B-159868, JUN. 26, 1970

B-159868, JUN. 26, 1970

BIDS--EVALUATION--DISCOUNT PROVISIONS--QUANTITY DISCOUNTS UNDER REQUEST FOR PROPOSALS INVITING PROPOSALS ON 9 BLOCKS OF COAL FOR USE IN EUROPE, AND ALLOWING QUANTITY DISCOUNTS, UNSUCCESSFUL BIDDER PROTESTED AWARD TO BIDDER OFFERING "ALL OR NONE" BID THAT WAS MORE FAVORABLE THAN AWARDING TO LOWEST OFFERORS PER BLOCK, ON GROUNDS THAT QUANTITY DISCOUNTS WERE NOT BASED ON COST ECONOMIES AND "ALL OR NONE" BIDS WERE IMPERMISSIBLE. ALTHOUGH DISCOUNTS MAY BE REJECTED IF CONTRACTING OFFICER DETERMINES THEY ARE NOT COST JUSTIFIED, "ALL OR NONE" BIDS ARE GENERALLY ACCEPTABLE, ALL OTHER THINGS BEING EQUAL, EVEN THOUGH NOT PROVIDED FOR IN INVITATION FOR BIDS AND WILL BE QUESTIONED ONLY IF CLEARLY ERRONEOUS. SEE COMP. GEN. DECS. CITED.

TO HAWLEY FUEL CORPORATION:

YOUR LETTER OF JULY 17, 1969, WITH ENCLOSURES, PROTESTED ON BEHALF OF YOUR PRINCIPALS, MESSRS. LEONHARD LEIDEL, THE AWARD OF A CONTRACT UNDER BLOCK H OF REQUEST FOR PROPOSALS (RFP) DAJA37-69-R-0210, ISSUED BY THE UNITED STATES ARMY PROCUREMENT CENTER, FRANKFURT, GERMANY, FOR THE PROCUREMENT OF ANTHRACITE AND BITUMINOUS COAL FOR USE IN EUROPE DURING FISCAL YEAR 1970.

YOUR PROTEST ALLEGES GENERALLY THAT QUANTITY DISCOUNTS OFFERED BY THE SUCCESSFUL OFFEROR, SHIPPING AND COAL CO. (SHIPCO), WERE NOT BASED ON COST ECONOMIES AS REQUIRED BY THE TERMS OF THE RFP, BY OUR DECISION AT 47 COMP. GEN. 562 (1968), AND OUR AUDIT REPORT TO THE CONGRESS DATED JUNE 4, 1968. IN VIEW OF YOUR ALLEGATIONS AND SINCE THIS MATTER OF QUANTITY DISCOUNTS HAS BEEN PREVIOUSLY CONSIDERED BY OUR OFFICE, WE MADE A DETAILED AUDIT OF SHIPCO COST ESTIMATES. THE RESULTS OF OUR AUDIT REVIEW WILL BE DISCUSSED BELOW.

THE SUBJECT RFP WAS FOR ANTHRACITE AND BITUMINOUS COAL AND CONTAINED NINE BLOCKS (A THROUGH I), SEVEN FOR ANTHRACITE AND COKE AND TWO FOR BITUMINOUS AND OTHER TYPES. THE TOTAL VOLUME REQUESTED WAS APPROXIMATELY 1.1 MILLION METRIC TONS, 860,000 OF ANTHRACITE AND 240,000 OF BITUMINOUS COAL. OFFERS WERE RECEIVED FROM 4 OFFERORS OF THE 21 SOLICITED, BUT NONE SUBMITTED OFFERS ON ALL BLOCKS. SHIPCO, HOWEVER, QUOTED ON 6 OF THE 7 ANTHRACITE BLOCKS AND ON BOTH BITUMINOUS BLOCKS.

WITH RESPECT TO DISCOUNTS, SECTION SPA2 OF THE RFP, ENTITLED "BASIS FOR AWARD," PROVIDED AS FOLLOWS WITH REFERENCE TO DISCOUNTS OFFERED ON ANTHRACITE BLOCKS:

"OFFERS OF DISCOUNTS OR REBATES BASED UPON QUANTITY WILL BE INCLUDED IN THE EVALUATION OF PROPOSALS, PROVIDED THEY ARE OFFERED IN INCREMENTS AS SET FORTH BELOW.

