B-153145, APR. 27, 1964

B-153145, APR. 27, 1964

TO THE SECRETARY OF THE AIR FORCE:

REFERENCE IS MADE TO LETTERS OF MARCH 6 AND 12, 1964, FROM THE CHIEF, PROCUREMENT OPERATIONS DIVISION, DIRECTORATE, PROCUREMENT POLICY, DEPUTY CHIEF OF STAFF, SYSTEMS AND LOGISTICS, REPORTING ON THE PROTESTS OF DETROIT DIESEL ENGINE DIVISION, GENERAL MOTORS CORPORATION, AND OF STEWART AND STEVENSON SERVICES AGAINST RESTRICTIVE PROVISIONS IN THE SPECIFICATION FOR GENERATOR SETS CONTAINED IN REQUEST FOR PROPOSALS 64-45018.

SPECIFICALLY, THE COMPLAINT IS THAT THE SPECIFICATION REQUIRES THAT THE PROPOSALS BE SUBMITTED ON THE BASIS OF FURNISHING GENERATOR SETS UTILIZING HERCULES AND CUMMINS ENGINES ONLY.

THE PROCUREMENT HAS BEEN SET ASIDE FOR NEGOTIATION UNDER 10 U.S.C. 2304 (A) (1) BECAUSE IT IS RESTRICTED TO LABOR SURPLUS AREA CONCERNS IN ACCORDANCE WITH THE DEPARTMENT OF DEFENSE TEST PROGRAM TO INCREASE AWARD OF CONTRACTS TO LABOR SURPLUS AREAS. THE PROCEDURES THAT PROVIDE FOR THE PROGRAM PROVIDE IN ADDITION THAT FULL AND FREE COMPETITION WILL BE OBTAINED IN ACCORDANCE WITH EXISTING PROCEDURES.

THE REPORT MADE TO US ATTEMPTS TO JUSTIFY THE RESTRICTIONS IN THE SPECIFICATIONS ON THE BASIS THAT SUCH RESTRICTIONS COINCIDE WITH THE NEEDS OF THE AIR FORCE. HISTORICALLY, IT IS POINTED OUT THAT IN THE LATE 1950'S THE AIR FORCE HAD OVER 400 DIFFERENT MAKES AND MODELS OF GENERATOR SETS WITH OVER 190 OF THOSE SETS BEING IN THE 15 KW. TO 150 KW. SIZE, BUT THAT SINCE MANY COMPANIES WHICH HAD PRODUCED THE ORIGINAL ITEMS WERE NO LONGER IN BUSINESS AND AS THE AIR FORCE DID NOT HAVE ANY DETAIL DRAWINGS TO USE IN THE PROCUREMENT OF SPARE PARTS, IT HAD NO WAY TO SECURE SPARE PARTS FOR MANY GENERATOR SETS THAT WERE OTHERWISE REPARABLE. AS A RESULT, IT IS REPORTED THAT THE AIR FORCE DECIDED TO EMBARK ON A PROGRAM TO DEVELOP A FULLY COMPETITIVE PERFORMANCE TYPE SPECIFICATION TO REPLACE ALL THE GENERATOR SETS BETWEEN 15 KW. AND 150 KW. IN A FAMILY OF FIVE UTILIZING DETAILED MANUFACTURING DATA WHICH WOULD INSURE THAT EACH SUCCEEDING PROCUREMENT OF GENERATOR SETS WOULD BE "CHINESE COPIES" OF THOSE ORIGINALLY PROCURED. PERFORMANCE TYPE SPECIFICATION MIL-G-26272, AS AMENDED, WAS DEVELOPED AND COORDINATED WITH INDUSTRY. UTILIZING THE MILITARY SPECIFICATION, THE AIR FORCE IN EARLY 1960 BEGAN A TWO-STEP PROCUREMENT PROGRAM TO IMPLEMENT THESE PLANS. NINETEEN TECHNICAL PROPOSALS WERE RECEIVED AND REVIEWED. SEVENTEEN WERE ACCEPTED. BID PRICES WERE SOLICITED FROM THE FIRMS SUBMITTING ACCEPTABLE TECHNICAL PROPOSALS. THREE FIRMS, INCLUDING THE DETROIT DIESEL ENGINE DIVISION, DID NOT BID. THE RESULTING CONTRACT WAS AWARDED TO THE LOW BIDDER, INTERNATIONAL FERMONT LABORATORY COMPANY, INC.

