B-139154, AUG. 19, 1959

B-139154, AUG. 19, 1959

TO HONORABLE SUMNER G. WHITTIER, ADMINISTRATOR, VETERANS ADMINISTRATION:

AT THE REQUEST OF SENATOR EVERETT MCKINLEY DIRKSEN WE HAVE INVESTIGATED THE PROCUREMENT OF HEARING AIDS BY THE VETERANS ADMINISTRATION, WITH PARTICULAR REFERENCE TO THE REJECTION OF THE AUREX CORPORATION'S T4X INSTRUMENT FOR THE PROCUREMENT PROGRAM OF FISCAL YEAR 1959. DURING THE COURSE OF OUR INVESTIGATION, MR. FRANK J. DELANY, ATTORNEY FOR AUREX CORPORATION, SUBMITTED A BRIEF IN WHICH HE URGED THAT THE T4X INSTRUMENT HAD BEEN IMPROPERLY DISQUALIFIED AND THAT THE VETERANS ADMINISTRATION'S DEMAND FOR REFUND OF THE PRICE OF 100 T4X INSTRUMENTS RETURNED TO AUREX CORPORATION UNDER CONTRACT NO. V1005M-1299 DATED JUNE 25, 1957, IS IMPROPER. INFORMATION OBTAINED BY THE INVESTIGATION AND OUR ANALYSIS THEREOF ARE SET FORTH BELOW.

IT APPEARS THAT SOMETIME AFTER WORLD WAR II THERE WAS EVOLVED A SYSTEM TO MEET THE ADMINISTRATION'S PROBLEM OF SUPPLYING HEARING AIDS TO A LARGE NUMBER OF VETERANS. IN SETTING UP THE SYSTEM THE VETERANS ADMINISTRATION SECURED THE SERVICES OF LEADING AUDIOLOGISTS, PHYSICISTS, AND ELECTRO- ACOUSTIC ENGINEERS AS CONSULTANTS. THE INDIVIDUALS SELECTED WERE LEADERS IN THEIR FIELDS AND ALL WERE RECOGNIZED NATIONALLY AND INTERNATIONALLY FOR THEIR ACCOMPLISHMENTS. IN ESSENCE, THE SYSTEM PROVIDES FOR TESTING OF HEARING AIDS, RATING OF THE INSTRUMENTS TESTED ON A POINT-SCORE BASIS, AND PROCURING INSTRUMENTS THROUGH A FORM OF "COMPETITIVE" BIDDING. ACTUALLY IT IS A COMBINATION TESTING AND PROCUREMENT PROGRAM.

RESULTS OF THIS COMBINATION TESTING AND PROCUREMENT SYSTEM ARE READILY IDENTIFIABLE. IN THE FIRST PLACE THE BULK OF THE PROCUREMENT IS WITH THE MANUFACTURER RATHER THAN THE DEALER. SECONDLY, THE METHOD OF PROCUREMENT CHANGED FROM NEGOTIATED TO ADVERTISED PROCUREMENT. FINALLY, THE VETERANS ADMINISTRATION COULD, FOR THE FIRST TIME,JUDGE HEARING AIDS ON ACTUAL PHYSICAL PERFORMANCE CHARACTERISTICS AND HAD AVAILABLE SCIENTIFIC INFORMATION ON WHICH TO BASE HEARING AID PURCHASES. THE LAST-MENTIONED BENEFIT ARISES FROM THE TESTING PROGRAM AND IS NOT A RESULT OF SECURING THE HEARING AIDS THROUGH ADVERTISED PROCUREMENT.

WITH SPECIFIC REFERENCE TO THE PROCUREMENT PROGRAM FOR FISCAL YEAR 1959, THE VETERANS ADMINISTRATION SENT BY REGISTERED MAIL TO ALL KNOWN HEARING AID MANUFACTURERS A BROCHURE ENTITLED ,VETERANS ADMINISTRATION TESTS AND PROCEDURES FOR THE EVALUATION OF PERFORMANCE CHARACTERISTICS OF HEARING AIDS" DATED NOVEMBER 4, 1957. IN THE INTRODUCTION OF THE BROCHURE THE PROGRAM IS DESCRIBED AS FOLLOWS:

"IN GENERAL, THE PROGRAM TO BE FOLLOWED IS ONE WHEREBY THE VETERANS ADMINISTRATION WILL SUBMIT TO THE NATIONAL BUREAU OF STANDARDS, SAMPLES OF THE VARIOUS MODELS OF HEARING AIDS AS OBTAINED FROM QUALIFIED HEARING AID MANUFACTURERS OR THEIR AUTHORIZED DEALERS. THE NATIONAL BUREAU OF STANDARDS WILL TEST EACH INSTRUMENT FOR A NUMBER OF ACOUSTIC FACTORS AND SUBMIT THE RESULTS TO THE VETERANS ADMINISTRATION. UPON RECEIPT OF THESE DATA, THE VETERANS ADMINISTRATION WILL SUBJECT THE INFORMATION TO STATISTICAL AND COMPARATIVE ANALYSES AND SOLICIT BIDS ON THOSE INSTRUMENTS WHICH QUALIFY ON THE BASIS OF THESE ANALYSES, AND WHICH ARE CLINICALLY ACCEPTABLE.'

THE BROCHURE ALSO SETS FORTH THE QUALIFICATIONS, SPECIAL CONDITIONS, REQUIREMENTS FOR SUBMISSION OF HEARING AIDS, AND A DESCRIPTION OF THE TEST TO BE CONDUCTED BY THE NATIONAL BUREAU OF STANDARDS. FURTHERMORE, IN REGARD TO EVALUATION PROCEDURES IT IS EXPLAINED THAT:

"2. THE RAW SCORES OBTAINED ON EACH TEST WILL BE TREATED AND ASSIGNED WEIGHTING FACTORS DETERMINED BY A GROUP OF NATIONALLY RECOGNIZED AUDIOLOGISTS AND PHYSICISTS SERVING THE VETERANS ADMINISTRATION ON A CONSULTANT BASIS. FOR EXAMPLE, ONE TEST ITEM MIGHT BE GIVEN A WEIGHTING FACTOR OF 100, WHILE ANOTHER MIGHT BE ASSIGNED A FACTOR OF 50.

"4. THE AVERAGE WEIGHTED SCORES ON EACH OF THE TESTS ARE SUMMED TO GIVE THE MEASURE OF TOTAL PERFORMANCE ACHIEVED BY THE HEARING AID MODEL. THIS SCORE IS DESIGNATED AS THE QUALITY POINT SCORE.'

THE BROCHURE CONTINUES WITH A STATEMENT THAT "MANUFACTURERS WHOSE AIDS ARE CLINICALLY ACCEPTABLE AND ARE AMONG THOSE HAVING THE HIGHEST QUALITY POINT SCORES IN EACH CATEGORY WILL BE REQUESTED TO SUBMIT BIDS ON THE INSTRUMENTS TESTED.' FURTHER, IT WAS STATED THAT AWARDS WOULD BE MADE ON THE BASIS OF THE LOWEST COST PER POINT OF QUALITY. FINALLY, THE BROCHURE EXPLAINED THAT PROCUREMENT OF HEARING AIDS WOULD BE MADE IN THREE DIFFERENT POWER CATEGORIES WHICH WERE DESCRIBED THEREIN.

