B-155691, JUN. 24, 1965

B-155691, JUN. 24, 1965

TO THE HONORABLE SECRETARY OF THE NAVY:

WE HAVE A REPORT FROM THE BUREAU OF SUPPLIES AND ACCOUNTS, DATED MAY 3, 1965, RESPONDING TO OUR INQUIRIES REGARDING A PROTEST BY HUYCK SYSTEMS COMPANY AGAINST A PROPOSED AWARD BY THE NAVY PURCHASING OFFICE, WASHINGTON, D.C., OF A CONTRACT FOR COMPUTER DISPLAY SETS TO LORAL ELECTRONIC SYSTEMS, PURSUANT TO INVITATION FOR BIDS (IFB) 600-133-64. THIS MATTER WAS GENERALLY THE SUBJECT OF OUR DECISION B-155691, DATED FEBRUARY 26, 1965, IN WHICH WE HELD LORAL'S BID TO BE RESPONSIVE TO THE MATERIAL PROVISIONS OF THE INVITATION. IN THE INSTANT CONTROVERSY, HUYCK AND LORAL EACH ASSERT THAT IT IS THE LOW BIDDER, AND SHOULD RECEIVE THE CONTRACT.

THE PRESENT RECORD BEFORE US ESTABLISHES THAT THE TWO LOWEST BIDS AS EVALUATED BY THE CONTRACTING OFFICER, AFTER HAVING INCREASED THE QUANTITY OF THE PURCHASE BY EXERCISING CERTAIN OPTIONS, WERE AS FOLLOWS:

LORAL $1,676,673.29

HUYCK 1,698,246.96

WITH RESPECT TO THIS EVALUATION, IT IS RELEVANT TO NOTE THAT HUYCK POSSESSES GOVERNMENT-OWNED SPECIAL TOOLING AND TEST EQUIPMENT VALUED BY THE GOVERNMENT AT $101,434, AND IS USING SUCH TOOLING ON A CURRENT CONTRACT FOR PRODUCTION OF THE SAME DISPLAY SETS DESCRIBED IN THE SUBJECT IFB. SINCE DELIVERY UNDER THE CURRENT CONTRACT WILL RUN UNTIL MAY 1966, AND SINCE THE PROCURING ACTIVITY WANTED DELIVERIES OF PRODUCTION ITEMS UNDER THE SUBJECT IFB TO COMMENCE IN AUGUST OF 1966, THE PROCURING ACTIVITY CONCLUDED PRIOR TO ISSUING THE SUBJECT IFB THAT THERE WOULD NOT BE ENOUGH TIME BETWEEN THE END OF PRODUCTION ON THE CURRENT CONTRACT AND THE COMMENCEMENT UNDER ANOTHER, TO FURNISH THE TOOLING AND TEST EQUIPMENT TO ANY BIDDER OTHER THAN THE CURRENT CONTRACTOR I.E., HUYCK. NOTWITHSTANDING THE CONTRACTING OFFICER'S KNOWLEDGE THAT THE TOOLING COULD BE MADE AVAILABLE TO ONE OF THE BIDDERS, SHE INCORPORATED INTO THE IFB THE FOLLOWING ,GOVERNMENT PROPERTY (SPECIAL TOOLING AND OTHER PROPERTY)" CLAUSE:

"/A) IN PREPARING BIDS UNDER THIS INVITATION FOR BIDS, BIDDERS SHOULD ASSUME THAT GOVERNMENT TOOLING IS NOT AVAILABLE AT THIS TIME. HOWEVER, SHOULD IT BE MADE AVAILABLE AT A LATER DATE AND BE FURNISHED TO THE CONTRACTOR, AN EQUITABLE ADJUSTMENT WILL BE MADE IN THE CONTRACT PRICE.'

