B-132491, NOVEMBER 12, 1957, 37 COMP. GEN. 315

B-132491, NOVEMBER 12, 1957, 37 COMP. GEN. 315

CONTRACTS - COST-PLUS SUBCONTRACTS - STATUTORY PROCUREMENT REQUIREMENTS APPLICATION - RESTRICTIVE SPECIFICATIONS ACTION OF A PRIME COST-PLUS-FIXED-FEE CONTRACTOR WHO, WITH THE APPROVAL OF THE CONTRACTING OFFICER, AND AFTER ISSUANCE OF A PURCHASE OR FOR AN ARTICLE OF ITS OWN MANUFACTURE ON THE BASIS OF THE LOWEST QUOTATION ISSUED A SECOND PURCHASE REQUEST CONTAINING SPECIFICATIONS WRITTEN AROUND ITS OWN ARTICLE SO THAT THE SECOND ORDER COULD BE MATCHED WITH THE FIRST AND ELIMINATE REPAIR PROBLEMS, DOES NOT RENDER THE SUBCONTRACTS ILLEGAL AS IN CONTRAVENTION OF THE STATUTORY PROCUREMENT REQUIREMENTS WHICH ARE NOT APPLICABLE TO SUCH SUBCONTRACTS.

TO THE RUBEROID COMPANY, NOVEMBER 12, 1957:

FURTHER REFERENCE IS MADE TO YOUR PROTEST AGAINST ALLEGED RESTRICTIVE SPECIFICATIONS IN CERTAIN REQUESTS TO BID ISSUED BY THE NATIONAL GYPSUM COMPANY UNDER A COST-PLUS-A-FIXED-FEE CONTRACT WITH THE UNITED STATES, IN CONNECTION WITH THE OPERATION OF THE KANSAS ORDINANCE PLANT AND THE OKLAHOMA ORDNANCE WORKS.

YOUR PROTEST IS IN CONNECTION WITH PURCHASE ORDERS ISSUED BY THE CONTRACTOR-OPERATOR FOR ASBESTOS SIDING. IT IS ALLEGED THAT THE SPECIFICATIONS CONTAINED IN THE PURCHASE REQUESTS ARE INCOMPLETE, RESTRICTIVE AND DISCRIMINATORY, AND ARE IN VIOLATION OF AND DISREGARD DIRECTIVES ISSUED BY THE DEPARTMENT OF THE ARMY.

THE REPORT AND PAPERS FURNISHED IN THE MATTER BY THE DEPARTMENT OF THE ARMY SHOWS THAT THE NATIONAL GYPSUM COMPANY OPERATES THE PLANTS UNDER CONTRACT NO. DA 11-173-ORD-95. THE CONTRACT SPECIFICALLY PROVIDES THAT THE OPERATING CONTRACTOR IS AN INDEPENDENT CONTRACTOR AND NOT THE AGENT OF THE GOVERNMENT. THE DEPARTMENT OF THE ARMY REPORTS THAT IT SELECTS OPERATORS OF GOVERNMENT-OWNED PLANTS, AMONG OTHER REASONS, BECAUSE OF THEIR DEMONSTRATED ABILITY TO OPERATE A MANUFACTURING PLANT, INCLUDING THE PLACEMENT OF SUBCONTRACTS AND PURCHASE ORDERS. SINCE SUCH CONTRACTORS ARE SELECTED ON THE BASIS OF BUSINESS ABILITY AND EXPERIENCE, IT IS NOT CONSIDERED NECESSARY OR APPROPRIATE TO REQUIRE THEM TO DISREGARD THEIR ESTABLISHED PROCEDURES IN ORDER TO COMPLY WITH THE REQUIREMENTS OF THE ARMED SERVICES PROCUREMENT REGULATIONS OR THE ARMY PROCUREMENT PROCEDURE. HOWEVER, SINCE THE GOVERNMENT IS OBLIGATED TO REIMBURSE ALL COSTS AND EXPENSES, A PRIOR REVIEW OF THE CONTRACTOR'S ESTABLISHED PRACTICES IS MADE IN ORDER THAT THERE MAY BE AN UNDERSTANDING BETWEEN THE CONTRACTOR AND THE GOVERNMENT AS TO THE TYPE OF COSTS THAT WILL BE CONSIDERED REIMBURSABLE. CONSIDERATION IS GIVEN TO THE CONTRACTOR'S PURCHASING PROCEDURES AND IN MAKING THE REVIEW THE PRINCIPLES OF THE ARMED SERVICES PROCUREMENT REGULATIONS AND ARMY PROCUREMENT PROCEDURES ARE LOOKED UPON FOR GENERAL GUIDANCE IN ORDER THAT THE CONTRACTING OFFICER MAY PROPERLY DISCHARGE HIS DUTIES IN THE APPROVAL OF INDIVIDUAL SUBCONTRACTS AND PURCHASE ORDERS AND THEREBY AVOID EXCESSIVE COSTS TO THE GOVERNMENT; BUT NO ATTEMPT IS MADE TO FORCE THE CONTRACTOR TO RIGIDLY FOLLOW THE GOVERNMENT PROCUREMENT REGULATIONS. IT IS FURTHER REPORTED THAT FOR THE MOST PART CONTRACTOR- OPERATORS EMPLOY COMPETITIVE BID SYSTEMS FOR PURCHASES, WHICH ARE CONSIDERED ADEQUATE, ALTHOUGH THEY DO NOT ADHERE TO ALL THE FORMALITIES OF THE ADVERTISED PROCUREMENT PROCEDURE REQUIRED OF GOVERNMENT PURCHASING OFFICES.

