B-155725, AUG. 5, 1965, 45 COMP. GEN. 59

B-155725, AUG. 5, 1965, 45 COMP. GEN. 59

PUBLIC UTILITIES - CONTRACTS - STATUS OF BIDDER UNDER SEPARATE INVITATIONS FOR BIDS TO FURNISH NATURAL GAS, FUEL OIL, AND COAL OVER A 5-YEAR PERIOD TO DETERMINE THE MOST ECONOMICAL FUEL AVAILABLE, A CONTRACT FOR GAS OR OIL TO BE SUBJECT TO THE APPROPRIATION OF FUNDS FOR THE CONVERSION OF THE EXISTING COAL BURNING HEATING PLANTS, AN AWARD BY THE DEPARTMENT OF DEFENSE OF A LONG-TERM CONTRACT FOR THE DELIVERY OF NATURAL GAS TO MILITARY INSTALLATIONS IN ALASKA IS NOT PRECLUDED UNDER 40 U.S.C. 481 (A) (3), NOTWITHSTANDING THE BIDDER IS NOT A PUBLIC UTILITY WITHIN THE CONTEMPLATION OF THE SECTION DUE TO ITS DOUBTFUL STATUS UNDER TITLE 42 OF THE ALASKA STATUTES, THE CONGRESS HAVING AUTHORIZED LONG-TERM CONTRACTS FOR SERVICES WITH PUBLIC UTILITY ASPECTS, CATEGORIZING THE SERVICE RATHER THAN THE CONTRACTOR, AND AS "GAS" IS A UTILITY BY DEFINITION, A CONTRACT TO FURNISH PUBLIC UTILITY GAS SERVICE BY A FIRM THAT IS NOT WITHIN THE STRICT LEGAL DEFINITION OF A "PUBLIC UTILITY" IS NOT PROHIBITED UNDER THE AUTHORITY OF 40 U.S.C. 481 (A) (3), PRESCRIBING LONG-TERM CONTRACTS FOR PUBLIC UTILITY SERVICES. FUNDS - WORKING CAPITAL - PUBLIC UTILITY LONG TERM SERVICE CONTRACTS WHERE INDIVIDUAL INVITATIONS ARE ISSUED FOR COAL, GAS AND OIL FUELS, THE FACT THAT A PROPOSED PROCUREMENT OF COAL FOR DELIVERY OVER A 5-YEAR PERIOD IN THE QUANTITIES AND AT THE TIME DESIGNATED BY THE PROCUREMENT OFFICER IS NOT MADE SUBJECT TO STOCK FUND FINANCING AS AUTHORIZED BY 10 U.S.C. 2208, PRESCRIBING THE ESTABLISHMENT OF WORKING-CAPITAL FUNDS, AND IMPLEMENTED BY DEPARTMENT OF DEFENSE DIRECTIVE NO. 7420.1, DOES NOT RENDER THE BID EVALUATIONS DEFECTIVE OR IMPROPER AS NOT AFFORDING EQUALITY OF COMPETITION WITH BIDS SOLICITED UNDER THE OTHER FUEL INVITATIONS, EVEN THOUGH HAD STOCK FUND FINANCING BEEN AUTHORIZED AND A CONTRACT AWARDED, SUBJECTING THE CONTRACT TO STOCK FUND PROCEDURES WOULD NOT DISTURB ITS LEGAL EFFECTIVENESS, THE INVITATIONS REQUESTING BIDS ON MUTUALLY EXCLUSIVE ALTERNATES AND EVALUATION OF ONE ALTERNATE AGAINST THE OTHER NOT VIOLATING THE COMPETITIVE ADVERTISING STATUTE, THE BIDDERS UNDER EACH INVITATION HAVING BEEN FULLY APPRAISED OF THE EVALUATION FACTORS TO BE USED AND, OF THE RESULTS THAT MIGHT BE OBTAINED. CONTRACTS - SPECIFICATIONS - CHANGES, REVISIONS, ETC. - AFTER BID OPENING - SOLE BIDDER AFTER BID OPENING, BUT, PRIOR TO THE AWARD OF A CONTRACT TO THE SOLE BIDDER TO FURNISH GAS FUEL, WHERE SEPARATE INVITATIONS HAD BEEN ISSUED FOR MUTUALLY EXCLUSIVE ALTERNATE BIDS ON GAS, OIL, AND COAL, THE AMENDMENT OF THE CHANGE OF RATE PROVISION OF THE INVITATION TO AUTHORIZE THE NEGOTIATION OF RATE CHANGES AT THE REQUEST OF EITHER PARTY TO THE CONTRACT RATHER THAN CHANGES BASED UPON APPROVAL OF THE APPROPRIATE PUBLIC REGULATORY COMMISSION DOES NOT CONSTITUTE SUCH A DEVIATION OR WAIVER FROM THE ADVERTISED REQUIREMENTS AS TO AFFECT THE LEGALITY OF THE PROPOSED AWARD, ONLY ONE BID HAVING BEEN RECEIVED UNDER THE INVITATION FOR GAS FUEL, AND THE FACT THAT THE CONTRACT COULD HAVE BEEN NEGOTIATED UNDER THE AUTHORITY OF 10 U.S.C. 2304 (A) (10), AND PARAGRAPH 3-210.2 (V) OF THE ARMED SERVICES PROCUREMENT REGULATION ON THE BASIS THAT IT WAS IMPRACTICABLE TO OBTAIN COMPETITION FOR THE PUBLIC UTILITY SERVICE. BIDS - EVALUATION - FACTORS OTHER THAN PRICE - INTANGIBLE ECONOMIC COSTS IN THE EVALUATION OF A BID TO FURNISH GAS FUEL TO REPLACE THE USE OF COAL, RAILROAD REVENUE LOSSES DUE TO DIMINUTION OF COAL TRAFFIC, ADDITIONAL UNEMPLOYMENT BENEFIT COSTS TO THE FEDERAL GOVERNMENT, AND THE ADVERSE ECONOMIC IMPACT OF THE GAS CONTRACT ON THE STATE GOVERNMENT ARE NOT PERTINENT FACTORS FOR CONSIDERATION IN DETERMINING THE AWARD MOST ADVANTAGEOUS TO THE UNITED STATES, PRICE AND OTHER FACTORS CONSIDERED, AND ALTHOUGH COSTS OVER AND ABOVE BID PRICES MAY BE CONSIDERED WHEN THE AMOUNT IS ASCERTAINABLE WITH REASONABLE CERTAINTY, UNDER THE ARMED SERVICES PROCUREMENT ACT (10 U.S.C. 2305 (C) (, ESTABLISHING THE STANDARD FOR MAKING AN AWARD OF A CONTRACT, THE IMPOSITION OF INTANGIBLE COST FACTORS TO REFLECT ECONOMIC CHANGES THAT POSSIBLY MIGHT RESULT FROM A PARTICULAR AWARD IS NOT REQUIRED.