$ PER METRIC TON

FOR ANTHRACITE: DISCOUNT FOR 2 BLOCKS

OR COKE:

DISCOUNT FOR 3 BLOCKS

DISCOUNT FOR 4 BLOCKS

DISCOUNT FOR 5 BLOCKS

DISCOUNT FOR 6 BLOCKS

DISCOUNT FOR 7 BLOCKS

"THE GOVERNMENT RESERVES THE RIGHT TO REJECT ANY NON-COMPETITIVE DISCOUNTS. AN EXAMPLE OF NON-COMPETITIVE DISCOUNTS WHICH MAY BE REJECTED ARE THOSE WHICH ARE DISPROPORTIONATELY HIGH AT THE TOTAL QUANTITY OFFERED WITH RESPECT TO THE DISCOUNT OFFERED AT THE NEXT LOWER BLOCK QUANTITY. (E.G. 7 BLOCKS - 40[ PER TON, 6 BLOCKS - 15[ PER TON, 5 BLOCKS - 10[ PER TON). ANY UNUSUALLY HIGH DISCOUNT MUST BE SUPPORTED BY SHOWING OF ACTUAL COST SAVINGS TO THE OFFEROR BECAUSE OF LARGE VOLUME.

"ANOTHER EXAMPLE OF DISCOUNTS WHICH MAY BE REJECTED ARE THESE WHICH APPEAR TO BE AN ATTEMPT TO FREEZE OUT COMPETITORS BY OFFERING COAL AT NO PROFIT OR AN UNUSUALLY LOW PROFIT. THIS RIGHT OF REJECTION OF OFFERS APPLIES TO THE PRIME OFFEROR AND TO ALL SUB-CONTRACT OFFERORS."

CONCERNING EVALUATION, THAT SECTION PROVIDED, AGAIN WITH RESPECT TO THE ANTHRACITE BLOCKS, THAT:

"WHILE EVALUATION WILL BE MADE BY BLOCKS, THE ULTIMATE AND CONTROLLING EVALUATION WILL BE THE OFFER OR OFFERS WHICH WILL PROVIDE THE LOWEST COST PER MILLION BTU'S (MBTU'S). ALL OFFERS WILL BE CONVERTED TO MBTU FOR EVALUATION IN ACCORDANCE WITH THE FORMULA SET FORTH IN PARA(4) BELOW."

SECTION SPB2, DEALING WITH OFFERS ON THE TWO BITUMINOUS BLOCKS, PROVIDED AS FOLLOWS:

"OFFERS OF DISCOUNTS OR REBATES BASED UPON QUANTITY WILL BE INCLUDED IN THE EVALUATION OF PROPOSALS, PROVIDED THEY ARE OFFERED IN INCREMENTS AS SET FORTH BELOW.

$ PER METRIC TON

FOR BITUMINOUS: DISCOUNT FOR 2 BLOCKS

"WHEN BITUMINOUS COAL DISCOUNTS ARE OFFERED IN CONNECTION WITH ANTHRACITE DISCOUNTS THE GOVERNMENT RESERVES THE RIGHT TO REJECT ANY NON-COMPETITIVE DISCOUNTS. AN EXAMPLE OF NON-COMPETITIVE DISCOUNTS WHICH MAY BE REJECTED ARE THOSE WHICH ARE DISPROPORTIONATELY HIGH AT THE TOTAL QUANTITY OFFERED WITH RESPECT TO THE DISCOUNT OFFERED AT THE NEXT LOWER BLOCK QUANTITY (E.G. 7 BLOCKS - 40[ PER TON, 6 BLOCKS - 15[ PER TON, 5 BLOCKS - 10[ PER TON). ANY UNUSUALLY HIGH DISCOUNT MUST BE SUPPORTED BY SHOWING OF ACTUAL COST SAVINGS TO THE OFFEROR BECAUSE OF LARGE VOLUME.

"ANOTHER EXAMPLE OF DISCOUNTS WHICH MAY BE REJECTED ARE THOSE WHICH APPEAR TO BE AN ATTEMPT TO FREEZE OUT COMPETITORS BY OFFERING COAL AT NO PROFIT OR AN UNUSUALLY LOW PROFIT. THIS RIGHT OF REJECTION OF OFFERS APPLIES TO THE PRIME OFFEROR AND TO ALL SUB-CONTRACT OFFERORS."

CONCERNING EVALUATION, SECTION SPB2 COVERING BITUMINOUS BLOCKS, SIMILAR TO SECTION SPA2 FOR ANTHRACITE QUOTED ABOVE, EXCEPT FOR THE MBTU CONVERSION FORMULA, PROVIDED AS FOLLOWS:

"WHILE EVALUATION WILL BE MADE BY BLOCKS, THE ULTIMATE AND CONTROLLING EVALUATION WILL BE THE OFFER OR OFFERS WHICH ARE MOST ADVANTAGEOUS TO THE GOVERNMENT AND PROVIDE THE LOWEST TOTAL COST TO THE GOVERNMENT NOTWITHSTANDING EVALUATION BEING MADE BY BLOCKS."

