B-155975, OCT. 25, 1965

B-155975, OCT. 25, 1965

TO MR. JOHN D. LANE:

REFERENCE IS MADE TO A TELEGRAM DATED MAY 4, 1965, FROM WESTINGHOUSE ELECTRIC CORPORATION, AND TO YOUR CORRESPONDENCE OF JUNE 4 AND 25, AND SEPTEMBER 3, 9, AND 17, 1965, IN WHICH A PROTEST IS LODGED AGAINST THE AWARD OF CONTRACTS BY THE DEPARTMENT OF THE INTERIOR TO THE JOINT VENTURE OF ALLMANNA SVENSAK ELECTRISKA AKTIEBOLOGET (ASEA) AND GENERAL ELECTRIC COMPANY (GE), FOR TERMINAL FACILITIES ON THE PACIFIC NORTHWEST-PACIFIC SOUTHWEST INTERTIE.

THE INTERTIE CONSISTS IN RELEVANT PART OF TWO HIGH VOLTAGE TRANSMISSION LINES RUNNING FROM FEDERAL POWER PLANTS ON THE COLUMBIA RIVER. BOTH LINES, EACH OF WHICH WILL CARRY 750,000 VOLTS OF DIRECT CURRENT, WILL ORIGINATE AT THE DALLES, OREGON, AND WILL BE 825 MILES LONG. THE TERMINALS ON ONE LINE ARE REFERRED TO RESPECTIVELY AS THE DALLES I AND SYLMAR. THE BONNEVILLE POWER ADMINISTRATION (BPA) IS RESPONSIBLE FOR THE CONSTRUCTION OF THE DALLES I TERMINAL, WHICH IS UNDER CONTRACT WITH GE- ASEA FOR COMPLETION IN JANUARY OF 1969, I.E., 1340 DAYS AFTER NOTICE OF AWARD, ISSUED ON APRIL 30, 1965. THE CITY OF LOS ANGELES, WHERE THE LINE WILL TERMINATE, IS EXPECTED TO ENTER INTO A CONTRACT WITH GE-ASEA FOR THE PURCHASE OF THE SYLMAR TERMINAL, UNDER TERMS WHICH WILL CALL FOR COMPLETION 1340 DAYS AFTER AWARD. THE OTHER LINE, TO BE COMPLETED BY JANUARY 1971, IS BEING BUILT BY BPA AND THE BUREAU OF RECLAMATION, AND WILL TERMINATE AT HOOVER DAM. THE TERMINALS FOR THIS LINE ARE REFERRED TO RESPECTIVELY AS THE DALLES II AND MEAD. YOU PROTEST THE AWARD OF A CONTRACT FOR THE MEAD TERMINAL, WITH AN OPTION RESERVED TO THE GOVERNMENT TO CONTRACT FOR THE DALLES II TERMINAL IN 1968.

THE TERMINAL FACILITIES HERETOFORE IDENTIFIED CONSIST IN MAJOR PART OF EXPENSIVE CONVERSION EQUIPMENT AT THE END OF EACH LINE. THE FUNCTION OF THIS EQUIPMENT IS TO CONVERT ALTERNATING CURRENT AT THE GENERATORS TO DIRECT CURRENT FOR TRANSMISSION, AND DIRECT CURRENT BACK TO ALTERNATING CURRENT FOR USE. THE HEART OF THE CONVERSION EQUIPMENT IN EXISTING TERMINALS IS A MERCURY ARC TUBE, OR VALVE, WHICH ONLY ASEA AND THE USSR HAVE PRODUCED AT HIGH KV RATING SUITABLE FOR USE IN SUCH TERMINAL FACILITIES.

ASEA HAS GRANTED LICENSES TO ENGLISH ELECTRIC, INC. (EE), IN GREAT BRITAIN, AND TO THE GENERAL ELECTRIC COMPANY (GE) IN THIS COUNTRY, WHICH APPARENTLY PROVIDE RIGHTS TO MANUFACTURE ASEA EQUIPMENT OTHER THAN THE VALVES, AND TO RECEIVE ENGINEERING ASSISTANCE. WHILE THE DEPARTMENT SAYS THAT GENERAL ELECTRIC WOULD ALSO ACQUIRE "VALVE MANUFACTURING TECHNOLOGY" UNDER ITS AGREEMENT WITH ASEA, IT CONCEDES THAT THE AWARD TO GE-ASEA WILL RESULT IN NO DOMESTIC MANUFACTURING CAPABILITY FOR THE VALVES. ENGLISH ELECTRIC IS A CO-ADVENTURER WITH WESTINGHOUSE, BUT THE DETAILS OF THIS RELATIONSHIP HAVE NOT BEEN DISCLOSED.