THE IMMEDIATE REQUEST FOR PROPOSALS IS AN EFFORT TO STANDARDIZE ON THE GENERAL PURPOSE GENERATOR SETS DESIGNED, TESTED AND PRODUCED BY INTERNATIONAL FERMONT UNDER THE TWO-STEP PROCUREMENT. IT IS REPORTED THAT STANDARDIZATION IS BELIEVED JUSTIFIED FOR A VARIETY OF REASONS AS FOLLOWS. IT IS ESTIMATED THAT SAVINGS MAY BE REALIZED AS A RESULT OF REDUCTIONS IN ENGINEERING EVALUATIONS, TESTING AND MAINTENANCE AND SUPPLY COSTS, I.E., TECHNICAL ORDER PREPARATION, SPECIFICATION PREPARATION, REPAIR/OVERHAUL HANDBOOKS, ADDITIONAL SPARE PARTS, TRAINING, WAREHOUSING, CATALOGING REQUIREMENTS COMPUTATION AND ALLOWANCE DOCUMENTATION. IT IS REPORTED THAT THE CURRENT MANAGEMENT CONCEPT HAS REDUCED THE TYPES OF GENERATOR SETS ON THESE SIZES FROM 193 TO 12 WITH A CORRESPONDING REDUCTION IN THE APPLICABLE SPARE PARTS FROM 89,228 TO 1,874 AND AT THE SAME TIME HAS INCREASED THE MAXIMUM INTERCHANGEABILITY BETWEEN THE GENERATOR SETS. IT IS ESTIMATED THAT IF OTHER MAKES AND MODELS OF GENERATOR SETS ARE REQUIRED TO BE PROCURED, PROPOSALS WILL BE SUBMITTED ON THE BASIS OF APPROXIMATELY 25 PERCENT ADDITIONAL COST FOR SPARES AND DATA, PLUS A MANAGEMENT COST OF FROM $900 TO $1,100 FOR EACH NEW SPARE PART ITEM ADDED TO THE INVENTORY. IT IS STATED THAT THE AVERAGE GENERATOR SET REQUIRES APPROXIMATELY 350 LINE ITEMS OF SPARE PARTS AMOUNTING TO APPROXIMATELY $350,000 ADDITIONAL MANAGEMENT COST. FURTHER, IT IS INDICATED THAT THE ORIGINAL PROCUREMENT REQUIRED EXTENSIVE TEST OF THE GENERATOR SETS IN EACH FAMILY TO ASSURE THAT EACH TYPE OF GENERATOR SET MET ALL OF THE PERFORMANCE REQUIREMENTS AND TO ADEQUATELY ESTABLISH THE RELIABILITY OF EACH TYPE OF GENERATOR SET, AND IT IS STATED THAT IF ANY COMPONENT OF THE GENERATOR SET IS REPLACED BY A DIFFERENT MANUFACTURED ITEM SUCH AS THE ENGINE, THE COMPLETE SET MUST BE FULLY RETESTED. THE COST OF TESTING WAS APPROXIMATELY $62,00O FOR EACH GENERATOR SET TESTED AND THE MINIMUM TESTING TIME FOR EACH UNIT IS 1,680 HOURS. OVERALL IT IS ESTIMATED THAT ANNUAL SAVINGS OF $6.4 MILLION CAN BE REALIZED IN EACH YEAR FOLLOWING THE COMPLETE REPLACEMENT OF GENERATOR SETS WITH THE TYPES SPECIFIED IN THE IMMEDIATE REQUEST FOR PROPOSALS.

THE OBJECTIVE OF THE IMMEDIATE PROCUREMENT SEEMS TO BE TWOFOLD: FIRST, TO ACCOMPLISH THE PURPOSE OF INCREASING THE NUMBER OF CONTRACTS TO LABOR SURPLUS AREA CONCERNS AND SECOND, TO STANDARDIZE CERTAIN GENERATOR SETS. THE DEPARTMENT OF DEFENSE TEST PROGRAM PROCEDURE AUTHORIZES THE FIRST OBJECTIVE TO BE ACCOMPLISHED BY NEGOTIATION; HOWEVER, WHILE AUTHORIZING CERTAIN RESTRICTIVE PROCEDURES TO BE FOLLOWED TO ACCOMPLISH THIS PURPOSE, THE PROCEDURE PROVIDES THAT IN OTHER RESPECTS THE PROCUREMENT IS TO BE OPEN TO FULL AND FREE COMPETITION. THE STANDARDIZATION THAT IS SOUGHT TO BE ACCOMPLISHED HERE IS A RESTRICTIVE PROGRAM RUNNING CONTRARY TO THE CONCEPT OF FULL AND FREE COMPETITION. IN THAT REGARD, THE EXCEPTIONS TO THE STATUTORY REQUIREMENTS PROVIDING FOR ADVERTISING OF PROCUREMENTS WITH FULL AND FREE COMPETITION INCLUDE AN EXCEPTION IN 10 U.S.C. 2304 (A) (13) FOR TECHNICAL EQUIPMENT REQUIRING STANDARDIZATION AND INTERCHANGEABILITY OF PARTS. THAT EXCEPTION PROVIDES FOR NEGOTIATION IF---

