B-148873, AUG. 10, 1962

B-148873, AUG. 10, 1962

TO FACKLAR-WILLIAMS TIRE COMPANY:

REFERENCE IS MADE TO YOUR LETTER OF MAY 5, 1962, IN REGARD TO YOUR PROTEST CONCERNING TIRE RECAPPING CONTRACTS COVERING GENERAL SERVICES ADMINISTRATION (GSA) REGION 4 FOR THE PERIOD MAY 1, 1962, THROUGH APRIL 30, 1963.

GSA REGION 4, FEDERAL SUPPLY SERVICE, ATLANTA, GEORGIA, SOLICITED OFFERS COVERING FSC GROUP 26, TIRES AND TUBES, PART III, AND RECAPPING SERVICES FOR THE ABOVE-STATED PERIOD. YOU WERE AWARDED A CONTRACT NUMBERED GS-04S- 9830 AND ROYAL TIRE SERVICE, INC., WAS AWARDED CONTRACT NO. GS-04S-9831. THESE CONTRACTS ARE "MULTIPLE AWARD" CONTRACTS, MANDATORY FOR USE BY ALL DEPARTMENTS AND INDEPENDENT ESTABLISHMENTS, INCLUDING WHOLLY-OWNED GOVERNMENT CORPORATIONS, IN THE EXECUTIVE BRANCH OF THE FEDERAL GOVERNMENT WITHIN THE STATES NAMED IN THE INVITATION, EXCEPT THE DEPARTMENT OF DEFENSE. ALSO, THE CONTRACTS WERE FOR OPTIONAL USE BY ORDERING AGENCIES LOCATED MORE THAN 20 MILES BEYOND THE METROPOLITAN DELIVERY NONE OF THE CITY IN WHICH THE CONTRACTOR'S PLACE IS LOCATED. THE PERTINENT PROVISION OF THE CONTRACTS INVOLVED IN YOUR PROTEST IS THAT UNDER PARAGRAPH 10 OF THE GENERAL AND SPECIAL PROVISIONS, AS FOLLOWS:

"10. ARTICLE 13, GSA FORM 281C, GENERAL PROVISIONS FOR FEDERAL SUPPLY SCHEDULE CONTRACTS (MARCH 1951), IS INAPPLICABLE AND THE FOLLOWING IS SUBSTITUTED THEREFOR:

"PRICE REDUCTIONS. IF AT ANY TIME AFTER THE DATE OF THE BID THE CONTRACTOR MAKES A GENERAL PRICE REDUCTION IN THE COMPARABLE PRICE OF ANY ARTICLE OR SERVICE COVERED BY THE CONTRACT TO CUSTOMERS GENERALLY, AN EQUIVALENT PRICE REDUCTION BASED ON SIMILAR QUANTITIES AND/OR CONSIDERATIONS SHALL APPLY TO THE CONTRACT FOR THE DURATION OF THE CONTRACT PERIOD (OR UNTIL THE PRICE IS FURTHER REDUCED). SUCH PRICE REDUCTION SHALL BE EFFECTIVE AT THE SAME TIME AND IN THE SAME MANNER AS THE REDUCTION IN THE PRICE TO CUSTOMERS GENERALLY. FOR PURPOSE OF THIS PROVISION, A "GENERAL PRICE REDUCTION" SHALL MEAN ANY HORIZONTAL REDUCTION IN THE PRICE OF AN ARTICLE OR SERVICE OFFERED (1) TO CONTRACTOR'S CUSTOMERS GENERALLY OR (2) IN THE CONTRACTOR'S PRICE SCHEDULE FOR THE CLASS OF CUSTOMERS, I.E., WHOLESALERS, JOBBERS, RETAILERS, ETC., WHICH WAS USED AS THE BASIS FOR BIDDING ON THIS CONTRACT. (FOR PURPOSE OF DETERMINING A "GENERAL PRICE REDUCTION" UNDER THIS CLAUSE, SALES TO STATES AND OTHER LOCAL POLITICAL SUBDIVISIONS BY A CONTRACTOR, OR REDUCTIONS IN PRICE SCHEDULES OF THE CONTRACTOR TO SUCH AGENCIES, SHALL HAVE NO APPLICATION.) AN OCCASIONAL SALE AT A LOWER PRICE, OR SALE OF DISTRESSED MERCHANDISE AT A LOWER PRICE, WOULD NOT BE CONSIDERED "GENERAL PRICE REDUCTION" UNDER THIS PROVISION. THE CONTRACTOR SHALL INVOICE THE ORDERING OFFICES AT SUCH REDUCED PRICES INDICATING ON THE INVOICE THAT THE REDUCTION IS PURSUANT TO THE ,PRICE REDUCTIONS" ARTICLE OF THE GENERAL PROVISIONS. THE CONTRACTOR, IN ADDITION, SHALL WITHIN TEN DAYS OF ANY GENERAL PRICE REDUCTION NOTIFY THE GENERAL SERVICES ADMINISTRATION'S CONTRACTING OFFICER OF SUCH REDUCTION BY LETTER. FAILURE TO DO SO MAY REQUIRE TERMINATION OF THE CONTRACT, AS PROVIDED IN THE "DEFAULT" CLAUSE OF THE GENERAL PROVISIONS. UPON RECEIPT OF ANY SUCH NOTICE OF A GENERAL PRICE REDUCTION ALL ORDERING OFFICES WILL BE DULY NOTIFIED.