BECAUSE SPECIAL TOOLING AND TEST EQUIPMENT HAD SINCE 1961 CONTINUOUSLY BEEN FURNISHED TO HUYCK UNDER SIMILAR CONTRACTS, AND BECAUSE SUCH TOOLING AND EQUIPMENT WAS BEING USED IN PERFORMING ITS CURRENT CONTRACT, HUYCK EXPRESSED IN A LETTER ACCOMPANYING ITS BID AN EXPECTATION THAT THE TOOLING AND EQUIPMENT WOULD AGAIN BE FURNISHED IF IT WERE THE SUCCESSFUL BIDDER. HOWEVER, HUYCK ALSO STIPULATED IN ITS LETTER THAT $48,000 WOULD BE ADDED TO THE PRICE IT HAD QUOTED IN THE BID SCHEDULE IN ORDER TO COVER THE COST OF THE TOOLING AND EQUIPMENT WHICH BIDDERS WERE REQUIRED TO ASSUME WOULD NOT BE MADE AVAILABLE.

THE CONTRACTING OFFICER REPORTS THAT ALTHOUGH HUYCK HAS NOT BEEN EVALUATED AS THE LOW BIDDER UNDER THE TERMS OF THE INVITATION BECAUSE ITS PRICE INCLUDES THE $48,000 FOR SPECIAL TOOLING AND EQUIPMENT, ITS BID UNDISPUTEDLY REPRESENTS THE LOWEST OVERALL COST TO THE GOVERNMENT. NONETHELESS, SHE CONCLUDES THAT BECAUSE THE EVALUATION MUST BE BASED ON THE PROVISIONS OF THE IFB, THE CONTRACT SHOULD BE AWARDED TO LORAL AS THE LOWEST RESPONSIVE AND RESPONSIBLE BIDDER. HUYCK DISAGREES, AND URGES THAT THE $48,000 SHOULD NOT HAVE BEEN ADDED TO ITS BID BECAUSE THE TOTAL AMOUNT THEREBY OBTAINED DOES NOT REPRESENT A "TRUE COST" TO THE GOVERNMENT.

LORAL ASSERTS THAT THE GOVERNMENT PROPERTY CLAUSE QUOTED ABOVE APPEARS TO CONFORM IN ALL RESPECTS WITH THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) OPERATIVE WHEN THIS IFB WAS ISSUED, I.E., SECTION 13 301,"FIXED- PRICE PROCUREMENT--- GOVERNMENT-FURNISHED SPECIAL TOOLING," DATED MARCH 1, 1963. THE LANGUAGE OF THIS SECTION AND THE QUOTED PARAGRAPH OF THE IFB DO PROVIDE FOR NEGOTIATING A PRICE REDUCTION OF A CONTRACT, AWARDED BY COMPETITIVE ADVERTISING, AS COMPENSATION FOR GOVERNMENT'S FURNISHING PROPERTY NOT LISTED IN THE IFB. HOWEVER, IT IS FAR FROM CLEAR THAT ASPR CONTEMPLATED THE RESORT TO CONTRACT PRICE ADJUSTMENTS WHERE, AS HERE, IT WAS KNOWN BEFORE THE IFB WAS ISSUED THAT GOVERNMENT-OWNED TOOLING COULD BE MADE AVAILABLE TO AT LEAST ONE BIDDER. SEE ASPR 13-102.2, DATED MARCH 13, 1963.

