B-157145, MAY 3, 1966

B-157145, MAY 3, 1966

TO GINSBURG AND FELDMAN:

WE REFER TO YOUR LETTER OF JULY 2, 1965, AND SUBSEQUENT CORRESPONDENCE, PROTESTING ON BEHALF OF YOUR CLIENTS, DEHUMBER HANDELMAATSCHAPPIJ OF AMSTERDAM, HOLLAND (HEREAFTER DEHUMBER), AND CENTRAL WEST INTERNATIONAL CORPORATION (HEREAFTER CENTRAL WEST), OF NEW YORK, NEW YORK, AGAINST THE AWARD OF A CONTRACT BY THE DEPARTMENT OF THE ARMY TO SCHEEPVAART EN STEENKOLEN MAATSCHAPPIJ N.V., ROTTERDAM, HOLLAND, (HEREAFTER SHIPPING AND COAL) ON JUNE 4, 1965, FOR SOLID FUEL REQUIREMENTS IN SUPPORT OF UNITED STATES ARMED FORCES IN EUROPE UNDER REQUEST FOR PROPOSALS NO. X34-0772 DATED MARCH 5, 1965, AND ISSUED BY THE U.S. ARMY PROCUREMENT CENTER, FRANKFURT, GERMANY.

IN ORDER THAT THE VARIOUS ISSUES RAISED BY YOUR PROTEST MAY BE MORE EASILY UNDERSTOOD, WE FEEL THAT CERTAIN BACKGROUND INFORMATION CONCERNING SOLID FUEL PROCUREMENTS BY THE ARMY FOR OVERSEAS USE WILL PROVE HELPFUL.

IT APPEARS THAT PRIOR TO NOVEMBER 1960, THE SOLID FUEL REQUIREMENTS IN SUPPORT OF UNITED STATES ARMED FORCES IN EUROPE WERE MET BY PROCUREMENT OF EUROPEAN COAL AND COKE. HOWEVER, IN RESPONSE TO PRESIDENTIAL DIRECTIVE OF NOVEMBER 1960, ON BALANCE OF PAYMENTS THE ARMY REQUIRED THAT THE SOLID FUEL REQUIREMENTS IN GERMANY FOR FISCAL YEAR 1962 BE OBTAINED FROM UNITED STATES SOURCES. IT IS REPORTED BY THE ARMY THAT APPROXIMATELY 77 PERCENT OF THE REQUIREMENTS AT THAT TIME WERE FOR COKE, THE REMAINDER BEING FOR BITUMINOUS COAL. IT IS FURTHER REPORTED THAT REPRESENTATIVES OF THE U.S. ANTHRACITE INDUSTRY, IN CONJUNCTION WITH THE PENNSYLVANIA CONGRESSIONAL DELEGATION, REQUESTED THAT THE MILITARY SERVICES ACCEPT ANTHRACITE AS A SUBSTITUTE FOR EUROPEAN COKE, WHICH IS THE FUEL FOR WHICH MOST OF THE EUROPEAN FURNACES WERE DESIGNED. THE ARMY'S REPORT, DATED SEPTEMBER 17, 1965, CONTINUES AS FOLLOWS:

"* * * THE (ANTHRACITE) INDUSTRY OFFERED THE SERVICES OF A CONSULTANT TO ASSIST THE ARMY IN TESTING ANTHRACITE IN THE HEATING BOILERS IN GERMANY AS A SUBSTITUTE FOR COKE. THESE TESTS, CONDUCTED IN JUNE 1961, WERE FINANCED BY THE ANTHRACITE INSTITUTE, A QUASI-STATE GOVERNMENT ORGANIZATION. THE TESTS WERE MADE IN CONJUNCTION WITH PERSONNEL OF THE ARMY AND OBSERVED AT THE REQUEST OF THE ARMY BY A REPRESENTATIVE OF THE U.S. BUREAU OF MINES, DEPARTMENT OF THE INTERIOR. THE CONCLUSIONS OF THE CONSULTANT INDICATED THAT ANTHRACITE COAL COULD FURNISH AN ACCEPTABLE LEVEL OF OPERATION AND MEET HEATING REQUIREMENTS PROVIDED THE COAL MET MINIMUM SPECIFICATIONS DEVELOPED AS A RESULT OF THE TESTS. THE REPORT OF THE CONSULTANT WAS ACCEPTED BY THE ARMY AND THE ANTHRACITE INDUSTRY REPRESENTATIVES. THESE SPECIFICATIONS WERE USED FOR THE FY62 PROCUREMENT AND EACH SUCCEEDING YEAR'S REQUIREMENTS. TO ACCOMMODATE THE NEED TO GUARANTEE THE DELIVERY OF U.S. ORIGIN COAL TO GERMAN DESTINATIONS IT WAS NECESSARY TO DEVISE A SEPARATE PROCUREMENT PROCEDURE. COAL WAS THE END PRODUCT OF THIS PROCEDURE, BUT OF EQUAL IMPORTANCE WAS THE NECESSITY TO ASSURE THAT THE OCEAN TRANSPORTATION WOULD BE ON AMERICAN SHIPS, AND THAT EUROPEAN INLAND TRANSPORTATION WOULD BE REIMBURSED TO THE MAXIMUM EXTENT WITHOUT DIRECT PAYMENT OF U.S. DOLLARS (VIZ., BARTER ARRANGEMENTS). ADDITIONALLY, A PORTION OF ANY PROCUREMENT WOULD INVOLVE A CHARGE FOR VESSEL OFF-LOAD AT EUROPEAN PORTS, COAL PROCESSING AND STORAGE AT EUROPEAN OFF-LOAD LOCATIONS, AND SUBSEQUENT LOADING INTO EUROPEAN INLAND TRANSPORTATION CONVEYANCES (I.E., BARGE AND/OR RAIL CAR). THEREFORE, THE PROCEDURE WAS DEVELOPED WHEREBY EUROPEAN COAL IMPORTERS ARE REQUIRED BY THE SOLICITATION (AS PRIME SUPPLIERS) TO SUBMIT OFFERS FOR THE DELIVERY OF U.S. ORIGIN COAL TO SPECIFIED U.S. ARMED FORCES COAL POINTS IN GERMANY.

"IN VIEW OF THE LIMITED SOURCES FOR ANTHRACITE AND THE LARGE ARMY REQUIREMENT, EUROPEAN COAL IMPORTERS (THROUGH AMERICAN COAL EXPORTERS) SURVEY POTENTIAL SUPPLIERS CONSIDERABLY IN ADVANCE OF RECEIPT OF SOLICITATIONS, AND MAKE RELATIVELY FIRM ARRANGEMENTS WITH THESE SUPPLIERS IN ORDER TO BE ABLE TO MAKE FIRM OFFERS WHEN THE SOLICITATIONS ARE ISSUED. THUS, AFTER SUPPLIERS ARE IDENTIFIED AND COMMITMENTS ARE RECEIVED, THE GREATEST POSSIBLE SEGMENT OF THE INDUSTRY HAS PARTICIPATED IN THE ANTHRACITE PROCUREMENT PROGRAM.'

THE SUBJECT PROCUREMENT WAS INITIATED ON MARCH 5, 1965, BY THE ISSUANCE OF REQUEST FOR PROPOSALS (RFP) NO. X34-0772 TO 41 EUROPEAN IMPORTERS. THE RFP, AS AMENDED, INCLUDED REQUIREMENTS FOR 983,006 METRICTONS OF ANTHRACITE (OR COKE), 127,003 METRIC TONS OF BITUMINOUS, 33,742 METRIC TONS OF STEAM COAL, AND 141,592 METRIC TONS LONGFLAME COAL, FOR DELIVERY TO 88 ARMY AND AIR FORCE DESTINATIONS IN GERMANY. OFFERS WERE REQUESTED IN 11 BLOCKS DESIGNATED AS A THROUGH K TO FACILITATE ECONOMIC HANDLING AND DISTRIBUTION BY GEOGRAPHICAL AREA, AND EFFICIENT SEGREGATION AND OFF- LOADING OF OCEAN LIFT. NINE OF THE BLOCKS (A THROUGH I) SPECIFIED ANTHRACITE AND/OR COKE, AT THE OFFERORS OPTION, AND THE REMAINING TWO BLOCKS (J AND K) SPECIFIED VARIOUS QUANTITIES OF BITUMINOUS, STEAM AND LONGFLAME COAL.

PRICE QUOTATIONS BY OFFERORS WERE TO BE ENTERED BY BLOCKS ON SCHEDULES DESIGNATED AS A, C, D AND E. AT THE END OF EACH BLOCK, THE SCHEDULES CALLED FOR THE FOLLOWING ENTRIES:

CHART

"BLOCK TOTAL $ ------------

LESS VOL. REBATE ------------

NET AMOUNT $ ------------ ALSO, AT THE BOTTOM OF EACH SCHEDULE SHEET APPEARED THE FOLLOWING STATEMENT:

"NET PRICE PER TON TO BE REDUCED BY $ ------ (TON AS VOLUME REBATE BY PURCHASE OF ------------ TONS MINIMUM (IF TO BE CONSIDERED * * *.'

PERTINENT PROVISIONS OF THE RFP WERE AS FOLLOWS:

"TERMS AND CONDITIONS OF REQUEST FOR PROPOSALS

"6. ACCEPTANCE - (A) THE GOVERNMENT MAY ACCEPT ANY ITEM OR GROUPS OF ITEMS OF ANY PROPOSAL UNLESS QUALIFIED BY SPECIFIC LIMITATION OF THE OFFEROR.

"/D) IT IS CONTEMPLATED THAT A CONTRACT WILL BE AWARDED TO THAT RESPONSIBLE OFFEROR WHOSE PROPOSAL WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED. THE RIGHT IS RESERVED TO ACCEPT OTHER THAN THE LOWEST PROPOSAL AND TO REJECT ANY OR ALL PROPOSALS.

"SP-4 AWARD

"A. AWARD WILL BE MADE TO THE RESPONSIVE RESPONSIBLE OFFEROR OF OFFERORS WHO WILL PROVIDE THE GOVERNMENT WITH THE FULE (SIC) LISTED IN THE SCHEDULE OF SHIPMENTS, OF SPECIFIED AVERAGE HEATING VALUE, AS SHOWN IN TABLE II OF SPECIFICATION, COLUMN ENTITLED "BTU PER POUND AVERAGE," DELIVERED TO THE DESTINATIONS SHOWN, AT THE LOWEST TOTAL COST, SUBJECT TO THE FOLLOWING CONDITIONS.

"B. AWARD WILL BE MADE BY BLOCKS AS SET FORTH IN COLUMN 1 OF THE CONTRACTOR'S PRICE QUOTATION. ANY PROPOSAL WHICH DOES NOT INCLUDE AN OFFER FOR ALL LINES OF A BLOCK SHALL BE CONSIDERED NONRESPONSIVE FOR SUCH BLOCK.

"C. FOR PURPOSES OF PROPOSAL EVALUATION, AND ANY PRICE ADJUSTMENTS WHICH MAY BE MADE DURING THE LIFE OF ANY RESULTING CONTRACTS, THE COST OF GOVERNMENT-FURNISHED OCEAN TRANSPORTATION FOR SHIPMENT FROM ATLANTIC COAST SHALL BE $8.00 PER METRIC TON FOR COAL OF ALL TYPES AND $12.00 PER METRIC TON FOR COKE. THE COSTS OF OCEAN TRANSPORTATION INCLUDE THE ESTIMATED VALUE OF THE COST OF DESTINATION HANDLING BY THE GOVERNMENT.

"D. IN ANY EVALUATION, SHOULD EXTRA CHARGES AS A RESULT OF BARGE SHIPMENT FORM A PART OF THE PRICE TO BE PAID, SUCH EXTRA CHARGES WILL BE ADDED TO THE UNIT PRICES UTILIZED FOR THE EVALUATION.

"SP-33 EXPLANATION OF SCHEDULE OF SHIPMENTS AND INSTRUCTIONS FOR PREPARING CONTRACTOR'S PRICE PROPOSAL

"B. THE CONTRACTOR'S PRICE PROPOSAL CONSTITUTES A FIRM PROPOSAL WHICH MAY BE ACCEPTED BY THE GOVERNMENT WITHOUT FURTHER NEGOTIATION. THE GOVERNMENT MAY, SUBJECT TO ANY LIMITATIONS PLACED HEREIN BY THE CONTRACTOR, ACCEPT ALL, OR ANY PART OF ANY CONTRACTORS' PROPOSAL, EXCEPT THAT NO BLOCK WILL BE SPLIT BETWEEN MORE THAN ONE CONTRACTOR. CONTRACTORS' PROPOSALS WHICH DO NOT PROVIDE FOR THE ENTIRE REQUIREMENTS OF A BLOCK SHALL BE CONSIDERED UNRESPONSIVE FOR THE BLOCK, AND PRICE PROPOSALS FOR EACH BLOCK OF SCHEDULE "A" SHALL BE BASED ENTIRELY ON EITHER ANTHRACITE COAL OR COKE.

"D. BOTTOM OF PAGE: SHOW VOLUME DISCOUNT, NUMBER OF TONS ON WHICH VOLUME DISCOUNT BECOMES OPERABLE AND THE BASIC PRICE OF FUEL FOB OCEAN VESSEL.'

IN A REPORT TO OUR OFFICE DATED OCTOBER 27, 1965, THE CONTRACTING OFFICER DESCRIBES THE EVENTS WHICH TRANSPIRED AFTER ISSUANCE OF THE RFP AS FOLLOWS:

"THE FY 1966 SOLID FUEL SOLICITATION WAS ISSUED ON 5 MARCH. ON 1 APRIL 1965, REPRESENTATIVES OF INDEPENDENT MINERS ASSOCIATION, CENTRAL WEST INTERNATIONAL CORP., DE HUMBER AND DEUTSCH-NIEDERLAENDISCHE VISITED THE PROCUREMENT CENTER FRANKFURT. THE US MEMBERS OF THIS GROUP EXPRESSED CONCERN THAT THEIR COMPETITOR, FORESTON CO., WOULD OFFER COAL AT DUMPING PRICES TO ELIMINATE COMPETITION FOR THE USAREUR ANTHRACITE REQUIREMENT. LOOKING FORWARD TO THIS HAPPENING, THE VISITING GROUP SOUGHT INFORMATION ON HOW AN AWARD COULD BE SECURED IF THEY WERE NOT LOW. THEY WERE ADVISED TO SET FORTH THE LOWEST PRICE THEY COULD OFFER AND THAT AWARD WOULD BE MADE TO THE LOWEST RESPONSIVE AND RESPONSIBLE OFFEROR.

