B-166578, JUL. 16, 1969

B-166578, JUL. 16, 1969

BID PROTEST - CANCELLATION AND READVERTISEMENT DECISION DENYING PROTEST OF JANOSKO FOOD EQUIPMENT CORPORATION, AGENT FOR LINCOLN MANUFACTURING CO., INC., AGAINST CANCELLATION OF INVITATION ISSUED BY DEFENSE SUPPLY AGENCY FOR YEAR'S REQUIREMENTS FOR TABLEWARE DISPENSERS. INVITATION WAS CANCELED BECAUSE OF THE ESTIMATES WERE UNDERSTATED AND F.O.B. DELIVERY REQUIREMENTS COMPELLED BIDDERS TO ASSUME UNREASONABLE RISKS IN COMPUTING FREIGHT CHARGES. RECORD ESTABLISHES THAT ESTIMATES WERE GROSSLY MISSTATED THEREFORE CANCELLATION WAS REQUIRED.

TO ADKINS AND MILLER:

FURTHER REFERENCE IS MADE TO YOUR LETTERS DATED MAY 7, 17, 21 AND 31, 1969, AND ENCLOSURES, PROTESTING, ON BEHALF OF THE JANOSKO FOOD EQUIPMENT CORPORATION, AGENT FOR LINCOLN MANUFACTURING ., INC., THE CANCELLATION OF INVITATION FOR BIDS (IFB) NO. DSA-400-69-B-4621, ISSUED BY THE DEFENSE GENERAL SUPPLY CENTER, DEFENSE SUPPLY AGENCY.

THE INVITATION, ISSUED ON FEBRUARY 24, 1969, SOLICITED BIDS TO MEET THE GOVERNMENT'S ESTIMATED 12-MONTH REQUIREMENT FOR TABLEWARE DISPENSERS OF THE SIX DIFFERENT FEDERAL STOCK NUMBERS (FSN) ON AN F.O.B. DESTINATION BASIS. THE VARIOUS FSN WERE DESCRIBED AS FOLLOWS: FSN 7320-531-4047 - TYPE I DESIGN A CLASS B STYLE 2

-938-8404 - TYPE II DESIGN C CLASS A ------

-938-8405 - TYPE III DESIGN C CLASS A SIZE 1

-938-8406 - TYPE III DESIGN C CLASS A SIZE 3

-205-2098 -TYPE II DESIGN B CLASS A ------

-574-2555 - TYPE III DESIGN C CLASS A SIZE 3

THE TOTAL ESTIMATED REQUIREMENT FOR A 12-MONTH PERIOD FOR EACH FSN WAS DIVIDED INTO AN ESTIMATED QUANTITY FOR EACH OF THREE GEOGRAPHICAL AREAS DESCRIBED AS AREA I, AREA II AND AREA III. EACH SUCH AREA WAS DEFINED AS CONSISTING OF CERTAIN ENUMERATED STATES. FURTHER, FOR EACH FSN, THE ANNUAL ESTIMATED REQUIREMENT FOR EACH AREA WAS DIVIDED INTO VARIOUS LEVELS OF PRESERVATION, PACKAGING AND PACKING. AS STATED ABOVE, THE INVITATION SOLICITED BIDS ONLY ON AN F.O.B. DESTINATION BASIS FOR ALL ITEMS AND THE ITEM DESCRIPTION FOR EACH FSN INCLUDED A STATEMENT THAT BIDS ON THE BASIS OF F.O.B. DESTINATION MUST OFFER PRICES FOR DELIVERY TO ALL DESTINATIONS SPECIFIED FOR EACH AREA FOR WHICH AWARD IS DESIRED.

THREE BIDS WERE RECEIVED AND OPENED ON MARCH 27, 1969. THE LOW RESPONSIVE BID WAS SUBMITTED BY JANOSKO FOOD EQUIPMENT CORPORATION AS A REGULAR DEALER. A PREAWARD SURVEY OF JANOSKO RECOMMENDED COMPLETE AWARD TO THAT BIDDER.