"IN ADDITION TO ARTICLE 13, GSA FORM 281C, GENERAL PROVISIONS FOR FEDERAL SUPPLY SCHEDULE CONTRACTS (MARCH 1951), THE FOLLOWING CLAUSE WITH RESPECT TO PRICE REDUCTIONS SHALL APPLY:

"PRICE REDUCTION TO A FEDERAL AGENCY. IF, DURING THE LIFE OF THE CONTRACT, THE CONTRACTOR SELLS TO ANY FEDERAL AGENCY UNDER HIS FEDERAL SUPPLY SCHEDULE CONTRACT AT REDUCED PRICE ANY ARTICLE OR SERVICE COVERED BY THE CONTRACT AND THE QUANTITY INVOLVED FALLS WITHIN THE APPLICABLE MAXIMUM ORDER LIMITATION SET FORTH IN THE CONTRACT, EQUIVALENT PRICE REDUCTIONS BASED ON SIMILAR QUANTITIES AND/OR CONSIDERATIONS SHALL APPLY TO HIS FEDERAL SUPPLY SCHEDULE CONTRACT. SUCH PRICE REDUCTIONS SHALL BE EFFECTIVE AT THE SAME TIME THE SALE AT REDUCED PRICE IS MADE TO ANY FEDERAL AGENCY. THE CONTRACTOR SHALL THEREAFTER FOR THE DURATION OF THE CONTRACT PERIOD INVOICE ALL ORDERING OFFICES AT SUCH REDUCED PRICE, INDICATING ON THE INVOICE THAT THE REDUCTION IS PURSUANT TO THIS CLAUSE IN HIS FEDERAL SUPPLY SCHEDULE CONTRACT. IN ADDITION, THE CONTRACTOR SHALL WITHIN TEN DAYS NOTIFY THE GENERAL SERVICES ADMINISTRATION'S CONTRACTING OFFICER OF SUCH REDUCTION, BY LETTER IN TRIPLICATE, AND REQUEST THAT HIS CONTRACT BE AMENDED ACCORDINGLY. FAILURE TO DO SO MAY REQUIRE TERMINATION OF THE CONTRACT AS PROVIDED IN ARTICLE 21, DEFAULT, GSA FORM 281C, GENERAL PROVISIONS FOR FEDERAL SUPPLY SCHEDULE CONTRACTS (MARCH 1951).'

INCLUDED IN THE INVITATION AS NOTES 1 TO 4, INCLUSIVE, WERE THE FOLLOWING REQUIREMENTS AND STIPULATIONS:

"NOTE 1. PRICES SHALL BE OFFERED IN TERMS OF THE PERCENTAGE OF DISCOUNT OFFERED FROM THE LIST PRICES IN "SCHEDULE A" ATTACHED ONLY. STATE PERCENTAGE OF DISCOUNT OFFERED IN THE SPACE PROVIDED BELOW:

--------------------PERCENTAGE

"NOTE 2. OFFERS OFFERING LESS THAN 35 PERCENT DISCOUNT FROM THE ABOVE- MENTIONED LIST WILL NOT BE CONSIDERED AND THE GOVERNMENT RESERVES THE RIGHT TO MAKE AWARDS TO THE OFFEROR'S OFFERING THE BEST DISCOUNT WITHIN A GIVEN CITY OR AREA. SINGLE OR FLAT DISCOUNTS ONLY SHOULD BE OFFERED.

"NOTE 3. OFFEROR WILL SUBMIT WITH HIS OFFER, AS A SEPARATE ATTACHMENT IN A SEALED ENVELOPE MARKED "CONFIDENTIAL" THE FOLLOWING OR EQUIVALENT INFORMATION:

(A) COPY OF COMMERCIAL PRICE LIST.

