B-150978, OCTOBER 10, 1963, 43 COMP. GEN. 353

B-150978: Oct 10, 1963

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CONTRACTS - NEGOTIATION - PROPRIETY ACTION OF A PROCURING AGENCY IN LIMITING NEGOTIATIONS FOR A CONTRACT FOR THE PROCESSING AND SALE OF SEALSKINS TO AN OFFEROR WHO WAS ASSIGNED THE HIGHEST PRIORITY RATING BASED UPON HIS TECHNICAL PROPOSAL AND A COMPARATIVE RESPONSIBILITY DETERMINATION BEFORE FIRM PROPOSALS. HAD BEEN SOLICITED FROM ALL RESPONSIBLE OFFERORS AND BEFORE A COMPARISON OF PRICE AND ALL OTHER FACTORS IN SUCH PROPOSALS HAD BEEN CONSIDERED IS CONTRARY TO THE FEDERAL PROCUREMENT REGULATIONS WHICH REQUIRE SOLICITATION AND CONSIDERATION OF COMPETITIVE PRICES IN THE DETERMINATION OF THE METHOD OF PROCUREMENT AND. 1963: REFERENCE IS MADE TO A PROTEST BY FOUKE FUR COMPANY AGAINST THE ACTION OF YOUR DEPARTMENT IN AWARDING A CONTRACT FOR THE PROCESSING AND SALE OF ALASKA SEALSKINS TO A JOINT VENTURE KNOWN AS SUPARA.

B-150978, OCTOBER 10, 1963, 43 COMP. GEN. 353

CONTRACTS - NEGOTIATION - PROPRIETY ACTION OF A PROCURING AGENCY IN LIMITING NEGOTIATIONS FOR A CONTRACT FOR THE PROCESSING AND SALE OF SEALSKINS TO AN OFFEROR WHO WAS ASSIGNED THE HIGHEST PRIORITY RATING BASED UPON HIS TECHNICAL PROPOSAL AND A COMPARATIVE RESPONSIBILITY DETERMINATION BEFORE FIRM PROPOSALS, INCLUDING PRICE PROPOSALS, HAD BEEN SOLICITED FROM ALL RESPONSIBLE OFFERORS AND BEFORE A COMPARISON OF PRICE AND ALL OTHER FACTORS IN SUCH PROPOSALS HAD BEEN CONSIDERED IS CONTRARY TO THE FEDERAL PROCUREMENT REGULATIONS WHICH REQUIRE SOLICITATION AND CONSIDERATION OF COMPETITIVE PRICES IN THE DETERMINATION OF THE METHOD OF PROCUREMENT AND, THEREFORE, SUCH AWARD ACTION DOES NOT CONSTITUTE A VALID, ENFORCEABLE OBLIGATION OF THE GOVERNMENT AND SHOULD BE RESCINDED.

TO THE SECRETARY OF THE INTERIOR, OCTOBER 10, 1963:

REFERENCE IS MADE TO A PROTEST BY FOUKE FUR COMPANY AGAINST THE ACTION OF YOUR DEPARTMENT IN AWARDING A CONTRACT FOR THE PROCESSING AND SALE OF ALASKA SEALSKINS TO A JOINT VENTURE KNOWN AS SUPARA.

AS INDICATED BY THE RECORD BEFORE THIS OFFICE, THIS PROCUREMENT WAS INITIATED BY AN INVITATION FOR PROPOSALS ISSUED BY YOUR DEPARTMENT UNDER DATE OF JUNE 20, 1962, AS A RESULT OF THE TERMINATION EFFECTIVE DECEMBER 31, 1962, OF A CONTRACT WITH FOUKE FUR COMPANY, WHICH COMPANY HAS PERFORMED SUCH SERVICES FOR THE GOVERNMENT UNDER SUCCESSIVE CONTRACTS SINCE 1921.

THE INVITATION FOR PROPOSALS IN QUESTION ADVISED PROSPECTIVE CONTRACTORS, IN PERTINENT PART, AS FOLLOWS:

THE PROPOSALS INVITED HEREUNDER ARE FOR A CONTRACT WHICH WILL BE NEGOTIATED IN ACCORDANCE WITH THE FEDERAL PROCUREMENT REGULATIONS. (SEE ATTACHMENTS CONCERNING STANDARD CONTRACT PROVISIONS AND PRINCIPLES TO BE OBSERVED IN NEGOTIATED CONTRACTS.)

THE "ATTACHMENTS" REFERRED TO IN THE FOREGOING, INSOFAR AS THEY ARE PERTINENT TO THE PRINCIPLES TO BE OBSERVED IN THE NEGOTIATION OF THE CONTRACT, WERE SET OUT AS FOLLOWS IN A PORTION OF THE INVITATION ENTITLED "CONTRACT NEGOTIATION AND AWARD: "

THE INVITATION SOLICITS PROPOSALS FOR A CONTRACT WHICH WILL BE NEGOTIATED IN ACCORDANCE WITH FEDERAL PROCUREMENT REGULATIONS. FOR THE INFORMATION OF PROSPECTIVE CONTRACTORS THERE ARE STATED HEREIN, AND IN THE ATTACHMENTS, CERTAIN POLICIES AND REGULATIONS RELATING TO THE NEGOTIATION AND AWARD OF CONTRACTS, TOGETHER WITH CLAUSES TO BE INCORPORATED IN THE CONTRACT.

DEPARTMENT OF THE INTERIOR REGULATIONS

THE FOLLOWING EXCERPTS FROM THE DEPARTMENTAL MANUAL STATE POLICIES, PROCEDURES, AND RESPONSIBILITIES WHICH WILL BE APPLICABLE TO THE NEGOTIATION AND AWARD OF CONTRACTS.

IN GENERAL, IT IS THE POLICY OF THE UNITED STATES GOVERNMENT TO CONTRACT WITH THE PERSON OR CONCERN OFFERING, THROUGH SEALED BIDS OPENED PUBLICLY, TO MEET THE GOVERNMENT'S SPECIFICATIONS AND TO PROVIDE THE SUPPLIES OR SERVICE AT THE LOWEST COST.

CONTRACTING OFFICERS ARE CAUTIONED THAT THE NEGOTIATED CONTRACTING AUTHORITY SHOULD BE EXERCISED ONLY IN JUSTIFIABLE CIRCUMSTANCES AND SHOULD NOT BE INTERPRETED AS IMPLYING ANY RELAXATION OF THE REQUIREMENTS FOR COMPETITION.

CONTRACTING BY NEGOTIATION DOES NOT REQUIRE COMPLIANCE WITH THE RIGID LIMITATIONS OF FORMAL ADVERTISING, BID AND AWARD PROCEDURES AND DETERMINATION OF THE PERSON OR CONCERN TO BE AWARDED THE CONTRACT IS LESS AUTOMATIC. IT ALLOWS, TO A GREATER EXTENT THAN FORMAL ADVERTISING, THE EXERCISE OF SOUND BUSINESS JUDGMENT BUT IN NO WAY DECREASES THE RESPONSIBILITY OF THE CONTRACTING OFFICER FOR PROPERLY PROTECTING THE INTERESTS OF THE GOVERNMENT.

WHENEVER A CONTRACT IS TO BE NEGOTIATED, PRICE QUOTATIONS AND ALL OTHER NECESSARY INFORMATION SHALL BE SOLICITED FROM SUCH QUALIFIED SOURCES AS ARE DEEMED NECESSARY BY THE CONTRACTING OFFICER TO ASSURE ADEQUATE COMPETITION. DUE CONSIDERATION MUST BE GIVEN TO THE NATIONAL POLICIES AFFECTING SMALL BUSINESS AND AREAS OF SUBSTANTIAL UNEMPLOYMENT.

ALL SOLICITATIONS OF OFFERS SHALL PROVIDE A FIXED TIME FOR RECEIPT OF OFFERS, PRIOR TO WHICH NO AWARD SHALL BE MADE. THIS REQUIREMENT IS NOT INTENDED TO PRECLUDE FURTHER NEGOTIATION OR CONSIDERATION OF OFFERS OR MODIFICATIONS RECEIVED AFTER THE FIXED TIME, BUT PRIOR TO THE AWARD. NECESSARY PRECAUTIONS MUST BE TAKEN TO AVOID PREJUDICE TO ANY OFFERORS BY INADVERTENT DISCLOSURE OF NEGOTIATIONS IN PROCESS, SUCH AS PRICES QUOTED, THE NUMBER OF OFFERS RECEIVED, OR THE NAMES OF FIRMS FROM WHICH OFFERS HAVE BEEN RECEIVED.

IT IS THE RESPONSIBILITY OF THE CONTRACTING OFFICER CONDUCTING NEGOTIATIONS TO GIVE CONSIDERATION TO THE FOLLOWING AND ANY OTHER APPLICABLE FACTORS:

(A) THE BUSINESS REPUTATION AND RESPONSIBILITY OF THE RESPECTIVE PERSONS OR CONCERNS SUBMITTING QUOTATIONS.

(B) THE QUALITY OF THE SUPPLIES OR SERVICES OFFERED, OR THE QUALITY OF SIMILAR SUPPLIES OR SERVICES PREVIOUSLY FURNISHED, WITH DUE REGARD TO COMPLIANCE WITH TECHNICAL REQUIREMENTS.

(C) PRICES QUOTED, AND CONSIDERATION OF OTHER PRICES FOR THE SAME OR SIMILAR SUPPLIES OR SERVICES, WITH DUE REGARD TO COST OF TRANSPORTATION, CASH DISCOUNTS, AND ANY OTHER FACTORS RELATING TO PRICES.

(D) DELIVERY REQUIREMENTS.

THE INVITATION ADVISED PROSPECTIVE CONTRACTORS THAT LIMITED NUMBERS OF CURED SEALSKINS, BOTH MALE AND FEMALE, WOULD BE MADE AVAILABLE "TO THOSE FIRMS WHICH REQUEST THEM AND WHICH ARE QUALIFIED TO CARRY OUT EXPERIMENTAL PROCESSING," AND THAT SAMPLES OF FINISHED SKINS MUST ACCOMPANY WRITTEN PROPOSALS SUBMITTED IN RESPONSE TO THE INVITATION. WITH RESPECT TO PROCESSING OF THE SEALSKINS, THE INVITATION ADVISED AS FOLLOWS:

PROCESSING SEALSKINS INCLUDES ALL OPERATIONS, PHYSICAL AND CHEMICAL, MANUAL AND MECHANICAL, TO WHICH THE PELTS ARE SUBJECTED IN ORDER TO OBTAIN THE FINISHED FUR READY FOR USE BY THE FURRIER.

IT IS ESSENTIAL FOR THE LEATHER TO POSSESS CERTAIN QUALITIES AFTER BEING DRESSED, E.G. SOFTNESS, LIGHTNESS OF WEIGHT, ELASTICITY, AND A CERTAIN FINENESS OF "FEEL.' IN OTHER WORDS, THE IMPORTANT CONSIDERATIONS IN DRESSING ALASKA SEALSKINS ARE THE EMPLOYMENT OF MEANS AND THE EXERCISE OF CARE TO PRESERVE AND IMPROVE THOSE CHARACTERISTICS OF THE PELT WHICH MAKE IT VALUABLE. A BRIEF DESCRIPTION OF THE GENERAL PROCESSES, BASED LARGELY ON INFORMATION PUBLISHED SOME YEARS AGO BY THE BUREAU OF FISHERIES, DEPARTMENT OF COMMERCE, FOLLOWS. THIS IS NOT INTENDED TO EXCLUDE OTHER PROCESSES OR PRACTICES WHICH A PROCESSOR MAY ELECT TO UTILIZE IN PRODUCING A HIGH QUALITY LUXURY PRODUCT.

CONCERNING THE EVALUATION OF PROPOSALS, THE INVITATION PROVIDED AS FOLLOWS:

PROPOSALS SUBMITTED HEREUNDER WILL BE EVALUATED TO DETERMINE WHETHER THE APPLICANTS QUALIFY AS RESPONSIBLE PROSPECTIVE CONTRACTORS. IN ORDER TO QUALIFY AS RESPONSIBLE, A PROSPECTIVE CONTRACTOR MUST, IN THE OPINION OF THE CONTRACTING OFFICER, MEET THE FOLLOWING STANDARDS OF THE FEDERAL PROCUREMENT REGULATIONS AS THEY RELATE TO THIS PARTICULAR PROCUREMENT:

(1) HE MUST BE A SERVICE CONTRACTOR OR SUCH OTHER PERSON OR FIRM AS MAY BE QUALIFIED AND RESPONSIBLE AS A SOURCE OF SUPPLY. THE TERM "SERVICE CONTRACTOR" MEANS A PERSON OR FIRM WHO, BEFORE BEING AWARDED A CONTRACT, SATISFIES THE CONTRACTING OFFICER THAT HE QUALIFIES AS ONE WHO OWNS, OPERATES, OR MAINTAINS A PLACE OF BUSINESS REGULARLY ENGAGED IN PERFORMING NONPERSONAL SERVICES OR WHO, IF NEWLY ENTERING INTO A SERVICE ACTIVITY, HAS MADE ALL NECESSARY PRIOR ARRANGEMENTS FOR PERSONNEL, SERVICE EQUIPMENT, AND REQUIRED LICENSES TO PERFORM SERVICES.

(2) HE MUST HAVE ADEQUATE FINANCIAL RESOURCES FOR PERFORMANCE, OR HAVE THE ABILITY TO OBTAIN SUCH RESOURCES AS REQUIRED DURING PERFORMANCE.

(3) HE MUST HAVE THE NECESSARY EXPERIENCE, ORGANIZATION, TECHNICAL QUALIFICATION, SKILLS, AND FACILITIES, OR HAVE THE ABILITY TO OBTAIN THEM (INCLUDING PROBABLE SUBCONTRACTOR ARRANGEMENTS).

(4) HE MUST BE ABLE TO COMPLY WITH THE PROPOSED OR REQUIRED TIME OF DELIVERY OR PERFORMANCE SCHEDULE.

(5) HE MUST HAVE A SATISFACTORY RECORD OF INTEGRITY, JUDGMENT, AND PERFORMANCE.

TO FACILITATE AN ANALYSIS OF THE PROPOSAL, THE APPLICANT MUST FURNISH A STATEMENT OF HIS FINANCIAL CONDITION, EVIDENCE OF HIS EXPERIENCE, AND BUSINESS AND PERSONAL REFERENCES, AS WELL AS SUCH ADDITIONAL DATA AS HE MAY CONSIDER PERTINENT TO THE EVALUATION OF HIS OFFER.

THE BUREAU OF COMMERCIAL FISHERIES WILL ALSO CONDUCT A SURVEY OF THE APPLICANT'S BACKGROUND AND MAKE AN OVERALL INSPECTION OF THE APPLICANT'S PLANT AND OPERATIONS TO EVALUATE HIS FINANCIAL STATUS, ABILITY, AND COMPETENCE TO CARRY ON THE PROCESSING AND/OR SALE OF SEALSKINS.

THE INVITATION FURTHER PROVIDED THAT "THE BUREAU OF COMMERCIAL FISHERIES RESERVES THE RIGHT, AS THE INTEREST OF THE GOVERNMENT MAY REQUIRE, TO REJECT ANY OR ALL PROPOSALS AND TO NEGOTIATE FURTHER WITH ANY QUALIFIED FIRM.'

