[Protest of Navy Rejection of Bid for Underground Storage Tanks]

B-162389, DEC. 19, 1967

TO MR. SECRETARY:

REFERENCE IS MADE TO LETTER AFSPPCA AND ENCLOSURES DATED NOVEMBER 1, 1967, FROM THE CHIEF, PROCUREMENT OPERATIONS DIVISION, DIRECTOR PROCUREMENT POLICY, DEPUTY CHIEF OF STAFF, SYSTEMS AND LOGISTICS, FURNISHING A REPORT ON THE PROTESTS OF SOLAR, A DIVISION OF INTERNATIONAL HARVESTER COMPANY, AND THE GARRETT CORPORATION, CONCERNING THE CANCELLATION OF INVITATION FOR BIDS F04606-67-B-B852, ISSUED BY THE SACRAMENTO AIR MATERIEL AREA (SMAMA), MCCLELLAN AIR FORCE BASE, CALIFORNIA. THE LETTER ALSO REQUESTS ADVICE AS TO WHETHER A BID MODIFICATION MADE BY GARRETT AFTER CANCELLATION OF THE INVITATION IS ACCEPTABLE UNDER ASPR 2-305.

THE INVITATION WAS THE SECOND STEP OF A TWO-STEP ADVERTISED PROCUREMENT FOR TYPE A/E 24U-9 AND A/E 24U-8 GAS TURBINE DRIVEN GENERATOR SETS AND POWER PLANTS. UNDER THE FIRST STEP, THREE OUT OF THE 10 PROPOSALS SUBMITTED WERE DETERMINED TO BE ACCEPTABLE. THE SECOND STEP INVITATION WAS ISSUED ON JUNE 6, 1967, AND BIDS WERE RECEIVED FROM GARRETT AND SOLAR.

THE SECOND-STEP INVITATION CONTEMPLATED A 1 YEAR-INDEFINITE QUANTITIES CONTRACT WITH OPTIONS TO THE GOVERNMENT TO EXTEND UP TO 4 YEARS AND REQUESTED BIDS ON AN INCREMENTAL BASIS IN ACCORDANCE WITH A SCHEDULE OF QUANTITY RANGES. THE GUARANTEED MINIMUM NUMBER SPECIFIED FOR THE A/E 24U- 9 UNIT WAS 15 AND THE MAXIMUM WAS 790. THE STATED MINIMUM FOR THE A/E 24U -8 UNIT WAS 7 AND THE MAXIMUM WAS 640. THE INCREMENTAL PRICING RANGED FROM THE PRICE QUOTED FOR THE PURCHASE OF A SINGLE UNIT TO THE PRICE QUOTED FOR THE PURCHASE OF THE MAXIMUM QUANTITY AS A SINGLE LOT. THERE WAS NO PROVISION IN THE INVITATION FOR CUMULATIVE PRICING SO THAT REPEATED CALLS UNDER A RESULTING CONTRACT FOR LOTS IN THE LOWER QUANTITY RANGES WOULD RESULT IN THE GOVERNMENT CONTINUING TO PAY THE RELATIVELY HIGHER PRICES QUOTED FOR THOSE QUANTITIES RATHER THAN THE LOWER PRICES BASED ON THE TOTAL NUMBER OF UNITS WHICH MAY BE SUPPLIED UNDER EARLIER CALLS.

THE PRODUCTION INCREMENT SCHEDULES FOR THE A/E 24U-8 AND A/E 24U-9 POWER PLANTS AND GENERATOR SETS WERE AS FOLLOWS:

