B-137367, SEPTEMBER 30, 1958, 38 COMP. GEN. 253

B-137367, SEPTEMBER 30, 1958, 38 COMP. GEN. 253

BIDS - QUALIFIED - ESCALATION CLAUSES TO PERMIT CONSIDERATION OF AN OFFER BY A BIDDER TO CHANGE A QUALIFICATION IN A 300-DAY FIRM-PRICE BID BY LIMITING ESCALATION TO 10 PERCENT FOR DELAYS BEYOND ITS CONTROL AFTER THE SPECIFIED SHIPMENT PERIOD WHICH OFFER WOULD RESULT IN MAKING THE MAXIMUM BID PRICE LOWER THAN THE FIRM PRICE QUOTATION OF THE LAW BIDDER, WOULD BE CONTRARY TO THE RULE THAT BIDS MAY NOT BE CHANGED AFTER OPENING TO THE PREJUDICE OF THE RIGHTS OF OTHER BIDDERS. ALTHOUGH ALL FIRM-PRICE BIDS WHICH ARE QUALIFIED WITH A PRICE ESCALATION CLAUSE FOR DELAYS DUE TO CIRCUMSTANCES BEYOND THE CONTROL OF THE BIDDER AFTER THE SPECIFIED SHIPMENT DATE ARE NOT REQUIRED TO BE REJECTED, A BIDDER WHO QUALIFIES HIS BID SO THAT IT IS IMPOSSIBLE TO DETERMINE WHETHER THE MAXIMUM PRICES AT TIME OF DELIVERY WOULD BE LESS THAN THE FIRM PRICES QUOTED BY ANOTHER RESPONSIBLE BIDDER WOULD HAVE NO JUSTIFICATION TO PROTEST REJECTION OF HIS BID.

TO W. H. TAYLOR, DEPARTMENT OF THE INTERIOR, SEPTEMBER 30, 1958:

REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 8, 1958, REQUESTING A DECISION AS TO THE PROPRIETY OF MAKING AN AWARD OF A CONTRACT TO THE GENERAL ELECTRIC COMPANY, APPARATUS SALES DIVISION, PACIFIC SOUTHWEST DISTRICT, ON THE BASIS OF ITS BID DATED JULY 25, 1958, SUBMITTED IN RESPONSE TO INVITATION FOR BIDS NO. 304-S-109, ISSUED JUNE 25, 1958, BY THE BUREAU OF RECLAMATION PARKER-DAVIS PROJECT OFFICE, PHOENIX, ARIZONA, FOR PROCUREMENT OF SUPERVISORY CONTROL AND TELEMETERING EQUIPMENT FOR THE PHOENIX SUBSTATION AND SYSTEM DISPATCHERS BUILDING, PARKER-DAVIS PROJECT.

THREE BIDS WERE RECEIVED IN RESPONSE TO THE INVITATION WHICH, WITH THE EXCEPTION OF AMOUNTS QUOTED PER SQUARE FOOT FOR REPRODUCED TRACINGS, WERE AS FOLLOWS: THE BID OF THE GENERAL ELECTRIC COMPANY IN THE AMOUNT OF $27,210, INCLUDING $1,510 FOR SERVICES OF AN ERECTING ENGINEER; A BID OF THE CONTROL CORPORATION, MINNEAPOLIS, MINNESOTA, IN THE AMOUNT OF $32,059, INCLUDING $990 FOR SERVICES OF AN ERECTING ENGINEER; AND A BID OF THE WESTINGHOUSE ELECTRIC CORPORATION IN THE AMOUNT OF $38,941, INCLUDING $1,360 FOR SERVICES OF AN ERECTING ENGINEER. THE TOTAL AMOUNTS FOR SERVICES OF ERECTING ENGINEERS WERE TO BE USED IN COMPARISON OF BIDS, AS WELL AS THE PRICES QUOTED PER SQUARE FOOT FOR REPRODUCED TRACINGS.

