B-173887, MAR 16, 1972, 51 COMP GEN 565

B-173887, MAR 16, 1972, 51 COMP GEN 565

LEASES - BUILDING CONSTRUCTION FOR LEASE TO GOVERNMENT - LEASE NEGOTIATION - PROPRIETY IN THE NEGOTIATION PURSUANT TO 41 U.S.C. 252(C)(10) OF A 20-YEAR LEASE WITH FOUR 5-YEAR RENEWAL OPTIONS FOR SPACE IN A BUILDING TO BE CONSTRUCTED, THE APPLICATION OF PRINCIPLES INHERENT IN THE COMPETITIVE SYSTEM, EVEN IF THE NEGOTIATIONS WERE NOT SUBJECT TO THE FEDERAL PROCUREMENT REGULATIONS, WOULD HAVE SECURED A MORE FAVORABLE LEASE, FOR THEN THE POSSIBILITY OF TRANSFERRING OPTION COST BENEFITS TO THE 20 YEAR PRICE WOULD HAVE BEEN DISCUSSED; ZONING REQUIREMENTS WOULD NOT HAVE BEEN STATED IN TERMS OF NONRESPONSIVENESS, TERMS INAPPROPRIATE IN A NEGOTIATED CONTRACT; PAST PERFORMANCE AND NOT FINANCIAL CAPACITY ALONE WOULD HAVE DETERMINED THE CAPACITY TO PROVIDE THE LEASE SPACE BY THE DATE SPECIFIED; A PRICE EVALUATION BASIS WOULD HAVE BEEN STATED AND THE INFORMATION OPTION PRICES WOULD NOT BE CONSIDERED; AND THE CUTOFF DATE FOR NEGOTIATIONS WOULD HAVE BEEN PROSPECTIVE. ALTHOUGH TERMINATION OF THE LEASE WOULD NOT BE IN THE BEST INTERESTS OF THE GOVERNMENT, THE PROGRESS OF THE BUILDING CONSTRUCTION SHOULD BE CLOSELY MONITORED.

TO THE ACTING ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, MARCH 16, 1972:

WE REFER TO THE REPORT DATED OCTOBER 15, 1971, FROM YOUR GENERAL COUNSEL, RELATIVE TO THE PROTEST BY SUTHERLAND, AS BILL AND BRENNAN, AS ATTORNEYS FOR THE TINTON REALTY CO., INC. (TINTON), AGAINST THE AWARD OF A CONTRACT TO THE DWORMAN BUILDING CORPORATION (DWORMAN), UNDER SOLICITATION FOR OFFERS (SFO) 2PRA(71)-160, ISSUED BY THE PUBLIC BUILDINGS SERVICE, NEW YORK, NEW YORK.

THE SFO, ISSUED ON APRIL 19, 1971, WAS NEGOTIATED PURSUANT TO 41 U.S.C. 252(C)(10) AFTER THE PROPOSED LEASE-CONSTRUCTION PROSPECTUS HAD BEEN APPROVED BY THE PUBLIC WORKS COMMITTEES AND COMMITTEES ON THE ARMED SERVICES OF THE CONGRESS. THE PROJECT REQUIRED CONSTRUCTION OF A BUILDING CONTAINING 535,000 NET USABLE SQUARE FEET OF OFFICE, STORAGE, AND RELATED SPACE FOR OCCUPANCY BY THE ARMY ELECTRONICS COMMAND AND THE ARMY MATERIEL COMMAND IN THE VICINITY OF FORT MONMOUTH, NEW JERSEY. THE MAXIMUM ALLOWABLE RENT WAS ESTABLISHED AS $5.50 PER SQUARE FOOT OF NET USABLE SPACE PER ANNUM.

THE SFO CONTAINED THE FOLLOWING PERTINENT PROVISIONS:

TERM OF LEASE: TWENTY (20) YEARS FIRM COMMENCING WITH THE DATE THE GOVERNMENT TAKES POSSESSION WITH FOUR (4) FIVE (5) YEAR RENEWAL OPTIONS UPON 90 DAYS' PRIOR WRITTEN NOTICE TO THE LESSOR. THE GOVERNMENT SHALL HAVE THE RIGHT TO CANCEL AT ANY TIME, DURING THE RENEWAL PERIODS ONLY, UPON 90 DAYS' PRIOR WRITTEN NOTICE TO THE LESSOR.

SCHEDULE D

MISCELLANEOUS PROVISIONS

6. ZONING. PRIOR TO AWARD UNDER THIS INVITATION, OFFERORS MAY BE REQUIRED TO FURNISH EVIDENCE THAT THEIR PROPERTY IS ZONED IN CONFORMANCE WITH THE GOVERNMENT'S INTENDED USE. SUCH EVIDENCE MUST BE FURNISHED WITHIN FIVE (5) DAYS FROM THE DATE OF THE GOVERNMENT'S WRITTEN REQUEST. FAILURE TO PROVIDE SATISFACTORY EVIDENCE WILL AUTOMATICALLY MAKE THE BID NONRESPONSIVE. MOREOVER, IF REZONING OR A ZONING VARIANCE IS NECESSARY FOR THE PROPOSED USE OF THE PROPERTY, THE OFFEROR MUST FURNISH EVIDENCE THAT SUCH REZONING OR VARIANCE WOULD BE AUTHORIZED EVEN IF THE FEDERAL GOVERNMENT, AS SUCH, WERE NOT INVOLVED.

