B-139757, DECEMBER 1, 1959, 39 COMP. GEN. 405

B-139757, DECEMBER 1, 1959, 39 COMP. GEN. 405

CONTRACTS - MISTAKES - CONTRACTING OFFICER'S ERROR DETECTION DUTY A CONTRACTOR WHO, AFTER RECEIPT OF NOTICE OF AWARD OF A CONTRACT, ADVISES THE PROCUREMENT AGENCY THAT THE ADDITIONAL COST AS A RESULT OF AN ERROR ALLEGED AT BID OPENING WILL BE ABSORBED IS ESTOPPED FROM CLAIMING A FURTHER ERROR. ALTHOUGH A CONTRACTING OFFICER IS BOUND TO PROTECT THE INTERESTS OF ALL BIDDERS BY EXERCISING THAT DEGREE OF CARE WHICH A REASONABLE AND PRUDENT PERSON MIGHT EXERCISE UNDER SIMILAR CIRCUMSTANCES IN DETERMINING THE LOWEST RESPONSIBLE BIDDER, PRICE AND OTHER FACTORS CONSIDERED, WHERE THERE IS NOTHING ON THE FACE OF THE BID TO INDICATE THE POSSIBILITY OF ERROR, THE FACT THAT A BID IS LOW IN RELATION TO THE EXISTING ECONOMIC CLIMATE AND DOES NOT REFLECT A HIGHER PRICE THAN QUOTED IN PAST YEARS DOES NOT IMPOSE ANY DUTY ON THE CONTRACTING OFFICER TO QUESTION THE BIDDER'S PRICE, OR TO ASSURE HIMSELF THAT THE BID WAS COMPUTED CORRECTLY WITH REGARD TO ECONOMIC CONDITIONS, PAST PROCUREMENTS, OR OTHER MATTERS MERELY INCIDENT TO THE WRITTEN BID. WHERE THE PRICE RANGE BETWEEN A LOW BID AND SEVERAL OTHER LOW BIDS WHEN AVERAGED TOGETHER IS ABOUT 1.74 TIMES THE LOW BID AND 1.56 TIMES THE AMOUNT OF THE SECOND LOW BID, THERE CAN BE NO BASIS FOR THE CONCLUSION THAT THE PRICE DIFFERENCE CONSTITUTES CONSTRUCTIVE NOTICE TO THE CONTRACTING OFFICER OF AN ALLEGED ERROR.

TO FOWLER, LEVA, HAWES AND SYMINGTON, DECEMBER 1, 1959:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 24, 1959, REQUESTING, ON BEHALF OF THE ELECTRONICS DIVISION OF GLOBE INDUSTRIES, INC., RECONSIDERATION OF OUR DECISION DATED JULY 15, 1959, 39 COMP. GEN. 36, WHEREIN WE HELD THAT NO LEGAL BASIS EXISTS FOR ALLOWING ANY AMOUNT IN EXCESS OF THE PRICES FIXED IN CONTRACT NO. DA-36-039-SC-76813.

TWO PRINCIPAL CONTENTIONS ARE ADVANCED AS BASES FOR ALLOWING GLOBE THE RELIEF CLAIMED BECAUSE OF MISTAKE IN BID AS FOLLOWS:

(1) THE CONTRACTING OFFICER SHOULD HAVE REQUESTED GLOBE TO VERIFY ITS BID BECAUSE THE RECORD BEFORE HIM SHOULD HAVE CAUSED HIM TO SURMISE THAT GLOBE MADE A MISTAKE IN ITS BID.

(2) GLOBE NOTIFIED THE CONTRACTING OFFICER OF THE ERROR IN ITS BID BEFORE THE AWARD WAS MADE, AND THE CONTRACTING OFFICER WAS UNDER A DUTY TO CONSIDER THE EVIDENCE OF MISTAKE BEFORE MAKING THE AWARD BUT DECLINED TO DO SO BECAUSE OF HIS ERRONEOUS BELIEF THAT THE AWARD HAD BECOME EFFECTIVE BEFORE THE CLAIM OF ERROR.