"* * * FOR EQUIPMENT THAT HE (THE SECRETARY) DETERMINES TO BE TECHNICAL EQUIPMENT WHOSE STANDARDIZATION AND THE INTERCHANGEABILITY OF WHOSE PARTS ARE NECESSARY IN THE PUBLIC INTEREST AND WHOSE PROCUREMENT BY NEGOTIATION IS NECESSARY TO ASSURE THAT STANDARDIZATION AND INTERCHANGEABILITY; "

IN THAT CONNECTION, THE DEPARTMENT OF DEFENSE PROCUREMENT PRESENTATION TO THE PROCUREMENT SUBCOMMITTEE OF THE SENATE COMMITTEE ON ARMED SERVICES IN CONNECTION WITH THE COMMITTEE'S STUDY OF PROCUREMENT POLICIES AND PRACTICES IN FEBRUARY 1960 PROVIDES THE FOLLOWING HISTORICAL BACKGROUND:

"THIS EXCEPTION ORIGINATED IN THE ARMED SERVICES PROCUREMENT ACT OF 1947. IT GREW OUT OF THE NEED TO BE ABLE TO NEGOTIATE PURCHASES OF ADDITIONAL UNITS AND REPLACEMENT SPARE PARTS AND ITEMS, THE INITIAL PROCUREMENT OF WHICH, FOR THE MOST PART, WOULD HAVE BEEN MADE BY COMPETITIVE PROCUREMENTS. CONGRESS AGREED THAT THE MILITARY IMPORTANCE AND THE FINANCIAL SAVINGS RESULTING FROM STANDARDIZED EQUIPMENT AND INTERCHANGEABLE PARTS MADE IT ESSENTIAL THAT WE BE ABLE TO STANDARDIZE ON MAJOR ITEMS OF TECHNICAL EQUIPMENT; AND, HAVING DONE SO, THAT ADDITIONAL OR REPLACEMENT UNITS AND INTERCHANGEABLE SPARE PARTS BE PROCURED BY NEGOTIATION.'

THE PRESENTATION STATES FURTHER THAT STANDARDIZATION OF EQUIPMENT RESTRICTS NORMAL COMPETITION AND RESULTS IN MOST CASES IN NONCOMPETITIVE PROCUREMENT. IT GOES ON TO STATE:

"THIS EXCEPTION ALSO REQUIRES A SECRETARIAL DETERMINATION AND FINDING BEFORE ITS AUTHORITY MAY BE USED. * * * THE AUTHORITY TO NEGOTIATE PROCUREMENT OF ONE OR TWO MANUFACTURERS' PRODUCTS TO THE EXCLUSION OF OTHERS MUST BE SAFEGUARDED. ACCORDINGLY, * * * THE PRESENT STATUTORY REQUIREMENT THAT DETERMINATIONS AND DECISIONS UNDER EXCEPTION 13 BE MADE AT THE SECRETARIAL LEVEL SHOULD BE MAINTAINED.'

IN VIEW OF THE FOREGOING, IT SEEMS CLEAR TO US THAT A DETERMINATION AND FINDING BY THE SECRETARY OF THE AIR FORCE IS REQUIRED BEFORE THE SUBJECT PROCUREMENT CAN BE CONSUMMATED BY THE PROPOSED CONTRACT. THE PROCEDURES AND CRITERIA FOR SUCH A DETERMINATION AND FINDING ARE SET FORTH IN THE SUBSECTIONS UNDER PARAGRAPH 3-213 OF THE ARMED SERVICES PROCUREMENT REGULATION.

WHILE, AS YOU POINT OUT, OUR OFFICE IN SEVERAL PREVIOUS DECISIONS HAS NOT OBJECTED TO THE PROCUREMENT OF PROPRIETARY SUBITEMS WITHOUT REGARD TO THE REQUIREMENT FOR A SECRETARIAL FINDING UNDER 10 U.S.C. 2304 (A) (13), THOSE DECISIONS WERE NOT INTENDED AND SHOULD NOT BE INTERPRETED AS PRECEDENT OR AUTHORITY TO DISREGARD SUCH REQUIREMENT WHERE, AS HERE, THE BASIC PURPOSE SOUGHT TO BE ACCOMPLISHED IS STANDARDIZATION AND INTERCHANGEABILITY OF PARTS.