B-197695.OM, L/M, MAR 27, 1980

B-197695.OM, L/M, MAR 27, 1980

SUBJECT: SURVEY OF THE CORPS OF ENGINEERS CONTRACTING FOR AIR BASE CONSTRUCTION - B-197695

TEAM ADVISER, PSAD/GP - R. LANGE:

YOUR FEBRUARY 4, 1980, MEMO REQUESTED OUR OPINION WITH RESPECT TO THE FOLLOWING:

1. WAS THE ATTACHED LEGAL OPINION NECESSARY FOR THE CONTRACTING OFFICER TO MAKE HIS DECISION TO RATIFY THREE SUBCONTRACT ARRANGEMENTS FOR SHIPMENTS BY FARRELL FOR NAC? WAS THE LEGAL OPINION BINDING OR, IF NOT BINDING, WHAT OTHER ALTERNATIVE WAS THERE FOR THE CONTRACTING OFFICER?

IT IS THE CONTRACTING OFFICER'S RESPONSIBILITY TO PERFORM OR HAVE PERFORMED ALL ADMINISTRATIVE ACTIONS NECESSARY FOR EFFECTIVE CONTRACTING. DEFENSE ACQUISITION REGULATION (DAR) SEC. 3-801.2(A) (DEFENSE ACQUISITION CIRCULAR 76-16, AUGUST 1, 1978) PROVIDES THAT HE "SHALL AVAIL HIMSELF OF ALL APPROPRIATE ORGANIZATIONAL TOOLS SUCH AS THE ADVICE OF SPECIALISTS IN THE FIELDS OF CONTRACTING, FINANCE, LAW, CONTRACT AUDIT, PACKAGING, ENGINEERING, TRAFFIC MANAGEMENT, AND PRICE ANALYSIS." THEREFORE, IT WAS APPROPRIATE FOR THE CONTRACTING OFFICER TO SEEK LEGAL ADVICE AS HE DID. HOWEVER, THE CONTRACTING OFFICER CANNOT ABROGATE HIS RESPONSIBILITIES TO THE SPECIALISTS. HE IS THE PERSON WHO MUST STUDY AND EVALUATE ALL THE ADVICE GIVEN AND THEN MAKE AND JUSTIFY THE DETERMINATION.

WE KNOW OF NO STATUTE OR REGULATION WHICH MAKES THE CHIEF COUNSEL'S LEGAL OPINION BINDING ON THE CONTRACTING OFFICER.

2. IS THE ATTACHED LEGAL OPINION ADEQUATE AND VALID? IS THERE A PROPER LEGAL INTERPRETATION OR ANALYSIS OF THE FACTS PRESENTED TO ADEQUATELY PROTECT THE GOVERNMENT'S INTEREST?

WE BELIEVE THE CHIEF COUNSEL'S LEGAL OPINION WAS ADEQUATE AND SUFFICIENT TO PROTECT THE GOVERNMENT'S INTEREST. WHILE THERE MAY BE ROOM FOR DISAGREEMENT WITH HIS ANALYSIS, WE CANNOT SAY THAT HIS OPINION DOES NOT REASONABLY SUPPORT HIS RECOMMENDATION THAT RATIFICATION OF THE SUBCONTRACT ARRANGEMENTS BETWEEN NEGEV AIRBASE CONSTRUCTORS (NAC) AND FARRELL LINES (FARRELL) WOULD NOT BE LEGALLY OBJECTIONABLE.

SPECIFICALLY, BY LETTER DATED AUGUST 1, 1979, NAC REQUESTED CORPS APPROVAL FOR THREE BOOKINGS. THE CORPS' RESPONSE, DATED AUGUST 15, 1979, CONCLUDED THAT THE PROJECT RATE TO BE CHARGED WAS 15 PERCENT BELOW THE CONFERENCE RATE AND AS SUCH WAS ACCEPTABLE. HOWEVER, IN THE SAME LETTER, THE CORPS SUGGESTED THAT MAYBE THIS RATE COULD BE IMPROVED BY USE OF THE COMPETITIVE BIDDING PROCESS WHICH WOULD INCLUDE "INDEPENDENT OWNERS OF SUITABLE VESSELS NOT PRESENTLY COMMITTED. ACCORDINGLY, THE MARKET IS TO BE TESTED TO DETERMINE THE VIABILITY OF THIS ALTERNATIVE ***." THEN, THE CORPS STATED THAT IF THIS ALTERNATIVE WAS NONEXISTENT "YOU (NAC) ARE AUTHORIZED TO UTILIZE FARRELL LINES ***."