A/E 24U-8 A/E 24U-9

FIRST ARTICLES FIRST ARTICLES 3 EACH FOR PHASE I AND II TESTING 3 EACH FOR PHASE I AND II TESTING PRODUCTION INCREMENTS

PRODUCTION INCREMENTS

1 TO 3 EACH 1 - 2 EACH

4 TO 7 EACH 3 - 5 EACH

8 TO 15 EACH 6 - 11 EACH

16 TO 22 EACH 12 - 25 EACH

23 TO 50 EACH 26 - 58 EACH

51 TO 90 EACH 59 - 81 EACH

91 TO 143 EACH 82 - 150 EACH 144 TO 225 EACH

151 - 250 EACH 226 TO 325 EACH 251 - 500 EACH 326 TO 637 EACH 501 - 787 EACH

THE EVALUATION CRITERIA SET OUT IN THE INVITATION SPECIFIED THAT BIDS WOULD BE EVALUATED IN ACCORDANCE WITH WEIGHTED FACTORS LISTED FOR EACH PRODUCTION INCREMENT, WITH ALL PRODUCTION INCREMENTS UP TO THE STATED MAXIMUM QUANTITY BEING INCLUDED IN THE EVALUATION. SPECIFICALLY, THE INVITATION PROVIDED THAT FOR EVALUATION PURPOSES THE UNIT PRICES BID WOULD BE APPLIED TO THE NUMBER OF UNITS IN EACH INCREMENT AS FOLLOWS:

FIRST ARTICLE NUMBER OF UNITS 3

3

PRODUCTION INCREMENTS 1-2

2 3-5 3 6-11

6 12-25

14 26-58 33 59-81

23 82-150

69 151-250 100 251-500

250 501-787

287 AS A RESULT OF EVALUATION ON THIS BASIS,

GARRETT WAS THE LOW BIDDER.

SOLAR PROTESTED, ALLEGING AMONG OTHER THINGS, THAT THE EVALUATION CRITERIA WERE FAULTY BECAUSE THEY PLACED UNDUE EMPHASIS ON THE UPPER QUANTITY RANGES WHILE THE NUMBER OF UNITS ACTUALLY PURCHASED WOULD PROBABLY BE IN THE LOWER RANGES. SOLAR CONTENDED THAT THIS WOULD RESULT IN THE GOVERNMENT PAYING HIGHER PRICES FOR ITS ACTUAL NEEDS THAN THOSE BID BY SOLAR IF, IN FACT, PURCHASES WERE ONLY MADE IN THE LOWER OR MIDDLE RANGES.

AS A RESULT OF THE SOLAR PROTEST, THE PROCUREMENT WAS REVIEWED BY HEADQUARTERS, UNITED STATES AIR FORCE, AND IT WAS DETERMINED THAT MAJOR DEFICIENCIES EXISTED IN THE PROCUREMENT PROGRAM AND THAT THE INVITATION THEREFORE SHOULD BE CANCELLED AND READVERTISED. THE DEFICIENCIES AS SUMMARIZED IN PARAGRAPH 6 OF THE NOVEMBER 1 REPORT ARE AS FOLLOWS:

"A. THE IFB PROVIDED FOR BIDS ON QUANTITIES FAR IN EXCESS OF WHICH COULD BE PLACED ON ORDER AT ANY ONE TIME BECAUSE OF FISCAL YEAR FUNDING LIMITATIONS, E.G., ITEM 1, INCREMENTS OF 251-500 AND 501-787 UNITS.

"B. SMAMA INTENDED TO FUND THE CONTRACT ON AN INCREMENTAL BASIS (I.E., AS DISTINGUISHED FROM OBLIGATING THE TOTAL FUNDS REQUIRED TO SUPPORT THE ORDER PLACED) AND PARTLY FOR THAT REASON SPECIFIED INCREMENTS IN LARGE QUANTITIES. HOWEVER, INCREMENTAL FUNDING CANNOT BE USED ON A SUPPLY CONTRACT SUCH AS THIS.

"C. IF THE AWARD COULD BE MADE FOR ALL OF OUR CURRENTLY KNOWN REQUIREMENTS IN A LUMP SUM, GARRETT WOULD BE THE LOW BIDDER FOR THAT QUANTITY. THIS CANNOT BE DONE AS INDICATED ABOVE, BECAUSE SUFFICIENT FUNDS TO DO SO ARE NOT AVAILABLE TO SMAMA. IF WE WERE TO AWARD THE KNOWN REQUIREMENTS ON AN INCREMENTAL BASIS, THAT IS, IN MULTIPLE ORDERS AS FUNDS BECOME AVAILABLE, THEN SOLAR WOULD BE THE LOW BIDDER FOR THE QUANTITY REPRESENTING OUR KNOWN REQUIREMENTS. THIS CANNOT BE DONE UNDER THE IFB EVALUATION CRITERIA, SINCE GARRETT IS THE EVALUATED LOW BIDDER FOR THE CONTRACT.

