B-148825, DEC. 19, 1962

B-148825: Dec 19, 1962

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TO THE SECRETARY OF THE ARMY: WE ARE ENCLOSING A COPY OF OUR REPORT TO SENATOR MCNAMARA AND SENATOR HART ON OUR REVIEW OF THE RECENT PROCUREMENT OF 498 M88 RECOVERY VEHICLES BY THE DEPARTMENT OF THE ARMY UNDER RFP NO. ALSO ENCLOSED IS A COPY OF OUR LETTER OF TODAY TO THE SECRETARY OF THE ARMY SUGGESTING THAT ALL NECESSARY STEPS BE TAKEN TO PREVENT FUTURE USE OF CERTAIN ERRONEOUS PRICE EVALUATION PROCEDURES DISCLOSED BY OUR REVIEW. IT WOULD APPEAR THAT A PRIMARY QUESTION WHICH IS RAISED BY THE INSTANT PROCUREMENT IS WHETHER RESTRICTIONS SHOULD BE IMPOSED UPON THE DISCRETION OF CONTRACTING AGENCIES TO CONSIDER FACTORS. WAS BASED UPON THE FOLLOWING PERTINENT FINDINGS: "/1) THE ITEMS TO BE PROCURED ARE TECHNICAL AND SPECIALIZED EQUIPMENT TO BE MADE TO MILITARY SPECIFICATIONS AND ARE TYPES NOT FOUND IN COMMERCIAL PRODUCTION. "/2) THE ORDNANCE CORPS HAS AN INVESTMENT IN CAPITAL EQUIPMENT AND SPECIAL TOOLING PRESENTLY BEING USED IN EXCESS OF $60.

B-148825, DEC. 19, 1962

TO THE SECRETARY OF THE ARMY:

WE ARE ENCLOSING A COPY OF OUR REPORT TO SENATOR MCNAMARA AND SENATOR HART ON OUR REVIEW OF THE RECENT PROCUREMENT OF 498 M88 RECOVERY VEHICLES BY THE DEPARTMENT OF THE ARMY UNDER RFP NO. OTAC 62 14. ALSO ENCLOSED IS A COPY OF OUR LETTER OF TODAY TO THE SECRETARY OF THE ARMY SUGGESTING THAT ALL NECESSARY STEPS BE TAKEN TO PREVENT FUTURE USE OF CERTAIN ERRONEOUS PRICE EVALUATION PROCEDURES DISCLOSED BY OUR REVIEW.

IT WOULD APPEAR THAT A PRIMARY QUESTION WHICH IS RAISED BY THE INSTANT PROCUREMENT IS WHETHER RESTRICTIONS SHOULD BE IMPOSED UPON THE DISCRETION OF CONTRACTING AGENCIES TO CONSIDER FACTORS, OTHER THAN PRICE AND THE RESPONSIBILITY OF THE OFFEROR, IN AWARDING COMPETITIVELY NEGOTIATED FIXED- PRICE SUPPLY CONTRACTS. IN THIS CONNECTION IT SHOULD BE NOTED THAT THE DETERMINATION TO NEGOTIATE THE INSTANT PROCUREMENT UNDER 10 U.S.C. 2304 (A) (14), BECAUSE FORMAL ADVERTISING WOULD BE LIKELY TO RESULT IN ADDITIONAL COST TO THE GOVERNMENT BY REASON OF DUPLICATION OF A SUBSTANTIAL INITIAL INVESTMENT, WAS BASED UPON THE FOLLOWING PERTINENT FINDINGS:

"/1) THE ITEMS TO BE PROCURED ARE TECHNICAL AND SPECIALIZED EQUIPMENT TO BE MADE TO MILITARY SPECIFICATIONS AND ARE TYPES NOT FOUND IN COMMERCIAL PRODUCTION.

"/2) THE ORDNANCE CORPS HAS AN INVESTMENT IN CAPITAL EQUIPMENT AND SPECIAL TOOLING PRESENTLY BEING USED IN EXCESS OF $60,000,000.00 IN THE PLANTS OF PRIME AND SUBCONTRACTORS IN THE PRODUCTION OF THIS PROPERTY. SINCE IT IS IMPRACTICABLE TO OFFER SUCH GOVERNMENT FACILITIES FOR USE IN ADVERTISED PROCUREMENTS UNDER THE CRITERIA ESTABLISHED FOR ENSURING PARITY AMONG ALL BIDDERS, SUCH METHOD OF PROCUREMENT MAY RESULT IN DUPLICATION OF A SUBSTANTIAL PORTION OF THE TOTAL INVESTMENT ALREADY MADE BY THE GOVERNMENT.