(B) DISCOUNT THEREFROM OFFERED THE GOVERNMENT.

(C) THE HIGHEST DISCOUNT ACCORDED TO HIS MOST FAVORED CUSTOMER OTHER THAN THE GOVERNMENT.

(D) DISCOUNTS EXTENDED TO SELLERS SUCH AS WHOLESALERS, DEALERS, SERVICE STATIONS, ETC.

"THE GOVERNMENT WILL KEEP ALL SUCH INFORMATION IN STRICT CONFIDENCE.

"NOTE 4. OFFERORS SHALL INDICATE WHICH ITEMS THEY CANNOT FURNISH BY DELETING SUCH ITEMS FROM SCHEDULE A, BEGINNING ON PAGE 10.' UNDER NOTE 1 ROYAL HAD QUOTED THE FOLLOWING DISCOUNTS:

"65 PERCENT FOR RECAPPING AND REPAIRING PASSENGER CAR TYPES OF TREAD.

"67 PERCENT FOR RECAPPING AND REPAIRING CONVENTIONAL TREAD DESIGNING, TRUCK AND BUS TYPES OF TREAD.

"70 PERCENT FOR RECAPPING AND REPAIRING MUD AND SNOW TREAD DESIGN, ON-AND -OFF ROAD FULL RECAP.'

BY LETTER OF MAY 1, 1962, ROYAL ADVISED THE CONTRACTING OFFICE THAT IT WOULD LIKE TO CHANGE ITS DISCOUNT AS FOLLOWS:

"DISCOUNT ON RECAPPING AND REPAIRING ALL TRUCK AND BUS TYPES OF TREAD, BOTH CONVENTIONAL AND MUD-AND-SNOW, ON-AND-OFF ROAD FULL RECAP, TO BE 71 1/2 PERCENT FROM LIST. NO OTHER CHANGES.'

BY LETTER OF MAY 2, 1962, ROYAL ADVISED THAT ITS DISCOUNT ON RECAPPING AND REPAIRING ALL PASSENGER CAR TYPES OF TREAD WOULD BE 67 PERCENT FROM LIST. BY LETTER OF MAY 21, 1962, A FURTHER CHANGE IN DISCOUNT WAS ANNOUNCED, AS FOLLOWS:

"1. DISCOUNT ON RECAPPING AND REPAIRING ALL TRUCK AND BUS TYPES OF TREAD, BOTH CONVENTIONAL AND MUD-AND-SNOW, ON-AND-OFF ROAD FULL RECAP TO BE 72 1/4 PERCENT FROM LIST.

"2. DISCOUNT ON RECAPPING AND REPAIRING ALL PASSENGER CAR TYPES OF TREAD TO BE 67 3/4 PERCENT FROM LIST.'

IN LIKE MANNER YOU ADVISED THE CONTRACTING OFFICE ON MAY 16, 1962, THAT THE FOLLOWING DISCOUNT WAS OFFERED:

"71.5 PERCENT DISCOUNT APPLIES TO TRUCK AND BUS, MUD AND SNOW, ON AND OFF ROAD FULL RECAP AND SECTIONAL REPAIR.

2 PERCENT PROMPT PAYMENT DISCOUNT FOR 30 DAY PAYMENT.'

YOU CONTEND THAT YOU ARE ENTITLED TO ALL OF THE BUSINESS AWARDED ON THE CONTRACT AS TO WHICH YOU WERE LOW BIDDER AT TIME OF AWARD AND THAT ANOTHER CONTRACTOR SHOULD NOT BE ENTITLED TO ANY BUSINESS BECAUSE ITS BID PRICE BECAME LOW AFTER AWARD OF CONTRACT BY REASON OF INCREASING THEREAFTER THE DISCOUNT OFFERED. YOUR LETTERS OF MAY 5, 1962, TO THREE DIFFERENT PARTIES PROTESTING THE METHOD OF CONTRACTING EMPLOYED IN THIS CASE WHERE PROMPTED APPARENTLY BY THE INCREASES IN DISCOUNT OFFERED BY ROYAL IN ITS LETTERS OF MAY 1 AND 2 AT THE BEGINNING OF THE 12-MONTH CONTRACT TERM ON MAY 1. YOUR LETTER TO THE CONTRACTING OFFICER--- COPY OF WHICH YOU ENCLOSED WITH YOUR LETTER TO OUR OFFICE--- YOU ALLEGE THAT IN THE PAST YEAR YOU HAD BEEN THE LOW BIDDER FOR RECAPPING TIRES FOR ONE YEAR BUT THAT MOST OF THE WORK WAS DONE BY TWO OTHER CONTRACTORS. THEREFORE, YOU DECIDED THAT YOU WOULD BID CONSIDERABLY LOWER THIS YEAR AND YOU STATE THAT YOU WERE IN FACT THE LOWEST BIDDER. ALSO, YOU STATE THAT WHEN THE AMOUNT OF YOUR BID WAS DISCLOSED "A LOCAL COMPANY" (ROYAL IMMEDIATELY AMENDED ITS CONTRACT BY REDUCING ITS PRICE ONE-HALF OF ONE PERCENT UNDER YOUR PRICE.