PARAGRAPH 5, ARTICLE I-B-1SCOPE OF WORK, TITLE IV, OF THE PRIME CONTRACT, PERMITS THE CONTRACTOR TO FURNISH ITEMS OF ITS OWN MANUFACTURE, SUBJECT TO THE GOVERNMENT'S ABILITY TO FURNISH THE ITEMS AT A LOWER PRICE. PARAGRAPH 3, ARTICLE IV-H-1SPECIAL REQUIREMENTS, TITLE IV, PROVIDES THAT "NO PURCHASES IN EXCESS OF FIVE HUNDRED DOLLARS ($500.00) SHALL BE MADE OR PLACED BY THE CONTRACTOR WITHOUT THE APPROVAL OF THE CONTRACTING OFFICER.' THE PURPOSE OF THE LATTER PROVISION IS PRIMARILY TO ENABLE THE GOVERNMENT TO ACCOMPLISH ITS OBJECTIVES AS SET FORTH ABOVE, AND IT ALSO ENABLES THE GOVERNMENT TO RETAIN A CERTAIN AMOUNT OF CONTROL, INCLUDING THE EXAMINATION OF RESTRICTIVE SPECIFICATIONS IN THE CONTRACTOR'S PROCUREMENT PRACTICES.

BY REQUEST TO BID NO. 40223, DATED APRIL 8, 1957, THE CONTRACTOR REQUESTED BIDS FOR FURNISHING A NUMBER OF VARIOUS SIZED SHEETS OF ASBESTOS CORRUGATED SIDING. THE SPECIFICATIONS WERE AS FOLLOWS:

NOTE.--- VENDOR MUST INDICATE ON THE QUOTATION, BRAND NAME, PART NUMBER AND/OR DESCRIPTION IF QUOTATION BEING SUBMITTED IS FOR AN "OR EQUAL" OR ALTERNATE MATERIAL. FAILURE TO DO SO MAY VOID YOUR QUOTATION.

ASBESTOS, SIDING, CORRUGATED, THICKNESS 1/4 INCH, WIDTH 42 INCHES, LENGTH 9 FEET, STANDARD CORRUGATION 4.2 INCHES, APPROXIMATE WEIGHT 2.25 POUNDS PER SQUARE FOOT, COMPLETE WITH 3 INCHES GALVANIZED IRON RING SHANK NAILS AND LEAD WASHERS, IN SUFFICIENT QUANTITY TO ACCOMPLISH APPLICATION OF MATERIAL; ALSO COMPLETE WITH STANDARD QUANTITY OF CAULKING CEMENT. EQUAL OR SIMILAR TO " ASBESTONE ECONOMY 250.'

