B-159750, JAN. 11, 1967

B-159750, JAN. 11, 1967

TO AQUA-CHEM, INC.:

IN YOUR LETTERS OF JULY 20 AND OCTOBER 29, 1966, YOU PROTEST THE AWARD ON JUNE 22, 1966, OF A CONTRACT TO CUNO ENGINEERING CORP., A SUBSIDIARY OF AMERICAN MACHINE AND FOUNDRY CO. THE CONTRACT CALLS FOR DELIVERY OF 2 DISTILLING UNITS, EACH WITH A NOMINAL CAPACITY OF 40,000 GALLONS PER DAY, WHICH THE GOVERNMENT INTENDS TO HAVE INSTALLED ON THE AOE-4 U.S. NAVY VESSEL. YOU MAINTAIN THAT A PROPER EVALUATION IN ACCORDANCE WITH THE TERMS OF IFB 251-606-66 SHOWS YOU SUBMITTED THE LOWER OF THE TWO BIDS RECEIVED.

THE RECORD SHOWS THAT THE PUGET SOUND NAVAL SHIPYARD, THE PROCURING ACTIVITY, SOLICITED BIDS FROM NINE FIRMS. BID OPENING WAS SCHEDULED FOR MAY 24, 1966. PRIOR TO BID OPENING, IN A LETTER OF APRIL 20,1966, YOU OBJECTED TO THE METHOD OF EVALUATION PRESCRIBED IN THE "EVALUATION OF IDS" CLAUSE OF THE IFB. THIS CLAUSE PROVIDED THAT SEVERAL ESTIMATED COSTS, WHICH THE NAVY THOUGHT IT WOULD INCUR IN REDESIGNING THE AOE-4 VESSEL IN ORDER TO ACCOMMODATE THE INSTALLATION OF ANY DISTILLING UNIT OTHER THAN THE ONE DESIGNED FOR THE AOE-3 VESSEL, WOULD BE ADDED TO A BID PRICE FOR EVALUATION PURPOSES, UNLESS THE BIDDER HAD PREVIOUSLY FURNISHED A SUBSTANTIALLY IDENTICAL DISTILLING UNIT TO THE PUGET SOUND NAVAL SHIPYARD. YOU STATED THAT THIS BASIS OF EVALUATING BID WOULD RESULT IN A NON-COMPETITIVE SOLICITATION, BECAUSE "THERE IS ONLY ONE SUPPLIER THAT HAS PREVIOUSLY FURNISHED SUBSTANTIALLY IDENTICAL EQUIPMENT TO THE PUGET SOUND NAVAL SHIPYARD.' FROM THE RECORD IT WOULD APPEAR THAT THE "ONE SUPPLIER" TO WHICH YOU REFERRED WAS CUNO.

IN POINT OF FACT, THE RECORD SHOWS THAT NO FIRM HAS YET DELIVERED SUBSTANTIALLY IDENTICAL DISTILLING UNITS FOR AOE VESSELS TO THE PUGET SOUND NAVAL SHIPYARD. THE UNITS FOR THE AOE-1 VESSEL WERE NOT SUBSTANTIALLY IDENTICAL TO THOSE SPECIFIED FOR THE AOE-2, 3, AND 4 VESSELS, IN THAT THEY WERE A SUBMERGED TUBE TYPE PLANT WHICH PRODUCED ONLY 30 GALLONS PER DAY. THE AOE-2 UNITS WHICH YOU HAVE PREVIOUSLY FURNISHED WERE CONSIDERED SUBSTANTIALLY IDENTICAL TO THE AOE 4 UNITS, BUT WERE FURNISHED TO, AND PRESUMABLY UNDER CONTRACT WITH, THE NEW YORK SHIPBUILDING CORPORATION. ON THE UNITS FOR THE AOE-3, FOR WHICH A SEPTEMBER 1966 DELIVERY WAS REQUIRED, YOU SUBMITTED A BID OF $152,450. SINCE CUNO SUBMITTED A BID OF $133,000, IT WAS AWARDED THE CONTRACT WITH THE PUGET SOUND NAVAL SHIPYARD FOR DELIVERY OF THE AOE-3 UNITS. THESE UNITS WERE NOT SCHEDULED TO HAVE BEEN DELIVERED BY MAY 24, 1966, THE DATE BIDS FOR THE AOE-4 UNITS WERE OPENED, AND IN FACT WERE NOT DELIVERED AS SCHEDULED IN SEPTEMBER OF 1966, DUE TO GOVERNMENT DELAYS IN APPROVING NECESSARY DRAWINGS.