"OFFERS WERE RECEIVED UNTIL 12 APRIL, AND WERE OPENED ON 13 APRIL. NINE OFFERS WERE RECEIVED. THREE SUPPLIERS OFFERED ONLY ANTHRACITE, ONE OFFERED ONLY BITUMINOUS, FOUR OFFERED ANTHRACITE AND BITUMINOUS. ONE OFFER WAS NONRESPONSIVE.

"TWO OF THE SUPPLIERS OFFERED THE ENTIRE QUANTITY OF ANTHRACITE, A THIRD OFFERED HALF OF THE REQUIREMENT. PRICES WERE BELOW THOSE OF PREVIOUS YEARS. THIS CONFIRMED THE BELIEF THAT THE MILD WINTER IN 1964-1965 AND THE DIMINISHING DEMAND FOR FUEL WOULD INCREASE AVAILABILITY AND MAKE PRICES MORE COMPETITIVE.

"AS NO ONE SUPPLIER COULD OFFER THE TOTAL QUANTITY OF ANTHRACITE REQUIRED IN FY 1965, SHIPCO AND DE HUMBER WERE AWARDED CONTRACTS. IN FY 1966, SHIPCO (OFFERING ALL 9 BLOCKS) AND DE HUMBER (OFFERING 5 BLOCKS) WERE COMPETITIVE ON INITIAL OFFERS FOR ANTHRACITE. SHIPCO WAS LOW BY APPROXIMATELY ?08 METRIC TON ON FOUR OF FIVE BLOCKS OF ANTHRACITE OFFERED BY DE HUMBER. DE HUMBER WAS LOW BY APPROXIMATELY ?03 ON THE REMAINING BLOCK. BOTH FIRMS INCLUDED QUANTITY REBATES IN THEIR OFFER.

"NEGOTIATIONS WERE CONDUCTED WITH EACH OF THE RESPONSIVE OFFERORS. MINOR CHANGES IN QUANTITY WERE INCORPORATED IN THE REQUIREMENT DURING NEGOTIATIONS AND NEW SCHEDULE FORMS CONTAINING MINOR CHANGES IN QUANTITY WERE ISSUED TO OFFEROR FOR USE IN PREPARING FINAL OFFERS. ALL SUPPLIERS WERE ADVISED THAT THEIR REVISED OFFERS DUE ON 17 MAY WOULD BE FINAL. DELAY OF AWARD BY FURTHER NEGOTIATION WOULD RESULT IN PAYMENT OF HIGHER SEASONAL RATES ON INLAND SHIPPING.

"FINAL OFFERS WERE RECEIVED ON 17 MAY 1965. DE HUMBER ATTEMPTED TO MODIFY THEIR FINAL OFFER BY TELEPHONIC REQUEST ON 18 MAY 1965. THE REQUEST WAS DENIED DURING THE CONVERSATION.

"THE CONTRACT WAS AWARDED TO THE FIRM SHIPPING AND COAL, ROTTERDAM, HOLLAND, FOR THE ENTIRE FY 1966 USAREUR AND USAFE REQUIREMENT. AWARD WAS BASED ON THE LOWEST RESPONSIVE AND RESPONSIBLE OFFER FOR ALL BLOCKS OF ANTHRACITE. THE FIRM LEIDEL WAS LOW ON BLOCK J OF BITUMINOUS BEFORE APPLICATION OF A ?10 PER TON "ALL OR NONE" REBATE. BY APPLYING THIS VOLUME REBATE, THE FIRM SHIPPING AND COAL WAS THE LOWEST RESPONSIVE AND RESPONSIBLE OFFEROR. AWARD OF BLOCK J TO THE FIRM SHIPPING AND COAL WAS IN ACCORDANCE WITH PARA 6D OF THE TERMS AND CONDITIONS ON THE REVERSE SIDE OF THE REQUEST FOR PROPOSAL (DD FORM 746 AE).

"AFTER NEGOTIATIONS THE FINAL OFFER FROM SHIPCO FOR 558,761 METRIC TONS OF ANTHRACITE, ALSO OFFERED BY DE HUMBER, WAS LOW BY $538,467.00. ADDITIONAL LOSS IN REBATE ON ANTHRACITE TONNAGE NOT OFFERED BY DE HUMBER WOULD HAVE AMOUNTED TO $369,093.15 IF THE ENTIRE AWARD HAD NOT BEEN MADE TO SHIPCO. THIS AWARD SAVED THE GOVERNMENT $976,888.80 FOR BOTH THE ANTHRACITE AND BITUMINOUS REQUIREMENTS.'

IN SUPPORT OF ITS PROTEST DEHUMBER BY LETTER TO OUR OFFICE DATED JULY 2, 1965, STATES THAT IT SUBMITTED A PROPOSAL ON FIVE OF THE NINE BLOCKS OF ANTHRACITE COAL TOTALING APPROXIMATELY 550,000 TONS. DEHUMBER'S PROPOSAL INDICATED CENTRAL WEST AS ITS SUBCONTRACTOR-U.S. EXPORTER, AND 42 INDEPENDENT COAL MINES AND BREAKERS AS THE SUB SUBCONTRACTOR COAL SOURCES, ALL LOCATED IN THE ANTHRACITE REGIONS OF PENNSYLVANIA. DEHUMBER STATES THAT 41 OF THESE 42 MINES ARE SMALL BUSINESS CONCERNS AND THAT ALL 42 JOIN DEHUMBER AND CENTRAL WEST IN THE PROTEST.

DEHUMBER FURTHER STATES THAT SHIPPING AND COAL IN ITS PROPOSAL INDICATED AS ITS SUBCONTRACTOR--- U.S. EXPORTER THE ANTHRACITE COAL EXPORT ASSOCIATION OR FORESTON COAL COMPANY AND MINES OWNED OR CONTROLLED BY THE FIVE LARGEST ANTHRACITE MINING COMPANIES IN THE UNITED STATES, PLUS POSSIBLY FORESTON COAL AS THE SUB-SUBCONTRACTOR FOR ANTHRACITE COAL SOURCES. THESE FIVE MINING COMPANIES ARE IDENTIFIED BY DEHUMBER AS: GLEN ALDEN, READING COAL, LEHIGH VALLEY COAL, SUSQUEHANNA COAL AND LEHIGH NAVIGATION COAL. DEHUMBER STATES THAT ALL FIVE COMPANIES ARE LARGE BUSINESS CONCERNS AND THAT THE FIVE COMPANIES DOMINATE AND CONTROL THE ANTHRACITE EXPORT ASSOCIATION. DEHUMBER'S LETTER SETS FORTH 10 SPECIFIC GROUNDS FOR ITS PROTEST. A NUMBER OF THESE GROUNDS ARE INTERRELATED AND MAY BE GROUPED INTO FIVE CATEGORIES AND SUMMARIZED AS FOLLOWS:

FIRST, DEHUMBER CONTENDS THAT THE CONDITIONS OF THE RFP WERE VAGUE AND AMBIGUOUS, INSTEAD OF BEING CLEARLY DESCRIBED IN A MANNER TO ENCOURAGE MAXIMUM COMPETITION AS REQUIRED BY PARAGRAPH 1-1201 (A) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR). DEHUMBER CONTENDS THAT THE STATEMENT APPEARING AT THE BOTTOM OF EACH SCHEDULE SHEET (VIZ.'NET PRICE PER TON TO BE REDUCED BY $ -------- ( TON AS VOLUME REBATE BY PURCHASE OF -------- TONS MINIMUM (IF TO BE CONSIDERED)") RAISED MANY QUESTIONS PREVENTING INFORMED AND INTELLIGENT BIDDING. FOR EXAMPLE, WOULD OR WOULD NOT THE ARMY CONSIDER VOLUME REBATES IN EVALUATING PRICE PROPOSALS? WOULD SUCH REBATES BE CONSIDERED ONLY ON THE BASIS OF THE ENTIRE CONTRACT QUANTITY OF BOTH TYPES OF COAL, SEPARATELY ON EACH OF TWO TYPES OF COAL, ON THE BASIS OF BLOCK QUANTITIES? IT IS ALLEGED THAT THE MANNER IN WHICH THIS PROCUREMENT WAS CONDUCTED NEVER AFFORDED ALL BIDDERS THE ANSWERS TO THESE QUESTIONS, WITHOUT WHICH INTELLIGENT BIDDING AND MAXIMUM COMPETITION COULD NOT EXIST.

DEHUMBER NOTES THAT THE RFP INDICATED DIFFERENT BLOCKS OF ANTHRACITE OF VARYING QUANTITIES FOR DIFFERENT DELIVERY POINTS--- EACH A SEPARATE BID. THEREFORE, DEHUMBER CONTENDS, IF THE AWARD TO SHIPPING AND COAL WAS MADE ON ANY OTHER BASIS THAN AN EVALUATION OF PROPOSALS ON A BLOCK BY BLOCK BASIS THE AWARD IS IMPROPER. FURTHER, IF THE BASIS OF EVALUATION WAS THE ENTIRE 981,000-TON CONTRACT QUANTITY OF ANTHRACITE IT WOULD VIOLATE PARAGRAPH 1-1201 (A) ASPR SINCE THIS WOULD EFFECTIVELY DESTROY ALL COMPETITION. THIS IS TRUE, IT IS ALLEGED, BECAUSE NO AMERICAN MINE OR GROUPS OF AMERICAN MINES OTHER THAN THE "BIG 5" COULD SUPPLY THE 981,000- TON CONTRACT ANTHRACITE QUANTITY. FURTHERMORE, IF THE AWARD WAS BASED ON QUANTITY REBATES APPLICABLE TO ONE OR MORE BLOCKS BECAUSE OF THE QUANTITY TO BE PURCHASED ON ANY OTHER BLOCK OR BLOCKS IT WOULD BE IMPROPER SINCE SUCH PRACTICE WOULD CRIPPLE BIDDING BY ALL SMALL CONCERNS AND ALL BIDDERS OTHER THAN THE BIG 5. DEHUMBER FURTHER ASSERTS THAT A QUANTITY DISCOUNT PRACTICE WHICH WOULD ALLOW BITUMINOUS BLOCK QUANTITIES TO AFFECT ANTHRACITE BLOCK PROPOSALS WOULD ALSO BE IMPROPER SINCE THEY ARE SEPARATE AND DIFFERENT INDUSTRIES AND PRODUCTS. DEHUMBER STATES THAT IT IS IMPORTANT TO NOTE IN THIS CONNECTION THAT THE BIG 5 HAVE COMBINED NOT ONLY IN THIS YEAR'S PROCUREMENT BUT IN ALL FIVE PRIOR ANNUAL PROCUREMENTS AND HAVE BEEN SUCCESSFUL 100 PERCENT IN ALL OF THEM, HAVING BEEN AWARDED THE ENTIRE CONTRACT QUANTITY IN FOUR YEARS, AND 100 PERCENT OF THE BLOCKS BID UPON (ABOUT 80 PERCENT OF THE CONTRACT) IN THE FIFTH YEAR, WHICH WAS 1964- 1965.

SECOND, IT IS ASSERTED THAT THE AWARD TO SHIPPING AND COAL VIOLATED THE UNITED STATES ANTITRUST AND RESTRAINT OF TRADE LAWS AND THAT THE COMBINATION OF THE FIVE LARGEST ANTHRACITE MINING COMPANIES IN THIS AND PAST PROCUREMENTS CONSTITUTES A MONOPOLY AND RESTRAIN OF TRADE. DEHUMBER STATES THAT THE LARGER SIZES OF ANTHRACITE SPECIFIED FOR THIS 981,000-TON PROCUREMENT REPRESENTS APPROXIMATELY 25 PERCENT OF THE TOTAL U.S. ANNUAL MINED PRODUCTION OF ALL ANTHRACITE AND, BECAUSE OF THE HIGHER MARKET PRICES FOR THE LARGER SIZES, ABOUT 50 PERCENT OF THE ANNUAL MINED SALES- DOLLAR VOLUME OF ANTHRACITE OF ALL SIZES. ALSO, THE 981,000-TON QUANTITY REPRESENTS APPROXIMATELY 40 PERCENT OF THE U.S. ANNUAL MINED PRODUCTION OF THE LARGER ANTHRACITE SIZES. THUS, IT IS ALLEGED, MANY OF THE 42 SMALL BUSINESS MINE AND BREAKER SUB SUBCONTRACTORS WOULD BE FORCED TO SHUT DOWN IN PART IF THEY DO NOT SHARE IN THIS PROCUREMENT.

IT IS CONTENDED THAT QUANTITY DISCOUNTS APPLICABLE TO ANTHRACITE IN THIS PROCUREMENT CONSTITUTE A DEVICE VIOLATIVE OF ANTITRUST, RESTRAINT OF TRADE, AND UNFAIR COMPETITION STATUTES. IN THIS CONNECTION, IT IS STATED THAT PROCUREMENT IN SUCH QUANTITIES DOES NOT RESULT IN PRODUCTION ECONOMIES BECAUSE SUCH QUANTITIES ARE ALREADY PRODUCED BY THE BIG 5 IN NORMAL PRODUCTION, AND THE LARGE SIZES SPECIFIED ARE AVAILABLE IN NORMAL SUPPLY CONDITIONS. DEHUMBER CONTENDS THAT WHERE, AS HERE, ONLY THE BIG 5 COMBINATION IS CAPABLE OF SUPPLYING THE ENTIRE PROCUREMENT QUANTITY THE USE OF QUANTITY DISCOUNTS, ESPECIALLY ON THE ENTIRE CONTRACT QUANTITY OR ON A BASIS WHERE THE QUANTITY ORDERED ON ONE BLOCK AFFECTS THE PRICE OF OTHER BLOCKS, CAN DESTROY OR MATERIALLY REDUCE COMPETITION RESULTING IN HIGHER PRICES TO THE GOVERNMENT.