A REVIEW OF THE ENTIRE RECORD IN THIS CASE PRESENTS, IN THE FIRST INSTANCE, THE PRINCIPAL QUESTION AS TO THE LEGAL CONSEQUENCES TO BE ATTACHED TO THE EXECUTION OF THE CONTRACT BY GLOBE SUBSEQUENT TO THE ALLEGATION OF ERROR IN BID. IN A LETTER DATED FEBRUARY 11, 1959, GLOBE ADVISED THE CONTRACTING OFFICER IN PART AS FOLLOWS:

DURING OUR VISIT TO THE ARMY SIGNAL SUPPLY AGENCY ON 9 FEBRUARY 1959 WE INDICATED THAT WHILE THE MAGNETIC CONTACTOR, WHICH WILL COST US $23.62 EACH WAS INADVERTENTLY OMITTED WHEN PREPARING OUR QUOTATION, WE HAD DECIDED TO ABSORB THIS ADDITIONAL COST IN ORDER NOT TO DISAPPOINT THE SIGNAL CORPS.

THE LETTER WENT ON TO ADVISE OF A FURTHER ERROR IN ITS BID OF $223.97 ON RANGE "B" AMOUNTING TO $37.82 CAUSED BY A FAULTY ADDING MACHINE IN COMPUTING THE BILL OF MATERIALS. THE TOTAL CLAIMED ERROR OF $61.44--- LATER ADJUSTED TO $53.25--- IF CORRECTED WOULD MAKE GLOBE'S BID $277.22 PER UNIT, OR IN EXCESS OF THE SECOND LOW BID. THE RECORD FURTHER ESTABLISHES THAT THE NOTICE OF AWARD WAS MAILED ON JANUARY 30 AND RECEIVED BY GLOBE OF FEBRUARY 2, 1959. HOWEVER, WHILE ERROR ONLY AS TO THE MAGNETIC CONTACTORS WAS ALLEGED ON JANUARY 30, RELIEF FROM SUCH ERROR WAS WAIVED ON FEBRUARY 9, 1959, AFTER THE NOTICE OF AWARD WAS RECEIVED BY GLOBE. PARAGRAPH 8 (D) OF THE TERMS AND CONDITIONS OF THE INVITATION PROVIDED:

(D) A WRITTEN AWARD MAILED (OR OTHERWISE FURNISHED) TO THE SUCCESSFUL BIDDER WITHIN THE TIME FOR ACCEPTANCE SPECIFIED IN THE BID SHALL BE DEEMED TO RESULT IN A BINDING CONTRACT WITHOUT FURTHER ACTION BY EITHER PARTY.

THERE IS NO DOUBT THAT A VALID AND BINDING CONTRACT WAS IN EXISTENCE ON FEBRUARY 2, 1959. HENCE IT IS CLEAR THAT BOTH THE GOVERNMENT AND GLOBE WERE FULLY AWARE AS TO THE ERROR RESPECTING THE MAGNETIC CONTRACTORS ON FEBRUARY 2, 1959, WHEN THE NOTICE OF AWARD WAS RECEIVED BY GLOBE. THE RESULTING CONTRACT IS PRESUMED, IN LAW, TO EXPRESS THE FINAL UNDERSTANDING OF THE PARTIES. SEE BRAWLEY V. UNITED STATES, 96 U.S. 168, 173; SIMPSON V. UNITED STATES, 172 U.S. 372.

IN THE CASE OF THE MASSMAN CONSTRUCTION COMPANY V. UNITED STATES, 102 C.1CLS. 699, CERTIORARI DENIED 325 U.S. 866, THE PLAINTIFF SOUGHT TO RECOVER $88,000 ALLEGING THAT IT OMITTED AN ITEM OF THAT AMOUNT IN PREPARING ITS BID. THE COURT, IN DENYING RECOVERY OF THE AMOUNT OF THE ALLEGED MISTAKE, STATED (PAGE 717/---

AT THE TIME THE CONTRACT WAS AWARDED TO THE PLAINTIFF, PURSUANT TO ITS BID, AND AT THE TIME IT SIGNED THE CONTRACT, THE PLAINTIFF WAS NOT MISTAKEN. IT HAD BECOME AWARE OF THE MISTAKE IN ITS BID, AND FACED THE PROBLEM OF WHETHER IT WAS WILLING TO SIGN A CONTRACT FOR THE FIGURE WHICH IT HAD, BY MISTAKE SINCE DISCOVERED, BID. THE GOVERNMENT WAS ALSO AWARE OF THE PLAINTIFF'S CLAIM THAT IT HAD MADE A MISTAKE IN THE BID. THERE WAS NOT, THEN, AT THE TIME OF SIGNING THE CONTRACT, ANY LACK OF KNOWLEDGE, EITHER MUTUAL OR UNILATERAL, WHICH CAUSED EITHER OF THEM TO MAKE THE CONTRACT WHICH THEY DID MAKE, WHEN IN FACT THEY INTENDED TO MAKE A DIFFERENT CONTRACT. THAT BEING SO, IF WE SHOULD REFORM THE CONTRACT AS THE PLAINTIFF REQUESTS, WE WOULD BE MAKING FOR THE PARTIES THE VERY CONTRACT WHICH ONE OF THEM, THE GOVERNMENT, EXPRESSLY REFUSED TO MAKE AT THAT TIME, THOUGH REQUESTED TO DO SO BY THE PLAINTIFF.