AS ORIGINALLY ISSUED, THE PROPOSAL FORM FURNISHED TO PROSPECTIVE CONTRACTORS WITH THE INVITATION REQUIRED OFFERORS PROPOSING TO PROCESS SEALSKINS TO STATE THE LOCATION AND A DESCRIPTION OF THEIR FACILITIES. ADDENDUM NO. 1 DATED AUGUST 22, 1962, THIS REQUIREMENT WAS REVISED AS FOLLOWS:

IF ANY FIRM MAKING SUCH AN OFFER DOES NOT PRESENTLY HAVE FACILITIES ADEQUATE FOR THIS PURPOSE, IT SHALL STATE IN THE PROPOSAL HOW IT INTENDED TO ACQUIRE THE NECESSARY PLANT, PROCESSING FACILITIES, PERSONNEL, ETC., IN ORDER TO QUALIFY AS A RESPONSIBLE PROSPECTIVE CONTRACTOR MEETING THE STANDARDS SET FORTH IN THE INVITATION. FIRM COMMITMENTS FOR THESE FACILITIES AND PERSONNEL NEED NOT BE CONCLUDED PRIOR TO SUBMISSION OF THE PROPOSAL. HOWEVER, THE PROPOSAL MUST CONTAIN A SUFFICIENTLY DETAILED PLAN AS TO HOW THE FIRM PROPOSES TO PERFORM THE WORK FOR THE CONTRACTING OFFICER TO DETERMINE THAT FURTHER CONSIDERATION OF THE PROPOSAL IS WARRANTED. IF THE FIRM IS INVITED TO ENTER INTO NEGOTIATIONS FOR A CONTRACT IT MUST DEMONSTRATE TO THE SATISFACTION OF THE CONTRACTING OFFICER THAT WITHIN ONE YEAR IT CAN HAVE ADEQUATE FACILITIES FOR PROCESSING UP TO 80,000 SKINS PER YEAR.

AS A RESULT OF THE INVITATION RAW SKINS WERE REQUESTED BY AND FURNISHED TO ELEVEN FIRMS AND INDIVIDUALS. FIVE FIRMS SUBMITTED PROPOSALS, TOGETHER WITH SAMPLE SKINS, PRIOR TO THE ESTABLISHED DEADLINE OF NOVEMBER 1, 1962. THESE FIRMS WERE: PIERRE LACLEDE FUR COMPANY, ST. LOUIS, MISSOURI

SUPARA, INC., CHICAGO, ILLINOIS

FOUKE FUR COMPANY, GREENVILLE, SOUTH CAROLINA

C. W. MARTIN AND SONS, LTD., LONDON, ENGLAND

JONAS BROTHERS, SEATTLE, WASHINGTON

IN ORDER TO ESTABLISH EVALUATION STANDARDS FOR THE 101 SAMPLE SKINS SUBMITTED WITH THESE PROPOSALS, 60 PROCESSED SKINS WERE SELECTED FROM THE STOCK ON HAND OF FOUKE FUR COMPANY TO BE USED AS THE STANDARD OF COMPARISON FOR THE SAMPLE SKINS. SUCH "STANDARD SKINS" WERE THEN CLASSIFIED AS "BLACK," "MATARA," "KITOVI" AND "LAKODA" AND GIVEN TO A PANEL COMPOSED OF NINE GOVERNMENT EMPLOYEES FOR SUBJECTIVE INSPECTION. EXCEPT FOR LAKODA (FEMALE) SKINS, ALL SKINS WERE EVALUATED ON THE FOLLOWING CATEGORIES:

1. UNIFORM APPEARANCE AND TEXTURE OF THE FUR.

2. VELVETY APPEARANCE AND SMOOTHNESS OF FUR TO THE TOUCH.

3. FREE FLOW OF FUR UNDER STROKE OF HAND.

4. LUSTER.

5. UNIFORMITY OF COLOR.

6. DEPTH AND RICHNESS OF COLOR.

7. SUPPLENESS AND PLIABILITY OF LEATHER.

8. DENSITY OF FUR COVER.

LAKODA SKINS WERE EVALUATED ON THE BASIS OF POINTS 1, 4, 5, 7, AND A NINTH CATEGORY ENTITLED ,CONDITION OF PELT.'

ALL SKINS WERE RATED EXCELLENT, GOOD, FAIR, OR POOR IN EACH CATEGORY EXCEPT "LUSTER" WHICH WAS RATED HIGH, MEDIUM, OR LOW. THE RATINGS WERE DETERMINED BY GIVING 4 POINTS FOR EXCELLENT, 3 FOR GOOD, 2 FOR FAIR, 1 FOR POOR; 3 POINTS FOR LOW LUSTER, 2 FOR FAIR, AND 1 FOR HIGH. WHILE THE FAILURE OF SOME OF THE PANEL MEMBERS TO RATE THE STANDARD "BLACK" SKINS ON ALL POINTS PRECLUDED AN AVERAGE POINT RATING FOR SUCH SKINS, THE AVERAGE POINT RATING ON THE FOUKE STANDARD SKINS FOR THE REMAINING CATEGORIES WAS AS FOLLOWS:

MATARA - 179

KITOVI - 175

LAKODA - 105

THE 101 SAMPLE SKINS WERE THEN SUBMITTED TO A GOVERNMENT PANEL, COMPOSED OF SEVEN MEMBERS OF THE ORIGINAL PANEL, FOR EVALUATION ON THE SAME BASIS AS THE STANDARD SKINS. IN ADDITION, THE SAMPLE SKINS WERE SUBMITTED FOR EVALUATION ON THE SAME BASIS BY FIVE PROMINENT MEMBERS OF THE FUR INDUSTRY. THE REPORT BY THE NATIONAL BUREAU OF STANDARDS TO YOUR DEPARTMENT SETS OUT THE RESULTS OF THE PANELS' EVALUATIONS AS FOLLOWS:

EACH SKIN RATED BY THE PANELS AS DESCRIBED IN TEST NO. 1 UNDER DESCRIPTION OF TESTS WAS GIVEN A TOTAL POINT RATING, WHICH IS COMPOSED OF THE GRAND TOTALS FOR ALL PANEL MEMBERS OF THE RATINGS IN THE 8 CATEGORIES FOR REGULAR SKINS AND 5 CATEGORIES FOR SHEARED SKINS. AN AVERAGE RATING IN POINTS FOR THE GOVERNMENT STANDARD SKINS WAS CALCULATED FROM THE RATINGS OF THE GOVERNMENT PANEL FOR MATARA, KITOVI, AND LAKODA, AND IS GIVEN IN THE TABLE FOR TEST NO. 1 (APPENDIX I).

THE RANKINGS OF THE TOP PROPOSAL ALASKA SEALSKINS BY BOTH THE GOVERNMENT AND INDUSTRY PANELS ARE GIVEN IN TABLES I (A) AND 1 (B). (APPENDIX II). RANK 1 IS GIVEN TO THE SKINS RECEIVING THE GREATEST NUMBER OF POINTS; THE RANKINGS INCREASE IN NUMBER AS THE POINTS DECREASE. AT LEAST 6 SKINS FROM EACH COMPANY ARE INCLUDED IN THE TABLE FOR REGULAR SKINS (1A). THE AGREEMENT BETWEEN THE TWO PANELS ON THE RANKINGS FOR INDIVIDUAL SKINS IS ONLY FAIR. HOWEVER, THE AGREEMENT IN THE RELATIVE RANKINGS FOR THE INDIVIDUAL COMPANIES IS VERY GOOD. IF THE TOTALS OF THE RANKINGS OF THE TOP 6 SKINS FROM EACH COMPANY ARE TABULATED, THE FOLLOWING DATA IS OBTAINED:

TABLE

REGULAR SKINS

INDUSTRY GOVERNMENT

TOTAL AVERAGE TOTAL AVERAGE

(RANKING) POINTS RANK (RANKING) POINTS RANK FOUKE 37 6.2 21 3.5

SUPARA 48 8 42 7.0

PIERRE LACLEDE 76 12.7 65 10.8

THESE RESULTS SHOW THAT THE ORDER OF PREFERENCE FOR BOTH PANELS WAS FOUKE NO. 1, SUPARA NO. 2 AND PIERRE LACLEDE NO. 3. IT SHOULD BE OBSERVED THAT ALL THE SKINS LISTED UNDER THE RANKINGS OF THE GOVERNMENT PANEL ARE ABOVE THE AVERAGE FOR THE GOVERNMENT STANDARD SKINS.

IN A SIMILAR PROCEDURE RANKINGS WERE MADE FOR THE TOP SHEARED SKINS FROM THE POINT RATINGS OF THE GOVERNMENT AND INDUSTRY PANELS, USING THE TOP TWO SKINS ONLY FROM EACH COMPANY SINCE FOUKE SUBMITTED ONLY TWO SHEARED SKINS. THIS GIVES THE FOLLOWING RESULTS:

TABLE

SHEARED SKINS

INDUSTRY GOVERNMENT

TOTAL AVERAGE TOTAL AVERAGE

(RANKING) POINTS RANK (RANKING) POINTS RANK

SUPARA 2 1 4 2

BASCH 8 4 12 6

PIERRE LACLEDE 26 13 115.5

FOUKE 28 14 4 2

THESE RESULTS SHOW LITTLE CORRELATION BETWEEN THE TWO PANELS WITH THE EXCEPTION OF SUPARA.

BOTH THE STANDARD SKINS AND SAMPLE SKINS WERE ALSO SUBMITTED TO A SERIES OF PHYSICAL AND CHEMICAL TESTS, DESIGNATED AS TEST NO. 2 THROUGH TEST NO. 15, BY THE NATIONAL BUREAU OF STANDARDS. THE BUREAU COMMENTED UPON SUCH TEST RESULTS IN PART 6 OF REPORT NO. 7807 IN THE FOLLOWING ANNER:

6. DISCUSSION

OUTSIDE OF SPECIFIC CRAFTSMANSHIP IN THE DRESSING AND FINISHING OF FURS, IT IS POSSIBLE TO EXPLAIN CERTAIN OF THE RESULTS OF THE DIFFERENCES IN PHYSICAL PROPERTIES, AND SPECULATE ON OTHERS FROM A CONSIDERATION OF RESULTS OF THE CHEMICAL ANALYSIS. THE DIFFERENCES IN PROPERTIES BETWEEN THE FOUKE AND PIERRE LACLEDE PROPOSAL SKINS ON THE ONE HAND, AND THOSE OF SUPARA ON THE OTHER, IS PRIMARILY DUE TO A DIFFERENCE IN THE TANNAGE. THE CHROME TANNAGE USED BY SUPARA WILL RESULT IN A TIGHTER, LESS STRETCHY LEATHER THAN THAT OF THE OIL TANNAGE USED BY FOUKE AND PIERRE LACLEDE. THE LOW TENSILE STRENGTH OF THE SUPARA SKINS MAY ALSO BE CAUSED BY THE CHROME TANNAGE, WHICH SWELLED THE SKINS IN SUCH A WAY THAT ON SPLITTING TO A UNIFORM THICKNESS LESS SUBSTANCE REMAINED. THE FACT THAT LESS SUBSTANCE REMAINED IN THE SUPARA SKINS IS CONFIRMED BY THE LOWER WEIGHT PER SQUARE FOOT. WHETHER OR NOT THESE DIFFERENCE ARE HIGHLY IMPORTANT IN THE UTILIZATION OF THE SKINS IN GARMENT MAKING IS NOT KNOWN. IT IS KNOWN THAT THE CHROME TANNAGE IN LEATHER USED FOR MAKING SHOES IS MUCH SUPERIOR IN SERVICEABILITY THAN THAT OF ANY OTHER TANNAGE.

THE OUTSTANDING DIFFERENCES AMONG THE PROPOSAL SKINS ARE IN THE BEHAVIOR OF THE FUR TOWARD WATER. THE FOUKE AND PIERRE LACLEDE PROPOSAL SKINS ARE MUCH SUPERIOR TO THE SUPARA IN WATER REPELLENCY. AGAIN THERE IS A DIFFERENCE IN THE CHEMICAL ANALYSIS WHICH MIGHT EXPLAIN THIS, NAMELY; THE FACT THAT FUR FROM SUPARA SKINS HAS MUCH LOWER ASH CONTENT AND LOWER PIGMENT (CR2O3 AND FE2O3) CONTENTS. THE RESULTS, HOWEVER, SHOW THAT THE LACK OF WATER RESISTANCE IS NOT ENTIRELY CAUSED BY THE FUR BUT ALSO BY THE LEATHER, AND HERE THE CHROME TANNAGE AGAIN MAY BE CITED. THE ONLY SHEARED SKIN FROM SUPARA THAT IS HIGHLY WATER RESISTANT WAS THE ONE TANNED WITH OIL AND ALUM.

FINALLY, THE ART AND EXPERT CRAFTSMANSHIP IN DRESSING THE FURS ARE UNDOUBTEDLY BROUGHT OUT IN THE SUBJECTIVE INSPECTION. THIS WAS PERFORMED BY A GOVERNMENT PANEL WHICH WAS COMPOSED OF A GROUP OF UNBIASED TECHNICIANS AND SCIENTISTS, AND A GROUP OF EXPERTS FROM THE FUR INDUSTRY. THE RESULT OF THE EVALUATIONS OF BOTH OF THESE GROUPS WAS TO RANK THE PROPOSAL REGULAR SKINS IN THE DECREASING ORDER; FOUKE, SUPARA AND PIERRE LACLEDE. THE PROPOSAL SHEARED SKINS WERE RANKED IN DECREASING ORDER: SUPARA, BASCH, PIERRE LACLEDE AND FOUKE BY THE INDUSTRY PANEL, AND SUPARA AND FOUKE FIRST, FOLLOWED BY PIERRE LACLEDE AND BASCH BY THE GOVERNMENT PANEL.

ON FEBRUARY 7, 1963, NEGOTIATIONS DIRECTED TO THE AWARD OF A DEFINITIVE CONTRACT WERE INITIATED WITH SUPARA, INC. UNDER DATE OF MARCH 1, 1963, YOUR ADMINISTRATIVE ASSISTANT SECRETARY ISSUED A STATEMENT WHICH SUMMARIZED THE SOLICITATION OF PROPOSALS AND THE EVALUATION OF THE SAMPLE SEALSKINS AND CONCLUDED AS FOLLOWS:

IN CONSIDERATION OF THE FOREGOING AND THE INFORMATION INCLUDED IN THE PROPOSALS SUBMITTED BY EACH OF THE FIVE FIRMS FIRST MENTIONED ABOVE, IT HAS BEEN DETERMINED THAT ON THE BASIS OF HAVING FURNISHED IN VARYING DEGREES SATISFACTORY EVIDENCE OF POSSESSING THE NECESSARY TECHNOLOGICAL BACKGROUND AND QUALIFICATIONS TO PROPERLY FULFILL THE GOVERNMENT'S NEEDS AND REQUIREMENTS IN REGARD TO THE PROCESSING AND SALE AT AUCTION OF ALASKA FUR SEALSKINS; HAVING FURNISHED IN VARYING DEGREES SUFFICIENT INFORMATION TO ENSURE THEIR HAVING AVAILABLE AMPLE FACILITIES TO PROCESS THE REQUIRED NUMBER OF SEALSKINS; AND HAVING FURNISHED IN VARYING DEGREES SATISFACTORY PRELIMINARY EVIDENCE OF FINANCIAL RESPONSIBILITY, IT IS HEREBY FURTHER DETERMINED THAT NEGOTIATIONS SHOULD BE ENTERED INTO LOOKING TO THE EXECUTION OF A MUTUALLY SATISFACTORY CONTRACT IN THE FOLLOWING ORDER:

1. SUPARA INC., CHICAGO, ILLINOIS

2. FOUKE FUR CO., GREENVILLE, SOUTH CAROLINA

3. PIERRE LACLEDE FUR CO., ST. LOUIS, MISSOURI

4. C. W. MARTIN AND SONS LIMITED, LONDON, ENGLAND

THE PROPOSAL OF JONAS BROTHERS OF SEATTLE AND ALASKA, SEATTLE, WASHINGTON, WAS DETERMINED NOT TO BE FULLY RESPONSIVE SINCE THEY INDICATED THEY WERE INTERESTED IN PROCESSING FEMALE SKINS ONLY.