DEHUMBER CITES PARAGRAPH 1.11.2 (SIC, 1-111.2) OF THE GENERAL PROVISIONS ASPR, AND REQUESTS THAT WE CONSULT WITH THE ATTORNEY GENERAL ON THIS PROCUREMENT. IT IS STATED THAT THE ANTITRUST DIVISION OF THE DEPARTMENT OF JUSTICE HAS PREVIOUSLY CONTACTED DEHUMBER, AND HAS BEEN INVESTIGATING THE BIG 5 FOR SOME TIME, INCLUDING THE BIG 5 PRACTICES IN THE SUBJECT PROCUREMENT AND ALSO THE PRIOR YEAR'S PROCUREMENT.

DEHUMBER ALSO SAYS THAT THE AWARD OF THE ENTIRE PROCUREMENT TONNAGE TO ONE CONTRACTOR MAY HAVE RESULTED IN HIGHER THAN MARKET PRICES FOR THE BITUMINOUS COAL OR FOR BLOCKS OF ANTHRACITE ON WHICH DEHUMBER DID NOT SUBMIT A QUOTATION. IF SUCH IS THE CASE, IT IS STATED, IT WOULD BE EVIDENCE IN SUPPORT OF DEHUMBER'S CONTENTION THAT THE RFP AND THE MANNER IN WHICH THE ARMY HANDLED THE PROCUREMENT DEFEATED MAXIMUM COMPETITION RATHER THAN ENCOURAGED IT AS REQUIRED BY PARAGRAPH 1-1201 (A) OF ASPR, AND IT WOULD ALSO BE EVIDENCE TENDING TO SHOW THAT THE PROCUREMENT WAS NOT GENUINELY COMPETITIVE AS REQUIRED BY ASPR 1 111.2. IN THIS CONNECTION, DEHUMBER ALLEGES THAT THE MINES OWNED AND CONTROLLED BY THE BIG 5 ARE INDICATED AS THE ANTHRACITE SOURCE IN PROPOSALS FOR DIFFERENT SEGMENTS OF BLOCKS BY DIFFERENT BIDDERS, AS WELL AS IN THE SUCCESSFUL PROPOSAL FOR THE ENTIRE PROCUREMENT QUANTITY. THIS, IT IS URGED, IS COLLUSIVE BIDDING AND AN IMPEDIMENT PREVENTING GENUINELY COMPETITIVE BIDDING.

IN THIS SAME GENERAL AREA DEHUMBER ASSERTS THAT THE AWARD OF 20 PERCENT OF THE PREVIOUS FISCAL YEAR PROCUREMENT TO IT, AND ITS BIDDING IN THIS FISCAL YEAR'S PROCUREMENT, HAS RESULTED IN THE FIRST LOWERING OF PRICES TO THE ARMY IN THE SIX-YEAR HISTORY OF THIS COAL PROCUREMENT. IT IS ALLEGED THAT THE ARMY PAID SUCCESSIVELY HIGHER PRICES IN THE FIRST FIVE YEARS. IS FURTHER NOTED THAT DEHUMBER WAS ABLE TO BID ON A GREATER QUANTITY IN THE SUBJECT PROCUREMENT THAN IN LAST YEAR'S PROCUREMENT. DEHUMBER APPARENTLY CONTENDS THAT THE ARMY'S PROCEDURES IN THIS PROCUREMENT VIOLATE THE PROVISIONS OF PARAGRAPH 3 101 (XVIII) OF ASPR WHICH, ACCORDING TO DEHUMBER REQUIRES BROADENING OF THE INDUSTRIAL BASE BY DEVELOPMENT OF ADDITIONAL SUPPLIERS.

THIRD, DEHUMBER STATES THAT PARAGRAPHS 1-702 AND 3-101 (X) OF ASPR SET FORTH THE POLICY OF THE DEPARTMENT OF DEFENSE TO PLACE A FAIR PROPORTION OF ITS TOTAL PROCUREMENT WITH SMALL BUSINESS CONCERNS, AND THEREFORE,"VIEWING THE LARGE PROPORTION OF ANNUAL U.S. MINED ANTHRACITE PRODUCTION AND THE STILL LARGER PROPORTION OF THE DOLLAR SALES VOLUME THEREOF REPRESENTED IN THIS CUREMENT," A PART OF THE QUANTITY SHOULD BE SUPPLIED BY THE SMALL BUSINESS MINES AND NOT ENTIRELY BY THE BIG 5 WHO ALREADY CONTROL SO GREAT A PART OF UNITED STATES PRODUCTION AND SALES VOLUME.

DEHUMBER ALSO RELIES ON PARAGRAPHS 1-800 AND 3-101 (XIII) OF ASPR WHICH SETS FORTH THE GOVERNMENT'S POLICY OF AIDING LABOR SURPLUS AREA CONCERNS INCLUDING SUBCONTRACTORS LOCATED IN SUCH AREAS (ASPR 1 805.2). SINCE THE 42 INDEPENDENT MINES ARE LOCATED IN SURPLUS LABOR AREAS AND EMPLOY MORE LABOR THAN THE BIG 5, IT IS STATED THAT AN AWARD OF A PORTION OF THE SUBJECT PROCUREMENT TO DEHUMBER WOULD HELP "MORE LABOR, A DEPRESSED AREA, A STRICKEN INDUSTRY, THE GOVERNMENT AND THE TAXPAYERS.'

FOURTH, DEHUMBER TAKES EXCEPTION TO THE MANNER IN WHICH NEGOTIATIONS WERE CONDUCTED WITH THE OFFERORS. ON THIS POINT DEHUMBER'S LETTER STATES:

"9. THIS WAS SUPPOSED TO HAVE BEEN A NEGOTIATED PROCUREMENT IN WHICH THE INTERPLAY OF NEGOTIATION SHOULD HAVE LED TO A FAIR AWARD AT A PRICE AND ON TERMS REASONABLY FAIR TO THE GOVERNMENT AND THE SUPPLIER.

"INSTEAD:

"A. PROPOSALS WERE SUBMITTED BY MAY 5, 1965;

"B. WITHOUT PUBLIC OPENING OR EXPLANATION OTHER THAN THAT NEXT DESCRIBED, THE CONTRACTING OFFICER ADVISED THAT ALL PROPOSALS HAD BEEN REJECTED;

"C. THE ONLY REASON GIVEN FOR REJECTION WAS, AT A MEETING BETWEEN US AND CONTRACTING OFFICER, MAY 10, 1965, WE WERE INFORMED THAT THE ARMY HAD DECIDED TO MAKE CHANGES IN THE QUANTITIES OF SOME BLOCKS, EVEN THOUGH THIS IS NORMALLY DONE BY CHANGE ORDERS DURING THE CONTRACT PERFORMANCE;

"D. THE NEW PROPOSALS WERE TO BE SUBMITTED BY MAY 17, 1965, AND WERE TO BE EVALUATED, AND THE CONTRACT AWARDED, WITHOUT NEGOTIATION;

"E. THE SECOND ROUND OF PROPOSALS WERE ALSO HANDLED WITHOUT PUBLIC OPENING. "ALTHOUGH TERMED A NEGOTIATED PROCUREMENT, IT WAS ACTUALLY CONDUCTED AS AN IFB AND SHOULD HAVE BEEN CONDUCTED PURSUANT TO ALL THE REQUIREMENTS GOVERNING PUBLIC BIDDING.'

FIFTH, IT IS CONTENDED THAT THE SPECIFICATIONS FOR THE COAL WERE RESTRICTIVE. DEHUMBER'S LETTER ON THIS POINT STATES:

"10. CERTAIN SPECIFICATIONS PRESCRIBED THE THE REQUEST FOR PROPOSAL TENDED TO RESTRICT COMPETITION. THE U.S. BUREAU OF MINES HAS ESTABLISHED STANDARD SPECIFICATIONS FOR AMERICAN ANTHRACITE WHICH ARE USED BY MOST NON -GOVERNMENT PURCHASERS AND ALL GOVERNMENT PROCUREMENT AGENCIES, INCLUDING U.S. ARMY INSTALLATIONS, WHO PURCHASE ANTHRACITE, EXCEPT THE U.S. ARMY PROCUREMENT CENTER, FRANKFURT, GERMANY. IN THIS PROCUREMENT A 2800-DEGREE F.T.A. (FUSION TEMPERATURE OF ASH) WAS SPECIFIED, ALTHOUGH NOT BY THE BUREAU OF MINES, AND A 9.75 PERCENT ASH RESIDUE MAXIMUM REQUIRED ALTHOUGH THE BUREAU OF MINES STANDARD PERMITS 11 PERCENT. NEITHER OF THESE, MORE RESTRICTIVE THAN THOSE OF THE U.S. BUREAU OF MINES, HAVE ANY REAL ADVANTAGE AS TO AMERICAN ANTHRACITE PERFORMANCE. THE BUREAU OF MINES STANDARDS ARE ACCEPTABLE TO PRACTICALLY EVERYONE OTHER THAN ARMY PROCUREMENT CENTER, FRANKFURT, GERMANY. THESE MORE RESTRICTIVE STANDARDS ARE THOSE PRESCRIBED BY A MANUAL OF THE ANTHRACITE INSTITUTE, WHICH IS DOMINATED AND CONTROLLED BY THE BIG 5. THESE MORE RESTRICTIVE STANDARDS ALSO HAPPEN TO BE CHARACTERISTIC OF THE COAL PRODUCED BY THE MINES WHOSE OUTPUT IS DOMINATED AND CONTROLLED BY THE BIG 5, BUT NOT CHARACTERISTIC OF THE COAL PRODUCED BY MANY OTHER MINES. THESE MORE RESTRICTIVE STANDARDS PREVENTED OUR BIDDING FOR A LARGER TONNAGE OF THIS PROCUREMENT BECAUSE ADDITIONAL U.S. COAL AVAILABLE TO DEHUMBER AND CENTRAL COULD NOT MEET THESE UNNECESSARILY RESTRICTIVE STANDARDS.'

WITH RESPECT TO DEHUMBER'S FIRST GROUND OF PROTEST, IN A REPORT DATED JULY 28, 1965, THE CONTRACTING OFFICER STATES THAT THE WORDS "VOLUME REBATE BY PURCHASE OF * * * TONS MINIMUM" CONTAINED IN THE RFP IS EXPLAINED IN SUBPARAGRAPH D OF SP-33 OF THE RFP WHICH DIRECTS OFFERORS TO ,SHOW VOLUME DISCOUNT AND NUMBER OF TONS ON WHICH VOLUME DISCOUNT BECOMES OPERABLE.' THE CONTRACTING OFFICER ALSO REPORTS THAT A SPACE FOR ENTRY OF VOLUME DISCOUNTS HAS APPEARED IN PREVIOUS YEARS' RFP'S AND THERE HAS NEVER BEEN A QUESTION AS TO ITS MEANING. FURTHER, THE CONTRACTING OFFICER IN A REPORT DATED OCTOBER 27, 1965, STATES THAT DURING NEGOTIATIONS ON THE SUBJECT PROCUREMENT DEHUMBER NEVER QUESTIONED THE APPLICATION OF REBATE PROVISIONS; THAT FIVE OF THE EIGHT RESPONSIVE OFFERORS MADE VOLUME REBATE OFFERS AND THAT CLARIFICATION WAS NOT OFFERED THE CONTRACTING OFFICER AS TO THE VARIOUS TYPES OF VOLUME REBATES BECAUSE SUCH CLARIFICATION WAS NOT REQUESTED.

WE HAVE REVIEWED THE MEMORANDUMS OF NEGOTIATIONS PREPARED BY THE CONTRACT NEGOTIATOR (AND CONCURRED IN BY THE CONTRACTING OFFICER) SUMMARIZING THE DISCUSSIONS WHICH TOOK PLACE BETWEEN THOSE ARMY PROCUREMENT OFFICIALS AND REPRESENTATIVES OF THE VARIOUS OFFERORS AND IT APPEARS THAT NONE OF THE OFFERORS HAD ANY QUESTIONS OR DIFFICULTIES ON THE VOLUME DISCOUNT PROVISIONS OF THE RFP. IN THAT CONNECTION, IT IS NOTED THAT DEHUMBER OFFERED A PRICE REDUCTION OF 35 CENTS A TON AS A VOLUME REBATE BY PURCHASE OF 558,761 TONS MINIMUM. SINCE A VOLUME REBATE WAS OFFERED BY DEHUMBER AND NO QUESTIONS WERE RAISED CONCERNING THE REBATE PROVISIONS OF THE RFP WE CAN ONLY CONCLUDE THAT SUCH PROVISIONS WERE NOT SO VAGUE AND AMBIGUOUS AS TO PREVENT DEHUMBER FROM SUBMITTING AN INFORMED AND INTELLIGENT PROPOSAL. IN THAT CONNECTION, WE FIND IT SIGNIFICANT THAT NONE OF THE OTHER EIGHT RESPONSIVE OFFERORS QUESTIONED THE RFP PROVISIONS AND THAT FIVE OF THE EIGHT SUBMITTED VOLUME REBATE OFFERS.