TO THE SECRETARY OF DEFENSE, AUGUST 5, 1965:

BY LETTER DATED JANUARY 28, 1965, THE ASSISTANT GENERAL COUNSEL (LOGISTICS) FURNISHED A DOCUMENTED REPORT ON THE PROTEST OF THE EVAN JONES COAL COMPANY AGAINST THE AWARD OF A CONTRACT TO THE ALASKA PIPELINE COMPANY TO SUPPLY THE FUEL REQUIREMENTS FOR THE POWER PLANTS AT FORT RICHARDSON AND ELMENDORF AIR FORCE BASE, ANCHORAGE, ALASKA.

PRELIMINARY TO OUR DISCUSSION OF THE VARIOUS POINTS OF PROTEST RAISED BY THE COAL COMPANY, WE BELIEVE IT TO BE APPROPRIATE TO REVIEW BRIEFLY THE BACKGROUND OF THIS PROCUREMENT.

BECAUSE OF THE DEVELOPMENT OF NATURAL GAS PIPELINE AND GAS DISTRIBUTION POTENTIAL IN THE ANCHORAGE AREA, THE DEPARTMENT OF THE ARMY INITIATED SURVEYS IN 1961 OF THE PROSPECTIVE COST SAVINGS OF NATURAL GAS OVER THE USE OF COAL IN BOILER FACILITIES AT FORT RICHARDSON. THIS SURVEY CONSIDERED ALSO THE COST OF CONVERTING EXISTING COAL-BURNING FACILITIES TO GAS-BURNING EQUIPMENT. THE SURVEY RESULTS ESTABLISHED THAT THE USE OF NATURAL GAS WOULD SAVE THE ARMY $443,000 PER YEAR DURING THE FIRST 5 YEARS AND $345,923 ANNUALLY THEREAFTER. AT THAT TIME, THERE WAS NO CONGRESSIONAL AUTHORIZATION FOR CONVERSION OF THE BOILER FACILITIES. HOWEVER, IN VIEW OF THE POTENTIAL SAVINGS TO BE REALIZED FROM THE USE OF NATURAL GAS, THE ARMY REQUESTED OUR OFFICE TO CONSIDER WHETHER FUNDS APPROPRIATED TO THE ARMY FOR OPERATION AND MAINTENANCE MIGHT BE USED IN CONNECTION WITH THE PROPOSED CONVERSION OF BOILER FACILITIES AT FORT RICHARDSON FROM COAL BURNING TO NATURAL GAS EQUIPMENT. IN OUR DECISION AT 41 COMP. GEN. 522, WE HELD THAT SUCH CONTEMPLATED USE OF OPERATION AND MAINTENANCE FUNDS WOULD BE IMPROPER AND THAT SUCH CONVERSION WORK WAS REQUIRED BY STATUTE TO BE SPECIFICALLY AUTHORIZED BY THE CONGRESS IN A MILITARY CONSTRUCTION AUTHORIZATION ACT AND FUNDED FROM MILITARY CONSTRUCTION APPROPRIATIONS MADE PURSUANT TO THE AUTHORIZATION. FURTHER HELD IN THAT DECISION AT PAGE 529:

* * * IT IS STATED BY YOUR DEPARTMENT THAT SUCH WORK IS SUSCEPTIBLE TO COMPETITIVE BIDDING AND THAT IT GOES BEYOND THE REQUIREMENTS OF THE USUAL UTILITY PROCUREMENT AND CONNECTION LINE PROCEDURES. IF THIS PROPOSAL WERE TO BE CONSIDERED PROPER THERE WOULD APPEAR ALMOST NO LIMIT TO WHICH THIS CONCEPT COULD BE CARRIED. THUS, IF THE ENTIRE COAL-BURNING FACILITIES WERE WORN OUT AND NEEDED REPLACEMENT, IT COULD BE ARGUED THAT THE ENTIRE REPLACEMENT COULD BE MADE BY THE COAL CONTRACTOR AND THE COST THEREOF REFLECTED IN THE PRICE OF THE COAL. SUCH PROCEDURE WOULD BE AN EVASION OF SECTION 637, QUOTED ABOVE (DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1962), AS WELL AS THE COMPETITIVE BIDDING REQUIREMENTS, AND CLEARLY WOULD NOT BE PROPER.

THEREAFTER, UPON A COMPREHENSIVE STUDY OF THE MATTER BY THE ARMY, THE DEPUTY ASSISTANT SECRETARY OF DEFENSE DIRECTED THE ARMY BY MEMORANDUM DATED JULY 29, 1964, TO SOLICIT BIDS FOR FUEL AT FORT RICHARDSON AND ELMENDORF COVERING A 5-YEAR PERIOD SO AS TO PROVIDE EQUAL OPPORTUNITY FOR ALL FUEL SUPPLIERS; TO ANALYZE THE COST OF FUELS AS BID; AND TO REPORT AND MADE A RECOMMENDATION TO THE DEPARTMENT OF DEFENSE CONCERNING ANY PROPOSED CONVERSIONS OF THE HEATING PLANTS. THROUGH THE COMPETITIVE BIDDING PROCEDURES, THE DEPARTMENT DESIRED TO ASCERTAIN WITH MAXIMUM ACCURACY THE ECONOMIC SITUATION AS TO NATURAL GAS, FUEL OIL AND COAL IN ORDER THAT THERE COULD BE JUSTIFIED, IF SUBSEQUENT EVENTS ESTABLISHED PROJECTED SAVINGS IN FUEL COSTS, A LINE ITEM PRESENTATION TO THE CONGRESS FOR CONVERSION OF THE HEATING PLANTS AS REQUIRED BY THE THEN CURRENT DEPARTMENT OF DEFENSE APPROPRIATION ACT (SECTION 535 OF PUBLIC LAW 88-446, 78 STAT. 480, AUGUST 19, 1964).

ON AUGUST 28, 1964, THE DEFENSE FUEL SUPPLY CENTER ISSUED INVITATION FOR BIDS NOS. DSA-6-65-81 FOR COAL AND DSA-6-65-94 FOR FUEL OIL, BOTH INVITATIONS COVERING THE FUEL REQUIREMENTS OF THE TWO MILITARY BASES. THE UNITED STATES ARMY, ALASKA, ISSUED INVITATIONS FOR BIDS NO. ASK-95 523-65- 16, DATED SEPTEMBER 1, 1964, COVERING NATURAL GAS SERVICES AT THESE BASES. THE INVITATIONS REQUESTED BIDS ON A 5-YEAR BASIS AND, PROVIDED WITH RESPECT TO FUEL OIL AND GAS SOLICITATIONS, THAT ANY CONTRACT AWARDED WOULD BE SUBJECT TO THE APPROPRIATION OF CONSTRUCTION FUNDS FOR THE CONVERSION OF EXISTING FACILITIES. BIDDERS UNDER THE FUEL OIL AND COAL INVITATIONS WERE INFORMED THAT BIDS FOR THE THREE FUELS WERE BEING SOLICITED AND WOULD BE EVALUATED TO DETERMINE WHICH WAS THE MOST ECONOMICAL AND THAT IT WAS POSSIBLE THAT NO AWARD WOULD BE MADE AS A RESULT OF THE SOLICITATIONS.

