B-123539, JUL. 26, 1955

B-123539, JUL. 26, 1955

TO THE HONORABLE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 6, 1955, WITH ENCLOSURES, REQUESTING A DECISION AS TO WHETHER PURCHASE ORDER NO. 2866-55, DATED JANUARY 13, 1955, ISSUED TO HOLLIS AND COMPANY, SHREVEPORT, LOUISIANA, BY THE RED RIVER ARSENAL, TEXARKANA, TEXAS, MAY BE CANCELLED. YOU ALSO REQUEST TO BE ADVISED WHETHER WE WOULD OBJECT TO A PROCEDURE WHEREBY HEADS OF PROCURING ACTIVITIES IN THE ARMY WOULD BE PERMITTED TO RESCIND OR REFORM CONTRACTS IN PROPER CASES INVOLVING SMALL AMOUNTS.

THE RECORD SHOWS THAT BY REQUISITION NO. 41-117-41308-55, THE CONTRACTING OFFICER WAS REQUESTED TO PURCHASE SEVERAL ITEMS OF FITTINGS ESTIMATED AT A TOTAL COST OF $400. APPARENTLY THERE WAS NO ESTIMATE FOR THE INDIVIDUAL ITEMS. ITEM 3 CALLED FOR 120 "FITTING, TUBE, STEEL, COMPRESSION TYPE, ELBOW W/NUTS AND SLEEVES, 90 DEGREE, 1 INCH TUBE SIZE, WEATHERHEAD NO. 8505 BY 16 OR EQUAL.' ON JANUARY 6, 1955, REQUESTS FOR QUOTATIONS ON THE FITTINGS WERE SENT TO, AMONG OTHERS, THE WEATHERHEAD COMPANY, CLEVELAND, OHIO. THE REQUEST WAS RETURNED BY HOLLIS AND COMPANY, SHREVEPORT, LOUISIANA, QUOTING A PRICE OF "5 3/4 CENTS" EACH AND A TOTAL PRICE OF $6.90 FOR THE 120 FITTINGS COVERED BY ITEM 3, THE ONLY ITEM ON WHICH THEY BID. THE LOWEST BIDS RECEIVED ON ALL OF THE SEVERAL ITEMS TOTALED $389.74 AGAINST THE ESTIMATED COST OF $400. THE BID OF HOLLIS AND COMPANY, BEING THE ONLY ONE RECEIVED ON ITEM 3, WAS ACCEPTED BY PURCHASE ORDER NO. 2866- 55, DATED JANUARY 13, 1955. UPON RECEIPT OF THE PURCHASE ORDER, HOLLIS AND COMPANY ADVISED RED RIVER ARSENAL THAT AN ERROR HAD BEEN MADE IN ITS QUOTATION IN THAT THE PRICE SHOULD HAVE BEEN $0.575 EACH RATHER THAN $0.0575. THE COMPANY RETURNED THE PURCHASE ORDER AND REQUESTED THAT ITS BID BE DECLARED VOID. THE COMPANY WAS ADVISED THAT, SINCE THE BID WAS ACCEPTED IN GOOD FAITH WITHOUT KNOWLEDGE OF ERROR, A BINDING CONTRACT RESULTED AND THAT THE MATERIAL WOULD HAVE TO BE FURNISHED AT THE PRICE SPECIFIED.

THE CHIEF OF ORDNANCE IN FIRST INDORSEMENT DATED FEBRUARY 24, 1955, STATES THAT HE DOES NOT CONCUR IN THE CONTRACTING OFFICER'S STATEMENT AND THAT HE WAS NOT ON CONSTRUCTIVE NOTICE OF THE ERROR IN THE BID AT THE TIME OF AWARD. IN SUPPORT THEREOF, HE ENCLOSED A STATEMENT FROM THE FIELD SERVICE, REQUIREMENT BRANCH, OFFICE, CHIEF OF ORDNANCE, TO THE EFFECT THAT THE LATEST CORPS OF ENGINEERS PRICING GUIDE (30 SEPTEMBER 54) REFLECTS A UNIT PRICE OF $0.41 FOR THIS FITTING ON PRESUMABLY LARGE QUANTITY PROCUREMENTS.

