B-162176, OCT. 11, 1967

B-162176, OCT. 11, 1967

BIDS - OPTIONS DECISION TO PETTIBONE MULLIKEN CORP. CONCERNING PROTEST TO AWARD OF CONTRACT TO BAKER DIVISION, OTIS ELEVATOR CORP. FOR ELECTRIC FORK-LIFT TRUCKS BY DEFENSE GENERAL SUPPLY CENTER RATHER THAN EXERCISE OF OPTION UNDER PROTESTANT'S CURRENT CONTRACT. THIRD LOW BIDDER WHO, AFTER OPENING OF BIDS, OFFERED TO REDUCE OPTION PRICE UNDER CURRENT CONTRACT THEREBY SAVING $5,951.30 TO THE GOVERNMENT OVER ADVERTISED PROCUREMENT MAY NOT HAVE SUCH OFFER ACCEPTED SINCE ACCEPTANCE OF MODIFICATION AFTER OPENING AFFECTING RELATIVE STANDING OF BIDDERS WOULD BE CONTRARY TO RULES OF FORMAL ADVERTISING. FURTHER, DETERMINATION BY CONTRACTING AGENCY NOT TO EXERCISE OPTION UNDER EXISTING CONTRACT WHICH IS BENEFIT IN SOLE INTEREST OF GOVT. IS NOT SUBJECT TO QUESTION BY COMP. GEN. OR COURTS. 36 C.G. 62.

TO PETTIBONE MULLIKEN CORPORATION:

REFERENCE IS MADE TO YOUR TELEGRAM OF AUGUST 1, 1967, PROTESTING AGAINST THE AWARD OF ANY CONTRACT UNDER INVITATION FOR BIDS NO. DSA-400 67-B-8913, ISSUED ON JUNE 19, 1967, BY THE DEFENSE GENERAL SUPPLY CENTER, RICHMOND, VIRGINIA, REQUESTING BIDS ON 220 ELECTRIC FORKLIFT TRUCKS. THE INVITATION PROVIDED FOR A 100 PERCENT OPTION WITHIN 180 DAYS AFTER AWARD.

SEVEN BIDS WERE RECEIVED AND OPENED ON JULY 10, 1967, AND IT APPEARED THAT BAKER DIVISION OF OTIS ELEVATOR CORPORATION WAS THE LOWEST BIDDER FOLLOWED BY THE ALLIS CHALMERS CORPORATION. YOUR BID WAS THE THIRD LOWEST RECEIVED. YOU ALLEGE THAT THE AWARD OF AN OPTION UNDER YOUR CURRENT CONTRACT NO. DSA-400-67-C-6479-TM559 IN LIEU OF AN AWARD UNDER THE INVITATION WOULD RESULT IN SAVINGS TO THE GOVERNMENT OF OVER $7,000 AND THAT THESE SAVINGS WOULD BE FURTHER INCREASED BY AVOIDING THE NECESSITY OF STOCKING PARTS FOR TWO DIFFERENT MANUFACTURERS' FORKLIFT TRUCKS. THE ARGUMENTS ADVANCED BY YOU THAT NO AWARD SHOULD BE MADE UNDER THE PROTESTED INVITATION BUT THAT THE OPTION IN YOUR CONTRACT IS REQUIRED TO BE EXERCISED BY THE GOVERNMENT WERE PREVIOUSLY CONSIDERED BY OUR OFFICE IN 36 COMP. GEN. 62. IN THAT DECISION WE HELD AT PAGES 63-65 THAT:

"WITH RESPECT TO YOUR FIRST CONTENTION CONCERNING THE FAILURE OF THE CONTRACTING AGENCY TO EXERCISE ITS OPTIONS UNDER THE EXISTING CONTRACTS WITH YOUR COMPANY, IT WOULD APPEAR SUFFICIENT MERELY TO POINT OUT THAT SINCE SUCH OPTIONS WERE PURELY FOR THE INTEREST AND BENEFIT OF THE GOVERNMENT, ANY DETERMINATION THAT THE EXERCISE OF SUCH OPTION WOULD BE CONTRARY TO THE GOVERNMENT'S INTERESTS MANIFESTLY MAY NOT BE SUBJECT TO LEGAL OBJECTION--EITHER BY THIS OFFICE OR THE COURTS. IN THIS CONNECTION, ATTENTION IS INVITED TO THE CASE OF WESTERN UNION TELEGRAPH COMPANY V. BROWN, EXECUTOR OF LANGE, ET AL., 253 U.S. 101, WHEREIN THE SUPREME COURT OF THE UNITED STATES, IN TREATING OF THIS SUBJECT, EXPLAINED AS FOLLOWS:

-AN OPTION IS A PRIVILEGE GIVEN BY THE OWNER OF PROPERTY TO ANOTHER TO BUY THE PROPERTY AT HIS ELECTION. IT SECURES THE PRIVILEGE TO BUY AND IS NOT OF ITSELF A PURCHASE. THE OWNER DOES NOT SELL HIS PROPERTY; HE GIVES TO ANOTHER THE RIGHT TO BUY AT HIS ELECTION.- "AND THIS IS WHOLLY APART FROM THE QUESTION OF WHETHER THE EXERCISE OF AN OPTION SUFFICIENT TO MEET THE NEEDS OF A PROCUREMENT OF THIS MAGNITUDE WOULD NOT HAVE RESULTED IN THE MAKING OF A NEW CONTRACT REQUIRED BY LAW TO BE ENTERED INTO AFTER FORMAL ADVERTISING.'