YOU MAINTAIN THAT YOUR PRINCIPALS, MESSRS. LEONHARD LEIDEL, A PROSPECTIVE PRIME CONTRACTOR UNDER THE SUBJECT RFP, SUBMITTED THE LOWEST PRICE UNDER BLOCK H FOR BITUMINOUS COAL BUT RECEIVED NO AWARD BECAUSE OF THE APPLICATION OF AN "ALL OR NONE" DISCOUNT OFFERED BY SHIPCO FOR THE AWARD OF ALL BLOCKS, ANTHRACITE AND BITUMINOUS, ON WHICH IT SUBMITTED OFFERS. THE EFFECT OF THE DISCOUNT OFFER WAS TO MAKE THE SHIPCO "ALL OR NONE" PRICE, IN THE OPINION OF THE CONTRACTING OFFICIALS, MORE FAVORABLE THAN AWARD TO THE LOWEST OFFEROR ON EACH INDIVIDUAL BLOCK.

ALSO, YOU CONTEND THAT THE RFP BY ITS TERMS PRECLUDES THE OFFER OF DISCOUNTS WHICH OFFER A LOWER PRICE FOR COMBINATIONS OF ANTHRACITE AND BITUMINOUS BLOCKS. IN THIS REGARD, YOU POINT OUT THAT THE RFP IS DIVIDED INTO THREE SECTIONS; SECTION "A" DEALING EXCLUSIVELY WITH ANTHRACITE BLOCKS, SECTION "B" DEALING EXCLUSIVELY WITH BITUMINOUS BLOCKS, AND SECTION "C" CONTAINING CLAUSES APPLICABLE TO ANY CONTRACT AWARDED WHETHER FOR ANTHRACITE OR BITUMINOUS COAL. YOU CONTEND THAT WHILE SECTIONS "A" AND "B" OF THE RFP CONTAIN SPECIFIC DISCOUNT PROVISIONS FOR THE RESPECTIVE TYPES OF COAL, SECTION "C" CONTAINS NO SUCH PROVISION, AND YOU CONCLUDE THAT COMBINATION DISCOUNTS FOR THE AWARD OF ANTHRACITE AND BITUMINOUS BLOCKS, THEREFORE, ARE NOT CONTEMPLATED BY THE RFP TERMS. IN REACHING YOUR CONCLUSION, YOU STATE THAT PARAGRAPH SPB-2 A. (3), QUOTED ABOVE, WHICH RESERVES TO THE GOVERNMENT THE RIGHT TO REJECT NON-COMPETITIVE ANTHRACITE-BITUMINOUS DISCOUNTS, IS NOT FOR APPLICATION BECAUSE "THIS IS THE ONLY MENTION IN THE ENTIRE RFP OF THE USE OF ANTHRACITE DISCOUNTS AS A BASIS FOR THE AWARD OF A BITUMINOUS CONTRACT AND IS CONTRADICTORY TO THE PROVISIONS FOUND IN SP-1 *** PARTICULARLY IN THE LIGHT OF THE FINAL PARAGRAPH ON PAGE ONE." THAT FINAL PARAGRAPH MERELY PROVIDES THAT CONTRACTS FOR ANTHRACITE WILL BE SUBJECT TO SECTIONS "A" AND "C" AND THAT CONTRACTS FOR BITUMINOUS WILL BE SUBJECT TO SECTIONS "B" AND "C" OF THE RFP.

WE DISAGREE WITH YOUR POSITION. IN THE FIRST PLACE, THE FINAL PARAGRAPH ON PAGE 1 OF THE RFP DOES NOT PRECLUDE AWARDS OF BOTH TYPES OF COAL TO ONE OFFEROR; RATHER IT REPRESENTED INFORMATION TO OFFERORS THAT THE TERMS AND CONDITIONS AFFECTING THE DIFFERENT TYPES OF COAL SHOULD BE READ SEPARATELY TO AVOID MISUNDERSTANDING. THAT PARAGRAPH, THEREFORE, IS NOT IN CONFLICT WITH PARAGRAPH SPB-2 A. (3). SECONDLY, PARAGRAPH SP-1B SPECIFICALLY CONTEMPLATES THE ACCEPTANCE OF "ALL OR ANY PART OF THIS PROPOSAL", AGAIN ADMITTING OF THE POSSIBILITY OF A CONTRACT CONTAINING ALL THREE RFP SECTIONS. FINALLY, THE FACT THAT THERE IS ONLY ONE MENTION OF COMBINATION DISCOUNTS IN THE RFP DOES NOT SERVE, IN OUR OPINION, TO DILUTE THE EFFECT OF THE CLAUSE PROVIDING FOR COMBINATION DISCOUNTS.