IN OUR OPINION, IT DOES NOT NECESSARILY FOLLOW THAT THE CONTRACTING OFFICER WAS ON CONSTRUCTIVE NOTICE OF ERROR, SINCE, AS STATED BY THE CONTRACTING OFFICER, THERE WERE NO OTHER BIDS RECEIVED ON THE ITEM; THERE WERE NO PREVIOUS PURCHASES ON RECORD FOR THE ITEM; AND THE TOTAL AMOUNT OF THE LOWEST BIDS RECEIVED ON ALL OF THE SEVERAL ITEMS WAS $389.74, COMPARED WITH THE ESTIMATED COST OF $400. ON THE OTHER HAND THE CONTRACTING OFFICER MUST HAVE USED AN ESTIMATED FIGURE FOR THE ITEM IN ARRIVING AT THE TOTAL ESTIMATE OF $400. WHILE THAT FIGURE IS NOT SHOWN, IN VIEW OF THE LAPSE OF TIME, SINCE HOLLIS AND COMPANY ALLEGED ERROR PROMPTLY UPON RECEIPT OF THE PURCHASE ORDER, AND THERE APPEARS NO DOUBT THAT AN ERROR WAS MADE AS ALLEGED, IT WOULD BE UNCONSCIONABLE IN THIS CASE TO REQUIRE THE COMPANY TO FURNISH THE FITTING FOR THE PRICE STATED IN THE PURCHASE ORDER. ACCORDINGLY, PURCHASE ORDER NO. 2866-55 SHOULD BE CANCELLED.

YOUR LETTER IS, IN PART, AS FOLLOWS:

"THE ATTACHED CASE IS REPRESENTATIVE OF A RECURRING SITUATION IN PROCUREMENTS OF SUPPLIES, INVOLVING SMALL CONTRACT COMMITMENTS, WHICH I BELIEVE ADVERSELY AFFECTS THE BEST INTEREST OF THE GOVERNMENT. IN SOME INSTANCES, AS IN THE ATTACHED CASE WHERE LESS THAN $70.00 IS INVOLVED, THE AMOUNT OF THE CONTRACT COMMITMENT APPEARS TO BE DISPROPORTIONATE TO THE EXPENSE OF PROCESSING THE CASE TO YOU FOR DECISION. IN ADDITION, SUCH PROCESSING OFTEN PREVENTS THE GOVERNMENT FROM OBTAINING URGENTLY REQUIRED SUPPLIES, ALTHOUGH SUCH SUPPLIES MAY BE OF SMALL MONETARY VALUE.

"IN ORDER TO ALLEVIATE THE ABOVE-MENTIONED SITUATION, I REQUEST THAT YOU INFORM ME WHETHER YOU WOULD OBJECT TO A PROCEDURE WHEREBY HEADS OF PROCURING ACTIVITIES IN THE ARMY WOULD BE PERMITTED TO RESCIND OR REFORM CONTRACTS, PROVIDED THAT:

"A. THE ORIGINAL CONTRACT PRICE IS UNDER $100.00 OR A RESULTANT INCREASE IN PRICE DOES NOT EXCEED $100.00 AND THE RESULTANT CONTRACT PRICE DOES NOT EXCEED THAT OF THE NEXT HIGHER BID OR PROPOSAL, IF SUCH A HIGHER BID OR PROPOSAL WAS SUBMITTED;

"B. THERE IS A FINDING AND DETERMINATION MADE BY THE HEADS OF THE PROCURING ACTIVITY CONCERNED THAT THE EVIDENCE IS CLEAR AND CONVINCING THAT A MISTAKE IN BID OR PROPOSAL WAS MADE BY THE CONTRACTOR AND THAT THE RESULTING CONTRACT PRICE SHOULD BE INCREASED IN THE AMOUNT DETERMINED BY THE HEAD OF THE PROCURING ACTIVITY OR THAT THE CONTRACT SHOULD BE RESCINDED; AND

"C. THE CONTRACTING OFFICER ATTACHES A COPY OF SUCH FINDINGS AND DETERMINATION TO ALL COPIES OF THE CONTRACT MODIFICATIONS.

"WHERE THE REQUEST FOR RESCISSION OR REFORMATION, IF GRANTED, WOULD EXCEED THE LIMITATIONS SET FORTH IN PARAGRAPH A, OR WHERE THE REQUEST FOR REFORMATION OR RESCISSION IS NOT GRANTED, EITHER BECAUSE OF DOUBT OR FOR OTHER REASONS, THE CASE WILL BE PROCESSED TO YOUR OFFICE UNDER EXISTING PROCEDURES.'

SUBJECT TO THE CONDITIONS SET FORTH IN YOUR LETTER, WE WILL NOT OBJECT, FOR THE PRESENT, TO THE PROPOSED PROCEDURE FOR DETERMINING ADMINISTRATIVELY THE ACTION THAT SHOULD BE TAKEN WITH RESPECT TO ERRORS ALLEGED AFTER ACCEPTANCE. IT IS TO BE CLEARLY UNDERSTOOD THAT THE APPROVAL OF THE PROCEDURE PROPOSED IS IN NO SENSE TO BE CONSTRUED AS THE APPROVAL OF THE ACTION WHICH MAY BE TAKEN IN ANY CASE; AND THAT WE RESERVE THE RIGHT TO QUESTION THE CORRECTNESS OF SUCH ACTION IN THE AUDIT OF ACCOUNTS.