THIS DETERMINATION WAS FURTHER EXPLAINED AS FOLLOWS IN YOUR DEPARTMENT'S REPORT OF APRIL 19, 1963, TO THIS OFFICE:

ALTHOUGH IT IS NOT SPECIFIED IN THE MEMORANDUM OF MARCH 1, 1963, THE TECHNICAL FINDING CONCERNING THE QUALITY OF THE SEALSKINS SUBMITTED WAS AS FOLLOWS: SUPARA AND FOUKE WERE APPROXIMATELY EQUAL, PIERRE LACLEDE FUR COMPANY A POOR THIRD, AND C. W. MARTIN AND SONS FOURTH. WITH REGARD TO POTENTIAL MARKETABILITY SUPARA WAS JUDGED TO BE SUPERIOR TO FOUKE. SINCE, AS POINTED OUT IN OUR INTRODUCTION, WE ARE HERE CONCERNED WITH A GOVERNMENT OPERATED BUSINESS, RUN FOR PROFIT TO THE TREASURY, THE QUALITY AND MARKETABILITY OF THE SEALSKINS PROCESSING AND THE PRICE THEY WOULD BRING ON THE OPEN MARKET HAD TO BE THE FIRST AND PRIMARY CONSIDERATION OF THE DEPARTMENT. ANY FAILURE TO ACHIEVE THE BEST POSSIBLE QUALITY AND MARKETABILITY OF PRODUCT WOULD REDUCE THE SELLING PRICE OF SEALSKINS, AND THE RESULTING LOSS TO THE GOVERNMENT WOULD FAR OUTWEIGH ANY SAVING WHICH MIGHT BE MADE BY EMPLOYING A CONTRACTOR WHO CHARGED LESS FOR HIS SERVICE. AS A PRACTICAL MATTER, THE ABOVE DETERMINATION REDUCED THE COMPETITION FOR THIS CONTRACT TO SUPARA AND FOUKE.

THE SECOND CONSIDERATION OF THE DEPARTMENT WAS THE RESPONSIBILITY OF THE PROSPECTIVE CONTRACTOR. RESPONSIBILITY IN THIS CASE MEANS MUCH MORE THAN MERE ADEQUATE FINANCIAL RESOURCES. IT ALSO INVOLVES A RANGE OF CONSIDERATIONS CONCERNING THE BUSINESS STRUCTURE OF THE ORGANIZATION, ITS BUSINESS PRACTICES, ITS ATTITUDE TOWARD THE DUTIES IT ASSUMES, THE ENTHUSIASM FOR PROMOTING AND EXPANDING THIS GOVERNMENT BUSINESS, AND SIMILAR FACTORS. IT WAS BOTH PROPER AND NECESSARY TO MAKE AN EVALUATION OF THIS CONSIDERATION IN ENTERING A NEGOTIATED CONTRACT OF THIS NATURE. (COMP. GEN. DEC. B-147394 (4 SEPT. 1962) UNPUBLISHED)

AS INDICATED BY THE PROTEST MEMORANDUM, THE GOVERNMENT HAS HAD A LENGTHY RELATIONSHIP WITH THE FOUKE FUR COMPANY, AND THE GOVERNMENT COULD IGNORE THIS HISTORY ONLY AT ITS PERIL. AS INDICATED BY THE ATTACHED EXHIBIT B,"STATEMENT OF THE DEPARTMENT OF THE INTERIOR ON THE TERMINATION OF THE CONTRACT WITH THE FOUKE FUR COMPANY," IT WAS BECAUSE OF FACTORS RELATED TO RESPONSIBILITY THAT THE FORMER CONTRACT WAS TERMINATED. ALTHOUGH NO DETERMINATION WAS MADE THAT FOUKE WAS NOT SUFFICIENTLY RESPONSIBLE TO HOLD A NEGOTIATED GOVERNMENT CONTRACT, THIS DEPARTMENT WAS JUSTIFIED IN FEELING REAL DOUBT IN THIS REGARD. RESPONSIBILITY IS NOT A MATTER OF BLACK AND WHITE, BUT OF DEGREE.

ON THE OTHER HAND, IT WAS DETERMINED, ON THE BASIS OF AVAILABLE EVIDENCE, THAT SUPARA WAS AND WOULD BE, IN EVERY RESPECT, A RESPONSIBLE CONTRACTOR. ON THE QUESTION OF RESPONSIBILITY, THEN SUPARA WAS JUDGED SUBSTANTIALLY AHEAD OF FOUKE.

THE FACTORS RELATING TO RESPONSIBILITY ARE SUMMARIZED IN "EXHIBIT B," REFERRED TO ABOVE, AS FOLLOWS:

IN SUMMARY, THE ACTION OF THE GOVERNMENT TO TERMINATE THE CONTRACT WAS NECESSITATED BY NONCOMPLIANCE BY THE COMPANY WITH THE FACTORS WHICH MUST BE PRESENT IN NEGOTIATED FEDERAL CONTRACTS. THIS NONCOMPLIANCE INCLUDES:

1. THE INCOME RECEIVED BY THE COMPANY IS EXCESSIVE AS FOUND BY A REPUTABLE BANKER IN 1953 AND AS INDICATED BY THE COMPTROLLER GENERAL IN A RECENT EXAMINATION OF THE COMPANY'S OPERATIONS UNDER THE CONTRACT.

2. FAILURE ON THE PART OF THE COMPANY TO DEMONSTRATE ACCEPTABLE PROGRESS IN PROCESSING AND MARKETING FEMALE SEALSKINS.

3. VIEWS OF THE COMPANY REGARDING THE NUMBER OF SEALSKINS HARVESTED.

4. PROPOSALS OF THE COMPANY TO CONCEAL FROM THE PUBLIC PERTINENT DATA REGARDING SALE OF FEMALE SEALSKINS.

5. ACTION OF THE COMPANY IN LOCATING THE FEMALE PROCESSING OPERATIONS AT A SITE FOR WHICH APPROVAL WAS NOT GIVEN.

6. DECISION OF THE COMPANY TO RELOCATE ITS COMPLETE OPERATIONS WITHOUT DISCUSSION WITH THE DEPARTMENT AND WITHOUT REGARD TO THE PUBLIC INTEREST INVOLVED.

WHILE IT IS ASSUMED THAT NEGOTIATIONS DIRECTED TO THE AWARD OF A CONTRACT WERE CONDUCTED BY YOUR DEPARTMENT DURING THE PERIOD FEBRUARY 7 THROUGH MARCH 4, 1963, THE REPORT DATED AUGUST 19 FROM YOUR ADMINISTRATIVE ASSISTANT SECRETARY ADVISES THAT HE IS UNABLE TO SUPPLY MINUTES OF THE NEGOTIATIONS SINCE NO FORMAL RECORDS OF THE PROCEEDINGS WERE MAINTAINED.

UNDER DATE OF MARCH 5, 1963, YOUR OFFICE ISSUED A NEWS RELEASE ADVISING THAT A CONTRACT WAS AWARDED TO SUPARA,"A JOINT VENTURE PARTNERSHIP COMPOSED OF THE PRITZKER INTERESTS, CHICAGO, ILLINOIS, (EXPERIENCED IN THE OWNERSHIP AND MANAGEMENT OF A WIDE VARIETY OF BUSINESSES), NATIONAL SUPERIOR FUR DRESSING AND DYEING COMPANY, CHICAGO, ILLINOIS (ENGAGED IN FUR DRESSING AND PROCESSING SINCE 1912), AND THE SUPERIOR FUR DYEING COMPANY, NEW YORK, NEW YORK (FOUNDED IN 1915 AND NOTED FOR FUR DYEING).'

AT 10:00 A.M. ON MARCH 14, 1963, THE INCORPORATORS AND SUBSCRIBERS TO THE SHARES OF SUPARA, C., ADOPTED THE FOLLOWING RESOLUTION:

RESOLVED, THAT ALL OF THE ASSETS OF EVERY KIND, NATURE AND DESCRIPTION BELONGING TO THIS CORPORATION BE TRANSFERRED TO ITS SUCCESSOR IN INTEREST, SUPARA, A JOINT VENTURE CREATED BY AGREEMENT DATED MARCH 14, 1963, BETWEEN HERBERT SCHOENBROD AT TRUSTEE OF F.L.P. TRUST NO. 1 THROUGH NO. 23, AND NORTON SHAPIRO.

RESOLVED, THAT MAX H. WEINBERG BE AND IS HEREBY AUTHORIZED TO EXECUTE SUCH FURTHER DOCUMENTS AS MAY BE NECESSARY TO CARRY OUT THE PURPOSES OF THE FOREGOING RESOLUTION.

THE CONTRACT IN QUESTION IS DATED MARCH 14, 1963, AND WAS EXECUTED FOR SUPARA, A JOINT VENTURE, BY HERBERT SCHOENBROD, AS TRUSTEE OF FANNIE L. PRITZKER TRUSTS NO. 1 TO 23, JOINT-VENTURER, AND BY NORTON SHAPIRO, JOINT- VENTURER. THE JOINT-VENTURE AGREEMENT BETWEEN THESE VENTURERS IS ALSO DATED MARCH 14, 1963. THE FACT THAT YOUR DEPARTMENT ANNOUNCED THE AWARD OF THE CONTRACT ON MARCH 5, 1963, TO A JOINT VENTURE WHICH DOES NOT APPEAR TO HAVE COME INTO EXISTENCE UNTIL MARCH 14, 1963, IS NOT EXPLAINED BY THE RECORD BEFORE THIS OFFICE.

THE PROTEST BY FOUKE FUR COMPANY AGAINST THE AWARD OF THIS CONTRACT IS BASED PRIMARILY UPON THE FOLLOWING CONTENTIONS:

1. THE DETERMINATION BY YOUR DEPARTMENT THAT SUPARA'S SAMPLE SKINS HAD SUPERIOR POTENTIAL MARKETABILITY IS ARBITRARY, WITHOUT FOUNDATION IN FACT, AND IS NOT SUPPORTED BY THE FINDINGS OF THE EVALUATION PANELS AND THE NATIONAL BUREAU OF STANDARDS REPORT.

2. THE DETERMINATION BY YOUR DEPARTMENT THAT SUPARA WAS SUBSTANTIALLY AHEAD OF FOUKE ON THE QUESTION OF RESPONSIBILITY IS ARBITRARY, CAPRICIOUS, AND SO WITHOUT FOUNDATION AS TO SUGGEST BAD FAITH.

3. THAT, IN THE ABSENCE OF A DETERMINATION BY YOUR DEPARTMENT THAT FOUKE EITHER WAS NOT A RESPONSIBLE BIDDER OR THAT ITS TECHNICAL PROPOSAL WAS UNACCEPTABLE, YOUR DEPARTMENT WAS REQUIRED BY THE PROVISIONS OF THE INVITATION AND APPLICABLE PROCUREMENT REGULATIONS TO REQUEST A FIRM PROPOSAL, INCLUDING PRICE, FROM FOUKE AND TO CONSIDER SUCH PROPOSAL, INCLUDING PRICE, ON A COMPETITIVE BASIS WITH SIMILAR PROPOSALS SUBMITTED BY OTHER OFFERORS PRIOR TO AWARDING A CONTRACT.

WE SHALL CONSIDER THESE CONTENTIONS IN THAT ORDER.

WITH RESPECT TO THE COMPARATIVE QUALITY AND POTENTIAL MARKETABILITY OF THE FOUKE AND SUPARA SAMPLE SKINS, THE COMPOSITE RATINGS AND COMPARATIVE RANKINGS OF THE GOVERNMENT AND INDUSTRY EVALUATION PANELS ARE SET OUT ABOVE. THEY SHOW THAT BOTH THE GOVERNMENT AND INDUSTRY EVALUATION PANELS RANKED THE FOUKE "REGULAR" SKINS FIRST AND SUPARA'S SECOND. ON SHEARED SKINS, THE INDUSTRY PANEL RANKED SUPARA'S FIRST AND FOUKE'S FOURTH, WHILE THE GOVERNMENT PANEL RANKED FOUKE'S SHEARED SKINS AND SUPARA'S AS FIRST AND EQUAL. WHILE "MARKETABILITY" WAS NOT INCLUDED AS A SEPARATE FACTOR WHICH THESE PANELS WERE REQUIRED TO EVALUATE, IT WOULD APPEAR THAT THOSE FACTORS WHICH WERE INCLUDED SHOULD HAVE A DIRECT RELATIONSHIP TO MARKETABILITY.

IN REPLY TO OUR REQUEST OF MAY 9, 1963, FOR COPIES OF COMPOSITE RATINGS OF THE EVALUATION PANELS AND FOR "AN EXPLANATION OF THE BASIS FOR YOUR DETERMINATIONS ON COMPARATIVE QUALITY AND POTENTIAL MARKETABILITY" OF THE FOUKE AND SUPARA SAMPLE SKINS, ON AUGUST 19, 1963, YOUR ADMINISTRATIVE ASSISTANT SECRETARY ADVISED AS FOLLOWS: THE ENCLOSED INDIVIDUAL RATING SHEETS AND BUREAU OF STANDARD REPORTS SHOULD BE SELF-EXPLANATORY AS A BASIS FOR OUR DETERMINATION OF THE COMPARATIVE PHYSICAL AND TECHNICAL QUALITY OF THE SAMPLE SKINS. POTENTIAL MARKETABILITY IS A FAR MORE SUBJECTIVE QUESTION AND ONE WHICH REQUIRED THE APPLICATION OF OUR BEST ADMINISTRATIVE JUDGMENT, WHICH HERE IS IDENTICAL WITH BUSINESS JUDGMENT. IT INVOLVES A JUDGMENT OF THE RELATIVE IMPORTANCE OF THE VARIED FACTS REVEALED BY THE PANEL RATINGS AND THE BUREAU OF STANDARDS TESTS. THE MOST SIGNIFICANT DIFFERENCES BETWEEN FOUKE'S AND SUPARA'S SAMPLE SEALSKINS APPEARED TO BE THE GREATER WATER ABSORPTION OF THE SUPARA SKINS AND THE GREATER WEIGHT OF THE FOUKE SKINS. BOTH WERE UNDESIRABLE FEATURES IN A LUXURY FUR. THE DECISION RESTED ON OUR ADMINISTRATIVE JUDGMENT THAT WOMEN SELDOM STAND OUT IN THE RAIN IN THREE THOUSAND DOLLAR FUR COATS, BUT THAT THE LIGHTER WEIGHT OF THAT COAT WOULD BE A SIGNIFICANT FACTOR IN HER DECISION TO ASK HER HUSBAND TO PURCHASE IT. THIS VIEW WAS SUPPORTED BY THE OPINIONS OF FUR COAT MANUFACTURERS WHO WERE INTERVIEWED ON THE QUESTION OF WATER ABSORPTION BY REPRESENTATIVES OF THIS DEPARTMENT. WITH WATER ABSORPTION A MINOR FACTOR AND WEIGHT A MAJOR ONE, THE GREATER POTENTIAL MARKETABILITY OF SUPARA PROCESSED SEAL SKINS OVER FOUKE PROCESSED SEAL SKINS WAS MANIFEST.

