAFT ALTITUDE CHAMBERS AND ASSOCIATED EQUIPMENT.

(B) TRAINING OF GOVERNMENT PERSONNEL IN THE OPERATION AND MAINTENANCE OF THE EQUIPMENT.

(C) DELIVERY OF A REPRODUCIBLE COPY AND 24 PRINTS OF AN OPERATORS MANUAL FOR THE COMPLETE FACILITY.

(D) DELIVERY OF TESTING AND TRAINING PROCEDURES DEVELOPED BY THE CONTRACTOR.

(E) UP-DATING DRAWINGS AND SPECIFICATIONS TO AS-BUILT CONDITIONS.

(F) DELIVERY OF SPARE PARTS IF APPLICABLE.

(G) DELIVERY OF EQUIPMENT GUARANTEES AND WARRANTIES.

(H) DELIVERY OF UP-DATED EQUIPMENT OPERATIONS MANUALS, MAINTENANCE MANUALS, PARTS LISTS FOR EQUIPMENT AND RECOMMENDED SPARE PARTS LIST.

HOWEVER, UNDER ARTICLE XVIII OF THE CONTRACT, THE GOVERNMENT HAD THE SOLE OPTION TO CONTINUE WITH EITHER PHASE II OR PHASE III, OR ANY PORTIONS THEREOF. IN THE EVENT THE GOVERNMENT ELECTED TO EXERCISE ITS OPTION RIGHTS, THE PARTIES TO THE CONTRACT AGREED TO THE FOLLOWING:

1. UPON RECEIPT OF WRITTEN NOTICE BY THE CONTRACTING OFFICER, THE CONTRACTOR WILL, WITHIN 15 DAYS, SUBMIT ITS COMPLETE PROPOSAL IN SUCH REASONABLE DETAIL AS THE CONTRACTING OFFICER MAY REQUIRE.

2. FOLLOWING PROPOSAL RECEIPT BY THE GOVERNMENT, THE PARTIES WILL ENTER INTO NEGOTIATIONS IN GOOD FAITH TO NEGOTIATE SUCH ADDITIONAL WORK ON A LUMP-SUM, FIXED-PRICE BASIS. ONLY IN THE EVENT THAT IT SHALL BECOME APPARENT TO THE PARTIES THAT A FIXED-PRICE CONTINUATION CANNOT BE NEGOTIATED WILL ANY OTHER METHOD OF CONTRACTING BE CONSIDERED.

3. NO WORK FOR EITHER PHASE II OR PHASE III WILL BE PERFORMED UNTIL SUCH TIME AS SO AUTHORIZED BY WRITTEN AMENDMENT TO THIS CONTRACT.

D. IF FOLLOWING RECEIPT OF THE CONTRACTOR'S PROPOSAL FOR EITHER PHASE II OR PHASE III, THE PARTIES HERETO ARE UNABLE TO AGREE UPON THE TERMS AND CONDITIONS FOR CONTINUED PERFORMANCE, THEN THE GOVERNMENT SHALL HAVE THE RIGHT TO TERMINATE NEGOTIATIONS WITH THE CONTRACTOR.

ON JULY 30, 1963, THE CONTRACTING OFFICER, PURSUANT TO ARTICLE XVIII, REQUESTED STOKES TO SUBMIT ITS COMPLETE PROPOSAL FOR PHASE II WITHIN THE 15-DAY LIMIT SPECIFIED IN SAID ARTICLE. HOWEVER, NO NEGOTIATIONS WERE UNDERTAKEN BY NASA WITH STOKES FOR THE PHASE II WORK. RATHER, IT HAS BEEN DETERMINED BY NASA THAT THE INTERESTS OF THE GOVERNMENT WOULD BE BEST SERVED BY A REPROCUREMENT OF PHASE II AND PHASE III SINCE THIS WOULD PERMIT MEANINGFUL PRICE COMPETITION. HENCE, NASA PROPOSES, WITH OUR CONCURRENCE, TO ACCOMPLISH THIS REPROCUREMENT OF PHASE II AND PHASE III THROUGH THE ISSUANCE OF REQUESTS FOR PROPOSALS TO BOTH STOKES AND CHICAGO BRIDGE AND OTHER RESPONSIBLE COMPANIES WHICH HAVE EVIDENCED INTEREST IN THE PROCUREMENT.

