B-156584, JUL. 14, 1965

B-156584, JUL. 14, 1965

TO GRAY COMPANY, INC.:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF APRIL 19, 1965, CONCERNING THE PERFORMANCE OF HENRY SPEN AND CO., INC., UNDER CONTRACT NO. DA-11-184- AMC-425/T), WHICH WAS AWARDED TO THE CORPORATION PURSUANT TO INVITATION FOR BIDS NO. AMC/T/-11-184-64-1/CF), BY THE DEPARTMENT OF THE ARMY, UNITED STATES ARMY ENGINEER PROCUREMENT OFFICE, CHICAGO, ILLINOIS.

UNDER THE INVITATION, AS AMENDED, BIDS WERE REQUESTED FOR FURNISHING SPECIFIED QUANTITIES OF TRAILER MOUNTED LUBRICATING AND SERVICING UNITS. THE INVITATION FOR BIDS SET FORTH ON PAGES 18 AND 19 THEREOF, AS REVISED BY PAGES 13 AND 14 OF AMENDMENT NO. 3, THE GOVERNMENT'S DESIRED DELIVERY SCHEDULE FOR THE CONTRACT ITEMS AS WELL AS THE TIME BY WHICH IT DESIRED THE PREPRODUCTION TEST TO COMMENCE. IT WAS FURTHER PROVIDED THAT A BIDDER COULD WITHOUT PREJUDICE TO EVALUATION OF HIS BID OFFER A PROPOSED SCHEDULE WHICH DID NOT EXCEED THE GOVERNMENT DESIRED SCHEDULE BY MORE THAN 60 DAYS. PARAGRAPH 18 OF THE SPECIAL PROVISIONS OF THE INVITATION PROVIDED FOR AN OPTION TO THE GOVERNMENT TO INCREASE THE CONTRACT QUANTITIES BY NOT MORE THAN 50 PERCENT AT NO INCREASE IN THE UNIT PRICE BID.

SIX BIDS WERE RECEIVED AND OPENED ON SEPTEMBER 16, 1963. THE LOWEST BID IN THE AMOUNT OF $3,670 EACH WAS SUBMITTED BY HENRY SPEN AND CO., INC., HEREINAFTER REFERRED TO AS SPEN. THE NEXT LOWEST BID IN THE AMOUNT OF $4,126 EACH WAS SUBMITTED BY YOUR FIRM. IT IS REPORTED THAT SPEN IN ITS BID TOOK ADVANTAGE OF THE 60-DAY LATITUDE IN DELIVERY SCHEDULE OFFERED BY THE INVITATION FOR BIDS BUT THAT YOUR FIRM DID NOT EXERCISE SUCH ADVANTAGE. ON DECEMBER 31, 1963, AN AWARD WAS MADE TO SPEN FOR FURNISHING 520 UNITS WITH DELIVERIES TO COMMENCE ON OCTOBER 26, 1964, AND THE PREPRODUCTION TESTING TO COMMENCE ON JUNE 23, 1964.

BY LETTER DATED JANUARY 22, 1965, YOUR FIRM REQUESTED THE CONTRACTING OFFICER TO DECLARE SPEN IN DEFAULT OF THE CONTRACT AND TO REAWARD THE CONTRACT TO YOUR FIRM AS THE SECOND LOW BIDDER. THE BASIS FOR YOUR REQUEST WAS THAT SPEN HAD FAILED TO MEET THE PERFORMANCE REQUIREMENTS OF THE CONTRACT IN THAT IT WAS 175 DAYS LATE IN THE DELIVERY OF THE PREPRODUCTION MODEL AND 85 DAYS LATE IN THE DELIVERY OF THE FIRST SCHEDULED BLOCK OF 50 UNITS. IN A LETTER DATED JANUARY 27, 1965, THE CONTRACTING OFFICER ADVISED YOUR FIRM THAT WHILE IT WAS TRUE THAT SPEN WAS NOT MEETING THE DELIVERY SCHEDULES, THE CIRCUMSTANCES WERE NOT SUCH THAT WOULD WARRANT DECLARING SPEN IN DEFAULT OF THE CONTRACT.