AS A RESULT OF YOUR OBJECTION TO THE PRESCRIBED METHOD OF EVALUATION, AND YOUR REQUEST THAT YOU BE ACCORDED THE SAME OR SIMILAR TREATMENT AS CUNO SINCE YOU HAD DELIVERED SUBSTANTIALLY IDENTICAL EQUIPMENT FOR THE AOE-2 VESSEL, THE IFB WAS AMENDED TO PROVIDE IN EFFECT THAT CERTAIN ADMINISTRATIVE AND REDESIGN COSTS IN THE AMOUNT OF $23,150 WOULD NOT BE INCLUDED IN THE BID EVALUATION IF A BIDDER HAD PREVIOUSLY FURNISHED SUBSTANTIALLY IDENTICAL ITEMS "TO THE PUGET SOUND NAVAL SHIPYARD FOR THE AOE-3," AND THAT THE MAJOR PORTION OF SUCH COSTS WOULD NOT BE ADDED IF A BIDDER HAD PREVIOUSLY FURNISHED SUCH ITEMS,"TO THE NEW YORK SHIPBUILDING CORPORATION FOR THE AOE-2.' IN RESPONSE TO THE AMENDED IFB, CUNO SUBMITTED A LOW BID OF $144,908, TO WHICH NO ESTIMATED COSTS WERE ADDED FOR EVALUATION PURPOSES. YOU SUBMITTED A BID OF $148,740, TO WHICH $10,070 OF ESTIMATED COSTS WERE ADDED FOR EVALUATION PURPOSES.

IN YOUR LETTER OF JULY 20, 1966, YOU CONCLUDE THAT SINCE CUNO HAD NOT "PREVIOUSLY FURNISHED" AOE-3 UNITS TO PUGET SOUND NAVAL SHIPYARD, THE CONTRACTING OFFICER SHOULD HAVE ADDED $23,150 TO CUNO'S BID FOR EVALUATION PURPOSES, AND YOU ASSERT THAT HIS FAILURE TO COMPLY WITH THIS UNAMBIGUOUS METHOD OF EVALUATION AMOUNTS TO AN ARBITRARY SELECTION OF THE SUCCESSFUL BIDDER, THUS COMPLETELY DESTROYING THE INTEGRITY OF THE COMPETITIVE BIDDING SYSTEM. YOU CLAIM ENTITLEMENT TO THE CONTRACT AS THE LOW RESPONSIVE BIDDER.

IN YOUR LETTER OF OCTOBER 29, 1966, YOU SAY THAT AT YOUR SUGGESTION THE PHILADELPHIA NAVAL SHIPYARD RECENTLY AMENDED ANOTHER IFB, NO. N00151-67-B- 0233, WHICH IT HAD ISSUED FOR THE PROCUREMENT OF DISTILLATION UNITS, TO ELIMINATE THE "PATENT AMBIGUITY" OF THE "IDENTICAL LANGUAGE WHICH IS THE SUBJECT OF OUR PROTEST," I.E., THE LANGUAGE "WHEN A SUBSTANTIALLY IDENTICAL ITEM HAS NOT BEEN PREVIOUSLY FURNISHED" TO THE PHILADELPHIA NAVAL SHIPYARD. IN THAT PROCUREMENT, IT WAS YOUR FIRM RATHER THAN CUNO'S WHICH HAD A CONTRACT TO SUPPLY BUT HAD NOT YET FURNISHED A SUBSTANTIALLY IDENTICAL UNIT TO THE PHILADELPHIA SHIPYARD. THE IFB WAS AMENDED TO PROVIDE YOUR FIRM WITH AN EXEMPTION FROM REDESIGN COSTS ON THE BASIS OF A PROMISE TO SUPPLY A UNIT IDENTICAL TO ONE YOU APPARENTLY HAVE NOT YET DELIVERED TO THE PHILADELPHIA NAVAL SHIPYARD, BUT WHICH YOU ARE CURRENTLY MANUFACTURING IN CONNECTION WITH A CONTRACT FOR THE VESSEL ON WHICH THE UNIT IS TO BE INSTALLED. THE PROCUREMENT HAS BEEN PROTESTED BY CUNO, AND IS THE SUBJECT OF OUR DECISION OF TODAY, B-160209, A COPY OF WHICH IS ENCLOSED.