THE CONTENTION RAISED BY YOU IN OPPOSITION TO THE NASA REPROCUREMENT PROPOSAL IS THAT THE GOVERNMENT EXERCISED ITS OPTION WITHIN THE TERMS OF CONTRACT NAS 10-732 AND, THAT, THEREFORE, A BINDING CONTRACT WAS IN FULL FORCE AND EFFECT WHICH REQUIRES THE GOVERNMENT TO NEGOTIATE WITH STOKES IN GOOD FAITH TO ESTABLISH A LUMP-SUM, FIXED-PRICE, FOR PHASE II. IN SUPPORT OF THIS CONTENTION, RELIANCE IS PLACED UPON JUDICIAL AND TEXT PRECEDENTS TO THE EFFECT THAT STOKES' PROPOSAL SUBMISSION WITH RESPECT TO PHASE II CREATED A CONTRACT AND THE FACT THAT A MORE FORMAL DOCUMENT (CONTRACT AMENDMENT) WAS CONTEMPLATED AFTER PRICE NEGOTIATIONS HAD BEEN CONCLUDED DOES NOT DESTROY THE CONTRACT. THERE WERE CITED BY YOU IN SUPPORT OF THIS CONTENTION THE CASES OF GARFIELDE V. UNITED STATES, 93 U.S. 242; UNITED STATES V. PURCELL ENVELOPE CO., 249 U.S. 313; NORTH AMERICAN IRON AND STEEL CO. V. UNITED STATES, 130 F.SUPP. 723; ADAMS V. UNITED STATES, 101 F.SUPP. 956; SYLVAN CREST SAND AND GRAVEL CO. V. UNITED STATES, 150 F.2D 642; AND UNITED STATES V. LENNOX MANUFACTURING CO., 225 F.2D 302. ALSO, REFERENCE WAS MADE TO 1A CORBIN, CONTRACTS, SECTION 261A, PAGES 489-490, NOTE 23120, WHEREIN THE CASE OF MCALPINE V. MILLER, 319 P.2D 1093, WAS DISCUSSED.

THE GARFIELDE, PURCELL ENVELOPE, AND NORTH AMERICAN CASES, CITED ABOVE, INVOLVED THE FORMALIZATION OF CONTRACTS UNDER STATUTORY COMPETITIVE BIDDING PROCEDURES AND HELD GENERALLY THAT ACCEPTANCE BY THE GOVERNMENT OF A PROPER BID, NOTWITHSTANDING THE FAILURE OF THE BIDDER TO EXECUTE THE WRITTEN CONTRACT, CONSUMMATED A BINDING AGREEMENT BETWEEN THE PARTIES. THESE CASES DID NOT INVOLVE THE EXERCISE OF AN OPTION PROVISION MADE PART OF A CONTRACT WHICH WAS TO BE EFFECTIVE ONLY UPON THE HAPPENING OF A CONDITION PRECEDENT, THAT IS, THE EXECUTION OF A WRITTEN CONTRACT AMENDMENT. THUS, THOSE PRINCIPLES ARE NOT DISPOSITIVE OF THE OPTION QUESTION INVOLVED HERE. THE ADAMS CASE WAS AN ACTION IN ADMIRALTY WHICH DID NOT INVOLVE THE APPLICABILITY OF AN OPTION CLAUSE. IN THE SYLVAN CREST SAND AND GRAVEL CASE, THE COURT WAS DEALING WITH AN OPTION TO CANCEL A CONTRACT, AND IT HELD THAT THE OPTION DID NOT GIVE THE GOVERNMENT THE UNRESTRICTED POWER OF CANCELLATION BUT THAT TIMELY NOTICE OF THE GOVERNMENT'S OPTION TO CANCEL MUST BE GIVEN THE CONTRACTOR. THESE CASES ALSO, ARE INAPPLICABLE. THE MCALPINE CASE, DISCUSSED IN 1A CORBIN ON CONTRACTS, PAGES 489-490, INVOLVED A SUIT IN EQUITY FOR SPECIFIC PERFORMANCE. THE COURT THERE VIEWED AN OPTION TO RENEGOTIATE A LEASE AS ONE WHICH CREATED AN ENFORCEABLE RIGHT IN THE LESSEE THAT RENEGOTIATION WOULD BE CONDUCTED IN GOOD FAITH. THE COURT HELD, QUOTING, THE SYLLABUS:

LESSOR WAS NOT ENTITLED TO SPECIFIC PERFORMANCE OF PROVISION OF A TAVERN LEASE FOR ASSIGNMENT OF BEER AND WINE LICENSE, UNDER THE PRINCIPLE THAT HE WHO SEEKS EQUITY MUST DO EQUITY, AND THAT HE WHO COMES INTO EQUITY MUST COME WITH CLEAN HANDS, WHERE THE LESSOR REFUSED TO PERFORM ANOTHER COVENANT OF THE LEASE WITH RESPECT TO RENEGOTIATION OF A NEW FIVE YEAR LEASE WHICH SHE HAD OBLIGATED HERSELF TO PERFORM.

THERE, THE LEASE DID NOT CREATE IN THE LESSEE AN OPTION WITH POWER TO EXERCISE THE RIGHT OF RENEGOTIATION BUT ONLY A RIGHT THAT SUCH AN OPTION SHOULD BE TENDERED. WHEN STOKES RESPONDED TO THE CONTRACTING OFFICER'S REQUEST FOR A PROPOSAL ON PHASE II, THE GOVERNMENT WAS THEREUPON OBLIGATED TO NEGOTIATE IN GOOD FAITH WITH STOKES. BUT THE OBLIGATION HERE TO NEGOTIATE WITH STOKES, LIKE IN THE MCALPINE CASE, ONLY CREATED IN STOKES A BARE RIGHT TO NEGOTIATE WITH THE GOVERNMENT FOR PHASE II OR PHASE III. IN OTHER SITUATIONS WHEREIN THE GOVERNMENT FORMALLY REQUESTS PROPOSALS, THE GOVERNMENT IS OBLIGATED TO NEGOTIATE WITH ALL RESPONSIBLE OFFERORS WITHIN A COMPETITIVE RANGE, PRICE AND OTHER FACTORS CONSIDERED. SEE PUBLIC LAW 87-653 WHICH ADDED A NEW SUBSECTION "G" TO 10 U.S.C.2304. IS EQUALLY TRUE THAT THE GOVERNMENT IS NOT LEGALLY OBLIGATED TO AWARD A CONTRACT SOLELY BECAUSE IT REQUESTED PROPOSALS FOR NEGOTIATION PURPOSES. THE CONTRACTING OFFICER'S REQUEST FOR A PROPOSAL FROM STOKES WAS NOT, STRICTLY SPEAKING, AN OFFER TO BUY IN THE SENSE THAT A COMPLETE CONTRACT WOULD NECESSARILY ARISE IF NEGOTIATIONS WERE CONDUCTED FOR PHASE II AND PHASE III. AT THE MOST, THE REQUEST FOR THE STOKES PROPOSAL WAS A PRELIMINARY STEP TO FURTHER DISCUSSION. IT IS EVIDENT THAT A COMPLETE AGREEMENT AS TO ALL THE ESSENTIAL INGREDIENTS OF PHASE II AND PHASE III HAD TO BE ARRIVED AT BETWEEN STOKES AND NASA BEFORE ANY BINDING OBLIGATION WOULD ARISE. THE ARGUMENT THAT FORMALIZATION IN WRITING OF THE EXERCISE OF THE OPTION BY NASA WAS UNNECESSARY IN THE LIGHT OF NASA'S OBLIGATION TO MERELY COMMENCE THE PRELIMINARY STEPS OF EXERCISING THE OPTION OVERLOOKS THE BASIC PRINCIPLE OF MUTUALITY, THAT IS, A COHERENT MEETING OF THE MINDS. SEE 37 COMP. GEN. 