B-146393, OCT. 26, 1961

B-146393, OCT. 26, 1961

TO KENNAMETAL, INCORPORATED:

REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 15, 1961, AND PRIOR CORRESPONDENCE PROTESTING AGAINST THE ACTION OF THE DEPARTMENT OF THE ARMY IN AWARDING A CONTRACT TO FIRTH STERLING, INCORPORATED, FOR 105 MM PROJECTILES UNDER RFP NO. APC-710-61. YOUR PROTEST QUESTIONS THE PROPRIETY OF INCLUDING PROVISIONS FOR BARTER OF SURPLUS COMMODITIES IN THE RFP AND IN THE CONTRACT, THE PROPRIETY OF EVALUATING FIRTH STERLING'S PROPOSAL ON AN EX-DUTY BASIS, AND THE FAILURE OF THE CONTRACTING AGENCY TO NEGOTIATE WITH ALL OFFERORS WITHIN A COMPETITIVE RANGE. THE QUESTIONS THUS RAISED WILL BE DISCUSSED IN THAT ORDER.

RFP NO. APC-710-61 WAS ISSUED PURSUANT TO THE AUTHORITY TO NEGOTIATE UNDER 10 U.S.C. 2304 (A) (14) AND REQUESTED PROPOSALS FOR SUPPLYING 102,900, 105 MM, PROJECTILES. THE REQUEST CONTAINED THE CLAUSE "NOTE PAYMENT BY BARTER (JUN. 1957)" SET OUT IN ASPR 4-502 (B), AND ALSO CONTAINED APPROPRIATELY LABELED SPACES FOR SUBMITTING ALTERNATE OFFERS BASED UPON BOTH BARTER PRICES AND NON-BARTER PRICES. PURSUANT THERETO FIRTH STERLING SUBMITTED A NON-BARTER OFFER BASED UPON USE OF IMPORTED TUNGSTEN ORE TO BE USED IN THE MANUFACTURE OF THE END ITEM, WHICH OFFER QUOTED PRICES BASED UPON BOTH PAYMENT OF THE IMPORT DUTY ON THE TUNGSTEN ORE AND UPON EXEMPTION FROM SUCH DUTY. ALTERNATIVELY, FIRTH STERLING OFFERED TO IMPORT THE TUNGSTEN ORE, TO ASSIGN A PROPORTIONATE AMOUNT OF THE CONTRACT PAYMENTS TO THE COMMODITY CREDIT CORPORATION, AND TO ACCEPT EQUIVALENT VALUE IN SURPLUS AGRICULTURAL COMMODITIES FROM CCC. FOLLOWING NEGOTIATION, CONTRACT NO. DA-36-034-ORD-3454 WAS AWARDED TO FIRTH STERLING AT A UNIT PRICE OF $64.35, BASED UPON DUTY FREE ENTRY OF THE NECESSARY TUNGSTEN ORE, ASSIGNMENT OF $1,337,700 OF THE CONTRACT PAYMENTS TO CCC, AND ACCEPTANCE OF SURPLUS AGRICULTURAL COMMODITIES OF EQUAL VALUE BY THE CONTRACTOR.

YOUR PROTEST AGAINST THIS BARTER AGREEMENT IS BASED UPON YOUR BELIEF THAT:

1. NONE OF THE CONDITIONS, PREREQUISITE TO BARTER UNDER THE PROVISIONS OF 7 U.S.C. 1692, EXISTED, AND NEITHER 105 MM PROJECTILES NOR TUNGSTEN IN ANY FORM IS ON THE APPROVED BARTER LIST ISSUED BY THE DEPARTMENT OF AGRICULTURE.

2. IF SUCH CONDITIONS DID EXIST, THE PROVISIONS OF ASPR 4-502 (B) AND 502 (F) REQUIRED THE ASSIGNMENT OF ALL MONIES DUE UNDER THE CONTRACT TO CCC.

UNDER THE PROVISIONS OF 7 U.S.C. 1692, AGRICULTURAL COMMODITIES MAY BE BARTERED FOR:

"/A) SUCH STRATEGIC OR OTHER MATERIALS OF WHICH THE UNITED STATES DOES NOT DOMESTICALLY PRODUCE ITS REQUIREMENTS AND WHICH ENTAIL LESS RISK OF LOSS THROUGH DETERIORATION OR SUBSTANTIALLY LESS STORAGE CHARGES AS THE PRESIDENT MAY DESIGNATE * * *.'