FURTHER, WE CANNOT CONCLUDE THAT THE EVALUATION OF OFFERS AND THE AWARD OF THE CONTRACT FOR THE ENTIRE QUANTITY OF COAL TO SHIPPING AND COAL VIOLATED THE TERMS OF THE RFP OR THE PROCUREMENT LAWS. SHIPPING AND COAL OFFERED, AS A FIRST DISCOUNT, VOLUME REBATES ON THE ANTHRACITE, BITUMINOUS, LONGFLAME AND STEAM COALS IN THE AMOUNT OF 77 CENTS, 35 CENTS, 35 CENTS, AND 15 CENTS A TON, RESPECTIVELY. THE 77 CENTS A TON VOLUME REBATE ON ANTHRACITE, WAS OFFERED BY SHIPPING AND COAL ON CONDITION THAT IT WOULD RECEIVE AN AWARD FOR THE TOTAL QUANTITY OF THAT COAL. A SECOND DISCOUNT OF 10 CENTS A TON ON THE AFOREMENTIONED COALS WAS OFFERED BY SHIPPING AND COAL IF IT RECEIVED AN AWARD FOR THE TOTAL QUANTITY OF ALL ITEMS. THUS, THE TOTAL VOLUME REBATES OFFERED BY SHIPPING AND COAL ON THE COAL REQUIREMENTS WERE: ANTHRACITE--- 87 CENTS A TON; BITUMINOUS--- 45 CENTS A TON; LONGFLAME-- 45 CENTS A TON; AND STEAM--- 25 CENTS A TON. EFFECT, SHIPPING AND COAL'S ADDITIONAL 10 CENTS A TON REBATE WAS AN "ALL OR NONE" VOLUME DISCOUNT OFFER. AS SET OUT ABOVE, PARAGRAPH 6 (A) OF THE TERMS AND CONDITIONS OF THE RFP EXPRESSLY PROVIDED THAT THE GOVERNMENT COULD ACCEPT ANY ITEM OR GROUP OF ITEMS OF ANY PROPOSAL UNLESS QUALIFIED BY SPECIFIC LIMITATION OF THE OFFEROR. PARAGRAPH 6 (D) OF THE TERMS AND CONDITIONS ADVISED OFFERORS IT WAS CONTEMPLATED THAT A CONTRACT WOULD BE AWARDED TO THAT RESPONSIBLE OFFEROR WHOSE PROPOSAL WOULD BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED, AND THAT THE GOVERNMENT RESERVED THE RIGHT TO ACCEPT OTHER THAN THE LOWEST PROPOSAL AND TO REJECT ANY AND ALL PROPOSALS. PARAGRAPH 4A OF THE SPECIAL PROVISIONS PROVIDED THAT AWARD WOULD BE MADE TO THE RESPONSIVE, RESPONSIBLE, OFFEROR OR OFFERORS, WHO WOULD PROVIDE THE GOVERNMENT WITH THE FUEL AT THE LOWEST TOTAL COST SUBJECT TO THE CONDITION (SP-4B) THAT AWARD WOULD BE MADE BY BLOCKS. IT WAS FURTHER PROVIDED IN SP-4B THAT ANY PROPOSAL WHICH DID NOT INCLUDE AN OFFER FOR ALL LINES OF A BLOCK WOULD BE CONSIDERED NONRESPONSIVE FOR THAT BLOCK. FINALLY, SP-33B ADVISED OFFERORS THAT THE GOVERNMENT COULD, SUBJECT TO ANY LIMITATIONS IMPOSED BY THE CONTRACTOR, ACCEPT ALL OR ANY PART OF ANY CONTRACTOR'S PROPOSAL EXCEPT THAT NO BLOCK WOULD BE SPLIT BETWEEN MORE THAN ONE CONTRACTOR.

THE ABOVE PROVISIONS IN THE RFP GRANT A CONSIDERABLE AMOUNT OF DISCRETION TO THE CONTACTING OFFICER IN MAKING AN AWARD. IT IS CLEAR THAT NONE OF THOSE PROVISIONS (OR ANY OTHER PROVISIONS IN THE RFP) PROHIBITED THE AWARD OF ALL BLOCKS TO ONE OFFEROR. IN THAT CONNECTION, WE HAVE HELD THAT UNDER AN INVITATION FOR BIDS WHICH DOES NOT PROHIBIT THE AWARD OF ALL LOTS TO THE SAME BIDDER A CONTRACTING OFFICER SHOULD NOT DISREGARD A BID WHICH OFFERS A LUMP-SUM REDUCTION IN THE TOTAL AMOUNT OF THE BID PROVIDED THE BIDDER WAS AWARDED ALL LOTS. THIS WAS TRUE EVEN THOUGH THE INVITATION FOR BIDS PROVIDED THAT AWARD OF EACH LOT WOULD BE MADE AS A WHOLE TO THE LOWEST RESPONSIBLE BIDDER. 36 COMP. GEN. 177.

SHIPPING AND COAL CHOSE TO LIMIT THE CONSIDERATION OF ITS 10 CENTS A TON ADDITIONAL REBATE TO THE CONDITION THAT IT RECEIVED AN AWARD FOR THE TOTAL QUANTITY OF ALL ITEMS. SUCH AN "ALL OR NONE" CONDITION WAS NOT PROHIBITED BY ANY PROVISION OF THE RFP. ON THE CONTRARY, PARAGRAPH 6 (A) OF THE TERMS AND CONDITIONS AND PARAGRAPH 33B OF THE SPECIAL PROVISIONS APPEAR TO AUTHORIZE THE INCLUSION OF SUCH CONDITIONS BY OFFERORS. SEE 41 COMP. GEN. 455. IN ANY EVENT, WE HAVE HELD THAT UNDER FORMALLY ADVERTISED BIDDING CONDITIONS AN "ALL OR NONE" BID SUBMITTED IN RESPONSE TO INVITATION FOR BIDS FOR DEFINITE QUANTITIES MAY BE CONSIDERED EVEN THOUGH THERE IS NO PROVISION THEREFORE IN THE INVITATION AND THAT AN AWARD OF ALL LOTS TO ONE BIDDER, WHERE NO MORE ADVANTAGEOUS PRICE MAY BE OBTAINED OTHERWISE, IS NOT OBJECTIONABLE. 35 COMP. GEN. 383 AND CASES CITED THEREIN. COMPARE 41 COMP. GEN. 455. IT HARDLY NEED BE EMPHASIZED THAT, ALL OTHER THINGS BEING EQUAL, IF SUCH RESULTS ARE PERMISSIBLE IN FORMALLY ADVERTISED PROCUREMENTS THEY MAY CERTAINLY BE PERMITTED IN NEGOTIATED PROCUREMENTS.

DEHUMBER, IN ITS LETTER TO OUR OFFICE OF SEPTEMBER 20, 1965, NOTES THAT THERE WAS NO DESIGNATED SPACE ON THE RFP FORMS FOR ENTRY OF A DOUBLE QUANTITY DISCOUNT, AND IT OBJECTS TO THE FACT THAT THE 10 CENTS ADDITIONAL QUANTITY DISCOUNT OFFERED BY SHIPPING AND COAL WAS NOT CONTAINED IN THE RFP FORMS BUT WAS SUBMITTED IN THE FORM OF A LETTER. IT IS URGED, THEREFORE, THAT THE DISCOUNT OFFER WAS NOT PART OF SHIPPING AND COAL'S BID.

WHILE IT IS CONTEMPLATED THAT BIDDERS AND OFFERORS WILL USE THE IFB OR RFP FORMS, AS THE CASE MAY BE, FURNISHED BY THE GOVERNMENT IN SUBMITTING BIDS OR PROPOSALS, THERE IS NO DEFINITE LEGAL REQUIREMENT THAT ONLY SUCH FORMS BE USED. IT IS A COMMON AND RECOGNIZED PRACTICE FOR BIDDERS OR OFFERORS TO SET FORTH PRICES OR OTHER INFORMATION IN AN ACCOMPANYING LETTER WHICH FORMS AN INTEGRAL PART OF THE BID, AND SUCH BIDS OR PROPOSALS HAVE ALWAYS BEEN CONSIDERED PROPER. B-147711, JANUARY 4, 1962. IN THE INSTANT CASE IT MUST BE CONCLUDED THAT SHIPPING AND COAL'S LETTER SETTING FORTH THE 10 CENTS QUANTITY DISCOUNT BECAME PART OF ITS OFFER AND IT WAS PROPER FOR THE CONTRACTING OFFICER TO CONSIDER IT AS SUCH.

IN REGARD TO DEHUMBER'S SECOND GROUND OF PROTEST, IT SHOULD BE NOTED THAT IN BID PROTEST CASES OUR OFFICE IS PRIMARILY CONCERNED WITH DETERMINING WHETHER THE AWARD OF A GOVERNMENT CONTRACT WILL BE, OR HAS BEEN, MADE IN ACCORDANCE WITH REQUIREMENTS OF APPLICABLE PROCUREMENT LAWS AND REGULATIONS. OUR OFFICE IS NOT DIRECTLY CONCERNED WITH ENFORCEMENT OF THE ANTITRUST LAWS, AND ANY QUESTION ARISING WITH REGARD TO VIOLATION OF SUCH LAWS IS PROPERLY FOR CONSIDERATION BY THE DEPARTMENT OF JUSTICE. SEE 21 COMP. GEN. 56. IN THAT CONNECTION, OUR OFFICE HAS BEEN IN CONTACT WITH THE DEPARTMENT OF JUSTICE ON THIS MATTER, AND BY LETTER OF NOVEMBER 10, 1965, THE ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, ADVISED US THAT THE DEPARTMENT HAD FILED A COMPLAINT ON THAT DATE IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, CIVIL NO. 9171, ALLEGING VIOLATION OF THE SHERMAN ACT (15 U.S.C. 1 AND 2) BY THE FOLLOWING NAMED DEFENDANTS:

ANTHRACITE EXPORT ASSOCIATION

GLEN ALDEN CORPORATION

READING ANTHRACITE COMPANY

LEHIGH VALLEY ANTHRACITE INC.

JEDDO-HIGHLAND COAL CO.

SUSQUEHANNA COAL CO.

LEHIGH NAVIGATION-DODSON CO.

FORESTON COAL COMPANY

FORESTON COAL EXPORT CORP. SHIPPING AND COAL, THE PRIME CONTRACTOR, WAS LISTED IN THE COMPLAINT AS A CO-CONSPIRATOR HAVING PARTICIPATED WITH THE DEFENDANTS IN THE OFFENSES ALLEGED AND HAVING PERFORMED ACTS AND MADE STATEMENTS IN FURTHERANCE THEREOF.

THE COMPLAINT FILED BY THE DEPARTMENT OF JUSTICE COVERS ESSENTIALLY THE SAME MATTERS AND ALLEGATIONS RAISED BY DEHUMBER IN ITS LETTER TO OUR OFFICE OF JULY 2, 1965, REGARDING MONOPOLY PRACTICES AND RESTRAINT OF TRADE BY THE BIG 5. IT IS THEREFORE CLEAR THAT JURISDICTION OVER THE ANTITRUST MATTERS RAISED BY DEHUMBER HAS BEEN COMMITTED TO THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA.

WE FIND NOTHING IN SECTIONS 1 AND 2 OF THE SHERMAN ACT WHICH WOULD PRECLUDE AWARD OF A GOVERNMENT CONTRACT TO A COMPANY THAT HAS BEEN CHARGED WITH ALLEGED VIOLATIONS, OR WITH PARTICIPATING IN THE VIOLATION, OF SUCH ACT. LIKEWISE, NEITHER THE ARMED SERVICES PROCUREMENT ACT OF 1947, AS AMENDED 10 U.S.C. 2301 ET SEQ., NOR THE IMPLEMENTING PROCUREMENT REGULATIONS ISSUED THEREUNDER PROHIBIT AWARDS TO SUCH CONCERNS. THAT IS TO SAY, IN THE ABSENCE OF A JUDICIAL DETERMINATION THAT THE FEDERAL ANTITRUST STATUTES HAVE, IN FACT, BEEN VIOLATED THERE WOULD APPEAR TO BE NO LEGAL OR PROPER BASIS FOR DENYING A CONTRACT TO A LOW OFFEROR WHO IS OTHERWISE ENTITLED TO THE AWARD. SEE ASPR 1-604.1. HOWEVER, IT IS OUR UNDERSTANDING THAT THE DEPARTMENT OF THE ARMY HAS BEEN WORKING WITH THE DEPARTMENT OF JUSTICE TO DEVELOP CONTRACTUAL LANGUAGE, FOR USE IN FUTURE COAL PROCUREMENTS, WHICH WILL BE DESIGNED TO ASSURE THAT PRICES OFFERED HAVE BEEN ARRIVED AT INDEPENDENTLY AND WITHOUT COLLUSION. BY LETTER DATED NOVEMBER 29, 1965, THE DEPARTMENT OF THE ARMY INFORMED OUR OFFICE THAT:

"JUSTICE DEPARTMENT APPRISED DEPARTMENT OF ARMY OF THEIR EFFORTS IN A SIMILAR SITUATION WITH THE AGENCY FOR INTERNATIONAL DEVELOPMENT (AID) WHEREIN THE PRIME OFFEROR AND COMMODITY SUB-SUPPLIERS WILL BE REQUIRED TO CERTIFY THAT THE PRICES OFFERED HAVE BEEN ARRIVED AT INDEPENDENTLY AND WITHOUT COLLUSION. DEPARTMENT OF ARMY WILL WORK WITH JUSTICE DEPARTMENT IN DEVELOPING THE PRECISE CLAUSE LANGUAGE; AND IN ADDITION, WILL STUDY THE CLAUSE FOR POSSIBLE INCORPORATION IN ARMY CONTRACTS FOR COAL.'

THE ASPR PROVISIONS RELIED UPON BY DEHUMBER IN ITS THIRD GROUND OF PROTEST WHICH DEAL WITH SMALL BUSINESS AND LABOR SURPLUS AREA SET ASIDES ARE EXPRESSLY LIMITED IN APPLICATION TO THE UNITED STATES, ITS POSSESSIONS AND PUERTO RICO. SEE ASPR 1-700 AND ASPR 1-800. SINCE NEGOTIATIONS WERE CONDUCTED WITH FOREIGN PRIME CONTRACTORS THE SMALL BUSINESS AND LABOR SURPLUS AREA POLICIES SET FORTH IN THE CITED REGULATIONS ARE NOT APPLICABLE. IN THIS CONNECTION, HOWEVER, ARMY REPORTED THAT THE MINE DESCRIPTION FORMS FURNISHED BY SHIPPING AND COAL, AND SHIPS MANIFESTS, SHOW THAT THE COAL IS BEING FURNISHED FROM 16 MINES OWNED BY 12 COMPANIES, OF WHICH 4 COMPANIES QUALIFY AS LARGE BUSINESS CONCERNS AND THE REMAINING 8 AS SMALL BUSINESS CONCERNS.

