B-161608, AUG. 23, 1967

B-161608, AUG. 23, 1967

BIDS - REJECTION AND READVERTISEMENT - PRICE REASONABLENESS DECISION TO SECOND LOW BIDDER, U.S. MANUFACTURING CORP. RE PROTEST AGAINST CANCELLATION OF INVITATION AFTER OPENING AND READVERTISEMENT OF PROCUREMENT FOR BARBED CONCERTINA TAPE. BIDDER WHO PROTESTS CANCELLATION OF INVITATION AFTER OPENING BECAUSE OF UNREASONABLE BID PRICES OF ONLY RESPONSIVE BID AND FAILURE TO INCLUDE PROGRESS PAYMENT PROVISION EVEN THOUGH PROTESTANT'S BID WAS 19 PERCENT HIGHER THAN LOW BID AND 6.5 PERCENT HIGHER THAN PRICE PAID FOR SMALL QUANTITY OF ITEM PURCHASED FOR TEST PURCHASE MUST HAVE PROTEST DENIED SINCE BASIS FOR PRICE DETERMINATION WAS NOT UNREASONABLE. ALSO SINCE THERE WAS ONLY ONE RESPONSIVE BID AND SINCE BID OF BIDDER REQUESTING PROGRESS PAYMENT WAS SUBSTANTIALLY LOWER, THE FAILURE TO INCLUDE A PROGRESS PAYMENT PROVISION CONSTITUTED GROUND FOR CANCELLATION.

TO SAMUEL A. STERN, ESQUIRE:

BY TELEGRAM DATED MAY 26, 1967, AND BY SUBSEQUENT CORRESPONDENCE, YOU PROTESTED, ON BEHALF OF THE U.S. MANUFACTURING CORPORATION, AGAINST THE CANCELLATION OF INVITATION FOR BIDS NO. DSA-700-67-B-4316, AS AMENDED, ISSUED BY THE DEFENSE CONSTRUCTION SUPPLY CENTER, COLUMBUS, OHIO, AFTER THE OPENING OF THE BIDS, AND THE SUBSEQUENT ISSUANCE OF INVITATION FOR BIDS NO. DSA-700-67-B-5833 IN REPLACEMENT OF THE CANCELED INVITATION.

THE SUBJECT PROCUREMENT IS FOR BARBED TAPE DISPENSERS TO BE MANUFACTURED IN ACCORDANCE WITH MIL-D-52490, BARBED CONCERTINA TAPE TO BE MANUFACTURED IN ACCORDANCE WITH MIL-C-52489, AS AMENDED, AND BARBED TAPE IN 50-METER ROLLS TO BE MANUFACTURED IN ACCORDANCE WITH MIL-B 52488, AS AMENDED. BIDS WERE RECEIVED UNDER THE ORIGINAL INVITATION FROM THE INTERLAKE STEEL CORPORATION, THE PRECISION COLD FORGE PRODUCTS COMPANY, THE MONTGOMERY PIPE AND TUBE CO. OF FLORIDA,AND THE U.S. MANUFACTURING CORPORATION (A SMALL BUSINESS CONCERN). FOUR BIDS WERE RECEIVED AND OPENED ON MAY 16, 1967. THREE BIDS WERE REJECTED AS NONRESPONSIVE, THE INTERLAKE BID FOR FAILURE TO CONFORM TO THE DELIVERY SCHEDULE, THE PRECISION BID FOR FAILURE TO FURNISH GUARANTEED MAXIMUM SHIPPING WEIGHTS AND DIMENSIONS, AND THE MONTGOMERY BID FOR CONDITIONING ITS BID ON THE RECEIPT OF PROGRESS PAYMENTS WHICH WERE NOT PROVIDED FOR IN THE INVITATION.