AS SET OUT ABOVE, THE COMPOSITE RATINGS FOR THE FOUKE AND SUPARA SAMPLE SKINS, AS COMPILED FROM THE INDIVIDUAL RATING SHEETS OF THE PANEL MEMBERS, WOULD SUPPORT A CONCLUSION THAT THE FOUKE SAMPLES WERE, OVERALL, SUPERIOR TO THE SUPARA SAMPLES. THE COMPOSITE RATINGS STANDING ALONE, DO NOT SUPPORT THE OPPOSITE CONCLUSION.

NEITHER DO WE FIND THE RESULTS OF THE PHYSICAL AND CHEMICAL TESTS CONDUCTED BY THE BUREAU OF STANDARDS TO BE SELF-EXPLANATORY OF YOUR DETERMINATION THAT THE QUALITY OF SUPARA'S SKINS WAS PHYSICALLY AND TECHNICALLY EQUAL TO THOSE SUBMITTED BY FOUKE. IN THIS CONNECTION, IT SHOULD BE NOTED THAT OUR ANALYSIS OF THE BUREAU OF STANDARDS TEST RESULTS ON WEIGHT OF THE SAMPLE SEALSKINS INDICATES THAT USE OF SKINS PROCESSED BY SUPARA MIGHT BE EXPECTED TO RESULT IN A COAT WEIGHING ABOUT EIGHT OUNCES LESS THAN ONE FABRICATED FROM FOUKE PROCESSED SKINS. ON THE OTHER HAND, VARIOUS ELEMENTS OTHER THAN WEIGHT AND WATER ABSORPTION ARE SET OUT IN THE BUREAU OF STANDARDS REPORT AND INDICATE QUALITIES OF DOUBTFUL DESIRABILITY IN THE SUPARA SKINS (SEE, E.G., TEST NO. 5 WHICH INDICATES BREAKING STRENGTHS OF THE SUPARA SKINS "ARE VERY SIGNIFICANTLY LOWER THAN THOSE OF THE STANDARDS AND ARE APPROACHING WHAT IS KNOWN IN THE LEATHER INDUSTRY AS THE CRITICAL POINT BETWEEN SERVICEABLE AND UNSERVICEABLE LEATHER; " TEST NO. 7,"THE FOUKE SKINS MORE NEARLY APPROACH THE RESULTS OF THE STANDARD SKINS WHERE IN MOST CASES THE ORIGINAL APPEARANCE WAS RESTORED AFTER TREATING WITH THE SOLVENT. NONE OF THE SUPARA OR PIERRE LACLEDE SKINS WAS RESTORED TO THE ORIGINAL APPEARANCE AFTER TESTING, DRYING, AND RUBBING; " TEST NO. 11--- "CHANGES IN LENGTH UNDER TENSION AND UNDER RELEASE OF TENSION ARE LOWEST FOR THE SUPARA SKINS, * * *. THE PROPERTY OF STRETCH UNDER TENSION IS, OF COURSE, OF IMPORTANCE IN THE MANUFACTURE OF GARMENTS. SKINS WHICH RETAIN CONSIDERABLE STRETCH AND RECOVERABILITY, ARE THE MOST ADAPTABLE FOR THESE PURPOSES.''.

WHILE THIS OFFICE IS NOT IN A POSITION TO PASS UPON THE RELATIVE WEIGHTS WHICH WERE TO BE GIVEN THESE FACTORS IN YOUR EVALUATION OF THE COMPARATIVE MERITS OF THE FOUKE AND SUPARA SAMPLE SKINS, THERE WOULD APPEAR TO BE NO DOUBT THE CHARACTERISTICS DETERMINED BY THE BUREAU IN TESTS 5, 7 AND 11 ARE DIRECTLY RELATED TO THE QUALITY AND POTENTIAL MARKETABILITY OF THE SAMPLE SKINS, AND THAT THE FOUKE SAMPLES WERE SUPERIOR TO THE SUPARA SAMPLES IN THESE AND OTHER TESTED CHARACTERISTICS.

OTHER THAN THE PANEL EVALUATION AND THE BUREAU OF STANDARDS' REPORT, IT IS OUR OPINION THAT A PROPER DETERMINATION OF THE COMPARATIVE QUALITY AND POTENTIAL MARKETABILITY OF THE SAMPLE SKINS SHOULD NECESSARILY, AND AS A MINIMUM, HAVE INCLUDED CONSIDERATION OF THE FOLLOWING ADDITIONAL MATTERS:

FIRST, THAT THE QUALITY AND MARKETABILITY OF FOUKE PROCESSED FURS HAS BEEN ESTABLISHED, AND IS REFLECTED, BY THE SALE PRICES OF PROCESSED FURS AND MANUFACTURED GARMENTS OVER A PERIOD OF MORE THAN 40 YEARS DURING WHICH FOUKE HAS HELD THE CONTRACT FOR PROCESSING AND SALE OF SEALSKINS.

SECOND, THAT A SUPARA PROCESSED SEALSKIN HAD NEVER BEEN SOLD ON THE MARKET AND THAT A GARMENT HAD NEVER BEEN MANUFACTURED FROM SUPARA PROCESSED SKINS OR SUBJECTED TO ACTUAL WEAR.

IN WEIGHING THE ABOVE EVIDENCE WE ARE PERSUADED BY, AND BELIEVE IT PROPER TO REFER TO, THE FOLLOWING ADVICE IN THE REPORT DATED AUGUST 19, 1963, FROM YOUR ADMINISTRATIVE ASSISTANT ECRETARY:

THIS CONCLUSION, THAT "ANY FAILURE TO ACHIEVE THE BEST POSSIBLE QUALITY AND MARKETABILITY OF PRODUCT WOULD REDUCE THE SELLING PRICE OF SEALSKINS, AND THE RESULTING LOSS TO THE GOVERNMENT WOULD FAR OUTWEIGH ANY SAVING WHICH MIGHT BE MADE BY EMPLOYING A CONTRACTOR WHO CHARGED LESS FOR HIS SERVICES," WAS BASED ON HYPOTHETICAL RATHER THAN ACTUAL FIGURES, SINCE WE WERE OBLIGED TO BASE SUCH JUDGMENTS ON OUR EXPERIENCES UNDER THE FOUKE CONTRACT. WE HAVE OFTEN OBSERVED THAT DIFFERENCES IN SKINS OF SIMILAR SIZE, GRADE, AND COLOR, WHICH ARE IMPERCEPTIBLE TO THE LAYMAN, RESULT IN SELLING PRICE DIFFERENCES OF UP TO 26 PERCENT PER LOT. WHILE ONE CANNOT DISTINGUISH ACCURATELY WHAT PART OF THIS DIFFERENCE REPRESENTS INNATE INEQUALITY OF THE SKINS AND WHAT PART IS ATTRIBUTABLE TO DIFFERENCES IN QUALITY OF PROCESSING, WE BELIEVE THE LATTER IS THE PRIMARY FACTOR SINCE THESE LOTS ARE ALREADY SORTED AS TO THE GRADE OF THE SKINS.

SINCE THESE GREAT VARIATIONS OF PRICE (26 PERCENT) ARE FOUND AMONG SEALSKINS WHICH RECEIVED THE UNIFORM FOUKE PROCESS, THE DROP IN PRICES TO BE ANTICIPATED IF AN INFERIOR PROCESS WERE USED CAN WELL BE IMAGINED. THE DELICATELY BALANCED FUR MARKET, AN ALMOST IMPERCEPTIBLE DECLINE IN QUALITY COULD HALF (SIC) THE AVERAGE SELLING PRICE FOR SEALSKINS.

IT IS OUR OPINION THAT, WHILE THE FOREGOING EVIDENCE WOULD CLEARLY HAVE SUBSTANTIATED A CONCLUSION THAT THE FOUKE PROCESSED SAMPLE SKINS WERE SUPERIOR IN QUALITY AND POTENTIAL MARKETABILITY, IT DOES NOT SUBSTANTIATE A SIMILAR CONCLUSION FOR THE SUPARA PROCESSED SKINS.

WITH RESPECT TO YOUR DEPARTMENT'S DETERMINATION THAT SUPARA WAS SUBSTANTIALLY AHEAD OF FOUKE ON THE QUESTION OF RESPONSIBILITY, UNDER DATE OF MAY 9, 1963, THIS OFFICE ADDRESSED THE FOLLOWING REQUEST TO YOUR DEPARTMENT:

PG. 8, LINES 1 THROUGH 5--- PLEASE FURNISH COPIES OF ANY DOCUMENTS EVIDENCING THE DETERMINATION THAT SUPARA WAS SUBSTANTIALLY AHEAD OF FOUKE ON THE QUESTION OF RESPONSIBILITY, TOGETHER WITH A LISTING OF THE VARIOUS FACTORS CONSIDERED IN DETERMINING "DEGREE OF RESPONSIBILITY" AND THE COMPARATIVE EVALUATION OF FOUKE AND SUPARA ON EACH FACTOR.

UNDER DATE OF AUGUST 19, 1963, YOUR ADMINISTRATIVE ASSISTANT SECRETARY REPLIED AS FOLLOWS:

MANY OF THE FACTORS BEARING ON THE QUESTION OF RELATIVE RESPONSIBILITY ARE SUBJECTIVE AND INTANGIBLE. THIS DEPARTMENT NEVER ATTEMPTED TO MAKE A FORMAL LISTING OF SUCH FACTORS OR TO ASSIGN RATINGS OF THEM BY ANY POINT SYSTEM OR OTHERWISE. TO DO SO WOULD HAVE BEEN A TRAVESTY ON THE REASONABLE APPLICATION OF HUMAN JUDGMENT. RATHER THE JUDGMENT WAS MADE, AND IS STILL STRONGLY HELD, PRIMARILY ON THE BASIS OF A LONG ACCUMULATION OF IMPRESSIONS AND OBSERVATIONS OF THE PERSONNEL INVOLVED, THEIR ATTITUDES, AND THE MANNER IN WHICH THEY CONDUCT THEIR BUSINESS. IN MANY CASES THIS SIMPLY REPRESENTED OUR LONG HISTORY OF DISSATISFACTION WITH FOUKE AND OUR FIRM BELIEF THAT SUPARA WOULD NOT EMULATE THE ACTS AND ATTITUDES WHICH BROUGHT ABOUT THAT DISSATISFACTION.

NEVERTHELESS, WE SHALL ATTEMPT TO ANSWER THIS QUESTION IN ORDERLY FORM. THE MAJOR FACTORS WHICH IMPRESSED THIS DEPARTMENT WERE AS FOLLOWS:

(A) FINANCIAL RESOURCES--- ALTHOUGH WE HAVE NEVER BEEN OVERLY CONCERNED WITH FOUKE'S ABILITY TO MEET ITS FINANCIAL OBLIGATIONS OR TO FINANCE ALL OF THE ACTIVITY IN WHICH IT WAS REQUIRED TO ENGAGE UNDER THE CONTRACT, WE HAD FOUND NO REASON TO ADMIRE SOME OF FOUKE'S FINANCIAL TACTICS. THE GOVERNMENT'S SHARE OF THE RECEIPTS FROM THE SALE OF SEALSKINS HAS BEEN RETAINED BY FOUKE FOR PERIODS AS LONG AS THREE MONTHS AFTER EACH SALE. THUS, FOUKE HAS HAD THE FINANCIAL USE OF APPROXIMATELY $2 MILLION TWICE A YEAR FOR NEARLY THREE MONTHS AT THE EXPENSE OF THE GOVERNMENT. THIS CONDITION WILL NOT OCCUR UNDER THE SUPARA CONTRACT BECAUSE MONIES DUE THE GOVERNMENT MUST BE REMITTED NOT LATER THAN 30 CALENDAR DAYS AFTER EACH AUCTION.

(B) BUSINESS PRACTICES--- THIS DEPARTMENT HAS HAD A LONG AND UNSATISFACTORY EXPERIENCE WITH THE FOUKE BUSINESS METHODS. OUR COMPLAINTS WERE OUTLINED IN EXHIBIT "B" WITH OUR APRIL 19, 1963, REPLY. WE WOULD PREFER NOT TO BELABOR THIS POINT, BUT IT IS BASIC TO OUR DETERMINATION THAT OVER THE YEARS THE FOUKE FUR COMPANY BECAME LAX IN THE DEGREE OF RESPONSIBILITY WHICH SHOULD BE FOUND IN A COMPANY HOLDING A NEGOTIATED GOVERNMENT CONTRACT.

(C) ATTITUDE TOWARD ITS DUTIES--- AMONG THE PRIME RESPONSIBILITIES OF ANY COMPANY HOLDING THIS CONTRACT IS THE FURTHER DEVELOPMENT OF THE SEALSKIN MARKET. FOUKE HAS ALWAYS MAINTAINED AN EXTREMELY CONSERVATIVE ATTITUDE IN THIS REGARD, RESISTING ALMOST ANY INNOVATION WHICH MIGHT CHANGE THE CHARACTER OF ITS MARKET. ITS RESISTANCE TO THE INTRODUCTION OF FEMALE SKINS IS A WELL DOCUMENTED CASE IN POINT.

(D) ATTITUDE TOWARD PEOPLE AND LABOR--- THIS FACTOR BECAME A MAJOR ELEMENT IN THIS DEPARTMENT'S DOUBTS CONCERNING FOUKE'S RESPONSIBILITY. THREE EXAMPLES WILL SUFFICE; FOUKE PLAYED A SIGNIFICANT ROLE IN THE OPERATIONS IN THE PRIBILOFF ISLANDS. THE INHABITANTS OF THESE ISLAND, AND CHIEF EMPLOYEES OF THE PROGRAM, ARE ALEUTS, WHO ARE CITIZENS OF ALASKA AND THE UNITED STATES. YET THE ATTITUDE OF THE COMPANY'S REPRESENTATIVES TOWARD THEM, WAS, AT ITS BEST, PATERNALISTIC, AND AT ITS WORST, OPPRESSIVE. FOR EXAMPLE, FOUKE BROUGHT, EACH SUMMER, ABOUT 30 COLLEGE STUDENTS FROM THE ST. LOUIS AREA TO WORK ON THE ISLANDS. THESE STUDENTS, WHO LIVED IN A BUNKHOUSE SEPARATE FROM OTHER TEMPORARY WORKERS, WHO WERE ALEUTS, WERE FORBIDDEN BY THE COMPANY TO FRATERNIZE OR MIX SOCIALLY WITH ALEUTS. WHILE THIS DEPARTMENT HAS BEEN IN THE PAST A PARTY TO THIS WRONG, DURING THE PAST THREE OR FOUR YEARS RAPID ADVANCE TOWARD EQUAL TREATMENT AND OPPORTUNITY FOR ALEUTS HAS BEEN MADE, AND THROUGH GOVERNMENT EFFORTS THEY ARE ON THE THRESHOLD OF FIRST CLASS CITIZENSHIP. THE FOUKE RESISTANCE TO THESE DEVELOPMENTS IS A FACT WHICH CASTS DOUBTS ON THE RESPONSIBILITY OF THEIR ATTITUDE TOWARD PEOPLE.