258. SURELY, THE GOVERNMENT WHICH HAS THE CLEAR LEGAL RIGHT TO REFUSE TO MAKE ANY AWARD UNDER COMPETITIVE ADVERTISED PROCEDURES, HAS AN EVEN MORE JUSTIFIABLE RIGHT TO REFUSE TO NEGOTIATE UNDER AN OPTION FOR THE SOLE BENEFIT OF THE GOVERNMENT PURSUANT TO MORE LIBERAL PROCEDURES. ADDITIONALLY, SINCE THE OPTION PROVISION PRECLUDED ANY PERFORMANCE FOR PHASE II OR PHASE III UNLESS A WRITTEN AMENDMENT AUTHORIZES SUCH PERFORMANCE, WE FEEL THAT THIS LEGAL IMPEDIMENT AMPLY DEMONSTRATES THAT THE REQUEST FOR A PROPOSAL CONSTITUTED NOTHING MORE THAN A PRELIMINARY STEP WHICH LEGALLY CONTEMPLATED A WRITTEN FORMALIZATION OF THE AGREEMENT OF THE PARTIES TO THE OPTION. WHILE IT WAS INTENDED PRIOR TO EXECUTION OF THE CONTRACT FOR PHASE I THAT THE SAME CONTRACTOR WOULD COMPLETE PHASES II AND III, SUCH INTENTION WAS NOT CARRIED FORWARD INTO THE PHASE I CONTRACT. THIS IS CLEARLY EVIDENCED BY THE OPTION CLAUSE ITSELF AND BY ARTICLES XIX AND XX OF THE CONTRACT WHICH FIXED THE CONTRACTUAL OBLIGATION OF THE GOVERNMENT TO THE ESTIMATED COST OF PHASE I, PLUS A FIXED FEE. ALSO, SEE PARAGRAPH 3 OF THE GENERAL PROVISIONS OF THE CONTRACT, ENTITLED ,LIMITATION OF COST," WHICH ALSO ESTABLISHED THE LIMIT OF THE GOVERNMENT'S OBLIGATIONS TO STOKES IN AN AMOUNT NOT TO EXCEED $112,970. THE PROVISIONS OF ARTICLE XVIII ARE MADE DEPENDENT AND CONTINGENT UPON THE FINAL ACCEPTANCE BY NASA OF THE STOKES PROPOSAL AFTER THE NEGOTIATIONS. THE PROVISIONS IN ARTICLE XVIII DID NOT, IN A LEGAL SENSE, CONSTITUTE AN "OPTION" FOR THE REASON THAT NOTHING THEREIN IMPOSED ANY OBLIGATION UPON NASA TO EXECUTE AN AMENDMENT WITH STOKES COVERING PHASE II OR PHASE III. AT THE MOST, THE PROVISIONS GAVE STOKES A FIRST PRIVILEGE OF NEGOTIATING FOR THE WORK INVOLVED IN PHASE II AND PHASE III WITH NO SUBSEQUENT RIGHT IN STOKES TO IMPOSE AN OBLIGATION UPON NASA AT ITS ELECTION. OBVIOUSLY, THEN, THE FAILURE TO NEGOTIATE WITH STOKES, OR TO EXECUTE SUCH AMENDMENT, DOES NOT CONSTITUTE "VITALLY IMPORTANT" BREACHES OF CONTRACT OR OTHERWISE IMPOSE LEGAL LIABILITIES ON NASA WITH RESPECT THERETO. SEE IA CORBIN ON CONTRACTS, SECTION 261; PUETZ V. COZMAS, 147 N.E.2D 227; ASPR 1-1502.

