B-180769, APR 4, 1975 54 COMP GEN 830

B-180769, APR 4, 1975 54 COMP GEN 830

VESSELS - SALES - PRICE DETERMINATION WHILE GENERAL ACCOUNTING OFFICE WILL NOT QUESTION MANNER OF COMPUTING MINIMUM ACCEPTABLE BID PRICE NOR REASONABLENESS OF SUCH PRICE FOR THE PURCHASE OF SURPLUS VESSELS BECAUSE OF DISCRETION VESTED IN SECRETARY OF COMMERCE, IT IS RECOMMENDED IN FUTURE SALES OF SURPLUS VESSELS THAT SUCH MINIMUM PRICE BE INCLUDED IN INVITATIONS SO THAT BIDDERS WILL BE AWARE OF BASIS ON WHICH BIDS WILL BE EVALUATED. FURTHER, VESSELS THAT MUST BE SOLD WITHOUT REGARD TO MINIMUM ACCEPTABLE PRICE SHOULD BE APPROPRIATELY IDENTIFIED IN INVITATION. MARITIME MATTERS - VESSELS - SALES - MINIMUM ACCEPTABLE BID PRICE MARITIME ADMINISTRATION SHOULD CONSIDER BALLAST AND EQUIPMENT OF VESSEL IN SETTING MINIMUM ACCEPTABLE BID PRICE RATHER THAN SETTING ONE MINIMUM PRICE FOR ALL TYPES OF VESSELS UNDER THE SAME INVITATION AS 46 U.S.C. 864B REQUIRES THAT BALLAST AND EQUIPMENT BE TAKEN INTO ACCOUNT DURING APPRAISEMENT. VESSELS - SALES - BIDS - ALL OR NONE ALL OR NONE BID, WHICH OFFERS HIGHEST AGGREGATE PRICE ON SIX VESSELS, SHOULD BE ACCEPTED NOTWITHSTANDING OTHER BID OFFERED HIGHER PRICE ON TWO OF THE SIX VESSELS.

IN THE MATTER OF NICOLAI JOFFE CORPORATION, APRIL 4, 1975:

ON JANUARY 17, 1974, THE MARITIME ADMINISTRATION (MARAD) ISSUED INVITATION FOR BIDS NO. PD-X-971 FOR THE SALE OF VARIOUS TYPES OF MERCHANT VESSELS FOR SCRAP FROM THE NATIONAL DEFENSE RESERVE FLEET WHICH VESSELS HAD BEEN DECLARED SURPLUS BY THE SECRETARY OF COMMERCE.

THE PROTEST INVOLVES SIX, 3,900 TON C1-B TYPE VESSELS OFFERED FOR SALE UNDER THE INVITATION, LOCATED AT SUISUN BAY, CALIFORNIA. THE FOLLOWING THREE BIDS (ON A PER TON BASIS) FROM MR. MAX WENDER, NICOLAI JOFFE CORPORATION (JOFFE) AND UNION MINERALS AND ALLOYS CORPORATION (UNION) WERE OPENED ON FEBRUARY 20, 1974:

VESSEL WENDER JOFFE UNION

CAPE EDMONT $19.77 $19.52 $23.19

CAPE ELIZABETH 19.77 21.09

CAPE GREIG 19.77 21.08 23.19

CAPE MAY 19.77 18.75

CAPE SAN DIEGO 19.77 18.75

FRED MORRIS 19.77 19.52

AMERICAN SHIP DISMANTLERS, INC., SUBMITTED A TOKEN BID OF $1 PER TON ON EACH VESSEL. JOFFE ALSO BID IN THE ALTERNATE IN THE AMOUNT OF $21.42 PER TON IF AWARDED ALL THE VESSELS.