ON SEPTEMBER 30, 1964, THE SECRETARY OF THE INTERIOR ISSUED A FINDINGS AND DETERMINATION WHICH AUTHORIZED PROCUREMENT OF THE SUBJECT TERMINALS BY MEANS OF NEGOTIATION INSTEAD OF FORMALLY ADVERTISING FOR BIDS. THIS DECISION WAS MADE PURSUANT TO SECTION 302 (C) (10) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, ON THE BASIS THAT IT WAS IMPRACTICABLE TO SECURE COMPETITION BECAUSE SPECIFICATIONS FOR THE TERMINALS COULD NOT BE PREPARED IN ADEQUATE DETAIL FOR COMPETITIVE BIDDING WITHIN APPLICABLE TIME AND TECHNICAL LIMITS. ALSO, WITH RESPECT TO THE DALLES I TERMINAL, THE USE OF OTHER THAN ASEA MANUFACTURED VALVES WAS THOUGHT TO BE PRECLUDED BY THE NEED FOR INSTALLING OPERATIONALLY PROVEN TERMINALS BY MAY OF 1968, THE COMPLETION DATE CONSIDERED NECESSARY AT THE TIME THE SECRETARY ISSUED THE SEPTEMBER FINDINGS AND DETERMINATION. THE REQUIREMENT FOR THE 1968 COMPLETION DATE IS APPARENTLY RELATED TO THE TIME WHEN CANADIAN POWER IS EXPECTED TO BE READY FOR TRANSMISSION OVER THE INTERTIE, AND TO THE ESTIMATED NEEDS OF THE DOMESTIC AREA BEING SERVED.

THE SEPTEMBER 30 DOCUMENT DELEGATED AUTHORITY TO THE BUREAU AND BPA TO NEGOTIATE THE PROCUREMENT, SUBJECT TO THE FOLLOWING POLICIES:

"1. BECAUSE IT IS IN THE PUBLIC INTEREST TO DEVELOP AND EXPAND THE DOMESTIC MANUFACTURING CAPABILITY IN DIRECT-CURRENT EQUIPMENT AND RELATED STRUCTURES, NEGOTIATIONS AUTHORIZED HEREUNDER SHALL BE CONDUCTED TO THE MAXIMUM PRACTICABLE EXTENT WITH DOMESTIC MANUFACTURERS.

"2. IN APPLYING THE PRINCIPLE IN 1. ABOVE, THE NEGOTIATING AGENCIES ARE AUTHORIZED TO NEGOTIATE WITH CO-ADVENTURERS OR OTHER BUSINESS ASSOCIATIONS WHEREIN DOMESTIC AND FOREIGN MANUFACTURERS ARE INVOLVED; PROVIDED, THAT SUCH NEGOTIATIONS SHALL ASSURE DOMESTIC INDUSTRY OPPORTUNITY TO PRODUCE ESSENTIAL COMPONENTS WHEREVER PRACTICABLE.'

PURSUANT TO THE AUTHORITY VESTED IN THEM, BPA AND THE BUREAU OF RECLAMATION JOINTLY ISSUED A LETTER DATED OCTOBER 13, 1964, IN WHICH THEY INVITED ONLY DOMESTIC MANUFACTURERS OR BUSINESS ASSOCIATIONS WITH DOMESTIC PARTICIPATION TO SUBMIT PRELIMINARY PROPOSALS. THE PURPOSE OF THE INVITATION WAS TO DETERMINE AN OFFEROR'S WILLINGNESS TO AND CAPABILITY OF MEETING THE GOVERNMENT'S REQUIREMENTS. THE GOVERNMENT RECEIVED THREE RESPONSES--- A JOINT VENTURE CONSISTING OF GE AND ASEA; A BUSINESS ASSOCIATION CONSISTING OF WESTINGHOUSE AND EE; AND ALLIS CHALMERS, WITH LITTON INDUSTRIES AS A PROPOSED SUBCONTRACTOR.

AT THIS POINT, WESTINGHOUSE APPEALED TO THE DEPARTMENT, ALLEGING THAT IT AND EE WERE AT A COMPETITIVE DISADVANTAGE BECAUSE GE-ASEA WAS THE ONLY SUPPLIER IN A POSITION TO FURNISH ASEA MANUFACTURED VALVES BY 1968 FOR THE DALLES I AND SYLMAR TERMINALS. WESTINGHOUSE CONTENDED THAT GE-ASEA COULD PRICE THE FIRST PAIR OF TERMINALS HIGH ENOUGH TO RECOVER IN FULL ALL OF THE NONRECURRING ENGINEERING COST FOR THE FOUR TERMINALS. WESTINGHOUSE IS SAID TO HAVE THEN ESTIMATED SUCH NONRECURRING COST TO BE ABOUT $1,000,000. WESTINGHOUSE OFFICIALS EXPRESSED RELUCTANCE TO PREPARE A PROPOSAL ON THE MEAD AND DALLES II TERMINALS AND TO PARTICIPATE IN THE NEGOTIATIONS UNLESS THE GOVERNMENT WERE WILLING TO "EQUALIZE" ITS COMPETITIVE POSITION WITH GE-ASEA, SINCE WESTINGHOUSE WOULD HAVE TO SPEND $300,000 MERELY TO PREPARE AN OFFER ON SUCH TERMINALS.