13. AWARD FACTORS.

(A) SPACE SHALL BE OFFERED ON AN ANNUAL SQUARE FOOT COST RATHER THAN ON AN OVERALL PER ANNUM OR MONTHLY RATE, AND PRICE EVALUATION AND AWARD WILL BE MADE ON THE BASIS OF THE LOWEST ANNUAL PER SQUARE FOOT COST TO THE GOVERNMENT AND NOT ON THE LOWEST OVERALL RENTAL COST.

(B) ALL OFFERS WILL BE ANALYZED AND COMPARATIVELY EVALUATED. AWARD WILL BE MADE TO THAT RESPONSIBLE OFFEROR WHOSE OFFER, CONFORMING TO THE SOLICITATION FOR OFFERS, WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED.

(C) IN DETERMINING WHICH OFFER WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, THE CONTRACTING OFFICER WILL CONSIDER THE FOLLOWING FACTORS, IN ADDITION TO THE RENTAL PROPOSED AND THE CONFORMITY OF THE SPACE OFFERED TO THE SPECIFIC REQUIREMENTS OF THIS SOLICITATION FOR OFFERS:

1. SUSCEPTIBILITY OF THE DESIGN OF THE SPACE OFFERED TO EFFICIENT LAYOUT AND GOOD UTILIZATION.

2. THE EFFECT OF ENVIRONMENTAL FACTORS, INCLUDING THE PHYSICAL CHARACTERISTICS OF THE BUILDING AND THE AREA SURROUNDING IT, ON THE EFFICIENT AND ECONOMICAL CONDUCT OF AGENCY OPERATIONS PLANNED FOR THE REQUESTED SPACE.

3. THE ADEQUACY AND EFFECTIVENESS OF THE INTERIOR ROAD SYSTEM IN PRECLUDING TRAFFIC BACKUP.

THEREAFTER, ON MAY 9, 1971, AMENDMENT NO. 1 WAS ISSUED, PROVIDING IN PERTINENT PART:

19. PRIOR TO MAKING A LEASE AWARD AND UPON THE REQUEST OF THE GENERAL SERVICES ADMINISTRATION, ANY OFFEROR SHALL OBTAIN AND EXHIBIT TO GSA AT LEAST A CONDITIONAL COMMITMENT OF FUNDS IN AN AMOUNT NECESSARY TO PERFORM THE WORK, AND IN ADDITION, SHALL FURNISH GSA WITH THE NAME OF THE CONSTRUCTION CONTRACTOR.

21. WITHIN THIRTY DAYS AFTER THE AWARD, THE SUCCESSFUL OFFEROR SHALL PROVIDE THE GOVERNMENT EVIDENCE OF:

(A) THE FIRM COMMITMENT OF FUNDS IN AN AMOUNT SUFFICIENT TO PERFORM THE WORK.

(B) SUFFICIENT OWNERSHIP INTEREST OR CONTROL OF THE CONSTRUCTION SITE TO INSURE THE GOVERNMENT'S INTEREST FOR THE FULL TERM OF THE LEASE.

(C) COMPLIANCE WITH LOCAL ZONING LAWS OR VARIANCES, APPROVED BY THE PROPER AUTHORITIES.

(D) EXECUTION OF A CONSTRUCTION CONTRACT WITH A FIRM COMPLETION DATE.

(E) ISSUANCE OF A BUILDING PERMIT BY THE PROPER AUTHORITY.

A SECOND AMENDMENT WAS ISSUED JUNE 8, 1971, PROVIDING FOR ADDITIONAL LIGHTING REQUIREMENTS.

DWORMAN AND TINTON WERE THE ONLY OFFERORS TO RESPOND BY THE CLOSING DATE OF JUNE 22, 1971. TINTON PROPOSED TO CONSTRUCT THE FACILITY ON THE NORTHEAST CORNER OF TINTON AVENUE AND HOPE ROAD IN EATONTOWN, NEW JERSEY, AT A RENTAL OF $5.47 PER SQUARE FOOT PER ANNUM FOR THE 20-YEAR FIRM TERM AND EACH OPTION PERIOD. DWORMAN PROPOSED THREE ALTERNATIVE SITES, ALL AT A RENTAL OF $5.50 FOR THE FIRM TERM AND OPTIONS. DWORMAN'S SITE "A," THE ONE ULTIMATELY CHOSEN BY GSA, WAS DESCRIBED AS "EASTERLY SIDE OF TINTON AVENUE AT WAYSIDE ROAD INTERSECTION, EATONTOWN, NEW JERSEY." IT HAS BEEN DETERMINED THAT DWORMAN'S SITE "A" IS ACTUALLY SITUATED IN NEW SHREWSBURY, RATHER THAN EATONTOWN.