IN ITS LETTER OF SEPTEMBER 20, 1965, DEHUMBER MAKES THE FOLLOWING ADDITIONAL ASSERTIONS:

"* * * THE ARMY'S CLAIM THAT BECAUSE THEY CHOOSE TO DEAL WITH FOREIGN CONTRACTORS RATHER THAN U.S. CONTRACTORS, THAT THEY ARE NOT SUBJECT TO DOMESTIC PROCUREMENT PRACTICES AND DOMESTIC CONSIDERATIONS IS A TRAVESTY OF JUSTICE. THE FACTS ARE THAT THE U.S. EXPORTER CONTROL THIS BUSINESS AND THE FOREIGN CONTRACTOR IS ESSENTIALLY AN AGENT, WE ALSO CONTEND THAT THE ARMY PROCUREMENT DIVISION IN WASHINGTON MAKE THE FINAL AND ACTUAL PROCUREMENT DECISIONS SINCE THE DOLLAR VOLUME EXCEEDS THE AUTHORITY OF THE CONTRACTING OFFICER IN FRANKFURT.' THE ARMY, IN ITS REPORT OF OCTOBER 27, 1965, STATES THAT:

"IT IS CONSIDERED ESSENTIAL THAT THE PRIME CONTRACT BE AWARDED TO A EUROPEAN IMPORTER. IT IS A CLEAR ADVANTAGE OF THE GOVERNMENT TO HANDLE COMPLAINTS, REJECTIONS, DIVERSIONS, ADJUSTMENTS, AND EMERGENCY DEVIATIONS WITH A PRIME CONTRACTOR DIRECTLY AT HAND RATHER THAN ONE 3000 MILES AWAY. EVEN THOUGH MAJOR EXPENDITURES ARE IN CONUS, THE DISTRIBUTION SYSTEM ESTABLISHED BY THE EUROPEAN PRIME CONTRACTOR IS OF MAJOR IMPORTANCE. IS THROUGH THIS SYSTEM THAT SOLID FUEL IS DISTRIBUTED TO 88 ARMY AND AIR FORCE DESTINATIONS IN GERMANY. DAY TO DAY PROBLEMS IN DISTRIBUTION MUST BE DISCUSSED DIRECTLY WITH THE PRIME CONTRACTOR. WITH THE PRIME CONTRACTOR IN THE US THE TIME DELAY INVOLVED IN RELAYING MESSAGES TO THE US PRIME AND BACK AGAIN TO A EUROPEAN SUB-CONTRACTOR WOULD GREATLY DECREASE THE EFFICIENCY OF THE DISTRIBUTION SYSTEM.'

THE ARMY ALSO STATES THAT THE EUROPEAN DISTRIBUTOR IS NOT MERELY AN AGENT ACTING IN THE NAME OF THE U.S. EXPORTER AS PRINCIPAL. ALL FIRMS SOLICITED, IT IS REPORTED, QUALIFY AS REGULAR DEALERS WHICH OWN, OPERATE AND MAINTAIN A BUSINESS ENGAGED IN THE PURCHASE, STORAGE, DISTRIBUTION AND SALE OF SOLID FUEL.

IT IS FURTHER REPORTED THAT THE DEPARTMENT OF THE ARMY IN WASHINGTON DID PARTICIPATE IN THE FINAL DECISION TO AWARD THE CONTRACT TO SHIPPING AND COAL BY GIVING AUTHORITY TO MAKE THE AWARD. HOWEVER, IT IS STATED, THE FRANKFURT PROCUREMENT CENTER WAS RESPONSIBLE FOR THE SOLICITATION, EVALUATION, NEGOTIATION, SELECTION OF OFFERS, AND THE AWARD OF THE CONTRACT IN ACCORDANCE WITH THE SAME STATUTORY AND REGULATORY REQUIREMENTS AS DOMESTIC PROCUREMENT ACTIVITIES.

THE RESPONSIBILITY FOR EFFECTING PURCHASES OF SUPPLIES AND SERVICES FOR THE GOVERNMENT RESTS WITH THE INDIVIDUAL CONTRACTING AGENCIES. THIS RESPONSIBILITY INCLUDES THE DETERMINATION OF ITS NEEDS AND, WITHIN SPECIFIED LEGAL LIMITS, THE MANNER OF PROCURING THOSE NEEDS. SEE B- 151481, MARCH 4, 1964. THE DETERMINATION BY THE DEPARTMENT OF THE ARMY THAT ITS NEEDS WILL BEST BE MET BY AWARDING THE PRIME COAL CONTRACT TO A EUROPEAN IMPORTER IS, WE THINK, WITHIN THE DISCRETIONARY AUTHORITY OF THE PROCUREMENT AGENCY TO SPECIFY THE MANNER OR METHOD BY WHICH IT WILL PURCHASE. SUCH A DETERMINATION SHOULD NOT BE LIGHTLY DISTURBED SINCE THE ARMY BEST KNOWS ITS OWN NEEDS. WE BELIEVE THAT THE ABOVE EXPLANATION FURNISHED BY ARMY IN ITS REPORT OF OCTOBER 27 PROVIDES A REASONABLE BASIS FOR SOLICITING ONLY EUROPEAN CONTRACTORS, AND WE THEREFORE CANNOT OBJECT TO THE DETERMINATION MADE BY THE ARMY IN THAT RESPECT.

IN CONNECTION WITH THE FOURTH GROUND OF THE PROTEST DEHUMBER EMPHASIZES THE FACT THAT REVISED QUOTATIONS REQUESTED BY THE ARMY WERE TO BE ENTERED ON NEW FORMS WHICH WERE STAMPED WITH THE NOTATION "NEGOTIATED" IN THE UPPER RIGHT HAND CORNER. DEHUMBER CONTENDS THAT THIS IS EVIDENCE SHOWING THAT THE FIRST OFFERS WERE REJECTED SINCE OTHERWISE THERE WOULD BE NO POINT IN GIVING ALL OFFERORS A COMPLETE SET OF NEW FORMS.

THE CONTRACTING OFFICER STATES THAT THE ORIGINAL PROPOSALS WERE NOT REJECTED. WE THINK THAT THE RECORD (ESPECIALLY THE NEGOTIATION TRANSCRIPTS) AMPLY SUPPORTS THIS STATEMENT. HE FURTHER STATES THAT THE FORMS DISTRIBUTED DURING NEGOTIATIONS ON MAY 5 MERELY SERVED AS AN ORDERLY MEANS OF IDENTIFYING CHANGES IN QUANTITIVE REQUIREMENTS AND A DETAILED SCHEDULE ON WHICH PRICES FOR THE REVISED OFFER COULD BE INSERTED. ALSO, SINCE A DOWNWARD PRICE REVISION TO THE INITIAL PROPOSAL WAS EXPECTED TO RESULT FROM NEGOTIATIONS, ADDITIONAL FORMS WERE FURNISHED EACH OFFEROR TO MAKE IT EASIER FOR HIM TO PREPARE HIS REVISION. THIS, IT IS STATED, ALSO MADE IT EASIER TO EVALUATE THE FINAL PROPOSALS. IF PREPARED FORMS HAD NOT BEEN DISTRIBUTED THE OFFERORS WOULD HAVE HAD TO PREPARE A LETTER CONSISTING OF APPROXIMATELY 10 PAGES AND IF EACH REVISED PROPOSAL HAD BEEN IN A DIFFERENT FORMAT THE EVALUATION WOULD HAVE BEEN UNDULY COMPLICATED. FINALLY, IT IS REPORTED, THE FORMS FURNISHED WERE RESTAMPED "NEGOTIATED" ONLY FOR PURPOSES OF IDENTIFICATION. THE SAME PRESTAMPING, IT IS NOTED, WAS APPLIED TO FORMS USED IN FISCAL YEAR 1965 AND WERE NOT OBJECTED TO BY DEHUMBER AT THAT TIME. WE FIND NOTHING IMPROPER IN THE USE BY THE CONTRACTING OFFICER OF PRESTAMPED NEW FORMS FOR THE SUBMISSION OF REVISED OFFERS. DEHUMBER ALSO CONTENDS THAT IT IS THE RESPONSIBILITY OF THE NEGOTIATOR TO INDICATE HONESTLY WHERE THE INDIVIDUAL OFFEROR IS NOT COMPETITIVE. HOWEVER, REFERRING TO THE TRANSCRIPT OF NEGOTIATIONS, DEHUMBER NOTES THAT THE STRESS BY THE NEGOTIATOR WAS THAT DEHUMBER'S FOB PHILADELPHIA (STATESIDE) PRICE WAS TOO HIGH EVEN THOUGH DEHUMBER'S FIRST OFFER WAS $18.10/17.15 FOB PHILADELPHIA WHEREAS SHIPPING AND COAL'S FIRST OFFER WAS $18.30/18.10.

THE CONTRACTING OFFICER REPORTS THAT DURING THE NEGOTIATIONS WITH DEHUMBERS REDUCTIONS WERE SUGGESTED IN THE COST OF FUEL FOB U.S. LOADING PORT BECAUSE THIS AREA WAS THE MOST SUSCEPTIBLE TO REDUCTION. IT WAS THE ONLY PORTION OF THE PRICE, IT IS STATED, IN WHICH A REDUCTION COULD APPROACH THE AMOUNT NECESSARY TO COMPETE FOR THE AWARD SINCE THE COST OF FUEL AT THE U.S. PORT WAS THE MAJOR DETERMINING COST FACTOR. OTHER COSTS, IT IS STATED, AMOUNTED TO LESS THAN 20 PERCENT OF THE TOTAL, AND THE POSSIBLE REDUCTIONS IN THIS REMAINING AREA WOULD BE LIMITED SINCE THESE COSTS WERE BASED ON TENDERS, TARIFFS, AND AGREEMENTS WHICH WERE LESS SUSCEPTIBLE TO A CHANGE BASED ON THIS REQUIREMENT.

DEHUMBER ADMITS THAT THE ARMY GAVE ALL OFFERORS A CHANCE TO ASK QUESTIONS IN AN IMPARTIAL MANNER. OUR REVIEW OF THE NEGOTIATION TRANSCRIPTS AND OTHER DOCUMENTS IN THE RECORD FAILS TO INDICATE THAT THE NEGOTIATIONS WERE CONDUCTED UNFAIRLY OR UNEQUALLY. IN THAT CONNECTION, WE NOTE FROM THE TRANSCRIPT OF NEGOTIATIONS THAT SHIPPING AND COAL WAS INFORMED THAT ITS STATESIDE PRICES WERE TOO HIGH AND WAS REQUESTED TO OBTAIN ANOTHER QUOTATION FROM FORESTON AND/OR FROM OTHER U.S. COMPETITORS. OTHER OFFERORS WERE ALSO ADVISED THAT THE ARMY CONSIDERED THEIR STATESIDE COAL PRICES TO BE TOO HIGH.

DEHUMBER ALSO CONTENDS THAT THE ARMY CONTINUED TO NEGOTIATE WITH SHIPPING AND COAL UNTIL MAY 28--- 10 DAYS AFTER THE REVISED OFFERS WERE SUBMITTED. DEHUMBER, IN ITS LETTER OF SEPTEMBER 20, 1965 STATES:

"* * * WE QUESTION IN A MOST SERIOUS WAY, THE IMPLICATION OF PRICE MANIPULATION AS CONTAINED IN SHIPPING AND COAL'S TELEX TO PROCUREMENT CENTER DATED MAY 28, 1965, WHICH MESSAGE READS AS FOLLOWS:

"WE HEREWITH CONFIRM THAT IN OUR LETTER, DATED MAY 17, 1965 ON PAGE 4 THE TOTAL NET AMOUNT FOR BITUMINOUS COAL BLOCK J HAS BEEN CHANGED FROM DOLLARS 2,826,465.61 TO DOLLARS 2,819,689.03"

"THE OFFICIAL PRICE QUOTATION SHEET SHOWS THIS NET PRICE TO READ $2,817,862.53. WHILE THE CONTRACTING OFFICERS WORK SHEET SHOWS THE NET PRICE TO READ $2,803,658.13, WE CANNOT CO-ORDINATE THESE FIGURES, THEREFORE WE CONTEND THIS WAS NEGOTIATIONS WITH ONLY ONE BIDDER SHIPPING AND AL.'

IN RESPONSE TO THESE ALLEGATIONS, THE CONTRACTING OFFICER REPORTS AS FOLLOWS:

"PCF NEGOTIATED WITH NO ONE AFTER 5 MAY 1965. IN THE REVISED OFFER FOR BLOCK J, SHIPCO ENTERED A PRICE OF $2,817,862.53 ON THE QUOTATION FORM. THIS PRICE WAS CORRECTED TO READ $2,826,465.61 ON PAGE 4 (SIC, PAGE 5) OF SHIPCO LETTER DATED 17 MAY, WHICH ACCOMPANIED AND WAS PART OF ITS REVISED OFFER. THE REVISED QUOTATION FORMS DATED 17 MAY 1965 DID NOT INCLUDE THE COST OF THE RAIL INCREASE. ITS INCORPORATION BY LETTER ACCOMPANYING THE OFFER WAS NOT A VIOLATION OF THE TERMS AND CONDITIONS OF THE REQUEST FOR PROPOSAL. SEE TAB 2A AND 2B, COMMENT TO 2, WHICH INDICATE DE HUMBER TOOK THE SAME MEANS TO EMPHASIZE AND PROVIDE ADDED INFORMATION. AFTER THE OFFER WAS OPENED ON 17 MAY 1965, A MATHEMATICAL ERROR WAS FOUND IN THE EXTENSION OF UNIT PRICES WHICH CHANGED THE PRICE FOR BLOCK J FROM $2,826,465.61 TO $2,819,689.03. THIS MINOR CLERICAL MISTAKE WAS CONFIRMED BY SHIPCO IN TELETYPE MESSAGE NO. 562 DATED 28 MAY 1965. CORRECTION OF THIS MINOR CLERICAL ERROR WAS NOT PREJUDICIAL TO OTHER OFFERORS BECAUSE BOTH THE UNCORRECTED AND THE CORRECTED OFFER WERE THE LOWEST RECEIVED. THIS WAS A VERIFICATION OF PRICE AND NOT A PRICE NEGOTIATION OR REVISION. ABSTRACT OF PROPOSAL SHOWS A TOTAL NET PRICE OF $2,803,658.13. THIS IS THE NET TOTAL AFTER DEDUCTION OF $16,030.90 "ALL OR NONE" REBATE ($0.10 REBATE PER METRIC TON FOR 160,309 M/TONS) FROM $2,819,689.03. * * *"

THE CONTRACTING OFFICER'S REPORT ON THIS ITEM APPEARS TO BE ACCURATE AND WE SEE NO BASIS FOR CONCLUDING THAT THE GOVERNMENT CONTINUED TO "NEGOTIATE" WITH SHIPPING AND COAL AFTER THE SUBMISSION OF THE REVISED PROPOSALS. NOR IS IT OBJECTIONABLE THAT NEITHER THE ORIGINAL OFFERS NOR THE REVISED OFFERS WERE PUBLICLY OPENED. IN A NEGOTIATED PROCUREMENT OF THE TYPE INVOLVED HERE THERE IS NO LEGAL REQUIREMENT FOR THE PUBLIC OPENING OF OFFERS. SEE ASPR 3-805.1 (B).