THE INVITATION STATED THAT THE DESIRED SHIPPING TIME WAS WITHIN 300 CALENDAR DAYS. WESTINGHOUSE AND GENERAL ELECTRIC OFFERED TO MAKE SHIPMENT WITHIN 210 DAYS AND THE CONTROL CORPORATION AGREED TO MAKE SHIPMENT WITHIN 300 DAYS. THE GENERAL ELECTRIC COMPANY QUALIFIED ITS BID BY AN ACCOMPANYING LETTER STATING THAT ITS QUOTED PRICES "ARE FIRM FOR A PERIOD OF 300 DAYS," AND THAT "IF, FOR ANY REASON BEYOND OUR CONTROL, ALL OR PART OF THE EQUIPMENT IS SHIPPED AFTER THE PERIOD SPECIFIED ABOVE, THE PRICE OF SUCH EQUIPMENT SHALL BE SUBJECT TO ADJUSTMENT UNDER THE CONDITIONS OF CLAUSE 3 OF AF-5-PP, ATTACHED.'

UNDER THAT PRICE ADJUSTMENT CLAUSE, PRICES QUOTED BY THE GENERAL ELECTRIC COMPANY ARE MADE SUBJECT TO ADJUSTMENT AT THE DATE OF SHIPMENT, SUBJECT TO CERTAIN LIMITATIONS AS TO INCREASES IN PRICES. THE LIMITATION IS 10 PERCENT FOR SHIPMENTS WITHIN 12 MONTHS, 20 PERCENT FOR SHIPMENTS WITHIN 12 TO 24 MONTHS, AND 30 PERCENT FOR SHIPMENTS MADE WITHIN 24 TO 36 MONTHS. THE CLAUSE PROVIDES THAT THERE SHALL BE NO CEILING ON THE AMOUNT OF ANY INCREASE IN PRICE ON SHIPMENTS MADE BEYOND 36 MONTHS.

THE GENERAL ELECTRIC COMPANY WAS REQUESTED TO CLARIFY ITS BID IN REGARD TO THE DATE INTENDED FOR USE AS THE BEGINNING OF THE 300-DAY "FIRM-PRICE" PERIOD. THE PROJECT MANAGER WAS ADVISED BY LETTER DATED AUGUST 14, 1958, THAT,"INASMUCH AS THE ESTIMATE OF SHIPMENT IS 210 DAYS, THE MARGIN BETWEEN DATE OF SHIPMENT AND EXPIRATION OF THE FIRM PRICE PERIOD IS 90 DAYS.' HOWEVER, THE COMPANY PROPOSED TO LIMIT ANY PRICE INCREASE TO 10 PERCENT OF THE PRICES QUOTED IF SHIPMENT WERE MADE AFTER THE FIRM-PRICE PERIOD OF 300 DAYS, COMPUTED FROM THE DATE OF RECEIPT OF NOTICE OF AWARD MADE PURSUANT TO THE INVITATION FOR BIDS.

IN THE CITED CASE OF 35 COMP. GEN. 684, THE WESTINGHOUSE ELECTRIC CORPORATION HAD QUALIFIED ITS BID BY INCORPORATING A GRADUATED PRICE ESCALATION PROVISION TO BE EFFECTIVE FOR AS MUCH AS 48 MONTHS AFTER THE CONTRACT DELIVERY DATE, IN THE EVENT OF EXCUSABLE DELAY IN DELIVERY. THE MAXIMUM PRICE UNDER SUCH PROVISION WOULD STILL HAVE BEEN LESS THAN THE NEXT LOWEST BID. THE GENERAL ELECTRIC COMPANY PROTESTED THE MAKING OF AN AWARD TO WESTINGHOUSE BECAUSE THE PRICE ESCALATION PROVISION MADE NO REFERENCE TO ANY LIMITATION OF PRICE IF DELIVERIES SHOULD BE DELAYED FOR EXCUSABLE CAUSES BEYOND 48 MONTHS, BUT WE CONSIDERED THAT THIS POSSIBILITY WAS TOO REMOTE TO JUSTIFY A REJECTION OF THE WESTINGHOUSE BID. THE DECISION SHOULD NOT, HOWEVER, HAVE EMPHASIZED THE FACT THAT WESTINGHOUSE HAD QUALIFIED ITS BID THROUGH ERROR, SINCE IT IS WELL SETTLED THAT A BID SUBMITTED IN RESPONSE TO A FORMAL ADVERTISEMENT BY THE GOVERNMENT MAY NOT BE CHANGED AFTER OPENING IF SUCH ACTION WOULD PREJUDICE THE RIGHTS OF OTHER BIDDERS. THAT RULE IS FOR APPLICATION WITH RESPECT TO THE OFFER BY GENERAL ELECTRIC TO CHANGE ITS BID QUALIFICATION, BY LIMITING ESCALATION TO 10 PERCENT, TO MAKE ITS MAXIMUM BID PRICE LOWER THAN THE FIRM PRICE OF THE CONTROL CORPORATION. IT IS ALSO TO BE NOTED THAT THE WESTINGHOUSE PROPOSAL CONDITIONED ESCALATION UPON DELAYS DUE TO WAR OR THE NATIONAL EMERGENCY OR ACTS OF THE GOVERNMENT, WHICH WE HELD TO BE WITHIN THE SCOPE OF THE DELAYS CLAUSE OF THE CONTRACT, WHEREAS IN THIS CASE THE GENERAL ELECTRIC ESCALATION IS APPLICABLE TO ANY DELAYS "FOR REASONS BEYOND OUR CONTROL.'

