B-150807, APR. 22, 1963

B-150807, APR. 22, 1963

TO GOLDEN EAGLE REFINING COMPANY, INC.:

WE REFER TO YOUR LETTER OF FEBRUARY 7, 1963, WITH ENCLOSURES, RELATIVE TO YOUR PROTEST AGAINST THE AWARD OF CONTRACTS ON A NEGOTIATED BASIS BY THE DEFENSE PETROLEUM SUPPLY CENTER, DEFENSE SUPPLY AGENCY, OREGON, AND RICHMOND, CALIFORNIA.

YOU ADVISE THE WHILE YOU WERE INVITED TO SUBMIT A PROPOSAL TO FURNISH STORAGE FACILITIES IN THE PORTLAND AND RICHMOND AREAS, NEGOTIATIONS WERE CONDUCTED ONLY WITH THE PRESENT CONTRACTOR WHICH, TOGETHER WITH ITS SUBSIDIARIES, HAS MANY OTHER SOLE-SOURCE NEGOTIATED CONTRACTS FOR STORAGE FACILITIES. IT IS POINTED OUT THAT NO PUBLIC ANNOUNCEMENTS WERE MADE OF THE GOVERNMENT'S STORAGE REQUIREMENTS; THAT IF FACILITIES WERE SECURED ON AN OPEN-BID BASIS, LOWER TOTAL COSTS WOULD HAVE RESULTED; THAT THE PRESENT CONTRACTOR HAS EMPLOYED THREE FORMER MILITARY CONTRACTING OFFICERS; AND THAT GOLDEN EAGLE'S PROPOSAL WAS USED TO NEGOTIATE BETTER LEASE ARRANGEMENTS WITH THE PRESENT CONTRACTOR.

WE HAVE ASCERTAINED THAT THE PRESENT CONTRACTOR--- THE TIME OIL CO. -- HAS BEEN FURNISHING PETROLEUM STORAGE FACILITIES FOR THE PORTLAND AREA SINCE JANUARY 1956 UNDER SUCCESSIVE RENEWALS OF ITS INITIAL NEGOTIATED CONTRACT. THE PROCUREMENT AGENCY WAS UNAWARE OF YOUR COMPANY'S INTEREST IN FURNISHING STORAGE FACILITIES FOR THE PORTLAND AREA UNTIL RECEIPT OF YOUR LETTER OF AUGUST 10, 1961, WHEREIN YOU NOTIFIED THE AGENCY THAT YOUR COMPANY WAS COMPLETING THE CONSTRUCTION OF STORAGE FACILITIES AT VANCOUVER, WASHINGTON. UP TO THAT TIME, SOURCE SURVEYS INDICATED THAT TIME OIL ALONG HAD FACILITIES WHICH WOULD MEET THE REQUIREMENTS OF THE GOVERNMENT. HOWEVER, THE THEN EXISTING CONTRACT WITH TIME OIL ALREADY HAD BEEN RENEWED ON MAY 15, 1961, FOR THE PERIOD JULY 1, 1961, TO JUNE 30, 1962. ON MARCH 13, 1962, YOUR COMPANY REQUESTED INFORMATION ON THE STATUS OF RENEWAL NEGOTIATIONS FOR STORAGE FACILITIES IN THE PORTLAND AND RICHMOND AREAS. ON THE SAME DAY, TIME OIL SUBMITTED AN OFFER PROPOSING TO REDUCE THE CONTRACT ANNUAL PER BARREL RATE FOR THE REMAINING MONTHS OF THE CONTRACT (APRIL, MAY AND JUNE), PROVIDED THE CONTRACT BE RENEWED FOR FISCAL YEAR 1963 AT THE REDUCED ANNUAL PER BARREL RATE.

