B-166598, MAY 13, 1969, 48 COMP. GEN. 745

B-166598, MAY 13, 1969, 48 COMP. GEN. 745

CONTRACTS--MODIFICATION--INDEFINITE AMOUNTS THE AUTHORITY GRANTED IN SECTION 1-2.406-4 (B) (2) OF THE FEDERAL PROCUREMENT REGULATIONS TO REFORM A CONTRACT PRICE EITHER UPWARD OR DOWNWARD IN AN AMOUNT NOT TO EXCEED $1,000, IF AS CORRECTED THE AMOUNT WILL NOT EXCEED THE NEXT LOWEST BID SUBMITTED UNDER THE ORIGINAL INVITATION FOR BIDS, MAY BE APPLIED TO AN INDEFINITE QUANTITY REQUIREMENTS CONTRACT AND THE ESTIMATED QUANTITY OR QUANTITIES SHOWN IN THE SOLICITATION FOR THE ITEM OR ITEMS IN QUESTION USED TO DETERMINE WHETHER A CORRECTION WOULD EXCEED THE LIMITATION. THEREFORE, AN ERRONEOUS PRICE ON ONE ITEM OF A BID ON ESTIMATED QUANTITIES OF DRUGS AND PHARMACEUTICAL PRODUCTS UPON WHICH A FEDERAL SUPPLY SCHEDULE CONTRACT IS BASED--- AN OBVIOUS ERROR EVEN THOUGH ONLY ONE BID WAS RECEIVED--- MAY BE CORRECTED BY THE USING AGENCY, FOR TO EXCEED THE LIMITATION IT WOULD BE NECESSARY FOR VARIOUS GOVERNMENT AGENCIES TO ORDER DURING THE CONTRACT PERIOD MORE THAN TWICE THE ESTIMATED QUANTITY OF THE ITEM.

TO THE ADMINISTRATOR, VETERANS ADMINISTRATION, MAY 13, 1969:

REFERENCE IS MADE TO A LETTER DATED APRIL 1, 1969, WITH ENCLOSURES, FROM THE DIRECTOR, SUPPLY SERVICE, DEPARTMENT OF MEDICINE AND SURGERY, REQUESTING A DECISION AS TO THE ACTION TO BE TAKEN CONCERNING AN ERROR ALLEGED BY MCNEIL LABORATORIES, INC; TO HAVE BEEN MADE IN ITS BID UPON WHICH FEDERAL SUPPLY SCHEDULE CONTRACT NO. V797P-5660 IS BASED.

UNDER AUTHORITY GRANTED BY THE GENERAL SERVICES ADMINISTRATION, THE VETERANS ADMINISTRATION, MARKETING DIVISION FOR DRUGS AND CHEMICALS, HINES, ILLINOIS, BY INVITATION NO. M5-17-69, REQUESTED BIDS FOR FURNISHING ESTIMATED QUANTITIES OF DRUGS AND PHARMACEUTICAL PRODUCTS, CLASS 6505, AS REQUIRED BY VARIOUS GOVERNMENT AGENCIES DURING THE PERIOD JANUARY 1 THROUGH DECEMBER 31, 1969, ITEMS 1 TO 99, INCLUSIVE.

ITEM 44 CALLED FOR FURNISHING AN ESTIMATED 150 BOTTLES OF GRISEOFULVIN, U.S.P; MICROSIZE TABLETS, UNCOATED, ROUND, SCORED, WHITE, 500-MILLIGRAM, 15/32-INCH DIAMETER, 100 IN BOTTLE. MCNEIL OFFERED TO FURNISH, AMONG OTHER ITEMS, THE GRISEOFULVIN COVERED BY ITEM 44 AT A UNIT PRICE OF $3.11. THE BID OF MCNEIL WAS ACCEPTED AS TO ITEM 44 AND OTHER ITEMS ON OCTOBER 3, 1968. IT IS NOTED THAT ITEM 44 OF THE INVITATION FOR BIDS WAS LISTED AS INDEX NO. 42 IN THE FEDERAL SUPPLY SCHEDULE CONTRACT FOR THE CALENDAR YEAR 1969 WITH MCNEIL AS THE CONTRACTOR.