WITH RESPECT TO DEHUMBER'S FIFTH GROUND OF PROTEST, THE ARMY REPORT OF SEPTEMBER 17 STATES THAT THE 1961 COMBUSTION TESTS WERE FINANCED BY THE ANTHRACITE INSTITUTE WHICH ALSO SUPPLIED THE SERVICES OF A CONSULTANT "TO ASSIST THE ARMY IN TESTING ANTHRACITE IN THE HEATING BOILERS IN GERMANY AS A SUBSTITUTE FOR COKE.' FURTHER, THAT SUCH TESTS WERE MADE IN CONJUNCTION WITH ARMY PERSONNEL AND OBSERVED BY A REPRESENTATIVE OF THE BUREAU OF MINES, U.S. DEPARTMENT OF THE INTERIOR. THE REPORT OF THE CONSULTANT STATES THAT "THE OBJECTIVE OF THESE TESTS WAS TO DETERMINE THE FEASIBILITY OF BURNING ANTHRACITE PURCHASED IN THE UNITED STATES IN PLACE OF COKE IN BOILER PLANTS WITHIN THIS COMMAND. THE PRESENT REPORT IS INTENDED TO GIVE A SUMMARY OF OBSERVATIONS AND CONCLUSIONS BASED UPON THE TESTS.' ALSO, THE DEPARTMENT OF THE INTERIOR HAS ADVISED US THAT SUCH REPORT "WAS WRITTEN AS A RESULT OF THE DESIRE TO DETERMINE IF ANTHRACITE COULD BE UTILIZED IN GERMANY BOILERS DESIGNED TO BURN COKE WHICH WAS THE FUEL USED AT THAT TIME.' IT IS FOR NOTING THAT NEITHER THE ARMY REPORT, THE INTERIOR STATEMENT NOR THE CONSULTANT'S STATED OBJECTIVE OF THE TESTS INDICATES THAT THE MISSION WAS TO INCLUDE A DETERMINATION OF SPECIFICATIONS FOR THE ANTHRACITE WHICH WOULD "STATE ONLY THE ACTUAL MINIMUM NEEDS OF THE GOVERNMENT" (ASPR 1-1201 (A) (. THAT SUCH WAS NOT AN INTENDED OBJECTIVE OF THE TESTS SEEMED TO BE FURTHER INDICATED BY THE FACT THAT THE ANALYSIS OF THE TEST FUEL WHICH IS A PART OF THE CONSULTANT'S REPORT IS NOT COMPRISED OF SEVERAL FUELS HAVING VARYING COMPONENT PERCENTAGES BUT IS LIMITED TO AN ANTHRACITE HAVING, ON A DRY BASIS 9.13 PERCENT ASH (SIZE 30 TIMES 50 MM) AND AN ANTHRACITE HAVING A 9.29 PERCENT ASH (DRY, SIZE 50 TIMES 80 MM). HOWEVER, THE CONSULTANT'S REPORT CONTAINED RECOMMENDED ANTHRACITE SPECIFICATIONS "ON THE BASIS OF THE TEST RESULTS AND OF COMBUSTION EXPERIENCE IN THE USE OF VARIOUS SOLID FUELS" FOR COAL WHICH HE STATED SHOULD AVERAGE HIGHER IN HEAT VALUE AND GIVE A PERFORMANCE EQUALLING OR SURPASSING THAT OT THE COKE THEN BEING BURNED. THESE RECOMMENDED SPECIFICATIONS, IT IS STATED WERE ADOPTED BY ARMY AND MADE APPLICABLE TO ANTHRACITE PROCUREMENT FOR USAREUR.

DEHUMBER ALLEGES THAT THE ANTHRACITE INSTITUTE WHICH EMPLOYED THE CONSULTANT IS AFFILIATED WITH CENTRAL WEST'S COMPETITOR--- THE ANTHRACITE COAL EXPORT ASSOCIATION--- WHICH, EVEN IF TRUE, WOULD NOT SUPPORT A CONCLUSION THAT THE SPECIFICATIONS ARE RESTRICTIVE MERELY BECAUSE OF THAT FACT.

DEHUMBER'S MAIN OBJECTION TO THE SPECIFICATIONS IS DIRECTED AT THE MAXIMUM ALLOWABLE ASH CONTENT OF 9.75 PERCENT FOR THE ANTHRACITE. NOTES THAT THE FEDERAL SPECIFICATIONS USED BY THE GENERAL SERVICES ADMINISTRATION (FEDERAL STANDARD NO. 2, COAL, PENNSYLVANIA ANTHRACITE, NOVEMBER 21, 1950) FOR THE SIZES PURCHASED BY THE ARMY PERMITS A MAXIMUM ASH CONTENT OF 11 PERCENT. IN SUBSTANCE, DEHUMBER'S POSITION APPEARS TO BE THAT BY SPECIFYING A MAXIMUM ASH CONTENT OF 9.75 PERCENT FOR ANTHRACITE THE GOVERNMENT, IN EFFECT, IS SPECIFYING MORE THAN ITS ACTUAL MINIMUM NEEDS IN THE RFP. THAT HIGH STANDARD ON ASH CONTENT, IT IS ALLEGED, PREVENTED DEHUMBER FROM BIDDING ON A LARGER TONNAGE OF THE PROCUREMENT BECAUSE ADDITIONAL UNITED STATES COAL AVAILABLE TO DEHUMBER AND CENTRAL WEST COULD NOT MEET SUCH UNNECESSARILY RESTRICTIVE STANDARDS.

IN SUPPORT OF SUCH POSITION YOU FORWARDED TO OUR OFFICE A COPY OF A MEMORANDUM DATED JUNE 4, 1964, WRITTEN BY LT. COLONEL DAVID D. LANGAN, CE C/OFFICE OF PROGRAM COORDINATION, IN WHICH THE VIEW IS EXPRESSED THAT A GUARANTEED BTU CONTENT IS A SUFFICIENT SPECIFICATION FOR THE ASH FACTOR IN ANTHRACITE.

IN ADDITION, DEHUMBER HAS SUBMITTED A COPY OF A LETTER DATED SEPTEMBER 14, 1965, ADDRESSED TO THE PRESIDENT OF CENTRAL WEST BY THE ACTING DIRECTOR, BUREAU OF MINES, U.S. DEPARTMENT OF THE INTERIOR, WRITTEN IN REPLY TO CERTAIN QUESTIONS RAISED BY CENTRAL WEST REGARDING THE QUALITY OF ANTHRACITE PURCHASED FOR USE BY THE U.S. ARMED FORCES IN GERMANY. PERTINENT PORTIONS OF THE LETTER READ AS FOLLOWS:

"1. THE BUREAU OF MINES DOES NOT ADOPT NOR PROMULGATE SPECIFICATIONS SPECIFICATIONS FOR ANTHRACITE. THE FEDERAL SPECIFICATION USED BY GSA (FEDERAL STANDARD NO. 2, COAL, PENNSYLVANIA ANTHRACITE, NOVEMBER 21, 1950) FOR THE SIZES IN QUESTION ARE AS FOLLOWS:

CHART

MAX. ASH PERCENT MIN. BTU

SIZE DRY BASIS DRY BASIS

EGG 11.0 13,170

STOVE 11.0 13,170

CHESTNUT 11.0 13,170

"2. ANTHRACITE OF THE ABOVE SPECIFICATIONS CAN BE BURNED EFFECTIVELY IN ORDINARY HAND-FIRED BOILER.

"3. THE GERMAN EQUIPMENT IN WHICH THE ANTHRACITE IS USED DIFFERS FROM ORDINARY HAND-FIRED EQUIPMENT (ACCORDING TO MR. BARD) PRINCIPALLY IN THAT IT HAS FIXED GRATES. THERE IS NO APPARENT REASON WHY STANDARD ANTHRACITE COULD NOT BE USED IN THIS EQUIPMENT. ALTHOUGH HIGHER QUALITY ANTHRACITE MAY RESULT IN IMPROVED OPERATION, THIS CAN BE DETERMINED ONLY UNDER TEST CONDITIONS.

"4. USING PROPER CLEANING EQUIPMENT AND ADJUSTING THE GRAVITY OF SEPARATION TO GIVE THE PREDETERMINED ASH SPECIFICATION IN THE WASHED PRODUCT, VIRTUALLY ALL ANTHRACITE CAN BE WASHED TO A MAXIMUM OF 9.75 PERCENT DRY ASH. FOR SOME, THIS MAY RESULT IN LOW YIELDS AND HIGH REFUSE LOSSES. IF STANDARD PROCEDURES AND EQUIPMENT ARE USED FOR DETERMINING THE ASH ANALYSES (EITHER BUREAU OF MINES OR A.S.T.M.) THE LOCATION OF THE LABORATORY SHOULD HAVE NO EFFECT ON THE VALIDITY OF THE RESULTS.

"5. THE USAREUR SPECIFICATIONS REQUIRE A SOMEWHAT HIGHER QUALITY COAL IN THE STOVE AND CHESTNUT SIZES BASED ON ASH PERCENTAGE, THAN IS CUSTOMARILY PRODUCED IN THE REGION AS DETERMINED BY THE BUREAU OF MINES SAMPLING PROGRAM DURING FISCAL YEAR 1963. HOWEVER CERTAIN OPERATIONS VIRTUALLY ALWAYS PRODUCE ANTHRACITE IN THESE THREE SIZES CONTAINING LESS ASH THAN THAT SPECIFIED BY USAREUR.

"6. IT IS IMPOSSIBLE TO ANSWER THIS QUESTION (IF ASKED, WHAT WOULD THE BUREAU SET AS FAIR MINIMUM SPECIFICATIONS) DIRECTLY WITHOUT DATA ON THE COST OF TRANSPORTATION AND THE EFFECT OF ASH AND MOISTURE ON THE HEATING VALUE OF THE COAL, ITS COST, AND ON ITS PERFORMANCE IN THE GERMAN EQUIPMENT.

"IF THE RECOMMENDATIONS OF THE BUREAU WERE REQUESTED, WE WOULD RECOMMEND THE LEAST COSTLY FUEL (DELIVERED AT THE SITE ON A BTU BASIS) THAT WOULD GIVE SATISFACTORY PERFORMANCE IN THE COMBUSTION EQUIPMENT. THE PERFORMANCE CAN BE DETERMINED ONLY BY TEST.'

IN ITS REPORT TO US DATED OCTOBER 27, 1965, THE ARMY NOTES THAT THE GERMAN EQUIPMENT USED BY USAREUR IS DESIGNED FOR COKE. THE BOILERS ARE MOSTLY HAND-FIRED AND BECAUSE OF THE CHARACTERISTICS OF THE ANTHRACITE ASHES, MORE TIME IS REQUIRED IN CLEANING THE FIRES THAN WITH COKE. THE MAXIMUM ASH CONTENT OF 9.75 PERCENT, IT IS STATED, IMPROVES OPERATIONS AND REDUCES THE LABOR INVOLVED IN FIRING THE ANTHRACITE. MOREOVER, THE ARMY IS OF THE OPINION THAT BECAUSE OF THE COST INVOLVED IN TRANSPORTATION, HANDLING, FIRING AND ASH REMOVAL, IT WOULD BE MORE ADVANTAGEOUS TO THE GOVERNMENT TO REDUCE THE MAXIMUM ALLOWABLE ASH, INSTEAD OF INCREASING IT AS PROPOSED BY DEHUMBER. IN COMMENTING ON COL. LANGAN'S VIEW, THE OFFICE OF CHIEF OF ENGINEERS HAS REPORTED THAT THE SUBJECT MEMORANDUM WAS AN INTRA-OFFICE COMMUNICATION WHICH DID NOT REFLECT USAREUR POLICY.

THE RESPONSIBILITY FOR DRAFTING PROPER SPECIFICATIONS WHICH REFLECT THE MINIMUM NEEDS OF THE GOVERNMENT AND FOR DETERMINING FACTUALLY WHETHER SUPPLIES OFFERED BY PROSPECTIVE CONTRACTORS MEET THOSE SPECIFICATIONS IS VESTED PRIMARILY IN THE PROCUREMENT AGENCIES. THE FACT THAT A PARTICULAR OFFEROR MAY BE UNABLE OR UNWILLING TO MEET THE MINIMUM REQUIREMENTS FOR SUPPLYING THE GOVERNMENT'S NEEDS IS NOT SUFFICIENT, IN-AND-OF-ITSELF, TO WARRANT A CONCLUSION THAT THE SPECIFICATIONS ARE UNDULY RESTRICTIVE. THERE IS NO LEGAL REQUIREMENT THAT THE GOVERNMENT PURCHASE SUPPLIES MERELY BECAUSE THEY MAY BE OFFERED AT A LOWER PRICE, WITHOUT INTELLIGENT REFERENCE TO THE PARTICULAR NEEDS TO BE SERVED; NOR CAN THE GOVERNMENT BE PLACED IN THE POSITION OF ALLOWING PROSPECTIVE CONTRACTORS TO DICTATE SPECIFICATIONS WHICH WILL PERMIT ACCEPTANCE OF SUPPLIES WHICH DO NOT, IN THE CONSIDERED JUDGMENT OF THE CONTRACTING AGENCY, REASONABLY MEET THE AGENCY NEEDS. 36 COMP. GEN. 251, AND DECISIONS CITED THEREIN.

