B-142524, JUN. 23, 1960

B-142524, JUN. 23, 1960

TO KURZ AND ROOT COMPANY, INC.:

FURTHER REFERENCE IS MADE TO YOUR LETTERS DATED APRIL 6 AND APRIL 12, 1960, PROTESTING AGAINST THE ACTION OF THE DEPARTMENT OF THE ARMY IN NEGOTIATING A CONTRACT UNDER THE PROVISIONS OF 10 U.S.C. 2304 (A) (14) WITH CUMMINS ENGINE COMPANY, INC., FOR 60 KW, 60 CYCLE, DIESEL DRIVEN PRECISE POWER GENERATOR SETS.

CLAUSE (14) OF 10 U.S.C. 2304 (A) PROVIDES THAT THE HEAD OF AN AGENCY MAY NEGOTIATE A CONTRACT IF "THE PURCHASE OR CONTRACT IS FOR TECHNICAL OR SPECIAL PROPERTY THAT HE DETERMINES TO REQUIRE A SUBSTANTIAL INITIAL INVESTMENT OR AN EXTENDED PERIOD OF PREPARATION FOR MANUFACTURE, AND FOR WHICH HE DETERMINES THAT FORMAL ADVERTISING AND COMPETITIVE BIDDING MIGHT REQUIRE DUPLICATION OF INVESTMENT OR PREPARATION ALREADY MADE OR WOULD UNDULY DELAY THE PROCUREMENT OF THAT PROPERTY.'

YOUR PROTEST POINTS OUT THAT YOUR COMPANY, AS WELL AS OTHER COMPANIES, HAVE ALREADY MADE THE SUBSTANTIAL INITIAL INVESTMENT CONTEMPLATED BY THE STATUTE IN MANUFACTURING SIMILAR (ALTHOUGH NOT IDENTICAL) ARTICLES FOR THE GOVERNMENT. YOU ALSO POINT OUT THAT, AS A RESULT OF YOUR EXPERIENCE ON SUCH SIMILAR ARTICLES, YOU ARE IN A POSITION TO IMMEDIATELY START PRODUCING THE ARTICLES NOW REQUIRED, AND THAT NO UNDUE DELAY THROUGH AN EXTENDED PERIOD OF PREPARATION FOR MANUFACTURE, AS CONTEMPLATED BY THE STATUTE, WOULD RESULT FROM AN AWARD TO YOUR COMPANY. YOU THEREFORE CONTEND THAT THE ACTION OF THE DEPARTMENT OF THE ARMY, IN NEGOTIATING A CONTRACT WITH CUMMINS ENGINE COMPANY ON A SOLE SOURCE BASIS AND WITHOUT SOLICITING COMPETITION, MAKES SUCH AWARD LEGALLY UNAUTHORIZED AND INVALID. FURTHER, SINCE YOU STATE THAT YOU COULD FURNISH THE ARTICLES IN QUESTION TO THE GOVERNMENT AT A PRICE APPROXIMATELY $480,000 LESS THAN THE CONTRACT PRICE WITH CUMMINS ENGINE COMPANY, YOU CONTEND THAT THE AWARD IS NOT IN THE PUBLIC INTEREST.

THE RECORDS OF THE DEPARTMENT OF THE ARMY ON THE PROCUREMENT OF 60 KW, 60 CYCLE, PRECISE POWER GENERATORS INDICATE THAT THE ARTICLE WAS DEVELOPED BY CUMMINS ENGINE COMPANY UNDER A RESEARCH AND DEVELOPMENT CONTRACT AWARDED IN FEBRUARY, 1956. THE INITIAL PRODUCTION CONTRACT FOR 77 UNITS WAS AWARDED TO THE SAME COMPANY IN MARCH, 1957, AT A PRICE OF $14,205 PER UNIT. IN FEBRUARY, 1959, A PROCUREMENT OF 175 UNITS WAS FORMALLY ADVERTISED UNDER PERFORMANCE SPECIFICATIONS WHICH WERE ESSENTIALLY THE SAME AS FOR THE ORIGINAL PROCUREMENT FROM THE CUMMINS ENGINE COMPANY. TEN BIDS, RANGING FROM $5,440 TO $7,241.13 PER UNIT WERE RECEIVED, AND AN AWARD WAS MADE TO THE LOW BIDDER, INTERNATIONAL FERMONT MACHINERY COMPANY, IN MARCH, 1959. THIS CONTRACT SPECIFIED AUGUST 9, 1959, AS THE DATE WHEN THE PREPRODUCTION MODEL SHOULD BE READY FOR TESTING, WITH DELIVERY TO START ON NOVEMBER 24, 1959. HOWEVER, THE PROVISIONING AND MANUAL REQUIREMENTS SET FORTH IN THE CONTRACT REQUIRED WITHHOLDING THE PRE- PRODUCTION TEST UNTIL DECEMBER, 1959, AT WHICH TIME VISUAL INSPECTION REVEALED THAT THE DESIGN WAS INCOMPLETE AND UNSATISFACTORY AND IT WAS THEREFORE CONSIDERED DOUBTFUL THAT PREPRODUCTION TESTING COULD BE ACCOMPLISHED AND A MODEL ACCEPTED PRIOR TO APRIL 30, 1960.