WE, THEREFORE, ARE OF THE VIEW THAT PHASE II AND PHASE III MAY BE REPROCURED, AS PROPOSED BY NASA, THROUGH COMPETITIVE NEGOTIATION PROCEDURES. THE ADMINISTRATIVE JUSTIFICATIONS FOR ACCOMPLISHING THE PROCUREMENT OF PHASES II AND III, WHICH ARE SET OUT BELOW, SUFFICIENTLY ESTABLISH THAT SUCH ACTION WILL BE IN THE BEST INTERESTS OF THE GOVERNMENT AND WILL AFFORD A WIDER BASE OF COMPETITION FOR THE HARDWARE, CONSTRUCTION AND INSTALLATION OF THE SPACECRAFT CHAMBERS CONSISTENT WITH THE NEEDS OF NASA.

* * * AT THE TIME OF OUR LETTER TO YOU CONCERNING THE CHICAGO BRIDGE PROTEST (LETTER DATED SEPTEMBER 26, 1963) IT APPEARED THAT NEGOTIATIONS, AS THEY HAD BEEN CONDUCTED WITH CHICAGO BRIDGE AND STOKES, MIGHT NOT HAVE BEEN CONDUCTED AS FAIRLY AS WAS POSSIBLE. WE WERE ALSO MINDFUL THAT THE PLAN FOR PROCUREMENT OF THE SPACECRAFT ALTITUDE CHAMBERS AT THE ATLANTIC MISSILE RANGE DID NOT PROVIDE FOR COMPETITION AS TO THE PRICE OF THE CHAMBERS. AS OUTLINED ABOVE, THIS RESULTED FROM THE NEED THEN EXISTING TO COMPRESS THE DESIGN AND FABRICATION PHASES OF THE PROCUREMENT. UPON COMPLETE REVIEW OF OUR REQUIREMENT RESPECTING DELIVERY OF THE CHAMBERS IN THE LIGHT OF SCHEDULE CHANGES WHICH HAVE OCCURRED SINCE THE AWARD OF CONTRACT NAS10 732, WE HAVE DETERMINED THAT DELIVERY REQUIREMENTS FOR THE CHAMBERS MAY BE EXTENDED AND, ACCORDINGLY, THAT COMPETITION CONCERNING PHASES II AND III OF THE WORK WILL NOW BE POSSIBLE. WE HAVE ASSURED OURSELVES THAT THE DESIGN DATA FURNISHED BY STOKES CONCERNING PHASE I OF THE WORK WILL BE OF BENEFIT TO THE GOVERNMENT. ALTHOUGH SOME REDESIGN EFFORT MAY BE NECESSARY IN THE EVENT THAT THE CONTRACTOR SELECTED FOR PERFORMANCE OF PHASES II AND III IS AN ORGANIZATION OTHER THAN STOKES, WE BELIEVE THAT ANY INCREASE IN COST RELATED TO REDESIGN WILL BE OFFSET BY SAVINGS RESULTING FROM COMPETITION RESPECTING THE HARDWARE TO BE FURNISHED. FURTHER, NASA IS NOW IN A BETTER POSITION TO DEFINE DETAILS OF THE PROCUREMENT WHICH WILL MINIMIZE THE NEED FOR CHANGES OR ADDITIONS TO THE CONTRACT AS INITIALLY DRAWN.

TO SUMMARIZE, WE BELIEVE THAT THE INTERESTS OF THE GOVERNMENT WILL BEST BE SERVED BY A REPROCUREMENT OF PHASES II AND III OF NAS10-732 SINCE THIS WILL PERMIT MEANINGFUL PRICE COMPETITION. PROJECT SCHEDULES NOW PERMIT THE EXTENSION OF TIME WHICH WILL BE NECESSARY. WE BELIEVE THAT THERE IS NO LEGAL IMPEDIMENT TO OUR PROCEEDING NOW TO SECURE THE COMPETITION WHICH IS DESIRED. ALTHOUGH IT IS NOT NASA POLICY TO ALTER A PROCUREMENT PLANAFTER THE AWARD OF THE CONTRACT INVOLVED, THE CHANGED CIRCUMSTANCES WHICH NOW EXIST AND OUR DESIRE TO AVOID EVEN THE APPEARANCE OF UNFAIR DEALING PROMPT US TO FOLLOW THE COURSE OUTLINED.

IN THE REPROCUREMENT WHICH IS CONTEMPLATED, THE F. J. STOKES CORPORATION AND THE CHICAGO BRIDGE AND IRON COMPANY WILL BE INCLUDED AMONG THOSE FROM WHOM PROPOSALS ARE SOLICITED. * * *