ON THE BASIS OF THE WESTINGHOUSE REPRESENTATIONS, AND IN AN EFFORT TO EXPAND DOMESTIC KNOWLEDGE AND MANUFACTURING CAPABILITY IN THE FIELD OF HIGH VOLTAGE DIRECT CURRENT TECHNOLOGY IN THE INTEREST OF NATIONAL DEFENSE, THE ASSISTANT SECRETARY OF THE INTERIOR, WATER AND POWER DEVELOPMENT, PREPARED A MEMORANDUM DATED NOVEMBER 10, 1964, PROPOSING THAT THE BASIS FOR THE NEGOTIATED PROCUREMENT BE BROADENED BY INVOKING THE ACT OF AUGUST 28, 1958, 72 STAT. 972, 50 U.S.C. 1431-1435 (PUB.L. 85-804), AND EXECUTIVE ORDER NO. 10789, WHICH DELEGATES AUTHORITY TO THE SECRETARY TO USE PUB.L. 85-804. IN THE MEMORANDUM, THE ASSISTANT SECRETARY MADE THE FOLLOWING STATEMENTS:

"THE PRIME ADVANTAGE TO WHICH COMPANY B (WESTINGHOUSE) REFERS WOULD BE FOUND IN THE ENGINEERING COST CATEGORY. THE COMPANY WOULD LIKE FOR US TO SEGMENT THE PROCUREMENT OF TERMINAL FACILITIES AND GIVE THEM WHAT WOULD AMOUNT TO A GUARANTEE OF A PIECE OF BUSINESS. THEIR REPRESENTATIVES HAVE CITED DOD PROCUREMENT AS PRECEDENT FOR SUCH ACTION. WE NO NOT WISH TO MAKE SUCH COMMITMENT. TO EQUALIZE THE COMPETITION, HOWEVER, WE MIGHT CONSIDER ALLOWING COMPANY B, OR OTHER FIRMS THAT MIGHT BECOME INTERESTED, THE SAME GENERAL SWEEP OF ENGINEERING COSTS ON THE SECOND TERMINAL THAT COMPANY A (GE-ASEA) MIGHT RECAPTURE ON THE FIRST TERMINAL. WE WILL REQUIRE SUBMISSION OF COST DATA WHICH SHOULD ENABLE THIS TYPE OF ANALYSIS FOR PURPOSES OF EQUALIZATION. EVEN AFTER THIS PROCESS, IT MIGHT WELL BE THAT COMPANY B'S PROPOSAL WOULD BE LESS FAVORABLE THAN THAT OF COMPANY A. NONETHELESS, WE WOULD BE TAKING A MAJOR STRIDE IN SERVING OUR BASIC POLICY OF EXPANDING DOMESTIC CAPABILITY.'

THE DEPARTMENT REPORTS THAT IT WAS CONSIDERED NECESSARY TO INVOKE THE AUTHORITY OF PUB.L. 85-804 IN ORDER TO JUSTIFY RESTRICTING NEGOTIATIONS TO THOSE FIRMS INVOLVING DOMESTIC PARTICIPATION, AND TO ATTEMPT TO ESTABLISH A SECOND DOMESTIC SOURCE BY AUTHORIZING THE PAYMENT OF A PREMIUM CONTRACT PRICE TO A CONTRACTOR OTHER THAN GE-ASEA FOR THE MEAD-DALLES II TERMINALS. A FINDINGS AND DETERMINATION TO THIS EFFECT WAS ISSUED BY THE SECRETARY ON NOVEMBER 10, 1964.

DURING THE NEGOTIATIONS WITH GE-ASEA, WITH WESTINGHOUSE-EE, AND WITH ALLIS CHALMERS, GE-ASEA OFFERED TO ATTEMPT TO DEVELOP 200 KV VALVES FOR THE MEAD AND DALLES II TERMINALS, INSTEAD OF 133 KV VALVES CONTEMPLATED AT THE TIME NEGOTIATIONS WERE INITIATED. THE DEPARTMENT REPORTS THAT CERTAIN ECONOMIES MADE POSSIBLE BY THE USE OF 200 KV VALVES WERE REFLECTED IN LOWER PRICES OFFERED BY GE-ASEA IF IT ALSO RECEIVED THE CONTRACT FOR THE MEAD AND DALLES II TERMINALS. GE-ASEA AGREED THAT IF IT FAILED TO DEVELOP 200 KV VALVES BEFORE INSTALLATION DEADLINE, IT WOULD SUPPLY 133 KV VALVES AT THE SAME PRICES OFFERED FOR 200 KV VALVES.