ALSO, SEE BOARD OF TRUSTEES OF NATIONAL TRAINING SCHOOL FOR BOYS V. O. D. WILSON CO., INC., 133 F.2D 399., 20 COMP. GEN. 652; 23 ID. 596; 25 ID. 536; 26 ID. 426; 31 ID. 384. IT IS REASONABLE TO HOLD THAT GLOBE IS NOW ESTOPPED FROM CLAIMING ERROR AS TO THE MAGNETIC CONTRACTORS SINCE TO PERMIT CONSIDERATION OF THAT ERROR WOULD BE TANTAMOUNT TO PERMITTING GLOBE TO DISAFFIRM ITS CONTRACT SUBSEQUENT TO PRICE VERIFICATION AS TO THAT ERROR. SEE 19 AM. JUR., ESTOPPEL, SECTION 148; 17 C.J.S. CONTRACTS, SECTION 446. MOREOVER, GLOBE WAS ON NOTICE OF ERROR ON JANUARY 30 AND, AT THE TIME, WAS OBLIGED TO FULLY VERIFY ITS BID PRICE NOT ONLY AS TO THE MAGNETIC CONTACTORS BUT ALSO AS TO ALL OTHER ITEMS OF COST COMPRISING ITS BID. GLOBE FAILED TO FULLY VERIFY AND CONFIRM ITS PRICE. WE BELIEVE IT IS REASONABLE TO HOLD THAT ITS STATEMENT TO THE CONTRACTING OFFICER TO "ABSORB THIS ADDITIONAL COST" EFFECTIVELY ESTOPS GLOBE FROM THEREAFTER CLAIMING FURTHER ERROR. HOWEVER, IN VIEW OF YOUR CONTENTION THAT THE CONTRACTING OFFICER SHOULD HAVE BEEN ON CONSTRUCTIVE NOTICE OF THE ALLEGED ERRORS, IT IS BELIEVED APPROPRIATE TO CONSIDER THAT ASPECT OF THE CASE.

CONCERNING THE FURTHER ERROR ALLEGED AFTER THE EFFECTIVE DATE OF THE CONTRACT, IT WAS IMPLICIT IN OUR DECISION THAT THE CONTRACTING OFFICER HAD NEITHER ACTUAL NOR CONSTRUCTIVE NOTICE OF THE PROBABILITY OF ERROR IN GLOBE'S BID. THAT IS TO SAY, WE FOUND NOTHING ON THE FACE OF THE BID WHICH COULD HAVE INDICATED THAT AN ERROR HAD BEEN MADE, OR THAT THE CONTRACTING OFFICER SHOULD HAVE BEEN ON CONSTRUCTIVE NOTICE THAT THE POSSIBILITY OF ERROR EXISTED.