A THREE-YEAR PERIOD OF POSSIBLE DELAY IN PERFORMANCE DUE TO CIRCUMSTANCES BEYOND THE CONTROL OF THE SUCCESSFUL BIDDER WOULD SEEM TO BE A REASONABLE STANDARD FOR USE IN EVALUATING A BID QUALIFIED BY A PRICE ESCALATION PROVISION OF THE TYPE HERE INVOLVED. ANY FURTHER CONCESSION WOULD, IN OUR OPINION, RESULT IN PREJUDICING THE RIGHTS OF OTHER BIDDERS WHOSE BIDS WERE NOT SO QUALIFIED. FURTHERMORE, AS SUGGESTED IN YOUR LETTER, THERE MUST BE SOME LIMITATION WITH RESPECT TO THE CONSIDERATION OF SUCH QUALIFIED BIDS IN VIEW OF THE GOVERNMENT'S GENERAL POLICY TO SOLICIT FIRM BIDS AND THE APPARENTLY GROWING TENDENCY OF SOME BIDDERS TO QUALIFY THEIR QUOTATIONS WITH ESCALATION PROVISIONS OF VARYING TERMS. WE WOULD NOT GO SO FAR AS TO CONCLUDE THAT ALL SUCH QUALIFIED BIDS SHOULD BE REJECTED, BUT WE FEEL THAT A BIDDER WOULD HAVE NO RIGHT TO COMPLAIN IF IT IS IMPOSSIBLE TO DETERMINE WHETHER ITS MAXIMUM PRICES AT TIME OF DELIVERY WOULD BE LESS THAN THE FIRM PRICES QUOTED BY ANOTHER RESPONSIBLE BIDDER WHOSE BID CONFORMED TO THE INVITATION FOR BIDS.

THE BID PRICE ON THE EQUIPMENT OF THE GENERAL ELECTRIC COMPANY, IN THE EVENT OF A DELAY OF FROM 28 TO 39 MONTHS IN MAKING SHIPMENT DUE TO EXCUSABLE CAUSES, WOULD BE SUBJECT TO INCREASE BY AS MUCH AS 30 PERCENT, AND WE BELIEVE THAT THE MAXIMUM BID PRICE SHOULD, FOR BID EVALUATION PURPOSES, BE CONSIDERED AS AMOUNTING TO $27,210, PLUS 30 PERCENT OF $25,700 (THE PRICE STATED FOR THE EQUIPMENT), OR $34,920. EVEN IN THE EVENT OF A DELAY IN SHIPMENT OF APPROXIMATELY 16 MONTHS FROM THE TIME IN WHICH THE BIDDER AGREED TO MAKE SHIPMENT, ITS MAXIMUM BID WOULD APPARENTLY BE IN EXCESS OF THE FIRM PRICE QUOTED BY THE CONTROL CORPORATION. ($27,210 PLUS 20 PERCENT OF $25,700 EQUALS $32,350, WHICH IS HIGHER THAN THE BID OF $32,059 SUBMITTED BY THE CONTROL CORPORATION.) THE PRICES QUOTED PER SQUARE FOOT FOR REPRODUCED TRACINGS ARE NOT MATERIAL INASMUCH AS GENERAL ELECTRIC QUOTED A HIGHER PRICE THAN THE CONTROL CORPORATION.

IN THE CIRCUMSTANCES, THE CONCLUSION APPEARS TO BE REQUIRED THAT THE AWARD SHOULD BE MADE TO THE CONTROL CORPORATION AS THE LOWEST RESPONSIBLE BIDDER UNLESS DETERMINED THAT SUCH FIRM DOES NOT MEET THE NECESSARY QUALIFICATIONS FOR PERFORMANCE OF THE WORK INVOLVED.