THE DEPARTMENT REPORTS THAT THE GOVERNMENT NEGOTIATORS, UPON LEARNING OF GE-ASEA'S OFFER OF 200 KV VALVES, SPECIFICALLY ASKED WESTINGHOUSE-EE IF IT WERE POSSIBLE FOR THAT ORGANIZATION TO OFFER TERMINALS BASED UPON 200 KV VALVES. DR. CALVERLY OF EE IS SAID TO HAVE RESPONDED BY SAYING THAT WESTINGHOUSE-EE COULD NOT MAKE SUCH AN OFFER, BUT THAT IF SUBSEQUENT DEVELOPMENTS MADE IT POSSIBLE FOR THEM TO OFFER A 200 KV VALVE, THEY WOULD ADVISE THE GOVERNMENT, AND SUCH A VALVE COULD BE CONSIDERED AT THE TIME IT BECAME AVAILABLE TO EE. IT APPEARS FROM THE RECORD THAT THE ABILITY OF WESTINGHOUSE-EE TO OFFER 200 KV VALVES DEPENDED UPON PRIOR SUCCESSFUL DEVELOPMENT OF SUCH VALVES BY ASEA.

DURING THE NEGOTIATIONS THE OFFERORS WERE REQUESTED TO AND DID SUBMIT AN ESTIMATE OF THE DOLLAR AMOUNT CONSIDERED NECESSARY TO EQUALIZE GE-ASEA'S COMPETITIVE ADVANTAGE, REPRESENTED BY NONRECURRING ENGINEERING COSTS WHICH GE-ASEA WOULD NOT NECESSARILY INCUR IN CONSTRUCTING THE MEAD AND DALLES II TERMINALS. THE DEPARTMENT STATES THAT THE COST EQUALIZATION FACTORS TO BE CONSIDERED WERE SET FORTH IN THE DEPARTMENT'S MEMORANDUM OF NOVEMBER 18, 1964, WHICH, IN TURN, WAS SUMMARIZED AND DISTRIBUTED TO THE PROPOSERS IN A LETTER OF NOVEMBER 24, 1964. THE LETTER OF NOVEMBER 24 ALSO STATED THAT PROPOSERS WOULD BE EXPECTED TO FURNISH SUFFICIENT COST DATA TO SHOW THAT THE GOVERNMENT WAS NOT BEING BURDENED WITH THE FULL RECOVERY OF DEVELOPMENTAL COSTS AND TO EXECUTE CERTIFICATIONS AND PROVISIONS BASED UPON EXAMPLES APPEARING IN FPR SUBPART 1-3.8 AND ASPR SECTION 3, PART 8, TO ASSURE THE ACCURACY OF SUCH DATA.

WESTINGHOUSE-EE FURNISHED PRICE DATA, DATED MARCH 10, 1965, TO SUPPORT ITS "BEST JUDGMENT" THAT $2,863,915 WAS THE AMOUNT WHICH REPRESENTED THE DIFFERENCE BETWEEN THE COST FOR THAT FIRM'S FIRST AND SECOND TERMINALS, I.E., MEAD AND DALLES II. ALTHOUGH WESTINGHOUSE-EE REFUSED TO FURNISH ANY TYPE OF COST DATA, AND ALTHOUGH GE-ASEA REFUSED BOTH TO FURNISH COST DATA ON THE VALVES, AND, LIKE WESTINGHOUSE-EE, TO EXECUTE CERTIFICATES OR PROVISIONS ATTESTING TO THE ACCURACY, COMPLETENESS OR CURRENTNESS OF COST DATA, THE DEPARTMENT MAINTAINS THAT COST EQUALIZATION FACTORS WERE DISCUSSED TO THE FULLEST EXTENT, AND THAT AFTER CONSIDERING TABULATIONS SUBMITTED BY ALL THREE OF THE OFFERORS, AND ANALYZING THE FACTORS KNOWN TO IT, THE NEGOTIATING TEAM IDENTIFIED THE AMOUNT OF $1,161,000 AS AN EQUALIZATION PROPER FOR ALLOWANCE TO WESTINGHOUSE-EE IN COMPARING ITS OFFER WITH THAT OF GE ASEA.

THE DEPARTMENT REPORTS THAT THE GOVERNMENT NEGOTIATION TEAM CONCLUDED DURING THE COURSE OF NEGOTIATIONS THAT THE REPRESENTATIVES OF WESTINGHOUSE -EE WERE NOT SERIOUSLY CONSIDERING REDUCING PRICES THROUGH THE PROCESS OF NEGOTIATION. IT IS REPORTED THAT WESTINGHOUSE EE NOT ONLY RESISTED PRICE REDUCTION BUT ALSO URGED THE GOVERNMENT TO INCREASE THE SCOPE OF THE PROJECT BY INCLUDING MORE OF THE GOVERNMENT FURNISHED MATERIAL IN THE NEGOTIATION. MOREOVER, THEY RESISTED OR REFUSED TO ENTER INTO PRICE NEGOTIATIONS IN WHICH WESTINGHOUSE-EE WOULD HAVE HELD OUT ANY SUBSTANTIAL REDUCTION IN PRICE IN EXCHANGE FOR CONCESSIONS ON THE PART OF THE GOVERNMENT'S NEGOTIATING TEAM.

