B-127801, JUNE 8, 1956, 35 COMP. GEN. 684

B-127801, JUNE 8, 1956, 35 COMP. GEN. 684

BIDS - ACCEPTANCE OR REJECTION - PRICE ADJUSTMENT PROVISIONS - DEVIATION FROM SPECIFICATIONS A PRICE ESCALATION QUALIFICATION, WHICH WAS ERRONEOUSLY INSERTED IN A BID SUBMITTED IN RESPONSE TO SPECIFICATIONS REQUIRING A LUMP-SUM QUOTATION AND WHICH, WHEN COMPARED WITH THE CONTRACT PROVISIONS FOR LIQUIDATED DAMAGES IN THE EVENT OF DELAY, WOULD HAVE NO EFFECT OTHER THAN THE ESTABLISHMENT OF A MAXIMUM PRICE, WILL NOT PRECLUDE CONSIDERATION OF THE BID FOR AWARD.

TO L. N. MCCLELLAN, BUREAU OF RECLAMATION, JUNE 8, 1956:

REFERENCE IS MADE TO YOUR LETTER OF MAY 9, 1956, WITH ENCLOSURES, REQUESTING A DECISION AS TO THE PROPRIETY OF MAKING AN AWARD OF A CONTRACT TO WESTINGHOUSE ELECTRIC CORPORATION ON THE BASIS OF ITS BID SUBMITTED IN RESPONSE TO INVITATION NO. DC-4602, COVERING THE CONSTRUCTION OF A MULTICHANNEL MICROWAVE RADIO COMMUNICATION SYSTEM BETWEEN PHOENIX, ARIZONA, AND PARKER DAM, CALIFORNIA.

THE SPECIFICATIONS PROVIDED FOR THE QUOTATION OF A LUMP-SUM PRICE FOR ALL MATERIALS, EQUIPMENT, LABOR, AND SERVICES FOR THE COMPLETION OF THE WORK, INCLUDING THE SERVICING AND MAINTENANCE OF THE COMMUNICATION SYSTEM FOR A PERIOD OF 180 CALENDAR DAYS IMMEDIATELY FOLLOWING THE DATE OF THE GOVERNMENT'S ACCEPTANCE OF THE CONSTRUCTION WORK. THE SPECIFICATIONS REQUIRED THE COMPLETION OF ALL THE CONSTRUCTION WORK WITHIN 360 CALENDAR DAYS FROM THE DAY OF THE CONTRACTOR'S RECEIPT FROM THE GOVERNMENT OF A NOTICE TO PROCEED WITH THE WORK AND THE PAYMENT BY THE CONTRACTOR TO THE GOVERNMENT AS LIQUIDATED DAMAGES THE SUM OF $60 FOR EACH CALENDAR DAY'S DELAY IN COMPLETION OF THE CONSTRUCTION WORK. THE SPECIFICATIONS CONTAINED THE STANDARD GENERAL PROVISIONS FOR CONSTRUCTION CONTRACTS ( STANDARD FORM 23A) PROVIDING FOR THE EXTENSION OF TIME IN THE EVENT OF CERTAIN DELAYS IN PERFORMANCE OF THE WORK.

IN RESPONSE TO THE INVITATION, WESTINGHOUSE ELECTRIC CORPORATION SUBMITTED A BID OFFERING TO FURNISH THE EQUIPMENT AND PERFORM ALL THE WORK FOR THE TOTAL AMOUNT OF $209,593. HOWEVER, THE BID CONTAINED THE FOLLOWING QUALIFYING PROVISION:

IF PERFORMANCE OF THIS CONTRACT IS DELAYED FOR A PERIOD IN EXCESS OF 6 MONTHS AS THE RESULT OF WAR OR THE NATIONAL EMERGENCY, OR ANY ACT OF AN AGENCY OR REPRESENTATIVE OF THE FEDERAL GOVERNMENT, PERFORMANCE SHALL BE RESUMED AT THE CONCLUSION OF THE DELAY, AND THE DELIVERY SCHEDULE, PRICE AND PRICE POLICY APPLICABLE AT THAT TIME WILL APPLY TO THE UNSHIPPED PORTION OF THE CONTRACT UNLESS PURCHASER NOTIFIES THE SELLER IN WRITING, WITHIN 30 DAYS FROM RECEIPT OF NOTICE THAT PERFORMANCE CAN BE RESUMED, TO CANCEL THE UNSHIPPED PORTION OF THE CONTRACT, IN WHICH CASE PURCHASER WILL PAY REASONABLE AND PROPER CANCELLATION CHARGES. HOWEVER, DESPITE SUCH DELAY, BILLING WILL NOT EXCEED THE ORIGINAL CONTRACT PRICE BY MORE THAN 20 PERCENT IF SHIPMENT CAN BE MADE WITHIN 36 MONTHS FROM THE DATE OF THE CONTRACT, OR 30 PERCENT IF SHIPMENT CAN BE MADE IN MORE THAN 36 BUT LESS THAN 48, MONTHS FROM THE DATE OF THE CONTRACT.