ON THE QUESTION OF THE SHIPCO DISCOUNTS IN GENERAL, OUR AUDIT REVIEW FOUND THAT THE FINAL DISCOUNTS OFFERED BY SHIPCO CONSISTED PARTIALLY OF COST SAVINGS RESULTING FROM LARGER VOLUME AND PARTIALLY OF PRICE REDUCTIONS RESULTING FROM NEGOTIATIONS. IN THIS REGARD, OUR AUDIT FINDINGS WERE AS FOLLOWS:

"BOTH USAPCF AND SHIPCO STATED THAT A LARGE PORTION OF THE DISCOUNTS OFFERED BY THE FIRM REPRESENT PRICE REDUCTIONS RESULTING FROM NEGOTIATIONS AND THAT THE REMAINDER OF THE DISCOUNTS OFFERED REPRESENT ACTUAL VOLUME REBATES. USAPCF PERSONNEL INFORMED US THAT THEY DID NOT KNOW THE EXTENT OF EITHER OF THE TWO ELEMENTS.

"ALTHOUGH THE SHIPCO OFFICIAL RESPONSIBLE FOR THE COAL CONTRACT WAS NOT IN A POSITION TO IDENTIFY PRECISELY THOSE DISCOUNTS RESULTING FROM NEGOTIATIONS FROM THOSE REPRESENTING TRUE VOLUME DISCOUNTS, HE ADVISED US THAT THE INCREASE IN DISCOUNTS FOR ANTHRACITE BETWEEN THE INITIAL OFFER AND THE FINAL OFFER STRICTLY REPRESENTED PRICE REDUCTIONS. THE SAME OFFICIAL ALSO INFORMED US THAT THE COMPANY OFFERED TO INCREASE THE DISCOUNT FOR BOTH BLOCKS OF BITUMINOUS COAL FROM ?05 TO ?25 PER TON BECAUSE OF A DISTINCT SHIPPING ADVANTAGE IN BEING AWARDED BOTH BLOCKS. THE RFP REQUIRED THE SUCCESSFUL BIDDER ON EACH BLOCK TO MAKE FULL SHIPLOADS. SHIPCO'S OFFICIAL INFORMED US THAT THIS PROVISION WOULD NOT ADVERSELY AFFECT THEIR COSTS OF OPERATION, IF AWARDED BOTH BLOCKS, WHEREAS THE AWARD OF ONLY ONE BLOCK WOULD HAVE RESULTED IN SIGNIFICANTLY HIGHER STORAGE COST AND UNFAVORABLE UTILIZATION OF INLAND TRANSPORT. HE WAS NOT ABLE TO SHOW US HOW HE DERIVED THE VALUE OF THIS DISCOUNT, BUT HE STATED THAT HE WOULD HAVE INCURRED SIGNIFICANTLY MORE STORAGE AND BARGE TRANSPORTATION COSTS. HE SAID THIS WOULD HAVE BEEN DUE TO DELIVERY OF ONLY HALF OF THE BITUMINOUS COAL RECEIVED IN ANY GIVEN TIME FRAME, WHICH WOULD HAVE REQUIRED STORAGE OF THE DIFFERENCE BETWEEN THE FULL SHIPLOAD AND THAT SHIPPED ONWARD UNDER THE DELIVERY SCHEDULE FOR ONE BLOCK.

"SHIPCO ALSO OFFERED AN ADDITIONAL DISCOUNT OF ?20 PER TON FOR BITUMINOUS COAL ON A SINGLE BLOCK AWARD, IF THEY WERE ALLOWED TO ARRANGE SPLIT LOADS RATHER THAN HAVING TO COMPLY WITH THE RFP PROVISION REQUIRING FULL SHIPLOADS. USAPCF CONSIDERED THIS PARTICULAR DISCOUNT AS A PRICE REDUCTION. THE CURRENT CONTRACT PRICES FOR BITUMINOUS COAL ARE NET OF THIS DISCOUNT, EVEN THOUGH SHIPCO WAS ULTIMATELY AWARDED BOTH BLOCKS OF BITUMINOUS COAL."