THE PUGET SOUND NAVAL SHIPYARD REPORTS THAT AT THE TIME IT DEVISED THE METHOD OF EVALUATION IT WAS AWARE THAT THE CUNO DISTILLING UNITS FOR THE AOE-3 WOULD NOT BE FURNISHED UNTIL A DISTANT FUTURE DATE. WE HAVE NO DOUBT THAT THIS IS THE CASE, SINCE THE AOE-3 UNITS WERE NOT SCHEDULED FOR DELIVERY UNTIL OVER THREE MONTHS AFTER BIDS FOR THE AOE 4 UNITS WERE SCHEDULE TO BE OPENED. THE AGENCY DETERMINED THAT THE FACTOR OF NON- DELIVERY OF THE AOE-3 UNITS WOULD NOT CREATE ANY REDESIGN OR OTHER ASSOCIATED GOVERNMENT COSTS, BECAUSE THAT PART OF THE DESIGN OF THE AOE-3 AND AOE-4 VESSELS AFFECTED BY INSTALLATION OF THE DISTILLING UNITS WAS CRYSTALLIZED AND IDENTICAL FOR BOTH VESSELS. THEREFORE, DESIGN AND OTHER GOVERNMENT COSTS WILL BE CHARGED TO THE AOE-3 VESSEL, REGARDLESS OF WHETHER THE DISTILLING UNITS FOR THAT VESSEL HAVE BEEN DELIVERED.

WE ARE SATISFIED THAT PUGET SOUND INTENDED TO ADVISE BIDDERS THAT CERTAIN COSTS WOULD NOT BE ADDED TO THEIR EVALUATED BID PRICE IF THEY HAD PREVIOUSLY RECEIVED A CONTRACT FOR THE SAME ITEM; AND THAT IT MAY WELL BE THAT YOU FULLY UNDERSTOOD THIS INTENTION, SINCE THE RECORD SHOWS YOU ASSUMED THAT UNDER THE ORIGINAL LANGUAGE OF THE IFB ONLY CUNO WOULD BE EXEMPT FROM THE REDESIGN EVALUATION FACTOR, ALTHOUGH HAVING BID ON THE CONTRACT AWARDED TO CUNO FOR THE AOE-3 DISTILLING UNITS YOU PRESUMABLY KNEW THAT THESE UNITS WERE NOT EXPECTED TO BE FURNISHED UNTIL MONTHS AFTER BIDS ON THE AOE-4 UNITS HAD BEEN OPENED. NEVERTHELESS, OUR FURTHER REVIEW OF THE RECORD INDICATES SOME SUPPORT FOR THE VIEW THAT IF REDESIGN COSTS WERE PROPERLY INCLUDED IN THE EVALUATION OF YOUR BID, SIMILAR COSTS ALSO SHOULD HAVE BEEN INCLUDED IN THE EVALUATION OF CUNO'S BID.

UNLIKE THE ABOVE-DISCUSSED PROCUREMENT AT THE PHILADELPHIA NAVAL SHIPYARD, THIS IFB DID NOT REQUIRE EITHER AQUA-CHEM OR CUNO TO CONTRACT TO FURNISH THE SAME ITEM FOR WHICH THEY HAD EITHER PREVIOUSLY FURNISHED OR PREVIOUSLY CONTRACTED TO FURNISH. THEREFORE, THE AGENCY HAD NO ASSURANCE THAT AWARD TO EITHER OF THE TWO FIRMS WOULD RESULT IN THEIR FURNISHING A DISTILLING UNIT IDENTICAL TO ONE DESIGNED FOR A PREVIOUS PROCUREMENT, AND CONSEQUENTLY, NO ASSURANCE THAT IT WOULD NOT INCUR UNANTICIPATED AND UNEVALUATED REDESIGN COSTS. SINCE EITHER YOU OR CUNO COULD HAVE OFFERED A CONFORMING DISTILLING UNIT WHICH WAS NOT DESIGNED FOR THE AOE-2 OR AOE-3 VESSELS, THE ACTIVITY MIGHT HAVE BEEN JUSTIFIED IN ADDING TO EACH BID REALISTIC ESTIMATES OF REDESIGN COSTS WHICH THE GOVERNMENT WOULD HAVE INCURRED IF FURNISHED WITH OTHER THAN THE AOE-2 OR AOE-3 UNITS. INDEED, WE NOTE THAT CUNO APPEARS TO HAVE OFFERED BID PRICES ON CERTAIN ITEMS IN THE IFB WHICH IT WILL NOT BE REQUIRED TO FURNISH UNLESS THE "MATERIAL DIFFERS FROM THAT PREVIOUSLY FURNISHED.'