THE BID OF MONTGOMERY PIPE AND TUBE (A SMALL BUSINESS CONCERN) UNDER THE ORIGINAL INVITATION FOR BIDS CONTAINED AN APPARENTLY CORRECTABLE ERROR WITH REGARD TO THE PRICES QUOTED FOR ITEM 3. ASSUMING CORRECTION OF THE ERROR, THE MONTGOMERY BID WOULD HAVE BEEN THE LOWEST RECEIVED. THE CORRECTED MONTGOMERY BID IS SET OUT BELOW:

ITEM 1 - 1,150 EACH X $34.82 EQUALS $ 40,043.00

ITEM 2 - 110,000 ROLLS X 12.50 EQUALS 1,375,000.00

ITEM 3 - 11,250 CASES X 20.70 EQUALS 232,875.00

TOTAL $1,647,918.00

LESS 1/4 PERCENT TIME DISCOUNT 4,119.79

NET PRICE F.O.B. MIAMI, FLORIDA $1,643,798.21

THE BID OF U.S. MANUFACTURING WAS THE SECOND LOW BID, AND AFTER REJECTION OF THE MONTGOMERY BID BECAME THE LOWEST RESPONSIVE BID. IT IS ALSO SET OUT BELOW:

ITEM 1 - 1,150 EACH X $16.00 EQUALS $ 18,400.00

ITEM 2 - 110,000 ROLLS X 15.49 EQUALS 1,703,900.00

ITEM 3 - 11,250 CASES X 21.00 EQUALS 236,250.00

NET BID PRICE F.O.B. DETROIT, MICH. $1,958,550.00 THE MONTGOMERY BID WAS LOW BY $314,751.79 OR 19 PERCENT LESS THAN THE TOTAL BID OF U.S. MANUFACTURING.

THE INVITATION WAS CANCELED ON MAY 23, 1967, PURSUANT TO ARMED SERVICES PROCUREMENT REGULATION (ASPR) 2-404.1 (B) (VI) BECAUSE "ALL OTHERWISE ACCEPTABLE BIDS RECEIVED ARE AT UNREASONABLE CES.' AN ADDITIONAL REASON ADVANCED IN JUSTIFICATION OF THE CANCELLATION WAS THAT THE CANCELED INVITATION FAILED TO INCLUDE PROGRESS PAYMENTS AS REQUIRED BY ASPR E- 504.1. ADDITIONALLY, THE DEFENSE SUPPLY AGENCY HAS ADVISED THAT CERTAIN SPECIFICATION CHANGES WERE INCORPORATED IN THE NEW INVITATION WHICH PROBABLY WOULD HAVE PRECLUDED AWARD UNDER THE CANCELED INVITATION.

IT IS YOUR CONTENTION THAT THE PRICES OFFERED BY U.S. MANUFACTURING WERE REASONABLE AS COMPARED WITH THE PRICES PREVIOUSLY PAID FOR THE SAME ITEMS BY THE GOVERNMENT, AND THAT SINCE THE ,UNREASONABLE PRICE" DETERMINATION WAS THE ONLY GROUND RELIED ON BY THE GOVERNMENT IN ITS NOTICE OF CANCELLATION, THE CANCELLATION IS THEREFORE ERRONEOUS. FURTHER, YOU MAINTAIN THAT THE ABSENCE OF A PROGRESS PAYMENTS PROVISION IN THE ORIGINAL INVITATION WAS NOT SUFFICIENT BASIS FOR CANCELLATION BECAUSE PREDELIVERY COSTS WERE NOT SUBSTANTIAL AND BECAUSE PARTIAL DELIVERY WAS REQUIRED BEFORE THE EXPIRATION OF 6 MONTHS, CONTRARY TO THE REQUIREMENTS OF ASPR E- 504.1, WHICH SETS OUT THE CIRCUMSTANCES UNDER WHICH PROGRESS PAYMENTS PROVISIONS MUST BE INCLUDED. FINALLY, YOU MAINTAIN THAT THE SPECIFICATION CHANGES CONTAINED IN THE NEW INVITATION ARE NOT CHANGES AT ALL, BUT ARE MERELY AMPLIFICATIONS OR FURTHER DEFINITIONS OF REQUIREMENTS PREVIOUSLY CONTAINED IN THE ORIGINAL INVITATION.