"D. THE IFB DOES NOT PROVIDE FOR ANY FORM OF CUMULATIVE BID PRICING TO ENABLE THE GOVERNMENT TO OBTAIN A LOWER PRICE FOR AN ORDER ISSUED SUBSEQUENT TO A PREVIOUS ORDER. ON THE CONTRARY, THE IFB SPECIFICALLY RULES OUT CUMULATIVE PRICING.'

GARRETT SUBMITTED ITS PROTEST BEFORE CANCELLATION OF THE INVITATION WAS ACCOMPLISHED AND REQUESTED THAT CANCELLATION BE SUSPENDED PENDING A DETERMINATION BY OUR OFFICE AS TO ITS VALIDITY. THE CANCELLATION WAS SUBSEQUENTLY ACCOMPLISHED, BUT ISSUANCE OF A NEW INVITATION HAS BEEN POSTPONED UNTIL A DECISION IS MADE BY OUR OFFICE AS TO WHETHER OR NOT THE CANCELED INVITATION SHOULD BE REINSTATED AND AWARD BE MADE UNDER IT TO GARRETT AS THE EVALUATED LOW BIDDER.

IN ADDITION, ON THE ASSUMPTION THAT "THE UNDERLYING REASON FOR THE CANCELLATION OF THE IFB WAS THAT THE MOST PROBABLE TOTAL REQUIREMENTS WOULD BE MORE COSTLY TO THE GOVERNMENT IF PROCURED FROM GARRETT RATHER THAN FROM SOLAR," GARRETT PRESENTED A PROPOSAL TO THE AIR FORCE WHICH OFFERED CUMULATIVE PRICING, THEREBY ASSURING THE GOVERNMENT THAT THE GARRETT PRICES WOULD BE LOWER THAN THOSE QUOTED BY SOLAR IN ALL QUANTITY RANGES. GARRETT CONTENDS THAT THIS MODIFICATION IS ACCEPTABLE AS A LATE MODIFICATION OF THE OTHERWISE SUCCESSFUL BID WHICH MAKES THE TERMS OF THE BID MORE FAVORABLE TO THE GOVERNMENT, AS PROVIDED IN ASPR 2-305. ALSO, THE AIR FORCE HAS ADVISED THAT THE MODIFICATION "WOULD ELIMINATE THE MOST SERIOUS OBJECTIONS WE HAVE TO AN AWARD UNDER THE IFB AND WOULD RESULT IN AN ADVANTAGEOUS CONTRACT FOR THE GOVERNMENT.'

THE SUBSTANCE OF THE GARRETT PROTEST THEREFORE IS THAT THE PROCUREMENT PROCEDURES AND EVALUATION CRITERIA CONTAINED IN THE CANCELED INVITATION WERE IN ACCORDANCE WITH THE PROVISIONS OF ASPR AND THAT CANCELLATION AFTER BIDS WERE OPENED AND PRICES DISCLOSED WAS ERRONEOUS. ALTERNATIVELY, GARRETT MAINTAINS THAT ITS MODIFICATION CURES ANY DEFECTS IN THE INVITATION.

REJECTION OF ALL BIDS IS PERMITTED BY 10 U.S.C. 2305 (C) WHERE IT IS DETERMINED THAT REJECTION IS IN THE PUBLIC INTEREST. ALSO, ASPR 2 404.1 (B) (VIII) PERMITS CANCELLATION OF AN INVITATION AFTER OPENING WHERE IT "IS CLEARLY IN THE BEST INTEREST OF THE GOVERNMENT.' FURTHER, THE RIGHT TO REJECT ALL BIDS WAS SPECIFICALLY RESERVED TO THE GOVERNMENT IN PARAGRAPH 10 (B) OF STANDARD FORM 33A, SOLICIATION ON INSTRUCTIONS AND CONDITIONS, WHICH WAS A PART OF 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. OUR OFFICE WILL NOT OBJECT TO AN INVITATION CANCELLATION UNLESS THERE HAS BEEN A CLEAR ABUSE OF ADMINISTRATIVE DISCRETION.

