B-176698, NOV 7, 1972

B-176698, NOV 7, 1972

BID PROTEST - TWO-STEP NEGOTIATION - PRICE REDUCTIONS DENIAL OF PROTEST BY RADIONICS, INC., WEBSTER, N. Y., FOR THE AWARD OF A CONTRACT TO ANY OTHER OFFEROR UNDER AN IFB ISSUED BY THE NAVY ELECTRONICS SUPPLY OFFICE, GREAT LAKES, ILL., FOR A QUANTITY OF TRANSLATOR-SYNTHESIZER SUBASSEMBLIES. ASPR 3-805.1(C), WHILE PROVIDING FOR TWO-STEP NEGOTIATION, DOES NOT PRECLUDE THAT A PRICE REDUCTION, AFTER THE RECEIPT OF PRICE PROPOSALS, AMOUNTS TO UNFAIR COMPETITION. GAO HAS CONSISTENTLY HELD THAT AFTER RECEIPT OF INITIAL PRICE PROPOSALS, IF THE CONTRACTING OFFICER IS PRESENTED WITH A SITUATION WHEREBY THE GOVERNMENT STANDS TO BENEFIT, THE CONTRACTING OFFICER SHOULD NEGOTIATE (47 COMP. GEN. 279 (1967)). ALSO, GENERAL DYNAMICS', THE SUCCESSFUL BIDDER, REDUCTION OF $16,000 AMOUNTS TO SUBSTANTIAL SAVINGS TO THE GOVERNMENT. PROTEST IS DENIED ACCORDINGLY.

TO RADIONICS, INCORPORATED:

THIS IS IN REPLY TO YOUR LETTERS OF AUGUST 10, 21 AND OCTOBER 6, 1972, PROTESTING AWARD OF A CONTRACT TO ANY OTHER OFFEROR UNDER REQUEST FOR PROPOSALS N00126-72-R-2X4102, ISSUED BY THE NAVY ELECTRONICS SUPPLY OFFICE, GREAT LAKES, ILLINOIS.

THE RECORD SHOWS THAT THIS IS A TWO-STEP NEGOTIATED PROCUREMENT FOR AN ESTIMATED QUANTITY (1000) OF TRANSLATOR-SYNTHESIZER SUBASSEMBLIES IN ACCORDANCE WITH THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) 3 805.1(C). IN RESPONSE TO THE REQUEST FOR TECHNICAL PROPOSALS IN STEP ONE, SIX PROPOSALS WERE RECEIVED AND FOUR WERE DETERMINED TO BE ACCEPTABLE AFTER DISCUSSIONS WERE CONDUCTED. PRICES WERE TO BE SUBMITTED IN THE SECOND STEP BY JUNE 2, 1972, BY FOUR OFFERORS WHO HAD SUBMITTED ACCEPTABLE TECHNICAL PROPOSALS.

ON JUNE 8, 1972, GENERAL DYNAMICS, ONE OF THE OFFERORS, RECOMMENDED THAT CERTAIN TECHNICAL CHANGES BE MADE IN THE SPECIFICATIONS. THE CONTRACTING OFFICER RESPONDED ON JUNE 22 TO THE EFFECT THAT THE GOVERNMENT DID NOT INTEND TO OPEN TECHNICAL DISCUSSIONS SINCE THE CHANGE, WHICH MERELY REQUIRED THE PHYSICAL RECONNECTION OF A WIRE FROM ONE POINT ON THE CHASSIS TO ANOTHER, HAD NO IMPACT ON THE PRICE AND COULD BE HANDLED ADMINISTRATIVELY AFTER OR AT THE TIME OF AWARD. ON THE FOLLOWING DAY GENERAL DYNAMICS ACKNOWLEDGED RECEIPT OF THE CONTRACTING OFFICER'S ADVICE, AND ALSO OFFERED TO REDUCE ITS PRICE TO AN AMOUNT BELOW THAT OF RADIONICS, THE LOW OFFEROR. ON THE BASIS OF THE ESTIMATED REQUIREMENTS, SUCH REDUCTION REPRESENTED A POSSIBLE SAVINGS OF $16,000 TO THE GOVERNMENT. THEREAFTER, ON JULY 18, 1972, THE CONTRACTING OFFICER MODIFIED THE REQUEST FOR PROPOSALS BY CORRECTING THE TECHNICAL DEFICIENCY IN THE SPECIFICATIONS POINTED OUT BY GENERAL DYNAMICS, BY PROVIDING FOR SUBMISSION OF THE CONTRACTOR FIRST ARTICLE APPROVAL TEST REPORT WITHIN 90 DAYS AFTER RECEIPT OF CONTRACT, AND BY PROVIDING FOR PROGRESS PAYMENTS. SUBMISSION OF REVISED OFFERS BASED ON SUCH REVISIONS WERE REQUESTED BY AUGUST 2 AND OFFERORS WERE ADVISED THAT OFFERS RECEIVED AFTER THAT DATE WOULD BE TREATED IN ACCORDANCE WITH THE "LATE PROPOSALS" PROVISIONS OF THE SOLICITATION. THE OFFERS RECEIVED BY AUGUST 2 REVEAL THAT GENERAL DYNAMICS FURTHER REDUCED ITS PRICE, REFLECTING A SAVINGS OF $26,000 BELOW THE SECOND LOW OFFER BY RADIONICS FOR THIS MILLION DOLLAR PROCUREMENT.