THE ADMINISTRATIVE OFFICE IN ITS REPORT OF JULY 2, 1962, REFERS TO REPLIES MADE BY IT TO YOUR COMPLAINT AND TO AN INQUIRY ON YOUR BEHALF, WHICH IS CONSIDERED AS FULLY EXPLAINING THE POSITION OF THE GOVERNMENT IN THIS MATTER.

IT IS STATED THAT SOLICITATIONS FOR OFFERS FOR TIRE RECAPPING ARE ISSUED TO ALL SUPPLIERS ON THE APPROPRIATE BIDDER'S MAILING LIST AND THAT CONTRACTS ARE AWARDED TO THE ACCEPTABLE OFFERORS TO THE EXTENT OF THE ESTIMATED REQUIREMENTS. SINCE THERE ARE SEVERAL HUNDRED DIFFERENT TIRE MOLDS INVOLVED, AND SINCE THE DEMAND FOR SERVICE CANNOT BE ACCURATELY FORECAST IN TERMS OF TIRE SIZE, ORIGIN OF REQUIREMENT, AND TIME OF DELIVERY, IT BECOMES NECESSARY TO MAKE MULTIPLE AWARD CONTRACTS FOR A PARTICULAR LOCALITY TO ASSURE AVAILABILITY OF ADEQUATE CAPACITY TO MEET THE GOVERNMENT'S NEEDS. THESE CONTRACTS ARE AWARDED ON THE BASIS OF COMPETITIVE NEGOTIATION WITH THE LOWEST RESPONSIVE OFFERORS ONLY TO THE EXTENT OF THE ESTIMATED REQUIREMENTS.

EACH FEDERAL SUPPLY SCHEDULE CONTRACT CONTAINS AN APPROPRIATE PRICE REDUCTION CLAUSE, SUCH AS IS HERE INVOLVED, WHICH REQUIRES A REDUCTION IN THE CONTRACT PRICE UNDER THE CIRCUMSTANCES LISTED IN THE CLAUSE. THE PURPOSE OF THIS CLAUSE IS TO ASSURE THAT THE GOVERNMENT RECEIVES THE BENEFIT OF ANY GENERAL PRICE REDUCTION THAT MAY OCCUR DURING THE CONTRACT PERIOD. ALSO, THE CONTRACTOR MAY MAKE VOLUNTARY PRICE REDUCTIONS AT ANY TIME AND SUCH REDUCTIONS, IN THE CASE OF MULTIPLE AWARDS, MAY IMPROVE THE COMPETITIVE POSITION OF THE CONTRACTOR. SINCE AN ATTEMPT IS MADE BY LIMITING AWARDS FOR TIRE RECAPPING TO THE EXTENT OF THE ESTIMATED NEEDS, THE NUMEROUS LOCAL SUPPLIERS WHOSE OFFERS WERE HIGHER AND WERE NOT ACCEPTED CANNOT SELL TO THE USING AGENCIES UPON WHOM THE AWARDED CONTRACTS ARE MANDATORY. FEDERAL SUPPLY SCHEDULE CONTRACTORS RECEIVE THE GOVERNMENT'S RECAPPING BUSINESS AND DO NOT HAVE TO COMPETE WITH OTHER COMMERCIAL SOURCES ON A DAY-TO-DAY BASIS. THESE CONTRACTS SECURE LOWER OVER-ALL PRICES FOR THE GOVERNMENT AND THE CONTRACTORS SECURE A GREATER AMOUNT OF BUSINESS THAN WOULD OTHERWISE BE THE CASE. WHILE THE GOVERNMENT MAY BE UNABLE TO ASCERTAIN DEFINITELY IN ADVANCE HOW MANY TIRES NEED RECAPPING AT ANY ONE TIME AND WHAT SIZES WILL BE INVOLVED, THE SYSTEM DOES PROVIDE A MORE ORDERLY METHOD OF PROCUREMENT.