IN A LETTER OF MARCH 23, 1965, TO OFFERORS, THE NEGOTIATING TEAM ESTABLISHED MARCH 30, 1965, AS THE DEADLINE FOR FINAL OFFERS. PRIOR TO THAT DATE, GE-ASEA OFFERED CONTRACTS AT A TOTAL PRICE TO THE GOVERNMENT OF $71,917,653 ON THE BASIS OF RECEIVING CONTRACTS FOR THE THREE TERMINALS, $28,974,985 ON THE BASIS OF RECEIVING A CONTRACT ONLY FOR THE DALLES I TERMINAL, AND $45,733,888 ON THE BASIS OF RECEIVING CONTRACTS FOR ONLY THE MEAD AND DALLES II TERMINALS. WESTINGHOUSE-EE SUBMITTED A PRICE FOR THE MEAD AND DALLES II TERMINALS IN THE AMOUNT OF $57,332.454. ON APRIL 27, 1965, WHICH WAS 28 DAYS AFTER THE DEADLINE FOR RECEIPT OF FINAL OFFERS, WESTINGHOUSE-EE SUBMITTED AN OFFER TO SUPPLY THE TWO TERMINALS FOR $50,126,905, AND THE MEAD TERMINAL ALONE FOR $26,164,077, ALL ON A 133 KV BASIS. IT ALSO OFFERED TO DETERMINE BY JUNE 30, 1966, WHETHER EE COULD FURNISH THE MEAD TERMINAL ALONE WITH 200 KV VALVES, AND STATED A PRICE OF $23,614,077 FOR THE TERMINAL ON THAT BASIS. ALTHOUGH GE-ASEA BID APPROXIMATELY $29 MILLION FOR THE DALLES I TERMINAL ALONE, IT OFFERED A PRICE REDUCTION ON THAT TERMINAL OF $2.2 MILLION IF THE MEAD AND DALLES II TERMINALS WERE ALSO AWARDED TO GE-ASEA. A FURTHER REDUCTION WAS OFFERED IF GE-ASEA ALSO RECEIVED THE SYLMAR TERMINAL CONTRACT FROM LOS ANGELEES, BUT THIS POSSIBLE REDUCTION APPARENTLY WAS NOT CONSIDERED IN THE EVALUATION. THE DEPARTMENT CONSIDERED THAT IT WOULD HAVE TO PAY $29 MILLION TO GE-ASEA FOR THE DALLES I TERMINAL IF IT AWARDED THE MEAD AND DALLES II TERMINALS TO WESTINGHOUSE-EE AT PRICES AT LEAST $4.3 MILLION HIGHER THAN THOSE OFFERED BY GE-ASEA FOR MEAD AND DALLES II, AND CONCLUDED THAT THE COST OF CONTRACTING WITH WESTINGHOUSE-EE INSTEAD OF WITH GE-ASEA FOR THE MEAD-DALLES II TERMINALS WOULD SUBSTANTIALLY EXCEED EVEN THE $2.8 MILLION EQUALIZATION FACTOR ADVANCED BY WESTINGHOUSE, REGARDLESS OF WHETHER THE DEPARTMENT CONSIDERED THE FINAL PRICES OFFERED BY WESTINGHOUSE -EE AFTER THE DEADLINE DATE FOR RECEIPT OF OFFERS. IN ADDITION, THE GOVERNMENT NEGOTIATING TEAM WAS SAID TO HAVE FOUND THAT IF WESTINGHOUSE-EE WERE AWARDED A CONTRACT, EE WOULD DO ALL OF THE BASIC SYSTEM ENGINEERING AND THE OVERALL DESIGN AND ENGINEERING OF MOST OF THE TERMINAL COMPONENTS, AND THAT SUCH A CONTRACT WOULD RESULT IN PRACTICALLY NO INCREASE IN DOMESTIC KNOWLEDGE. FOR THE FOREGOING REASONS, THE DEPARTMENT CONCLUDED THAT THE GE-ASEA PROPOSAL WAS THE MOST ADVANTAGEOUS TO THE GOVERNMENT, AND IT THEREFORE AWARDED CONTRACTS FOR THE DALLES I AND MEAD TERMINALS, WITH AN OPTION FOR THE DALLES II TERMINAL, TO THAT JOINT VENTURE.