THE REPORT SUBMITTED TO OUR OFFICE BY THE DEFENSE SUPPLY AGENCY (DSA) STATES THAT THE DETERMINATION THAT THE PRICES OFFERED BY THE U.S. MANUFACTURING CORPORATION WERE UNREASONABLE WAS MADE ON THE BASIS OF A COMPARISON OF THE CORPORATION'S BID PRICES WITH THOSE OF MONTGOMERY PIPE AND TUBE, AND WITH THE PRICES PAID ON THE ONLY PRIOR PROCUREMENT OF THE SUBJECT BARBED TAPE (WHICH PROCUREMENT CONSISTED OF SMALL QUANTITIES OF THE TAPE TO BE USED FOR TESTING PURPOSES). IN JUSTIFICATION OF THE CONTRACTING OFFICER'S RELIANCE ON THE NONRESPONSIVE MONTGOMERY BID IN MAKING HIS DETERMINATION, THE REPORT STATES:

"* * * WITH RESPECT TO MONTGOMERY PIPE AND TUBE COMPANY, THIS CENTER HAS HAD FAVORABLE PRIOR PROCUREMENT EXPERIENCE IN THAT ON 4 MARCH 1966 CONTRACT NO. DSA-700-24558 WAS AWARDED TO THIS FIRM FOR 439,152 COILS OF CONCERTINA BARBED WIRE IN THE AMOUNT OF $4,725,275.52, WHICH HAS BEEN SUCCESSFULLY PERFORMED. SINCE THIS FIRM IS A RESPONSIBLE SMALL BUSINESS MANUFACTURER, IT IS CONSIDERED PROPER TO CONSIDER THIS FIRM'S BID PRICE IN DETERMINING THE REASONABLENESS OF THE BID PRICE OF U.S. MANUFACTURING CORPORATION (SEE B-158459, DATED 14 APRIL 1966). ON THIS BASIS, THE PRICE OF U.S. MANUFACTURING CORPORATION WAS NOT CONSIDERED REASONABLE BY THE CONTRACTING OFFICER. * * *"

YOU MAINTAIN THAT ANY DETERMINATION WITH REGARD TO THE REASONABLENESS OF THE BID OF U.S. MANUFACTURING SHOULD HAVE BEEN MADE ON THE BASIS OF THE SINGLE PRIOR PROCUREMENT COUPLED WITH THE BIDS OF THE OTHER BIDDERS, WITH THE EXCEPTION OF MONTGOMERY PIPE AND TUBE. YOU POINT OUT THAT THE PRIOR PROCUREMENT OF BARBED CONCERTINA TAPE (ITEM 2 OF THE INVITATION WHICH COMPRISES THE LARGEST DOLLAR VOLUME OF THE 3 ITEMS), WAS AT A PRICE OF $14.78 EACH, AS COMPARED WITH YOUR CLIENT'S PRICE OF $15.48 EACH. YOU ALSO POINT OUT THAT THERE HAS BEEN A PROCUREMENT OF CONCERTINA TAPE CALLED FOR IN ITEM 2 SUBSEQUENT TO THE CANCELLATION OF THE INVITATION FROM THE PRIOR SUPPLIER AT A PRICE ONLY 2 PERCENT LOWER THAN THAT BID BY YOUR CLIENT. YOU CONTEND THAT NOT ONLY IS THE 19 PERCENT DIFFERENTIAL BETWEEN YOUR CLIENT'S BID AND THE MONTGOMERY BID NOT ,UNREASONABLE" IN VIEW OF THE FACT THAT THE ITEM IN QUESTION HAS NOT BEEN PREVIOUSLY PRODUCED BY A DOMESTIC MANUFACTURER, BUT THAT "IT SEEMS UNSUPPORTABLE TO USE, AS A COMPARISON, A PRICE OFFERED BY A NONRESPONSIVE BIDDER WHO HAS NO EXPERIENCE IN MANUFACTURING THE ITEM BEING PROCURED, WHEN THERE ARE AVAILABLE DATA ON ACTUAL PRICES PAID TO THE ONLY MANUFACTURER WHICH HAS MADE THE ITEM IN THE PAST.'