WHETHER SURPLUS AGRICULTURAL COMMODITIES MAY BE BARTERED FOR TUNGSTEN CONCENTRATES OF FOREIGN ORIGIN WAS DISCUSSED IN OUR LETTER TO YOU DATED AUGUST 5, 1960, B-136732. AS INDICATED THEREIN, OUR REVIEW DID NOT DISCLOSE ANY BASIS UPON WHICH WE COULD CONCLUDE THAT THE BARTER PROGRAM FOR TUNGSTEN CONCENTRATES THEN UNDER CONSIDERATION WOULD NOT BE IN ACCORDANCE WITH THE PURPOSES OF SECTION 303 OF THE AGRICULTURAL TRADE DEVELOPMENT AND ADJUSTMENT ACT, 7 U.S.C. 1692, AS QUOTED ABOVE. REQUIRED BY LAW, THE PRESIDENT ON JUNE 1, 1960, APPROVED TUNGSTEN AS APPROPRIATE FOR BARTER. IT WOULD THEREFORE APPEAR THAT ADEQUATE AUTHORITY EXISTS AT THE PRESENT TIME TO SUPPORT THE BARTER OF SURPLUS AGRICULTURAL COMMODITIES FOR TUNGSTEN ORE.

CONCERNING YOUR CONTENTION THAT THE PROVISIONS OF ASPR 4-502 (B) AND 502 (F) WERE NOT COMPLIED WITH SINCE ALL MONIES BECOMING DUE UNDER THE CONTRACT AWARDED TO FIRTH STERLING WERE NOT REQUIRED TO BE ASSIGNED TO THE COMMODITY CREDIT CORPORATION, YOU ARE ADVISED THAT PERMISSION TO DEVIATE FROM THE ABOVE REQUIREMENT IN THIS PROCUREMENT WAS REQUESTED FROM, AND GRANTED BY, THE DEPUTY CHIEF OF STAFF FOR LOGISTICS UNDER THE PROVISIONS OF ASPR 1-109.2. IT WOULD APPEAR THAT SUCH DEVIATION AUTHORIZATION WOULD ALSO NECESSARILY INCLUDE AUTHORITY TO NEGOTIATE ON A PARTIAL BARTER BASIS. IN VIEW OF THE FOREGOING, WE ARE AWARE OF NO VALID BASIS UPON WHICH OBJECTION CAN BE TAKEN TO THE BARTER PROVISIONS OF THE CONTRACT AWARDED.

YOUR PROTEST ALSO RAISES QUESTIONS REGARDING THE PROPRIETY OF THE ARMY'S ACTION IN ISSUING DUTY-FREE EXEMPTION CERTIFICATES ON THE TUNGSTEN ORE TO BE IMPORTED BY FIRTH STERLING, AND IN EVALUATING ITS OFFER ON THE BASIS OF SUCH DUTY-FREE IMPORTATION. IN THIS CONNECTION, YOU QUESTION (1) THE JUSTIFICATION FOR ISSUING SUCH CERTIFICATES TO FIRTH STERLING, (2) THE FAILURE OF THE REQUEST FOR PROPOSAL TO NOTIFY ALL OFFERORS OF THE AVAILABILITY OF DUTY-FREE ENTRY CERTIFICATES ON TUNGSTEN ORE OF FOREIGN ORIGIN, AND (3) THE PROPRIETY OF, AND AUTHORITY FOR, EVALUATING FIRTH STERLING'S OFFER ON AN EX-DUTY BASIS.

WITH RESPECT TO THE JUSTIFICATION FOR ISSUING DUTY-FREE EXEMPTION CERTIFICATES ON TUNGSTEN ORE TO BE IMPORTED BY FIRTH STERLING, 10 U.S.C. 2383 SPECIFICALLY AUTHORIZES DUTY-FREE IMPORTATION OF EMERGENCY PURCHASES OF WAR MATERIAL ABROAD. IN IMPLEMENTATION OF THIS AUTHORITY, ASPR 6-602 DEFINES "WAR MATERIALS" TO INCLUDE:

"/I) WEAPONS, MUNITIONS, AIRCRAFT, VESSELS, OR BOATS;

(II) AGRICULTURAL, INDUSTRIAL, OR OTHER SUPPLIES USED IN THE PROSECUTION OF WAR OR FOR THE NATIONAL DEFENSE;

(III) SUPPLIES, INCLUDING COMPONENTS OR EQUIPMENT, NECESSARY FOR THE MANUFACTURE, PRODUCTION, PROCESSING, REPAIR, SERVICING, OR OPERATION OF THE SUPPLIES SET FORTH IN (I) AND (II) ABOVE.'