HOWEVER, THE MOST SIGNIFICANT ELEMENT IN THIS CASE, AND THE ONE WHICH LEADS US TO CONCLUDE THAT THE ESTIMATE OF THE REDESIGN COST FACTOR SHOULD NOT HAVE BEEN ADDED TO EITHER BID, IS THAT THE PROCURING ACTIVITY'S ESTIMATE OF REDESIGNING THE AOE-4 VESSEL, NECESSARILY A PRECISE FIGURE FOR EVALUATION PURPOSES, IS UNDER THE CIRCUMSTANCES INHERENTLY UNREALISTIC. THE ACTIVITY HAD NEITHER ASSURANCE FROM CUNO OR FROM YOUR FIRM AS TO HOW SIMILAR IN DESIGN AN OFFERED UNIT WOULD BE TO THE ONE MANUFACTURED FOR THE AOE-2 OR AOE-3 VESSELS, NOR, MORE IMPORTANTLY, KNOWLEDGE OF THE DESIGN OF ANY UNIT WHICH MIGHT HAVE BEEN OFFERED BY ANY OTHER BIDDER. WE CANNOT UNDERSTAND, AND THE ACTIVITY HAS BEEN UNABLE TO EXPLAIN, HOW IT COULD TAKE DISTILLING UNITS OF UNKNOWN DESIGNS AND DETERMINE WITH ANY REASONABLE ACCURACY THE EXTENT TO WHICH THOSE UNKNOWN DESIGNS WOULD VARY FROM THE KNOWN DESIGNS FOR THE AOE-2 AND 3 DISTILLING UNITS. WE CAN IMAGINE THE POSSIBILITY OF AN ACTIVITY USING ITS PAST EXPERIENCE TO DETERMINE A RANGE OF DIFFERENCES IN DESIGN, ESTIMATING THEIR INDIVIDUAL COST EFFECTS ON REDESIGNING THE VESSELS, AND ARRIVING AT AN AVERAGE OR MEAN REDESIGN COST THAT A HYPOTHETICAL UNIT MIGHT GENERATE. HOWEVER, WE REGARD SUCH AN ESTIMATE AS TOO HYPOTHETICAL AND SPECULATIVE TO SERVE AS AN EVALUATION FACTOR WHICH WOULD BE ADDED TO THE BID PRICE FOR ANY DISTILLING UNIT NOT SUBSTANTIALLY IDENTICAL TO THE ONES DESIGNED FOR THE AOE-2 OR 3 VESSEL.

WE RECOGNIZE THAT THE DEFECT MIGHT BE CURED IN TWO-STEP PROCUREMENTS (OR, IN SOME CASES, QUALIFIED PRODUCTS PROCUREMENTS) IF THE COST OF REDESIGNING A SPECIFIED VESSEL COULD BE DETERMINED FOR EACH BIDDER AFTER APPROVAL OF TECHNICAL PROPOSALS. HOWEVER, WE HAVE STATED THAT IF ADMINISTRATIVE COSTS SUCH AS THOSE INVOLVED ARE TO BE A FACTOR IN BID EVALUATION, THE EVALUATION SYSTEM SHOULD BE ACCEPTED ONLY AFTER THOROUGH STUDY AND CONSIDERATION OF THE PROS AND CONS BY ALL INTERESTED AGENCIES, AND THE ESTABLISHMENT OF PROPER CRITERIA FOR USE OF THIS FACTOR. B-156582, JULY 16, 1965, AND 45 COMP. GEN. ---- , B-158062, JANUARY 20, 1966. THIS PROCEDURE DOES NOT APPEAR TO HAVE BEEN FOLLOWED IN THE INSTANT CASE, WHICH MAY EXPLAIN WHY THE EVALUATION SYSTEM USED HERE HAS BEEN STRUCTURED WITH SERIOUS BUILT-IN DEFECTS. THEREFORE, WE ARE TODAY ADVISING THE DEPARTMENT OF THE NAVY THAT CORRECTIVE ACTIONS SHOULD BE TAKEN TO PREVENT THE FUTURE USE OF THIS EVALUATION SYSTEM IN SIMILAR CIRCUMSTANCES. HOWEVER, SINCE CUNO IS THE LOW BIDDER AND YOU ARE THE HIGH BIDDER WITHOUT ADDITION OF THE IMPROPER REDESIGN COST EVALUATION FACTOR, WE PERCEIVE NO REASON WHY THE CONTRACT AWARDED TO CUNO SHOULD BE CANCELLED. ACCORDINGLY, YOUR PROTEST IS DENIED.