IN LETTERS DATED JANUARY 9 AND 14, 1969, MCNEIL ADVISED THAT AN ERROR HAD BEEN MADE IN ITS BID ON INDEX NO. 42 OF THE 1969 FEDERAL SUPPLY SCHEDULE CONTRACT (ITEM 44 OF THE SUBJECT SOLICITATION), AND THAT IT HAD INTENDED TO QUOTE A UNIT PRICE OF $6.23 INSTEAD OF $3.11 FOR THAT ITEM. MCNEIL STATED THAT ITS PRICES FOR THE VARIOUS ITEMS IN THE SUBJECT SOLICITATION WERE COMPUTED AT LESS THAN 10 PERCENT OF THE PRICES SHOWN IN THE 1968 FEDERAL SUPPLY SCHEDULE CONTRACT. MCNEIL REQUESTED THAT THE PRICE OF $3.11 EACH FOR INDEX NO. 42 OF THE 1969 FEDERAL SUPPLY SCHEDULE CONTRACT BE CORRECTED TO $6.23.

THE RECORD INDICATES THAT MCNEIL SUBMITTED THE ONLY BID RECEIVED ON ITEM 44 OF THE SOLICITATION WHICH CALLED FOR THE FURNISHING OF GRISEOFULVIN, 500-MILLIGRAM TABLETS, 100 IN BOTTLE. ORDINARILY, WHERE, AS HERE, ONLY ONE BID IS RECEIVED ON AN ITEM, THERE IS NO BASIS FOR COMPARISON OF BIDS; HENCE THERE IS NOTHING TO PLACE THE CONTRACTING OFFICER ON NOTICE OF THE PROBABILITY OF ERROR IN THE BID. SEE 17 COMP. GEN. 560; 26 ID. 415. HOWEVER, IN A REPORT DATED JANUARY 30, 1969, THE CONTRACTING OFFICER STATED THAT, IN VIEW OF THE FACT THAT MCNEIL QUOTED A HIGHER UNIT PRICE OF $3.20 FOR THE SAME PRODUCT IN 250 MILLIGRAM STRENGTH, SHE SHOULD HAVE BEEN ON CONSTRUCTIVE NOTICE OF AN ERROR IN MCNEIL'S BID ON ITEM 44. THE DIRECTOR, SUPPLY SERVICE, EXPRESSES THE OPINION THAT THE CONTRACTING OFFICER SHOULD HAVE KNOWN THAT AN ERROR IN THE BID AS TO ITEM 44 WAS LIKELY, SINCE ONE WOULD NOT EXPECT A FIRM TO BID LESS ON 500-MILLIGRAM TABLETS (ITEM 44) THAT COST MORE TO PRODUCE THAN 250-MILLIGRAM TABLETS (ITEM 41), ALL OTHER FACTORS BEING EQUAL. WE CONCUR WITH THIS OPINION. ALSO, IT IS NOTED THAT UNDER ITEM 45 OF ITS BID MCNEIL QUOTED A UNIT PRICE OF $15.30 FOR A BOTTLE OF 250 TABLETS OF GRISEOFULVIN OF THE SAME STRENGTH AS SPECIFIED UNDER ITEM 44, WHICH CALLED FOR A BOTTLE OF 100 TABLETS.

IT SEEMS OBVIOUS THAT MCNEIL DID NOT INTEND TO QUOTE A UNIT PRICE OF ONLY $3.11 FOR A BOTTLE OF 100 TABLETS UNDER ITEM 44 SINCE SUCH PRICE IS ONLY ONE-FIFTH OF THE PRICE OF $15.30 WHICH IT QUOTED FOR A BOTTLE OF 250 TABLETS UNDER ITEM 45. ALSO, IT APPEARS THAT MCNEIL'S BID PRICES FOR THE 1969 CONTRACT ON ITEMS 41, 42, AND 45 ARE ABOUT 10 PERCENT LESS THAN THE PRICES FOR THE 1968 CONTRACT FOR THE IDENTICAL ITEMS. SINCE THE 1968 PRICE OF ITEM 44 WAS $6.92, IT IS REASONABLE TO ARRIVE AT ITS INTENDED 1969 PRICE BY APPLYING THE 10-PERCENT REDUCTION TO $6.92 TO PRODUCE A BID OF $6.23 FOR ITEM 44. IN THE CIRCUMSTANCES, THE CONTRACTING OFFICER WAS ON CONSTRUCTIVE NOTICE OF POSSIBLE ERROR IN ITEM 44 AND THE BID SHOULD NOT HAVE BEEN ACCEPTED WITHOUT VERIFICATION THEREOF.