A NUMBER OF MANUFACTURERS RESPONDED TO THE BROCHURE AND SAMPLE INSTRUMENTS WERE OBTAINED BY THE VETERANS ADMINISTRATION FOR TESTING PROCEDURES. OF THE 41 MODELS SENT TO THE NATIONAL BUREAU OF STANDARDS FOR TESTING, 5 MODELS WERE DISQUALIFIED FOR FAILING ONE OF THE TESTS ENUMERATED IN THE BROCHURE AND THEY WERE NOT TESTED FURTHER. THE REMAINING 36 MODELS WERE FULLY TESTED AND 5 MORE WERE DISQUALIFIED BECAUSE THE AVERAGE GAIN AND AVERAGE MAXIMUM POWER OUTPUT DID NOT BOTH FALL WITHIN ONE OF THE POWER CATEGORIES. QUALITY POINT SCORES WERE THEN COMPUTED FOR THE REMAINING 31 MODELS. FOR EACH OF THE THREE CATEGORIES THE INSTRUMENTS WERE PLACED INTO TWO GROUPS--- THE ,HIGH QUALITY" AND THE "LOW QUALITY.' NINE "LOW QUALITY" INSTRUMENTS WERE DISQUALIFIED AT THIS POINT AS HAVING AN INSUFFICIENT NUMBER OF QUALITY POINTS. A NOTEWORTHY PECULIARITY OF THE SYSTEM IS THAT ONE POWER CATEGORY HAD ONLY FOUR MODELS SURVIVE TO THIS POINT AND ALL WERE ACCEPTED EVEN THOUGH ONE OF THE MODELS HAD A LOWER QUALITY POINT SCORE THAN THE MINIMUM FOR ACCEPTANCE IN THE OTHER POWER CATEGORIES. THE SAME MODEL ALSO HAD THE THIRD HIGHEST COST PER QUALITY POINT OF ALL MODELS INVITED TO BID. AFTER THE 9 "LOW QUALITY" INSTRUMENTS WERE DISQUALIFIED THE MANUFACTURERS OF THE REMAINING 22 INSTRUMENTS WERE INVITED TO BID.

AN INVITATION FOR BIDS WAS SENT TO EACH MANUFACTURER ON MAY 21, 1958. AFTER THE BIDS WERE OPENED THE COSTS PER QUALITY POINT WERE COMPUTED AND CONTRACTS WERE AWARDED ON THE BASIS OF THE LOWEST COST PER QUALITY POINT, WITHIN EACH POWER CATEGORY, TO THE MANUFACTURERS OF 14 INSTRUMENTS. ADDITION, TWO INSTRUMENTS WERE PLACED UNDER CONTRACT WITHOUT REGARD TO THIS ,COMPETITIVE" SYSTEM BECAUSE THEY HAD "SPECIAL" CHARACTERISTICS.

ANOTHER PECULIARITY OF THE PROCUREMENT SYSTEM IS NOTED AT THIS POINT. THE FISCAL YEAR UNDER CONSIDERATION THE TWO INSTRUMENTS WHICH WERE PLACED UNDER "SPECIAL" CONTRACT CONSISTED OF ONE INSTRUMENT WHICH HAD FAILED TO ACHIEVE CONSIDERATION FOR BIDDING AND ANOTHER INSTRUMENT WHICH HAD NOT QUALIFIED UNDER THE COST PER QUALITY POINT SYSTEM. ADMINISTRATIVELY IT WAS DECLARED NECESSARY TO HAVE THESE TWO INSTRUMENTS AVAILABLE BECAUSE THEY HAD SPECIAL FEATURES NOT REQUIRED FOR THE MAJORITY OF HEARING LOSS CASES. RATHER THAN PERMIT EACH CLINIC TO PURCHASE THESE INSTRUMENTS INDIVIDUALLY, THE VETERANS ADMINISTRATION CONSIDERED IT MORE DESIRABLE TO PLACE THEM UNDER CONTRACT. THE UNUSUAL ASPECT OF THE SYSTEM BECOMES APPARENT UPON ANALYSIS OF THE NUMBER OF HEARING AIDS ISSUED FOR THE FIRST NINE MONTHS OF THE FISCAL YEAR. MORE INSTRUMENTS OF ONE TYPE IN THE "SPECIAL" CATEGORY HAVE BEEN ISSUED THAN ANY OTHER MODEL OBTAINED IN THE 1959 FISCAL YEAR PROGRAM. SINCE INSTRUMENTS IN THIS CATEGORY ARE NOT REQUIRED, THEORETICALLY, FOR THE MAJORITY OF HEARING LOSS CASES, IT IS DIFFICULT TO UNDERSTAND WHY ONE OF THE "SPECIAL" INSTRUMENTS HAS BEEN ISSUED MORE THAN ANY OTHER.

OUR ANALYSIS OF THE FOREGOING PROCEDURE LEADS US TO THE VIEW THAT THE ADVERTISED PROCUREMENT MAY BE DEFICIENT IN AT LEAST THE FOLLOWING RESPECTS: (1) SPECIFICATIONS, IN THE TERMS OF MINIMUM REQUIREMENTS, HAVE NOT BEEN DEVELOPED; AND (2) THE EVALUATION PROCESS WAS NOT MADE KNOWN TO THE BIDDERS.