HOWEVER, IN THE INTERIM VARIOUS PURCHASE AUTHORIZATIONS LISTING FIRM SUPPLY REQUIREMENTS HAD BEEN RECEIVED BY THE PROCUREMENT AGENCY AND THESE WERE SUSPENDED PENDING AWARD OF THE REQUIREMENTS CONTRACT CONTEMPLATED BY THE INVITATION. UPON CLOSE EXAMINATION OF THESE PURCHASE AUTHORIZATIONS AFTER BID OPENING, IT WAS DISCOVERED THAT FOR THREE OF THE SUPPLY ITEMS FOR WHICH PRICES WERE SOLICITED, FSN 7320-531 4047, -938-8404 AND -938- 8406, FIRM QUANTITY REQUIREMENTS RECEIVED PRIOR TO BID OPENING EXCEEDED BOTH THE ESTIMATED YEARLY REQUIREMENTS AS SHOWN IN THE INVITATION AND THE MAXIMUM ORDER QUANTITY WHICH A CONTRACTOR COULD HAVE BEEN LEGALLY OBLIGATED TO DELIVER HAD A CONTRACT BEEN AWARDED (45 OF EACH FSN WITHIN ANY PERIOD OF 30 DAYS, I.E., A TOTAL FOR THE YEAR OF 450, OR, IF FIRST ARTICLE TESTING IS WAIVED, 540). FURTHER, FIRM QUANTITY REQUIREMENTS RECEIVED PRIOR TO BID OPENING EXCEEDED THE YEARLY ESTIMATED REQUIREMENTS FOR FSN -938-8405 AND -574-2555. WHILE THE TERMS OF THE INVITATION WOULD PERMIT ORDERS FOR QUANTITIES IN EXCESS OF THE ORDERING MAXIMUM, ACCEPTANCE THEREOF WOULD BE SOLELY WITHIN THE DISCRETION OF THE CONTRACTOR. THUS, THE ABILITY OF THE GOVERNMENT TO OBTAIN THE SUPPLIES FOR WHICH A FIRM REQUIREMENT EXISTED PRIOR TO AWARD WOULD HAVE BEEN LIMITED AND IMPEDED HAD AN AWARD BEEN MADE UNDER THE INVITATION.

IN CONSIDERATION OF THE FOREGOING, AND SINCE THE INVITATION F.O.B. DESTINATION DELIVERY REQUIREMENTS COMPELLED BIDDERS TO ASSUME UNREASONABLE RISKS IN COMPUTING FREIGHT CHARGES (QUANTITY AND DESTINATIONS UNKNOWN AT TIME OF BIDDING), THE CONTRACTING OFFICER DETERMINED THAT COMPELLING REASONS EXISTED TO REJECT ALL BIDS AND CANCEL THE INVITATION. CONSEQUENTLY, ON APRIL 29, 1969, THE FOLLOWING DETERMINATION WAS MADE TO CANCEL THE INVITATION:

"FINDINGS: "1. INVITATION FOR BIDS DSA-400-69-B-4621 WAS ISSUED 24 FEBRUARY 1969 AND OPENED 27 MARCH 1969 AS SCHEDULED, FOR VARIOUS TYPES OF TABLEWARE DISPENSERS.'2. THE IFB PROVIDED FOR BIDS ON FOB DESTINATION BASIS TO THREE DEFINED AREAS WITHIN CONTINENTAL UNITED STATES. THE RESULTING CONTRACTS WOULD OBLIGATE THE GOVERNMENT TO ORDER AND THE CONTRACTOR TO SUPPLY THE ANNUAL REQUIREMENTS DURING PERIOD 1 MAY 1969 TO 1 MAY 1970.'3. BIDS WERE RECEIVED FROM THREE FIRMS. EVALUATION OF BIDS RESULTED IN AN APPARENT LOW BID FROM JANOSKO FOOD EQUIPMENT CORP. THE FIRM HAS BEEN DETERMINED TO BE RESPONSIVE AND RESPONSIBLE. UNIT PRICES RECEIVED ARE CONSIDERED FAIR AND REASONABLE, BASED ON PRIOR PRICE HISTORY AND MINIMUM ORDER REQUIREMENTS OF THE IFB.'4. DURING THE PERIOD REQUIRED FOR THE SOLICITATION, THE FOLLOWING REQUIREMENTS HAVE BEEN RECEIVED AND ARE SUSPENDED PENDING AWARD OF THE CURRENT SOLICITATION:

FIRM QUANTITY - ESTIMATED YEAR

FSN REQUISITIONS ON BOARD REQUIREMENTS ON IFB 7320-205-2098 102 EACH 265 EACH 7320-531-4047 1014 EACH 600 EACH 7320-574-2555 295 EACH 200 EACH 7320 -938-8404 1262 EACH 300 EACH 7320-938-8405 373 EACH 120 EACH 7320-938-8406 526 EACH 100 EACH "5. SUBSEQUENT TO BID OPENING, A PROTEST WAS DIRECTED TO GENERAL ACCOUNTING OFFICE BY LEVELATOR CORP. OF AMERICA, WHEREIN IFB DSA-400-69-B-4621 WAS ALLEGED TO BE UNFAIR TO BIDDERS INASMUCH AS THE DEFINED AREAS ON WHICH FOB DESTINATION BIDS WERE INVITED WERE TOO DIVERSE AND INEQUITABLE TO PERMIT A BIDDER TO REASONABLY CALCULATE A DELIVERED PRICE.'6. COMPTROLLER GENERAL HAS OFFERED AN OPINION ON A PREVIOUS PROCUREMENT THAT FOB DESTINATION BIDS MAY BE SOLICITED FOR A SPECIFIC AREA PROVIDED THE AREA IS REASONABLY LIMITED AND DEFINED. (16 C.G. 815 (1937) ).'7. AREA I EXTENDS FROM MAINE TO NORTH CAROLINA. AREA II EXTENDS FROM WYOMING TO FLORIDA AND AREA III EXTENDS FROM WASHINGTON (STATE) TO ARIZONA.'DETERMINATION: "BASED ON THE ABOVE FACTS, THE CONTRACTING OFFICER DETERMINES THAT IFB DSA-400-69-B-4621 WILL BE CANCELLED IN ITS ENTIRETY AND THE FIRM REQUIREMENTS ON HAND WILL BE SOLICITED ON A READVERTISEMENT FOR THE FOLLOWING REASONS:

"1. FOR A MAJORITY OF THE ITEMS, IT IS APPARENT THAT ESTIMATED YEARLY REQUIREMENTS ARE GROSSLY MISSTATED.

"2. ALTHOUGH PRICES RECEIVED ARE REASONABLE CONSIDERING THE ESTIMATED QUANTITIES AND MINIMUM ORDER LIMITATION, IT IS APPARENT THAT CERTAIN DESTINATIONS ASSOCIATED WITH THE FIRM QUANTITY REQUIREMENTS ON HAND WOULD PRODUCE MORE REALISTIC DESTINATION PRICES. THE ESTABLISHMENT OF WIDELY DISPERSED AREAS AND THE WIDE SPREAD BETWEEN MINIMUM AND MAXIMUM ORDERS (1- 270) EITHER (A) FORCES THE BIDDER, WHO BIDS COMPETITIVELY, TO RISK SERIOUS LOSS IN THE EVENT THAT FUTURE ORDERS INVOLVE HIGH FREIGHT COSTS (LOW VOLUME ORDERS WITH SHIPMENT TO THE FARTHEST POINT WITHIN AN AREA), OR (B) ENCOURAGES BIDDERS TO SUBMIT HIGH BID PRICES TO THE GOVERNMENT IN ORDER TO PROTECT THEMSELVES AGAINST THIS CONTINGENCY.'FOR THE ABOVE REASONS, THE CANCELLATION WILL BE EFFECTED PURSUANT TO ASPR 2-404.1 (B) (VIII) AS CLEARLY IN THE BEST INTEREST OF THE GOVERNMENT.'

ON MAY 16, 1969, IFB NO. -7027 WAS ISSUED SOLICITING PRICES ON A TOTAL FIXED QUANTITY OF THE VARIOUS FSN'S THAT WERE INCLUDED IN THE INVITATION. ALSO, BIDS WERE INVITED ON F.O.B. ORIGIN OR F.O.B. DESTINATION BASES FOR SHIPMENT TO SPECIFIED LOCATIONS. UPON REVIEW OF THE RECORD, WE FIND NO BASIS TO QUESTION THE ACTIONS TAKEN HERE.

YOU PROTEST THE CANCELLATION AND THE READVERTISEMENT OF THE PROCUREMENT AS FOLLOWS:

"UNDER ALL THE FACTS AND CIRCUMSTANCES SURROUNDING THE CONTRACTING OFFICER'S DETERMINATION TO CANCEL SUBJECT IFB AND CONSIDERING THE SPECULATIVE AND UNSUBSTANTIATED REASONS GIVEN FOR CANCELLATION, ALL WEIGHED AGAINST THE REAL DETRIMENT WHICH RESULTS FROM A READVERTISEMENT AFTER BID PRICES HAVE BEEN DISCLOSED, WE RESPECTFULLY REQUEST THAT THE CONTRACTING OFFICER'S DECISION TO CANCEL IFB DSA-400-69-B-4621 BE REVERSED, THE READVERTISEMENT CANCELLED, AND AN AWARD MADE ON THE BASIS OF THE INITIAL INVITATION.'