ESSENTIALLY, YOU OBJECT TO THE GOVERNMENT'S ACTION IN REQUESTING REVISED OFFERS AFTER RECEIPT OF INITIAL PRICES. YOU NOTE THAT THE SOLICITATION CAUTIONED OFFERORS TO SUBMIT THEIR MOST FAVORABLE OFFER THE FIRST TIME, AND YOU CONTEND THERE SHOULD BE NO SECOND OPPORTUNITY IN THE PRESENT CIRCUMSTANCES. IT IS YOUR POSITION THAT ALTHOUGH ASPR 3 805.1(C) DOES NOT PRECLUDE THE POSSIBILITY OF FURTHER NEGOTIATION IN TWO-STEP NEGOTIATED PROCUREMENTS, THE INSTITUTION OF SUCH ACTION WHEN THERE ARE NO SUBSTANTIAL CHANGES IN THE REQUIREMENTS NEGATES THE INTENT AND ENTIRE USEFULNESS OF A TWO-STEP PROCUREMENT AND REDUCES THE BIDDING PROCESS TO AN AUCTION. MOREOVER, YOU NOTE THAT THERE ARE MANY WAYS AN OFFEROR CAN OBTAIN USEFUL INFORMATION ABOUT A COMPETITOR'S BID, DESPITE THE TIGHT SECURITY AT THE PROCURING AGENCY, AND THAT THE REOPENING OF NEGOTIATIONS PROVIDES OPPORTUNITIES FOR UNSCRUPULOUS TACTICS ON THE PART OF SOME OFFERORS. YOU ALSO NOTE THAT THE PROCEDURES UTILIZED PROVIDE AN OPPORTUNITY FOR "BUYING IN" IN ORDER TO ELIMINATE COMPETITION, AND THAT LARGE CORPORATIONS HAVE OFTEN DONE THIS, WHILE SMALL BUSINESSES CANNOT AFFORD TO DO THE SAME.

SECTION 3-805.1 OF ASPR PROVIDES IN PERTINENT PART AS FOLLOWS:

"3-805 SELECTION OF OFFERORS FOR NEGOTIATION AND AWARD.

3-805.1 GENERAL

"(A) AFTER RECEIPT OF INITIAL PROPOSALS, WRITTEN OR ORAL DISCUSSIONS SHALL BE CONDUCTED WITH ALL RESPONSIBLE OFFERORS WHO SUBMIT PROPOSALS WITHIN A COMPETITIVE RANGE, PRICE AND OTHER FACTORS (INCLUDING TECHNICAL QUALITY WHERE TECHNICAL PROPOSALS ARE REQUESTED) CONSIDERED, ***.

"(V) *** IN ANY CASE WHERE THERE IS UNCERTAINTY AS TO THE PRICING OR TECHNICAL ASPECTS OF ANY PROPOSALS, THE CONTRACTING OFFICER SHALL NOT MAKE AWARD WITHOUT FURTHER EXPLORATION AND DISCUSSION PRIOR TO AWARD. ALSO, WHEN THE PROPOSAL MOST ADVANTAGEOUS TO THE GOVERNMENT INVOLVES A MATERIAL DEPARTURE FROM THE STATED REQUIREMENTS, CONSIDERATION SHALL BE GIVEN TO OFFERING THE OTHER FIRMS WHICH SUBMITTED PROPOSALS AN OPPORTUNITY TO SUBMIT NEW PROPOSALS ON A TECHNICAL BASIS WHICH IS COMPARABLE TO THAT OF THE MOST ADVANTAGEOUS PROPOSAL ***.