AFTER NEGOTIATIONS WERE CONDUCTED ON JULY 8, 1971, BETWEEN REPRESENTATIVES OF TINTON AND GSA, TINTON REDUCED ITS PROPOSED RENTAL ON JULY 12 TO $5.40 FOR THE FIRM TERM AND OPTION PERIODS, CONTINGENT UPON RECEIVING AWARD BY AUGUST 25. PURSUANT TO A MEETING OF JULY 13, 1971, TINTON SUBMITTED ITS AFFIRMATIVE ACTION PLAN ON JULY 14, 1971. BY LETTER OF THE SAME DATE, DWORMAN SUBMITTED INFORMATION RELATIVE TO ITS PROPOSED ARCHITECTURAL APPROACH AND ALSO REDUCED ITS OFFER TO $5.40 FOR BOTH THE FIRM TERM AND OPTION PERIODS. BY LETTER DATED JULY 15, TINTON AMENDED ITS AFFIRMATIVE ACTION PLAN AND SUBMITTED EVIDENCE OF A CONDITIONAL CONSTRUCTION LOAN AND THE NAME OF ITS PROPOSED CONSTRUCTION CONTRACTOR.

ON JULY 19, 1971, GSA RECEIVED AN ANALYSIS, REQUESTED JUNE 30, 1971, FROM THE DIRECTOR OF COUNTY PLANNING, MONMOUTH COUNTY PLANNING BOARD, OF THE IMPACT OF THE PROPOSED FACILITIES ON THE LOCAL ROAD NETWORK FOR THE PROPOSED SITES. THE PREFACE TO THE REPORT INDICATED:

UNFORTUNATELY ALL OF THE PROPOSED SITES HAVE SERIOUS DRAWBACKS WHEN VIEWED FROM THE STANDPOINT OF TRAFFIC FLOW. NONE OF THE SITES WILL BE ABLE TO ADEQUATELY PROVIDE FOR SAFE AND EFFICIENT FLOW OF TRAFFIC WITHOUT EXTENSIVE ROAD IMPROVEMENTS.

COMMENTING ON DWORMAN'S SITE "A", THE ANALYSIS POINTS OUT THE TRANSPORTATION DEFICIENCIES OF THE INTERSECTION OF TINTON AVENUE AND WAYSIDE ROAD:

*** FOR THIS SITE TO BE ACCEPTABLE, THERE WOULD HAVE TO BE A COMPLETE REDESIGN AND RECONSTRUCTION OF THIS INTERSECTION, INCLUDING A REALIGNMENT OF A PORTION OF WAYSIDE ROAD.

AFTER FURTHER ANALYSIS, THE REPORT CONCLUDES:

IF THE NECESSARY ROAD IMPROVEMENTS WERE MADE AS OUTLINED ABOVE, THIS SITE WOULD BE THE BEST OF THE FOUR SITES FROM THE TRAFFIC VIEWPOINT.

TINTON'S SITE WAS CHARACTERIZED AS FOLLOWS:

ANY DEVELOPMENT OF THIS SITE SHOULD INCLUDE THE RECONSTRUCTION OF THE INTERSECTION OF TINTON AVENUE AND HOPE ROAD AS A MINIMUM. EVEN WITH SUCH IMPROVEMENT, HOWEVER, THE SITE WILL HAVE AN ADVERSE IMPACT OF THE TRAFFIC FLOW THROUGH THIS INTERSECTION.

ON THE SAME DATE, DWORMAN ALSO SUBMITTED EVIDENCE OF A CONDITIONAL LOAN COMMITMENT. ALSO, ON JULY 19, TINTON SUBMITTED REDUCTIONS TO ITS OPTION PRICES FOR EACH SUCCESSIVE PERIOD TO $4.95, $4.75, $4.50 AND $3.95.

BY LETTER DATED JULY 20, 1971, DWORMAN SUBMITTED A COPY OF A LETTER DATED JULY 16, 1971, FROM THE ADMINISTRATOR OF THE BOROUGH OF NEW SHREWSBURY, INDICATING THAT THE PROPOSED DWORMAN LOCATION WAS SERVICED BY EXISTING STORM DRAINS OF THE MONMOUTH CONSOLIDATED WATER COMPANY AND THAT A SEWAGE SYSTEM WAS THEN BEING INSTALLED FOR PROJECTED COMPLETION BY MID-1972. THE ADMINISTRATOR OF NEW SHREWSBURY FURTHER INDICATED THAT, AS MAYOR, HE WOULD ENDORSE THE NECESSARY ZONING CHANGES TO ATTRACT THE PROPOSED BUILDING TO NEW SHREWSBURY. THE COVER LETTER OF JULY 20 ALSO SUBMITTED A FURTHER YEARLY RENTAL REDUCTION TO $2,884,000, OR APPROXIMATELY $5.39, WHILE ERRONEOUSLY INDICATING THAT THE PROPOSED SITE HAD ALREADY BEEN PROPERLY ZONED. THE NEXT DAY TINTON AMENDED ITS PROPOSAL FOR THE FIRM TERM OF THE LEASE TO $2,885,000 PER ANNUM.