THE STORY OF HOW FOUKE TREATED ITS WORKERS IN ST. LOUIS WHEN IT MOVED TO GREENVILLE IS WELL KNOWN. WE NOTE ALSO THAT THE UNION WHICH REPRESENTED FOUKE EMPLOYEES AT ST. LOUIS FILED CHARGES AGAINST THE COMPANY BEFORE THE NATIONAL LABOR RELATIONS BOARD, AND THAT THE COMPANY SETTLED WITH THE UNION FOR A SUBSTANTIAL SUM. BY CONTRAST, WE NOTE WITH SATISFACTION THAT SUPARA HAS CONCLUDED AN AGREEMENT WITH THIS SAME UNION AND WILL, WE UNDERSTAND, EMPLOY FORMER FOUKE EMPLOYEES ON SUBSTANTIALLY THE SAME TERMS AND CONDITIONS AS THEY FORMERLY ENJOYED AS FOUKE EMPLOYEES. THIS, IN OUR OPINION, IS MORE THAN RESPONSIBILITY, IT IS BUSINESS STATEMANSHIP.

FINALLY, IN THIS REGARD, WE CANNOT OVERLOOK THE FOUKE ATTITUDE TOWARD THEIR EQUAL EMPLOYMENT RESPONSIBILITIES. OBSERVATIONS OF THE FOUKE PLANT FROM TIME TO TIME BY DEPARTMENT REPRESENTATIVES HAVE REVEALED LITTLE PROGRESS IN AN AFFIRMATIVE ATTITUDE TOWARD NEGRO EMPLOYMENT. PARTICULARLY STRIKING HAS BEEN THE OBSERVATION, AT THE TWO AUCTIONS HELD IN GREENVILLE, THAT AMONG THE MANY TEMPORARY, UNSKILLED WORKERS HIRED TO WORK AT THE SHOW ROOM, THE ONLY NEGRO IN EVIDENCE WAS THE ONE WHO CHECKED OUR HATS.

THESE, IN GENERAL, ARE SOME OF THE CONSIDERATIONS WHICH LED TO THE DETERMINATION THAT FOUKE WAS LACKING IN THAT DEGREE OF RESPONSIBILITY WHICH IS TO BE DESIRED IN A COMPANY HOLDING A NEGOTIATED GOVERNMENT CONTRACT.

OTHER THAN THE REFERENCE TO A UNION AGREEMENT CONCLUDED BY SUPARA, THE FOREGOING CONTAINS NO INFORMATION RELATIVE TO EITHER AFFIRMATIVE OR NEGATIVE FACTORS WHICH WERE CONSIDERED IN DETERMINING THE DEGREE OF SUPARA'S RESPONSIBILITY. HOWEVER, YOUR DEPARTMENT'S REPORT OF AUGUST 19 ADVISES AT PAGE 2 THAT "THE INITIAL PROPOSAL FROM SUPARA CONTAINED ALL THE BASIC DATA RELATIVE TO THE QUALIFICATIONS AND TECHNICAL KNOWLEDGE OF THE COMPANY.' OUR EXAMINATION OF THIS PROPOSAL INDICATES THE FOLLOWING MATTERS, AMONG OTHERS, WHICH IT IS OUR OPINION SHOULD NECESSARILY HAVE BEEN CONSIDERED UNDER THE PROVISIONS OF THE INVITATION AND APPLICABLE REGULATIONS IN DETERMINING THE DEGREE OF SUPARA'S RESPONSIBILITY.

1. SUPARA, INCORPORATED, WAS INCORPORATED WITH AN INITIAL CAPITALIZATION OF $2,000,000 FOR THE PURPOSE OF SUBMITTING A PROPOSAL UNDER THE INVITATION.

2. THE CORPORATION, BOTH AT THE TIME ITS PROPOSAL WAS SUBMITTED AND THE DATE OF CONTRACT AWARD, HAD NO FACILITIES OR EMPLOYEES FOR THE PROCESSING OF SEALSKINS.

3. THE SAMPLE SEALSKINS SUBMITTED WITH THE CORPORATION'S PROPOSAL APPEAR TO HAVE BEEN COMPLETELY PROCESSED BY FIRMS, AND EMPLOYEES OF FIRMS, OTHER THAN SUPARA, INC.

4. THE CORPORATION PROPOSED TO HAVE OTHER FIRMS CONTINUE PROCESSING SEALSKINS IN THE EVENT OF ITS INABILITY TO OBTAIN ADEQUATE FACILITIES AND EMPLOYEES PRIOR TO THE DATE ON WHICH WORK SHOULD COMMENCE UNDER THE CONTRACT. 5. THE CORPORATION, AS SUCH, HAD NO RECORD OF PAST PERFORMANCE, INTEGRITY, JUDGMENT, OR ABILITY ON WHICH TO BASE A COMPARATIVE EVALUATION OF THE DEGREE OF ITS RESPONSIBILITY.

6. THAT, WHILE THE CORPORATION'S PROPOSAL FORM STATED IT WAS NOT OWNED OR CONTROLLED BY A PARENT COMPANY, ITS WRITTEN PROPOSAL STATED THAT THE CORPORATION "BRINGS INTO COMBINATION THE TALENTS AND EXPERIENCE OF THE NATIONAL SUPERIOR FUR DRESSING AND DYEING COMPANY OF CHICAGO, SUPERIOR FUR DYEING COMPANY OF NEW YORK, AND PRITZKER AND PRITZKER, INDUSTRIALISTS, OF CHICAGO," AND SPECIFIED THAT IT WOULD DRAW UPON THESE "PARENT COMPANIES" FOR PLANT CAPACITY AND PERSONNEL IF NECESSARY. THAT ALL OF THESE MATTERS WERE NOT ADEQUATELY CONSIDERED BY YOUR DEPARTMENT, PRIOR TO PASSING UPON THE DEGREE OF SUPARA'S RESPONSIBILITY IS MOST APTLY ILLUSTRATED BY THE FACT THAT BY LETTER DATED AUGUST 19, 1963, YOUR ADMINISTRATIVE ASSISTANT SECRETARY ATTEMPTED TO CONVINCE THE EHRHARDT TOOL AND MACHINE COMPANY IT SHOULD BUILD, FOR SUPARA, DEHAIRING MACHINES WHICH THE ADMINISTRATIVE ASSISTANT SECRETARY TERMED "ESSENTIAL FOR THE PROCESSING OF THE SEALSKINS," AND WHICH EHRHARDT CONSIDERED PROPRIETARY TO FOUKE AND HAD PREVIOUSLY REFUSED TO BUILD FOR SUPARA FOR THAT REASON. WITHOUT REFERENCE TO THE PROPRIETY, OR IMPROPRIETY, OF THE ADMINISTRATIVE ASSISTANT SECRETARY'S LETTER OF AUGUST 19, 1963, IT IS APPARENT THAT SUPARA HAD NOT DEMONSTRATED, AS OF THE DATE OF CONTRACT AWARD OR AS OF AUGUST 19, 1963, THAT IT HAD EITHER FACILITIES OR THE ABILITY TO OBTAIN COMMITMENTS FOR THE FACILITIES DEEMED NECESSARY TO PERFORM THE PROCESSING OF SEALSKINS. SEE FPR 1-1.310-5 (A) (3) AND 1-1.310-5 (B).

WITHOUT GOING INTO A DETAILED ANALYSIS OF THE MERITS OF THE FACTORS CONSIDERED BY YOUR DEPARTMENT IN DETERMINING THE DEGREE OF FOUKE'S RESPONSIBILITY, IT WOULD APPEAR TO BE SUFFICIENT TO POINT OUT THAT THE RESPONSIBILITIES OF A GOVERNMENT CONTRACTOR, AND THE RIGHTS OF THE GOVERNMENT, SHOULD PROPERLY BE DEFINED IN THE CONTRACT. WHERE, AS APPEARS TO HAVE BEEN THE CASE UNDER THE FOUKE CONTRACT, IT WAS YOUR DEPARTMENT'S BELIEF THAT ADDITIONAL RESPONSIBILITIES OR RESTRICTIONS SHOULD HAVE BEEN ASSUMED BY, OR IMPOSED UPON, THE CONTRACTOR, SUCH RESULTS COULD, AND PROPERLY SHOULD, HAVE BEEN ACCOMPLISHED BY APPROPRIATE AMENDMENTS TO FOUKE'S CONTRACT.

BE THAT AS IT MAY, THE EVIDENCE BEFORE THIS OFFICE CLEARLY INDICATES THAT YOUR DEPARTMENT'S DETERMINATION OF COMPARATIVE RESPONSIBILITY WAS BASED UPON A RECORD, EXTENDING A NUMBER OF YEARS INTO THE PAST, OF ATTITUDES, ACTIONS, OF INACTIONS ON THE PART OF FOUKE WHICH WERE CONSIDERED UNDESIRABLE BY YOUR DEPARTMENT, BUT WHICH WERE NOT NECESSARILY VIOLATIONS OF FOUKE'S OBLIGATIONS UNDER THE TERMS OF ITS CONTRACT. WHILE IT MAY WELL BE CONSIDERED DESIRABLE BY CONTRACTING AGENCIES TO CONTRACT WITH FIRMS WHICH WILL ASSUME RESPONSIBILITIES AND OBLIGATIONS OUTSIDE OF THE SCOPE OF THEIR CONTRACTS, IT IS OUR OPINION THAT A CONTRACTOR'S FAILURE TO DO SO IS NOT A PROPER FACTOR FOR CONSIDERATION IN DETERMINING EITHER HIS RESPONSIBILITY OR, IN A PROPER CASE, HIS COMPARATIVE DEGREE OF RESPONSIBILITY. THIS IS ESPECIALLY TRUE WHERE, AS IN THE INSTANT CASE, ONE PROSPECTIVE CONTRACTOR HAS A LONG RECORD OF PERFORMANCE UNDER GOVERNMENT CONTRACTS, WHILE THE OTHER HAS NO RECORD OF SUCH PERFORMANCE. OBVIOUSLY, A PROSPECTIVE CONTRACTOR WITH AN EXCELLENT, BUT LESS THAN PERFECT, RECORD OF PAST PERFORMANCE MUST RATE LOWER THAN A PROSPECTIVE CONTRACTOR WITH NO RECORD OF PAST PERFORMANCE, IF ONLY NEGATIVE FACTORS ARE CONSIDERED. IN VIEW THEREOF, AND WITHOUT REFERENCE TO WHETHER A DETERMINATION OF COMPARATIVE RESPONSIBILITY WAS PROPER IN THIS PROCUREMENT, IT IS OUR OPINION THAT CONSIDERATION BY YOUR DEPARTMENT OF VARIOUS OF THE NEGATIVE FACTORS SET OUR ABOVE IN CONCLUDING THAT SUPARA WAS SUBSTANTIALLY AHEAD OF FOUKE ON THE QUESTION OF RESPONSIBILITY WAS IMPROPER.

WE COME THEN TO THE QUESTION WHETHER YOUR DEPARTMENT WAS ACTING WITHIN THE SCOPE OF ITS AUTHORITY, AS DEFINED BY APPLICABLE PROCUREMENT LAW AND REGULATIONS, IN ESTABLISHING AN ORDER OF PRIORITY BASED UPON THE TECHNICAL PROPOSALS (INCLUDING THE QUALITY AND MARKETABILITY OF THE SAMPLE SKINS SUBMITTED) AND THE COMPARATIVE RESPONSIBILITY OF EACH OFFEROR, AND IN LIMITING NEGOTIATIONS THEREAFTER TO THE OFFEROR WHO WAS ASSIGNED THE HIGHEST PRIORITY ON THAT BASIS.

AS INDICATED ABOVE, THE INVITATION FOR PROPOSALS ACKNOWLEDGED THE APPLICABILITY OF THE FEDERAL PROCUREMENT REGULATIONS TO THIS PROCUREMENT. ADDITIONALLY, WE NOTE THAT, WITH CERTAIN STATED EXCEPTIONS, THE APPLICABILITY OF BOTH THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT, 40 U.S.C. 471, AND THE FEDERAL PROCUREMENT REGULATIONS TO PROCUREMENTS BY YOUR DEPARTMENT HAS BEEN ACKNOWLEDGED IN THE DEPARTMENT OF THE INTERIOR PROCUREMENT REGULATIONS, 41 CFR 14-1.000, AND THAT THE PROCUREMENT OF SERVICES FOR THE PROCESSING AND OR SALE OF SEALSKINS HAS NOT BEEN SPECIFICALLY EXEMPTED FROM SUCH REGULATIONS, AS HAVE SEVERAL OTHER ACTIVITIES ADMINISTERED BY YOUR DEPARTMENT UNDER SPECIAL STATUTORY AUTHORITY. 41 CFR 14-1.104. WE THEREFORE ARE OF THE OPINION THAT THE INSTANT PROCUREMENT OF SERVICES FOR THE SALE AND PROCESSING OF SEALSKINS WAS SUBJECT TO, AND REQUIRED TO BE CONDUCTED IN ACCORDANCE WITH, THE POLICIES AND PROCEDURES PRESCRIBED BY THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT AND THE IMPLEMENTING FEDERAL PROCUREMENT REGULATIONS. THE PRIMARILY REMAINING QUESTION WOULD THEREFORE APPEAR TO BE WHETHER ALL MATERIAL REQUIREMENTS OF THE LAW AND THE APPLICABLE REGULATIONS WERE COMPLIED WITH IN THE SOLICITATION OF PROPOSALS, THE CONDUCT OF NEGOTIATIONS, AND THE RESULTING AWARD OF A CONTRACT TO SUPARA.

THE BASIC OBJECTIVE OF PROCUREMENT BY THE CIVILIAN AGENCIES OF THE GOVERNMENT IS SET FORTH IN FPR 1-1.301 AS FOLLOWS:

IT SHALL BE THE OBJECTIVE TO USE THAT METHOD OF PROCUREMENT WHICH WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT--- PRICE, QUALITY, AND OTHER FACTORS CONSIDERED. PROCUREMENT SHALL BE MADE ON A COMPETITIVE BASIS, WHETHER BY FORMAL ADVERTISING OR BY NEGOTIATION, TO THE MAXIMUM PRACTICABLE EXTENT, IN ACCORDANCE WITH THE POLICIES AND PROCEDURES SET FORTH IN THIS CHAPTER.

SUBSECTION 1-3.102 OF THE FEDERAL PROCUREMENT REGULATIONS PROVIDES, IN PERTINENT PART, AS FOLLOWS:

WHENEVER PROPERTY OR SERVICES ARE TO BE PROCURED BY NEGOTIATION, OFFERS SHALL BE SOLICITED FROM ALL SUCH QUALIFIED SOURCES AS ARE DEEMED NECESSARY BY THE CONTRACTING OFFICER TO ASSURE FULL AND FREE COMPETITION, CONSISTENT WITH THE PROCUREMENT OF THE REQUIRED PROPERTY OR SERVICES, IN ACCORDANCE WITH THE BASIC POLICIES SET FORTH IN THIS PART 1-3. TO THE END THAT THE PROCUREMENT WILL BE MADE TO THE BEST ADVANTAGE OF THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED. SUCH OFFERS SHALL BE SUPPORTED BY STATEMENTS AND ANALYSES OF ESTIMATED COSTS OR OTHER EVIDENCE OF REASONABLE PRICES AND OTHER MATTERS DEEMED NECESSARY BY THE CONTRACTING OFFICER. NEGOTIATION SHALL THEREUPON BE CONDUCTED WITH DUE ATTENTION BEING GIVEN TO THE FOLLOWING, AND ANY OTHER APPROPRIATE FACTORS:

(A) COMPARISON OF PRICES QUOTED AND CONSIDERATION OF OTHER PRICES FOR THE SAME OR SIMILAR PROPERTY OR SERVICES, WITH DUE REGARD TO PRODUCTION COSTS, INCLUDING EXTRA PAY SHIFT, MULTI-SHIFT AND OVERTIME COSTS, AND ANY OTHER FACTOR RELATING TO THE PRICE, SUCH AS PROFITS, COST OF TRANSPORTATION, AND CASH DISCOUNTS.