THE AWARD AND REJECTION PROVISION OF THE INVITATION STATES:

VIII. AWARD AND REJECTION OF BIDS. THE CONTRACTING OFFICER RESERVES THE RIGHT TO REJECT ANY AND ALL BIDS, CALL FOR NEW BIDS, WAIVE ANY INFORMALITY IN ANY BID AND MAKE SUCH AWARD OR AWARDS AS HE MAY DEEM MOST ADVANTAGEOUS, OR WILL BEST SERVE THE PURPOSES AND POLICY OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, OR OTHER APPLICABLE LAW.

AFTER REVIEW OF THE BIDS RECEIVED, MARAD DETERMINED TO REJECT ALL BIDS FOR THE SIX NAMED VESSELS BECAUSE THEY WERE UNREASONABLY LOW IN LIGHT OF ITS DETERMINED MINIMUM ACCEPTABLE PRICE PER TON OF $30. THIS DETERMINATION WAS MADE AFTER THE RECEIPT AND EXAMINATION OF BIDS AND, HENCE, WAS NOT DISCLOSED IN THE INVITATION.

JOFFE PROTESTS THE REJECTION OF ITS BID AND REQUESTS THAT ITS BID BE REINSTATED AND AWARD MADE UNDER PD-X-971.

BEFORE CONSIDERATION OF JOFFE'S PROTEST, WE BELIEVE SEVERAL POINTS OTHER THAN THOSE SPECIFICALLY RAISED WARRANT CONSIDERATION.

THIS SALE WAS CONDUCTED UNDER THE AUTHORITY OF SECTION 508 OF THE MERCHANT MARINE ACT OF 1936 (46 U.S.C. SEC. 1158) WHICH READS AS FOLLOWS:

IF THE SECRETARY OF COMMERCE SHALL DETERMINE THAT ANY VESSEL TRANSFERRED TO THE DEPARTMENT OF COMMERCE, AS THE SUCCESSOR TO THE UNITED STATES MARITIME COMMISSION, OR HEREAFTER ACQUIRED, IS OF INSUFFICIENT VALUE FOR COMMERCIAL OR MILITARY OPERATION TO WARRANT ITS FURTHER PRESERVATION, THE SECRETARY IS AUTHORIZED (1) TO SCRAP SAID VESSEL, OR (2) TO SELL SUCH VESSEL FOR CASH, AFTER APPRAISEMENT AND DUE ADVERTISEMENT, AND UPON COMPETITIVE SEALED BIDS, EITHER TO CITIZENS OF THE UNITED STATES OR TO ALIENS:***

MARAD HAS ADOPTED THE GUIDELINES CONTAINED IN SECTIONS 5 AND 6 OF THE MERCHANT MARINE ACT OF 1920 (46 U.S.C. SECS. 864 AND 865) IN ITS DISPOSAL OF THESE VESSELS. THESE STATUTES INVOLVE THE SALE OF VESSELS THAT WILL BE USED IN COMMERCE, NOT SCRAPPED. SECTION 864 PROVIDES:

IN ORDER TO ACCOMPLISH THE DECLARED PURPOSES OF THIS ACT, AND TO CARRY OUT THE POLICY DECLARED IN SECTION 861 OF THIS TITLE, THE SECRETARY OF COMMERCE IS AUTHORIZED AND DIRECTED TO SELL, AS SOON AS PRACTICABLE, CONSISTENT WITH GOOD BUSINESS METHODS AND THE OBJECTS AND PURPOSES TO BE ATTAINED BY THIS ACT, AT PUBLIC OR PRIVATE COMPETITIVE SALE AFTER APPRAISEMENT AND DUE ADVERTISEMENT, TO PERSONS WHO ARE CITIZENS OF THE UNITED STATES EXCEPT AS PROVIDED IN SECTION 865 OF THIS TITLE, ALL OF THE VESSELS ACQUIRED BY THE COMMISSION UNDER FORMER SECTIONS 862 AND 863 OF THIS TITLE OR OTHERWISE. SUCH SALE SHALL BE MADE AT SUCH PRICES AND ON SUCH TERMS AND CONDITIONS AS THE SECRETARY MAY PRESCRIBE, BUT THE COMPLETION OF THE PAYMENT OF THE PURCHASE PRICE AND INTEREST SHALL NOT BE DEFERRED MORE THAN FIFTEEN YEARS AFTER THE MAKING OF THE CONTRACT OF SALE. THE SECRETARY IN FIXING OR ACCEPTING THE SALE PRICE OF SUCH VESSELS SHALL TAKE INTO CONSIDERATION THE PREVAILING DOMESTIC AND FOREIGN MARKET PRICE OF, THE AVAILABLE SUPPLY OF, AND THE DEMAND FOR VESSELS, EXISTING FREIGHT RATES AND PROSPECTS OF THEIR MAINTENANCE, THE COST OF CONSTRUCTING VESSELS OF SIMILAR TYPES UNDER PREVAILING CONDITIONS, AS WELL AS THE COST OF THE CONSTRUCTION OR PURCHASE PRICE OF THE VESSELS TO BE SOLD, AND ANY OTHER FACTS OR CONDITIONS THAT WOULD INFLUENCE A PRUDENT, SOLVENT BUSINESS MAN IN THE SALE OF SIMILAR VESSELS OR PROPERTY WHICH HE IS NOT FORCED TO SELL. ***