IN YOUR LETTER DATED APRIL 19, 1965, TO OUR OFFICE, YOU PROTESTED AGAINST THE ACTION OF THE CONTRACTING OFFICER IN PERMITTING SPEN TO CONTINUE PERFORMING UNDER THE CONTRACT.

IN REGARD TO THE INCREASES IN THE CONTRACT QUANTITIES AND THE PERFORMANCE OF SPEN UNDER THE CONTRACT IN QUESTION, THE CONTRACTING OFFICER STATES IN HIS REPORT OF MAY 25, 1965, AS FOLLOWS:

"G. PURSUANT TO THE OPTION TO INCREASE REQUIREMENTS CLAUSE: BY CONTRACT MODIFICATION NO. 2, EXECUTED BY THE CONTRACTING OFFICER 26 JUNE 1964, 53 UNITS WERE ADDED TO THE CONTRACT QUANTITY AT A PRICE REFLECTING A PRICE REDUCTION OF $32.00 PER UNIT, (WHICH, FOR ADMINISTRATIVE REASONS, WAS AVERAGED OVER ALL THE CONTRACT UNITS. BY MODIFICATION NO. 5, EXECUTED BY THE CONTRACTING OFFICER 11 DEC. 1964, 3 UNITS WERE ADDED AT A PRICE REDUCTION OF $29.00 PER UNIT. BY MODIFICATION NO. 11, EXECUTED BY THE CONTRACTING OFFICER 26 MAR 1965, 38 UNITS WERE ADDED AT A PRICE REDUCTION OF $28.00 EACH FROM THE ORIGINAL CONTRACT PRICE. (EXHIBITS "B," "D" AND "E")

"H. THE TOTAL NUMBER OF UNITS THUS ADDED PURSUANT TO THE OPTION CLAUSE IS 94 AND THE TOTAL PRICE REDUCTION THEREFOR FROM THE PRICE AT WHICH THE GOVERNMENT WAS ENTITLED TO UNILATERALLY INCREASE THE QUANTITY IS $2,847.00 LESS 1/4 OF 1 PERCENT DISCOUNT. EACH OF THESE ACTIONS PURSUANT TO THE OPTION CLAUSE WAS EFFECTED ON THE BASIS OF A DETERMINATION BY THE CONTRACTING OFFICER IN COMPLIANCE WITH ASPR 1-1505 THAT THE OPTION MAY BE EXERCISED IN ACCORDANCE WITH THE PRINCIPLES SET FORTH THEREIN. THESE INCREASES IN QUANTITIES RESULTED IN A TOTAL CONTRACT INCREASE OF $342,125.00 LESS 1/4 OF 1 PERCENT DISCOUNT.

"I. MODIFICATIONS NOS. 3 AND 12 REVISED THE CONTRACT DELIVERY SCHEDULE SO THAT THE CONTRACT CURRENTLY CALLS FOR DELIVERIES OF PRODUCTION UNITS COMMENCING WITH 50 UNITS BY 28 APRIL 1965 AND PREPRODUCTION TESTING TO BE COMMENCED BY 24 AUGUST 1964. THESE MODIFICATIONS REFLECT DELIVERY ADJUSTMENTS TO COMPENSATE FOR DELAYS IN PERFORMANCE, BOTH EXCUSABLE AND UNEXCUSABLE UNDER THE DEFAULT ARTICLE OF THE CONTRACT, AND WERE IN PART IN CONSIDERATION OF CONTRACT PRICE REDUCTIONS OF $1,835.00 FOR MODIFICATION NO. 3 AND $1,800.00 FOR MODIFICATION NO. 12 (EXHIBITS "C" AND "F")