THE METHOD OF EVALUATION PRESCRIBED BY THE SUBJECT IFB IS BASED ON THE FALSE PREMISE THAT THE GOVERNMENT MUST BE WILLING TO SACRIFICE POTENTIAL SAVINGS EQUAL TO A BIDDER'S COST OF ACQUIRING ESSENTIAL SPECIAL TOOLING. THEREFORE, IT APPEARS THAT THE LANGUAGE OF THE IFB EVALUATION CLAUSE IS NOT DESIGNATED TO PROVIDE THE GOVERNMENT THE MAXIMUM BENEFIT AVAILABLE FROM THE PROPERTY IT HAS ALREADY PAID FOR AND COULD FURNISH TO HUYCK FOR USE IN THE INSTANT PROCUREMENT, BECAUSE THE CLAUSE PREVENTS HUYCK, WHICH HAS A COMPETITIVE ADVANTAGE ARISING OUT OF ITS POSSESSION OF THE PROPERTY, FROM REFLECTING IN ITS PRESENT OFFER COST REDUCTIONS THE GOVERNMENT HAS A RIGHT TO ENJOY. SEE B 151854, DATED OCTOBER 7, 1963 (43 COMP. GEN. 327), IN WHICH WE OBSERVED THAT EVALUATION FACTORS WHICH RESULT IN A COST OR SAVINGS TO THE GOVERNMENT "MUST BE FAIRLY REPRESENTATIVE ON AN ACTUAL OR ESTIMATED BASIS, OF TRUE COST OR SAVINGS TO THE GOVERNMENT; " AND REJECTED THE DEMAND OF A BIDDER, WHO DID NOT HAVE POSSESSION OF PROPERTY TO BE FURNISHED BY THE GOVERNMENT, THAT AN INVITATION BE CORRECTED BECAUSE IT PERMITTED THE CONTRACTOR CURRENTLY MANUFACTURING THE ITEM TO OBTAIN A COMPETITIVE ADVANTAGE BY REFLECTING IN HIS BID REDUCTIONS RESULTING FROM THE FACT THAT HE ALONE WOULD NOT INCUR THE COSTS OF TRANSPORTING AND INSTALLING THE PROPERTY.

LORAL ATTEMPTS TO DISTINGUISH THE CITED DECISION BY ATTACHING SIGNIFICANCE TO THE FACT THAT THAT PROTEST WAS AGAINST THE METHOD PROVIDED IN THE IFB FOR EVALUATING GOVERNMENT-OWNED FACILITIES AND SPECIAL TOOLING, WHEREAS THE INSTANT IFB ADVISED BIDDERS THAT SUCH TOOLING WAS NOT AVAILABLE. APPARENTLY THE CONCLUSION WHICH IS ASSUMED TO FOLLOW FROM THIS DISTINCTION IS THAT THE HUYCK PROTEST SHOULD BE DENIED, AS WAS THE ONE IN 43 COMP. GEN. 327, BECAUSE BID EVALUATION IN BOTH CASES CONFORMED TO THE EVALUATION CLAUSES OF THE IFBS, ONE OF WHICH REALISTICALLY PROVIDED FOR THE CONSIDERATION OF SPECIAL TOOLING COSTS AND ONE OF WHICH DID NOT. OUR VIEW THE CRITICAL DIFFICULTY IS WHETHER OR NOT A VALID CONTRACT CAN BE AWARDED WHERE THE IFB ESTABLISHED AN EVALUATION PROCEDURE WHICH REQUIRES ONE BIDDER TO GROSSLY OVERSTATE AN ASCERTAINABLE OR REASONABLY ESTIMATE COST TO THE GOVERNMENT, AND WHICH THEREFORE MAY NOT RESULT IN AN AWARD TO A BIDDER WHOSE BID REPRESENTS THE LOWEST TRUE COST TO THE GOVERNMENT.