BY LETTER DATED APRIL 19, 1956, AND SUBSEQUENT CORRESPONDENCE, SUBMITTED AFTER THE BID OPENING, WESTINGHOUSE ELECTRIC CORPORATION ADVISED THAT THE INSERTION OF THIS QUALIFYING PROVISION WAS THE RESULT OF A MISINTERPRETATION OF WESTINGHOUSE'S SELLING POLICY BY ITS OFFICE WHICH SUBMITTED THE BID, AND REQUESTED THAT THE QUALIFICATION BE ELIMINATED FROM THE BID AND THAT THE BID BE ALLOWED TO STAND AS A FIRM PRICE BID.

IN DETERMINING WHETHER A BID WHICH DEVIATES FROM THE ADVERTISED SPECIFICATIONS MAY BE CHANGED AFTER BID OPENING TO CONFORM WITH THE INVITATION, THE RULE CONSISTENTLY APPLIED IS THAT DEVIATIONS WHICH AFFECT "THE PRICE, QUANTITY, OR QUALITY" OF THE SUPPLIES OR SERVICES SPECIFIED MUST BE REGARDED AS GOING TO THE SUBSTANCE OF THE BID AND MAY NOT BE WAIVED AS MERE INFORMALITIES. SINCE THE ESCALATION PROVISIONS EMBODIED IN THE CLAUSE IN QUESTION WOULD DIRECTLY AFFECT THE PRICE QUOTED FOR THE WORK, THEY MAY NOT BE DISREGARDED IN EVALUATING THE WESTINGHOUSE BID. HOWEVER, SINCE IT IS STATED IN YOUR SUBMISSION THAT THE WESTINGHOUSE BID, INCLUDING THE 30 PERCENT ESCALATION, WOULD, WHEN EVALUATED ON THE BASIS OF THE FACTORS STATED IN THE INVITATION, STILL BE THE LOWEST BID, IT IS NECESSARY TO CONSIDER WHETHER THE QUALIFICATIONS STATED IN THE BID AS TO MATTERS OTHER THAN PRICE CONSTITUTE SUCH MATERIAL DEVIATIONS AS TO PRECLUDE ACCEPTANCE OF THE BID.

THE GENERAL ELECTRIC COMPANY, CLAIMING TO BE THE LOWEST RESPONSIVE BIDDER, HAS PRESENTED A MEMORANDUM PROTESTING AGAINST CONSIDERATION OF THE WESTINGHOUSE BID FOR AWARD, IN WHICH IT ARGUES, AMONG OTHER POINTS, THAT A BID INCLUDING A PRICE ESCALATION PROVISION MAY NOT PROPERLY BE CONSIDERED UNDER THE TERMS OF AN INVITATION CALLING FOR A FIRM PRICE LUMP-SUM BID. IN SUPPORT OF ITS CONTENTION IT CITES OUR DECISIONS B 113480 OF APRIL 14, 1953, AND B-121490 OF JANUARY 10, 1955, BOTH OF WHICH HELD, IN SUBSTANCE, THAT A FIXED-PRICE BID WAS NOT RESPONSIVE TO AN INVITATION WHICH SPECIFICALLY PROVIDED THAT THE CONTRACT PRICE SHOULD BE SUBJECT TO ESCALATION BOTH UPWARD AND DOWNWARD. THE REASONS FOR SO HOLDING ARE NOT APPLICABLE HERE, WHERE THERE IS NO QUESTION OF POSSIBLE REDUCTION OF THE FIXED-PRICE BIDS, AND THE MAXIMUM COST TO THE GOVERNMENT CAN BE EXACTLY MEASURED BY THE APPLICATION OF THE MAXIMUM ESCALATION TO THE BASE PRICE.

IT IS ALSO ARGUED BY THE GENERAL ELECTRIC COMPANY, AND IS ALSO STATED BY YOU TO BE YOUR UNDERSTANDING OF THE RULE FOLLOWED BY OUR OFFICE, THAT THE FACT THAT THE WESTINGHOUSE BID CONTAINS NO CEILING ON THE PRICE IN THE EVENT OF A DELAY OF MORE THAN 48 MONTHS IN PERFORMANCE MAKES IT IMPOSSIBLE TO EVALUATE THE BID OR TO DETERMINE THE MAXIMUM COST TO THE GOVERNMENT. LOOKING SOLELY AT THE LANGUAGE OF THE QUALIFYING CLAUSE, IT WOULD APPEAR THAT THERE IS SOME JUSTIFICATION FOR THAT VIEW; BUT UPON COMPARISON OF THE CONDITIONS STATED WITH THOSE STIPULATED IN THE INVITATION AND SPECIFICATIONS WE BELIEVE THAT THE DIFFERENCE BETWEEN THE RIGHTS AND OBLIGATIONS WHICH WOULD BE CREATED BY ACCEPTANCE OF THE WESTINGHOUSE BID, AND THOSE WHICH WOULD OBTAIN UPON ACCEPTANCE OF ANY OF THE FIXED-PRICE BIDS, IS, EXCEPT AS TO PRICE, MORE ILLUSORY THAN REAL.