"(B) WHENEVER NEGOTIATIONS ARE CONDUCTED WITH MORE THAN ONE OFFEROR, AUCTION TECHNIQUES ARE STRICTLY PROHIBITED; AN EXAMPLE WOULD BE INDICATING TO AN OFFEROR A PRICE WHICH MUST BE MET TO OBTAIN FURTHER CONSIDERATION, OR INFORMING HIM THAT HIS PRICE IS NOT LOW IN RELATION TO THAT OF ANOTHER OFFEROR. ON THE OTHER HAND, IT IS PERMISSIBLE TO INFORM AN OFFEROR THAT HIS PRICE IS CONSIDERED BY THE GOVERNMENT TO BE TOO HIGH. AFTER RECEIPT OF PROPOSALS, NO INFORMATION REGARDING THE NUMBER OR IDENTITY OF THE OFFERORS PARTICIPATING IN THE NEGOTIATIONS SHALL BE MADE AVAILABLE TO THE PUBLIC OR TO ANY ONE WHOSE OFFICIAL DUTIES DO NOT REQUIRE SUCH KNOWLEDGE. WHENEVER NEGOTIATIONS ARE CONDUCTED WITH SEVERAL OFFERORS, WHILE SUCH NEGOTIATIONS MAY BE CONDUCTED SUCCESSIVELY, ALL OFFERORS SELECTED TO PARTICIPATE IN SUCH NEGOTIATIONS (SEE (A) ABOVE) SHALL BE OFFERED AN EQUITABLE OPPORTUNITY TO SUBMIT SUCH PRICE, TECHNICAL, OR OTHER REVISIONS IN THEIR PROPOSALS AS MAY RESULT FROM THE NEGOTIATIONS. ***

"(C) EXCEPT WHEN COST-REIMBURSEMENT TYPE CONTRACTS ARE TO BE USED (SEE 3- 805.2), SOLICITATIONS MAY PROVIDE FOR TWO-STEP NEGOTIATION. AFTER RECEIPT OF INITIAL UNPRICED TECHNICAL PROPOSALS, SUCH PROPOSALS WILL BE EVALUATED TO DETERMINE THOSE WHICH ARE ACCEPTABLE TO THE GOVERNMENT OR WHICH, AFTER DISCUSSION, CAN BE MADE ACCEPTABLE. AFTER NECESSARY DISCUSSIONS ARE COMPLETED, PRICES WILL THEREAFTER BE SOLICITED FOR ALL ACCEPTABLE PROPOSALS AND NO AWARD MAY BE MADE UNTIL SUCH PRICES HAVE BEEN RECEIVED. SOLICITATIONS MAY ALSO INCLUDE A NOTIFICATION OF THE POSSIBILITY THAT AWARD MAY BE MADE UPON SUBMISSION OF PRICES WITHOUT FURTHER DISCUSSION OF PROPOSALS RECEIVED AND THEREFORE THE BEST POSSIBLE PRICE SHOULD BE SUBMITTED INITIALLY (SEE (A)(V)). UNLESS SUCH NOTIFICATION IS INCLUDED IN THE SOLICITATION, DISCUSSIONS SHALL BE CONDUCTED AS PROVIDED IN THE INTRODUCTORY PART OF (A)."

THE NAVY HAS TAKEN THE POSITION IN ITS REPORT THAT IN ACCORDANCE WITH ASPR 3-805.1 IT TOOK INTO CONSIDERATION AS A NEGOTIATING MATTER GENERAL DYNAMICS' PRICE REDUCTION WHICH REPRESENTED A POSSIBLE SAVINGS OF $16,000 OVER RADIONICS' INITIAL LOW PRICE PROPOSAL. TOGETHER WITH THE FACT THAT OTHER REVISIONS TO THE SOLICITATION WERE IN ORDER, THE CONTRACTING OFFICER DECIDED TO RESOLVE THE PRICING AND TECHNICAL UNCERTAINTIES PRIOR TO AWARD BY AMENDING THE SOLICITATION.