WHILE IT MAY BE THAT IT WAS INITIALLY INTENDED THAT THE CONTRACT WAS TO COVER WORK UNDER THE THREE PHASES, SUCH INTENTION WAS NOT CARRIED FORWARD INTO THE CONTRACT AS EXECUTED. THE CONTRACT AS DRAFTED AND SIGNED BY THE PARTIES LIMITED THE GOVERNMENT'S OBLIGATION TO PHASE I AND ONLY PROVIDED THAT PRELIMINARY STEPS COULD BE TAKEN WITH RESPECT TO ESTABLISHING MUTUAL CONTRACTUAL OBLIGATIONS CONCERNING PHASES II AND III. IT IS A WELL- SETTLED RULE OF CONTRACT CONSTRUCTION THAT PREVIOUS AND CONTEMPORARY NEGOTIATIONS ARE PRESUMED TO BE MERGED IN THE FORMAL WRITTEN AGREEMENT WHICH EXPRESSES THE FINAL UNDERSTANDING OF THE PARTIES. BRAWLEY V. UNITED STATES, 96 U.S. 168; SIMPSON V. UNITED STATES, 172 U.S. 372. THE COURTS WILL CONSIDER PRELIMINARY NEGOTIATIONS FOR THE PURPOSE OF EXPLAINING OR CLARIFYING ANY AMBIGUITY IN THE FORMAL CONTRACT (DEUTSCHLE V. WILSON, 39 F.2D 406; VULCANITE PORTLAND CEMENT CO. V. UNITED STATES, 74 CT.CL. 692), BUT WILL NOT GENERALLY PERMIT SUCH PRELIMINARY NEGOTIATIONS TO VARY THE CLEAR, UNEQUIVOCAL TERMS OF THE AGREEMENT AS FORMALLY EXECUTED. AS STATED ABOVE, THE CONTRACT AS FORMALLY EXECUTED COVERED WORK UNDER PHASE I ONLY. THAT WORK UNDER PHASE II AND III WAS RESERVED IN THE CONTRACT FOR FURTHER CONSIDERATION AND NEGOTIATION IS AMPLY EVIDENCED BY THE AGREEMENT ITSELF. SINCE THE CONTRACT, IN OUR OPINION, IS NOT AMBIGUOUS INSOFAR AS CONCERNS ITS APPLICATION TO PHASES II AND III, THE RULES OF CONSTRUCTION CONCERNING AN AMBIGUOUS CONTRACT ARE NOT FOR CONSIDERATION. THAT STOKES FULLY UNDERSTOOD THE CHARACTER AND EXTENT OF ITS CONTRACT IS ILLUSTRATED BY THE FACT THAT BY FOLLOWING THE CONTRACT OPTION PROCEDURE IT RECOGNIZED THAT THE PRESENT CONTRACT COVERED ONLY PHASE I AND THAT THE OTHER PHASES WERE MATTERS OF NEGOTIATION AND MUTUAL AGREEMENT REDUCED TO WRITING.

THE SECOND ISSUE RAISED IS WHETHER THE CONTEMPLATED ACTION OF NASA WILL RESULT IN THE UTILIZATION OF DATA PROPRIETARY TO STOKES. IN THIS CONNECTION, IT IS POINTED OUT THAT A SIGNIFICANT PORTION OF THE PHASE I DATA CANNOT BE CLASSIFIED AS "SUBJECT DATA" BECAUSE IT WAS NOT DESCRIBED IN THE EXISTING CONTRACT, AND THAT STOKES DID NOT SUBMIT A PROPOSAL FOR A DESIGN-ONLY CONTRACT AND WOULD NOT HAVE ACCEPTED SUCH A CONTRACT.

THE CONTRACT SPECIFICALLY PROVIDED THAT PHASE I SHALL CONSIST OF COMPLETE DESIGN DRAWINGS, SHOP DRAWINGS AS APPLICABLE, AND COMPLETE SPECIFICATIONS OF THE SPACECRAFT ALTITUDE CHAMBERS AND ASSOCIATED EQUIPMENT. ALSO, SEE ARTICLE VII AND CLAUSE 37 OF THE CONTRACT, ENTITLED "RIGHTS IN DATA.' ARTICLE VII PROVIDES:

THE CONTRACTOR SHALL PREPARE AND FURNISH TO THE GOVERNMENT PURSUANT TO THE TERMS OF THIS CONTRACT ONE (1) REPRODUCIBLE COPY OF ALL FINAL FORM DETAIL DESIGN DRAWINGS, WORKING DRAWINGS, ERECTION PLANS, SPECIFICATIONS, AND DESIGN COMPUTATION. IN THIS CONNECTION, THE DATA TO BE FURNISHED SHALL INCLUDE ALL APPLICABLE WRITINGS, SOUND RECORDINGS, PICTORIAL REPRESENTATIONS, DRAWINGS, OR OTHER GRAPHIC REPRESENTATIONS AND WORKS OF ANY SIMILAR NATURE WHETHER OR NOT COPYRIGHTED. OPERATIONAL DATA SHALL PROVIDE INFORMATION SUITABLE FOR, AMONG OTHER THINGS, ALL INSTRUCTION, OPERATION, MAINTENANCE, EVALUATION OR TESTING; AND DATA WHICH PROVIDES DESCRIPTIVE OR DESIGN DRAWINGS, OR DESCRIPTIVE MATERIAL IN THE NATURE OF DESIGN SPECIFICATION.