IN RESPONSE TO THIS REQUEST YOU SUBMITTED A QUOTATION DATED APRIL 22, 1957, OFFERING TO FURNISH 3/16 INCHES RUBEROID BRAND MATERIAL. YOUR PRICES FOR THE 9-FOOT AND 10-FOOT LENGTH SHEETS WERE $4.29 AND $4.76, RESPECTIVELY. THE NATIONAL GYPSUM COMPANY, OKLAHOMA CITY, OKLAHOMA, SUBMITTED A QUOTATION DATED APRIL 20, 1957, ON THE SPECIFIED MATERIAL OF 1/4 INCH THICKNESS, QUOTING PRICES OF $4.28 FOR THE 9-FOOT SHEETS AND $4.76 FOR THE 10-FOOT SHEETS. THE AWARD WAS MADE TO THE NATIONAL GYPSUM COMPANY AS THE LOW BIDDER.

BY REQUEST TO BID NO. 40239 DATED MAY 7, 1957, THE CONTRACTOR REQUESTED BIDS ON A NUMBER OF SHEETS OF THE SAME TYPE MATERIAL IN 4-5-6 7-9 AND 10- FOOT LENGTHS. THE PROVISIONS OF THE SPECIFICATIONS WERE SIMILAR TO THOSE CONTAINED IN PURCHASE REQUEST NO. 40223 WITH THE EXCEPTION THAT A NOTE WAS ADDED PROVIDING: "DO NOT QUOTE ON A SUBSTITUTE THICKNESS.' IN RESPONSE TO THIS REQUEST YOU SUBMITTED A QUOTATION ON 3/16 INCH RUBEROID BRAND MATERIAL AND THE NATIONAL GYPSUM COMPANY QUOTED ON THE SPECIFIED 1/4 INCH MATERIAL. YOUR QUOTATIONS AND THAT OF THE NATIONAL GYPSUM COMPANY WERE THE SAME ON FOUR OF THE LENGTHS AND ON THE OTHER TWO YOURS WAS ONE CENT PER SHEET LESS. THE TOTAL DIFFERENCE IN PRICE WAS $29.22 ON AN ORDER OF APPROXIMATELY $20,000. THE CONTRACTOR-OPERATOR, IN A MEMORANDUM ENTITLED " JUSTIFICATION FOR AWARD" STATED THAT THE NOTE " DO NOT QUOTE ON A SUBSTITUTE THICKNESS" WAS INCORPORATED IN THE PURCHASE REQUEST FOR MATCHING PURPOSES IN REGARD TO MATERIAL THICKNESS AND THAT THIS REQUIREMENT WOULD ELIMINATE LATER REPAIR PROBLEMS AS ALL SIDING WOULD BE OF ONE THICKNESS AND WOULD ELIMINATE HAVING TO CARRY TWO THICKNESSES OF REPAIR SIDING. IT WAS FURTHER STATED THAT THE DIFFERENCE OF $29.22 WOULD BE MORE THAN OFFSET DUE TO (1) THE AFOREMENTIONED REPAIR PROBLEM, (2) 1/4 INCH MATERIAL WEIGHS APPROXIMATELY 2.25 POUNDS PER SQUARE FOOT, WHEREAS 3/16 INCH MATERIAL WEIGHS ABOUT TWO POUNDS PER SQUARE FOOT, AND (3) THE THICKER MATERIAL WOULD BE STRONGER AND ABSORB LESS MOISTURE. IN VIEW THEREOF, IT WAS RECOMMENDED THAT THE QUOTATION OF NATIONAL GYPSUM COMPANY BE ACCEPTED. THIS RECOMMENDATION WAS APPROVED BY THE GOVERNMENT'S CONTRACTING OFFICER'S REPRESENTATIVE AND THE AWARD WAS MADE TO THE NATIONAL GYPSUM COMPANY.