"EMERGENCY PURCHASES" IS DEFINED TO INCLUDE "WAR MATERIAL PURCHASED BECAUSE OF A SHORTAGE OF DOMESTIC SUPPLY, PURSUANT TO A DECISION THAT THE SUPPLIES ARE NECESSARY FOR THE ADEQUATE MAINTENANCE OF THE ARMED SERVICES.'

THE DEPARTMENT OF THE ARMY HAS ADVISED THAT GSA STOCKS OF TUNGSTEN WERE NOT FOR SALE AND THAT NONE OF THE DOMESTIC SOURCES OF SUPPLY WERE CONSIDERED CAPABLE OF SUPPLYING FIRTH STERLING'S REQUIREMENTS. THE TUNGSTEN ORE WAS THEREFORE CONSIDERED TO QUALIFY AS AN EMERGENCY PURCHASE OF WAR MATERIAL NOT AVAILABLE FROM DOMESTIC SOURCES AND, IN VIEW OF THE SUBSTANTIAL SAVINGS TO THE APPROPRIATION DUTY-FREE ENTRY CERTIFICATES HAVE BEEN ISSUED TO FIRTH STERLING UNDER THE AUTHORIZATION SET OUT IN ASPR 6- 602.

CONCERNING THE FAILURE OF THE REQUEST FOR PROPOSAL TO ADVISE ALL OFFERORS OF POSSIBLE ISSUANCE OF DUTY-FREE ENTRY CERTIFICATES, THERE DOES NOT APPEAR TO BE ANY REQUIREMENT OF LAW OR REGULATION FOR INCLUDING SUCH ADVICE OTHER THAN THE "DUTY-FREE ENTRY-CANADIAN SUPPLIES" CLAUSE SET OUT IN ASPR 6-605.2, WHICH THE ARMY ADVISES WAS INADVERTENTLY OMITTED FROM THE RFP AND OF WHICH INADVERTENCY YOU WERE ADVISED ON FEBRUARY 20, 1961. WHILE THE INCLUSION OF A "PAYMENT BY BARTER" CLAUSE IN THE INVITATION CONSTITUTED NOTICE TO ALL OFFERORS THAT THE GOVERNMENT CONCURRED IN AND WAS, IN FACT, ENCOURAGING OFFERORS TO PURCHASE MATERIALS OR COMPONENTS FROM NONDOMESTIC SOURCES, SUCH ENCOURAGEMENT DID NOT, IN ITSELF, CONSTITUTE JUSTIFICATION FOR ADVISING OFFERORS THAT NONDOMESTIC MATERIALS TO BE PROCURED BY THE CONTRACTOR ON EITHER A BARTER OR NONBARTER BASIS COULD BE IMPORTED DUTY-FREE. UNDER THE PROVISIONS OF ASPR 6-602 THE ISSUANCE OF DUTY FREE ENTRY CERTIFICATES TO FIXED-PRICE CONTRACTORS IS CONDITIONED UPON THE AMOUNT OF SAVINGS FOR MILITARY APPROPRIATIONS, THE COST AND BURDEN OF ISSUANCE, AND THE DEGREE OF SUPERVISION WHICH CAN BE EXERCISED OVER THE SUPPLIES OR MATERIALS TO BE IMPORTED. IN THE INSTANT PROCUREMENT IT WOULD APPEAR TO BE THE POSITION OF THE CONTRACTING AGENCY THAT A DETERMINATION TO ISSUE DUTY-FREE EXEMPTION CERTIFICATES, BASED UPON SUBSTANTIAL SAVINGS TO THE APPROPRIATION, COULD ONLY BE MADE ON AN AFTER- THE-FACT BASIS, AND THAT THE INCLUSION OF ADVICE RELATIVE TO SUCH ISSUANCE IN THE REQUEST FOR PROPOSAL WAS NOT CONSIDERED NECESSARY OR PROPER. WHILE THE LOGIC OF THIS CONCLUSION MAY WELL BE OPEN TO QUESTION FROM A MANAGEMENT STANDPOINT, WE ARE AWARE OF NO PROVISION OF LAW OR REGULATION WHICH REQUIRES SPECIFIC ADVANCE NOTICE TO OFFERORS OF POSSIBLE ISSUANCE OF DUTY-FREE ENTRY CERTIFICATES. IN VIEW THEREOF, AND OF THE FACT THAT ALL BIDDERS ARE ON CONSTRUCTIVE NOTICE OF THE PROVISIONS OF ASPR 6-602, WE ARE UNABLE TO CONCLUDE THAT NOTICE OF POSSIBLE ISSUANCE OF DUTY-FREE ENTRY CERTIFICATES ON TUNGSTEN ORE WAS REQUIRED TO BE INCLUDED IN THE REQUEST FOR PROPOSAL.

