B-153686, AUG. 31, 1964

B-153686, AUG. 31, 1964

TO BINDER, SILBER AND STRANGLER, ATTORNEYS AT LAW:

BY LETTER DATED MARCH 27, 1964, YOU PROTESTED, ON BEHALF OF AEROTEST LABORATORIES, INC., AGAINST THE AWARD OF A CONTRACT BY THE BUREAU OF NAVAL WEAPONS, DEPARTMENT OF THE NAVY, TO DAYTON T. BROWN, INC., UNDER REQUEST FOR PROPOSALS NO. 4744-64.

YOU CONTEND THAT THE CONTRACT AWARD UNDER THIS REQUEST FOR PROPOSAL CONFORMS TO A 12-YEAR PATTERN OF FAVORITISM AND PATERNALISTIC CONCERN FOR DAYTON T. BROWN, INC.; THAT SUCH FIRM HAS AN UNFAIR COMPETITIVE ADVANTAGE BY REASON OF HAVING BEEN "FINANCED BY THE UNITED STATES NAVY; " AND THAT AEROTEST AND OTHER TESTING LABORATORIES HAVE FOUND THEMSELVES PRECLUDED FROM ANY COMPETITIVE BIDDING ON NAVY CONTRACTS.

THE REQUEST CONTEMPLATED THE PERFORMANCE BY A SINGLE CONCERN OF TECHNICAL SERVICES RELATING TO THE TEST AND EVALUATION OF A WIDE VARIETY OF MILITARY EQUIPMENT. OVER 100 ITEMS OR TYPE OF ITEMS WERE LISTED IN THE REQUEST. THESE REPRESENTED A CONSOLIDATION OF THE REQUIREMENTS OF A NUMBER OF BUREAU ELEMENTS--- EACH HAVING RESPONSIBILITY FOR DIFFERENT NAVAL MATERIEL --- FOR PREPRODUCTION, PRODUCTION AND SPECIAL TESTING SERVICES BEYOND THE CAPACITY OF GOVERNMENT-OPERATED FACILITIES.

INTERESTED CONCERNS WERE INVITED TO SUBMIT PROPOSALS ON A COST-PLUS A- FIXED-FEE BASIS AND WERE ADVISED THAT AWARD "WILL BE BASED UPON THE HIGHEST TECHNICAL COMPETENCE, COST AND OTHER FACTORS CONSIDERED.' THREE PROPOSALS WERE RECEIVED AND EVALUATED UNDER THE CRITERIA OF THE REQUEST FOR PROPOSALS. AEROTEST SUBMITTED A PROPOSAL OF $1,562,088 BUT IT WAS DETERMINED BY THE PROCUREMENT AGENCY THAT SUCH OFFEROR DID NOT POSSESS THE TECHNICAL COMPETENCE CONTEMPLATED BY THE REQUEST FOR PROPOSALS. CONTRACT NO. NOW 64-0283-C WAS AWARDED TO DAYTON T. BROWN, INC., ON JANUARY 9, 1964, IN THE AMOUNT OF $1,939,930, INCLUDING THE FIXED FEE, ON A COST-PLUS -A-FIXED-FEE BASIS, PURSUANT TO THE GUIDELINES PRESCRIBED BY ARMED SERVICES PROCUREMENT REGULATION (ASPR) 3-405.5. ALSO, THE REQUIRED DETERMINATIONS UNDER 10 U.S.C. 2306 (C) WERE MADE JUSTIFYING THE TYPE OF CONTRACTING EMPLOYED. SEE 10 U.S.C. 2310 RESPECTING THE FINALITY OF SUCH A DETERMINATION.

IN A NEGOTIATED PROCUREMENT, THE RULES OF FORMALLY ADVERTISED, COMPETITIVE BIDDING, SUCH AS THE REQUIREMENT FOR AWARD TO THE LOWEST RESPONSIVE, RESPONSIBLE BIDDER, ARE NOT APPLICABLE AND A CONTRACTING AGENCY MAY LEGALLY TAKE INTO CONSIDERATION ALL FACTORS DEEMED ESSENTIAL TO THE PROCUREMENT. ON THIS SUBJECT, ASPR 3-805.2 PROVIDES:

"3-805.2 COST-REIMBURSEMENT TYPE CONTRACTS. IN SELECTING THE CONTRACTOR FOR A COST-REIMBURSEMENT TYPE CONTRACT, ESTIMATED COSTS OF CONTRACT PERFORMANCE AND PROPOSED FEES SHOULD NOT BE CONSIDERED AS CONTROLLING, SINCE IN THIS TYPE OF CONTRACT ADVANCE ESTIMATES OF COST MAY NOT PROVIDE VALID INDICATORS OF FINAL ACTUAL COSTS. THERE IS NO REQUIREMENT THAT COST -REIMBURSEMENT TYPE CONTRACTS BE AWARDED ON THE BASIS OF EITHER (1) THE LOWEST PROPOSED COST, (2) THE LOWEST PROPOSED FEE, OR (3) THE LOWEST TOTAL ESTIMATED COST PLUS PROPOSED FEE. THE AWARD OF COST-REIMBURSEMENT TYPE CONTRACTS PRIMARILY ON THE BASIS OF ESTIMATED COSTS MAY ENCOURAGE THE SUBMISSION OF UNREALISTICALLY LOW ESTIMATES AND INCREASE THE LIKELIHOOD OF COST OVERRUNS. THE COST ESTIMATE IS IMPORTANT TO DETERMINE THE PROSPECTIVE CONTRACTOR'S UNDERSTANDING OF THE PROJECT AND ABILITY TO ORGANIZE AND PERFORM THE CONTRACT. THE AGREED FEE MUST BE WITHIN THE LIMITS PRESCRIBED BY LAW AND REGULATION AND APPROPRIATE TO THE WORK TO BE PERFORMED (SEE 3 808). BEYOND THIS, HOWEVER, THE PRIMARY CONSIDERATION IN DETERMINING TO WHOM THE AWARD SHALL BE MADE IS: WHICH CONTRACTOR CAN PERFORM THE CONTRACT IN A MANNER MOST ADVANTAGEOUS TO THE GOVERNMENT.'

WE BELIEVE THAT IN A NEGOTIATED PROCUREMENT THE CONTRACTING OFFICER IS UNDER A DUTY TO CONDUCT THE NEGOTIATION TO THE BEST ADVANTAGE OF THE GOVERNMENT AND TO PLACE THE CONTRACT WITH THE OFFEROR MAKING THE BEST FINAL PROPOSAL. 38 COMP. GEN. 861; 40 ID. 508. UNDER THE COST REIMBURSEMENT TYPE CONTRACT, THERE IS NO FIRM PRE-ESTABLISHED PRICE. THE COST OF THE CONTRACT TO THE GOVERNMENT IS GENERALLY ESTABLISHED ON THE BASIS OF THE ACTUAL COSTS OF PERFORMANCE PROPERLY INCURRED BY THE CONTRACTOR. FOR THIS REASON, ASPR 3-805.2 PROVIDES THAT THE CONTRACTOR'S ESTIMATED COST OF CONTRACT PERFORMANCE AND PROPOSED FEE ARE NOT TO BE CONSIDERED AS CONTROLLING IN THE AWARD SELECTION. THE PRIMARY CONSIDERATION IN SELECTING THE CONTRACTOR FOR A COST REIMBURSEMENT CONTRACT IS: WHICH CONTRACTOR CAN PERFORM THE CONTRACT IN A MANNER MOST ADVANTAGEOUS TO THE GOVERNMENT? UNDER THIS CRITERION, THE RELATIVE TECHNICAL COMPETENCE OF PROSPECTIVE CONTRACTORS IS OF PARAMOUNT IMPORTANCE.