ON JULY 23, 1971, TINTON'S AFFIRMATIVE ACTION PLAN WAS APPROVED BY GSA. ON JULY 26 GSA APPROVED DWORMAN'S AFFIRMATIVE ACTION PLAN AND ALSO RECEIVED A LETTER FROM DWORMAN REDUCING ITS RENTAL TO $5.365. ON JULY 28, TINTON'S OFFER WAS REDUCED TO $5.35 FOR THE FIRM TERM OF THE LEASE.

BOTH OFFERORS WERE DETERMINED FINANCIALLY RESPONSIBLE BY THE CREDIT AND FINANCE OFFICER ON AUGUST 2, 1971. ON AUGUST 4, DWORMAN REDUCED ITS PROPOSAL TO $5.33 FOR BOTH THE FIRM TERM OF THE LEASE AND OPTION PERIODS. ON AUGUST 5, 1971, TINTON EXTENDED ITS ACCEPTANCE PERIOD FOR 90 DAYS, IN LIEU OF THE AUGUST 25 DATE PREVIOUSLY IMPOSED. BY LETTER DATED AUGUST 9, 1971, GSA ADVISED BOTH OFFERORS THAT NEGOTIATIONS WERE CLOSED AND THAT NO FURTHER REVISIONS, AMENDMENTS OR MODIFICATIONS WOULD BE ACCEPTED.

ON AUGUST 12, 1971, THE REGIONAL ADMINISTRATOR RECOMMENDED ACCEPTANCE OF DWORMAN'S OFFER OF $5.33 FOR ITS SITE "A" FOR THE 20-YEAR FIRM TERM AND OPTION PERIODS PRIMARILY ON THE GROUND THAT ITS OFFER WAS THE LOWEST RECEIVED. THIS RECOMMENDATION WAS BASED ON THE EVALUATION OF THE TINTON AND DWORMAN OFFERS FOR THE 20-YEAR FIRM TERM ONLY, NOT INCLUDING THE PRICES OFFERED FOR THE OPTION PERIODS. EVALUATION OF THE TWO OFFERS ON THE BASIS OF THE 20-YEAR FIRM TERM PLUS THE OPTION PERIODS, HOWEVER, WOULD HAVE RESULTED IN TINTON'S OFFER HAVING BEEN EVALUATED AT $8,262,750 LESS THAN THE DWORMAN OFFER. GSA JUSTIFIES EVALUATION OF THE FIRM TERM ONLY BY STATING THAT IT WAS NOT KNOWN WHETHER THE OPTIONS WOULD BE EXERCISED AND THAT OPTION EVALUATION WOULD HAVE BEEN INAPPROPRIATE. TINTON'S PRIMARY GROUND OF PROTEST CONCERNS THIS EVALUATION METHOD. NOTWITHSTANDING THAT THE TINTON OFFER PRESENTED AN EXCELLENT OPPORTUNITY TO GSA TO DISCUSS WITH TINTON (WITH THE SAME OPPORTUNITY OFFERED TO DWORMAN) THE POSSIBILITY OF TRANSFERRING SOME OF THE OPTION COST BENEFIT TO THE FIRM 20-YEAR TERM PRICE, LEASE NO. GS-02B-15526, DATED AUGUST 12, 1971, WAS AWARDED TO DWORMAN.

AT THE OUTSET, WHILE WE RECOGNIZE THAT THE CONDUCT OF NEGOTIATIONS FOR LEASED SPACE IS NOT SUBJECT TO THE FEDERAL PROCUREMENT REGULATIONS (FPR) (SEE FPR SEC. 1-1.004-1), WE PERCEIVE NO SOUND REASON WHY THE PRINCIPLES INHERENT IN THE COMPETITIVE PROCUREMENT SYSTEM SHOULD NOT BE APPLIED TO LEASE ACTIVITIES. SINCE GSA HAS PROMULGATED INTERNAL REGULATIONS TO GOVERN THE CONDUCT OF LEASED SPACE ACQUISITION IN ITS HANDBOOK PBS 1600.1, JANUARY 24, 1964, "ACQUISITION OF LEASEHOLD INTERESTS IN REAL PROPERTY," WE WILL REVIEW THIS CASE PREDICATED UPON PBS 1600.1, IN LIGHT OF THE AFOREMENTIONED STANDARDS.