WITH RESPECT TO THE EVALUATION OF FIRTH STERLING'S OFFER ON AN EX DUTY BASIS, THE BASIC PURPOSE OF EVALUATING ANY BID OR OFFER IS, OF COURSE, TO DETERMINE WHICH OFFER, IF ACCEPTED, WILL RESULT IN PERFORMANCE OF THE CONTRACT WITH THE LEAST EXPENDITURE OF APPROPRIATED FUNDS AND RESULTING COST TO THE GOVERNMENT. 37 COMP. GEN. 505. AS INDICATED ABOVE, WE SEE NO SOUND BASIS UPON WHICH TO QUESTION THE CONTRACTING AGENCY'S DETERMINATION TO ISSUE DUTY-FREE ENTRY CERTIFICATES ON TUNGSTEN ORE TO BE IMPORTED BY FIRTH STERLING, AND IT NECESSARILY FOLLOWS THAT THE INCLUSION IN ITS EVALUATED OFFER PRICE OF ALL OR ANY PART OF THE IMPORT DUTY WHICH WOULD OTHERWISE HAVE BEEN PAYABLE BY FIRTH STERLING WOULD HAVE RESULTED IN AN EVALUATED OFFER PRICE IN EXCESS OF EITHER THE TOTAL CHARGE TO MILITARY APPROPRIATIONS OR THE TOTAL COST OF CONTRACT PERFORMANCE TO THE GOVERNMENT. UNDER THE CIRCUMSTANCES, IT IS OUR OPINION THAT THE CONTRACTING AGENCY WAS JUSTIFIED IN EVALUATING BOTH YOUR OFFER, WHICH PROPOSED USE OF DUTY FREE TUNGSTEN PROCESSED IN CANADA, AND FIRTH STERLING'S OFFER, WHICH PROPOSED USE OF TUNGSTEN IMPORTED FROM OTHER NONDOMESTIC SOURCES, ON AN EX-DUTY BASIS.

WITH REFERENCE TO THAT PORTION OF YOUR LETTER WHICH ADVISES THAT THE CONTRACTING AGENCY FAILED TO CONDUCT WRITTEN OR ORAL DISCUSSIONS WITH YOUR COMPANY, AS REQUIRED BY ASPR 3-805.1, THE RECORDS OF THE DEPARTMENT OF THE ARMY INDICATE THAT ON MARCH 3, 1961, YOUR COMPANY WAS ORALLY ADVISED THAT A CHARGE OF $1.25 PER UNIT REPRESENTING "FIXED FEE FOR ADMINISTRATION OF PRIME CONTRACT" WAS CONSIDERED EXCESSIVE, AND YOU WERE REQUESTED TO ELIMINATE IT FROM YOUR OFFER. YOUR REPRESENTATIVE ORALLY REJECTED THIS SUGGESTION, AND YOUR TELEGRAM DATED MARCH 6 IS UNDERSTOOD TO INDICATE CONFIRMATION OF SUCH REJECTION. THE RECORD FURTHER SHOWS THAT YOUR COMPANY, TOGETHER WITH ALL OTHER OFFERORS, WAS REQUESTED BY LETTER DATED MARCH 7, 1961, TO REVIEW YOUR PROPOSAL, MAKE ANY DESIRED ADJUSTMENTS THERETO, AND EITHER SUBMIT A REVISED PROPOSAL BY MARCH 9 OR ADVISE THAT YOUR PROPOSAL REMAINED UNCHANGED. THE ONLY SUBSTANTIAL REVISION IN RESPONSE TO THIS REQUEST WAS SUBMITTED BY FIRTH STERLING AND, SINCE SUCH REVISIONS MADE ITS OFFER THE LOW OFFER, FURTHER NEGOTIATIONS WERE THEREAFTER CONFINED TO FIRTH STERLING.