"/D) THE USE OF FORMAL ADVERTISING FOR PROCUREMENT OF THE ABOVE DESCRIBED PROPERTY IS IMPRACTICABLE SINCE THE GOVERNMENT HAS SUBSTANTIAL INVESTMENT IN FACILITIES WHICH ARE PRESENTLY BEING UTILIZED FOR CURRENT PRODUCTION, AND IT IS IMPRACTICABLE TO OFFER SAME IN A FORMALLY ADVERTISED PROCUREMENT.'

AS INDICATED BY A MEMORANDUM DATED APRIL 23, 1962, FROM THE ASSISTANT SECRETARY OF THE ARMY, INSTALLATIONS AND LOGISTICS, TO THE DEPUTY SECRETARY OF DEFENSE, THE AWARD TO BOWEN-MCLAUGHLIN-YORK, INCORPORATED, ON THE BASIS OF ITS LOW CASH OUTLAY OFFER WAS JUSTIFIED BY CONSIDERATION OF VARIOUS FACTORS WHICH DID NOT ENTER INTO THE EVALUATION OF OFFERS AND DO NOT APPEAR TO BE DIRECTLY RELATED TO THE FINDINGS SET OUT ABOVE.

AMONG THESE FACTORS WERE THE FOLLOWING: (1) THE COST OF DISPOSING OF GOVERNMENT-OWNED FACILITIES AT THE CURRENT PRODUCER'S PLANT IN THE EVENT OF AN AWARD TO ANOTHER OFFEROR, (2) ADDITIONAL COSTS OF INSPECTION CONTROL TESTS IN CASE OF AN AWARD TO OTHER THAN THE CURRENT PRODUCER,AND (3) ADDITIONAL COSTS OF PHASING OUT CONTRACT ADMINISTRATION IN THE EVENT OF AN AWARD TO OTHER THAN THE CURRENT PRODUCER, NONE OF WHICH WAS IDENTIFIED IN THE RFP, AS NORMALLY REQUIRED BY ASPR 3-501 (B) (XVII) AND (XVIII), OR WAS INCLUDED IN THE ORIGINAL PRICE EVALUATION OF THE PROPOSALS. IT IS OUR OPINION THAT IF COSTS OF THIS NATURE ARE PROPERLY FOR CONSIDERATION, THEY SHOULD BE IDENTIFIED IN THE RFP AND INCLUDED AND CONSIDERED ALONG WITH ALL OTHER COST FACTORS IN DETERMINING THE TOTAL EVALUATED PRICE OF ANY OFFEROR WHO SUBMITS A BID OR OFFER IN COMPETITION WITH A CURRENT PRODUCER.

THE SITUATION IS FURTHER COMPLICATED BY THE FACT THAT A PORTION OF AMENDMENT NO. 7 TO RFP NO. OTAC 62-14, WHICH WAS ISSUED ON FEBRUARY 26, 1962, AND REQUIRED OFFERORS TO INCLUDE THE FULL COST OF NEW CAPITAL TYPE EQUIPMENT IN THEIR PROPOSALS, APPEARS TO HAVE BEEN BASED UPON AN ERRONEOUS INTERPRETATION OF A NEWLY REVISED POLICY OF YOUR DEPARTMENT (SUBSEQUENTLY ISSUED ON APRIL 15, 1962, AS ASPR 13-102.3), NAMELY THAT SUCH POLICY PRECLUDED ACQUISITION OF NEW CAPITAL EQUIPMENT BY CONTRACTORS FOR GOVERNMENT ACCOUNT IN COMPETITIVELY NEGOTIATED PROCUREMENTS.

UNDER THE CIRCUMSTANCES, WE RECOMMEND THAT YOUR DEPARTMENT GIVE IMMEDIATE CONSIDERATION TO THE ISSUANCE OF DEFINITIVE REGULATIONS ON THE FACTORS PROPERLY FOR CONSIDERATION IN DETERMINING THE LOW EVALUATED OFFER IN COMPETITIVELY NEGOTIATED FIXED-PRICE SUPPLY CONTRACTS, THE CIRCUMSTANCES, IF ANY, UNDER WHICH AWARDS MAY BE BASED UPON LOW CASH OUTLAY, AND THE SPECIFIC FACTORS PROPERLY FOR CONSIDERATION IN DETERMINING THAT AWARDS TO OTHER THAN THE LOW EVALUATED RESPONSIBLE OFFEROR WOULD BE IN THE PUBLIC INTEREST.

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