WE MUST CONCLUDE THAT THERE HAS BEEN NO SUCH ABUSE HERE. THE AIR FORCE DETERMINED AFTER BID OPENING THAT BECAUSE OF FUNDING LIMITATIONS THERE WAS NO POSSIBILITY OF ORDERING QUANTITIES IN THE UPPER RANGES ALTHOUGH THE EVALUATION CRITERIA HAD THE EFFECT OF GIVING MORE WEIGHT TO BIDS ON THE HIGH QUANTITY INCREMENTS THAN ON THE LOW OR MIDDLE QUANTITIES. AS A RESULT, IF AN AWARD WAS MADE UNDER THE CANCELED INVITATION, THE GOVERNMENT WOULD BE REQUIRED TO PAY THE LOW EVALUATED BIDDER AT PRICES HIGHER FOR QUANTITIES ACTUALLY PURCHASED THAN THOSE BID BY THE SECOND-LOW EVALUATED BIDDER. ALSO, THE ABSENCE OF A CUMULATIVE PRICING PROVISION WOULD RESULT IN THE GOVERNMENT PAYING HIGHER PRICES THAN WOULD BE PAID HAD SUCH PROVISION BEEN INCLUDED IN THE INVITATION. ACCORDINGLY, IT IS OUR OPINION THAT THE CANCELLATION OF THE INVITATION WAS IN THE BEST INTEREST OF THE GOVERNMENT.

ALSO, WE MUST CONCLUDE THAT THE MODIFICATION PROPOSED BY GARRETT AFTER CANCELLATION IS NOT ACCEPTABLE UNDER ASPR 2-305. THE PURPOSE FOR REQUIRING THE PUBLIC OPENING OF BIDS AT A STATED TIME AND PLACE IS TO PRESERVE THE INTEGRITY OF THE COMPETITIVE BIDDING SYSTEM BY ASSURING THAT ALL BIDDERS STAND ON AN EQUAL FOOTING AND THAT NO ONE BIDDER ACHIEVE AN UNDUE ADVANTAGE OVER THE OTHERS BY BEING ABLE TO ALTER THE TERMS OF HIS BID AFTER OTHER BIDDERS' PRICES ARE DISCLOSED. WHERE, HOWEVER, A MODIFICATION AFTER OPENING WILL NOT PREJUDICE OTHER BIDDERS AND DOES NOT RENDER THE MODIFIED BID NONRESPONSIVE, SUCH AS IN THE CASE OF A VOLUNTARY REDUCTION OF BID PRICES BY AN OTHERWISE SUCCESSFUL BIDDER, IT WILL GENERALLY BE ACCEPTABLE.

WHILE THE AIR FORCE HAS ADVISED THAT THE GARRETT MODIFICATION WOULD ELIMINATE THE MOST SERIOUS OBJECTIONS TO AWARD UNDER THE CANCELED INVITATION, THERE STILL EXISTS THE FACT THAT THE EVALUATION CRITERIA WERE FAULTY AND IT WAS BECAUSE OF SUCH FAULTY EVALUATION CRITERIA THAT GARRETT SUCCEEDED IN BEING IN THE POSITION WHERE IT COULD VOLUNTARILY REDUCE ITS PRICE. WERE IT NOT FOR THE FAULTY EVALUATION CRITERIA, SOLAR WOULD HAVE BEEN EVALUATED AS THE LOW BIDDER AND GARRETT WOULD NOT HAVE BEEN IN THE POSITION WHERE IT COULD HAVE OFFERED A BETTER PRICE.

