B-130083, JAN. 3, 1957

B-130083, JAN. 3, 1957

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO A LETTER DATED DECEMBER 13, 1956, WITH ENCLOSURES, FROM THE ASSISTANT SECRETARY OF THE ARMY (LOGISTICS), RELATING TO A MISTAKE IN BID ALLEGED BY THE FOLEY MACHINE COMPANY, 853 855 EAST WOODLAWN STREET, PHILADELPHIA 38, PENNSYLVANIA, AFTER THE AWARD OF CONTRACT NO. DA- 36-038-ORD-18911, DATED MARCH 18, 1955. IN VIEW OF THE FACTS AND CIRCUMSTANCES SET FORTH IN THE ENCLOSURES, A DECISION IS REQUESTED AS TO WHETHER THE CONTRACTOR'S APPLICATION FOR RELIEF FROM THE CHARGE STATED AGAINST IT FOR EXCESS COSTS MAY BE GRANTED.

THE RECORD SHOWS THAT BY INVITATION NO. ORD-36-038-55-G-491, DATED JANUARY 28, 1955, THE FRANKFORD ARSENAL REQUESTED BIDS--- TO BE OPENED MARCH 1, 1955--- FOR FURNISHING SUPPLIES DESCRIBED AS FOLLOWS:

TABLE ITEM UNIT NO. SUPPLIES OR SERVICES QUANTITY UNIT PRICE AMOUNT1. GAGE, RECEIVER, DRG. D7297956, 2 EA.

EA.

DATED 11/5/54. 2. GAGE, RECEIVER, DRG. D7297960, 1 EA. EA.

DATED 11/17/54. 3. GAGE, ADAPTER, DRG. D7563601 2 EA. EA.

DATED 12/16/54 (2 SHEETS) 4. GAGE, ADAPTER, DRG. D7567587, 5 EA. EA.

DATED 12/20/54.

IN RESPONSE TO THE INVITATION, THE FOLEY MACHINE COMPANY SUBMITTED A BID DATED FEBRUARY 26, 1955, OFFERING TO FURNISH THE GAGES AT THE UNIT PRICE OF $70 AS TO ITEM 1, AT THE UNIT PRICE OF $70 AS TO ITEM 2, AT THE UNIT PRICE OF $85 AS TO ITEM 3, AND A UNIT PRICE OF $28 AS TO ITEM 4, OR A TOTAL CONTRACT PRICE OF $520. ONLY ITEMS 1 AND 2 ARE BEING CONSIDERED HEREIN AND AS TO THESE ITEMS THE RECORD SHOWS THERE WERE SEVEN OTHER BIDS, ONE OF $96 AND THE OTHERS RANGING FROM $239 TO $650 AS TO ITEM 1, AND ONE OF $106 AND FIVE RANGING FROM $246 TO $680 AS TO ITEM 2. IT IS REPORTED THAT THE FRANKFORD ARSENAL ESTIMATED A UNIT COST OF $225 AS TO ITEM 1 AND A UNIT COST OF $250 AS TO ITEM 2, AND THAT THESE ESTIMATES WERE CONSIDERED TO BE CONSERVATIVE.

IT APPEARS THAT THE FRANKFORD ARSENAL WAS ON NOTICE OF THE FACT THAT THE BID OF THE FOLEY MACHINE COMPANY AND THE BID OF THE ORBAN BROTHERS MACHINE AND TOOL COMPANY AS TO ITEMS 1 AND 2 ($96 AND $106) WERE CONSIDERABLY OUT OF LINE WITH THE OTHER BIDS AND FOR THAT REASON REQUESTED THE LOW BIDDER BY TELEPHONE TO CONFIRM ITS BID. BY LETTER DATED MARCH 11, 1955, THE FOLEY MACHINE COMPANY CONFIRMED ITS BID PRICES AS CORRECT. UNDER DATE OF MARCH 18, 1955, AWARD WAS MADE TO THE LOW BIDDER AT THE PRICES INDICATED, WITHOUT A PRE-AWARD SURVEY TO DETERMINE ITS ABILITY TO PRODUCE.