SECTION 865 REQUIRES THAT A PREFERENCE BE GIVEN TO UNITED STATES CITIZENS IN SUCH SALES.

OUR OFFICE HAS ASCERTAINED THAT MARAD HAS NO WRITTEN PROCEDURES FOR SETTING A MINIMUM ACCEPTABLE PRICE; NOR HAVE REGULATIONS BEEN PROMULGATED GOVERNING SALES PROCEDURES.

MARAD, IN ITS INITIAL BRIEF SUBMITTED TO OUR OFFICE, RELIES ON AN AUGUST 13, 1971, DECISION OF OUR OFFICE (B-169094(3)) TO JUSTIFY THE AGENCY'S ACTIONS UNDER THE SURPLUS SALES PROGRAM. IN THAT DECISION, WE STATED THAT THE SECRETARY OF COMMERCE WAS VESTED WITH CONSIDERABLE DISCRETION IN THE DISPOSAL OF SURPLUS VESSELS UNDER THE APPLICABLE STATUTES. (46 U.S.C. SECS. 864 AND 865 AND 46 U.S.C. SEC. 1158 (1970)).

A SUBSTANTIAL MAJORITY OF THE SHIPS OFFERED FOR SALE IN A SOLICITATION ARE NOT SOLD BECAUSE ALL BIDS RECEIVED ON A GIVEN SHIP ARE REGARDED TOO LOW. FOR EXAMPLE, IN THE INSTANT SALE ONLY 4 OF 13 VESSELS OFFERED WERE SOLD WITH THE HIGH BIDS ON 9 REJECTED AS TOO LOW OR BELOW MARAD'S MINIMUM ACCEPTABLE BID, A 70 PERCENT REJECTION RATE. THE IMMEDIATELY PRECEDING SALE (PD-X-970) HAD A 63 PERCENT REJECTION RATE. THIS CONTINUING HIGH RATE OF REJECTION MUST DISCOURAGE COMPETITION SINCE BIDDERS WILL BE RELUCTANT TO EXPEND THE TIME AND MONEY TO PREPARE AND SUBMIT A BID WHEN IT IS LIKELY THAT MOST OF THE SHIPS OFFERED FOR SALE WILL, IN FACT, NOT BE SOLD. WE BELIEVE THAT COMPETITION WILL BE ENHANCED IF THE SOLICITATION INCLUDES THE "KNOCKDOWN" OR MINIMUM PRICE PER TON AT WHICH EACH SHIP WILL BE SOLD. IN THIS WAY A PROSPECTIVE BIDDER WILL KNOW IN ADVANCE WHETHER SUBMISSION OF A BID AT A GIVEN PRICE WILL BE MORE THAN A USELESS GESTURE. AT THE SAME TIME THE STRONG COMPETITION WHICH CAN BE EXPECTED WILL TEND TO INSURE BIDS IN EXCESS OF THE MINIMUM.