(B) COMPARISON OF THE BUSINESS REPUTATION, CAPACITY, AND RESPONSIBILITY OF THE RESPECTIVE PERSONS OR FIRMS WHO SUBMIT OFFERS.

(C) CONSIDERATION OF THE QUALITY OF THE PROPERTY OR SERVICES OFFERED, INCLUDING THE SAME OR SIMILAR PROPERTY OR SERVICES PREVIOUSLY FURNISHED, WITH DUE REGARD TO CONFORMANCE WITH SPECIFICATION REQUIREMENTS.

NEGOTIATION PROCEDURES ARE MORE SPECIFICALLY SPELLED OUT IN SUBPART 1- 3.805 OF THE FEDERAL PROCUREMENT REGULATIONS AS FOLLOWS:

(A) THE NORMAL PROCEDURE IN NEGOTIATED PROCUREMENTS, AFTER RECEIPT OF INITIAL PROPOSALS, IS TO CONDUCT SUCH WRITTEN OR ORAL DISCUSSIONS AS MAY BE REQUIRED TO OBTAIN AGREEMENTS MOST ADVANTAGEOUS TO THE GOVERNMENT. NEGOTIATIONS SHALL BE CONDUCTED AS FOLLOWS:

(1) WHERE A RESPONSIBLE OFFEROR SUBMITS A RESPONSIVE PROPOSAL WHICH, IN THE CONTRACTING OFFICER'S OPINION, IS CLEARLY AND SUBSTANTIALLY MORE ADVANTAGEOUS TO THE GOVERNMENT THAN ANY OTHER PROPOSAL, NEGOTIATIONS MAY BE CONDUCTED WITH THAT OFFEROR ONLY; OR

(2) WHERE SEVERAL RESPONSIBLE OFFERORS SUBMIT OFFERS WHICH ARE GROUPED SO THAT A MODERATE CHANGE IN EITHER THE PRICE OR THE TECHNICAL PROPOSAL WOULD MAKE ANY ONE OF THE GROUP THE MOST ADVANTAGEOUS OFFER TO THE GOVERNMENT, FURTHER NEGOTIATIONS SHOULD BE CONDUCTED WITH ALL OFFERORS IN THAT GROUP. WHENEVER NEGOTIATIONS ARE CONDUCTED WITH MORE THAN ONE OFFEROR, NO INDICATION SHALL BE MADE TO ANY OFFEROR OF A PRICE WHICH MUST BE MET TO OBTAIN FURTHER CONSIDERATION, SINCE EACH PRACTICE CONSTITUTES AN AUCTION TECHNIQUE WHICH MUST BE AVOIDED. NO INFORMATION REGARDING THE NUMBER OR IDENTITY OF THE OFFERORS PARTICIPATING IN THE NEGOTIATIONS SHALL BE MADE AVAILABLE TO THE PUBLIC OR TO ANYONE WHOSE OFFICIAL DUTIES DO NOT REQUIRE SUCH KNOWLEDGE. WHENEVER NEGOTIATIONS ARE BEING CONDUCTED WITH SEVERAL OFFERORS, WHILE SUCH NEGOTIATIONS MAY BE CONDUCTED SUCCESSIVELY, ALL OFFERORS PARTICIPATING IN SUCH NEGOTIATION SHALL BE OFFERED AN EQUITABLE OPPORTUNITY TO SUBMIT SUCH PRICING, TECHNICAL, OR OTHER REVISIONS IN THEIR PROPOSALS AS MAY RESULT FROM THE NEGOTIATIONS. ALL OFFERORS SHALL BE INFORMED THAT AFTER THE SUBMISSION OF FINAL REVISIONS, NO INFORMATION WILL BE FURNISHED TO ANY OFFEROR UNTIL AWARD HAS BEEN MADE.

(B) THERE ARE CERTAIN CIRCUMSTANCES WHERE FORMAL ADVERTISING IS NOT POSSIBLE AND NEGOTIATION IS NECESSARY. IN THE CONDUCT OF SUCH NEGOTIATIONS, WHERE A SUBSTANTIAL NUMBER OF CLEARLY COMPETITIVE PROPOSALS HAS BEEN OBTAINED AND WHERE THE CONTRACTING OFFICER IS SATISFIED THAT THE MOST FAVORABLE PROPOSAL IS FAIR AND REASONABLY PRICED, AWARD MAY BE MADE ON THE BASIS OF THE INITIAL PROPOSALS WITHOUT ORAL OR WRITTEN DISCUSSION; PROVIDED, THAT THE REQUEST FOR PROPOSALS NOTIFIES ALL OFFERORS OF THE POSSIBILITY THAT AWARD MAY BE MADE WITHOUT DISCUSSION OF PROPOSALS RECEIVED AND, HENCE, THAT PROPOSALS SHOULD BE SUBMITTED INITIALLY ON THE MOST FAVORABLE TERMS, FROM A PRICE AND TECHNICAL STANDPOINT, WHICH THE OFFEROR CAN SUBMIT TO THE GOVERNMENT. IN ANY CASE WHERE THERE IS UNCERTAINTY AS TO THE PRICING OR TECHNICAL ASPECTS OF ANY PROPOSAL, THE CONTRACTING OFFICER SHALL NOT MAKE AN 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; PROVIDED, THAT THIS CAN BE DONE WITHOUT REVEALING TO THE OTHER FIRMS ANY INFORMATION WHICH IS ENTITLED TO PROTECTION.

(C) A REQUEST FOR PROPOSALS MAY PROVIDE THAT AFTER RECEIPT OF INITIAL TECHNICAL PROPOSALS, SUCH PROPOSALS WILL BE EVALUATED TO DETERMINE THOSE WHICH ARE ACCEPTABLE TO THE GOVERNMENT OR WHICH, AFTER DISCUSSION, CAN BE MADE ACCEPTABLE, AND UPON SUBMISSION OF PRICES THEREAFTER, AWARD SHALL BE MADE TO THAT OFFEROR OF AN ACCEPTABLE PROPOSAL WHO IS THE LOW RESPONSIBLE OFFEROR.

(D) THE PROCEDURES SET FORTH IN PARAGRAPHS (A), (B), AND (C) OF THIS SECTION 1-3.805 MAY NOT BE APPLICABLE IN APPROPRIATE CASES WHEN PROCURING RESEARCH AND DEVELOPMENT, OR SPECIAL SERVICES (SUCH AS ARCHITECT-ENGINEER SERVICES) OR WHEN COST-REIMBURSEMENT TYPE CONTRACTING IS ANTICIPATED.

(E) WHENEVER IN THE COURSE OF NEGOTIATION A SUBSTANTIAL CHANGE IS MADE IN THE GOVERNMENT'S REQUIREMENTS, FOR EXAMPLE, INCREASES OR DECREASES IN QUANTITIES OR MATERIAL CHANGES IN THE DELIVERY SCHEDULES, ALL OFFERORS SHALL BE GIVEN AN EQUITABLE OPPORTUNITY TO SUBMIT REVISED PROPOSALS UNDER THE REVISED REQUIREMENTS.

HOWEVER, THE ABOVE REGULATION APPEARS TO BE SUPPLEMENTED BY SUBPART 404.1.7A OF YOUR DEPARTMENTAL MANUAL WHICH PROVIDES, IN PERTINENT PART, AS FOLLOWS:

7. PROCEDURES.

A. CONTRACTS FOR OTHER THAN PROFESSIONAL ARCHITECTURAL OR ENGINEERING SERVICES.

(1) SOLICITATION. WHENEVER A CONTRACT (OTHER THAN A CONTRACT FOR PROFESSIONAL ARCHITECTURAL OR ENGINEERING SERVICES) IS TO BE NEGOTIATED, PRICE QUOTATIONS AND ALL OTHER NECESSARY INFORMATION SHALL BE SOLICITED FROM SUCH QUALIFIED SOURCES AS ARE DEEMED NECESSARY BY THE CONTRACTING OFFICER TO ASSURE ADEQUATE COMPETITION. DUE CONSIDERATION MUST BE GIVEN TO THE NATIONAL POLICIES AFFECTING SMALL BUSINESS AND AREAS OF SUBSTANTIAL UNEMPLOYMENT.

(2) SUBMISSION OF OFFERS. ALL SOLICITATIONS OF OFFERS SHALL PROVIDE A FIXED TIME FOR RECEIPTS OF OFFERS, PRIOR TO WHICH NO AWARD SHALL BE MADE. THIS REQUIREMENT IS NOT INTENDED TO PRECLUDE FURTHER NEGOTIATION OR CONSIDERATION OF OFFERS OR MODIFICATIONS RECEIVED AFTER THE FIXED TIME, BUT PRIOR TO THE AWARD. NECESSARY PRECAUTIONS MUST BE TAKEN TO AVOID PREJUDICE TO ANY OFFERORS BY INADVERTENT DISCLOSURE OF NEGOTIATIONS IN PROCESS, SUCH AS PRICES QUOTED, THE NUMBER OF OFFERS RECEIVED, OR THE NAMES OF FIRMS FROM WHICH OFFERS HAVE BEEN RECEIVED.

(3) CONSIDERATIONS GOVERNING AWARDS. IT IS THE RESPONSIBILITY OF THE CONTRACTING OFFICER CONDUCTING NEGOTIATIONS TO GIVE CONSIDERATION TO THE FOLLOWING AND ANY OTHER APPLICABLE FACTORS:

(A) THE BUSINESS REPUTATION AND RESPONSIBILITY OF THE RESPECTIVE PERSONS OR CONCERNS SUBMITTING QUOTATIONS. (B) THE QUALITY OF THE SUPPLIES OR SERVICES OFFERED, OR THE QUALITY OF SIMILAR SUPPLIES OR SERVICES PREVIOUSLY FURNISHED, WITH DUE REGARD TO COMPLIANCE WITH TECHNICAL REQUIREMENTS.

(C) PRICES QUOTED, AND CONSIDERATION OF OTHER PRICES FOR THE SAME OR SIMILAR SUPPLIES OR SERVICES, WITH DUE REGARD TO COST OF TRANSPORTATION, CASH DISCOUNTS, AND ANY OTHER FACTORS RELATING TO PRICES.

(D) DELIVERY REQUIREMENTS.

THE ONLY EXCEPTION TO THE FOREGOING WHICH IS PROVIDED BY THE DEPARTMENTAL MANUAL APPEARS TO BE SET OUT IN SUBJECT 404.1.7B AS FOLLOWS: B. CONTRACTS FOR PROFESSIONAL ARCHITECTURAL OR ENGINEERING SERVICES.

(1) SELECTION. WHENEVER A CONTRACT FOR PROFESSIONAL ARCHITECTURAL OR ENGINEERING SERVICES IS TO BE NEGOTIATED A BOARD CONSISTING OF THREE OR MORE QUALIFIED EMPLOYEES, INCLUDING THE CONTRACTING OFFICER, SHALL BE APPOINTED BY THE HEAD, DEPUTY OR ASSOCIATE, OR ASSISTANT HEAD OF THE BUREAU OR OFFICE INVOLVED. THE BOARD SHALL SELECT AT LEAST THREE INDIVIDUALS OR FIRMS WITH WHOM NEGOTIATIONS ARE TO BE CARRIED ON TO ASSURE ADEQUATE COMPETITION AS SET OUT IN 404 DM 1.7B (2). DUE CONSIDERATION MUST BE GIVEN TO NATIONAL POLICY AFFECTING SMALL BUSINESS. INDIVIDUALS OR FIRMS SELECTED SHALL BE FROM RECOGNIZED LISTS OF QUALIFIED APPLICANTS. PREVIOUS GOVERNMENT EXPERIENCE WITH INDIVIDUALS OR FIRMS SHOULD BE CONSIDERED IN MAKING SELECTIONS.

(2) CONSIDERATION. IT IS THE RESPONSIBILITY OF THE PERSONNEL SET OUT IN 040 DM 1.7B (1) TO DETERMINE AS TO EACH SELECTED INDIVIDUAL OR FIRM SEPARATELY AN ORDER OF PRIORITY BY GIVING CONSIDERATION TO THE FOLLOWING AND ANY OTHER APPLICABLE FACTORS:

(A) THE BUSINESS REPUTATION AND RESPONSIBILITY OF THE RESPECTIVE INDIVIDUALS OR FIRMS.

(B) THE QUALITY OF THE SERVICES OFFERED, AND IF APPLICABLE, THE QUALITY OF SIMILAR SERVICES PREVIOUSLY FURNISHED, WITH DUE REGARD TO COMPLIANCE WITH TECHNICAL REQUIREMENTS.

(C) A DETAILED DISCUSSION OF THE SCOPE OF THE SERVICES OR WORK TO BE FURNISHED, INCLUDING AN ESTIMATE OF MAN HOURS OR OTHER WORK UNITS REQUIRED.

(D) ABILITY OF THE INDIVIDUAL OR FIRM TO FURNISH SERVICES OR WORK WITHIN TIME ALLOWED.

3. AWARDS. WHEN SELECTIONS HAVE BEEN MADE AND AN ORDER OF PREFERENCE DETERMINED ON THE BASIS OF THE FOREGOING FACTORS, NEGOTIATIONS SHALL BE INITIATED WITH THE INDIVIDUAL OR FIRM GIVEN PRIORITY NO. 1. AT THIS TIME AND NOT BEFORE SHALL COST OR FEE BE DISCUSSED. IN THE EVENT THAT AN AGREEMENT CANNOT BE REACHED, NEGOTIATIONS SHALL BE TERMINATED AND THE INDIVIDUAL OR FIRM SO NOTIFIED IN WRITING. NEGOTIATIONS SHALL THEN BE INITIATED WITH THE INDIVIDUAL OR FIRM GIVEN PRIORITY NO. 2. THIS PROCEDURE WILL BE FOLLOWED UNTIL A SATISFACTORY CONTRACT HAS BEEN NEGOTIATED. AFTER THE CONTRACT HAS BEEN NEGOTIATED THE REMAINING INDIVIDUALS OR FIRMS SHALL BE NOTIFIED IN WRITING THAT AWARD HAS BEEN MADE TO ANOTHER AND THAT THEIR INTEREST IS HIGHLY APPRECIATED.

WHILE THE REPORT DATED APRIL 19, 1963, FROM YOUR ADMINISTRATIVE ASSISTANT SECRETARY ADVISED THAT THE NEGOTIATION PROCEDURE FOLLOWED IS AUTHORIZED BY FPR 1-3.805 (A) (1) QUOTED ABOVE, THAT REGULATION WOULD HAVE BEEN APPLICABLE IN THE INSTANT PROCUREMENT ONLY AFTER PRICE QUOTATIONS HAD BEEN SUBMITTED. ON THE OTHER HAND, THERE WOULD APPEAR TO BE NO DOUBT THAT THE PROCEDURES ACTUALLY FOLLOWED BY YOUR DEPARTMENT ARE, FOR ALL PRACTICAL PURPOSES, THOSE AUTHORIZED (APPARENTLY UNDER FPR 1-3.805 (D) ( FOR THE PROCUREMENT OF PROFESSIONAL, ARCHITECTURAL, AND ENGINEERING SERVICES AS SET OUT IN SUBPART 404.1.7B OF YOUR DEPARTMENTAL MANUAL.