THE INVITATION REQUIRES COMPLETION OF THE WORK WITHIN 360 DAYS, AND PROVIDES FOR THE ASSESSMENT OF LIQUIDATED DAMAGES FOR DELAY; BUT ARTICLE 5 (C) OF THE GENERAL PROVISIONS SPECIFICALLY PROVIDES FOR AN EXTENSION OF TIME IN THE EVENT OF DELAYS "DUE TO UNFORESEEABLE CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE CONTRACTOR, INCLUDING, BUT NOT RESTRICTED TO, ACTS OF GOD, OR OF THE PUBLIC ENEMY, ACTS OF THE GOVERNMENT, IN EITHER ITS SOVEREIGN OR CONTRACTUAL CAPACITY," ETC. WE DO NOT FEEL THAT ANY REASONABLE INTERPRETATION OF THE QUOTED LANGUAGE WOULD NOT EMBRACE ANY CAUSE INCLUDED IN THE LANGUAGE OF THE WESTINGHOUSE BID--- "AS THE RESULT OF WAR OR THE NATIONAL EMERGENCY, OR ANY ACT OF AN AGENCY OR REPRESENTATIVE OF THE FEDERAL GOVERNMENT.'

THE ONLY REAL AND SUBSTANTIAL EFFECT OF THE QUALIFICATION IS THEREFORE THE PROVISION FOR ADJUSTMENT OF THE PRICE. THE WORDS "DELIVERY SCHEDULE" AND "PRICE POLICY" ARE ALSO INCLUDED IN THE CLAUSE, BUT IN THE EVENT OF SUCH DELAYS THE "DELIVERY SCHEDULE" FIXED BY THE CONTRACT WOULD HAVE BECOME IMPOSSIBLE OF FULFILLMENT, AND WE DO NOT FEEL THAT THE LANGUAGE OF THE CLAUSE SHOULD BE CONSTRUED AS RELIEVING THE CONTRACTOR FROM THE OBLIGATION OF COMPLYING WITH THE TERMS OF THE CONTRACT AS MODIFIED BY EXTENSIONS OF TIME WHICH THE GOVERNMENT WOULD BE REQUIRED TO GRANT UNDER THE PROVISIONS OF ARTICLE 5.

AS TO THE FAILURE TO INCLUDE ANY CEILING ON THE PRICE ESCALATION PROVISION IN THE EVENT OF DELAY OF MORE THAN 48 MONTHS FROM ONE OF THE CAUSES SPECIFIED, IT IS OUR VIEW THAT EITHER UNDER THE SPECIFIC PROVISION OF THE WESTINGHOUSE CLAUSE PERMITTING CANCELLATION BY THE GOVERNMENT, OR UNDER LEGAL PRINCIPLES WHICH WOULD APPLY IN THE EVENT OF AWARD OF THE CONTRACT TO ANY OTHER BIDDER, A DELAY FOR SUCH A LENGTH OF TIME FOR ONE OF THOSE CAUSES WOULD CONSTITUTE ADEQUATE GROUND FOR AVOIDANCE OF THE CONTRACT BY EITHER PARTY. THE PRACTICAL EFFECT OF THE QUALIFICATION IS THEREFORE VIRTUALLY NEGLIGIBLE AND WE CONCLUDE THAT FOR EVALUATION PURPOSES THE MAXIMUM ESCALATION OF 30 PERCENT WOULD CONSTITUTE THE REAL MEASURE OF THE MAXIMUM COST TO THE GOVERNMENT.

FURTHERMORE, THE RECORD REASONABLY ESTABLISHES THAT THE QUALIFYING PROVISIONS IN QUESTION WERE INSERTED IN WESTINGHOUSE'S BID THROUGH ERROR AND ARE TO BE ELIMINATED IN THE EVENT OF AWARD TO WESTINGHOUSE.

YOU ARE ACCORDINGLY ADVISED THAT THE BID OF THE WESTINGHOUSE CORPORATION MAY PROPERLY BE CONSIDERED FOR AWARD, UPON EVALUATION IN ACCORDANCE WITH THE TERMS OF THE INVITATION AND THE ESCALATION CEILING STATED.

THE PAPERS SUBMITTED WITH YOUR LETTER ARE RETURNED. ALSO, THERE IS ENCLOSED A TELEGRAM DATED JUNE 7, 1956, FROM CORBIN DYKES ELECTRIC COMPANY PROTESTING THE CONSIDERATION OF THE BIDS OF BOTH WESTINGHOUSE ELECTRIC CORPORATION AND GENERAL ELECTRIC COMPANY, AND A COPY OF OUR LETTER OF TODAY IN REPLY THERETO.