IN REGARD TO THE FIRST DEFICIENCY, ONE OF THE BASIC TENETS OF GOVERNMENT PROCUREMENT IS THAT AN AGENCY SHOULD OBTAIN ITEMS WHICH REASONABLY MEET THE MINIMUM REQUIREMENTS OF THE GOVERNMENT. IN THE INSTANT CASE, PARAGRAPH 3 OF THE REQUIREMENTS SECTION OF THE INVITATION FOR BIDS PROVIDES THAT:

"* * * BIDS WILL BE CONSIDERED ONLY FROM THOSE HEARING DEVICE MANUFACTURERS WHO * * * (3) HAVE SUBMITTED SAMPLES FOR TEST * * * IN ACCORDANCE WITH THE BROCHURE ENTITLED "TESTS AND PROCEDURES FOR THE EVALUATION OF PERFORMANCE CHARACTERISTICS OF HEARING AIDS," DATED NOVEMBER 4, 1957, * * *. BIDS WILL BE CONSIDERED ONLY ON THOSE HEARING AIDS WHICH OBTAINED SATISFACTORY RATINGS BASED ON THE ABOVE MENTIONED TESTS AND AS LISTED IN THE ATTACHED SCHEDULES.'

AS QUOTED ABOVE, THAT BROCHURE EXPLAINS "THAT NO ATTEMPT HAS BEEN MADE TO SET UP ,SPECIFICATIONS.'" CONSIDERING THE BROCHURE AS PART OF THE INVITATION FOR BIDS, THE INVITATION EXPRESSLY DISCLAIMS THE NECESSITY FOR SPECIFICATIONS. ON THE OTHER HAND IT IS POSSIBLE TO CONSIDER THE HEARING AID PROCUREMENT PROCESS AS A 2-STAGE OPERATION IN WHICH THE FIRST PART CONSISTS OF ESTABLISHING A QUALIFIED PRODUCTS LIST. WHILE WE DO NOT QUESTION THE QUALIFIED PRODUCTS SYSTEM AS A PROPER METHOD OF PROCUREMENT, 36 COMP. GEN. 809, 816, IT SHOULD BE NOTED THAT A PROPERLY REGULATED SYSTEM INCLUDES TESTING OF ALL PRODUCTS IN ACCORDANCE WITH APPLICABLE SPECIFICATIONS. SEE ASPR 2 503.2. IN EITHER VIEW OF THE CASE, THEREFORE, THE LACK OF SPECIFICATIONS IS A SERIOUS WEAKNESS IN THE CURRENT METHOD OF ADVERTISED PROCUREMENT FOR HEARING AIDS. COMPARE 37 COMP. GEN. 479.

IN REGARD TO THE SECOND ITEM INVOLVING EVALUATION PROCESSES IT IS TRUE THAT THE BROCHURE OF NOVEMBER 4, 1957, AS A SECTION DEVOTED TO EVALUATION PROCEDURES, PARTS OF WHICH ARE QUOTED ABOVE, BUT THE BIDDERS WERE NOT MADE AWARE OF CERTAIN MATERIAL FEATURES OF THE EVALUATION PROCESS. FOR INSTANCE, THE BIDDERS HAVE NO IDEA OF THE WEIGHTING FACTORS USED IN DETERMINING THE COMPOSITE SCORE. OR EVEN GREATER IMPORTANCE IS THE FACT THAT BIDDERS WERE NOT INFORMED OF THE FACT THAT A FAILURE TO PASS A PARTICULAR ONE OF THE GIVEN TESTS WOULD RESULT IN REJECTION AT THAT POINT AND THAT NO FURTHER TESTING OF THE INSTRUMENT WOULD BE MADE. THIS, OF COURSE, IS CONTRARY TO THE EXPRESS STATEMENT THAT THE AVERAGE WEIGHTED SCORES ON EACH OF THE TESTS ARE SUMMED TO GIVE THE MEASURE OF TOTAL PERFORMANCE. IN OUR DECISION OF NOVEMBER 9, 1956, 36 COMP. GEN. 380, 385, WE STATED THAT:

"THE "BASIS" OF EVALUATION WHICH MUST BE MADE KNOWN IN ADVANCE TO THE BIDDERS SHOULD BE AS CLEAR, PRECISE AND EXACT AS POSSIBLE. IDEALLY, IT SHOULD BE CAPABLE OF BEING STATED AS A MATHEMATICAL EQUATION. IN MANY CASES, HOWEVER, THAT IS NOT POSSIBLE. AT THE MINIMUM, THE BASIS" MUST BE STATED WITH SUFFICIENT CLARITY AND EXACTNESS TO INFORM EACH BIDDER PRIOR TO BID OPENING, NO MATTER HOW VARIED THE ACCEPTABLE RESPONSES, OF OBJECTIVELY DETERMINABLE FACTORS FROM WHICH THE BIDDER MAY ESTIMATE WITHIN REASONABLE LIMITS THE EFFECT OF THE APPLICATION OF SUCH EVALUATION FACTOR ON HIS BID IN RELATION TO OTHER POSSIBLE BIDS. BY THE TERM "OBJECTIVELY DETERMINABLE FACTORS" WE MEAN FACTORS WHICH ARE MADE KNOWN TO OR WHICH CAN BE ASCERTAINED BY THE BIDDER AT THE TIME HIS BID IS BEING PREPARED. FACTORS WHICH ARE BASED ENTIRELY OR LARGELY ON A SUBJECTIVE DETERMINATION TO BE ANNOUNCED BY REPRESENTATIVES OF THE CONTRACTING AGENCY AT THE TIME OF OR SUBSEQUENT TO THE OPENING OF BIDS VIOLATE THE PRINCIPLE FOR THE REASON THAT THEY ARE NOT DETERMINABLE BY THE BIDDER AT THE TIME HIS BID IS BEING PREPARED.'

UNDER THE PRESENT HEARING AID PROCUREMENT SYSTEM THE BIDDER HAS NO KNOWLEDGE OF OBJECTIVELY DETERMINABLE FACTORS FROM WHICH HE MAY ESTIMATE HIS BID IN RELATION TO OTHER POSSIBLE BIDDERS. THE WHOLE SYSTEM IS DESIGNED WITH AN ABSENCE OF SPECIFICATIONS AND FOR THE PURPOSE OF WEIGHTING THE PERFORMANCE OF VARIOUS INSTRUMENTS, ONE AGAINST THE OTHER, WITHOUT THE KNOWLEDGE OF ANY OF THE BIDDERS.