WE RECOGNIZE THAT BECAUSE OF PARTICULAR CIRCUMSTANCES, MARAD MAY BE WILLING TO SELL A GIVEN SHIP AT A PRICE PER TON LOWER THAN WOULD ORDINARILY BE REGARDED AS ACCEPTABLE. A MEMORANDUM OF THE MEETING DURING WHICH THE MINIMUM ACCEPTABLE PRICE UNDER PD-X-971 WAS ESTABLISHED SHOWS THAT THE MINIMUM ACCEPTABLE BID UNDER THE PRIOR INVITATION (PD-X-970) WAS $30.24. IT WAS NOTED THAT THE VALUE OF SCRAP IN THE OPEN MARKET HAD INCREASED SINCE ISSUANCE OF THE EARLIER INVITATION. BASED UPON THESE FACTORS IT WAS DETERMINED, AS TO THE BIDS RECEIVED UNDER PD-X-971, THAT THE BIDS OF LURIA BROTHERS & CO., ON THE LT. BERNARD J. RAY AND PVT. CHARLES N. DEGLOPPER IN THE AMOUNT OF $35.40 PER TON AND THE BID OF NORTHERN METALS CO., OF $40.38 PER TON ON THE PACHAUG VICTORY SHOULD BE ACCEPTED AS REASONABLE. FURTHER IT WAS RECOMMENDED THAT THE $28.13 PER TON BID OF SHIPS, INC., ON THE GREAT SITKIN BE ACCEPTED, EVEN THOUGH IT WAS BELOW THE MINIMUM PRICE, BECAUSE (1) THE NAVY NEEDED THE PIER SPACE WHERE THE VESSEL WAS LOCATED; (2) THIS WAS THE SECOND OFFERING OF THE VESSEL; (3) IT WOULD NOT BE PRACTICAL TO OFFER THIS VESSEL ALONE ON A WORLD INVITATION; AND (4) IT WAS NOT ECONOMICALLY FEASIBLE TO MOVE THE VESSEL FROM THE PHILADELPHIA NAVAL FACILITY TO THE JAMES RIVER RESERVE FLEET.

UNDER THE PRIOR SOLICITATION (PD-X-970), A SIMILAR SITUATION OCCURRED. WHILE THE LOWEST ACCEPTABLE BID OR THE MINIMUM PRICE WAS DETERMINED TO BE $30.24 PER TON, THE BID OF UNION OF $22.61 PER TON FOR THE TS BAY STATE WAS ACCEPTED BECAUSE THE VESSEL HAD BEEN STRIPPED AND DREDGING WORK WAS TO BEGIN SOON WHERE THE VESSEL WAS LOCATED. THEREFORE, IT WAS DETERMINED TO BE IN THE BEST INTEREST OF MARAD TO AWARD THE TS BAY STATE AT THAT PRICE WHILE REJECTING ANOTHER BID OF $23.19 PER TON ON ANOTHER VESSEL AS UNREASONABLY LOW.

IN ADDITION, UNDER PD-X-970, THE BLANCHE F. SIGMAN WAS AWARDED TO MR. MAX WENDER FOR $145,115. WE HAVE BEEN ADVISED BY MARAD THAT THE TONNAGE OF THIS VESSEL IS 8,798 TONS AND, THEREFORE, WENDER'S BID PRICE AMOUNTED TO $16.49 PER TON. HOWEVER, IN THE MEMO CONCERNING THE AWARD OF THIS VESSEL THE BID PRICE OF WENDER WAS INCORRECTLY COMPUTED TO BE $30.24 PER TON. THUS, THE VESSEL WAS AWARDED AT ALMOST HALF OF THE MINIMUM ACCEPTABLE BID PRICE WHILE OTHER BIDS BETWEEN $16.49 PER TON AND $30.24 PER TON WERE REJECTED.