IN VIEW OF YOUR COMPANY'S INTEREST, GOLDEN EAGLE WAS REQUESTED TO SUBMIT A PROPOSAL ON TANKS HAVING A TOTAL CAPACITY OF ABOUT 86,000 BARRELS; ONE ISOLATED SYSTEM FOR HANDLING GOVERNMENT PRODUCTS ONLY; FUEL TO BE RECEIVED BY TANKERS AND BARGES, 24 HOURS PER DAY, 7 DAYS PER WEEK; AND SHIPMENT FROM STORAGE VIA TANK TRUCK, 8 HOURS PER DAY, 5 DAYS PER WEEK. YOUR COMPANY ALSO WAS TO INDICATE THAT NUMBER OF FREE THROUGHPUTS AND THE EXCESS PER BARREL CHARGE. THE PROPOSAL FROM TIME OIL AND THAT OF YOUR COMPANY WERE EVALUATED, AND TAKING INTO CONSIDERATION THE ESTIMATED TRANSPORTATION CHARGES FROM THE STORAGE TERMINALS TO PORTLAND INTERNATIONAL AIRPORT AND KINGSLEY FIELD, IT WAS DETERMINED THAT TIME OIL'S PROPOSAL AMOUNTED TO $350,386.65 AND YOUR COMPANY'S PROPOSAL AMOUNTED TO $400,479.52. CLEARLY, THE PROPOSAL OF TIME OIL WAS MORE ADVANTAGEOUS TO THE GOVERNMENT, CONSIDERING THAT THE DIFFERENCE IN ESTABLISHED TRANSPORTATION COSTS EXCEEDED GOLDEN EAGLE'S ANNUAL USE CHARGE. SINCE THIS SUBSTANTIAL DIFFERENCE PRECLUDED EFFECTIVE COMPETITION BY GOLDEN EAGLE AND SINCE THE TRANSPORTATION COSTS COULD NOT BE A SUBJECT OF NEGOTIATION, NO NEGOTIATIONS WERE SEE ASPR 3-805.1 (A) (1). ON APRIL 20, 1962, CONTRACT NO. ASP-12256, AS AMENDED, WITH TIME OIL WAS RENEWED FOR THE PERIOD JULY 1, 1962, THROUGH JUNE 30, 1963, IN ACCORDANCE WITH THE CONTRACTOR'S PROPOSAL.

CONCERNING THE PROCUREMENT OF STORAGE FACILITIES IN THE AREA OF RICHMOND, CALIFORNIA, WE HAVE ASCERTAINED THAT TIME OIL HAS FURNISHED STORAGE FACILITIES TO THE GOVERNMENT SINCE 1951 UNDER SUCCESSIVE RENEWALS OF ITS ORIGINAL CONTRACT. THE PROCUREMENT AGENCY RECEIVED ITS FIRST INDICATION THAT GOLDEN EAGLE HAD AVAILABLE FACILITIES IN THE RICHMOND AREA WHEN IT RECEIVED YOUR COMPANY'S LETTERS IN MARCH 1962. THE NAVY REQUIREMENT FOR PETROLEUM STORAGE DURING FISCAL YEAR 1963 AMOUNTED TO 210,000 BARRELS OR THE AMOUNT CURRENTLY BEING PROVIDED UNDER THE OFFERED A TOTAL STORAGE CAPACITY OF 204,500 BARRELS. HOWEVER, THE PROPOSAL INCLUDED THREE TANKS WITH A 1,500-BARREL CAPACITY WHICH WAS NOT ACCEPTABLE TO THE NAVY BECAUSE OF THE TANK'S SMALL CAPACITY. HENCE, THE AMOUNT OF USEFUL STORAGE AVAILABLE UNDER YOUR COMPANY'S PROPOSAL WAS REDUCED TO 200,000 BARRELS. PRIOR THERETO, ON MARCH 1, 1962, TIME OIL OFFERED TO RENEW ITS CONTRACT ON THE SAME TERMS AND CONDITIONS. BOTH PROPOSALS WERE EVALUATED AND IT APPEARED THAT GOLDEN EAGLE'S PROPOSAL EXCEEDED TIME OIL'S PROPOSAL BY MORE THAN $5,000. HENCE, ON APRIL 19, 1962, TIME OIL'S CONTRACT WAS RENEWED FOR THE PERIOD JULY 1, 1962, THROUGH JUNE 30, 1963.

THE RECORD IS CLEAR THAT THE PROPOSALS OF TIME OIL ON THE PORTLAND AND RICHMOND PROCUREMENTS WERE MADE PRIOR TO GOLDEN EAGLE'S PROPOSAL OF MARCH 22, 1962. SINCE TIME OIL'S PROPOSALS WERE NOT SUBSEQUENTLY REVISED, IT IS APPARENT THAT YOUR COMPANY'S PROPOSAL WAS NOT USED IN CONNECTION WITH TIME OIL'S PROPOSALS.