BIDS UNDER THE COAL AND FUEL OIL INVITATIONS WERE OPENED ON SEPTEMBER 29, 1964, AND IT APPEARS THAT THE STANDARD OIL COMPANY OF CALIFORNIA SUBMITTED THE ONLY FUEL OIL BID AND THAT THE EVAN JONES COAL COMPANY SUBMITTED THE ONLY RESPONSIVE BID OUT OF THE TWO BIDS RECEIVED, UNDER THE COAL INVITATION. ONE BID WAS RECEIVED ON SEPTEMBER 29, 1964, FROM THE ALASKA PIPELINE COMPANY UNDER THE GAS INVITATION.

A FUEL SELECTION ANALYSIS MADE BY THE ARMY DISCLOSED THAT NET SAVINGS ON THE STEAM PLANTS AT THE TWO MILITARY BASES WITH THE USE OF GAS WOULD BE $7.5 MILLION OVER A 5-YEAR PERIOD AGAINST CONSTRUCTION COSTS OF $506,680 FOR FORT RICHARDSON AND $884,040 FOR ELMENDORF AIR FORCE BASE TO CONVERT EXISTING COAL-BURNING BOILERS TO GAS FUELED. IT WAS ALSO DETERMINED THAT THE COST OF GAS CONVERSION WOULD BE AMORTIZED IN 9 MONTHS AT FORT RICHARDSON AND 1.2 YEARS AT ELMENDORF AIR FORCE BASE. ON DECEMBER 14, 1964, THE ASSISTANT SECRETARY OF DEFENSE (INSTALLATIONS AND LOGISTICS) CONCURRED IN THE PROPOSAL TO CONVERT FROM COAL TO GAS AS FOLLOWS:

THIS OFFICE CONCURS WITH YOUR PROPOSAL TO CONVERT THE CENTRAL HEATING PLANTS AT FORT RICHARDSON AND ELMENDORF AIR FORCE BASE FROM COAL TO NATURAL GAS BASED ON THE COMBINED ESTIMATED ANNUAL SAVINGS OF $1,506,000, AS INDICATED IN THE SUPPORTING DATA ENCLOSED WITH YOUR MEMORANDUM. THE SECRETARY OF DEFENSE HAS APPROVED THE INCLUSION OF LINE ITEMS FOR THE CONVERSION PROJECTS IN THE ARMY AND AIR FORCE FY 1966 MILITARY CONSTRUCTION PROGRAMS.

IT IS NOTED THAT BY THE TERMS OF THE INVITATION TO BID, A CONTRACT MUST BE ENTERED INTO WITH THE ALASKA PIPELINE COMPANY PRIOR TO DECEMBER 29, 1964. IT IS FURTHER NOTED THAT THE TERMS OF THE CONTRACT ARE SPECIFICALLY CONTINGENT UPON THE OBTAINING OF FUNDS FOR THE FUEL CONVERSIONS FROM THE CONGRESS AND THAT IN THE EVENT CONGRESS FAILS TO PROVIDE SUCH FUNDS, THE CONTRACT IS AUTOMATICALLY CANCELLED.

ON DECEMBER 18, 1964, THE CHIEF OF ENGINEERS APPROVED THE AWARD OF A CONTRACT TO THE ALASKA PIPELINE COMPANY PURSUANT TO ITS BID, AND ON DECEMBER 28, 1964, CONTRACT NO. DA-95-523-ASK-541 WAS ISSUED TO THE GAS COMPANY. IN PERTINENT PART, THE CONTRACT PROVIDED:

(B) THE PERIOD OF THIS CONTRACT IS FOR FIVE (5) YEARS WITH DELIVERIES OF NATURAL GAS TO COMMENCE ON 1 JULY 1966, PROVIDED THAT THE CONTRACT MAY BE TERMINATED AT EITHER OR BOTH OF THE SERVICE LOCATIONS AT THE OPTION OF THE GOVERNMENT BY GIVING NOT LESS THAN NINETY (90) DAYS ADVANCE WRITTEN NOTICE OF THE EFFECTIVE DATE OF TERMINATION.

(B) (I) FUNDS ARE PRESENTLY NOT AVAILABLE TO ACCOMPLISH CONSTRUCTION OF FACILITIES NECESSARY FOR CONVERSION OF PLANT FUEL BURNING EQUIPMENT. OBLIGATION OF ANY KIND ON THE PART OF THE GOVERNMENT WOULD ARISE UNDER THIS CONTRACT UNLESS, AND UNTIL, FUNDS ARE APPROPRIATED FOR THE CONVERSION OF THE PLANTS TO NATURAL GAS, AND THE CONTRACTING OFFICER SO ADVISES THE CONTRACTOR IN WRITING. IF THE CONTRACTOR IS NOT SO NOTIFIED BY 1 JANUARY 1966, ANY OBLIGATIONS OF BOTH PARTIES UNDER THE CONTRACT WILL CEASE, AND THE CONTRACT WILL AUTOMATICALLY BE CANCELLED.

(B) (II) FUNDS ARE NOT PRESENTLY AVAILABLE FOR THIS PROCUREMENT. THE GOVERNMENT'S OBLIGATIONS HEREUNDER IS CONTINGENT UPON THE AVAILABILITY OF APPROPRIATED FUNDS FROM WHICH PAYMENT FOR THE CONTRACT PURPOSES CAN BE MADE. NO LEGAL LIABILITY ON THE PART OF THE GOVERNMENT FOR PAYMENT OF ANY MONEY SHALL ARISE UNLESS AND UNTIL FUNDS ARE MADE AVAILABLE TO THE CONTRACTING OFFICER FOR THIS PROCUREMENT AND NOTICE OF SUCH AVAILABILITY, TO BE CONFIRMED IN WRITING BY THE CONTRACTING OFFICER, IS GIVEN TO THE CONTRACTOR.

THE PROTESTANT HAS RAISED THE FOLLOWING POINTS OF PROTEST WHICH ARE CONSIDERED BELOW:

I. THE DEPARTMENT AND THE PIPELINE COMPANY HAVE FAILED IN THEIR ATTEMPTS TO ESTABLISH THE APPLICABILITY OF SECTION 201(A) (3) TO THIS PROCUREMENT.

IT IS QUITE CLEAR FROM THE MATERIAL SUBMITTED TO THE COMPTROLLER GENERAL BY DEFENSE AND THE PIPELINE COMPANY THAT NO STATUTORY AUTHORITY EXISTS FOR THE FIVE YEAR GAS CONTRACT EXECUTED BY DEFENSE WITH PIPELINE. SECTION 201 (A) (3) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT, THE SOLE AUTHORITY CLAIMED, IS CLEARLY INAPPLICABLE FOR A NUMBER OF REASONS.