WE HAVE BEEN ADVISED THAT TO HAVE MADE AWARD TO AEROTEST WOULD HAVE BEEN TANTAMOUNT TO THE SELECTION OF A CONCERN JUDGED TO BE LESS QUALIFIED THAN DAYTON T. BROWN, INC., ON THE SOLE BASIS THAT THE GOVERNMENT WOULD ENJOY COST SAVINGS OF SUFFICIENT MAGNITUDE TO WARRANT SUCH SELECTION. WHERE TECHNICAL COMPETENCE IS PROPERLY THE PARAMOUNT FACTOR FOR CONSIDERATION, SUCH A SELECTION WOULD APPEAR TO CALL FOR A HIGH DEGREE OF ASSURANCE OF REALIZING RELATIVELY SUBSTANTIAL SAVINGS TOGETHER WITH TECHNICALLY COMPETENT PERFORMANCE. IN THE BUREAU'S OPINION, THERE WAS NO SATISFACTORY ASSURANCE THAT SUCH SAVINGS OR PERFORMANCE WOULD BE REALIZED BY THE GOVERNMENT. UNDER A CONTEMPLATED COST-REIMBURSEMENT TYPE CONTRACT, THE GOVERNMENT IS NOT ASSURED BY THE CONTRACTOR THAT THE SERVICES CALLED FOR WILL BE PERFORMED WITHIN ANY FIXED DOLLAR LIMITS; AND THE NATURE AND ACTUAL EXTENT OF THE SERVICES COVERED BY THIS REQUEST WERE NOT SUSCEPTIBLE OF ANY PRECISE ASCERTAINMENT OR DEFINITION IN ADVANCE, EITHER BY THE GOVERNMENT OR THE BIDDER. MOREOVER, WHERE THE TECHNICAL EXCELLENCE OF THE CONTRACTOR'S SERVICES IS OF MAJOR IMPORTANCE, THE LOWEST ESTIMATED COST IS NOT NECESSARILY THE MOST ADVANTAGEOUS TO THE GOVERNMENT. IN THAT CONNECTION, WE WERE FURTHER ADVISED THAT THE NATURE OF THE SERVICES CONTEMPLATED BY THE REQUEST WAS NECESSARILY INDEFINITE IN MANY RESPECTS. OFFERORS WERE ASKED TO COMMIT THEIR COMPANIES TO PERFORM TESTING SERVICES FOR UP TO 18 MONTHS FROM CONTRACT AWARD. WHILE THE BUREAU COULD SPECIFY THE TYPES OF EQUIPMENT TO BE TESTED AND THE GENERAL TYPES OF TESTS DESIRED, THE PRECISE MODELS OR CONFIGURATIONS OF PARTICULAR EQUIPMENT OF THE SPECIFIED TYPES WHICH MIGHT NEED TO BE TESTED DURING THE CONTRACT TERM WERE (AND ARE) UNAVOIDABLY VARIABLE AND DIFFICULT TO PREDICT. CHANGES IN MANUFACTURING SPECIFICATIONS, BASED ON TECHNICAL OR OTHER IMPROVEMENTS, WERE TO BE EXPECTED; SUCH CHANGES COULD BE EXPECTED TO AFFECT TEST PROCEDURES AND TEST REQUIREMENTS FOR DETERMINING WHETHER THE CHANGED SPECIFICATIONS ARE SATISFACTORILY MET. THE TOTAL NUMBER OF UNITS OF PARTICULAR ITEMS DESCRIBED IN THE REQUEST WHICH WOULD IN FACT BE ORDERED FOR PRODUCTION FROM THIRD PARTIES AND REQUIRE PREPRODUCTION OR PRODUCTION ACCEPTANCE TESTS COULD BE EXPECTED TO VARY FROM INITIAL FORECASTS DEPENDING ON FUND AVAILABILITY, CHANGES IN TECHNOLOGY AND IN OPERATING REQUIREMENTS. THE TIMING OF ACTUAL PRODUCTION PROCUREMENTS (CONTRACTS) AND OF ACTUAL DELIVERIES UNDER PRODUCTION CONTRACTS FOR THE ITEMS COVERED BY THE REQUEST WERE NOT SUBJECT TO PRECISE PREDICTION, AND TIMELY TESTING MIGHT BE EXPECTED TO REQUIRE PEAK EFFORTS AT SOME TIMES, WITH FLUCTUATION TO LOWER LEVELS OF EFFORT AT OTHERS. FURTHER, DEPENDING ON SUCH FACTORS AS THE DEGREE OF DESIGN STABILITY IN RESPECT OF A PARTICULAR ITEM, THE MATERIALS AND THE TIME OF VARIOUS CLASSES OF TECHNICIANS NEEDED TO ESTABLISH SATISFACTORY TEST PROCEDURES AND RIGS AND TO COMPLETE VALID AND SATISFACTORY TESTING IS VARIABLE AND DIFFICULT TO PREDICT IN ADVANCE.

THE CONCEPTS APPLICABLE TO THE NEGOTIATED PROCUREMENT INVOLVED HERE ARE NOT THE SAME AS THOSE APPLICABLE TO FORMALLY ADVERTISED PROCUREMENTS UNDER 10 U.S.C. 2305. THE FACT THAT AEROTEST MAY HAVE SUBMITTED THE "LOW BID" IS NOT THE CONTROLLING CONSIDERATION SINCE PRICE ALONE WAS NOT THE SOLE FACTOR GOVERNING AWARD UNDER THE REQUEST. SEE 40 COMP. GEN. 508, 511.