TURNING SPECIFICALLY TO THE ARGUMENT THAT GLOBE'S BID WAS "FAR OUT OF LINE WITH THE BIDS OF AT LEAST ELEVEN OF THE TWELVE OTHER COMPANIES," A CAREFUL ANALYSIS OF THE ABSTRACT OF BIDS REVEALS THAT THE DIFFERENCE BETWEEN GLOBE'S BID PRICE AND OTHER BIDDERS WAS NOT SO SIGNIFICANT AS WOULD HAVE PLACED THE CONTRACTING OFFICER ON NOTICE OF PROBABILITY OF ERROR, AND IT DOES NOT APPEAR THAT SUCH DIFFERENCE WAS SO GREAT THAT HE SHOULD HAVE BEEN ON NOTICE OF ERROR. THE INCREASING PROGRESSION OF THE OTHER ELEVEN BID PRICES PERCENTAGE-WISE WAS NOT ERRATIC OR UNREASONABLE IN RELATION TO THE LOW BID OF GLOBE. FOR EXAMPLE, BID NO. 2 EXCEEDED GLOBE'S BY 11.6 PERCENT, NO. 3 BY 24.6 PERCENT, NO. 4 BY 25.5 PERCENT, NO. 5 BY 48.7 PERCENT, NO. 6 BY 51.4 PERCENT, AND NO. 7 BY 53.6 PERCENT. WE CANNOT REGARD THOSE DIFFERENCES AS GROSS OR INDICATIVE OF ERROR IN THE LOW BID, ESPECIALLY IN VIEW OF THE STRONG COMPETITION IN THE ELECTRONICS INDUSTRY FOR GOVERNMENT BUSINESS. THE VERY NATURE OF THE COMPETITIVE BIDDING SYSTEM NECESSARILY GENERATES BIDS OF DIVERGENT AMOUNTS. MOREOVER, IT IS OUR VIEW THAT CONTRACTING OFFICERS CLEARLY HAVE NO RESPONSIBILITY TO BIDDERS TO ASSURE THAT BIDS ARE ESTIMATED AND ARRIVED AT ON SIMILAR BASES OR THAT THE BIDS INCLUDE ALL NORMAL ITEMS OF COST, INCLUDING A REASONABLE PROFIT. NEITHER ARE THEY REQUIRED TO GIVE GREAT WEIGHT TO THE DETAILS OF BIDS RECEIVED FOUR YEARS PREVIOUSLY FOR THE SAME ITEM BUT FOR DIFFERENT QUANTITIES TO ASCERTAIN THE REASONABLENESS OF PRICES QUOTED. THE PREPARATION OF A BID IN RESPONSE TO THE SUBJECT INVITATION WAS GLOBE'S RESPONSIBILITY ALONE AND IT REQUIRED THE EXERCISE OF REASONABLE DILIGENCE ON GLOBE'S PART. AS WAS STATED BY THE SUPREME COURT IN THE CASE OF GRYMES V. SANDERS, ET AL., 93 U.S. 55, 61,"MISTAKE, TO BE AVAILABLE IN EQUITY, MUST NOT HAVE ARISEN FROM NEGLIGENCE, WHEN THE MEANS OF KNOWLEDGE WERE EASILY ACCESSIBLE. THE PARTY COMPLAINING MUST HAVE EXERCISED AT LEAST THE DEGREE OF DILIGENCE "WHICH MAY BE FAIRLY EXPECTED FROM A REASONABLE PERSON.'" OF COURSE, WHEN A CONTRACTING OFFICER SUSPECTS AN ERROR IN BID HE SHOULD SPECIFICALLY ADVISE THE BIDDER OF THE EXACT NATURE OF THE ERROR AND REQUEST VERIFICATION. THIS IS THE TEST ESTABLISHED BY THE CASE OF UNITED STATES V. METRO NOVELTY MANUFACTURING CO., INC., 125 F.1SUPP. 713. HOWEVER, THE CONTRACTING OFFICER HERE HAD NEITHER ACTUAL NOR CONSTRUCTIVE NOTICE OF ANY MISTAKE. CF. 37 COMP. GEN. 786.

WHILE WE AGREE THAT IT IS A MATTER OF COMMON KNOWLEDGE THAT PRICES, WAGES, AND COSTS OF DOING BUSINESS HAVE ADVANCED CONSIDERABLY DURING THE PAST FIVE OR SIX YEARS, IT DOES NOT NECESSARILY FOLLOW THAT A BID WHICH MAY NOT REFLECT A HIGHER PRICE THAN THAT QUOTED IN THE PAST YEARS IS NECESSARILY IN ERROR. CERTAINLY, THE CASES CITED BY YOU IN SUPPORT OF THE PRINCIPLE THAT THE COURTS GIVE JUDICIAL KNOWLEDGE TO THE FACT OF INFLATION ARE NOT RELEVANT TO THE SPECIFIC MATTER HERE INVOLVED, AND MAY NOT BE CONSIDERED AS SUPPORTIVE OF THE POSITION ADVANCED BY YOU. WE CANNOT HOLD THAT A CONTRACTING OFFICER IS CONSTRUCTIVELY ON NOTICE OF PROBABLE ERROR SOLELY BECAUSE A PARTICULAR BID IS LOW IN RELATION TO THE ECONOMIC CLIMATE THEN EXISTING. ONE OF THE PURPOSES OF THE COMPETITIVE BIDDING SYSTEM IS TO ELICIT THE LOWEST RESPONSIBLE BID UNDER PROCEDURES WHICH PERMIT FREE AND FULL COMPETITION. IT WOULD BE DETRIMENTAL TO THE INTERESTS OF THE GOVERNMENT IN FOSTERING AND PRESERVING THAT SYSTEM TO IMPOSE A DUTY UPON A CONTRACTING OFFICER TO ASSURE FOR HIMSELF THAT A LOW BID REGULAR ON ITS FACE WAS COMPUTED CORRECTLY WITH DUE REGARD TO ECONOMIC CONDITIONS, PAST PROCUREMENTS, REASONABLE DEGREES OF PRICE PROGRESSION OF OTHER BIDS, OR OTHER MATTERS PURELY INCIDENTAL TO THE WRITTEN BID. WE AGREE THAT A CONTRACTING OFFICER IS BOUND TO PROTECT THE INTERESTS OF ALL BIDDERS BY EXERCISING THAT DEGREE OF CARE WHICH A REASONABLE AND PRUDENT PERSON MIGHT EXERCISE UNDER SIMILAR CIRCUMSTANCES IN DETERMINING THE LOWEST RESPONSIBLE BIDDER,"PRICE AND OTHER FACTORS CONSIDERED.' BUT THAT DUTY DOES NOT EXTEND TO QUESTIONING A BIDDER'S PRICE AS TO ACCURACY WHERE NOTHING IS APPARENT ON THE FACE OF THE BID TO INDICATE EVEN A POSSIBILITY OR ERROR.