THE INITIAL GROUND OF PROTEST, ADVANCED BY ATTORNEYS FOR TINTON, IS THAT DWORMAN DID NOT COMPLY WITH PARAGRAPH 6 OF SCHEDULE "D", WHICH PROVIDES FOR AUTOMATIC REJECTION OF AN OFFER AS NONRESPONSIVE IF THE OFFEROR FAILS TO EVIDENCE PROPER ZONING WITHIN 5 DAYS OF A WRITTEN REQUEST BY THE GOVERNMENT FOR SUCH INFORMATION. COUNSEL ARGUES THAT THE STATEMENT IN DWORMAN'S LETTER OF JULY 20, 1971, TO GSA, THAT PROPER ZONING HAD BEEN SECURED, INDICATED THAT GSA HAD ORALLY REQUESTED THE INFORMATION CALLED FOR UNDER PARAGRAPH 6, AND THAT THE LATER SUBMISSION OF FACTUALLY INCORRECT INFORMATION BY DWORMAN RELATIVE TO PROPER ZONING PROVIDED A COMPELLING REASON FOR REJECTION OF DWORMAN'S OFFER AS NONRESPONSIVE.

IN THIS RESPECT, THE REPORT OF OCTOBER 15, 1971, FROM YOUR GENERAL COUNSEL, STATES THAT PARAGRAPH 6 OF SCHEDULE "D" IS CONSIDERED TO BE INAPPLICABLE BECAUSE "THE GOVERNMENT DID NOT REQUEST THE BIDDERS, PRIOR TO AWARD, TO FURNISH EVIDENCE THAT THEIR SITES WERE PROPERLY ZONED." WHILE DWORMAN'S JULY 20 LETTER ADVISING, ALBEIT INCORRECTLY, THAT PROPER ZONING WAS IN EFFECT WOULD SEEM TO INDICATE THAT A REQUEST FOR SUCH INFORMATION WAS, IN FACT, MADE BY THE GOVERNMENT, WE NEED NOT RESOLVE THIS ISSUE.

IT WAS UNFORTUNATE THAT THE LANGUAGE OF THE SFO COUCHED THE ZONING REQUIREMENT IN TERMS OF RESPONSIVENESS. WE FEEL THAT THE USE OF THE TERM IS INAPPROPRIATE IN A NEGOTIATED PROCUREMENT. IN ANY EVENT, IT IS OUR VIEW THAT AMENDMENT NO. 1 TO THE SFO RECTIFIED THE ERRONEOUS CATEGORIZATION BY REQUIRING SUBMISSION OF EVIDENCE OF PROPER ZONING WITHIN 30 DAYS AFTER AWARD. THIS EVIDENCE WAS TIMELY SUBMITTED BY DWORMAN.

WITH REGARD TO THE DETERMINATION OF DWORMAN'S RESPONSIBILITY, SECTION 16(F) OF CHAPTER 3 AND 2(B)(2) OF CHAPTER 5 OF PBS 1600.1 MERELY REQUIRE AN AFFIRMATIVE DETERMINATION OF FINANCIAL CAPACITY PURSUANT TO GSA HANDBOOK "CREDIT, FINANCE AND INSURANCE," CPT 3000.1. THIS REQUIREMENT WAS SATISFIED BY THE AUGUST 2, 1971, REPORT OF THE CREDIT AND FINANCE OFFICER, REFERENCED ABOVE. HOWEVER, FROM THE RECORD, WE DO NOT BELIEVE THAT THE DETERMINATION OF FINANCIAL CAPACITY ALONE PROVIDED THE CONTRACTING OFFICER WITH SUFFICIENT ASSURANCE THAT DWORMAN HAD THE CAPACITY TO PROVIDE THE LEASE SPACE BY THE DATE SPECIFIED. WE BELIEVE THAT, AT A MINIMUM, GSA SHOULD HAVE CONSIDERED (IN CONSONANCE WITH FPR 1- 1.1203-1(C)) DWORMAN'S PAST PERFORMANCE IN ARRIVING AT ITS DETERMINATION OF RESPONSIBILITY. CONCERNING THE EVALUATION BASIS EMPLOYED BY GSA, BY LETTER DATED DECEMBER 13, 1971, ATTORNEYS FOR TINTON ALLEGE THAT FULL AND FREE COMPETITION WAS NOT OBTAINED:

THE PROCUREMENT TECHNIQUE FOLLOWED BY GSA VIOLATES THE FUNDAMENTAL REQUIREMENT THAT A PROCURING AGENCY SET FORTH THE BASIS UPON WHICH AN AWARD IS TO BE DETERMINED AND THEN THAT THE AWARD BE MADE ON THAT BASIS. HERE, BOTH THE TERMS OF THE SOLICITATION FOR OFFERS AND THE COURSE OF CONDUCT OF THE GSA REPRESENTATIVES IN THEIR NEGOTIATIONS WITH TINTON CLEARLY ESTABLISHED THAT THE LOW PRICE FOR THE FULL 40-YEAR PERIOD OF THE LEASE (THE 20-YEAR FIRM TERM AND THE PERIOD OF THE FOUR 5 YEAR OPTIONS) WAS THE BASIS UPON WHICH THE AWARD WOULD BE MADE.