WHILE IT IS A FUNCTION OF OUR OFFICE IN MATTERS OF THIS NATURE TO DETERMINE WHETHER SPECIFICATIONS AS WRITTEN ARE UNDULY RESTRICTIVE OF COMPETITION, WE DO NOT HAVE AN ENGINEERING OR SCIENTIFIC STAFF AND IN MAKING SUCH DETERMINATIONS WE MUST GENERALLY RELY ON THE OPINIONS OF GOVERNMENT TECHNICIANS WHO ARE EXPERTS IN THEIR PARTICULAR FIELDS. INASMUCH AS THE DEPARTMENT OF THE INTERIOR HAS EXPERIENCED PERSONNEL WHOSE DUTIES REQUIRE SPECIAL AND EXTENSIVE KNOWLEDGE IN THE SUBJECT OF COAL WE REQUESTED, AMONG OTHER THINGS, THAT AGENCY'S OPINION AS TO WHETHER THE TEST METHODS AND TEST DATA SET FORTH IN THE CONSULTANT'S REPORT, TOGETHER WITH THAT DEPARTMENT'S EXPERIENCE IN SUCH MATTERS, PROVIDED ANY INDICATION THAT ANTHRACITE COAL WITH A MAXIMUM ASH CONTENT OF 11 PERCENT WILL NOT PERFORM AS SATISFACTORILY AS COKE IN THE GERMAN EQUIPMENT AND DELIVER THE SPECIFIED MINIMUM 13,300 BTU'S A POUND. THE DEPARTMENT'S ANSWER READS AS FOLLOWS: "1C: A KNOWLEDGE OF THE ASH CONTENT AND HEATING VALUE OF THE COAL SELECTED WOULD NOT BE SUFFICIENT INFORMATION TO ALLOW US TO MAKE A PREDICTION AS TO WHETHER OR NOT THAT COAL WOULD BE EXPECTED TO GIVE SATISFACTORY OPERATING RESULTS IN THE BOILER. EVEN A COMPLETE KNOWLEDGE OF THE COAL IN QUESTION WOULD NOT BE CONCLUSIVE. THIS COULD BEST BE DETERMINED BY TRIAL TESTS IN THE EQUIPMENT IN WHICH THE FUEL IS TO BE UTILIZED. "ON THE MATTER OF MEETING THE SPECIFIED 13,300 BTU PER POUND HEATING VALUE, SOME ANTHRACITES WITH 11 PERCENT ASH CONTENT COULD BE EXPECTED TO MEET THIS REQUIREMENT, OTHERS WOULD NOT. YOU MAY EXPECT SOME DIFFICULTY IN RECEIVING AN ANTHRACITE OF 11 PERCENT ASH CONTENT THAT WOULD MEET THIS MINIMUM HEATING VALUE ON A CONTINUAL BASIS.'

THAT DEPARTMENT FURTHER STATED THAT THE REQUIREMENTS OF A SATISFACTORY PERFORMANCE FOR FUEL RE:

"1. THE FUEL MUST BE UTILIZED IN THE BOILER WITHOUT UNDUE DIFFICULTY (SUCH AS CLINKERING, TUBE DEPOSITS, ETC.).

"2. THE FUEL SELECTED WOULD NOT INCREASE MAINTENANCE COSTS FOR THE INSTALLATION.

"3. THE FUEL SELECTED WOULD NOT INCREASE LABOR REQUIRED TO FIRE THE BOILERS.

"4. THE COMBUSTION OF THE FUEL WOULD RESULT IN A REASONABLE EFFICIENCY BASED UPON THE DESIGN FOR THAT BOILER.'

AFTER CAREFUL CONSIDERATION OF ALL THE INFORMATION OF RECORD WE FEEL, INSOFAR AS WE ARE ABLE TO DETERMINE, THAT THE GOVERNMENT COAL SPECIALISTS ARE OF THE OPINION THAT THE 1961 ANTHRACITE TESTS AND DATA DERIVED THEREFROM DO NOT AFFORD ADEQUATE INFORMATION FOR DRAFTING SPECIFICATIONS THAT STATE THE GOVERNMENT'S MINIMUM ANTHRACITE NEEDS IN EUROPE, AND THAT SUCH SPECIALISTS SUBSCRIBE TO THE VIEW THAT THE ANSWER TO WHETHER THE 11 PERCENT ASH ANTHRACITE, WHICH IS AVAILABLE TO DEHUMBER, WOULD BURN SATISFACTORILY IN THE GERMAN EQUIPMENT CAN BE DETERMINED ONLY BY ACTUAL TESTS.

IN VIEW OF THE FOREGOING, AND SINCE THE DEPARTMENT OF THE INTERIOR ADVISES THAT SOME ANTHRACITES WITH 11 PERCENT ASH CONTENT WOULD NOT MEET THE SPECIFIED BTU HEATING VALUE AND THAT SOME DIFFICULTY COULD BE EXPECTED IN RECEIVING AN ANTHRACITE OF 11 PERCENT ASH CONTENT THAT WOULD MEET THE MINIMUM HEATING VALUE ON A CONTINUAL BASIS, WE ARE UNABLE TO CONCLUDE AT THIS TIME THAT SPECIFICATIONS PRECLUDING THE ACCEPTANCE OF ANTHRACITE OF 11 PERCENT ASH CONTENT FOR THE GERMAN EQUIPMENT ARE UNDULY RESTRICTIVE.

IN THIS CONNECTION, BY LETTER DATED NOVEMBER 29, 1965, THE ARMY ADVISED US THAT THE DEPARTMENT WAS ACTIVELY STUDYING POSSIBLE CHANGES FOR FUTURE YEAR COAL PROCUREMENTS. WE WERE INFORMED THAT IN ORDER TO ASSURE THE IMPARTIALITY OF THE ANTHRACITE SPECIFICATIONS, EFFORTS WERE BEING MADE TO HAVE THE BUREAU OF MINES CONDUCT ACTUAL COMBUSTION TESTS OF VARIOUS ASH CONTENT COALS AND THAT SUCH TESTS WOULD BE PERFORMED IN GERMAN EQUIPMENT. BY LETTER OF TODAY WE ARE REQUESTING THE SECRETARY OF THE ARMY TO MAKE EVERY FEASIBLE EFFORT TO EXPEDITE THOSE TESTS IN ORDER THAT THE RESULTS THEREOF MAY BE TAKEN INTO CONSIDERATION AT THE EARLIEST PRACTICABLE DATE IN DETERMINING THE GOVERNMENT'S ACTUAL MINIMUM REQUIREMENTS FOR SUCH FUTURE ANTHRACITE PROCUREMENTS.

BY LETTER DATED FEBRUARY 3, 1966, CENTRAL WEST SUPPLEMENTED ITS PROTEST BY SUBMITTING FOR OUR CONSIDERATION TWO CONTRACT CHANGES WHICH HAVE BEEN INSTITUTED SUBSEQUENT TO AWARD OF THE CONTRACT TO SHIPPING AND COAL. CENTRAL WEST ALLEGES THAT BY AGREEING TO THE TWO CHANGES THE CONTRACTING OFFICER HAS GIVEN AWAY VESTED RIGHTS OF THE GOVERNMENT WHICH HAVE A DOLLAR VALUE OF APPROXIMATELY $300,000 WITHOUT RECEIVING COMPENSATING BENEFITS ON BEHALF OF THE GOVERNMENT.

WITH RESPECT TO THE FIRST CHANGE, CENTRAL WEST ALLEGES THAT ON APPROXIMATELY JULY 16 THE CONTRACTING OFFICER CHANGED THE DELIVERY TERMS OUTLINED IN THE RFP WHICH HAD CALLED FOR CONTRACT COMPLETION BY JUNE 1966. IT IS STATED THAT THIS CHANGE EXTENDED SHIPMENTS THROUGH SEPTEMBER 1966. ACCORDING TO CENTRAL WEST, THE SIGNIFICANCE OF THIS CHANGE IS THAT THE CONTRACT NOW COVERS ONE WINTER AND TWO FULL SUMMERS. IT IS ASSERTED THAT SUMMER COAL PRICES ARE, ON THE AVERAGE, ?50 A TON LOWER THAN WINTER PRICES. WHEN BIDS WERE SUBMITTED, IT IS STATED, THE CONTRACT COVERED ONE WINTER AND ONE AND A HALF SUMMERS.

CENTRAL WEST CONTENDS THAT THE ARMY SHOULD HAVE RECEIVED A DISCOUNT OF AT LEAST ?50 A TON ON APPROXIMATELY 100,000 TONS SHIPPED DURING JULY AND AUGUST FOR A SAVINGS TO THE ARMY OF APPROXIMATELY $50,000. IT IS ASSERTED THAT THE INITIAL BIDS WOULD HAVE REFLECTED THIS DECREASE IF THE ORIGINAL RFP HAD CALLED FOR A 12-MONTH RATHER THAN A 10-MONTH, DELIVERY SCHEDULE. MOREOVER, IT IS CONTENDED, ANOTHER ADVANTAGE ACCRUED TO THE AMERICAN SUPPLIERS OF SHIPPING AND COAL SINCE THEY WERE REQUIRED TO SHIP LESS COAL DURING THE PEAK OF THE DOMESTIC MARKET.

IN REGARD TO THE SECOND CHANGE, IT IS STATED THAT SINCE THE BEGINNING OF THIS PROCUREMENT IN FISCAL YEAR 1962 PAYMENT HAS BEEN MADE BY THE GOVERNMENT AFTER INSPECTION AND DELIVERY IN EUROPE. HOWEVER, IT IS ALLEGED THAT IN THE PRESENT CONTRACT A CHANGE WAS MADE AFTER THE AWARD WHICH ALLOWS PAYMENT TO THE PRIME CONTRACTOR OF APPROXIMATELY 75 PERCENT OF THE VALUE OF THE COAL WHEN IT IS LOADED AT PORT RICHMOND IN PENNSYLVANIA. CENTRAL WEST ASSERTS THAT IT THIS ARRANGEMENT IS APPLIED TO THE TOTAL CONTRACT, THE PRIME CONTRACTOR HAS RECEIVED A "WINDFALL" OF APPROXIMATELY $250,000 SINCE ONE OF THE MAJOR COST FACTORS IN SERVICING THE CONTRACT IS THE INTEREST PAID ON FUNDS USED TO PROVIDE THE NECESSARY SERVICES IN EUROPE. CENTRAL WEST'S LETTER OF FEBRUARY 3, 1966, CONCLUDES AS FOLLOWS:

"* * * ALL OFFERORS WERE REQUIRED TO SUBMIT A BREAKDOWN OF COSTS AND "INTEREST" COST AVERAGED OUT TO ?20 PER TON. IF THIS 75 PERCENT PREPAYMENT ARRANGEMENT HAD BEEN KNOWN TO OFFERORS AT THE TIME OF BID SUBMISSION IT WOULD HAVE MEANT A CONSIDERABLE SAVINGS TO THE GOVERNMENT. WE KNOW, FOR EXAMPLE, THAT WE COULD HAVE REDUCED OUR DELIVERED PRICE BY ?23 PER TON. IT CAN BE SHOWN THAT SHIPPING AND COAL CO. BID THE 1,000,000 TONS AT A LOSS AND IN JUNE IT WAS A MYSTERY HOW THEY COULD AFFORD TO DO THIS. IN THE LIGHT OF THESE CONTRACT "SWEETENERS" IT IS NO LONGER A MYSTERY. THE CHANGES HAVE ALLOWED THEM TO RECOUP THE $300,000 UNDERBID WHICH THEY HAD USED AS A TOOL TO MONOPOLIZE THIS PROCUREMENT. THE GOVERNMENT, IN EFFECT, HAS PAID DEARLY IN TERMS OF BOTH KILLING THE COMPETITIVE NATURE OF THE BIDS AND IN ALLOWING A SO-CALLED "VOLUME DISCOUNT" TO BE ALLOWED.'

IN REGARD TO THE CHANGE INVOLVING THE DELIVERY SCHEDULE THE DEPARTMENT OF THE ARMY, IN A REPORT DATED MARCH 19, 1966, STATES THAT CENTRAL WEST'S ALLEGATION THAT THE CONTRACT WAS CHANGED TO EXTEND THE DELIVERY SCHEDULE IS UNFOUNDED. THE ARMY POINTS OUT THAT A RECAPITULATION OF THE DELIVERY SCHEDULE IN THE RFP PROVIDED FOR A SCHEDULE OF RECEIPTS OVER A 12-MONTH PERIOD BEGINNING IN SEPTEMBER 1965 AND TERMINATING IN AUGUST 1966. ACCORDINGLY, CENTRAL WEST'S STATEMENT THAT THE ORIGINAL RFP CALLED FOR A 10-MONTH DELIVERY SCHEDULE IS INCORRECT.

PART C OF MODIFICATION NO. 3 (DATED AUGUST 12, 1965) ENTITLED "SCHEDULE OF RECEIPT" READS IN PART AS FOLLOWS:

"THE SCHEDULES OF RECEIPTS A, C, D, AND E OF BASIC CONTRACT AND OF MODIFICATION NO. 2 THERETO ARE CHANGES (SIC) AS FOLLOWS:

"DELIVERIES ORIGINALLY SCHEDULED TO ARRIVE AT FINAL DESTINATION DURING SEPTEMBER 1965 (COLUMN 5) ARE CHANGED TO ARRIVE DURING AUGUST 1965. ALL SUBSEQUENT MONTHLY RECEIPTS (COLUMN 6 THROUGH 16) ARE MOVED SIMILAR (SIC) ONE (1) MONTH AHEAD, WITH THE FOLLOWING EXCEPTIONS:

"A. THE ORIGINAL DELIVERY SCHEDULE FOR SHIPMENTS TO FRANKFURT OSTHAFEN AND MAINZ-GUSTAVSBURG (ITEM NO. 115, 113, 151, 164, 170, 310, 405, 416 AND 507) SEPTEMBER 1965 THROUGH AUGUST 1966 REMAINS UNCHANGED.

"B. THE REVISED DELIVERY SCHEDULES AS STATED IN PART A AND B OF THIS MODIFICATION HAVE ALREADY BEEN PREDATED IN CONFORMITY WITH THE AFORESAID.'