WHILE, AS INDICATED ABOVE, SHIPCO OFFERED, AFTER NEGOTIATIONS, A VARIETY OF DISCOUNTS FOR DIFFERING COMBINATIONS OF ANTHRACITE BLOCKS AND/OR ANTHRACITE AND BITUMINOUS BLOCKS, THE PARTICULAR DISCOUNT WHICH PRECLUDED FAVORABLE CONSIDERATION OF THE LEONHARD LEIDEL OFFER ON BLOCK H WAS IN THE AMOUNT OF ?61 PER TON ON THE 2 BITUMINOUS BLOCKS FOR AWARD OF 6 BLOCKS OF ANTHRACITE COUPLED WITH BOTH BITUMINOUS BLOCKS. THIS DISCOUNT WAS ?16 GREATER THAN THE SHIPCO DISCOUNT OF ?45 OFFERED FOR THE AWARD OF BOTH BLOCKS OF BITUMINOUS ALONE WITHOUT AWARD OF ANY ANTHRACITE BLOCKS. THE DISCOUNT IN QUESTION WAS ALSO COUPLED WITH A ?37 PER TON DISCOUNT FOR APPLICATION TO THE 6 ANTHRACITE BLOCKS.

WITH RESPECT TO THE ?16 COMBINATION SHIPCO DISCOUNT, THE REPORT TO OUR OFFICE FROM THE DEPARTMENT OF THE ARMY STATES AS FOLLOWS:

"THE OFFER OF A DISCOUNT FOR ANTHRACITE CONTINGENT ON AWARD OF BITUMINOUS COAL WAS DETERMINED TO REQUIRE SUBMISSION OF INFORMATION TO SUBSTANTIATE THAT THE DISCOUNT WAS NOT IN VIOLATION OF THE TERMS AND CONDITIONS OF THE REQUEST FOR PROPOSAL. THE REVIEW CONDUCTED REVEALED THAT ALTHOUGH NO SAVINGS ARE POSSIBLE IN THE UNITED STATES, IN EUROPE, CERTAIN COSTS ARE REDUCED THROUGH INCREASE OF QUANTITY, MORE EFFICIENT UTILIZATION OF HANDLING AND PROCESSING EQUIPMENT, AND WIDER DISTRIBUTION OVERHEAD OF EXPENSES. THE DISCOUNT, CONTINGENT UPON AWARD OF ANTHRACITE IN CONNECTION WITH BITUMINOUS COAL, WAS THEREFORE DETERMINED TO BE PERMITTED UNDER THE TERMS OF THE REQUEST FOR PROPOSAL, AND AWARD WAS MADE UNDER PARA 6(D) OF THE TERMS AND CONDITIONS OF THE REQUEST FOR PROPOSAL. THE AWARD, AS MADE, RESULTED IN A SAVING OF $166,064.53 IN THE COST OF THE FY 1970 SOLID FUEL. A RELATED SAVING OF $110,000. EXISTS IN CONJUNCTION WITH THE AWARD THROUGH A REDUCTION IN COST OF OPERATION OF MSTS VESSELS. THE LATTER SAVING RESULTS FROM THE ELIMINATION OF THE REQUIREMENT THAT MSTS VESSELS CALL AT TWO EUROPEAN PORTS FOR UNLOADING."

ON THE SAME MATTER, OUR AUDIT REVIEW REVEALED THE FOLLOWING:

"IN ADDITION TO THE DISCOUNTS DESCRIBED ABOVE, SHIPCO OFFERED A DISCOUNT OF ?05 PER TON FOR ANTHRACITE AS WELL AS BITUMINOUS COAL, IF THE COMPANY WERE AWARDED BOTH BLOCKS OF BITUMINOUS COAL AND THE SIX BLOCKS OF ANTHRACITE THEY ARE ABLE TO SUPPLY. THIS DISCOUNT WAS INCREASED TO ?16 PER TON AFTER THE INITIAL NEGOTIATIONS. USAPCF ASKED SHIPCO TO JUSTIFY THE DISCOUNT OF ?16 PER TON FOR JOINT AWARD, SINCE THIS DISCOUNT COVERED THE AWARD OF THE TWO BLOCKS OF BITUMINOUS COAL AND APPARENTLY SEEMED HIGH. AFTER THE COMPANY SUBMITTED ITS JUSTIFICATION, THE ARMY DETERMINED THE ?16 DISCOUNT TO BE REASONABLE AND COMPETITIVE.