THE ADMINISTRATIVE OFFICE FEELS THAT THE ONLY WAY THAT VOLUNTARY PRICE REDUCTIONS CAN BE ELIMINATED IS TO MAKE ONE AWARD FOR EACH LOCALITY ON A BASIS OF THE LOWEST PRICE QUOTED FOR THE VARIOUS MOLDS, FOR THE CAPACITY OF PRODUCTION THE CONTRACTOR CAN OFFER. IN CASES WHERE SUCH AWARDS WOULD NOT MEET THE ESTIMATED DEMAND, ADDITIONAL OR PROGRESSIVE AWARDS WOULD BE REQUIRED. THEN AN ALLOCATION SYSTEM WOULD HAVE TO BE ESTABLISHED SO THAT NO ORDERS WOULD BE PLACED WITH A CONTRACTOR WHICH WOULD BE IN EXCESS OF HIS CAPACITY. WHEN THE FIRST CONTRACTOR'S CAPACITY WOULD NOT BE ADEQUATE, PURCHASING ORDERS WOULD THEN BE ISSUED TO THE CONTRACTORS HOLDING THE SECOND AWARD AND POSSIBLY THE THIRD AWARD. THE ADMINISTRATIVE OFFICE CONSIDERS THAT SUCH AN ALLOCATION SYSTEM BETWEEN A LARGE NUMBER OF CONTRACTORS AND ORDERING OFFICES WOULD BE IMPOSSIBLE TO ADMINISTER WITHOUT UNREASONABLY INCREASING ADMINISTRATIVE COSTS. ALSO, IF LARGE OR URGENT REQUIREMENTS WOULD ARISE AND A CONTRACTOR HAD AT THAT TIME PRESSING COMMERCIAL COMMITMENTS, THIS WOULD LEAD TO DEFAULT TERMINATIONS AND PROCUREMENTS FROM OTHER SOURCES WITH THE RESULT THAT THE PRICES TO THE GOVERNMENT WOULD EVENTUALLY BE HIGHER SO THAT THE CONTRACTORS COULD RECOVER THE EXCESS COSTS CHARGED AGAINST THEIR ACCOUNTS BY THE GOVERNMENT AS WELL AS TO COMPENSATE THEM FOR POSSIBLE LOSS OF COMMERCIAL ACCOUNTS. ASIDE FROM THE FOREGOING OBJECTIONS TO CONTRACTING FOR THE SERVICES INVOLVED ON A DIFFERENT BASIS, IT IS APPARENT THAT THE TIRE RECAPPING SERVICES REQUIRED BY THE GOVERNMENT ARE NOT OF SUFFICIENT VOLUME AND OF A CONTINUOUS NATURE SO AS TO MAKE IT PROFITABLE FOR ONE CONTRACTOR TO LIMIT HIS WORK TO GOVERNMENT CONTRACTS. THIS SITUATION NECESSITATES THE LETTING OF TWO OR MORE CONTRACTS SO AS TO MINIMIZE THE DELAYS IN PROCUREMENT OF THE INVOLVED SERVICES.

THE PROVISIONS OF THE CONTRACTS IN THIS CASE IN REGARD TO THE REDUCTION OF THE CONTRACT PRICES WHERE THE CONTRACTORS MAKE A GENERAL REDUCTION IN THEIR PRICES AFTER THE DATES OF THE BIDS OR WHERE DURING THE LIFE OF THE CONTRACTS THE CONTRACTORS SELL AT A REDUCTION TO ANY FEDERAL AGENCY ARE NOT NEW PROVISIONS AND IN CASE OF A SINGLE AWARD DO NOT PRESENT ANY PROBLEMS. THE FACT THAT THE REDUCTION IN CONTRACT PRICES MAY OPERATE TO THE ADVANTAGE OF ONE CONTRACTOR SHOULD NOT BE CONSIDERED A SUFFICIENT REASON FOR REFUSING TO CONSIDER THE APPLICABILITY OF THESE PROVISIONS. BOTH CONTRACTORS IN THIS CASE SUBMITTED THEIR BIDS UPON THE SAME CONDITIONS, AND ON MAY 16, 1962, YOU ALSO REDUCED YOUR PRICES. IN VIEW OF THE FOREGOING WE DO NOT FIND ANY BASIS FOR CONSIDERING THAT THE METHOD OF CONTRACTING EMPLOYED IN THIS CASE WAS IMPROPER.