AS THE PROVISIONS ABOVE INDICATE MODIFICATION NO. 3 CHANGED THE DELIVERY PERIOD TO ALL DESTINATIONS EXCEPT FRANKFURT-OSTHAFEN AND MAINZ-GUSTAVSBURG FROM STARTING SEPTEMBER 1965 THROUGH AUGUST 1966 TO STARTING AUGUST 1965 THROUGH JULY 1966. THE 12-MONTH DELIVERY PERIOD TO DESTINATION REMAINED UNCHANGED. THE ARMY REPORTS THAT DELIVERY OF 78,000 TONS OF ANTHRACITE AND 50,000 TONS OF BITUMINOUS TO FRANKFURT AND MAINZ WAS NOT CHANGED BECAUSE THESE DESTINATIONS WERE NOT PREPARED TO RECEIVE COAL EARLIER THAN ORIGINALLY SCHEDULED.

THE ARMY NOTES THAT MODIFICATION NO. 3 WAS PERMITTED IN ACCORDANCE WITH AMENDMENT NO. 1 TO THE REQUEST FOR PROPOSALS WHICH PROVIDED, IN PART, THAT:

"C. SHIPMENTS WILL COMMENCE IN JULY 1965 AND WILL CONTINUE ON A MONTHLY BASIS AS LISTED ON SCHEDULE OF RECEIPT. FIRST DELIVERIES MAY BE MADE PRIOR TO SEPTEMBER.' THE DATE ON THIS AMENDMENT SHOWS THAT IT WAS ISSUED TO ALL OFFERORS ON MARCH 10, 1965, PRIOR TO THE CLOSING DATE OF APRIL 5, 1965, FOR THE RECEIPT OF OFFERS. IT IS REPORTED THAT THE AMENDMENT WAS ISSUED TO ENABLE MSTS TO OBTAIN LOWER CHARTER RATES FOR CONTINUOUS SHIPPING BETWEEN TERMINATION OF DELIVERIES UNDER FISCAL YEAR 1965 CONTRACTS AND INITIATION OF DELIVERIES ON THE FISCAL YEAR 1966 CONTRACT, AND TO AVOID LOW WATER CHARGES ON INLAND TRANSPORTATION. IN THIS CONNECTION, THE ARMY STATES THAT TO DATE NO COSTS HAVE ACCRUED FOR PAYMENT OF LOW WATER CHARGES ON INLAND TRANSPORTATION AND THAT GOOD WEATHER HAS ALSO CONTRIBUTED TO THIS RESULT. LOW WATER CHARGES IN PREVIOUS YEARS ARE REPORTED AS FOLLOWS:

CHART

FY 1963 $323,284

FY 1964 794,154

FY 1965 347,942

FY 1966 0 THE ARMY STATES THAT LOW WATER CHARGES EXPERIENCED IN PREVIOUS YEARS WERE A CONTRIBUTING AND SIGNIFICANT REASON FOR MOVING UP DELIVERIES. THE ARMY'S REPORT ON THIS CHANGE CONCLUDES THAT:

"OVERALL ESTIMATED SAVINGS TO THE ARMY WILL FAR EXCEED THE $50,000 THAT THE PROTESTOR INDICATED SHOULD HAVE BEEN SAVED. IN ADDITION TO THE AVOIDANCE OF COST FOR LOW WATER $127,100 WAS SAVED IN MSTS CHARTER RATES * * * THE CHANGE IN DELIVERY SCHEDULE MADE IN AMENDMENT NO. 1 TO THE RFP WAS FURNISHED TO ALL OFFERORS AND PRICES RECEIVED FROM ALL FIRMS SHOULD HAVE CONSIDERED THIS AMENDMENT. NO SAVINGS ACCRUED TO THE CONTRACTOR AFTER AWARD OF THE CONTRACT SINCE THE CONTRACT WAS BASED ON THE AMENDED RFP, WHICH RETAINED THE TWELVE MONTH DELIVERY SCHEDULE.'

IN RESPONSE TO CENTRAL WEST'S ALLEGATIONS ON THE SECOND CONTRACT CHANGE THE ARMY'S REPORT READS AS FOLLOWS:

"THE STATEMENT BY THE PROTESTOR THAT THE FY 66 CONTRACT WAS CHANGED AFTER AWARD TO PROVIDE FOR PROGRESS PAYMENTS IS CORRECT. HOWEVER, THE FUEL IS NOT ACCEPTED IN THE UNITED STATES. THE CONTRACTOR RETAINS THE RESPONSIBILITY FOR RISK OF LOSS, THEFT, DESTRUCTION OR DAMAGE TO THE FUEL UNTIL IT IS DELIVERED AND ACCEPTED. FURTHER, PROGRESS PAYMENTS ARE MADE ON RECEIPT OF A REQUEST FOR PROGRESS PAYMENT AND SHIPS MANIFEST AT THE USAPCF, AND NOT WHEN FUEL IS LOADED AT PORT RICHMOND AS ALLEGED. PAYMENTS HAVE BEEN MADE ONE WORKING DAY AFTER ARRIVAL OF COAL AT AMSTERDAM.

"THE NEED FOR PROGRESS PAYMENTS WAS NOT ANTICIPATED AT THE TIME OF THE SOLICITATION OFFERS BECAUSE THERE WAS NO HISTORY OF A REASONABLE NEED FOR FINANCIAL ASSISTANCE BY SUPPLIERS WHO HAVE PREVIOUSLY PARTICIPATED IN THE SOLICITATION. THE PROVISIONS WERE NOT INCLUDED IN THE SOLICITATION AS A MATTER OF COURSE BECAUSE THE LEAD TIME BETWEEN BEGINNING OF WORK AND DELIVERY WAS NOT CONSIDERED TO BE UNUSUALLY LONG.

"A. DURING PERFORMANCE UNDER CONTRACT DA-91-591-EUC-3755, O.I. 634 0005, THE CONTRACTOR MADE AN UNSOLICITED OFFER TO REDUCE THE CONTRACT PRICE BY $0.08 PER METRIC TON IF CHANGES WERE MADE IN THE ADMINISTRATION OF THE CONTRACT. THE INITIAL REQUEST WAS NOT SPECIFIC AS TO THE CHANGES DESIRED. AS A RESULT OF NEGOTIATIONS, IT WAS DETERMINED THAT THE OFFER WAS AIMED AT EXPEDITING PAYMENTS.

"B. IT WAS CONCLUDED THAT PROGRESS PAYMENTS ON 85 PERCENT OF THE AVERAGE COST PER TON OF FUEL DELIVERED TO US PORT FOR A PRICE REDUCTION OF $0.08 PER METRIC TON WAS EQUITABLE CONSIDERATION FOR GRANTING PROGRESS PAYMENTS. ADDITIONAL, UNCALCULATED SAVINGS ACCRUE TO USAPCF THROUGH CONSOLIDATION OF INVOICES AND PAYMENT DOCUMENTS. ALTHOUGH THE CONTRACTING OFFICER FINALLY ACCEPTED THE ORIGINAL OFFER, IT WAS ONLY AFTER THOROUGH EXAMINATION. PRIOR TO ISSUING THE MODIFICATION, THE ACTION WAS EXAMINED BY COST AND PRICE ANALYSIS SECTION, PROCUREMENT JUDGE ADVOCATE, THE CONTRACT AWARD REVIEW BOARD, THE ACTING COMMANDING OFFICER, USAPCF, AND THE HEAD OF THE PROCURING ACTIVITY COMZ. ALL CONCURRED IN AWARD OF THE MODIFICATION.

"C. THE $0.08 PER TON REDUCTION OFFERED BY SHIPCO IS CONSIDERED REALISTIC AND ADEQUATE. IT REPRESENTS A REDUCTION OF OVER 5 PERCENT FINANCING CHARGES ON THE FOB US PORT PRICE OF FUEL OFFERED BY SHIPCO. THIS IS BASED ON PAYMENT OF 85 PERCENT FOR ANTHRACITE AT $18.07 PER METRIC TON AND BITUMINOUS AT $10.68 PER METRIC TON, FOB US PORT FOR A PERIOD OF 40 DAYS (PERIOD IS BASED ON INTERVAL BETWEEN RECEIPT OF REQUEST FOR PROGRESS PAYMENT AND SHIP MANIFEST, AND RECEIPT OF THE RECEIVING REPORTS AT THE FINANCE OFFICE WHICH LIQUIDATES PAYMENT FOR THE SHIPMENT).

"D. AS OF 25 OCTOBER 1965, THE DATE OF MODIFICATION NO. 7, PROGRESS PAYMENTS COULD HAVE BEEN MADE ON AN OPEN BALANCE OF 846,243 METRIC TONS. THE PRICE REDUCTION OF $0.08 PER METRIC TON REPRESENTS A POTENTIAL SAVING TO THE GOVERNMENT OF $67,699, PROVIDING CONTRACTOR REQUESTS PROGRESS PAYMENTS. TO DATE, PROGRESS PAYMENTS HAVE BEEN MADE ON 320,000 METRIC TONS AND $25,600 DEDUCTED FROM PAYMENTS. "E. THE STATEMENT MADE BY PROTESTOR THAT $0.23 REDUCTION PER METRIC TON COULD HAVE BEEN GRANTED BY HIM DOES NOT APPEAR TO BE REALISTIC. IT REPRESENTS A REDUCTION OF APPROXIMATELY 14 PERCENT FINANCING CHARGES USING PRICES ON DE HUMBER'S FY 66 OFFER. THIS IS BASED ON PAYMENT OF 85 PERCENT OF $17.71 (AVERAGE PRICE OF ANTHRACITE PER TON FROM DE HUMBER, FOB US PORT) FOR PERIOD OF 40 DAYS. "F. THE PROTESTOR'S LETTER, 3 FEBRUARY 1966, STATED THAT "ALL OFFERORS WERE REQUIRED TO SUBMIT A BREAKDOWN OF COSTS AND THE "INTEREST" COST AVERAGED OUT TO $0.20 PER TON.' THIS INDICATES THAT HIS INTEREST CHARGES APPARENTLY AVERAGED OUT TO $0.20 PER TON. SUCH INFORMATION WAS NOT FURNISHED TO THE CONTRACTING OFFICER. PRICES WERE SUBMITTED ON THE BASIS OF BLOCKS WHICH GROUPED REQUIREMENTS FOR DESIGNATED LOCATIONS. THESE PRICES WERE BROKEN DOWN TO REFLECT THE PRICE AT EACH STAGE OF PERFORMANCE SUCH AS FOB US PORT, OFF-LOADED EUROPEAN PORT, RAIL CHARGES, BARGE CHARGES, LOCK FEES, ETC. PRICE BREAKDOWN, SETTING FORTH INTEREST BY RATE OR AMOUNT WAS NEVER REQUESTED OR RECEIVED.

"THE VALUE OF THIS MODIFICATION TO THE CONTRACTOR IS THE REDUCTION OF PRIVATE FINANCING NECESSARY TO COVER THE COST OF FUEL FROM THE PERIOD OF RECEIPT OF PROGRESS PAYMENTS UNTIL LIQUIDATION BY PAYMENT UNDER TERMS OF THE CONTRACT. THIS VALUE IS CONSIDERED TO HAVE PASSED TO THE GOVERNMENT IN THE FORM OF THE EQUITABLE PRICE ADJUSTMENT OF $0.08 A TON.

"BASED ON PRIVATE FINANCING COST OF 5 PERCENT WHICH WAS THE FIGURE USED TO EVALUATE THE SHIPCO OFFER, THERE IS NO BASIS FOR THE ALLEGATION THAT THE MODIFICATION TO GRANT PROGRESS PAYMENTS WAS A $250,000 WINDFALL TO THE CONTRACTOR. THE ALLEGATION DOES NOT TAKE INTO ACCOUNT THE CONSIDERATION OBTAINED, THE PORTION OF THE CONTRACT TO WHICH IT APPLIES, OR THE PERIOD OF TIME ALLOWED TO LIQUIDATE THE OBLIGATION.

"IT IS CONCEIVABLE THAT THE COST OF INTEREST TO DE HUMBER WOULD BE HIGHER THAN SHIPCO BECAUSE THE BASE COST OF FUEL OFFERED BY DE HUMBER DELIVERED TO DESTINATION IS HIGHER AND THE AVERAGE LAPSE TIME BETWEEN DEPARTURE OF COAL FROM US PORT AND FINAL DELIVERY UNDER FY 65 CONTRACT WAS LONGER BY AN ESTIMATED AVERAGE OF 14 DAYS DUE TO THE NEED FOR RESCREENING OF FUEL TO MEET SIZE REQUIREMENTS OF THE CONTRACT.'

WHILE IT IS TRUE THAT IN THE ABSENCE OF A STATUTE SPECIFICALLY SO PROVIDING NO OFFICER OF THE UNITED STATES HAS AUTHORITY TO SURRENDER OR GIVE AWAY A RIGHT VESTED IN OR ACQUIRED BY THE GOVERNMENT UNDER A CONTRACT (22 COMP. GEN. 260), IT APPEARS, IN VIEW OF THE ABOVE REPORT FROM THE ARMY, THAT THE RESTRICTION WAS NOT VIOLATED IN THE INSTANT CASE BECAUSE THE MODIFICATIONS AT ISSUE WERE MADE IN RETURN FOR SUBSTANTIAL BENEFITS TO THE UNITED STATES. MOREOVER, WE HAVE BEEN ADVISED BY THE ARMY THAT THERE IS NO EVIDENCE TO INDICATE THAT OFFERORS HAD KNOWLEDGE AT THE TIME OFFERS WERE SUBMITTED THAT THE TWO MODIFICATIONS WOULD BE MADE. ALSO, THE ARMY STATES THAT NO ADVERSE EFFECT FROM THE TWO CHANGES IS APPARENT SINCE WITH RESPECT TO DELIVERY NO ADDITIONAL SUMMER MONTH WAS PROVIDED, AND WITH RESPECT TO PROGRESS PAYMENTS A SIMILAR CHANGE WITH ANY CONTRACTOR WOULD HAVE BEEN NEGOTIATED UNDER COMPARABLE CIRCUMSTANCES.

IN VIEW OF THE FOREGOING CONSIDERATIONS WE MUST ADVISE THAT WE SEE NO LEGAL REQUIREMENT FOR OUR OBJECTION TO THE AWARD OF THE CONTRACT TO SHIPPING AND COAL. ACCORDINGLY, YOUR PROTEST IS DENIED.