"THE DISCOUNT OF ?16 PER TON FOR ALL COAL IS THE ONLY ONE OF THE SEVERAL DISCOUNTS INVOLVED IN THE AWARD THAT CAN BE ATTRIBUTED SOLELY TO A TOTAL VOLUME AWARD, AND IS THE PARTICULAR ONE ON WHICH THE HAWLEY FUEL CORPORATION PROTEST MAY REST. THIS ?16 DISCOUNT WAS OFFERED IN A RANGE OF DISCOUNTS AT THE SAME TIME FOR VARIOUS COMBINATIONS OF ANTHRACITE AND BITUMINOUS BLOCKS AS FOLLOWS: 'MINIMUM NUMBER OF MINIMUM NUMBER OF AMOUNT OF OVERALL

BLOCKS OF BLOCKS OF DISCOUNT PER TON

ANTHRACITE COAL BITUMINOUS COAL OF COAL

6 1 (BLOCK H) ?03

2 2 .07

32 .07

4 2 .10 5 2 .13

6 2 .16'

"IN RESPONSE TO USAPCF'S REQUEST FOR JUSTIFICATION OF THE ?16 DISCOUNT, SHIPCO STATED THAT THE DISCOUNT WAS NOT A REBATE FOR AWARD OF BOTH BLOCKS OF BITUMINOUS COAL IN ADDITION TO THE 6 BLOCKS OF ANTHRACITE. ACCORDING TO THE CONTRACTOR, HE EXPECTED COST REDUCTIONS FROM THE LARGER VOLUME ON STEVEDORING, STORAGE RESERVATION, STORAGE, TRANSPORTATION, AND OTHER ELEMENTS OF COST. THE JUSTIFICATION PROVIDED BY SHIPCO FOR THE ?16 DISCOUNT IS INCLUDED AS APPENDIX III. USAPCF ACCEPTED SHIPCO'S JUSTIFICATION AS REASONABLE, WITHOUT PERFORMING ANY INDEPENDENT VERIFICATION.

"WE WERE NOT ABLE TO DETERMINE THE MARGINAL SAVINGS FROM THE AWARD OF ANY SINGLE BLOCK OF COAL, OR FROM THE AWARD OF BITUMINOUS COAL JOINTLY WITH ANTHRACITE. THE CONTRACTOR ADVISED US THAT HE DOES NOT KNOW WHAT HIS SUBCONTRACTORS WOULD HAVE CHARGED HIM HAD HE BEEN AWARDED A LOWER TONNAGE. HE INFORMED US THAT HIS DISCOUNT STRUCTURE REPRESENTS THE ANTICIPATED COST SAVINGS, AS HE STATED IN HIS JUSTIFICATION, BUT THAT HIS SUBCONTRACTORS DO NOT REFLECT RATES APPLICABLE TO VARIABLE OR INCREMENTAL QUANTITIES. THE CONTRACTOR'S PROPOSAL AND COST ESTIMATES DO NOT SHOW COSTS ON AN INCREMENTAL QUANTITY BASIS OTHER THAN THE DISCOUNT STRUCTURE. THE CONTRACTOR INFORMED US THAT HE HAS NO SUPPORT FOR THE ADDITIONAL DISCOUNTS, OTHER THAN HIS EXPERIENCE IN THE FIELD AND HIS EXPECTATIONS OF THE EFFECTS OF ADDITIONAL QUANTITIES ON HIS SUBCONTRACT PRICES. COMPARISON OF COSTS INCURRED UNDER THE PREVIOUS YEAR'S CONTRACT WITH THE CURRENT YEAR IS NOT SATISFACTORY TO DETERMINE ANY COST SAVINGS FROM ADDITIONAL QUANTITIES, BECAUSE THE QUANTITY OF COAL AWARDED TO SHIPCO WAS ABOUT THE SAME FOR THE TWO YEARS AND THE EFFECTS OF PRICE LEVEL INCREASES WOULD HAVE TO BE CONSIDERED.

"SHIPCO'S TOTAL ANNUAL IMPORTS OF COAL FOR ITS COMMERCIAL BUSINESS IN EUROPE IS ESTIMATED AT ABOUT 400,000 TONS. SINCE IT HANDLES THE COMMERCIAL COAL THROUGH THE SAME SUBCONTRACTORS FOR STEVEDORING AND STORAGE SERVICES, THE VOLUME OF ARMY COAL AWARDED IS THE PRIMARY FACTOR IN THE COMPANY'S ABILITY TO NEGOTIATE VOLUME DISCOUNTS FOR SUCH SERVICES, AS WELL AS TO ABSORB FIXED COMPANY COSTS. IN THE CURRENT ARMY CONTRACT YEAR, THE 950,000 TONS AWARDED REPRESENTS ABOUT 70 PERCENT OF SHIPCO'S BUSINESS."