IT IS THE PROTESTANT'S POSITION THAT THE CITED STATUTORY AUTHORITY (40 U.S.C. 481 (A) (3) ( IS NOT APPLICABLE SINCE THE GAS SERVICE CONTRACTED FOR IS NOT FOR "PUBLIC UTILITY SERVICES.' THE STATUTE PROVIDES IN PERTINENT PART:

SEC. 481. PROCUREMENT, WAREHOUSING, AND RELATED ACTIVITIES

(A) THE ADMINISTRATOR SHALL, IN RESPECT OF EXECUTIVE AGENCIES, AND TO THE EXTENT THAT HE DETERMINES THAT SO DOING IS ADVANTAGEOUS TO THE GOVERNMENT IN TERMS OF ECONOMY, EFFICIENCY, OR SERVICE, AND WITH DUE REGARD TO THE PROGRAM ACTIVITIES OF THE AGENCIES CONCERNED---

(3) PROCURE AND SUPPLY PERSONAL PROPERTY AND NONPERSONAL SERVICES FOR THE USE OF EXECUTIVE AGENCIES IN THE PROPER DISCHARGE OF THEIR RESPONSIBILITIES, AND PERFORM FUNCTIONS RELATED TO PROCUREMENT AND SUPPLY SUCH AS THOSE MENTIONED ABOVE IN SUBPARAGRAPH (1) OF THIS SUBSECTION: PROVIDED, THAT CONTRACTS FOR PUBLIC UTILITY SERVICES MAY BE MADE FOR PERIODS NOT EXCEEDING TEN YEARS; AND

(4) WITH RESPECT TO TRANSPORTATION AND OTHER PUBLIC UTILITY SERVICES FOR THE USE OF EXECUTIVE AGENCIES, REPRESENT SUCH AGENCIES IN NEGOTIATIONS WITH CARRIERS AND OTHER PUBLIC UTILITIES AND IN PROCEEDINGS INVOLVING CARRIERS OR OTHER PUBLIC UTILITIES BEFORE FEDERAL AND STATE REGULATORY BODIES; PROVIDED, THAT THE SECRETARY OF DEFENSE MAY FROM TIME TO TIME, AND UNLESS THE PRESIDENT SHALL OTHERWISE DIRECT, EXEMPT THE DEPARTMENT OF DEFENSE FROM ACTION TAKEN OR WHICH MAY BE TAKEN BY THE ADMINISTRATOR UNDER CLAUSES (1)-(4) OF THIS SUBSECTION WHENEVER HE DETERMINES SUCH EXEMPTION TO BE IN THE BEST INTEREST OF NATIONAL SECURITY.

AT THE OUTSET, IT SHOULD BE OBSERVED THAT THE STATUTE HAS REFERENCE TO A PARTICULAR CATEGORY OF CONTRACTS AND NOT TO A PARTICULAR CATEGORY OF CONTRACTORS. THE STATUTORY AUTHORIZATION PERTAINS TO THE TYPE OF SERVICES TO BE CONTRACTED FOR, THAT IS, PUBLIC UTILITY SERVICES INCIDENTAL TO THE CONDUCT OF AUTHORIZED GOVERNMENT FUNCTIONS WHEREBY ECONOMIES CAN BE EFFECTED THROUGH LONG-TERM CONTRACTS. SEE 35 COMP. GEN. 220. THE PROCUREMENT OF UTILITY SERVICES BY THE DEPARTMENT OF DEFENSE WAS THE SUBJECT OF A "STATEMENT OF AREAS OF UNDERSTANDING BETWEEN DEPARTMENT OF DEFENSE AND GENERAL SERVICES ADMINISTRATION," AS CODIFIED IN 15 F.R. 8827, DECEMBER 1, 1950, AND 22 F.R. 871, FEBRUARY 12, 1957, WHEREIN "UTILITY SERVICES" ARE DEFINED AS:

* * * ELECTRICITY, NATURAL AND MANUFACTURED GAS DISTRIBUTED BY PIPES * *

BY DELEGATION OF AUTHORITY DATED AUGUST 14, 1951 (16 F.R. 8309), THE SECRETARY OF DEFENSE WAS AUTHORIZED BY THE GENERAL SERVICES ADMINISTRATOR TO ENTER INTO CONTRACTS FOR "PUBLIC UTILITY SERVICES" FOR PERIODS EXTENDING BEYOND A CURRENT FISCAL YEAR BUT NOT EXCEEDING 10 YEARS.

ALTHOUGH IT IS CLEAR THAT THE STATUTE HAS REFERENCE TO "PUBLIC UTILITY SERVICES," THE PROTESTANT HAS CONTENDED THAT THE AUTHORITY TO CONTRACT EXTENDS ONLY TO REGULATED, MONOPOLISTIC PUBLIC UTILITY BUSINESSES. UNDERSTAND THAT THE PIPELINE COMPANY OWNS A SUBSIDIARY CORPORATION--- THE ANCHORAGE NATURAL GAS CORPORATION--- WHICH HAS MUNICIPAL FRANCHISES TO PROVIDE GAS SERVICE, AND THAT THE PIPELINE COMPANY THROUGH ITS SUBSIDIARY WILL PROVIDE NATURAL GAS UNDER ITS CONTRACT TO THE MILITARY BASES. RECOGNIZE THAT A DIVERSITY OF OPINION EXISTS AS TO WHETHER A PIPELINE COMPANY IS A "PUBLIC UTILITY" WITHIN THE MEANING OF THAT TERM AS USED IN STATUTES REGULATING PUBLIC UTILITY ENTERPRISES. THE SUPREME COURT OF INDIANA HELD IN PUBLIC SERVICE COMMISSION V. PANHANDLE EASTERN PIPELINE COMPANY, 71 N.E.2D 117, THAT AN INTERSTATE GAS PIPELINE COMPANY WAS A PUBLIC UTILITY UNDER INDIANA LAW AND SUBJECT TO REGULATION AS TO RETAIL SALES. IN FACTUALLY SIMILAR CASE, THE SUPREME COURT OF ILLINOIS IN MISSISSIPPI RIVER FUEL CORPORATION V. ILLINOIS COMMERCE COMMISSION, 116 N.E.2D 394, HELD THAT A GAS PIPELINE COMPANY WAS NOT A PUBLIC UTILITY FOR PURPOSES OF STATE REGULATION. ALSO, SEE CITIZENS PIPE LINE CO. V. TWIN CITY PIPE LINE CO., 10 S.W.2D 493 (SUPREME COURT OF ARKANSAS); LLANO, INC. V. SOUTHERN UNION GAS COMPANY, 399 P.2D 646 (NEW MEXICO SUPREME COURT). FOR OTHER EXAMPLES, SEE PENN-YORK NATURAL GAS CORP. V. MALTBIE, 299 N.Y.S. 1004 (NEW YORK SUPREME COURT); NATURAL GAS SERVICE CO. V. SERV-YU COOPERATIVE, 213 P.2D 677; 219 P.2D 324 (ARIZONA SUPREME COURT); MICHIGAN CONSOLIDATED GAS CO. V. SOHIO PETROLEUM CO., 32 N.W.2D 353 (MICHIGAN SUPREME COURT). SECTION 42.05.640, TITLE 42 OF THE ALASKA STATUTES DEFINES A "PUBLIC UTILITY" OR "UTILITY" AS INCLUDING:

* * * EVERY CORPORATION, WHETHER MUNICIPAL, PUBLIC, COOPERATIVE OR OTHERWISE, COMPANY, INDIVIDUAL, OR ASSOCIATION OF INDIVIDUALS, THEIR LESSEES, TRUSTEES, OR RECEIVERS APPOINTED BY A COURT, THAT OWNS, OPERATES, MANAGES OR CONTROLS ANY PLANT OR SYSTEM FOR THE GENERATION, TRANSMISSION, OR DISTRIBUTION OF ELECTRIC ENERGY AND POWER, FOR THE FURNISHING OF TELEPHONE OR TELEGRAPH COMMUNICATIONS, FOR THE TRANSMISSION OR DISTRIBUTION OF HEAT, NATURAL OR MANUFACTURED GAS, OIL OR OTHER PETROLEUM PRODUCTS, OR WATER, OR FOR THE FURNISHING OF COMMUNITY SEWER SERVICES, AND THE PLANT AND FACILITIES USED FOR ANY OF THE FOREGOING PURPOSES; THIS CHAPTER DOES NOT APPLY TO A PERSON WHO FURNISHES WATER OR OIL OR OTHER PETROLEUM PRODUCTS BY TANK, WAGON OR SIMILAR CONVEYANCE, TO A PUBLIC UTILITY WHICH DOES A GROSS ANNUAL BUSINESS OF LESS THAN $100,000 NOR TO A MUNICIPALLY-OWNED AND OPERATED WATER OR SEWER UTILITY; THIS CHAPTER DOES NOT APPLY TO A UTILITY UNTIL THE LEGISLATURE ADOPTS SPECIFIC LEGISLATION PURSUANT TO THE SUBMISSION OF A REPORT AND RECOMMENDATION ON THE SUBJECT BY THE COMMISSION TO THE FIRST SESSION OF THE SECOND STATE LEGISLATURE IN JANUARY 1961; THIS CHAPTER DOES NOT APPLY TO A PIPELINE, PLANT, SYSTEM OR EQUIPMENT USED PRIMARILY FOR GATHERING, COLLECTING, TRANSPORTING OR SHIPPING CRUDE OIL, NATURAL GAS, CONDENSATE OR OTHER PETROLEUM SUBSTANCE OR PRODUCT PRODUCED BY OR BELONGING TO THE OWNER, OPERATOR, OR MANAGER OF THE PLANT, SYSTEM, OR EQUIPMENT;

WE HAVE ALSO NOTED THAT THE COURTS HAVE CONSIDERED THE OVERT ACTIONS OF A NOMINAL PUBLIC UTILITY IN DEALING WITH ITS CUSTOMERS IN DETERMINING WHETHER THE LIABILITIES AND ENJOYMENTS OF A ,PUBLIC UTILITY" ARE LEGALLY APPLICABLE. SEE THE ANNOTATIONS AT 119 ALR 1019.

THE STATUS OF THE PIPELINE COMPANY AS A PUBLIC UTILITY UNDER TITLE 42 OF THE ALASKA STATUTES IS, IN OUR OPINION, DOUBTFUL. WE ARE OF THIS VIEW BECAUSE THE COMPANY IS NOT SUBJECT TO REGULATORY CONTROL AND BECAUSE IT HAS NOT SERVED THE PUBLIC GENERALLY WITH NATURAL GAS. BUT THE CONGRESS HAS AUTHORIZED LONG-TERM CONTRACTING IN THE CASE OF SERVICES HAVING PUBLIC UTILITY ASPECTS. IN DOING SO THE CONGRESS DID NOT REQUIRE THAT THESE PUBLIC UTILITY SERVICES BE PROCURED ONLY FROM THOSE FIRMS WHICH CLEARLY COME WITHIN THE STRICT LEGAL DEFINITION OF A "PUBLIC ILITY.' PERHAPS IN RECOGNITION OF THE LEGAL IMPONDERABLES INVOLVED IN THE APPLICATION AND ENFORCEMENT OF STATE LAWS REGULATING PUBLIC UTILITIES, AND IN VIEW OF THE DIVERSITY OF OPINIONS BETWEEN VARIOUS JURISDICTIONS RESPECTING THE LEGAL CHARACTER OF PUBLIC UTILITIES, THE CONGRESS IN ITS JUDGMENT DETERMINED TO CATEGORIZE THE SERVICE RATHER THAN THE CONTRACTOR. SINCE "GAS" IS BY DEFINITION A UTILITY, AND SINCE THE CONTRACT PROVIDES FOR THE FURNISHING OF PUBLIC UTILITY GAS SERVICES, WE WOULD NOT FEEL REQUIRED TO QUESTION THE STATUTORY AUTHORITY FOR THE CONTRACT.

II. THE INAPPLICABILITY OF STOCK FUND FINANCING FOR FIVE YEAR CONTRACTS VOIDS THE WHOLE PROCUREMENT.

WE ARE NOT AWARE OF ANY STATUTORY AUTHORITY TO ENTER INTO A FIRM CONTRACT FOR COAL FOR A 5-YEAR PERIOD UNLESS AUTHORIZED UNDER STOCK FUND FINANCING. THE QUESTION WHETHER A SERVICE AND SUPPLY CONTRACT COVERING REQUIREMENTS FOR MORE THAN 1 YEAR AND FINANCED UNDER FISCAL YEAR APPROPRIATIONS CONTRAVENES THE STATUTES GOVERNING THE EXTENT OF CONTRACT OBLIGATION WAS CONSIDERED IN OUR DECISION AT 42 COMP. GEN. 272, PARTICULARLY AT 276-277:

THE AUTHORITY TO MAKE THE CONTRACT UNDER CONSIDERATION IS DERIVED FROM THE APPROPRIATION ,OPERATION AND MAINTENANCE, AIR FORCE" CONTAINED IN THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1962, PUBLIC LAW 87-44, APPROVED AUGUST 17, 1961, 75 STAT. 365, 369. THIS APPROPRIATION IS MADE AVAILABLE IN GENERAL TERMS FOR NECESSARY EXPENSES FOR, AMONG OTHER THINGS, THE OPERATION, MAINTENANCE, AND ADMINISTRATION OF THE AIR FORCE DURING THE FISCAL YEAR 1962. IN APPLYING THE QUOTED STATUTES DEALING WITH GOVERNMENT CONTRACTING (41 U.S.C. 11; 31 ID. 665 (A) AND 712A), THE DECISIONS OF THE COURTS AND THE ACCOUNTING OFFICERS HAVE CONSISTENTLY HELD THAT CONTRACTS EXECUTED AND SUPPORTED UNDER AUTHORITY OF FISCAL YEAR APPROPRIATIONS CAN ONLY BE MADE WITHIN THE PERIOD OF THEIR OBLIGATION AVAILABILITY AND MUST CONCERN A BONA FIDE NEED ARISING WITHIN SUCH FISCAL YEAR AVAILABILITY. SEE 32 COMP. GEN. 565; 36 ID. 683; 37 ID. 60; ID. 155. ALSO, SUCH DECISIONS HOLD THAT CONTRACTS ENTERED INTO UNDER FISCAL YEAR APPROPRIATIONS PURPORTING TO BIND THE GOVERNMENT BEYOND THE FISCAL YEAR INVOLVED, MUST BE CONSTRUED AS BINDING UPON THE GOVERNMENT ONLY TO THE END OF THE FISCAL YEAR; AND EVEN WHERE THE CONTRACT CONTAINS AN OPTION IN THE GOVERNMENT TO RENEW FROM YEAR TO YEAR TO THE END OF THE STATED TERM CONTINGENT UPON THE AVAILABILITY OF FUTURE AVAILABLE APPROPRIATIONS, AFFIRMATIVE ACTION, IN EFFECT MAKING A NEW CONTRACT AND COMPLYING WITH THE ADVERTISING REQUIREMENTS, IS REQUIRED IN ORDER TO EXERCISE THE GOVERNMENT'S OPTION OF RENEWAL. SEE THE LEITER AND GOODYEAR CASES CITED ABOVE; 28 COMP. GEN. 553; 29 ID. 91; 33 ID. 90; 36 ID. 683; AND B-88974 OF NOVEMBER 10, 1949, TO THE SECRETARY OF AGRICULTURE. THIS WAS THE LIMIT OF AUTHORITY OF THE AIR FORCE TO MAKE CONTRACTS OR PURCHASES ON BEHALF OF THE GOVERNMENT INVOLVING THE USE OF THIS APPROPRIATION.

HOWEVER, BY THE TERMS OF THE CONTRACT IN QUESTION, IT WAS SOUGHT TO OBLIGATE THE GOVERNMENT TO PAY FOR SERVICES AND SUPPLIES, IF AND WHEN ORDERED FROM THE CONTRACTOR, TO MEET NOT ONLY THE NEEDS OF THE FISCAL YEAR 1962, BUT, IN CASE OF SERVICES AND SUPPLIES TO BE ORDERED AND FURNISHED DURING THE FISCAL YEARS 1963, 1964 AND 1965, IT ALSO WAS SOUGHT TO MAKE THE TERMS OF THE CONTRACT OPERATIVE AND THE LIABILITY ASSUMED BY IT BINDING UPON ANTICIPATED FUTURE APPROPRIATIONS, AND WITHOUT AFFIRMATIVE RENEWAL OF THE CONTRACT UNDER THE APPLICABLE APPROPRIATION FROM WHICH THE PAYMENTS ARE TO BE MADE.

THE DEPARTMENT JUSTIFIES THE CONTINUING LIABILITY TERMS OF THE CONTRACT ON THE BASIS THAT SUCH LIABILITY DOES NOT RESULT IN APPROPRIATION OBLIGATIONS WITHIN THE MEANING OF SECTION 1311 UNLESS AND UNTIL ORDERS ARE ISSUED UNDER FUTURE AVAILABLE APPROPRIATIONS. CONCEDING THAT THE INTEGRITY OF THE AVAILABLE APPROPRIATIONS WOULD BE MAINTAINED, THERE IS TO BE CONSIDERED THE FACT THAT THE APPLICABLE RESTRICTIONS OF THE REVISED STATUTES (SECTIONS 3732 AND 3679, AS AMENDED) PROHIBIT CONTRACTUAL AGREEMENTS UNDER FISCAL YEAR APPROPRIATIONS WHICH INVOLVE THE GOVERNMENT BEYOND SUCH PERIOD OF AVAILABILITY NOT ONLY IN APPROPRIATION OBLIGATIONS, BUT ANY OTHER OBLIGATION OR LIABILITY WHICH MAY ARISE THEREUNDER AND ULTIMATELY REQUIRE THE EXPENDITURE OF FUNDS. ALSO, UNDER THE HOLDING OF THE LEITER CASE, THE CONTRACT CEASES TO EXIST AT THE END OF THE FISCAL YEAR CURRENT AT THE TIME OF ITS EXECUTION AND AFFIRMATIVE ACTION IS REQUIRED TO RENEW THE CONTRACT. CONSEQUENTLY, IT IS CLEAR THAT THE CONTRACT WENT BEYOND THE AUTHORITY CONFERRED BY THE APPROPRIATION AT THE TIME OF ITS EXECUTION AND, IN SUBSTANCE AND EFFECT, VIOLATES THE ABOVE- QUOTED STATUTES.

TURNING SPECIFICALLY TO THE APPLICABILITY OF STOCK FUND FINANCING TO THE PROCUREMENT OF COAL UNDER INVITATION FOR BIDS NO. DSA-6-65-81, WE NOTE THAT BIDS WERE REQUESTED ON THE BASIS OF F.O.B. CARRIER AT MINE FOR SHIPMENT AT GOVERNMENT EXPENSE TO THE ALASKA RAILROAD RAILHEADS AT FORT RICHARDSON AND ELMENDORF AIR FORCE BASE. IT WAS FURTHER PROVIDED THAT DELIVERIES SHALL BE MADE IN SUCH QUANTITY OR QUANTITIES AND AT SUCH TIMES AS THE DESIGNATED OFFICER AT EACH INSTALLATION MAY DIRECT.

THE AUTHORITY TO ESTABLISH WORKING CAPITAL FUNDS IN THE DEPARTMENT OF DEFENSE IS CONTAINED IN 10 U.S.C. 2208 WHICH PROVIDES IN PERTINENT PART AS FOLLOWS:

(A) TO CONTROL AND ACCOUNT MORE EFFECTIVELY FOR THE COST OF PROGRAMS AND WORK PERFORMED IN THE DEPARTMENT OF DEFENSE, THE SECRETARY OF DEFENSE MAY REQUIRE THE ESTABLISHMENT OF WORKING-CAPITAL FUNDS IN THE DEPARTMENT OF DEFENSE TO---

(1) FINANCE INVENTORIES OF SUCH SUPPLIES AS HE MAY DESIGNATE; AND

(2) PROVIDE WORKING CAPITAL FOR SUCH INDUSTRIAL-TYPE ACTIVITIES, AND SUCH COMMERCIAL-TYPE ACTIVITIES THAT PROVIDE COMMON SERVICES WITHIN OR AMONG DEPARTMENTS AND AGENCIES OF THE DEPARTMENT OF DEFENSE, AS HE MAY DESIGNATE.