WHILE THE INTEREST OF THE GOVERNMENT AND THE INTEGRITY OF THE COMPETITIVE BIDDING SYSTEM REQUIRE THAT INVITATIONS BE CANCELED AFTER OPENING ONLY FOR COGENT AND COMPELLING REASONS, THERE NECESSARILY IS RESERVED IN THE CONTRACTING OFFICIALS A SUBSTANTIAL AMOUNT OF DISCRETION IN DETERMINING WHETHER OR NOT AN INVITATION SHOULD BE CANCELED. THE NECESSITY FOR THIS DISCRETION IS NOWHERE BETTER EVIDENCED THAN IN THE SITUATION WHERE A DETERMINATION AS TO THE "REASONABLENESS" OF BID PRICES MUST BE MADE. MAKING HIS DETERMINATION, THE CONTRACTING OFFICER MUST RELY ON ALL RELEVANT CONSIDERATIONS. THE BID OF A NONRESPONSIVE BIDDER IS ONE FACTOR WHICH IS RELEVANT SO LONG AS THE NONRESPONSIVENESS DOES NOT AFFECT THE OVERALL RESPONSIBILITY OF THE BIDDER. THE FOLLOWING STATEMENT, WHICH WE CONSIDER TO BE APPLICABLE TO THIS CASE, WAS MADE IN 36 COMP. GEN. 364, AT PAGE 365:

"* * * WE HAVE * * * CONSTANTLY SOUGHT TO PROTECT AND MAINTAIN THE PRINCIPLES OF IMPARTIALITY AND FAIR PLAY UPON WHICH THE COMPETITIVE BIDDING SYSTEM DEPENDS, AND HAVE NEVER COUNTENANCED THE REJECTION OF BIDS MERELY FOR THE PURPOSE OF AFFORDING THE BIDDERS AN OPPORTUNITY TO BETTER THE PRICES OF THEIR COMPETITORS. WE CANNOT, HOWEVER, CONSIDER THE MATTER OF COMPETITIVE BIDDING FOR GOVERNMENT CONTRACTS SOLELY AS A GAME, IN WHICH THE CONTRACT MUST AUTOMATICALLY GO TO THE LOWEST BIDDER WITHOUT REGARD TO THE REASONABLENESS OF HIS PRICE OR TO OTHER ATTEMPTED BIDS WHICH CANNOT FOR TECHNICAL REASONS BE ACCEPTED. WHEN IN THE LIGHT OF ALL THE FACTS, INCLUDING THOSE DISCLOSED BY THE BIDDING, IT IS ADMINISTRATIVELY DETERMINED THAT THE LOWEST ACCEPTABLE BID IS IN EXCESS OF THE AMOUNT FOR WHICH THE GOVERNMENT SHOULD BE ABLE TO OBTAIN THE SUPPLIES OR SERVICES SOUGHT, WE BELIEVE THAT THE REJECTION OF ALL BIDS AND READVERTISING OF THE CONTRACT IS A PROPER EXERCISE OF THE ADMINISTRATIVE DISCRETION, IN CONFORMITY WITH THE DUTY OF THE ADMINISTRATIVE OFFICIALS TO ACT IN THE BEST INTEREST OF THE GOVERNMENT. * * *"

IN MAKING THE DETERMINATION THAT THE BID OF U.S. MANUFACTURING WAS UNREASONABLE, THE CONTRACTING OFFICER CONSIDERED THE FACT THAT NOT ONLY WAS THE BID 19 PERCENT HIGHER THAN THE MONGTOMERY BID, BUT IT WAS ALSO 6.5 PERCENT HIGHER THAN THE PRICE PAID FOR A SMALL QUANTITY OF BARBED TAPE PROCURED FOR TEST PURPOSES. SINCE IT NORMALLY IS TO BE EXPECTED THAT THE COST PER ITEM WILL DECREASE AS THE QUANTITIES INCREASE, AND SINCE MONTGOMERY PIPE AND TUBE IS A FIRM WITH WHICH "FAVORABLE PRIOR PROCUREMENT EXPERIENCE" HAS BEEN HAD, WE CANNOT SAY THAT RELIANCE ON THESE FACTORS IN REACHING AN UNREASONABLE PRICE DETERMINATION WAS AN ABUSE OF ADMINISTRATIVE DISCRETION.