WE AGREE WITH THE CHIEF COUNSEL THAT THE CORPS' RESPONSE WAS AMBIGUOUS. THE REFERENCE TO MARKET TESTING IS CLEAR, BUT ITS FORM (INFORMAL INQUIRIES OR FORMAL SOLICITATION) IS NOT. ONE REASONABLE INTERPRETATION OF THE CORPS' RESPONSE IS THAT NAC WAS TO MAKE INFORMAL INQUIRIES OF OTHER SHIPPING COMPANIES TO DETERMINE IF A LOWER RATE MAY BE POSSIBLE THROUGH USE OF THE COMPETITIVE BIDDING PROCESS, BUT NOT THAT THE LATTER WAS REQUIRED. WE NOTE THAT THE RECORD CONTAINS REFERENCE TO TELEXES SENT BY NAC TO OTHER SHIPPING COMPANIES AND ONE AGENT/BROKER. IF THIS WAS IN FACT ACCOMPLISHED AND THE INFORMATION RECEIVED INDICATED THAT THE RATE COULD NOT BE IMPROVED, THEN IT WOULD NOT BE UNREASONABLE TO VIEW THE CORPS' AUGUST 15 CONDITIONAL APPROVAL AS HAVING BEEN MET.

3. SHOULD THERE HAVE BEEN A REQUIREMENT FOR THE SUBMISSION AND EVALUATION OF COST AND PRICING DATA IN ACCORDANCE WITH THE REQUIREMENTS OF PUBLIC LAW 87-653, THE TRUTH-IN-NEGOTIATION ACT?

NO. PUBLIC LAW 87-653, 10 U.S.C. SEC. 2306(F) (1976), REQUIRES CONTRACTORS TO (1) FURNISH "ACCURATE, COMPLETE AND CURRENT" DATA, (2) CERTIFY THAT THE DATA FURNISHED SATISFIED THOSE REQUIREMENTS, AND (3) AGREE TO A CONTRACT PROVISION GIVING THE GOVERNMENT THE RIGHT TO UNILATERALLY REDUCE THE PRICE BY ANY AMOUNT IT WAS INCREASED AS A RESULT OF DEFECTIVE COST AND PRICING DATA. THERE ARE THREE MAJOR EXCEPTIONS TO THE ACT'S REQUIREMENT FOR CERTIFIED COST AND PRICING DATA. THESE EXCEPTIONS ARE:

(1) IF THE PRICE NEGOTIATED IS BASED ON ADEQUATE COMPETITION;

(2) WHEN THE NEGOTIATED PRICE IS BASED ON ESTABLISHED CATALOG OR MARKET PRICES OF COMMERCIAL ITEM SOLD IN SUBSTANTIAL QUANTITIES TO THE GENERAL PUBLIC; AND

(3) WHEN THE NEGOTIATED PRICE IS BASED ON PRICES SET BY LAW OR REGULATION.

IT IS OUR VIEW THAT EXCEPTION NO. 3 IS APPLICABLE HERE.

THE RECORD INDICATES THAT THE PRICE NEGOTIATED BY FARRELL AND NAC WAS BASED ON FARRELL'S FREIGHT TARIFF NO. 11, FMC NO. 89, WHICH INCLUDED THE NEGEV AIRBASE PROJECT RATE. IT IS CLEAR THAT THE SHIPPING RATES QUOTED BY FARRELL AND SUBMITTED TO THE CORPS WERE FILED WITH THE FEDERAL MARITIME COMMISSION (FMC) PURSUANT TO FMC REGULATIONS AND 46 U.S.C. SEC. 817 (1976). IN ADDITION, IF THE FMC FINDS THAT THESE RATES ARE "SO UNREASONABLY HIGH OR LOW AS TO BE DETRIMENTAL TO THE COMMERCE OF THE UNITED STATES," IT HAS THE AUTHORITY TO REJECT THE TARIFF FILED BY THE COMMON CARRIER. 46 U.S.C. SEC. 817(5) (1976). THEREFORE, THE RATES SET FORTH IN FARRELL'S TARIFF CAN BE SAID TO BE SET BY LAW.

AS REQUESTED, YOUR COPY OF CONTRACT NO. DACA52-79-C-0004 IS RETURNED.