THE CRITERIA FOR THE EXERCISE OF CONTRACT OPTIONS ARE SET OUT IN ASPR 1- 1505 WHICH PROVIDES IN PERTINENT PART: "/C) OPTIONS SHOULD BE EXERCISED ONLY IF IT IS DETERMINED THAT - (I) FUNDS ARE AVAILABLE, (II) THE REQUIREMENT COVERED BY THE OPTION FULFILLS AN EXISTING NEED OF THE GOVERNMENT, AND (III) THE EXERCISE OF THE OPTION IS MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED. "/D) INSOFAR AS PRICE IS CONCERNED, THE DETERMINATION UNDER (C) (III) ABOVE SHALL BE MADE ON THE BASIS OF ONE OF THE FOLLOWING: (1) A NEW SOLICITATION FAILS TO PRODUCE A BETTER PRICE THAN THAT OFFERED BY THE OPTION. WHEN THE CONTRACTING OFFICER ANTICIPATES THAT THE OPTION PRICE WILL BE THE BEST PRICE AVAILABLE, HE SHOULD NOT USE THIS METHOD OF TESTING THE MARKET BUT SHOULD USE ONE OF THE METHODS IN (2), (3), OR (4) BELOW (SEE 1-309). (2) AN INFORMAL INVESTIGATION OF PRICES, OR OTHER EXAMINATION OF THE MARKET, INDICATES CLEARLY THAT A BETTER PRICE THAN THAT OFFERED BY THE OPTION CANNOT BE OBTAINED. (3) THE TIME BETWEEN THE AWARD OF THE CONTRACT CONTAINING THE OPTION AND THE EXERCISE OF THE OPTION IS SO SHORT THAT IT INDICATES THE OPTION PRICE IS THE LOWEST PRICE OBTAINABLE, CONSIDERING SUCH FACTORS AS MARKET STABILITY AND A COMPARISON OF THE TIME SINCE AWARD WITH THE USUAL DURATION OF CONTRACTS FOR SUCH SUPPLIES AND SERVICES. (4) ESTABLISHED PRICES ARE READILY ASCERTAINABLE AND CLEARLY INDICATE THAT FORMAL ADVERTISING OR INFORMAL SOLICITATION CAN OBVIOUSLY SERVE NO USEFUL PURPOSE.'

CONCERNING YOUR CONTENTION RESPECTING THE ESTABLISHMENT OF TWO SOURCES OF CURRENT SUPPLY, WE HELD IN B-152508 DATED MAY 1, 1964, THAT:

"NEITHER CAN WE AGREE WITH YOUR CONTENTION THAT THE ESTABLISHMENT OF A SECOND SOURCE WAS AN EXTRANEOUS CONSIDERATION IN THIS PROCUREMENT. THE S- GC BID WAS BEING COMPARED TO A CONTRACT OPTION. SUCH COMPARISON IS NOT THE EQUIVALENT OF EVALUATING TWO BIDS UNDER THE SAME INVITATION. ASPR 1- 1505 (C) PROVIDES, AS NOTED, THAT AN OPTION SHOULD BE EXERCISED ONLY IF IT IS DETERMINED THAT SUCH ACTION IS -* * * MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED.- ASPR 1-1505 (C) EXPLAINS THAT -OTHER FACTORS' INCLUDE THE GOVERNMENT'S NEED FOR CONTINUITY OF OPERATIONS AND POTENTIAL COSTS TO THE GOVERNMENT OF DISRUPTING OPERATIONS, INCLUDING THE COST OF RELOCATING NECESSARY GOVERNMENT-FURNISHED EQUIPMENT. WHILE THE AFOREMENTIONED FACTORS WEIGH IN FAVOR OF EXERCISING THE CONTRACT OPTION, FACTORS WHICH FAVOR THE ACCEPTANCE OF A COMPETING OFFER, I.E., THE ESTABLISHMENT OF A SECOND SOURCE, BY IMPLICATION SHOULD ALSO BE CONSIDERED.'

MOREOVER, THE PURCHASE OF ADDITIONAL QUANTITIES FROM A CONTRACTOR FOR PURPOSES OF STANDARDIZATION AND INTERCHANGEABILITY OF PARTS ORDINARILY WOULD BE BY NEGOTIATION AFTER A PROPER SECRETARIAL DETERMINATION PURSUANT TO ASPR 3-213. FURTHER, WE ARE ADVISED THAT THE DECISION NOT TO EXERCISE THE OPTION IN YOUR CONTRACT WILL RESULT IN SAVINGS TO THE GOVERNMENT OF $26,997.70 BASED ON A COMPARISON BETWEEN BAKER'S BID AND YOUR CONTRACT OPTION PRICE LESS THE PREVIOUSLY TENDERED $10 REDUCTION ON ALL OPTION UNITS. WHILE A SAVINGS COULD RESULT TO THE GOVERNMENT OF $5,951.30 UNDER THE BAKER BID IF YOUR OFFER TO REDUCE YOUR OPTION PRICE BY $73 PER UNIT WERE ACCEPTED, $63 OF THAT AMOUNT WAS OFFERED BY YOU AFTER BID OPENING. ACCEPTANCE OF THAT $63 OFFER WOULD BE CONTRARY TO THE BASIC RULE OF FORMAL ADVERTISING THAT BIDS MAY NOT BE MODIFIED AFTER OPENING WHEN THE MODIFICATION WOULD AFFECT THE RELATIVE STANDING OF BIDDERS. SEE 17 COMP. GEN. 554.

UPON REVIEW, WE FIND NO LEGAL BASIS TO OBJECT TO AN AWARD UNDER THE INVITATION TO THE LOWEST RESPONSIVE BIDDER. ACCORDINGLY, YOUR PROTESTS ARE DENIED.