IT WAS AGAINST THIS BACKGROUND, AND IN VIEW OF UNFILLED REQUISITIONS FOR THIRTY-THREE UNITS URGENTLY NEEDED FOR MISSILE SUPPORT, THAT RECOMMENDATIONS WERE MADE TO THE ASSISTANT SECRETARY OF THE ARMY ON JANUARY 27, 1960, FOR AUTHORITY TO NEGOTIATE A CONTRACT UNDER 10 U.S.C. 2304 (A) (14) WITH CUMMINS ENGINE COMPANY, THE ONLY SUCCESSFUL PRODUCER OF THE 60 KW, 60 CYCLE, UNIT TO THAT DATE. A DETERMINATION TO NEGOTIATE UNDER SECTION 2304 (A) (14) WAS ISSUED BY THE ASSISTANT SECRETARY ON JANUARY 29, 1960, SUCH DETERMINATION BEING JUSTIFIED BY THE FOLLOWING FINDINGS:

"/1) THE GENERATORS ARE OF A HIGHLY TECHNICAL NATURE WITH MILITARY CHARACTERISTICS AND DESIGN DETAILS WHICH ARE FAMILIAR TO THE RESEARCH AND DEVELOPMENT CONTRACTOR.

(2) SUPPLIERS OTHER THAN THE CUMMINS ENGINE CO., INC. WOULD BE UNABLE TO PRODUCE SATISFACTORY GENERATOR SETS WITHOUT AN EXTENDED PERIOD OF PREPARATION IN ACQUIRING THE NECESSARY ENGINEERING AND MANUFACTURING TECHNIQUE AND QUALITY CONTROL.'

WHILE THE PROCUREMENT HISTORY OF THESE GENERATOR SETS SINCE THEIR DEVELOPMENT WOULD APPEAR TO RAISE SEVERAL QUESTIONS WITH RESPECT TO THE PROCUREMENT MANAGEMENT PRACTICES FOLLOWED, OUR EXAMINATION OF THE RECORDS PRESENTLY BEFORE US INDICATES THAT THE REQUIREMENTS OF BOTH 10 U.S.C. 2304 (A) (14) AND THE ARMED SERVICES PROCUREMENT REGULATION HAVE BEEN COMPLIED WITH IN NEGOTIATING THE LATEST CONTRACT FOR THESE ARTICLES WITH CUMMINS ENGINE COMPANY. UNDER THE PROVISIONS OF 10 U.S.C. 2310, THE FINDINGS AND DETERMINATIONS ISSUED BY AN ASSISTANT SECRETARY TO AUTHORIZE THE NEGOTIATION OF A CONTRACT UNDER SECTION 2304 (A) (14) ARE FINAL, AND THIS OFFICE HAS NO AUTHORITY TO SUBSTITUTE ITS JUDGMENT FOR THAT OF THE CONTRACTING AGENCY FOR THE PURPOSE OF DECLARING AN AWARD, BASED UPON SUCH DETERMINATION, INVALID, OR FOR THE PURPOSE OF DIRECTING CANCELLATION OF A CONTRACT NEGOTIATED PURSUANT THERETO.

IT IS THEREFORE APPARENT THAT THERE IS NO BASIS UPON WHICH THIS OFFICE WOULD BE AUTHORIZED TO QUESTION THE LEGALITY OF THE CONTRACT AWARDED TO CUMMINS ENGINE COMPANY. TO THE EXTENT THAT YOUR PROTEST MAY BE DIRECTED TO SUCH ACTION BY THIS OFFICE, IT MUST THEREFORE BE DENIED.

YOU ARE ADVISED, HOWEVER, THAT THE NEGOTIATION PRACTICES OUTLINED IN YOUR PROTEST WILL BE CONSIDERED IN OUR AUDIT OF THE CONTRACTING INSTALLATION. IN THE EVENT SUCH AUDIT INDICATES THAT THE PRACTICES FOLLOWED REPRESENT AN ABUSE OF THE NEGOTIATION AUTHORITY OR ARE CLEARLY NOT IN THE PUBLIC INTEREST, THEY WILL BE MADE THE SUBJECT OF A REPORT BY THIS OFFICE TO THE CONGRESS.