THE CONTRACTS WITH TIME OIL WERE NEGOTIATED UNDER THE AUTHORITY OF 10 U.S.C. 2304 (A) (10). THIS AUTHORITY TO NEGOTIATE CONTRACTS WITHOUT ADVERTISING IS IMPLEMENTED BY ASPR 3-210.2 (X) BY THE FOLLOWING ILLUSTRATION:

"/X) WHEN THE CONTEMPLATED PROCUREMENT IS FOR STEVEDORING, TERMINAL, WAREHOUSING, OR SWITCHING SERVICES, AND WHEN EITHER THE RATES ARE ESTABLISHED BY LAW OR REGULATION, OR THE RATES ARE SO NUMEROUS OR COMPLEX THAT IT IS IMPRACTICABLE TO SET THEM FORTH IN THE SPECIFICATIONS OF A FORMAL SOLICITATION OF BIDS; "

PURSUANT TO ASPR 3-210.3, THE CONTRACTING OFFICER EXECUTED TWO "STATEMENTS OF JUSTIFICATION" WHICH SUPPORT THE ACTIONS TAKEN. CONCERNING THE FAILURE TO NEGOTIATE FURTHER WITH YOUR COMPANY, WE BELIEVE THAT A CONTRACTING OFFICER MAY NEGOTIATE WITH ONE OFFEROR ONLY WHEN, IN HIS CONSIDERED JUDGMENT, THAT OFFEROR'S PROPOSAL IS CLEARLY AND SUBSTANTIALLY MORE ADVANTAGEOUS TO THE GOVERNMENT THAN ANY OTHER PROPOSAL. SEE ASPR 3- 805.1 (A) (1). WE ARE NOT DISPOSED, ON THE RECORD BEFORE US, TO QUESTION THE CONTRACTING OFFICER'S ACTION IN THIS REGARD. WHILE OUR OFFICE BELIEVES THAT THE SOLICITATION OF COMPETITIVE BIDS BY FORMAL ADVERTISING AS DISTINGUISHED FROM NEGOTIATION PROCEDURES IS GENERALLY IN THE BEST INTERESTS OF THE GOVERNMENT, OUR PRESENT REVIEW OF THIS MATTER WOULD NOT WARRANT OUR OFFICE IN CONCLUDING THAT THE ADMINISTRATIVE DETERMINATION TO NEGOTIATE WAS IMPROPER. MOREOVER, THE NEGOTIATION OF THE PORTLAND AREA CONTRACT IS JUSTIFIED ON THE BASIS THAT IT WAS IMPRACTICABLE TO OBTAIN COMPETITION (10 U.S.C. 2304 (A) (10) ). THAT SUCH IS TRUE IS DEMONSTRATED BY THE FACT THAT THE FIXED TRANSPORTATION COST FACTOR OF YOUR COMPANY, WHICH WAS NOT A NEGOTIABLE FACTOR, EXCEEDED YOUR COMPANY'S PROPOSAL COVERING THE ANNUAL USE CHARGE. UNDER SUCH CIRCUMSTANCES, NO USEFUL PURPOSE WOULD HAVE BEEN SERVED HAD FORMAL COMPETITIVE BIDS BEEN SOLICITED.

WHILE IT MAY BE THAT TIME OIL AND/OR ITS SUBSIDIARIES HAVE OTHER PETROLEUM STORAGE CONTRACTS, WE ARE UNABLE TO CONCLUDE ON THIS RECORD THAT SUCH CONTRACTS WERE NOT IN THE BEST INTERESTS OF THE GOVERNMENT OR OTHERWISE UNAUTHORIZED.

ALTHOUGH TWO RETIRED MILITARY OFFICERS HAVE POSITIONS WITH TIME OIL, WE ARE ADVISED BY THE PROCUREMENT AGENCY THAT NEITHER OF THESE OFFICERS EVER DISCUSSED TIME OIL CONTRACTS OR NEGOTIATED FOR THE SAME WITH PROCUREMENT OFFICIALS.