AS INDICATED BY THE LEGISLATIVE HISTORY OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT, THE AUTHORITY TO NEGOTIATE FOR PERSONAL OR PROFESSIONAL SERVICES IS BASED UPON THE FACT THAT ARCHITECTS, ENGINEERS, AND MEMBERS OF OTHER RECOGNIZED PROFESSIONS ARE PROHIBITED BY ETHICAL STANDARDS FROM COMPETING FOR EMPLOYMENT UPON A PRICE BASIS. WHILE THE PROCEDURE PRESCRIBED BY SUBPART 404.1.7B OF THE DEPARTMENTAL MANUAL FOR ESTABLISHING AN ORDER OF PRIORITY, WITHOUT REGARD TO PRICE, IN NEGOTIATING FOR SUCH SERVICES MAY THEREFORE BE JUSTIFIED ON THE BASIS THAT PRICE COMPETITION CANNOT BE OBTAINED, THAT SITUATION DOES NOT OBTAIN WITH RESPECT TO THE FIRMS WHICH SUBMITTED INITIAL OFFERS TO PROCESS AND SELL SEALSKINS. WE THEREFORE SEE NO BASIS UPON WHICH SUCH AUTHORITY MAY BE INVOKED IN THE INSTANT PROCUREMENT.

AS PREVIOUSLY INDICATED, WE DO NOT AGREE THAT THE EVIDENCE OF RECORD SUPPORTS THE DETERMINATIONS BY YOUR DEPARTMENT THAT SUPARA'S SAMPLE SKINS WERE OF SUPERIOR QUALITY OR POTENTIAL MARKETABILITY. HOWEVER, IF IT IS ASSUMED, ARGUENDO, THAT SUCH DETERMINATIONS WERE CORRECT, IT IS CLEAR THAT THE RESULTING FAILURE TO SOLICIT AND CONSIDER FIRM PROPOSALS, INCLUDING PRICE PROPOSALS, FROM ALL RESPONSIBLE BIDDERS CAN BE JUSTIFIED ONLY IF YOUR DEPARTMENT HAS THE AUTHORITY TO LIMIT NEGOTIATIONS TO THOSE OFFERORS WHOSE SERVICES AND PRODUCTS ARE DETERMINED TO BE OF THE HIGHEST QUALITY.

IN THIS CONNECTION IT WOULD APPEAR TO BE ESPECIALLY PERTINENT TO NOTE THAT H.R. 1336, 80TH CONGRESS, WHICH SUBSEQUENTLY WAS ENACTED AS THE ARMED SERVICES PROCUREMENT ACT OF 1947, 41 U.S.C. 151 NOTE (1952 ED.), ORIGINALLY INCLUDED, AS SECTION 1 (XII), A REQUEST FOR AUTHORITY TO NEGOTIATE UNDER THE FOLLOWING CIRCUMSTANCES:

(XII) FOR SUPPLIES OR SERVICES AS TO WHICH THE AGENCY HEAD DETERMINES THAT ADVERTISING AND COMPETITIVE BIDDING WOULD NOT SECURE SUPPLIES OR SERVICES OF A QUALITY SHOWN TO BE NECESSARY IN THE INTEREST OF THE GOVERNMENT.

AS PASSED BY THE HOUSE OF REPRESENTATIVES, H.R. 1366 INCLUDED THIS AUTHORITY, AND THE NECESSITY AND JUSTIFICATION FOR ITS ENACTMENT BY THE SENATE WAS PRESENTED TO THE SENATE COMMITTEE ON ARMED SERVICES BY THE ASSISTANT SECRETARY OF THE NAVY DURING HEARINGS ON JUNE 24, 1947, WITH THE FOLLOWING CONCLUDING STATEMENT:

WHERE QUALITY IS A MATTER OF CRITICAL--- IN MAY CASES LIFE-AND-DEATH -- IMPORTANCE, DISCRETION MUST RESIDE IN THE SERVICES TO SELECT SOURCES WHERE EXPERIENCE, EXPERTNESS, KNOW-HOW, FACILITIES AND CAPACITIES ARE BELIEVED TO ASSURE PRODUCTS OF THE REQUISITE QUALITY. WHERE NATIONAL SECURITY OR THE SAFETY AND HEALTH OF PERSONNEL OF THE SERVICES ARE INVOLVED, ANY COMPROMISE OF QUALITY DICTATED BY MANDATORY CONSIDERATIONS OF PRICE WOULD BE INDEFENSIBLE. (SEE PAGE 15, HEARINGS BEFORE THE COMMITTEE ON ARMED SERVICES, UNITED STATES SENATE, ON H.R. 1366, 80TH CONGRESS.)

NOTWITHSTANDING THE ABOVE, THE SENATE ARMED SERVICES COMMITTEE DELETED THIS PROVISION FROM THE BILL AND EXPLAINED ITS ACTION AT PAGE 3, S.REPT.NO. 571, 80TH CONGRESS, AS FOLLOWS:

THE BILL WAS AMENDED BY DELETING THE AUTHORITY TO NEGOTIATE CONTRACTS FOR THE PURPOSE OF SECURING A PARTICULAR QUALITY OF MATERIALS. YOUR COMMITTEE IS OF THE OPINION THAT THIS SECTION IS OPEN TO CONSIDERABLE ADMINISTRATIVE ABUSE AND WOULD BE EXTREMELY DIFFICULT TO CONTROL. FOR THIS REASON IT HAS BEEN ELIMINATED.

AS INDICATED BY THE LEGISLATIVE HISTORY OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT, 40 U.S.C. 471 NOTE, THAT ACT WAS INTENDED TO EXTEND THE SAME PROCUREMENT PRINCIPLES TO CIVILIAN AGENCIES OF THE GOVERNMENT AS HAD PREVIOUSLY BEEN CONFERRED UPON THE MILITARY DEPARTMENTS BY THE ARMED SERVICES PROCUREMENT ACT OF 1947. SEE PAGE 6, H.REPT.NO. 670, AND PAGE 5, S.REPT.NO. 475, 81ST CONGRESS.

THE REJECTION BY THE CONGRESS OF THIS REQUEST FOR NEGOTIATION AUTHORITY MUST THEREFORE BE CONSTRUED AS A PROHIBITION AGAINST THE NEGOTIATION OF CONTRACTS WITHOUT PRICE COMPETITION, WHERE THE FAILURE TO OBTAIN PRICE COMPETITION IS BASED SOLELY UPON A DETERMINATION BY THE CONTRACTING AGENCY THAT A PARTICULAR PROSPECTIVE CONTRACTOR WILL DELIVER SUPPLIES AND/OR SERVICES OF A HIGHER QUALITY THAN ANY OTHER CONTRACTOR. 41 COMP. GEN. 484.

IT IS OUR OPINION THAT THE FEDERAL PROCUREMENT REGULATIONS, THE PROCUREMENT REGULATIONS OF YOUR DEPARTMENT, AND THE INVITATION FOR PROPOSALS ISSUED IN THE INSTANT PROCUREMENT RECOGNIZE THE NECESSITY FOR PRICE COMPETITION IN THE PROCUREMENT OF SUPPLIES OR NONPROFESSIONAL SERVICES, AND FOR THE CONSIDERATION OF OFFERED PRICES IN DETERMINING WHETHER THE AWARD OF A PARTICULAR TYPE OF CONTRACT TO A PARTICULAR CONTRACTOR WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT. SOLICITATION AND CONSIDERATION OF COMPETITIVE PRICES ARE THEREFORE MATERIAL REQUIREMENTS IN SUCH PROCUREMENTS, AND COMPLIANCE WITH SUCH REQUIREMENTS MUST BE CONSIDERED A NECESSARY PREREQUISITE TO A VALID CONTRACT AWARD.

WE MUST THEREFORE CONCLUDE THAT YOUR DEPARTMENT WAS WITHOUT AUTHORITY UNDER APPLICABLE PROCUREMENT LAW AND REGULATIONS HAVING THE FORCE AND EFFECT OF LAW (SEE PAUL V. UNITED STATES, 371 U.S. 245, 255) TO NEGOTIATE A CONTRACT FOR THE PROCESSING AND SALE OF SEALSKINS WITH ANY OFFEROR WHO RESPONDED TO THE INVITATION FOR PROPOSALS, UNTIL FIRM PROPOSALS, INCLUDING PRICE PROPOSALS, HAD BEEN SOLICITED FROM ALL RESPONSIBLE OFFERORS, AND UNTIL DUE CONSIDERATION HAD BEEN GIVEN TO THE COMPARATIVE MERITS OF BOTH PRICE AND ALL OTHER FACTORS INCLUDED IN SUCH FIRM PROPOSALS.

IN VIEW OF THE FOREGOING, IT IS OUR OPINION THAT YOUR DEPARTMENT WAS ACTING OUTSIDE OF THE SCOPE OF ITS AUTHORITY IN AWARDING A CONTRACT TO SUPARA. WE MUST THEREFORE CONCLUDE THAT SUCH AWARD DOES NOT CONSTITUTE A VALID OR ENFORCEABLE OBLIGATION OF THE GOVERNMENT AND THAT THE AWARD ACTION SHOULD BE RESCINDED. SEE 37 COMP. GEN. 51; ID. 550.

IN VIEW OF THE CONCLUSION SET OUT ABOVE, FURTHER CONSIDERATION OF THE PROPRIETY OR EFFECT OF OTHER PROCEDURES WHICH YOUR DEPARTMENT FOLLOWED, OR FAILED TO FOLLOW, BECOMES ACADEMIC FOR THE PURPOSES OF DETERMINING THE MERITS OF FOUKE'S PROTEST OR THE VALIDITY OF THE CONTRACT AWARDED TO SUPARA. HOWEVER, IN THE INTEREST OF FULL COMPLIANCE WITH ESTABLISHED PRINCIPLES OF COMPETITIVE PROCUREMENT AS SET OUT IN LAW, REGULATIONS, AND THE DECISIONS OF THIS OFFICE, THE FOLLOWING ADDITIONAL MATTERS ARE CALLED TO YOUR ATTENTION AND SHOULD BE CONSIDERED IN THE SOLICITATION OF PROPOSALS AND THE AWARD OF ANY FUTURE CONTRACT FOR THE PROCESSING AND SALE OF SEALSKINS.

1. IT IS OUR OPINION THAT THE TRANSFER OR ASSIGNMENT OF RIGHTS AND OBLIGATIONS ARISING OUT OF PROPOSALS SUBMITTED IN NEGOTIATED PROCUREMENTS IS TO BE AVOIDED, BOTH AS A MATTER OF PUBLIC POLICY AND A MATTER OF SOUND PROCUREMENT POLICY, UNLESS, AS INDICATED BY THE CASES CITED IN YOUR DEPARTMENT'S REPORT OF AUGUST 19, 1963, SUCH TRANSFER IS EFFECTED BY OPERATION OF LAW TO A LEGAL ENTITY WHICH IS THE COMPLETE SUCCESSOR IN INTEREST TO THE ORIGINAL OFFEROR. WHILE THE REPORT OF AUGUST 19 INDICATES A DETERMINATION BY YOUR DEPARTMENT THAT SUPARA, A JOINT VENTURE, WAS ESSENTIALLY THE SAME ENTITY AND A COMPLETE SUCCESSOR IN INTEREST TO SUPARA, INC., THE EVIDENCE SUBMITTED TO THIS OFFICE DOES NOT, IN OUR OPINION, SUPPORT THIS CONCLUSION. NEITHER DO WE BELIEVE THAT SUCH TRANSFER OF RIGHTS FROM SUPARA, INC., TO SUPARA AS MAY HAVE BEEN ACCOMPLISHED BY RESOLUTION OF THE INCORPORATORS AND SUBSCRIBERS ON MARCH 14, 1963, CONSTITUTES SUCH A TRANSFER OF RIGHTS AND OBLIGATIONS BY OPERATION OF LAW AS WOULD BE REQUIRED TO JUSTIFY THE SUBSTITUTION OF ONE OFFEROR FOR ANOTHER IN A NEGOTIATED PROCUREMENT. WE ARE THEREFORE UNABLE TO AGREE THAT AN AWARD TO SUPARA, A JOINT VENTURE, BASED UPON THE TECHNICAL PROPOSAL SUBMITTED BY SUPARA, INC., WAS PROPER.

2. FPR 1-3.302 (D) (3) REQUIRES THE DOCUMENTATION AND PRESERVATION OF ALL ESSENTIAL INFORMATION BEARING UPON THE ACTUAL NEGOTIATIONS CONDUCTED IN CONNECTION WITH THE AWARDING OF CONTRACTS UNDER 41 U.S.C. 252 (C) (10). YOUR DEPARTMENT'S ADVICE UNDER DATE OF AUGUST 19, 1963, THAT NO FORMAL RECORDS OF THE NEGOTIATION PROCEEDINGS WERE KEPT REQUIRES A CONCLUSION THAT THE ABOVE REQUIREMENT WAS NOT COMPLIED WITH.

3. SUBPARAGRAPH 11 (A) OF THE CONTRACT AWARDED TO SUPARA PROVIDES THAT "THE GOVERNMENT CONDITIONS THIS AGREEMENT UPON THE APPROVAL BY THE SECRETARY OF THE INTERIOR AND CONTINUED EXISTENCE OF A JOINT VENTURE AGREEMENT WHICH SHALL CONSTITUTE THE BASIC ORGANIZATIONAL DOCUMENT OF THE CONTRACTOR. * * *"

SUBPARAGRAPH 11 (B) PROVIDES THAT "THE GOVERNMENT CONDITIONS THIS AGREEMENT UPON THE APPROVAL BY THE SECRETARY OF THE INTERIOR AND CONTINUED EXISTENCE OF AN EMPLOYMENT AGREEMENT BETWEEN THE CONTRACTOR AND THE NATIONAL SUPERIOR FUR DRESSING AND DYEING COMPANY, NOT INC. OF CHICAGO, ILLINOIS, A PARTNERSHIP (HEREINAFTER DESIGNATED AS "NATIONAL"), SUPERIOR FUR DYEING COMPANY NOT INC. OF BROOKLYN, NEW YORK, A PARTNERSHIP, HEREINAFTER REFERRED TO AS "SUPERIOR"), AND SUPERIOR FUR DYEING COMPANY, INC. OF BROOKLYN, NEW YORK, (HEREINAFTER REFERRED TO AS THE "CORPORATION") FOR TECHNICAL SKILLS, KNOW-HOW, SECRET PROCESSES, SUPERVISION OF PROCESSING, SUPERVISION OF DYEING OF SEALSKINS, AND GENERAL ADMINISTRATIVE ACTIVITIES. * * *.'