THE GSA POSITION ON THE MATTER IS AS FOLLOWS:

*** DWORMAN'S OFFER IS $10,700 PER YEAR LESS THAN PROTESTANT'S OR $214,000 LESS OVER THE TWENTY YEAR FIRM TERM OF THE LEASE. OBVIOUSLY, THE LOWER RATES FOR THE RENEWAL TERMS CANNOT BE USED TO CALCULATE PROTESTANT'S OFFER AS LOW BID, SINCE IT CANNOT BE KNOWN NOW WHETHER THE GOVERNMENT WILL EXERCISE ITS RENEWAL RIGHTS.

HOWEVER, WE NOTE THAT PBS 1600.1, CHAPTER 3, PART 2, SECTION 5B(1)(B), PROVIDES IN PART:

IN SITUATIONS CALLING FOR AWARD FACTOR EVALUATION TO MEET THE TEST OF PROPRIETY, IT IS NECESSARY TO CLEARLY STATE THE SPECIFIC FACTORS RELATED TO VALID AGENCY REQUIREMENTS AND GIVE ADEQUATE NOTICE TO OFFERORS THAT THESE FACTORS WILL BE CONSIDERED IN THE EVALUATION OF THE OFFERS.

NEVERTHELESS, THE SFO FAILED TO ADVISE OFFERORS OF THE BASES OF PRICE EVALUATION AND, ESPECIALLY, THAT OPTION PRICES WOULD NOT BE EVALUATED. RATHER, THE SFO CALLS ONLY FOR OFFERS TO BE SUBMITTED FOR BOTH THE 20 YEAR FIRM TERM AND FOUR 5-YEAR OPTIONS. ALSO, SECTION 21B, AMENDMENT NO. 1 TO THE SFO, EVIDENCES GSA'S CONCERN WITH THE FULL 40-YEAR PERIOD BY REQUIRING SUBMISSION OF EVIDENCE WITHIN 30 DAYS AFTER AWARD OF SUFFICIENT OWNERSHIP INTEREST OR CONTROL OF THE SITE TO INSURE THE GOVERNMENT'S INTEREST FOR THE "FULL TERM OF THE LEASE." FURTHER, SECTION 13, "AWARD FACTORS," MERELY INDICATES THAT PRICE EVALUATION WOULD BE CONDUCTED ON THE BASIS OF THE "LOWEST ANNUAL PER SQUARE FOOT COST TO THE GOVERNMENT AND NOT ON THE LOWEST OVERALL RENTAL COST" WITH NO ADVICE THAT OPTION PRICES WOULD NOT BE CONSIDERED. FINALLY, THE SFO STATED THAT AWARD WAS CONTEMPLATED TO THAT RESPONSIBLE OFFERER WHOSE OFFER WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED, AGAIN WITHOUT MENTION THAT OPTION PRICES WOULD NOT BE CONSIDERED.

OUR OFFICE BELIEVES THAT THESE SECTIONS OF THE SFO DID NOT SET FORTH SUFFICIENT INFORMATION CONCERNING EVALUATION OF OFFERS TO ENABLE A BIDDER TO PROPERLY PREPARE A PROPOSAL WITH ANY DEGREE OF CERTAINTY AS TO HOW IT WOULD BE EVALUATED. MOREOVER, GSA HAD AMPLE OPPORTUNITY TO CLARIFY ITS INTENTION CONCERNING EVALUATION OF THE OPTION PERIODS DURING THE COURSE OF NEGOTIATIONS. IN THIS RESPECT, TINTON CLAIMS THAT GSA PLACED CONSIDERABLE EMPHASIS ON THE OPTION RENTALS DURING NEGOTIATIONS. ALTHOUGH GSA ASSERTS THAT THE OPTION PERIODS WERE NEVER DISCUSSED DURING NEGOTIATIONS, IT SEEMS THAT IN EITHER CASE GSA DID NOT FULFILL ITS OBLIGATION TO CLEARLY COMMUNICATE THE BASIS OF PROPOSAL EVALUATION. IN ANY EVENT, WHEN TINTON SUBMITTED ITS AMENDED PROPOSAL ON JULY 19, 1971, OFFERING SUBSTANTIAL PRICE REDUCTIONS FOR THE OPTION PERIODS, GSA SHOULD HAVE BEEN AWARE THAT TINTON WAS ATTACHING GREAT IMPORTANCE TO ITS OPTION PRICES. AT THIS POINT, IT SHOULD HAVE BEEN APPARENT TO GSA THAT TINTON WAS NOT COMPETING ON THE SAME BASIS AS DWORMAN. IN OUR OPINION, THIS DEFICIENCY RELATING TO THE OPTION PERIODS DEPRIVED THE GOVERNMENT OF AN AWARD PREDICATED UPON FULL AND FREE COMPETITION.