"J. THE PREPRODUCTION TEST WAS COMMENCED ON 3 SEP 1964 AND WAS SUBSTANTIALLY COMPLETED, SATISFACTORILY, IN JANUARY 1965. THE CONTRACTOR WAS INFORMALLY ADVISED OF ITS ACCEPTANCE AT THAT TIME SUBJECT TO SOME MINOR CHANGES, INCLUDING CERTAIN GOVERNMENT ORDERED CHANGES RELATING TO THE RADIO INTERFERENCE CHARACTERISTICS OF THE GOVERNMENT FURNISHED ENGINES. ACCORDINGLY, THE FORMAL NOTIFICATION TO THE CONTRACTOR OF ACCEPTANCE WAS DEFERRED UNTIL 18 MAY 1965.

"K. THE CONTRACTOR HAD 50 UNITS READY FOR DELIVERY IN APRIL 1965 BUT DELIVERY WAS DELAYED BECAUSE OF GOVERNMENT ORDERED PACKING CHANGES. IT IS ANTICIPATED THESE UNITS WILL BE SHIPPED WITHIN THE NEXT FEW DAYS AND THAT THE BALANCE OF THE DELIVERY SCHEDULE WILL BE MET, SUBJECT TO POSSIBLE ADJUSTMENT FOR DELAY INCIDENT TO GOVERNMENT ORDERED CHANGES.'

IN REGARD TO YOUR STATEMENT THAT YOUR FIRM "IS CURRENTLY PRODUCING THIS SAME UNIT FOR THE AIR FORCE FOR CONSIDERABLY LESS MONEY," THE CONTRACTING OFFICER STATES IN HIS REPORT THAT SUCH STATEMENT APPEARS TO BE INCORRECT AND THEREFORE MISLEADING. IT APPEARS THAT THE CONTRACT TO WHICH YOU REFER IS AIR FORCE CONTRACT NO. AF 41/608) 34576. IN THAT CONNECTION, THE CONTRACTING OFFICER STATES THAT ALTHOUGH THE SAME BASIC SPECIFICATION IS APPLICABLE TO THAT CONTRACT AS IS PRESCRIBED FOR THE PROCUREMENT IN QUESTION, THE AIR FORCE CONTRACT CALLS FOR A SKID MOUNTEDUNIT WHILE THE SUBJECT CONTRACT WITH SPEN REQUIRES THE UNITS TO BE TRAILER MOUNTED. ALSO IS REPORTED THAT THE CONTRACT WITH SPEN PROVIDES FOR A GOVERNMENT FURNISHED ENGINE FOR EACH UNIT WHEREAS THE CONTRACT WITH YOUR FIRM REQUIRES THE CONTRACTOR TO FURNISH THE ENGINE. FOR THE PURPOSE OF MAKING A ROUGH COMPARISON OF THE RELATIVE PRICES UNDER THE CONTRACT WITH YOUR FIRM AND THE CONTRACT WITH SPEN, THE CONTRACTING OFFICER PREPARED THE FOLLOWING COST ESTIMATE:

CHART.

"AF CONTRACT NO. 41/608) 34576 WITH GRAY

LUBE UNIT SKID MOUNTED - $2,978.50

TRAILER - 1,645.00

4,623.50

LESS ENGINE - 108.00

$4,515.50

SPEN CONTRACT NO. DA-11-184-AMC-425 (T)

LUBE UNIT, TRAILER MOUNTED, - $3,670.00

WITH GOVERNMENT FURNISHED ENGINE"

WITH RESPECT TO THE EXERCISE OF THE OPTION TO INCREASE THE CONTRACT QUANTITIES PRIOR TO SPEN'S SUCCESSFUL PREPRODUCTION MODEL TESTING, THE CONTRACTING OFFICER STATES IN HIS REPORT AS FOLLOWS:

"B. WITH RESPECT TO THE COMPLAINT BY GRAY THAT ADDITIONAL UNITS HAVE BEEN ADDED TO THE SPEN CONTRACT WITHOUT GIVING GRAY A CHANCE TO BID AND PRIOR TO SUCCESSFUL COMPLETION OF PRE-PRODUCTION MODEL TESTING, THE FOLLOWING COMMENTS ARE OFFERED:

"/1) AS NOTED ABOVE, THE THREE QUANTITY INCREASES PURSUANT TO THE OPTION CLAUSE WERE FOR 53, 3, AND 38 UNITS RESPECTIVELY. EACH OF THESE TRANSACTIONS, WHICH WERE SEPARATED IN POINT OF TIME BY SIX AND THREE MONTH INTERVALS, WAS CONSIDERED AND EVALUATED INDEPENDENTLY OF EACH OTHER, NECESSARILY. THE QUANTITIES INVOLVED, WHEN CONSIDERED TOGETHER WITH THE PROCUREMENT HISTORY OF THE ITEM, THE NECESSITY FOR A CONTRACTOR TO AMORTIZE NON-RECURRING COSTS SUCH AS PRE-PRODUCTION TESTING, PROVISIONING TESTS AND TECHNICAL PUBLICATIONS OVER RELATIVELY FEW UNITS, LED THE UNDERSIGNED TO THE CONCLUSION, IN EACH INSTANCE, BASED UPON A COMBINATION OF THE FACTORS OUTLINED IN ASPR 1-1505 (D) (2), (3) AND (4), THAT THE EXERCISE OF THE OPTION WAS "MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED.'

"IN THIS CONNECTION, NOT ONLY WAS THE COMPETITIVE PRICING DATA DERIVED FROM THE INSTANT PROCUREMENT TAKEN INTO CONSIDERATION, BUT ALSO NOTICE WAS TAKEN OF THE LAST PREVIOUS PROCUREMENT FOR THE SAME ITEM IN JUNE 1963. THAT AWARD, CONTRACT NO. DA-11-184-AMC-221/T), (PURCHASE ORDER NO. 88-CF- 50389-CH) WAS MADE TO THE GRAY COMPANY FOR 85 OF THE TRAILER MOUNTED LUBRICATORS AT A UNIT PRICE OF $4,833.44 EACH. THIS QUANTITY OF 85 EACH WAS SUBSTANTIALLY LARGER THAN ANY OF THE OPTION QUANTITIES HERE INVOLVED AND THE PRICE WAS GREATLY HIGHER THAN THE SPEN CONTRACT PRICE. ALTHOUGH IT WAS NOTED THAT GRAY, UNDER THE SUBJECT SOLICITATION FOR THE VERY LARGE QUANTITY HAD SIGNIFICANTLY REDUCED ITS PRICE BELOW THAT OF THE PREVIOUS PROCUREMENT, EVEN ITS PRICE FOR 520 UNITS WAS APPROXIMATELY 12 1/2 PERCENT HIGHER THAN THE SPEN PRICE. THE CONTRACTOR SELECTION BOARD OF THIS OFFICE AGREED WITH THE DECISION TO UTILIZE THE OPTION PROVISION IN EACH INSTANCE.'

THE INCLUSION OF OPTION CLAUSES IS SANCTIONED BY THE ARMED SERVICES PROCUREMENT REGULATION (ASPR). PARAGRAPH 1-1505, ASPR, PROVIDES THAT OPTIONS SHOULD BE EXERCISED ONLY IF IT IS DETERMINED TO BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED. THAT PARAGRAPH ALSO STATES THAT A NEW FORMAL ADVERTISEMENT REQUEST FOR PROPOSALS SHOULD NOT BE USED TO TEST THE MARKET IF THE CONTRACTING OFFICER ANTICIPATES THAT THE OPTION PRICE WILL BE THE BEST PRICE AVAILABLE. THE RECORD SHOWS THAT ALL OF THE 94 ADDITIONAL UNITS PROCURED UNDER THE OPTION CLAUSE WERE PROCURED AT A PRICE BELOW SPEN'S ORIGINAL BID PRICE. ALSO, IT IS REPORTED THAT MODIFICATION NO. 11, COVERING 38 ADDITIONAL UNITS, WAS EXECUTED AFTER IT WAS KNOWN BY THE CONTRACTING OFFICE THAT SPEN'S PREPRODUCTION UNIT WAS DEEMED ACCEPTABLE UNDER THE CONTRACT TERMS. SINCE THE RECORD INDICATES THAT IN DETERMINING WHETHER THE OPTION SHOULD BE EXERCISED, THE CONTRACTING OFFICER CONFORMED TO THE ASPR PROVISIONS RELATING THERETO, WE FIND NO LEGAL BASIS FOR OBJECTING TO THE ACTION TAKEN BY THE CONTRACTING OFFICER IN THIS CASE.