BY COMMENT NO. 1, DATED OCTOBER 2, 1956, THE OFFICE OF THE CHIEF OF ORDNANCE ADVISED THAT BY LETTER OF JULY 19, 1955, THE CONTRACTOR ADVISED THAT IT WAS UNABLE TO PRODUCE THE ITEMS BECAUSE IT DID NOT HAVE PROPER GRINDING FACILITIES WITHIN ITS ORGANIZATION. THE CONTRACTOR ASKED THAT THE MATTER BE REVIEWED AND THAT IT BE ADVISED IF THE TWO ITEMS COULD BE CANCELLED WITHOUT INCONVENIENCE TO THE GOVERNMENT AND FURTHER LOSS OF MONEY TO THE COMPANY. UNDER DATE OF AUGUST 22, 1955, THE CONTRACTING OFFICER ISSUED A 10-DAY WARNING LETTER TO WHICH THE CONTRACTOR REPLIED AGAIN STATING ITS INABILITY TO PERFORM AND AGAIN ASKING WHETHER THE TWO ITEMS COULD BE CANCELLED. BY LETTER OF SEPTEMBER 19, 1955, THE CONTRACT WAS TERMINATED FOR DEFAULT, AND UNDER DATE OF FEBRUARY 15, 1956, THE CONTRACTOR WAS ADVISED THAT THE PROCUREMENT OF ITEMS 1 AND 2 RESULTED IN EXCESS COSTS OF $835, AND A DEMAND WAS MADE FOR PAYMENT. AMONG THE ENCLOSURES TO THE LETTER OF DECEMBER 13 WAS A COPY OF CONTRACT NO. DA-36- 034-ORD-2182, DATED NOVEMBER 9, 1955, WITH THE MODERN TOOL AND DIE COMPANY, FOR FURNISHING THE GAGES AT A TOTAL CONTRACT PRICE OF $1,045. APPEARS FROM THE RECORD THAT THIS REPLACEMENT CONTRACT WAS NEGOTIATED BY THE PHILADELPHIA ORDNANCE DISTRICT ON PROPOSALS INVITED ONLY FROM SUPPLIERS IN THAT DISTRICT, AND WITHOUT REFERENCE TO THE FRANKFORD ARSENAL AS REQUIRED BY ORDNANCE PROCUREMENT INSTRUCTIONS.

BY LETTER OF FEBRUARY 24, 1956, THE CONTRACTOR APPEALED FROM THE CONTRACTING OFFICER'S DETERMINATION THAT IT WAS LIABLE FOR THE EXCESS COSTS INVOLVED, STATING IN EFFECT THAT (1) IT WAS NOT REQUESTED TO BID ON THE REPURCHASE OF THE ITEMS; (2) THAT THE REPLACEMENT ITEMS COST FIVE TIMES MORE THAN THE BID PRICE, CLEARLY INDICATING THAT ITS UNIT PRICE WAS IN ERROR; (3) THAT IT IS NOT IN A POSITION TO FINANCE THE GOVERNMENT, THAT TOO MANY SMALLER SHOPS LIKE THE FOLEY MACHINE COMPANY HAVE BEEN FORCED TO WAIT TWO YEARS TO RECEIVE PAYMENTS ON TERMINATIONS, THAT MANY SHOPS HAVE BEEN FORCED TO SHUT DOWN BECAUSE OF EXTENDED DELAYS IN CLEARING TERMINATIONS, AND (4) THAT IT IS A SHORTSIGHTED POLICY ON THE PART OF THE GOVERNMENT TO PENALIZE THE SMALL OPERATORS WHO MAY BE CALLED UPON AGAIN TO CARRY ON, AS BEFORE, AN IMPORTANT PART OF AN EMERGENCY LOAD.

WITH RESPECT TO THE CONTRACTOR'S CONTENTION THAT IT WAS NOT REQUESTED TO BID ON THE REPURCHASE OF THE ITEMS INVOLVED, THE OFFICE OF THE CHIEF OF ORDNANCE POINTS OUT THAT REPURCHASE FROM A DEFAULTED CONTRACTOR IS PROHIBITED BY ORDNANCE PROCUREMENT INSTRUCTIONS NO. OPI 7-103.11G. NEVERTHELESS APPEARS THAT THE METHOD OF REPURCHASE ADOPTED WAS SUCH AS TO LEAVE A SUBSTANTIAL QUESTION WHETHER THE PRICE PAID THEREUNDER FURNISHES A PROPER BASIS FOR THE ASSESSMENT OF EXCESS COSTS.

AS TO THE CONTRACTOR'S CLAIM OF ERROR IN BID, IT IS NOTED THAT ITS LOW BID WAS LESS THAN ONE-THIRD OF THE PRODUCTION COSTS ESTIMATED BY THE FRANKFORD ARSENAL, ABOUT ONE-FOURTH OF ALL BUT ONE OF SEVEN OTHER BIDS, AND APPROXIMATELY ONE-FIFTH OF THE REPLACEMENT COST. WHILE IT APPEARS THAT THE CONTRACTING OFFICER IN AWARDING THE CONTRACT IN THIS CASE RELIED UPON THE CONTRACTOR'S CONFIRMING LETTER OF MARCH 11, 1955, HE WAS AT THE SAME TIME ON NOTICE OF THE FACT THAT THE PRICES BID WERE ENTIRELY OUT OF LINE WITH THE OTHER BIDS RECEIVED AND WITH THE GOVERNMENT'S ESTIMATE, AND THAT THE CONTRACTOR COULD NOT REASONABLY BE EXPECTED TO PERFORM AT ITS BID PRICES. WE THEREFORE FEEL THAT THERE WAS AMPLE REASON FOR THE CONTRACTING OFFICER TO HAVE REQUESTED FURTHER CLARIFICATION OF THE MATTER PRIOR TO AWARD, OR TO HAVE INVESTIGATED THE BIDDER'S CAPABILITIES.

IN VIEW OF ALL THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT IT WOULD BE FRUITLESS TO ATTEMPT RECOVERY OF THE EXCESS COSTS ASSESSED, AND CANCELLATION OF THE CHARGE THEREFOR IS ACCORDINGLY AUTHORIZED.