THIS PROTEST HAS GENERATED A VOLUMINOUS RECORD WHICH, FOR THE MOST PART, CONTAINS DATA TENDING TO REFUTE OR CLARIFY STATEMENTS MADE TO SUPPORT YOUR ASSERTIONS THAT THE PURCHASE AUTHORIZATIONS REFERRED TO ABOVE DID NOT JUSTIFY THE PROCUREMENT ACTIONS TAKEN AFTER BIDS WERE OPENED ON MARCH 27, 1969. HOWEVER, WE DO NOT FEEL THAT IT IS NECESSARY TO COMMENT AT LENGTH ON YOUR VIEWS THAT THE ESTIMATED QUANTITIES WERE NOT GROSSLY UNDERESTIMATED OR THAT THE INVITATION WAS NOT SO DEFECTIVE AS TO PRECLUDE EVALUATION OF F.O.B. DESTINATION BIDS WHICH REFLECTED REASONABLE PRICES. RATHER, THE ONLY SIGNIFICANT QUESTION FOR CONSIDERATION IS WHETHER THE AUTHORITY VESTED IN THE CONTRACTING OFFICER TO REJECT ANY OR ALL BIDS AND READVERTISE WAS BASED ON COGENT REASONS AND WHETHER SUCH AUTHORITY WAS EXERCISED IN AN ARBITRARY OR CAPRICIOUS MANNER TO THE PREJUDICE OF THE COMPETITIVE BIDDING SYSTEM.

THE CANCELLED INVITATION CONTEMPLATED A REQUIREMENTS CONTRACT WHICH THE COURTS AND OUR OFFICE HAVE CONSIDERED AS VALID PROVIDED THE ESTIMATE OF THE PROBABLE AMOUNT OF GOODS OR SERVICES TO BE GENERATED WAS DETERMINED IN GOOD FAITH. SEE SHADER CONTRACTORS, INC. V UNITED STATES, 276 F.2D 1, AND THE CASES CITED THEREIN; 47 COMP. GEN. 365; 37 ID. 688. PARAGRAPH 3-409.2 OF THE ARMED SERVICES PROCUREMENT REGULATION PROVIDES FOR THE USE OF THIS TYPE OF CONTRACT BUT WARNS THAT THE ESTIMATE SHOULD BE AS REALISTIC AS POSSIBLE AND THAT "CARE SHOULD BE USED IN WRITING AND ADMINISTERING THIS TYPE OF CONTRACT TO AVOID IMPOSITION OF AN IMPOSSIBLE BURDEN ON THE CONTRACTOR.' THUS, IT MAY BE SAID THAT THE RELIABILITY OF THE ESTIMATE IS THE ESSENCE OF A REQUIREMENTS CONTRACT AND IF DOUBT EXISTS AS TO BONA FIDES OF THE ESTIMATE, NO JUSTIFICATION EXISTS FOR CONTRACTING ON A REQUIREMENTS BASIS. 17 COMP. GEN. 968. SINCE THE RECORD BEFORE US ESTABLISHES THAT THE ESTIMATES IN INVITATION NO. -4621 WERE GROSSLY MISSTATED, AND SINCE AN AWARD UNDER THE INVITATION WOULD HAVE RAISED A SERIOUS QUESTION AS TO WHETHER THE CONTRACTING OFFICER ACTED IN GOOD FAITH IN MAKING SUCH AN AWARD, WE FEEL THAT THE CONTRACTING OFFICER HAD NO ALTERNATIVE BUT TO CANCEL THE INVITATION.

OUR OFFICE HAS CONSISTENTLY HELD THAT, WHILE THE INTEREST OF THE GOVERNMENT AND THE INTEGRITY OF THE COMPETITIVE BIDDING SYSTEM REQUIRE THAT INVITATIONS BE CANCELED ONLY FOR COGENT AND COMPELLING REASONS, THERE NECESSARILY IS RESERVED IN THE CONTRACTING OFFICIALS A SUBSTANTIAL AMOUNT OF DISCRETION IN DETERMINING WHETHER OR NOT AN INVITATION SHOULD BE CANCELED. 41 COMP. GEN. 709. WE ARE FULLY AWARE THAT THE REJECTION OF BIDS AFTER THEY ARE OPENED AND EACH BIDDER HAS LEARNED HIS COMPETITOR'S PRICES IS A SERIOUS MATTER AND SUCH ACTION SHOULD NOT BE TAKEN EXCEPT FOR COGENT REASONS. HOWEVER, FOR THE REASONS EXPLAINED ABOVE, WE THINK THAT THE DISCRETION EXERCISED HERE NOT ONLY WAS PROPER BUT REQUIRED UNDER THE CIRCUMSTANCES. THAT BEING THE CASE, WE WOULD NOT BE JUSTIFIED IN OBJECTING TO THE CANCELLATION OF INVITATION NO. -4621 AND TO THE READVERTISEMENT OF THE PROCUREMENT ON A FIXED QUANTITY BASIS WITH BIDS REQUESTED THEREON ON A F.O.B. ORIGIN OR DESTINATION BASIS.