YOU ADVISE THAT DURING THE COURSE OF NEGOTIATIONS WESTINGHOUSE CAME TO SUSPECT THAT ITS COMPETITOR HAD OFFERED 200 KV VALES TO THE GOVERNMENT, AND THAT WESTINGHOUSE THEREFORE SOUGHT TO DETERMINE IF THE DEPARTMENT HAD ANY INTEREST IN HIGHER VOLTAGE VALVES. YOU ALLEGE THAT NO INDICATION OF SUCH INTEREST WAS RECEIVED. IN LIGHT OF WHAT HAS SINCE TRANSPIRED, YOU CONCLUDE THAT THE DEPARTMENT UNDERTOOK EXCLUSIVE NEGOTIATIONS WITH GE-ASEA ON A BASIS WHICH CHANGED THE SCOPE OF THE WORK AND ELIMINATED WESTINGHOUSE -EE FROM THE COMPETITION. YOU ASSERT THAT ALL OFFERORS SHOULD HAVE BEEN ADVISED OF THE MATERIAL CHANGE IN THE SCOPE OF THE REQUIREMENTS, AND THAT THE OFFER BY WESTINGHOUSE-EE IN THIS LETTER OF APRIL 27 TO SUPPLY 200 KV VALVES IF AWARDED A CONTRACT FOR THE MEAD TERMINAL, WITHOUT THE OPTION ON THE DALLES II, SHOULD HAVE BEEN ACCEPTED, OR AT LEAST INVESTIGATED, BY THE DEPARTMENT.

YOU MAINTAIN THAT THE DEPARTMENT'S EVALUATION OF PRICES IS INEQUITABLE BECAUSE IT ADDS THE GE-ASEA PRICE OF $29 MILLION FOR THE DALLES I TERMINAL ALONE TO THE WESTINGHOUSE-EE PRICE FOR THE MEAD DALLES II TERMINALS, EVE THOUGH THE EVALUATION OF THE GE-ASEA PROPOSAL CONSIDERED A REDUCTION IN THE DALLES I PRICE OF OVER $2.2 MILLION IF GE-ASEA WERE AWARDED ALL THREE TERMINALS. YOU CONTEND THAT NO ATTEMPT WAS MADE BY THE GOVERNMENT'S NEGOTIATING TEAM TO CONDUCT REAL NEGOTIATIONS WITH RESPECT TO PRICE AND THE COST EQUALIZATION FACTOR. YOU ASSERT THAT IT WAS THIS FAILURE ON THE GOVERNMENT'S PART WHICH MADE IT NECESSARY FOR THE GOVERNMENT TO OBTAIN COST DATA IN ORDER TO ARRIVE AT A REASONABLE COST EQUALIZATION FACTOR, AND FOR WESTINGHOUSE EE TO ASSUME THAT FINAL PRICE AND COST EQUALIZATION DISCUSSIONS WOULD BE CONDUCTED IN WASHINGTON AT THE DEPARTMENT LEVEL, AND THAT IT WAS ONLY AFTER AN UNSATISFACTORY MEETING WITH THE SECRETARY ON APRIL 15, 1965, THAT WESTINGHOUSE-EE SUBMITTED ITS OFFER OF APRIL 27, 1965. YOU ALSO SAY THAT THE DEPARTMENT HAD FULL KNOWLEDGE OF THE RELATIONSHIP BETWEEN WESTINGHOUSE AND EE, AND SHOULD NOT EXPRESS DISMAY AT THIS LATE DATE CONCERNING THE FACT THAT THERE WOULD BE LESS DIRECT CURRENT TECHNOLOGY AVAILABLE TO WESTINGHOUSE THAN TO GE.

FINALLY, YOU TAKE THE POSITION THAT SINCE THE AVAILABILITY OF BOTH COMPETITION AND PRICING DATA WAS LIMITED, A VALID CONTRACT DOES NOT ARISE UNLESS A COST ANALYSIS OF THE GE-ASEA PROPOSAL IS PERFORMED AND SHOWS THAT THE CONTRACT PRICE WAS AT TERMS MOST FAVORABLE TO THE GOVERNMENT. YOU STATE THAT A COMPARISON OF THE PRICES OFFERED BY GE ASEA FOR THE MEAD AND DALLES II TERMINALS WITH ITS PRICES FOR THE DALLAS I AND SYLMAR TERMINALS WILL REVEAL THAT THE COST TO THE GOVERNMENT FOR THE DALLES I TERMINAL COULD BE REDUCED BY A COST ANALYSIS, AND YOU POINT OUT THAT THE WESTINGHOUSE-EE PROPOSAL MIGHT BECOME COMPETITIVE IF THE GE-ASEA PRICE FOR THE DALLES I TERMINAL ALONE WERE SUBSTANTIALLY REDUCED. IN SUPPORT OF YOUR POSITION THAT THE CONTRACT IS INVALID YOU CITE OUR REPORTS B-146760, DATED JANUARY 5, 1965, AND B-146846, DATED JUNE 17, 1965.