THE SHIPCO JUSTIFICATION FOR THE ?16 DISCOUNT, REFERRED TO AS APPENDIX III IN THE ABOVE QUOTE, IS ALSO SET OUT BELOW:

"(1) 'TAKING INTO CONSIDERATION THE EXTRA MANIPULATIONS BY STEVEDORES, REQUIRED FOR BITUMINOUS COAL, WE ANTICIPATE TOTAL SAVINGS IN THE DISCHARGING RATES AT PORT OF ENTRY AND AT INLAND PORTS AS RESULT OF THE COMBINATION OF ANTHRACITE AND BITUMINOUS OF ABOUT DLRS. 45,000. (4.5 CENTS PER TON)

"(2) IN VIEW OF THE SCREENING OPERATIONS, INTERMEDIATE STORAGE IS NECESSARY FOR BITUMINOUS COAL AND STORAGE CAPACITY HAS TO BE RESERVED, STORAGE COSTS CAN BE REDUCED AND RESERVING COSTS FOR THE BITUMINOUS COAL BE AVOIDED IF WE CAN GUARANTEE STEVEDORES AT PORT OF ENTRY A LARGER TONNAGE FOR DISCHARGING. THE CALCULATED SAVINGS ARE ABOUT DLRS. 25,000/DLRS. 30,000.(2.5 TO 3 CENTS PER TON)

"(3) COMBINATION OF ANTHRACITE AND BITUMINOUS COAL WILL ENABLE US TO MAKE A MORE ECONOMIC UTILIZATION OF INLAND TRANSPORT AND ALSO TAKING INTO ACCOUNT THE RECEIVING CAPACITIES AT DESTINATIONS, IT WILL GIVE US MORE FLEXIBILITY IN THE EMPLOYMENT OF BARGES AND RAILCARS. THE APPROXIMATE SAVINGS WILL BE DLRS. 15,000/DLRS. 20,000. (1.5 TO 2 CENTS PER TON)

"(4) IF BOTH BLOCKS OF BITUMINOUS IN COMBINATION WITH ANTHRACITE WOULD BE AWARDED TO US WE WOULD PRACTICALLY HAVE NO UNUSED CAPACITY IN OUR SCREENING INSTALLATIONS AT AMSTERDAM. UTILIZATION OF THE FULL AVAILABLE CAPACITY OF OUR SCREENING INSTALLATIONS IS AT PRESENT ONLY POSSIBLE IF ALSO THE BITUMINOUS COAL IS AWARDED TO US. SUCH AVOIDING OF UNUSED CAPACITY OF PERSONNEL AND INSTALLATIONS WOULD RESULT IN TOTAL SAVINGS OF APPROX. DLRS. 50,000. (5 CENTS PER TON)

"(5) IN ADDITION, THERE ARE VARIOUS IMPONDERABILIA RESULTING IN SAVINGS WHICH CANNOT BE DETAILED BEFOREHAND. BUT YOU WILL UNDERSTAND THAT THE COST PER TON FOR PROCUREMENT LABORATORY AND INSPECTIONS WILL BE DECREASED IN CASE OF A LARGE VOLUME. WE HAVE ANTICIPATED THESE ADDITIONAL SAVINGS AT ABOUT DLRS 0.02 PER TON OVER THE TOTAL TONNAGE WE OFFERED, OR ABOUT DLRS. 20,000.'"

IN ADDITION, THE REPORT ON OUR AUDIT CONTAINS AN ANALYSIS OF THE VARIOUS COST SAVINGS TO BE ANTICIPATED FROM A COMBINATION AWARD OF ANTHRACITE AND BITUMINOUS BLOCKS BECAUSE OF LOWER STEVEDORING COSTS, LOWER STORAGE RATES, THE ELIMINATION OF STORAGE RESERVATION CHARGES, SAVING FLOWING FROM EFFECTIVE UTILIZATION OF THE CONTRACTOR'S SCREENING PLANT AND POSSIBLE SAVINGS ON TRANSPORTATION COSTS. WE CONCLUDED, HOWEVER, THAT "WITH THE POSSIBLE EXCEPTION OF THE BETTER UTILIZATION OF THE SCREENING PLANT *** WE CANNOT IDENTIFY VOLUME SAVINGS TO THE ?16 JOINT AWARD DISCOUNT OR TO ANY OTHER PORTION OF THE CONTRACTOR'S DISCOUNTS."