FURTHER, SINCE THE EVALUATION METHOD PROVIDED IN THE INVITATION WAS NOT CONSISTENT WITH THE GOVERNMENT'S ANTICIPATED NEEDS, IT WAS IN DEROGATION OF 10 U.S.C. 2305 (A) WHICH PROVIDES THAT ,INVITATIONS FOR BIDS SHALL PERMIT SUCH FREE AND FULL COMPETITION AS IS CONSISTENT WITH THE PROCUREMENT OF THE PROPERTY AND THE SERVICES NEEDED.' WHERE THERE HAS BEEN A VIOLATION OF THIS SECTION OF THE LAW, NO VALID AWARD MAY RESULT FROM THE INVITATION. SEE 40 COMP. GEN. 76, 82.

IN A SUPPLEMENTAL LETTER DATED NOVEMBER 13, 1967, GARRETT MADE THE FOLLOWING STATEMENT CONCERNING THE AIR FORCE POSITION THAT ITS INTENT TO USE INCREMENTAL FUNDING LED TO THE OVERSTATEMENT OF MAXIMUM QUANTITIES: "THE FACT THAT SMAMA STATED THAT ITS INTENTION WAS TO INCREMENTALLY FUND THE CONTRACT (REFERENCE PARAGRAPH 6B) COMPLETELY CONFUSES US. WE UNDERSTAND INCREMENTAL FUNDING TO MEAN THAT A CONTRACT WOULD BE AWARDED FOR THE TOTAL QUANTITY, THEREAFTER PORTIONS OF THAT CONTRACT QUANTITY WOULD BE BOUGHT AS FUNDS BECAME AVAILABLE. WE RECOGNIZE THAT THIS PRACTICE IS PROHIBITED; HOWEVER, THE PRESENT SITUATION IS ENTIRELY DIFFERENT - SPECIFIC REQUIREMENTS ARE BOUGHT AGAINST THE INDEFINITE QUANTITY CONTRACT AS SMAMA RECEIVES A FUNDED PR FROM A USER. THE BUYING AGENCY WOULD CONSOLIDATE SEVERAL OF THESE FROM SEVERAL USERS. THEREFORE, WE FAIL TO GRASP THE SIGNIFICANCE OF THE FACT THAT ALL OF THE FUNDS WERE NOT IMMEDIATELY AVAILABLE TO SMAMA. WHILE IT MAY BE A FACT THAT THE FIRST BUY OF THE PRESENTLY KNOWN REQUIREMENTS MAY FALL IN AN INCREMENT IN WHICH WE WERE NOT LOW, IT WOULD BE VERY DIFFICULT TO CONCLUDE THAT THIS WOULD BE SO IN EVERY CASE OVER THE NEXT FOUR YEARS. IT COULD BE LOGICALLY ARGUED THAT, IN VIEW OF THE PROPOSED CONSOLIDATION OF THIS TYPE OF PROCUREMENT, THIS SITUATION MIGHT NOT AGAIN BE REPEATED.' OUR UNDERSTANDING OF THE AIR FORCE REMARKS IS THAT INDIVIDUAL PURCHASE REQUESTS OF SUFFICIENTLY LARGE QUANTITIES TO BE PLACED AGAINST THE RESULTING CONTRACT WOULD HAVE REQUIRED INCREMENTAL FUNDING. THE LATER DETERMINATION THAT INCREMENTAL FUNDING WAS PROHIBITED IN THIS INSTANCE, COUPLED WITH THE KNOWLEDGE OF THE AMOUNT OF APPROPRIATED FUNDS TO BE ALLOCATED TO THIS PROCUREMENT, ESTABLISHED THAT THE UPPER RANGE QUANTITIES WOULD NOT BE PURCHASED. THEREFORE, ALL BUYS WOULD BE IN THE LOW OR MIDDLE RANGES, AS OPPOSED TO ONLY THE FIRST BUY, AND THE AIR FORCE THUS DETERMINED THAT CANCELLATION OF THE INVITATION WAS REQUIRED.

IN ACCORDANCE WITH THE ABOVE CONSIDERATIONS, WE CONCLUDE THAT THE INVITATION CANCELLATION WAS PROPER AND THAT GARRETT'S PROPOSED MODIFICATION IS NOT ACCEPTABLE.