(E) SUBJECT TO THE AUTHORITY AND DIRECTION OF THE SECRETARY OF DEFENSE, THE SECRETARY OF EACH MILITARY DEPARTMENT SHALL ALLOCATE RESPONSIBILITY FOR ITS FUNCTIONS, POWERS, AND DUTIES TO ACCOMPLISH THE MOST ECONOMICAL AND EFFICIENT ORGANIZATION AND OPERATION OF THE ACTIVITIES, AND THE MOST ECONOMICAL AND EFFICIENT USE OF THE INVENTORIES, FOR WHICH WORKING-CAPITAL FUNDS ARE AUTHORIZED BY THIS SECTION.

(H) THE SECRETARY OF DEFENSE SHALL PRESCRIBE REGULATIONS GOVERNING THE OPERATION OF ACTIVITIES AND USE OF INVENTORIES AUTHORIZED BY THIS SECTION. * * *

PURSUANT TO THE STATUTE, DEPARTMENT OF DEFENSE DIRECTIVE NO. 7420.1 WAS PROMULGATED TO GOVERN THE ACTIVITIES AND USE OF STOCK FUND INVENTORIES. IMPLICIT BOTH IN THE STATUTE AND THE IMPLEMENTING DIRECTIVE IS THE PRINCIPLE THAT ANY INVENTORY OF CONSUMABLE STOCK SHALL BE ADMINISTERED AND CONTROLLED BY THE APPROPRIATE STOCK FUND AGENCY OF THE MILITARY DEPARTMENT. THE DIRECTIVE CLEARLY CONTEMPLATES THAT INVENTORIES OF STOCK BE HELD BY A DEPARTMENT STOCK FUND AGENCY WHICH WOULD ISSUE FROM INVENTORY SUPPLIES ORDERED OR REQUISITIONED BY AUSING AGENCY, AND THAT REIMBURSEMENT THEREFOR WOULD BE MADE BY THE USING AGENCY FROM AVAILABLE FUNDS. IN OUR VIEW, IT WOULD BE INCONSISTENT WITH STOCK FUND PRINCIPLES TO PROVIDE BY CONTRACT FOR THE USING AGENCY TO PROCURE A STOCK FUND ITEM DIRECTLY FROM THE SUPPLIER WITHOUT REGARD TO THE INVENTORY AND ISSUANCE CONTROLS PRESCRIBED BY THE DIRECTIVE OR OTHER IMPLEMENTING REGULATIONS. THE COAL INVITATION CLEARLY CONTEMPLATED THAT INVENTORY CONTROL AND ISSUANCE WOULD BE THE RESPONSIBILITY OF THE DESIGNATED, ORDERING OFFICER AT EACH OF THE TWO BASES. WE RECOGNIZE, OF COURSE, THAT THE PROCUREMENT OF COAL FOR MORE THAN 1 YEAR MAY PROPERLY BE SUBJECT TO STOCK FUND FINANCING. ALSO, WE FEEL THAT IF STOCK FUND FINANCING OF COAL HAD BEEN AUTHORIZED ADMINISTRATIVELY AND A CONTRACT FOR COAL BEEN AWARDED UNDER THE INVITATION, IT WOULD HAVE BEEN PROPER UNDER THE FACTS AND CIRCUMSTANCES HERE INVOLVED TO SUBJECT THE CONTRACT TO STOCK FUND PROCEDURES WITHOUT DISTURBING THE LEGAL EFFECTIVENESS OF THE CONTRACT. HENCE, THE FACT THAT THE CONTEMPLATED PROCUREMENT OF COAL DEVIATED FROM STOCK FUND CONCEPTS MAY NOT BE REGARDED AS RENDERING THE BID EVALUATIONS DEFECTIVE OR OTHERWISE IMPROPER AS NOT AFFORDING EQUALITY OF COMPETITION WITH BIDS SOLICITED UNDER THE OTHER FUEL INVITATIONS. IN OUR OPINION, THE RATIONALE EXPRESSED IN 42 COMP. GEN. 640 THAT AN INVITATION REQUESTING BIDS ON MUTUALLY EXCLUSIVE ALTERNATES AND EVALUATION OF ONE ALTERNATE AGAINST THE OTHER DOES NOT VIOLATE THE COMPETITIVE ADVERTISING STATUTE IS EQUALLY APPLICABLE HERE WHERE BIDDERS UNDER EACH OF THE THREE INVITATIONS WERE FULLY APPRISED OF THE EVALUATION FACTORS TO BE USED AND OF THE RESULTS THAT MIGHT OBTAIN FROM SUCH EVALUATION.

III. THE EX PARTE AMENDMENT OF ARTICLE 5(A) AFTER BIDDING VOIDS THE PROCUREMENT AND IS INEFFECTIVE TO PREVENT AN INCREASE IN GAS PRICES.

THE PROTESTANT POINTS OUT THAT THE GAS INVITATION CONTAINED A PROVISION AS FOLLOWS:

5. PUBLIC REGULATION AND CHANGE OF RATES.

(A)PUBLIC REGULATION. SERVICE FURNISHED UNDER THIS CONTRACT SHALL BE SUBJECT TO REGULATION IN THE MANNER AND TO THE EXTENT PRESCRIBED BY LAW BY ANY FEDERAL, STATE, OR LOCAL REGULATORY COMMISSION HAVING JURISDICTION. IF DURING THE TERM OF THIS CONTRACT THE PUBLIC REGULATORY COMMISSION HAVING JURISDICTION LAWFULLY APPROVES RATES THAT ARE HIGHER OR RATES THAT ARE LOWER THAN THESE STIPULATED HEREIN FOR LIKE CONDITIONS OF SERVICE, THE CONTRACTOR AGREES TO CONTINUE TO FURNISH SERVICE AS STIPULATED IN THIS CONTRACT AND THE GOVERNMENT AGREES TO PAY FOR SUCH SERVICE AT THE HIGHER OR LOWER RATES FROM AND AFTER THE DATE WHEN SUCH RATES ARE MADE EFFECTIVE.

PRIOR TO AWARD, THIS PROVISION WAS AMENDED TO READ AS FOLLOWS:

5. CHANGE OF RATES. AT THE REQUEST OF EITHER PARTY TO THIS CONTRACT, SAID PARTY HAVING REASONABLE CAUSE THEREFOR, THE RATES SET FORTH HEREIN SHALL BE RENEGOTIATED, AND ANY ADJUSTMENT SO NEGOTIATED BY MUTUAL AGREEMENT SHALL BECOME EFFECTIVE AS OF THE DATE OF SUCH AGREEMENT. PROVIDED, HOWEVER, THAT ANY RATE SO NEGOTIATED SHALL NOT BE IN EXCESS OF RATES TO ANY CUSTOMER OF THE CONTRACTOR HAVING SIMILAR CONDITIONS OF SERVICE.

