B-160206, NOV. 4, 1966

B-160206, NOV. 4, 1966

TO DIRECTOR, DEFENSE SUPPLY AGENCY:

REFERENCE IS MADE TO THE LETTER OF OCTOBER 6, 1966, WITH ENCLOSURES, FROM YOUR ASSISTANT COUNSEL FORWARDING FOR OUR DECISION THE REQUEST OF LURIA BROTHERS AND COMPANY, INC., THAT CONTRACT NO. 46-6069-028 FOR ITEM NUMBER 88 OF SALES INVITATION FOR BIDS NO. 46-6069 BE RESCINDED.

LURIA'S BID ON ITEM 88, WHICH IS 500 GROSS TONS OF SCRAP SHELL CASES, WAS $11.399 PER GROSS TON FOR A TOTAL OF $5,699.50. THE ONLY OTHER BID ON THIS ITEM WAS $4.52 PER GROSS TON FOR A TOTAL BID OF $2.260. THE AWARD WAS MADE TO LURIA AS THE HIGH BIDDER ON JULY 7, 1966. BY LETTER DATED JULY 15, 1966, LURIA ALLEGED THAT IT HAD MISTAKENLY BID ON ITEM 88 WHEN IT HAD INTENDED TO BID ON ITEM 83, WHICH IS 500 GROSS TONS OF SCRAP AMMUNITION CANS. IN SUPPORT OF THIS CONTENTION, LURIA POINTS OUT THAT IT HAD NEVER BEFORE BID ON SHELL CASES AND THAT BOTH ITEMS WERE LOCATED ON THE SAME PAGE OF THE INVITATION AND OFFERED IDENTICAL QUANTITIES OF 500 GROSS TONS. IT IS ALSO POINTED OUT THAT THEY WERE THE SUCCESSFUL BIDDERS FOR THE CANS UNDER A PREVIOUS SALE AND HAD THEN OFFERED TO NEGOTIATE FOR THE SALE OF MORE CANS. THE DISCREPANCY BETWEEN THEIR BID ON ITEM 88 AND THE OTHER BID ON THIS ITEM IS ALSO POINTED TO AS EVIDENCE OF THE ALLEGED MISTAKE AND, CONVERSELY, IT IS POINTED OUT THAT THEIR BID OF $11.399 IS MORE IN LINE WITH THE HIGH BID ON ITEM 83 WHICH WAS $12.09. IT IS THEREFORE REQUESTED THAT THE CONTRACT BE CANCELLED AND THE PAYMENT OF $5,699.50 BE REFUNDED.

BOTH YOUR ASSISTANT COUNSEL AND THE ACTING COUNSEL, DEFENSE LOGISTICS SERVICES CENTER, RECOMMEND RESCISSION ON THE BASIS THAT THERE WAS A MISTAKE IN THE BID AND THE CONTRACTING OFFICER SHOULD HAVE BEEN ON NOTICE OF PROBABLE ERROR IN THE BID. IN SUPPORT OF THE LATTER CONCLUSION, YOUR ASSISTANT COUNSEL RELIES ON THE DISCREPANCY IN THE BID PRICES, THE ERRONEOUS CURRENT MARKET APPRAISAL BY THE CONTRACTING OFFICER, AND THE AMOUNT OF PRIOR SALES OF LIKE MATERIALS. THE DLSC ACTING COUNSEL RELIES ON THE FACT THAT THE CONTRACTING OFFICER "NOW CONSIDERS THE WIDE DIFFERENCE BETWEEN LURIA'S BID AND THE NEXT HIGH BID AS COMPARED TO THE CURRENT MARKET APPRAISAL AS CONSTITUTING NOTICE OF PROBABLE ERROR WARRANTING A REQUEST FOR CONFIRMATION OF THE BID PRIOR TO MAKING AN AWARD.'

AT THE TIME THE AWARD WAS MADE, THE CONTRACTING OFFICER REPORTS THAT HE DID NOT BELIEVE THE DISPARITY IN THE TWO BIDS WAS SO GREAT AS TO INDICATE THE ERROR MAY HAVE BEEN MADE AND FOR THIS REASON HE DID NOT REQUEST VERIFICATION OF EITHER BID. HOWEVER, HE NOW FEELS THAT THE SUBSTANTIAL DISPARITY BETWEEN THE BIDS SHOULD HAVE PUT HIM ON NOTICE OF THE POSSIBILITY OF ERROR AND HE SHOULD HAVE REQUESTED VERIFICATION. MOREOVER, HE REPORTS THAT HAD HE BEEN SUSPICIOUS OF THE DISPARITY IN THE BIDS, AS HE SHOULD HAVE BEEN, A REVIEW OF PAST SALES HISTORY WOULD HAVE INDICATED THAT HIS CURRENT MARKET APPRAISAL OF $14 PER GROSS TON WOULD HAVE BEEN REVEALED AS BEING INCORRECT AND THE TRUE VALUE OF THE ITEM ESTABLISHED AT APPROXIMATELY $4.40 PER GROSS TON. WE AGREE THAT THE DISPARITY BETWEEN THE TWO BIDS SHOULD HAVE RAISED ENOUGH DOUBT AS TO THEIR CORRECTNESS TO HAVE MOTIVATED THE CONTRACTING OFFICER AND IMPOSED A DUTY ON HIM TO EITHER CHECK PAST SALES HISTORY OF THE ITEM OR VERIFY THE BIDS. IN THESE CIRCUMSTANCES, WE CONCLUDE THAT THE CONTRACTING OFFICER HAD CONSTRUCTIVE NOTICE OF THE PROBABILITY OF ERROR AT THE TIME OF THE AWARD.

SINCE THE CIRCUMSTANCES TEND TO SUPPORT THE CONCLUSION THAT A BONA FIDE MISTAKE WAS MADE, AS ALLEGED, AND SINCE ACCEPTANCE OF A BID WITH KNOWLEDGE, EITHER CONSTRUCTIVE OR ACTUAL, OF ERROR THEREIN DOES NOT CONSUMMATE A VALID AND BINDING CONTRACT, RESCISSION OF THE CONTRACT, AS ADMINISTRATIVELY RECOMMENDED, IS AUTHORIZED. THE FILE ENCLOSED WITH THE REPORT OF OCTOBER 6, 1966, IS RETURNED.