OUR OFFICE HAS HELD ON NUMEROUS OCCASIONS THAT A PROPER EVALUATION OF BIDS MUST ASCERTAIN TO THE EXTENT REASONABLY POSSIBLE WHICH BID REPRESENTS THE LOWEST OVERALL COST TO THE GOVERNMENT. SEE 10 COMP. GEN. 261; ALSO SEE B-153687, DATED JULY 7, 1964, CITING 38 COMP. GEN. 550, 552. (CF. B- 148749, DATED JUNE 25, 1962, WHERE, SINCE THE ASCERTAINMENT OF THE LOWEST OVERALL COST TO THE GOVERNMENT WAS DELIMITED BY UNKNOWN AND INESTIMABLE FACTORS, WE DID NOT DISTURB AN AWARD WHICH HAD BEEN MADE TO A COMPANY DETERMINED TO BE THE LOW BIDDER UNDER AN APPARENTLY IMPROPER SYSTEM OF EVALUATION.) THE "BID EVALUATION" PROVISION IN THE SUBJECT IFB STATED THAT BIDS WOULD BE EVALUATED ON THE BASIS OF THE LOWEST OVERALL COST TO THE GOVERNMENT, BUT THE ,GOVERNMENT-PROPERTY" CLAUSE IN THE IFB HAS SO CIRCUMSCRIBED SUCH AN EVALUATION WITH THE RESULT THAT, UNDER THE FACTS OF THIS CASE, WE ARE NOW PRESENTED WITH THE PATENTLY UNACCEPTABLE ANOMALY THAT LORAL IS CONSIDERED THE LOW BIDDER BUT IS NOT BELIEVED TO HAVE OFFERED THE LOWEST OVERALL COST TO THE GOVERNMENT. SEE 10 U.S.C. 2305 (C), A STATUTE REQUIRING THAT ADVERTISED CONTRACTS BE AWARDED TO THE BIDDER WHOSE PRICE IS MOST ADVANTAGEOUS TO THE GOVERNMENT; AND 43 COMP. GEN. 327, 331, CITED SUPRA, IN WHICH WE STATED THAT WHILE "THE POLICY OF COMPLETE EQUALIZATION OF COMPETITIVE ADVANTAGE ... IS A DESIRABLE OBJECTIVE IN PROCUREMENTS INVOLVING THE USE OF GOVERNMENT-OWNED EQUIPMENT, TO THE EXTENT THAT SUCH POLICY MAY CONFLICT WITH 10 U.S.C. 2305 (C), THE STATUE MUST PREVAIL.'

AN AWARD TO HUYCK PURSUANT TO THIS IFB WOULD APPEAR TO RESULT IN A CONTRACT PRICE LOWER THAN THE ONE WHICH WOULD RESULT FROM AN AWARD TO LORAL BY AN APPROXIMATE AMOUNT OF $26,000 ($48,000, THE PRICE REDUCTION OFFERED BY HUYCK IF GOVERNMENT PROPERTY IS FURNISHED, MINUS $22,000, THE APPROXIMATE AMOUNT BY WHICH HUYCK'S EVALUATED BID EXCEEDS LORAL-S). HOWEVER, THE APPARENT DIFFERENCE OF $26,000 DOES NOT TAKE INTO ACCOUNT DEPRECIATION AND OTHER COSTS WHICH WOULD BE INVOLVED IN HUYCK'S USE OF GOVERNMENT-OWNED PROPERTY. SEE B-153201, DATED MARCH 17, 1964 (43 COMP. GEN. 604), INDICATING THAT THE DETERMINATION OF THE LOWEST OVERALL COST TO THE GOVERNMENT SHOULD INCLUDE CONSIDERATION OF POSSIBLE DEPRECIATION AND OTHER COSTS INCIDENT TO THE GOVERNMENT'S FURNISHING ITS PROPERTY. HUYCK CONTENDS THAT AN EVALUATION AS CONTEMPLATED BY 43 COMP. GEN. 604 MAY BE ACHIEVED BY USE OF RENT OR RENTAL EQUIVALENTS, PRESCRIBED BY PART 5 OF SECTION 13 OF THE CURRENT ASPR, WHICH PRESUMABLY ARE INTENDED TO REMOVE A BIDDER'S COMPETITIVE ADVANTAGE TO THE EXTENT CONSISTENT WITH 10 U.S.C. 2305 (C).