THE DEPARTMENT OF THE ARMY ADVISES THAT THE PROCEDURE OUTLINED ABOVE WAS FOLLOWED PRIMARILY BECAUSE OF THE TIME SCHEDULE ESTABLISHED FOR THE PROCUREMENT. IN THIS CONNECTION, OFFERS WERE RECEIVED IN THE PHILADELPHIA ORDNANCE DISTRICT ON FEBRUARY 27 AND WERE TO BE SUBMITTED TO ORDNANCE AMMUNITION COMMAND FOR EVALUATION BY MARCH 7. ONLY BECAUSE THE LATTER DATE WAS EXTENDED TO MARCH 17 WAS THE PHILADELPHIA ORDNANCE DISTRICT ABLE TO CONDUCT PRICE ANALYSES OF THE SEVERAL OFFERS, ISSUE THE REQUEST FOR REVISED PROPOSALS BY MARCH 9, AND CONDUCT LIMITED DISCUSSIONS SUCH AS THE DISCUSSION WITH YOUR COMPANY ON MARCH 3, PRIOR TO SUBMITTING A DIGEST OF ALL PROPOSALS AND AN UNQUALIFIED RECOMMENDATION TO OAC. IT WOULD THEREFORE APPEAR THAT AT LEAST EQUAL OPPORTUNITY TO NEGOTIATE WAS AFFORDED ALL OFFERORS BY THE PHILADELPHIA ORDNANCE DISTRICT PRIOR TO SUBMITTING A RECOMMENDATION TO OAC THAT THE NONBARTER PROPOSAL OF FIRTH STERLING WAS THE LOWEST RESPONSIVE OFFER RECEIVED IN THE DISTRICT. THIS PROPOSAL WAS THEN EVALUATED BY OAC AGAINST PROPOSALS RECEIVED FROM OTHER DISTRICTS AND ALLOCATION OF THE REQUIREMENTS WAS THEN MADE TO THE PHILADELPHIA ORDNANCE DISTRICT FOR FURTHER NEGOTIATION WITH FIRTH STERLING AND AWARD OF CONTRACT.

WHETHER THE CONDUCT OF NEGOTIATIONS ON AN INDIVIDUAL DISTRICT BASIS COMPLIES IN ALL CASES, OR IS CAPABLE OF BEING REVISED TO COMPLY, WITH THE INTENT AND PURPOSE OF ASPR 3-805.1, WOULD APPEAR TO BE CONJECTURAL. HOWEVER, IT SHOULD BE NOTED THAT THIS REGULATION DOES NOT PRESCRIBE EITHER THE NATURE, FORM, OR EXTENT OF THE WRITTEN OR ORAL DISCUSSIONS WHICH ARE TO BE CONDUCTED WITH ALL OFFERORS WHO SUBMIT INITIAL PROPOSALS WITHIN A COMPETITIVE RANGE. IT WOULD THEREFORE APPEAR THAT INSOFAR AS YOUR PROPOSAL IS CONCERNED, THE LETTER OF THE REGULATION WAS COMPLIED WITH BY THE ORAL DISCUSSION WITH YOUR REPRESENTATIVE ON MARCH 3, 1961. SIMILARLY, IT WOULD APPEAR THAT A WRITTEN REQUEST FOR REVISION OF PROPOSALS, SUCH AS THE REQUEST FORWARDED TO ALL OFFERORS ON MARCH 7, PLACES THE BURDEN UPON THE OFFEROR TO INDICATE A WILLINGNESS TO NEGOTIATE FURTHER, AND THAT AN OFFEROR'S FAILURE TO SO INDICATE WOULD ABSOLVE THE CONTRACTING AGENCY OF ANY OBLIGATION UNDER THE REGULATION TO UNILATERALLY ATTEMPT FURTHER WRITTEN OR ORAL DISCUSSIONS WITH SUCH OFFEROR.

AS INDICATED ABOVE, THE PROCUREMENT IN QUESTION WAS NEGOTIATED UNDER THE AUTHORITY OF 10 U.S.C. 2304 (A) (14). UNDER THE PROVISIONS OF 10 U.S.C. 2310 (A) THE DETERMINATION TO NEGOTIATE UNDER SUCH AUTHORITY BECOMES FINAL, AND THE HISTORY OF THIS LEGISLATION INDICATES IT WAS INTENDED TO PRECLUDE THIS OFFICE OR THE COURTS FROM QUESTIONING THE VALIDITY OR LEGALITY OF CONTRACTS NEGOTIATED UNDER 10 U.S.C. 2304 (A) (14). WHILE THIS RESTRICTION WOULD APPEAR TO BE MODIFIED, WITH RESPECT TO NEGOTIATED AWARDS TO OTHER THAN THE LOW OFFEROR, BY THE FINAL PROVISO TO SECTION 523 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1961, WE ARE UNABLE TO CONCLUDE THAT THE AWARD IN THE INSTANT PROCUREMENT WAS NOT MADE TO THE LOWEST RESPONSIBLE OFFEROR. UNDER THE CIRCUMSTANCES, THERE DOES NOT APPEAR TO BE ANY BASIS FOR DISTURBING THE AWARD TO FIRTH STERLING, AND YOUR PROTEST MUST BE DENIED.