UNQUESTIONABLY, MOST OF DAYTON T. BROWN'S WORK HAS BEEN AND IS FOR THE NAVY. IN CONTINUING TO UTILIZE ANY ONE CONCERN OVER A PERIOD OF YEARS FOR WORK OF THE TYPE IN QUESTION, IN RELATION TO PARTICULAR NAVY MATERIAL, THERE IS INEVITABLY BUILT UP AS A BY-PRODUCT OF THE WORK AN INCREASING DEPTH OF EXPERIENCE IN AND UNDERSTANDING OF THE TECHNICAL PROBLEMS INVOLVED IN ASSURING THAT SUCH MATERIAL HAS BEEN SO DESIGNED AND PRODUCED THAT IT WILL SATISFACTORILY AND RELIABLY PERFORM ITS INTENDED FUNCTION IN ACTUAL SERVICE USE. THE SERVICES EMBRACED IN THE REQUEST INVOLVE A SIGNIFICANT DEGREE OF PECULIARITY TO NAVAL AIRCRAFT AND THEIR EQUIPMENT, WHICH MUST OPERATE ON SHIPBOARD AT SEA AS WELL AS ON LAND AND IN THE AIR. IN THE AREA OF WORK INVOLVED IN THIS PROCUREMENT, ACCUMULATED EXPERIENCE OF THIS KIND IS OF PARTICULAR VALUE TO THE GOVERNMENT. THE CONTRACTOR IS ASKED TO TEST AND EVALUATE THE WORK OF OTHERS. THIS INVOLVES MORE THAN GOING THROUGH THE MOTIONS OF MECHANICAL STEPS. IN DEVISING AND APPLYING TEST CRITERIA, PROCEDURES AND DEVICES, AND IN EVALUATING THE RESULTS, THE CONTRACTOR MUST EXERCISE TECHNICAL SKILL AND JUDGMENT. THE RAPIDITY AND SOUNDNESS OF THE CONTRACTOR'S APPROACH AND THE VALIDITY OF HIS CONCLUSIONS CANNOT AVOID BEING SIGNIFICANTLY ENHANCED BY FAMILIARITY WITH THE MATERIAL INVOLVED AND WITH ITS OPERATIONAL USE AND ENVIRONMENT.

WITH REGARD TO THE CHARGE OF UNFAIRNESS, IT IS TRUE THAT THE NAVY'S LONG COURSE OF DEALING WITH DAYTON T. BROWN, INC., HAS BROUGHT ABOUT A SITUATION IN WHICH, FOR PURPOSES OF THE PROCUREMENT IN QUESTION, ALL "BIDDERS" WERE NOT ON AN EQUAL FOOTING INSOFAR AS CONCERNS THEIR TECHNICAL COMPETENCE. YET, THE ADVANTAGE ENJOYED BY DAYTON T. BROWN, INC., AS A RESULT OF ITS EXPERIENCE IN THE WORK IN QUESTION WAS A FACT. THAT THE GOVERNMENT PAID FOR THE WORK OUT OF WHICH THIS EXPERIENCE GREW AND, HENCE,"FINANCED" IT, SEEMS UNAVOIDABLE. INDEED, IN A REAL SENSE THAT EXPERIENCE CONSTITUTES A VALUABLE BUSINESS ASSET. SUCH AN ASSET SHOULD NOT BE LIGHTLY WEIGHED OR DISCARDED. CERTAINLY, IT WOULD HAVE BEEN IMPROPER FOR THE BUREAU TO HAVE IGNORED THAT ACCUMULATED EXPERIENCE IN CONNECTION WITH THE SUBJECT AWARD FOR THE PURPOSE OF TREATING ALL "BIDDERS" AS HAVING EQUAL TECHNICAL CAPABILITY REGARDLESS OF THE ACTUAL FACTS.

UPON REVIEW, WE FIND NO LEGAL BASIS TO OBJECT TO THE AWARD AS MADE. WHILE DAYTON T. BROWN, C., ENJOYED AN "IN HOUSE" CAPABILITY WHICH RESULTED FROM PREVIOUS GOVERNMENT WORK, WE ARE UNABLE TO AGREE THAT SUCH CAPABILITY CREATED AN "UNFAIR" COMPETITIVE ADVANTAGE IN DAYTON T. BROWN, INC., TO THE EXCLUSION OF ALL OTHERS. THIS ACCUMULATION OF TECHNICAL CAPABILITIES, WHETHER THROUGH GOVERNMENT CONTRACTING OR OTHERWISE, MAY NOT BE IGNORED OR EQUALIZED FOR BENEFIT OF LESS QUALIFIED CONCERNS. IT WAS INCUMBENT UPON THE GOVERNMENT TO AWARD THE CONTRACT TO THE CONCERN HAVING THE HIGHEST TECHNICAL COMPETENCE, AND THE FACT THAT THE GOVERNMENT MAY HAVE PREVIOUSLY ,FINANCED" SUCH COMPETENCE WOULD NOT JUSTIFY AN AWARD TO A LESS QUALIFIED CONCERN TO THE POSSIBLE DETRIMENT OF THE GOVERNMENT. THE PROCUREMENT AGENCY IN THE EXERCISE OF ITS MANAGEMENT RESPONSIBILITY PROPERLY AWARDED THE CONTRACT TO THAT CONCERN WHICH WOULD PERFORM IN A MANNER MOST ADVANTAGEOUS TO THE GOVERNMENT.