IN VIEW OF THESE SUGGESTED DEFICIENCIES IN THE ADVERTISED PROCUREMENT PROGRAM OF THE VETERANS ADMINISTRATION IT WOULD APPEAR THAT FURTHER CONTRACTS RESULTING FROM SUCH PROCUREMENT PRACTICES WOULD BE OF DOUBTFUL PROPRIETY. WE ARE IN SYMPATHY WITH THE OBJECTIVES AND AIMS OF THE VETERANS ADMINISTRATION IN SECURING THE BEST POSSIBLE HEARING AIDS FOR THE VETERANS. MOREOVER, WE SEE NO OBJECTION TO A CONTINUATION OF A TESTING PROGRAM FOR THE PURPOSE OF DEVISING SPECIFICATIONS FOR PROCUREMENT OF HEARING AIDS. WE BELIEVE THAT INDUSTRY INITIATIVE FOR THE IMPROVEMENT OF HEARING AIDS WILL NOT BE STIFLED BY THE ISSUANCE OF MINIMUM SPECIFICATIONS BY THE VETERANS ADMINISTRATION. FOR ONE THING THE VETERANS ADMINISTRATION IS NOT THE ONLY CUSTOMER AND IT IS PRESUMED THAT SUCH A COMPETITIVE INDUSTRY WOULD HAVE SUFFICIENT INCENTIVE TO RENDER GOOD SERVICE TO ITS OTHER CUSTOMERS. MOREOVER, THE VETERANS ADMINISTRATION CAN REWRITE THE SPECIFICATIONS EACH YEAR TO TAKE ADVANTAGE OF THE INCREASED PERFORMANCE OF NEW HEARING AID DEVELOPMENTS. ON THE OTHER HAND, IF THE VETERANS ADMINISTRATION FINDS IT IMPOSSIBLE TO SEPARATE THE TESTING AND PROCUREMENT PROGRAMS, AND IF A DETERMINATION IS RENDERED THAT HEARING AIDS CANNOT BE PROCURED ON A CONVENTIONAL COMPETITIVE BASIS, THE VETERANS ADMINISTRATION COULD, UNDER THAT CIRCUMSTANCE, PROCURE HEARING AIDS BY NEGOTIATION PURSUANT TO THE AUTHORITY OF 41 U.S.C. 252 (C) (10). RETURNING NOW TO THE BRIEF SUBMITTED BY MR. DELANY, HE URGES THAT THE T4X HEARING AID WAS IMPROPERLY DISQUALIFIED. SINCE THE T4X WAS DISQUALIFIED ON THE BASIS OF ONLY ONE TEST SO THAT NO QUALITY POINT AVERAGE WAS EVER COMPUTED AS WAS OUTLINED IN THE BROCHURE, WE ARE INCLINED TO AGREE. HOWEVER, THE QUESTION HAS BECOME ACADEMIC AT LEAST AS TO THE PROCUREMENT FOR FISCAL YEAR 1959 WHICH NOW HAS BEEN COMPLETED. THE OTHER CONTENTION RAISED BY MR. DELANY IS THAT THE VETERANS ADMINISTRATION'S DEMAND FOR THE PRICE OF 100 T4X INSTRUMENTS RETURNED TO AUREX CORPORATION IS UNSUPPORTABLE. IN A LETTER DATED OCTOBER 9, 1958, TO AUREX CORPORATION FROM THE CHIEF, STOCK CONTROL DIVISION, HINES SUPPLY DEPOT, IT WAS STATED THAT THE 100 INSTRUMENTS WERE RETURNED PURSUANT TO PARAGRAPH 2C OF THE REQUIREMENTS SECTION OF THE CONTRACT FOR FISCAL YEAR 1958 WHICH WAS ENTERED INTO ON JUNE 25, 1957, BETWEEN THE VETERANS ADMINISTRATION AND AUREX CORPORATION. SECTION 2C PROVIDES THAT:

"IF A CONTRACT IS TERMINATED FOR ANY REASON AND A NEW CONTRACT IS NOT CONSUMMATED THE CONTRACTOR AGREES TO ACCEPT THE RETURN OF A MAXIMUM OF ONE HUNDRED (100) OF EACH MODEL OF ITS MAKE HEARING DEVICE AND ACCESSORIES IN STOCK, IN CLINICS, AND SUPPLY DEPOT, PROVIDED THAT SUCH MODELS ARE RETURNED TO THE CONTRACTOR WITHIN NINETY (90) DAYS OF THE TERMINATION OF THE CONTRACT.'

WE UNDERSTAND THAT THE CONTRACT WITH AUREX CORPORATION WAS NOT TERMINATED PRIOR TO ITS NATURAL EXPIRATION DATE WHICH WAS ONE YEAR FROM THE DATE OF THE CONTRACT. FURTHER THAN THAT, WE FIND NOTHING IN THE CONTRACT ITSELF WHICH INDICATES THAT THE WORD "TERMINATED" HAS OTHER THAN ITS NORMAL LEGAL MEANING. AS WAS STATED IN 24 COMP. GEN. 723, 726:

"* * * TERMINATION OR CANCELLATION OF A CONTRACT MEANS TO ABROGATE SO MUCH OF IT AS REMAINS UNPERFORMED, DOING AWAY WITH THE EXISTING AGREEMENT UPON THE TERMS AND WITH THE CONSEQUENCES MENTIONED IN THE WRITING. SANBORN V. BALLANFONTE, 277 P. 152, 155.'

ACCORDINGLY, ON THE RECORD BEFORE US, THERE APPEARS TO BE NO LEGAL BASIS FOR CHARGING THE AUREX CORPORATION FOR THE RETURN OF 100 INSTRUMENTS SUBSEQUENT TO THE NATURAL EXPIRATION OF THE CONTRACT.

IN VIEW OF THE IMPORTANCE OF THE PROCUREMENT PROGRAM TO THE VETERANS ADMINISTRATION WE WOULD APPRECIATE A FULL STATEMENT OF YOUR VIEWS AND COMMENTS UPON THE FOREGOING.