IT IS OUR OPINION THAT THE EXISTENCE OF DOCUMENTS OF THIS NATURE, ACCEPTABLE TO AND APPROVED BY YOU OR YOUR DESIGNEE, WERE NECESSARY PREREQUISITES TO BOTH A DETERMINATION THAT SUPARA, A JOINT VENTURE, WAS A RESPONSIBLE BIDDER AND TO AN AWARD BASED UPON SUCH DETERMINATION. SINCE WE ARE ADVISED IN THE REPORT DATED AUGUST 19, 1963, FROM YOUR ADMINISTRATIVE ASSISTANT SECRETARY THAT THE JOINT VENTURE AGREEMENT AND THE EMPLOYMENT AGREEMENT WERE NOT APPROVED BY YOUR DEPARTMENT UNTIL AUGUST 9 AND AUGUST 12, 1963, RESPECTIVELY, IT IS ALSO APPARENT THAT THE CONTRACT WAS AWARDED SUBJECT TO CONDITIONS SUBSEQUENT. WHETHER SUCH CONDITIONS WERE, OR WERE NOT, MET WAS PRIMARILY WITHIN THE CONTROL OF SUPARA. IT IS AXIOMATIC IN FEDERAL PROCUREMENT THAT EXECUTION OF THE DEFINITIVE CONTRACT BY THE CONTRACTING PARTIES SHALL OPERATE TO BIND THE CONTRACTOR AND VEST IN THE GOVERNMENT THE RIGHT TO REQUIRE PERFORMANCE OF THE CONTRACT. IT IS THEREFORE APPARENT THAT YOUR DEPARTMENT WAS WITHOUT AUTHORITY TO AWARD A CONTRACT ON THE BASIS SET OUT IN PARAGRAPHS 11 (A) AND 11 (B) OF THE CONTRACT AWARDED TO SUPARA.

4. THE PROTEST BY FOUKE WAS FILED WITH THIS OFFICE ON MARCH 7, 1963, AND YOUR DEPARTMENT WAS ADVISED OF ITS RECEIPT ON THE SAME DATE. THE DEFINITIVE CONTRACT WAS NOT EXECUTED BY YOUR DEPARTMENT, AND SUPARA, A JOINT VENTURE, WAS NOT CREATED UNTIL MARCH 14, 1963. IT IS THEREFORE OUR OPINION THAT A PROTEST WAS FILED WITH THIS OFFICE PRIOR TO THE AWARD OF A CONTRACT TO SUPARA, A JOINT VENTURE. SUBPART 1-2.407-8 (B) (2) OF THE FEDERAL PROCUREMENT REGULATIONS REQUIRES CONTRACTING AGENCIES WITH NOTICE OF THE FACT THAT A PROTEST HAS BEEN FILED WITH THIS OFFICE TO FURNISH THE GENERAL ACCOUNTING OFFICE NOTICE OF INTENT TO MAKE AWARD AND TO OBTAIN ADVICE CONCERNING THE STATUS OF THE CASE PRIOR TO MAKING THE AWARD. WHILE SUBPART 1-2.407-8 APPEARS IN THAT PORTION OF THE REGULATIONS WHICH ARE DIRECTED TO ADVERTISED PROCUREMENTS, ITS LANGUAGE IS DIRECTED TO "ALL PROTESTS OR OBJECTIONS TO THE AWARD OF A CONTRACT" , AND ITS REQUIREMENTS ARE THEREFOR APPLICABLE TO PROTEST AGAINST BOTH NEGOTIATED AND ADVERTISED AWARDS. THERE IS NO RECORD IN THIS OFFICE OF COMPLIANCE BY YOUR DEPARTMENT WITH THIS REQUIREMENT. ADDITIONALLY, AS INDICATED ABOVE, THE CONTRACT DOCUMENT EXECUTED WITH SUPARA ON MARCH 14 WAS CONDITIONED UPON YOUR APPROVAL OF A JOINT VENTURE AGREEMENT AND AN EMPLOYMENT AGREEMENT WHICH WERE TO BE SUBMITTED BY SUPARA, AND A BINDING CONTRACTUAL OBLIGATION THEREFORE COULD NOT HAVE BEEN CONSUMMATED PRIOR TO SUCH APPROVAL. UNDER DATE OF MAY 9, 1963, THIS OFFICE REQUESTED CERTAIN INFORMATION AND DOCUMENTS, INCLUDING COPIES OF THE JOINT VENTURE AGREEMENT, THE EMPLOYMENT AGREEMENT, AND THE DATE OF THEIR APPROVAL BY YOUR DEPARTMENT. YOUR DEPARTMENT'S RESPONSE TO THAT REQUEST WAS DELAYED, WITHOUT EXPLANATION, UNTIL AUGUST 19, AT WHICH TIME WE WERE ADVISED THAT THE AGREEMENTS HAD BEEN APPROVED ON AUGUST 9 AND AUGUST 12. IT IS OUR OPINION THAT YOUR APPROVAL ACTION AT THESE LATE DATES SHOULD ALSO HAVE BEEN PRECEDED BY THE NOTICE OF INTENT TO THIS OFFICE AND ADVICE ON THE STATUS OF THE CASE WHICH IS REQUIRED BY FPR 1-2.407 8 (B) (2).

5. FOUKE HOLDS PATENT NO. 3,001,391, WHICH APPEARS TO APPLY TO PRODUCTION OF THE COMMODITY KNOWN AS "SHEARED SEALSKIN" IRRESPECTIVE OF THE METHOD EMPLOYED IN SHEARING THE SEALSKIN. IT WOULD THEREFORE APPEAR POSSIBLE, AND PERHAPS UNAVOIDABLE, THAT SUPARA WOULD INFRINGE THE FOUKE PATENT IN PROCESSING FEMALE SKINS. WHILE PARAGRAPH 13 (D) OF THE SUPARA CONTRACT PROVIDES, WITH CERTAIN EXCEPTIONS, THAT THE CONTRACTOR SHALL INDEMNIFY THE GOVERNMENT FOR INFRINGEMENTS RESULTING FROM PERFORMANCE OF THE CONTRACT, UNDER PARAGRAPH 24 OF THE CONTRACT IT WOULD APPEAR THAT ANY INDEMNITY PAYMENTS OF THIS NATURE BY SUPARA COULD PROPERLY BE CLAIMED AS ALLOWABLE COSTS, AND THAT SUCH COSTS COULD, IN WHOLE OR IN PART, BE BORNE BY THE GOVERNMENT UNDER PARAGRAPH 22 OF THE CONTRACT. WE THEREFORE RECOMMEND THAT ANY FUTURE CONTRACT BE DRAWN SO AS TO MAKE IT CLEAR WHETHER ANY COSTS WHICH MAY RESULT FROM PATENT INFRINGEMENT SHALL ULTIMATELY BE BORNE BY THE GOVERNMENT OR BY THE CONTRACTOR.

6. PARAGRAPH 19 (C) OF THE SUPARA CONTRACT PROVIDES THAT IN THE EVENT OF TERMINATION, OTHER THAN TERMINATION FOR DEFAULT, THE CONTRACTOR MAY ELECT TO ASSIGN TO THE GOVERNMENT LEASEHOLD INTERESTS, AND TO SELL AND TRANSFER TO THE GOVERNMENT ALL DEPRECIABLE ASSETS, WHICH IT HAS ACQUIRED IN CONNECTION WITH PERFORMANCE UNDER THE CONTRACT, AND THAT FUNDS TO PAY FOR SUCH ASSETS "SHALL BE WITHHELD BY THE CONTRACTOR FROM RECEIPTS DUE THE GOVERNMENT AS AN ADDITION TO THE CONTRACTOR'S SHARE IN THE PROCEEDS OF THE SALE OF SEALSKINS. * * *"

WE ARE ADVISED THAT SUPARA CONTEMPLATES LEASING REAL PROPERTY FOR A 10- YEAR PERIOD AND INSTALLING PROCESSING MACHINERY IN SUCH LEASED PROPERTY SUFFICIENT TO PROCESS BOTH SUCH SKINS AS WOULD BE DELIVERED BY THE UNITED STATES AND SUCH SKINS AS MAY BE OFFERED BY FOREIGN COUNTRIES.

ASIDE FROM THE COMPLICATIONS WHICH WOULD RESULT UPON TERMINATION OF THE CONTRACT IF THE GOVERNMENT ATTEMPTS TO ASSUME THE LEASE ON THIS REAL PROPERTY AND TO TAKE TITLE TO ALL, OR A PART OF, THE CAPITAL ASSETS INSTALLED IN SUCH LEASED PROPERTY, IT SHOULD BE NOTED THAT UNDER THE PROVISIONS OF 16 U.S.C. 631 (E), THE PROCEEDS FROM THE SALE OF SEALSKINS ARE REQUIRED TO BE DEPOSITED INTO THE TREASURY, AND UNDER SECTION 6 (E) OF PUBLIC LAW 85-508, 72 STAT. 340, THE SECRETARY OF THE TREASURY IS REQUIRED TO PAY 70 PERCENTUM OF THE NET PROCEEDS TO THE STATE OF ALASKA. WHILE THE LEGISLATIVE HISTORY OF THESE STATUTES INDICATES THAT CERTAIN EXPENSES, INCLUDING EXPENSES OF PROCESSING AND SELLING SEALSKINS, ARE TO BE DEDUCTED, AND ONLY THE REMAINING "NET PROCEEDS" ARE TO BE DEPOSITED INTO THE TREASURY, WE FIND NO INDICATION THAT THIS LEGISLATION CONTEMPLATED, OR THAT CONGRESS INTENDED TO AUTHORIZE, THE PURCHASE BY YOUR DEPARTMENT OF CAPITAL ASSETS, ACQUIRED BY A CONTRACTOR IN PERFORMING A SEALSKIN PROCESSING CONTRACT AND PAYMENT OF THE COST OF SUCH CAPITAL ASSETS OUT OF THE PROCEEDS OF THE SALE OF SEALSKINS PRIOR TO THE DEPOSIT OF SUCH PROCEEDS INTO THE TREASURY. OBVIOUSLY, SUCH ACTION WOULD OPERATE, NOT ONLY TO VEST TITLE IN YOUR DEPARTMENT TO SEALSKIN PROCESSING FACILITIES WITHOUT CONGRESSIONAL APPROVAL, BUT ALSO TO DEPRIVE THE STATE OF ALASKA OF ALL OR A PORTION OF ITS CONGRESSIONALLY SANCTIONED ANNUAL SHARE IN THE PROCEEDS OF THE SALE OF SEALSKINS.

WE THEREFORE SUGGEST THAT PROVISIONS OF THE TYPE SET OUT IN PARAGRAPHS 19 (C) (1), 19 (C) (2) AND 19 (C) (4) NOT BE INSERTED IN FUTURE SEALSKIN PROCESSING CONTRACTS UNLESS SPECIFIC AUTHORITY TO PAY COSTS OF THIS NATURE FROM PROCEEDS OF SEALSKIN SALES IS GRANTED BY THE CONGRESS.

7. PARAGRAPH 6 OF THE CONTRACT AWARDED TO SUPARA PROVIDED, IN PERTINENT PART, THAT "THE CONTRACTOR, IN ITS PROCESSING OF SEALSKINS, SHALL NOT PERMIT, WITH DUE REGARD FOR ACCEPTED VARIATIONS, THE RECOGNIZED STANDARDS IN RESPECT TO QUALITY OF MATERIALS AND WORKMANSHIP, WHICH IT EMPLOYS IN SUCH PROCESSING, TO FALL BELOW THE RECOGNIZED HIGH STANDARDS OF QUALITY OF MATERIALS AND WORKMANSHIP EXPECTED BY THE FUR INDUSTRY FROM PAST EXPERIENCE, * * *.' IN OUR OPINION THIS PROVISION OBLIGATED SUPARA TO MEET OR EXCEED THE STANDARDS PREVIOUSLY ESTABLISHED BY FOUKE, AS REFLECTED BY THE FOUKE SKINS WHICH WERE USED FOR THE PURPOSE OF ESTABLISHING STANDARDS TO BE USED IN THE EVALUATION OF SAMPLE SKINS SUBMITTED WITH THE VARIOUS PROPOSALS.

BY ADDENDUM TO THE SUPARA CONTRACT DATED AUGUST 12, 1963, PARAGRAPH 6 WAS AMENDED BY ADDITION OF THE FOLLOWING PRIVISO:

* * * PROVIDED, THAT THE RESULTS OF THE TESTS EMPLOYED BY THE NATIONAL BUREAU OF STANDARDS IN EXAMINING SUPARA SAMPLES SUBMITTED PRIOR TO CONTRACT NEGOTIATIONS ARE AND SHALL BE THE CRITERIA FOR ACCEPTABILITY OF QUALITY WITHIN THE MEANING OF THIS PROVISION; PROVIDED FURTHER, THAT IN THE EVENT THE PARTIES CANNOT AGREE AS TO THE ACCEPTABILITY OF QUALITY, THE SEALSKINS IN QUESTION OR REPRESENTATIVE SAMPLES THEREOF WILL BE SUBMITTED TO THE NATIONAL BUREAU OF STANDARDS FOR TESTS IDENTICAL TO THOSE APPLIED TO PRE-CONTRACT SAMPLES. THE RESULTS OF SUCH TESTS WILL BE FINAL AND CONCLUSIVE ON THE PARTIES.

UNDER THIS AMENDMENT IT IS APPARENT THAT SUPARA SKINS WOULD NO LONGER BE REQUIRED TO MEET THE RESULTS OF THE TESTS MADE BY THE BUREAU OF STANDARDS IN ITS EXAMINATION OF FOUKE STANDARD SKINS AGAINST WHICH THE SAMPLE SKINS SUBMITTED BY THE VARIOUS OFFERORS WERE EVALUATED IN THIS PROCUREMENT. SINCE THE SAMPLE SKINS SUBMITTED BY SUPARA, INC., FAILED TO MEET SUCH STANDARDS IN VARIOUS RESPECTS IT IS APPARENT THAT THE AMENDMENT TO PARAGRAPH 6 OF THE CONTRACT CONSTITUTES A RELAXATION OF THE REQUIREMENTS OF THE CONTRACT AS EXECUTED. A SIMILAR RELAXATION WAS EFFECTED BY THE ADDENDUM IN EXTENDING FROM JANUARY 1, 1964, TO APRIL 1, 1964, THE TIME BY WHICH SUPARA IS REQUIRED TO DEVELOP A CAPACITY TO PROCESS 50,000 SEALSKINS PER YEAR, AND IN THE PROVISIONS OF PARAGRAPH 36 RELATIVE TO THE EXTENT OF LIABILITY OF THE JOINT VENTURERS.

THE RULE IS SETTLED THAT CONTRACTS MAY NOT BE AMENDED SO AS TO REDUCE THE CONTRACTOR'S OBLIGATIONS OR THE GOVERNMENT'S RIGHTS UNLESS A COMPENSATING BENEFIT ALSO ACCRUES TO THE GOVERNMENT. WE SEE NO SUCH COMPENSATING BENEFIT IN THE ADDENDUM OF AUGUST 12, 1963.

THE FOREGOING ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE CONSTRUED TO BE ALL-INCLUSIVE, OF THE PROCEDURES FOLLOWED BY YOUR DEPARTMENT IN THIS PROCUREMENT WHICH THIS OFFICE CONSIDERS EITHER IMPROPER OR HIGHLY QUESTIONABLE.

IN VIEW OF OUR CONCLUSIONS AS SET OUT ABOVE, WE ARE TODAY ADVISING THE PIERRE LACLEDE FUR COMPANY THAT A SEPARATE OPINION ON ITS PROTEST AGAINST THE AWARD TO SUPARA WILL NOT BE RENDERED.

THE ENCLOSURES TRANSMITTED WITH THE ADMINISTRATIVE ASSISTANT SECRETARY'S LETTER OF MARCH 20, 1963, ARE RETURNED.

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