AS INDICATED ABOVE, THE DEPARTMENT MAINTAINS THAT IT DID EXPRESS AN INTEREST IN WHETHER WESTINGHOUSE COULD DEVELOP A 200 KV VALVE, AND WAS ADVISED THAT WESTINGHOUSE-EE WAS NOT IN A POSITION TO MAKE SUCH AN OFFER SINCE ITS ACCESS TO INNOVATIONS IN VALVE TECHNOLOGY DEPENDED UPON ITS LICENSE WITH ASEA, AND ASEA'S WILLINGNESS AND ABILITY TO UNDERTAKE SUCH ADVANCEMENTS. MOREOVER THE DEPARTMENT TAKES THE POSITION THAT IT IS IMMATERIAL TO FUNCTIONAL PERFORMANCE WHETHER THE VALVES IN THE TERMINAL ARE 133 TO 200 KV. THE DEPARTMENT POINTS OUT THAT THERE IS NO PROVISION IN THE REQUEST FOR PROPOSALS OR IN THE SPECIFICATIONS WHICH LIMITED THE RATING OF THE VALVE TO 133 KV, AND THAT THE ONLY SPECIFIED REQUIREMENT IN THIS RESPECT WAS THE ONE CALLING FOR 400 KV PLUS OR MINUS TERMINALS. THE DEPARTMENT CONCLUDES THAT THE SCOPE OF THE WORK WAS NOT CHANGED BY PERMITTING GE-ASEA (OR OTHERS) TO MEET THE REQUIRED TOTAL RATING FOR THE TERMINALS BY SUPPLYING FOUR 200 KV VALVES RATHER THAN SIX 133 KV VALVES.

FOR THE REASONS ADVANCED BY THE DEPARTMENT, WE CANNOT AGREE THAT THE SCOPE OF THE REQUIREMENTS WAS CHANGED BY ACCEPTING A GE-ASEA PROPOSAL TO SUPPLY 200 KV VALVES INSTEAD OF VALVES WITH A RATING ORIGINALLY CONTEMPLATED BY THE PARTIES BUT NOT REQUIRED BY THE CONTRACT. NOR, IN THE LIGHT OF THE FACTS REPORTED BY THE DEPARTMENT, WHICH WE MUST ACCEPT IN THE ABSENCE OF CONVINCING PROOF TO THE CONTRARY, CAN WE CONCLUDE THAT WESTINGHOUSE-EE WAS MISLED OR PREJUDICED BY THE DEPARTMENT'S ACTIONS IN THIS REGARD.

ACCEPTING THE DEPARTMENT'S REPORT AS TO THE FACTS OF THE CASE,WE MUST FIND THAT THE DEPARTMENT CONDUCTED DISCUSSIONS AS TO PRICE REDUCTION AND EQUALIZATION, AND THAT THE WESTINGHOUSE-EE PROPOSAL OFFERED LITTLE PROSPECT OF DEVELOPING DOMESTIC KNOWLEDGE IN HIGH VOLTAGE D.C. TRANSMISSION TECHNOLOGY. FURTHERMORE, YOUR CLIENTS' "OFFER" OF APRIL 27 TO DETERMINE BY JUNE 30 WHETHER EE COULD SUPPLY 200 KV VALVES FOR THE MEAD TERMINAL WAS NOT MERELY LATE AND OF SUCH A NATURE THAT ITS ACCEPTANCE WOULD NOT HAVE RESULTED IN A BINDING CONTRACT, BUT ALSO APPEARED UNREALISTIC IN VIEW OF WESTINGHOUSE'S INABILITY TO OBTAIN VALVES WITHOUT THEIR FIRST BEING DEVELOPED BY ASEA, WHICH APPARENTLY WAS UNWILLING TO DEVELOP THEM WITHOUT RECEIVING A CONTRACT FOR THE MEAD AND DALLAS II TERMINALS. THEREFORE, WE ARE UNABLE TO CONCLUDE THAT THE DEPARTMENT WAS IN ANY WAY OBLIGED TO "INVESTIGATE" WHAT AMOUNTED TO A SUGGESTION BY WESTINGHOUSE THAT THE GOVERNMENT WITHHOLD CONSIDERATION OF OFFERS SUBMITTED 28 DAYS PREVIOUSLY IN ORDER TO ALLOW WESTINGHOUSE OVER TWO MONTHS TO DECIDE WHETHER TO FURTHER CHANGE THE TERMS OF ITS OFFER.