AS A RESULT OF OUR REVIEW OF THE DISCOUNT STRUCTURE OF THE SHIPCO OFFER, WE CANNOT CONCLUDE THAT THE ?16 "ALL OR NONE" DISCOUNT IS CLEARLY IN VIOLATION OF THE RFP DISCOUNT CLAUSES. IN THE FIRST PLACE, OUR OFFICE HAS CONSISTENTLY HELD THAT ALL OTHER THINGS BEING EQUAL "ALL OR NONE" BIDS ARE GENERALLY ACCEPTABLE. IN THIS REGARD, WE HELD IN B 157145, MAY 3, 1966, THE FIRST OF THREE DECISIONS ISSUED BY OUR OFFICE CONCERNING THE PROCUREMENT OF COAL BY THE ARMY FOR USE IN EUROPE, THAT:

"AN 'ALL OR NONE' BID SUBMITTED IN RESPONSE TO INVITATIONS FOR BIDS FOR DEFINITE QUANTITIES MAY BE CONSIDERED EVEN THOUGH THERE IS NO PROVISION THEREFORE IN THE INVITATION AND *** 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."

BECAUSE OF THE SPECIAL NATURE OF THE PROCUREMENT IN QUESTION, HOWEVER, I.E; THE FAVORED POSITION HISTORICALLY ENJOYED BY ONE OFFEROR WHO CONSISTENTLY HAS BEEN ABLE TO OFFER COAL IN QUANTITIES SIGNIFICANTLY LARGER THAN THOSE AVAILABLE TO OTHER OFFERORS, THE PROVISIONS REQUIRING THAT DISCOUNTS BE COST JUSTIFIED WERE INCLUDED IN THE RFP AS A MODIFICATION TO THE ABOVE-CITED GENERAL RULE. THOSE PROVISIONS, HOWEVER, ONLY RESERVE THE RIGHT TO REJECT OFFERS WHERE THE REQUIRED SHOWING OF ACTUAL COST SAVINGS IS NOT MADE BY THE OFFEROR. IN OUR OPINION, THESE PROVISIONS PLACE THE PRIMARY DUTY FOR MAKING THE DETERMINATION THAT OFFERED DISCOUNTS ARE NOT COST JUSTIFIED UPON THE CONTRACTING OFFICER.

WHERE A DETERMINATION HAS BEEN MADE BY THE CONTRACTING OFFICER THAT DISCOUNTS ARE COST JUSTIFIED AND THE REQUIRED JUSTIFICATION HAS BEEN ANALYZED BY HIM AS A MATTER OF RECORD, AS HERE, WE THINK THAT SUCH DETERMINATION SHOULD BE GIVEN GREAT WEIGHT AND SHOULD BE QUESTIONED BY OUR OFFICE ONLY IF SHOWN TO BE CLEARLY ERRONEOUS. WE FIND NO SUCH CLEAR ERROR IN THE PRESENT CASE. WHILE THE AUDIT SHOWS, AS INDICATED ABOVE, THAT VOLUME SAVINGS CANNOT BE IDENTIFIED TO THE ?16 JOINT AWARD DISCOUNT, OR FOR THAT MATTER TO ANY OTHER PORTION OF THE VARIOUS SHIPCO DISCOUNTS, THE AUDIT ACKNOWLEDGES AND ITEMIZES AREAS OF SAVINGS REALIZABLE BY MEANS OF VOLUME ORDERS AND CONCLUDES THAT VOLUME SAVINGS WERE MADE POSSIBLE BY THE AWARD OF 8 BLOCKS TO SHIPCO. IN FACT, WE FOUND THAT ESTIMATED VOLUME SAVINGS AS CONTAINED IN THE SHIPCO OFFER HAVE, IN GENERAL, ACTUALLY BEEN REALIZED DURING THE FIRST FOUR MONTHS OF THE FISCAL YEAR 1970 CONTRACT.

ALTHOUGH WE CONCLUDE THAT THE SUBJECT SHIPCO DISCOUNTS WERE PERMISSIBLE WITHIN THE RFP TERMS, WE ARE OF THE OPINION THAT THE PRACTICE OF ALLOWING NEGOTIATED PRICE REDUCTIONS TO BE IMPLEMENTED BY MEANS OF INCREASED DISCOUNTS COULD POSSIBLY RESULT IN "ALL OR NONE" DISCOUNTS CLEARLY NOT COST JUSTIFIED. IN SUCH EVENT, A FREEZEOUT OF OTHERWISE ELIGIBLE COMPETITORS ON A GIVEN BLOCK OR BLOCKS MIGHT RESULT. ACCORDINGLY, WE ARE SUGGESTING TO THE SECRETARY OF THE ARMY THAT CARE BE TAKEN IN THE CONDUCT OF NEGOTIATIONS IN CURRENT AND FUTURE FISCAL YEAR COAL PROCUREMENTS TO ASSURE COMPLIANCE WITH THE DISCOUNT PROVISIONS.