WHILE THE INVITATION REQUESTED BIDS ALSO ON THE QUANTITIES INDICATED IN RANGES "A" AND "C" AND BIDS WERE SUBMITTED BY ALL BIDDERS FOR THE THREE RANGES, BIDS WERE EVALUATED SOLELY ON THE BASIS OF THOSE RECEIVED FOR RANGE "B" SINCE IT REPRESENTED THE QUANTITY OF RECTIFIERS THE GOVERNMENT DESIRED. THUS, NO NECESSITY EXISTED FOR EVALUATING BIDS UNDER RANGES "A" AND "C.' THAT BEING THE CASE, WE DO NOT BELIEVE THAT THE DIFFERENCES IN BID PRICES WITHIN THOSE RANGES SHOULD HAVE BEEN IMPUTED TO THE CONTRACTING OFFICER AS INDICATIVE OF THE POSSIBILITY OF ERROR IN GLOBE'S BID ON RANGE "B.' OUR DECISIONS REPORTED AT 37 COMP. GEN. 398 AND ID. 654, CITED IN YOUR AUGUST 24, 1959, LETTER, ARE NOT PERSUASIVE HERE SINCE THEY INVOLVED MISTAKES IN BID ON MULTIPLE ITEMS.

THE CASE OF C. N. MONROE MANUFACTURING COMPANY V. UNITED STATES, 143 F.1SUPP. 449, IS CITED BY YOU IN SUPPORT OF THE PROPOSITION THAT THE SPREAD BETWEEN GLOBE'S BID AND OTHER BIDS CONSTITUTED CONSTRUCTIVE NOTICE TO THE CONTRACTING OFFICER OF THE ALLEGED ERROR. IN THAT CASE TEN BIDS WERE RECEIVED RANGING FROM $3.91 TO $300 PER UNIT; THE SECOND AND THIRD BIDS BEING $6.40 AND $18, RESPECTIVELY. THE AVERAGE OF THE NEXT SEVEN BIDS ABOVE THE TWO LOWEST BIDS WAS $24.96 OR SIX TIMES THE AMOUNT OF THE LOW BID AND ABOUT FOUR TIMES THE AMOUNT OF THE SECOND LOW BID. THE COURT HELD THAT THE GOVERNMENT SHOULD HAVE KNOWN OF THE CONTRACTOR'S GROSS MISTAKE WHICH WAS OBVIOUS WHEN ALL BIDS WERE COMPARED. HOWEVER, THERE DOES NOT EXIST HERE SUCH GROSS, APPARENT ERROR. IF WE AVERAGE ALL BUT THE THREE LOWEST BIDS, WE FIND THAT THE AVERAGE ($390.37) IS ABOUT 1.74 TIMES GLOBE'S LOW BID AND ABOUT 1.56 TIMES THE AMOUNT OF THE SECOND LOW BID. HENCE, THE INSTANT CASE IS CLEARLY DISTINGUISHABLE FROM THE MONROE CASE ON THE FACTS WHICH CONSTITUTED THE PRINCIPAL BASIS FOR DETERMINING THAT AN OBVIOUS GROSS MISTAKE EXISTED ON THE FACE OF THE BID.