ACCORDINGLY, CONTRACT NO. V797P-5660 MAY BE AMENDED TO PROVIDE FOR A UNIT PRICE OF $6.23 FOR ITEM 44 AND PAYMENT IS AUTHORIZED TO BE MADE ON THAT BASIS FOR THE DELIVERIES MADE AND TO BE MADE UNDER THAT ITEM. A REFERENCE TO THIS DECISION SHOULD BE MADE ON THE AMENDMENT TO BE ATTACHED TO THE CONTRACT.

IN HIS LETTER OF APRIL 1, 1969, IN WHICH HE RECOMMENDS RETROACTIVE CORRECTION OF THE CONTRACT UNIT PRICE TO THE EFFECTIVE DATE OF THE CONTRACT TO REFLECT MCNEIL'S INTENDED BID OF $6.23 FOR ITEM 44, OR A TOTAL ESTIMATED INCREASE OF $468 IN THE TOTAL PRICE FOR THAT ITEM, THE DIRECTOR ADVISED THAT UNDER AUTHORITY GRANTED BY SECTION 1-2.406-4 OF THE FEDERAL PROCUREMENT REGULATIONS (FPR), HE PREPARED AN ADMINISTRATIVE DETERMINATION PERMITTING AN INCREASE IN THE UNIT PRICE OF ITEM 44 TO $6.23. HOWEVER, THE DIRECTOR REQUESTS OUR ADVICE WHETHER WE WOULD HAVE ANY OBJECTION TO THE EXERCISE OF ADMINISTRATIVE AUTHORITY TO REFORM OR RESCIND CONTRACTS AS PROVIDED IN FPR 1-2.406-4 IN CASES OF THIS NATURE INVOLVING FEDERAL SUPPLY SCHEDULE INDEFINITE QUANTITY REQUIREMENTS CONTRACTS.

AUTHORITY TO ADMINISTRATIVELY REFORM OR RESCIND CONTRACTS FOR MISTAKE DISCOVERED AFTER AWARD WAS GRANTED TO THE ADMINISTRATOR OF GENERAL SERVICES BY OUR DECISION B-130238, FEBRUARY 28, 1957. THIS APPROVAL WAS BASED UPON PRIOR APPROVAL BY OUR OFFICE OF THE EXERCISE OF SUCH AUTHORITY BY THE DEPARTMENT OF THE ARMY. SEE B-123539, JULY 26, 1955. IN THAT CASE, OUR OFFICE AUTHORIZED THE DEPARTMENT OF THE ARMY TO ADMINISTRATIVELY RESCIND OR REFORM CONTRACTS WHEN EVIDENCE IS CLEAR AND CONVINCING THAT A MISTAKE IN BID WAS MADE BY THE CONTRACTOR. THIS AUTHORITY AS NOW FOUND IN FPR 1-2.406-4 WAS EXTENDED TO ALL FEDERAL AGENCIES BY OUR DECISION B- 130238, AUGUST 1, 1961, TO THE ADMINISTRATOR OF GENERAL SERVICES. THAT DECISION FURTHER APPROVED AN INCREASE IN THE DOLLAR LIMITATION FROM $500 TO $1,000.

FPR 1-2.406-4 (B) (2) PROVIDES:

A DETERMINATION MAY BE MADE TO REFORM A CONTRACT, IRRESPECTIVE OF AMOUNT, (I) TO DELETE THE ITEM OR ITEMS INVOLVED IN THE MISTAKE WHERE SUCH DELETION DOES NOT REDUCE THE CONTRACT PRICE BY MORE THAN $1,000, OR (II) TO INCREASE THE PRICE WHERE SUCH INCREASE DOES NOT EXCEED $1,000 AND IF THE CONTRACT PRICE, AS CORRECTED, DOES NOT EXCEED THAT OF THE NEXT LOWEST ACCEPTABLE BID UNDER THE ORIGINAL INVITATION FOR BIDS.