THE PROTESTANT REFERS TO A "VAN SCOYOC" REPORT WHICH, IT ALLEGES, DEMONSTRATES THAT THE RATE BID BY THE PIPELINE COMPANY OF 2.9 CENTS PER THERM WAS FAR BELOW THE COST OF SERVICE AND THUS COULD NOT BE A JUST AND REASONABLE RATE BY ACCEPTED REGULATORY STANDARDS. SINCE WE ARE NOT COMPETENT TO EVALUATE THE VALIDITY OF THIS REPORT, WE ARE UNABLE TO REACH ANY CONCLUSIONS IN THAT REGARD. HOWEVER, WE DO NOT FEEL THAT THE AMENDMENT CONSTITUTED SUCH A DEVIATION FROM THE ADVERTISED REQUIREMENTS AS WOULD AFFECT THE LEGALITY OF THE AWARD. THE AMENDMENT DOES NOT CONSTITUTE THAT TYPE OF DEVIATION OR WAIVER OF ADVERTISED REQUIREMENTS WHICH HAVE BEEN INTERDICTED BY OUR OFFICE (30 COMP. GEN. 179; 38 ID. 59; 39 ID. 259; 43 ID. 813). CONSIDERING THAT THE ALASKA PIPELINE COMPANY WAS THE SOLE BIDDER UNDER THE INVITATION, AND HAVING REGARD FOR THE FACT THAT THE CONTRACT COULD HAVE BEEN NEGOTIATED UNDER THE AUTHORITY OF 10 U.S.C. 2304 (A) (10) AND ARMED SERVICES PROCUREMENT REGULATION (ASPR) 3-210.2 (V), WE FIND NO LEGAL BASIS TO QUESTION THIS ASPECT OF THE AWARD. NEITHER DO WE FEEL THAT THE NEW PROVISION 5 (A) WILL NECESSARILY INCREASE THE PRICE OF GAS TO THE DISADVANTAGE OF THE GOVERNMENT. ANY PROPOSED INCREASE IN GAS RATES UNDER THE CONTRACT WOULD BE SUBJECT TO MUTUAL AGREEMENT. HAVING REGARD FOR THE FACT THAT OUR OFFICE DOES NOT BECOME INVOLVED IN MATTERS RELATING TO CONTRACT ADMINISTRATION, WE CANNOT QUESTION THE PROSPECTIVE EFFECT OF THE PROVISION IN VIEW OF THE RECORD BEFORE US. IV. WHEN PROPERLY EVALUATED THE GAS BID IS NOT THE MOST ADVANTAGEOUS TO THE UNITED STATES, PRICE AND OTHER FACTORS CONSIDERED.

THE STANDARD UPON WHICH THE AWARD OF A CONTRACT IS TO BE MADE IS CLEARLY STATED BY SECTION 1 (44) OF THE ARMED FORCES PROCUREMENT ACT:

" *** AWARDS SHALL BE MADE WITH REASONABLE PROMPTNESS BY GIVING WRITTEN NOTICE TO THE RESPONSIBLE BIDDER WHOSE BID CONFORMS TO THE INVITATION AND WILL BE THE MOST ADVANTAGEOUS TO THE UNITED STATES, PRICE AND OTHER FACTORS CONSIDERED. (10 U.S.C. SEC. 2305(C);)"

THE DEPARTMENT IN AWARDING THE CONTRACT TO THE PIPELINE FAILED TO COMPLY WITH THIS STANDARD, IN A NUMBER OF RESPECTS.

THE PROTESTANT THEN ALLEGED THAT THE DEPARTMENT ERRED IN NOT EVALUATING THE GAS BID ON THE BASIS OF JUST AND REASONABLE PRICES, REFERRING AGAIN TO THE "VAN SCOYOC" REPORT; THAT THERE WERE NOT TAKEN INTO CONSIDERATION LOSSES IN REVENUE WHICH THE ALASKAN RAILROAD WOULD SUFFER FROM THE DIMINUTION OF COAL TRAFFIC; THAT ADDITIONAL UNEMPLOYMENT BENEFIT COSTS WOULD BE BORNE BY THE GOVERNMENT, AND THAT THE ADVERSE ECONOMIC IMPACT OF THE GAS CONTRACT ON THE GENERAL (ALASKA) GOVERNMENT WAS NOT CONSIDERED IN DETERMINING THE MOST ADVANTAGEOUS BID TO THE GOVERNMENT. OUR OFFICE HAS GENERALLY TAKEN THE POSITION THAT A PROPER DETERMINATION OF THE LOWEST RESPONSIBLE BIDDER UNDER ADVERTISED PROCUREMENT MAY PROPERLY INCLUDE CONSIDERATION OF COSTS, OVER AND ABOVE THE BID PRICE, WHICH THE GOVERNMENT WOULD INCUR IN THE EVENT OF AN AWARD TO EACH BIDDER, IF THE AMOUNT OF SUCH COSTS CAN BE ASCERTAINED WITH REASONABLE CERTAINTY. CF. 36 COMP. GEN. 380. THIS CONCEPT HAS BEEN INCORPORATED INTO ASPR 2-201 (A) (XX) AND 2- 407.5. ALSO, SEE 37 COMP. GEN. 550, WHEREIN WE DISCUSSED THE FORCE AND EFFECT OF THE PHRASE "OTHER FACTORS CONSIDERED" AS USED IN 10 U.S.C. 2305. THE ECONOMIC IMPACT OR "RIPPLE" EFFECT OF A PARTICULAR PROCUREMENT ARE NOT PERTINENT FACTORS TO BE CONSIDERED IN MAKING AN AWARD UNDER COMPETITIVE PROCEDURES ESPECIALLY WHERE BIDDERS ARE NOT REQUESTED TO PREPARE THEIR BIDS IN THE LIGHT OF POSSIBLE ADVERSE EFFECTS THEIR BIDS MIGHT HAVE ON A SEGMENT OF THE ECONOMY. THERE IS NO SANCTION IN THE LAW OR THE IMPLEMENTING REGULATIONS WHICH WOULD REQUIRE THE IMPOSITION OF INTANGIBLE COST FACTORS TO REFLECT ECONOMIC CHANGES THAT POSSIBLY MIGHT RESULT FROM A PARTICULAR AWARD. CF. 43 COMP. GEN. 217. THEREFORE, WE CONCLUDE THAT THE EVALUATION OF THE GAS BID IN THE LIGHT OF THE CONVERSION COSTS TO BE INCURRED WAS PROPER.

ON REVIEW OF THE ENTIRE RECORD BEFORE US, WE FIND NO LEGAL BASIS TO QUESTION THE AWARD MADE TO THE ALASKA PIPELINE COMPANY.