WE BELIEVE THAT THE FOREGOING DID LITTLE TO ENHANCE BIDDER CONFIDENCE IN THE COMPETITIVE SYSTEM. A BIDDER WHO, BY CHANCE, HAPPENS TO BID ON A VESSEL THAT MUST BE PROMPTLY DISPOSED OF FOR VARIOUS REASONS, IS AWARDED THE VESSEL WHILE OTHER BIDDERS WHO BID A HIGHER PRICE PER TON ON ANOTHER VESSEL UNDER THE SAME INVITATION MAY HAVE THEIR BIDS REJECTED AS TOO LOW. IN PD-X-971, PROTESTED HERE, BIDS OF $28.99 PER TON AND THREE BIDS OF $28.42 PER TON WERE REJECTED WHILE THE GREAT SITKIN WAS AWARDED AT A BID PRICE OF $28.13 PER TON. IN PD-X-970, THE BID OF $22.61 PER TON ON THE TS BAY STATE WAS ACCEPTED WHILE BIDS OF $23.19, $24.38 AND $25.18 PER TON WERE REJECTED AS UNACCEPTABLE.

IN OUR JUDGMENT THE FOREGOING CIRCUMSTANCES INDICATE THAT COMPETITION WOULD BE SERVED BY ESTABLISHING IN ADVANCE THE MINIMUM ACCEPTABLE PRICE PER TON FOR EACH SHIP AND PROVIDING THAT INFORMATION IN THE INVITATION FOR BIDS. THE PRICE PER TON ESTABLISHED SHOULD TAKE INTO CONSIDERATION THE CURRENT MARKET AND ANY PARTICULAR CIRCUMSTANCES WHICH WOULD WARRANT A MINIMUM PRICE ABOVE OR BELOW THE MARKET SUCH AS THOSE SET OUT ABOVE.

JOFFE CONTENDS THAT EACH TYPE OF VESSEL SHOULD HAVE ITS OWN MINIMUM PRICE BECAUSE BIDDERS ARE WILLING TO PAY MORE FOR CERTAIN TYPES OF VESSELS THAN FOR OTHER TYPES. THIS IS BECAUSE, ACCORDING TO JOFFE, SOME VESSELS, DUE TO THEIR MANNER OF CONSTRUCTION, LEND THEMSELVES MORE EASILY TO BREAKING UP FOR SCRAP PURPOSES. JOFFE POINTS TO NUMEROUS BIDS RECEIVED BY MARAD FROM THE SAME BIDDER UNDER THE SAME SOLICITATION WHEREIN THE BIDDER BIDS LOWER ON ONE TYPE OF VESSEL THAN ANOTHER.

MARAD RESPONDS TO THIS ARGUMENT BY STATING THAT THERE IS NO SIGNIFICANT DIFFERENCE BETWEEN DIFFERENT TYPES OF VESSELS WITHIN THE RESERVE FLEET AS A SOURCE OF SCRAP METAL AND, THEREFORE, A SINGLE "UPSET" PRICE IS JUSTIFIED FOR ALL VESSELS UNDER THE SAME SOLICITATION.

JOFFE CITES NUMEROUS INSTANCES OF SALES BY MARAD WHERE A BIDDER WILL BID TWICE AS MUCH PER TON FOR ONE TYPE OF VESSEL AS COMPARED TO ANOTHER TYPE UNDER THE SAME INVITATION BECAUSE, IN THE OPINION OF JOFFE, SOME TYPES OF VESSELS ARE EASIER TO SCRAP THAN OTHERS. MARAD DOES NOT AGREE WITH THIS OPINION. WHILE WE ARE NOT IN A POSITION TO MAKE A RECOMMENDATION IN THIS RESPECT, WE FEEL THAT MARAD SHOULD CONSIDER WHETHER IT WOULD BE BENEFICIAL TO STUDY THE BIDDING HISTORIES ON VARIOUS TYPES OF VESSELS FOR THE PURPOSE OF ASCERTAINING WHETHER VESSEL TYPE SHOULD BE CONSIDERED IN COST APPRAISEMENTS INCLUDED IN FUTURE SALES INVITATIONS.