CLAUSE 37 PROVIDES THAT ALL DATA REQUIRED TO BE DELIVERED UNDER THE CONTRACT IS "SUBJECT DATA" AND THAT THE GOVERNMENT "MAY DUPLICATE, USE AND DISCLOSE IN ANY MANNER AND FOR ANY PURPOSE WHATSOEVER, AND HAVE OTHERS SO TO DO, ALL SUBJECT DATA DELIVERED UNDER THIS CONTRACT.' THEREFORE, ALL DATA REQUIRED TO BE DELIVERED UNDER THE PHASE I CONTRACT MAY BE USED BY NASA WITHOUT LIMITATION EVEN THOUGH SUCH DATA MAY CONTAIN RESTRICTIVE MARKINGS CONTRARY TO SUBSECTION (H) OF CLAUSE 37. IF DATA CLAIMED TO BE "PROPRIETARY" WITHIN THE PURVIEW OF SUBSECTION (I) OF CLAUSE 37 HAS BEEN FURNISHED BY STOKES, IT IS INCUMBENT UPON IT TO ADVISE THE CONTRACTING OFFICER PROMPTLY OF ITS CLAIM TO DATA PROTECTION AND TO FURNISH SUFFICIENT INFORMATION IN SUPPORT OF ITS CLAIM OF PROPRIETARY RIGHTS TO CERTAIN DATA. HENCE, ANY QUESTION RESPECTING "PROPRIETARY DATA" HERETOFORE FURNISHED NASA AND WHETHER SUCH DATA IS PROTECTED BY THE RESTRICTIVE LEGEND APPEARING THEREON IS ONE OF CONTRACT ADMINISTRATION AND, AS SUCH, IS FOR CONSIDERATION AND DETERMINATION BY NASA. IN THIS CONNECTION, WE ARE ADVISED THAT STOKES HAS IDENTIFIED THE SPECIFIC DATA WHICH IT CLAIMS TO BE PROPRIETARY BY LETTER DATED OCTOBER 30, 1963, TO NASA. OF COURSE, WHETHER DATA FURNISHED BY STOKES TO NASA UNDER PHASE I AND IDENTIFIED IN THE APPENDICES TO THE LETTER OF OCTOBER 30, 1963, MAY BE PROPERLY USED FOR REPROCUREMENT PURPOSES IS DEPENDENT UPON THE "PROPRIETARY" CHARACTER OF SUCH DATA. IF ANY PART OR ALL OF SUCH DATA CONSTITUTES "SUBJECT DATA," USE OF SUCH DATA BY NASA WOULD BE AUTHORIZED BY THE TERMS OF THE CONTRACT ITSELF. ON THE OTHER HAND, "PROPRIETARY" DATA IS ENTITLED TO CONTRACT PROTECTION AND MAY NOT BE USED BY NASA FOR REPROCUREMENT PURPOSES. KNOW OF NO AGREEMENT OR UNDERSTANDING BY NASA WHEREUNDER IT WOULD BE PRECLUDED FROM EXERCISING ITS RIGHTS TO "SUBJECT DATA" UNDER CLAUSE 37 OF THE CONTRACT. IN B 150369 DATED AUGUST 22, 1963, 43 COMP. GEN. 193, CITED BY YOU, THERE WAS INVOLVED A BREACH OF CONFIDENCE BY THE PROCUREMENT AGENCY NOT TO DISCLOSE PROPRIETARY INFORMATION WHICH HAD BEEN FURNISHED ON A CONFIDENTIAL, LIMITED BASIS. SUCH CASE IS NOT APPLICABLE HERE WHERE NASA HAS ACQUIRED VESTED CONTRACTUAL RIGHTS TO "SUBJECT DATA.' ALSO, THE PUBLISHED COMMENTS OF MR. RAY M. HARRIS, ON TRADE SECRETS, WHEREIN PRIOR DECISIONS OF OUR OFFICE ARE DISCUSSED, LIKEWISE ARE NOT FOR APPLICATION.

ACCORDINGLY, YOUR OBJECTIONS AGAINST THE REPROCUREMENT OF PHASES II AND III BY NASA MUST BE REJECTED AND, ON THE RECORD, THE PROTEST OF STOKES IS DENIED.