WHILE YOU TAKE THE POSITION THAT WHEN TWO-STEP NEGOTIATED PROCEDURES ARE FOLLOWED AND TECHNICAL DISCUSSIONS ARE CONDUCTED DURING STEP ONE, NEGOTIATIONS SHOULD NOT BE CONDUCTED AFTER RECEIPT OF INITIAL PRICE PROPOSALS EXCEPT FOR SUBSTANTIAL REASONS, WE CAN SEE NO BASIS FOR CONCLUDING THAT THE STATUTORY AND REGULATORY DIRECTIVE FOR CONDUCTING NEGOTIATIONS AFTER CONSIDERATION OF THE PRICES OFFERED IS IN ANY WAY DIMINISHED BECAUSE OF THE UTILIZATION OF TWO-STEP PROCEDURES. THOUGH GENERALLY THE FIRST STEP IS INTENDED TO PERFECT TECHNICAL PROPOSALS, ASPR 3-805.1(C) CLEARLY CONTEMPLATES THE CONDUCT OF DISCUSSIONS AS DIRECTED BY ASPR 3-805.1(A) AFTER RECEIPT OF PRICE PROPOSALS IN STEP TWO. IF, AFTER RECEIPT OF INITIAL PRICE PROPOSALS, THE CONTRACTING OFFICER IS PRESENTED WITH A SITUATION WHEREBY THE GOVERNMENT STANDS TO BENEFIT BY FURTHER NEGOTIATIONS, WE HAVE HELD THAT THE CONTRACTING OFFICER SHOULD NEGOTIATE. SEE 47 COMP. GEN. 279 (1967). MOREOVER, THE CONTENT AND EXTENT OF DISCUSSIONS NEEDED TO MEET THE REQUIREMENT OF 10 U.S.C. 2304(G) FOR WRITTEN OR ORAL DISCUSSIONS IN COMPETITIVE NEGOTIATED PROCUREMENTS IS A MATTER OF JUDGMENT PRIMARILY FOR DETERMINATION BY THE PROCURING AGENCY AND NOT SUBJECT TO QUESTION BY OUR OFFICE UNLESS CLEARLY ARBITRARY OR WITHOUT A REASONABLE BASIS. WE FIND NO SUCH ARBITRARINESS OR UNREASONABLENESS IN THE PRESENT RECORD, SINCE IT APPEARS THAT THE CONTRACTING OFFICER WAS ATTEMPTING BOTH TO PROTECT THE GOVERNMENT'S INTERESTS AND TO ASSURE THAT ALL OFFERORS WERE COMPETING ON THE SAME BASIS WHEN HE AMENDED THE SPECIFICATIONS AND ASKED FOR PRICE REVISIONS BASED THEREON.

IN THIS CONNECTION WE ALSO NOTE THAT THE RECORD INDICATES PRICING INFORMATION WAS NOT FURNISHED BY THE PROCURING ACTIVITY TO ANY UNAUTHORIZED PERSONS DURING NEGOTIATIONS, NOR HAS OUR INVESTIGATION FOUND ANY VIOLATION OF THE PROHIBITION IN ASPR 3-805.1(B) AGAINST THE USE OF AUCTION TECHNIQUES. IN THE ABSENCE OF SUCH A VIOLATION WE SEE NO BASIS FOR OBJECTING TO THE NEGOTIATIONS CONDUCTED IN THIS CASE. SEE 48 COMP. GEN. 323 (1968).

YOU ALSO OBJECT TO NEGOTIATIONS IN THIS CASE BECAUSE YOU BELIEVE IT PROVIDES AN OPPORTUNITY FOR "BUYING IN" AND SUCH NEGOTIATIONS ARE PARTICULARLY UNFAIR TO SMALL BUSINESS CONCERNS. HOWEVER, IT HAS NOT BEEN DEMONSTRATED THAT GENERAL DYNAMICS HAS ATTEMPTED A "BUY IN." WHILE THE PROVISIONS IN ASPR 1-311 SET OUT SPECIFIC ACTIONS TO BE TAKEN BY THE CONTRACTING OFFICER IN THE EVENT "BUYING IN" IS THOUGHT TO BE OCCURRING, OR HAS OCCURRED, THERE IS NO SPECIFIC PROVISION IN THE REGULATION FOR REJECTION OF THE BID. MOREOVER, ASSUMING YOU ARE CORRECT IN YOUR CONTENTION THAT "BUYING IN" IS ADVANTAGEOUS TO LARGE BUSINESSES AND DISADVANTAGEOUS TO SMALL BUSINESSES, WE ARE AWARE OF NO REQUIREMENT OR PROVISION FOR PROTECTING THE INTERESTS OF SMALL BUSINESS CONCERNS IN SUCH CIRCUMSTANCES.

FOR THE REASONS STATED, YOUR PROTEST MUST BE DENIED.