FURTHER, ASSUMING, AS GSA ASSERTS, THAT IT HAD NO INTENTION OF EVALUATING THE PRICES FOR THE OPTION PERIODS, WE THINK THAT SOUND PROCUREMENT POLICY REQUIRED DISCUSSIONS WITH TINTON IN AN EFFORT TO OBTAIN FOR THE 20-YEAR FIRM TERM SOME OF THE COST BENEFITS RELATING TO THE OPTION PERIODS. NOTE, IN THIS REGARD, THAT GSA IS NOT WHOLLY UNCONCERNED WITH OPTION PRICES, AS EVIDENCED BY SECTION 18(D)(3), CHAPTER 3, PBS 1600.1. THIS SECTION INDICATES THAT ONE OF THE FACTORS TO BE CONSIDERED IN THE COURSE OF NEGOTIATIONS IS A RENEWAL OPTION QUOTED AT A HIGHER RENTAL THAN THE INITIAL PERIOD, PARTICULARLY WHERE EXPENDITURES SHOULD HAVE BEEN AMORTIZED OVER THE INITIAL TERM SO AS TO PROVIDE A NEGOTIATION TOOL TO OBTAIN REDUCED RENEWAL RENTALS. WHILE COGNIZANT THAT DWORMAN'S OPTION PRICES WERE THE SAME AS THE INITIAL TERM, ITS COSTS SHOULD HAVE BEEN AMORTIZED OVER THE 20-YEAR FIRM TERM WITH THE RESULT THAT GSA MIGHT HAVE OBTAINED OPTION RENTALS AT A LOWER THAN QUOTED PRICE. WE SAY THIS BECAUSE IF THE GOVERNMENT ELECTS TO EXERCISE THE FIRST 5-YEAR OPTION, TINTON'S PROPOSAL WOULD BE $192,660 LOWER THAN DWORMAN AFTER 2 YEARS; $802,500 LOWER AT THE END OF THE 5 YEAR OPTION PERIOD; AND $8,262,750 LOWER FOR THE FULL 40-YEAR PERIOD. EVEN THOUGH IT CANNOT NOW BE KNOWN WHETHER THE GOVERNMENT WILL ELECT TO EXERCISE ITS OPTION RIGHTS, THE FAILURE TO CONDUCT DISCUSSIONS WITH TINTON AND DWORMAN CONCERNING THE OPTIONS RAISES SUBSTANTIAL DOUBT THAT THE LEASE WAS AWARDED BY THE GOVERNMENT ON THE MOST FAVORABLE TERMS.

NEGOTIATIONS WERE CLOSED BY LETTERS OF AUGUST 9, 1971, FROM GSA TO DWORMAN AND TINTON. THE ADVICE WAS AS FOLLOWS:

IN REFERENCE TO THE ABOVE CAPTIONED SUBJECT, THIS IS TO INFORM YOU THAT THE GOVERNMENT WILL NOT ACCEPT OR CONSIDER ANY FURTHER REVISION, CHANGE, OR MODIFICATION OF YOUR OFFER.

HOWEVER, PBS 1600.1, CHAPTER 3, PART 3, SECTION 18I, PROVIDES THE METHOD TO TERMINATE NEGOTIATIONS, AS FOLLOWS:

A CUTOFF DATE MUST BE ESTABLISHED FOR TERMINATION OF NEGOTIATIONS. THIS WILL ASSIST IN ELIMINATING DELAYS AND UNCERTAINTIES. THE CONTRACTING OFFICER SHALL RECEIVE ALL OFFERS UNTIL AN AWARD IS MADE. OFFERORS SHALL BE ADVISED THAT THE CUTOFF DEADLINE IS AT THE CONVENIENCE OF THE GOVERNMENT AND MAY BE WAIVED BY THE GOVERNMENT. SOUND BUSINESS JUDGMENT SHALL DICTATE WHETHER THE CUTOFF DEADLINE SHALL BE EXTENDED. ***

WE BELIEVE THAT IT IS IMPLICIT IN THIS SECTION THAT THE CUTOFF DATE BE ESTABLISHED PROSPECTIVELY, NOT RETROSPECTIVELY. THE RETROSPECTIVE CUTOFF DATE EMPLOYED IN THIS PROCUREMENT PRECLUDED THE GOVERNMENT FROM RECEIVING A FINAL OFFER PREDICATED UPON THE KNOWLEDGE THAT NEGOTIATIONS WERE BEING TERMINATED AND THE OFFEROR'S BEST AND FINAL OFFER WAS BEING SOLICITED. BELIEVE SOUND PROCUREMENT POLICY DICTATES THAT TO PROPERLY TERMINATE NEGOTIATIONS: (1) OFFERORS MUST BE ADVISED THAT NEGOTIATIONS ARE BEING CONDUCTED; (2) OFFERORS MUST BE ASKED FOR THEIR "BEST AND FINAL" OFFER, NOT MERELY TO CONFIRM A PRIOR SUBMISSION; AND (3) THERE MUST BE A CUTOFF DATE COMMON TO ALL OFFERORS. CF. 50 COMP. GEN. 117, 125 (1970). WE FEEL THAT THESE STEPS REPRESENT THE MINIMUM NECESSARY TO ASSURE FULL AND FREE COMPETITION AND AVOID ANY APPEARANCE OF FAVORITISM.