IN OUR VIEW, HUYCK DOES NOT GIVE SUFFICIENT WEIGHT TO THE FACT THAT THE ASPR PROVISIONS TO WHICH IT REFERS WERE NOT IN EXISTENCE, MUCH LESS INCLUDED IN THE IFB, WHEN BIDS WERE SUBMITTED. FURTHERMORE, CONSIDERING THE APPARENT PROBABILITY THAT PRODUCTION OF THE OPTION QUANTITIES WOULD EXTEND HUYCK'S USE OF THE GOVERNMENT PROPERTY, AND ASSUMING THAT $101,434 REPRESENTS THE ACQUISITION COST OF SUCH PROPERTY, IT IS NOT CLEAR FROM THE PRESENT RECORD THAT USE OF A RENTAL CHARGE OR RENTAL EQUIVALENT, COMPUTED AS DIRECTED BY ASPR 7-702.12, COULD NOT POSSIBLY RESULT IN A SUM WHICH, WHEN ADDED TO HUYCK'S BID PRICE LESS THE $48,000, WOULD MAKE IT HIGHER THAN LORAL'S BID. MOREOVER, SECTIONS 13-502.2 AND 13-506 OF THE CURRENT ASPR REQUIRE THAT IN ORDER TO INSURE THAT ALL PROSPECTIVE BIDDERS UNDERSTAND THE BASIS TO BE USED FOR SELECTION OF THE LOWEST BID, THE IFB SET FORTH A DESCRIPTION OR REQUIRE IDENTIFICATION OF THE GOVERNMENT PROPERTY INVOLVED, ESTABLISH THE EVALUATION PROCEDURE TO BE FOLLOWED, AND STATE THE RENTAL CHARGES OR EQUIVALENT FACTORS TO BE USED TO ELIMINATE COMPETITIVE ADVANTAGE. SINCE THE SUBJECT IFB DID NOT ATTEMPT TO PROVIDE THIS INFORMATION, AND PUBLISHED AN EVALUATION PROCEDURE ENTIRELY DIFFERENT FROM THE ONE IN THE CURRENT ASPR WHICH HUYCK NOW RECOMMENDS, IT SHOULD APPEAR THAT EVALUATION OF BIDS SUBMITTED PURSUANT TO THE SUBJECT IFB IN ACCORDANCE WITH THE CITED ASPR PROVISIONS NOT CONTAINED THEREIN, WOULD INVITE THE CHARGE THAT BIDDERS HAVE NOT COMPETED ON A COMMON BASIS AS REQUIRED BY LAW. SEE 38 COMP. GEN. 380, 385.

IT FOLLOWS FROM WHAT HAS BEEN SAID ABOVE THAT THE LOWEST OVERALL COST TO THE GOVERNMENT COULD HAVE BEEN ASCERTAINED IF THE IFB HAD PROVIDED A PROPER METHOD OF EVALUATING BIDS. SEE, E.G., SECTION 13 OF THE CURRENT ASPR, AND 41 COMP. GEN. 565, WHERE THE REJECTION OF ALL BIDS WAS REQUIRED BY THE FACT THAT THE ACTUAL LOW COST TO THE GOVERNMENT COULD HAVE BEEN ASCERTAINED, BUT WAS NOT, DUE TO DEFICIENT EVALUATION PROCEDURES IN THE IFB. SINCE THE METHOD OF EVALUATION STATED IN THE IFB DOES NOT PROVIDE A MEANS OF ASCERTAINING TO THE EXTENT POSSIBLE WHICH BID TRULY REPRESENTS THE LOWEST OVERALL COST TO THE GOVERNMENT, AND SINCE IT WOULD BE IMPROPER TO EMPLOY AN EVALUATION PROCEDURE FOR THESE BIDS OTHER THAN THE ONE STATED IN THE IFB, THERE APPEARS TO BE NO ALTERNATIVE TO REJECTING ALL BIDS AND INITIATING A NEW PROCUREMENT.

ENCLOSED IS THE ATTACHMENT TO THE CONTRACTING OFFICER'S STATEMENT OF FACTS, WHICH FORMED A PART OF THE MAY 3 REPORT FROM THE BUREAU OF SUPPLIES AND ACCOUNTS.