THE PROVISIONS OF PARAGRAPH 8-602.3 OF THE ARMED SERVICES PROCUREMENT REGULATION PROVIDE THAT THE CONTRACTING OFFICER IN MAKING A DETERMINATION WHETHER TO TERMINATE A CONTRACT FOR DEFAULT SHALL CONSIDER, AMONG OTHER FACTORS, THE AVAILABILITY OF THE SUPPLIES OR SERVICES FROM OTHER SOURCES; THE SPECIFIC FAILURE OF THE CONTRACTOR AND, UNLESS TIME DOES NOT PERMIT, THE EXCUSES, IF ANY, FOR SUCH FAILURE; THE URGENCY OF THE NEED FOR THE SUPPLIES OR SERVICES AND THE PERIOD OF TIME WHICH WOULD BE REQUIRED TO OBTAIN THE SUPPLIES OR SERVICES FROM OTHER SOURCES AS COMPARED WITH THE TIME IN WHICH DELIVERY COULD BE OBTAINED FROM THE DELINQUENT CONTRACTOR; AND ANY OTHER PERTINENT FACTS AND CIRCUMSTANCES. SEE ALSO PARAGRAPH 8- 602.4 ASPR WHICH PROVIDES THAT THE CONTRACTING OFFICER MAY PERMIT THE CONTRACTOR TO CONTINUE PERFORMANCE OF THE CONTRACT UNDER A REVISED DELIVERY SCHEDULE IN LIEU OF TERMINATION FOR DEFAULT WHEN IT IS IN THE BEST INTEREST OF THE GOVERNMENT TO DO SO.

IT IS READILY APPARENT UNDER THESE PROVISIONS OF THE ARMED SERVICES PROCUREMENT REGULATION THAT THE CONTRACTING OFFICER IS GIVEN A DEGREE OF DISCRETION IN DETERMINING WHEN TO TERMINATE A CONTRACT. AND EVEN WHERE SUFFICIENT GROUNDS EXIST FOR TERMINATION, PARAGRAPH 8-602.4 ASPR PERMITS THE CONTRACTING OFFICER TO ALLOW CONTINUED PERFORMANCE OF A CONTRACT, IN LIEU OF TERMINATION WHEN THE BEST INTEREST OF THE GOVERNMENT DICTATES SUCH A COURSE. IN ANY EVENT, THE DEPARTMENT OF THE ARMY REPORTS THAT NO BASIS EXISTS AT THE PRESENT TIME FOR TERMINATION FOR DEFAULT AND THIS OFFICE WOULD NOT BE JUSTIFIED, ON BASIS OF THE RECORD BEFORE US, IN QUESTIONING THE CONTRACTING OFFICER'S ACTION IN REVISING THE DELIVERY SCHEDULE AND PERMITTING CONTINUED PERFORMANCE UNDER THE CONTRACT. IN THAT CONNECTION, IT IS REPORTED THAT THE CONTRACT PRICE FOR THE UNITS HAS BEEN REDUCED BY $1,835 AND $1,800 TO COMPENSATE FOR THE GRANTING OF TWO CONTRACT EXTENSIONS.

UNDER THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT NO FURTHER ACTION BY OUR OFFICE NEED BE TAKEN IN THE MATTER.