THIS REGULATION EXTENDS TO ALL FEDERAL AGENCIES AUTHORITY TO TAKE ACTION ADMINISTRATIVELY IN CERTAIN MISTAKE IN BID CASES WHERE REFORMATION WOULD NOT EXCEED A $1,000 INCREASE OR DECREASE IN CONTRACT PRICE. THE QUESTION IS RAISED AS TO THE AUTHORITY OF THE DIRECTOR UNDER FPR 1-2.406-4 (B) (2) TO REFORM AN INDEFINITE QUANTITY REQUIREMENTS CONTRACT OF THE TYPE AWARDED TO MCNEIL. IT IS POINTED OUT THAT SINCE THE TOTAL QUANTITY PURCHASED UNDER THE CONTRACT WILL NOT BE KNOWN UNTIL THE END OF THE CONTRACT PERIOD AND SINCE THE CONTRACT IS OPEN TO PURCHASE BY ALL QUALIFIED BUYERS, THERE IS A POSSIBILITY THAT THE NET INCREASE IN THE CONTRACT PRICE WHICH WOULD RESULT FROM REFORMATION MIGHT EXCEED THE $1,000 LIMITATION SET FORTH IN FPR 1-2.406-4 (B) (2).

IN REGARD TO THE CONTRACT AWARDED TO MCNEIL, IT IS NOTED THAT, BASED ON THE ESTIMATED QUANTITY OF 150 BOTTLES SPECIFIED FOR ITEM 44, CORRECTION OF THE UNIT PRICE OF THAT ITEM TO READ $6.23 EACH INSTEAD OF $3.11 EACH WILL RESULT IN AN INCREASE OF ONLY $468 IN THE TOTAL CONTRACT ESTIMATED PRICE FOR THAT ITEM. THE DIFFERENCE BETWEEN THE ORIGINAL CONTRACT UNIT PRICE AND THE CORRECTED CONTRACT UNIT PRICE FOR ITEM 44 IS $3.12 AND TO INCREASE THE TOTAL CONTRACT PRICE OF THAT ITEM BY MORE THAN $1,000--- THE DOLLAR LIMITATION SPECIFIED IN FPR 1-2.406 4 (B) (2)--- IT WOULD BE NECESSARY FOR THE VARIOUS GOVERNMENT AGENCIES TO ORDER DURING THE CONTRACT PERIOD AN AGGREGATE TOTAL QUANTITY IN EXCESS OF 320 BOTTLES--- 170 BOTTLES MORE THAN THE ESTIMATED NUMBER STATED FOR ITEM 44. WE BELIEVE THAT IN THE ABSENCE OF DEFINITE KNOWLEDGE THAT GOVERNMENT AGENCIES WILL ORDER MORE THAN 320 BOTTLES OF THE DRUG DESCRIBED UNDER ITEM 44 DURING THE CONTRACT PERIOD, IT WOULD HAVE BEEN PROPER FOR THE DIRECTOR TO HAVE AUTHORIZED THE CORRECTION OF THE UNIT PRICE FOR ITEM 44.

ACCORDINGLY, IT IS OUR OPINION THAT IN CASES INVOLVING THE REFORMATION OF INDEFINITE QUANTITY REQUIREMENTS CONTRACTS UNDER THE AUTHORITY GRANTED BY FPR 1-2.406-4 (B) (2), THE ESTIMATED QUANTITY OR QUANTITIES SHOWN IN THE SOLICITATION FOR THE ITEM OR ITEMS IN QUESTION MAY BE USED IN DETERMINING WHETHER SUCH ACTION WILL RESULT IN INCREASING OR DECREASING THE CONTRACT PRICE BY MORE THAN THE $1,000 LIMITATION SET FORTH IN THE REGULATION.

THE DOCUMENTS WHICH WERE FURNISHED BY THE LETTER OF APRIL 1, 1969, ARE RETURNED AS REQUESTED.