FURTHER, JOFFE CONTENDS THAT THE MINIMUM ACCEPTABLE PRICE OF $30 PER TON WAS UNREASONABLE BECAUSE MARAD DID NOT INCLUDE COSTS UNIQUE TO A SHIPBREAKER IN ITS CALCULATIONS BUT DID INCLUDE THE CURRENT PRICES PAID IN THE FAR EAST SCRAP MARKET IN THESE COMPUTATIONS, WHICH, BECAUSE OF EXPORT CONTROLS, ARE NOT AVAILABLE TO SHIPBREAKERS. UPON REVIEW, WE FIND NO BASIS TO CHALLENGE THE MANNER IN WHICH THE MINIMUM ACCEPTABLE BID WAS ESTABLISHED IN VIEW OF THE STATUTORY DISCRETION VESTED IN THE SECRETARY OF COMMERCE. OVERSEAS NAVIGATION CORPORATION V. UNITED STATES, 129 F. SUPP. 206, 131 CT. CL. 70 (1955); B-169094(3), AUGUST 13, 1971. THEREFORE, AND SINCE WE CANNOT SAY THAT THE EXERCISE OF THAT DISCRETION WAS GROSSLY ABUSED, THIS POINT OF PROTEST IS DENIED.

FINALLY, JOFFE CONTENDS THAT ITS "ALL OR NONE" ALTERNATE BID, IN THE AMOUNT OF $501,134.44 OR $21.42 PER TON ON THE SIX VESSELS, MUST BE ACCEPTED AS THE HIGH BID. MARAD RESPONDS TO THIS ARGUMENT BY STATING THAT IT PROPERLY COULD REJECT THE "ALL OR NONE" BID OF JOFFE BECAUSE A HIGHER BID WAS RECEIVED ON TWO OF THE VESSELS FROM UNION ON THE CAPE EDMONT AND THE CAPE GREIG, IN THE AMOUNT OF $23.19 PER TON.

"ALL OR NONE" BIDS WERE NOT PRECLUDED BY THE INVITATION; RATHER, SUCH BIDDING WAS PERMITTED BY PARAGRAPH IIA) OF THE SALES INVITATION. WHEN THE "ALL OR NONE" BID OF JOFFE ($501,134.44) IS COMPARED TO THE TOTAL OF THE HIGH INDIVIDUAL BIDS ON THE SIX VESSELS ($494,449.44), JOFFE'S BID WAS THE HIGH AGGREGATE BID. ABSENT THE LEGAL INSUFFICIENCY OF THE INVITATION, THE HIGH "ALL OR NONE" BID SHOULD HAVE BEEN CONSIDERED FOR AWARD. SEE 47 COMP. GEN. 658, 661 (1968), WHERE WE HELD THAT AN "ALL OR NONE" BID MUST BE ACCEPTED IF IT OFFERS THE LOWEST (HERE THE HIGHEST) AGGREGATE PRICE.

BECAUSE OF THE FAILURE OF THE PROTESTED SOLICITATION TO MEET THE REQUIREMENTS FOR COMPETITIVE BIDDING, THAT IS, VESSEL APPRAISAL DETERMINATION AND DISCLOSURE BEFORE BIDDING, WE CONCLUDE THAT THE SIX VESSELS INVOLVED IN THE PROTEST SHOULD BE READVERTISED UNDER AN INVITATION WHICH COMPORTS WITH THE ABOVE RECOMMENDATIONS. THE PROTEST OF JOFFE FOR REINSTATEMENT OF ITS BID AND AWARD UNDER THE INVITATION IS DENIED. HOWEVER, BY LETTER OF TODAY, WE ARE BRINGING TO THE ATTENTION OF THE SECRETARY OF COMMERCE THE SHORTCOMINGS OF THE INSTANT SOLICITATION AND OUR RECOMMENDATION FOR CORRECTIVE ACTION.