BY REQUESTS TO BID NOS. 40289 AND 40290, DATED JUNE 28, 1957, AS MODIFIED BY AMENDMENT NO. 1 DATED JULY 11, 1957, THE CONTRACTOR AGAIN REQUESTED QUOTATIONS FOR ASBESTOS SIDING. YOU DID NOT SUBMIT QUOTATIONS BUT BY LETTER DATED JULY 19, 1957, PROTESTED THE REQUIREMENTS OF THE SPECIFICATIONS ON THE BASIS THAT THEY WERE INCOMPLETE, RESTRICTIVE AND DISCRIMINATORY. IT WAS STATED THAT THE SPECIFICATIONS CONTAINED IN THE REQUESTS TO BID WERE NOT LEGAL UNLESS REFERENCE WAS MADE TO APPLICABLE FEDERAL OR ASTM SPECIFICATIONS, OR UNLESS THERE WAS SPECIFIED SPECIFICALLY AND IN DETAIL ALL TOLERANCES AND/OR APPLICABLE PHYSICAL OR PERFORMANCE CHARACTERISTICS WHEREBY IT COULD BE DETERMINED WHAT IS EQUAL TO THE SPECIFIED MATERIAL.

IN OUR DECISION OF MARCH 18, 1954, B-118129, INVOLVING THE PROTESTED AWARD OF A SUBCONTRACT BY A PRIME CONTRACTOR UNDER A COST-REIMBURSEMENT TYPE CONTRACT, WE STATED:

* * * ALTHOUGH IN AWARDING A SUBCONTRACT UNDER THIS TYPE OF PRIME CONTRACT IT IS THE DUTY OF THE PRIME CONTRACTOR TO PROTECT THE INTEREST OF THE UNITED STATES BY MAKING EVERY REASONABLE EFFORT TO OBTAIN A CONTRACT ON TERMS MOST FAVORABLE TO HIM INASMUCH AS THE COST IS TO BE REIMBURSED BY THE GOVERNMENT, SUCH AN AWARD IS NOT SUBJECT TO THE LIMITATIONS IMPOSED UPON GOVERNMENT CONTRACTING OFFICIALS BY THE PUBLIC ADVERTISING STATUTES. ( ITALICS SUPPLIED.)

SEE, ALSO, 36 COMP. GEN. 311, 313. HOWEVER, IT HAS BEEN HELD THAT THE CONTRACTING OFFICER DOES NOT HAVE AUTHORITY TO APPROVE A SUBCONTRACT ENTERED INTO BY THE PRIME CONTRACTOR IF THE EXECUTION OF SUCH SUBCONTRACT WOULD BE PREJUDICIAL TO THE INTERESTS OF THE UNITED STATES.

UNDER THE FIRST PURCHASE REQUEST, THE QUOTATION OF THE NATIONAL GYPSUM WAS LOWER THAN YOURS. ON THE BASIS OF THE FACTS OF RECORD AND PARTICULARLY IN VIEW OF THE SMALL DIFFERENCE BETWEEN THE PRICES QUOTED ON THE SECOND PURCHASE REQUEST, WE CANNOT SAY THAT THE ACTION OF THE CONTRACTING OFFICER'S REPRESENTATIVE IN APPROVING THE AWARD TO NATIONAL GYPSUM COMPANY IN THE LATTER INSTANCE WAS DETRIMENTAL TO THE INTERESTS OF THE GOVERNMENT OR THAT SUCH ACTION WAS AN ABUSE OF HIS DISCRETION.

IT APPEARS, THEREFORE, THAT THE PRIME CONTRACTOR WITH THE CONTRACTING OFFICER'S APPROVAL, ACCEPTED THE QUOTATIONS OF THE NATIONAL GYPSUM COMPANY AS BEING IN THE BEST INTERESTS OF THE GOVERNMENT. ALTHOUGH THE SPECIFICATIONS CONTAINED IN THE PURCHASE REQUESTS MAY NOT HAVE BEEN AS BROAD AS REQUIRED, IF THE PURCHASES WERE BEING MADE BY THE GOVERNMENT ITSELF, THAT FACT WOULD NOT RENDER THE CONTRACTS WITH NATIONAL GYPSUM COMPANY ILLEGAL IN THE SENSE THAT THEY CONTRAVENED STATUTORY ADVERTISING REQUIREMENTS WHICH, AS STATED ABOVE, ARE NOT APPLICABLE TO THE SUBCONTRACTS. IN THE ABSENCE OF SUCH ILLEGALITY OR A SHOWING THAT THE SUBCONTRACTS WERE DEFINITELY AGAINST THE INTERESTS OF THE GOVERNMENT, THERE IS NO BASIS UPON WHICH WE WOULD BE WARRANTED IN TAKING ACTION IN THE MATTER.