WE FEEL THAT IT IS NECESSARY TO COMMENT UPON THE APPARENT LACK OF COMMUNICATION ENCOUNTERED HERE BETWEEN THE GSA CENTRAL AND REGIONAL OFFICES. WHILE THE CENTRAL OFFICE ATTRIBUTED DELAYS IN RESPONDING TO OUR REQUESTS FOR INFORMATION TO THE REGIONAL OFFICE, THE REGIONAL OFFICE MAINTAINS THAT BUT FOR REQUESTS FOR SPECIFIC INFORMATION INITIATED BY OUR OFFICE, IT HAD NOT BEEN CONTACTED OR CONSULTED ON MATTERS CONCERNING THE PROTEST SINCE PREPARATION OF THE INITIAL REPORT. WE FEEL THAT CORRECTIVE PROCEDURES NEED TO BE INSTITUTED TO REMEDY THIS SITUATION IN ORDER THAT OUR REQUESTS FOR REPORTS CAN BE HANDLED IN A RESPONSIVE AND EXPEDITIOUS MANNER.

IN OUR OPINION, THE ABOVE-DISCUSSED FACTS INDICATE THE CONDUCT OF NEGOTIATIONS DID NOT ASSURE THAT THE GOVERNMENT SECURED THE MOST FAVORABLE LEASE ARRANGEMENT AVAILABLE TO IT. HOWEVER, WITH RESPECT TO TINTON'S REQUEST THAT WE RECOMMEND THIS LEASE BE TERMINATED, WE ARE NOT CONVINCED THE FOREGOING DEFICIENCIES WOULD BE CONSIDERED BY THE COURT OF CLAIMS SO CLEARLY ILLEGAL AS TO RENDER THE LEASE A NULLITY. JOHN REINER & CO. V. UNITED STATES, 163 CT. CL. 381, 386, 325 F. 2D 438, 440 (1963), CERT. DENIED, 377 U.S. 931 (1964). THE GOVERNMENT DOES NOT HAVE THE RIGHT TO TERMINATE THE LEASE FOR ITS CONVENIENCE DURING THE FIRM 20-YEAR PERIOD. THEREFORE, ANY TERMINATION ACTION TAKEN PURSUANT TO SUCH A RECOMMENDATION BY OUR OFFICE MIGHT WELL IMPOSE LIABILITY ON THE GOVERNMENT FOR SUBSTANTIAL DAMAGES, INCLUDING LOSS OF ANTICIPATED PROFITS. WE DO NOT BELIEVE, UNDER THE CIRCUMSTANCES, TERMINATION OF THE LEASE WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT.

HOWEVER, TINTON HAS RAISED ANOTHER MATTER WHICH INTRODUCES DOUBT, IN OUR OPINION, AS TO THE ABILITY OF DWORMAN TO MEET ITS RESPONSIBILITIES UNDER ITS CONTRACT. IT IS TINTON'S CONTENTION IN THIS REGARD THAT ANY CONSTRUCTION WORK PERFORMED BY DWORMAN IS ILLEGAL BECAUSE THE BUILDING PERMIT ISSUED BY THE BOROUGH OF NEW SHREWSBURY IS NOT VALID AND SUBJECT TO COURT CHALLENGE IN THE ABSENCE OF PRIOR SITE PLAN APPROVAL BY THE COUNTY. SHOULD SUCH A CHALLENGE MATERIALIZE, DWORMAN'S ABILITY TO PERFORM IN ACCORDANCE WITH ITS CONTRACT CONSTRUCTION SCHEDULE WOULD BE SERIOUSLY, IF NOT FATALLY, IMPAIRED. WE SUGGEST THAT DWORMAN'S CONSTRUCTION PROGRESS BE CLOSELY MONITORED AND SERIOUS CONSIDERATION BE GIVEN TO TERMINATING THE CONTRACT FOR DEFAULT SHOULD WORK NOT PROCEED AS SCHEDULED. INASMUCH AS IT IS OUR UNDERSTANDING THAT, TO DATE, DWORMAN'S PROGRESS HAS BEEN MONITORED UPON DWORMAN'S UNVERIFIED STATEMENTS, WE ALSO SUGGEST THAT FUTURE SURVEILLANCE BE CONDUCTED PERSONALLY BY APPROPRIATE GSA PERSONNEL. ALSO URGE THAT THE CIRCUMSTANCES GENERATING THIS PROTEST BE CLOSELY REVIEWED AND THE RESULTS BE COMMUNICATED TO THE APPROPRIATE OFFICIALS FOR THEIR FUTURE GUIDANCE IN SIMILAR PROCUREMENT SITUATIONS.