WE ALSO ARE OF THE OPINION THAT THE ABSENCE OF A PROGRESS PAYMENTS PROVISION IN THE ORIGINAL INVITATION CONSTITUTED SUFFICIENT GROUNDS FOR ITS CANCELLATION. THE DELIVERY SCHEDULE SET OUT IN THE ORIGINAL INVITATION CALLED FOR PARTIAL DELIVERIES OF ITEMS 1 AND 2 TO BE MADE WITHIN 180 DAYS AFTER THE DATE OF THE AWARD. WHILE IT THEREFORE IS TRUE, AS YOU POINT OUT, THAT INITIAL DELIVERIES WERE REQUIRED WITHIN A TIME LIMIT "NOT IN EXCESS OF SIX MONTHS FROM THE BEGINNING OF WORK," CONTRARY TO THE ASPR E-504.1 REQUIREMENT, THE ADMINISTRATIVE REPORT STATES THAT THE ESTIMATED TOOLING COST OF MONTGOMERY PIPE AND TUBE WAS $189,250, AND CONCLUDES THAT THIS FIGURE REPRESENTS A SUBSTANTIAL PREDELIVERY OUTLAY WITHIN THE CONTEMPLATION OF THAT SECTION. FURTHER, THE REPORT POINTS OUT THAT ASPR E-504.1 REQUIRES THAT "PROVISION FOR PROGRESS PAYMENTS SHALL ALSO BE MADE IN INVITATIONS FOR BIDS WHENEVER IT IS ESTIMATED THAT THE PROCUREMENT WILL INVOLVE APPROXIMATELY $100,000 OR MORE AND THAT BIDS ARE LIKELY TO BE SUBMITTED BY ONE OR MORE SMALL BUSINESS CONCERNS," AND CONCLUDES THAT THE MANDATORY NATURE OF THIS PORTION OF THE ASPR PROVISION REQUIRED THE INSERTION OF PROGRESS PAYMENTS PROVISIONS. RELYING ON OUR DECISION B-160013, OCTOBER 27, 1966, 46 COMP. GEN. 368, THE CONTRACTING OFFICER DETERMINED THAT THE ABSENCE OF PROGRESS PAYMENTS PROVISIONS PRECLUDED THE "FULL AND FREE COMPETITION CONTEMPLATED BY THE FORMAL ADVERTISING PROCEDURES.' SINCE THERE WAS ONLY ONE RESPONSIVE BID AND SINCE THE BID OF THE BIDDER REQUESTING PROGRESS PAYMENTS WAS SUBSTANTIALLY LOWER THAN THE ONE RESPONSIVE BID, WE CONCLUDE THAT THE CONTRACTING OFFICER'S DETERMINATION THAT FULL AND FREE COMPETITION WAS NOT ACHIEVED BECAUSE OF THE ABSENCE OF PROGRESS PAYMENTS ALSO WAS A VALID EXERCISE OF ADMINISTRATIVE DISCRETION AND THEREFORE NOT SUBJECT TO QUESTION BY OUR OFFICE.

WE ACCORDINGLY CONCLUDE THAT THE INVITATION CANCELLATION WAS PROPER. VIEW OF OUR CONCLUSION IT IS NOT NECESSARY FOR US TO CONSIDER THE QUESTION OF WHETHER OR NOT THE SPECIFICATION CHANGES MADE AFTER CANCELLATION WERE SO SUBSTANTIAL THAT PRODUCTION WOULD HAVE BEEN PRECLUDED UNDER THE ORIGINAL INVITATION.