WITH RESPECT TO YOUR OPINION THAT THE DEPARTMENT'S FIGURES ON THE COST EQUALIZATION FACTOR ARE NOT RELIABLE BECAUSE THEY ARE UNSUPPORTED BY COST DATA, WE OBSERVE THAT YOU, AND PERHAPS TO A LESSER EXTENT GE ASEA, REFUSED TO COMPLY WITH THE NEGOTIATING TEAM'S REQUEST FOR CERTIFIED COST DATA WHICH THE DEPARTMENT'S ASSISTANT SECRETARY THOUGHT WOULD BE USED TO MAKE THIS CALCULATION. FURTHERMORE, THE RECORD INDICATES THAT THE SECRETARY CONCLUDED THAT THERE WAS SUFFICIENT JUSTIFICATION FOR RELYING ON PRICE ANALYSIS, AND THAT THIS WAS DONE. THE RECORD FURTHER ESTABLISHES A BASIS FOR THE SECRETARY'S DECISION THAT THE DISPARITY BETWEEN THE COST OF BUYING ALL THREE TERMINALS FROM GE-ASEA, AND THE COST OF BUYING ONE TERMINAL FROM GE-ASEA AND TWO TERMINALS FROM WESTINGHOUSE-EE, COULD NOT BE ELIMINATED BY ANY REASONABLE COST EQUALIZATION FACTOR. ASSUMING THAT THE SECRETARY PROPERLY INVOKED AND HAD AUTHORITY UNDER PUB.L. 85-804, WHICH YOU DO NOT QUESTION, WE ARE AWARE OF NO PROPER BASIS UPON WHICH THIS OFFICE MAY VALIDLY QUESTION THE REASONABLENESS OF HIS DECISION NOT TO PAY A PREMIUM, REPRESENTED BY THE TOTAL DIFFERENCE BETWEEN BID PRICES, IN ORDER TO SUBSIDIZE WESTINGHOUSE'S ENTRY INTO THIS FIELD, OR THE ADEQUACY OF THE DEPARTMENT'S JUSTIFICATION FOR THIS DECISION. SIMILARLY, WE MUST CONCLUDE THAT THE FACT GE-ASEA OFFERED PRICES IN SUCH A MANNER THAT THE GOVERNMENT WOULD HAVE TO PAY AN ALLEGEDLY EXCESSIVE PRICE FOR THE DALLES I TERMINAL, IF THAT TERMINAL WERE THE ONLY ONE PURCHASED FROM GE-ASEA, WOULD HAVE NO BEARING ON THE LEGALITY OF THE CONTRACTS AWARDED TO GE-ASEA.

WE HAVE REVIEWED THE DECISIONS YOU CITE AS SUPPORT FOR THE PROPOSITION THAT THE CONTRACTING OFFICER COULD NOT BIND THE GOVERNMENT UNDER A CONTRACT WITH GE-ASEA FOR THE DALLES I TERMINAL UNLESS AN ANALYSIS OF GE- ASEA COST ESTIMATES IS PERFORMED AND DEMONSTRATES THAT THE GOVERNMENT GOT A GOOD BARGAIN. THE DECISIONS CITED ARE, IN FACT, GAO AUDIT REPORTS WHICH INDICATE THAT A COST-PLUS-A-FIXED-FEE PRIME CONTRACTOR MADE EXCESSIVE PAYMENTS TO A SUBCONTRACTOR WITHOUT FIRST DISCHARGING HIS OBLIGATION TO THE GOVERNMENT TO ESTABLISH THE REASONABLENESS OF THE SUBCONTRACT PRICE. IN THOSE REPORTS WE DID NOT RENDER AN OPINION AS TO THE VALIDITY OF EITHER THE CONTRACT BETWEEN THE PRIME AND SUBCONTRACTORS OR BETWEEN THE PRIME CONTRACTOR AND THE GOVERNMENT, BUT RECOMMENDED TO THE AGENCY THAT IT RECONSIDER ITS VIEWS ON THE ALLOWABILITY UNDER ITS CONTRACTOR TO THE SUBCONTRACTOR. ACCORDINGLY, AND BECAUSE OF THE FACTUAL DISSIMILARITY BETWEEN THE AUDIT REPORTS AND THE INSTANT CASE, WE BELIEVE THE REPORTS DO NOT PROVIDE ANY VALID BASIS FOR DECLARING THE CONTRACTS AWARDED TO GE-ASEA INVALID.

IN VIEW OF THE ABOVE, THE DEPARTMENT'S POSITION THAT PRICE ANALYSIS OF THE DATA FURNISHED BY GE-ASEA WAS ADEQUATE FOR THE DEPARTMENT'S PURPOSES, AND THE AUTHORITY VESTED IN THE SECRETARY UNDER FPR 1-3,807-3 (B) (3) TO WAIVE BOTH COST AND PRICING DATA, WE MUST CONCLUDE THAT ON THE BASIS OF THE PRESENT RECORD THERE IS NO LEGAL BASIS FOR OBJECTING TO THE SECRETARY OF THE INTERIOR'S REFUSAL TO AWARD A CONTRACT FOR THE MEAD TERMINAL, OR THE MEAD TERMINAL WITH THE OPTION ON THE DALLES II TERMINAL, TO WESTINGHOUSE-EE. ..END :