Skip to Highlights
Highlights

THE ESTABLISHMENT OF SUCH A BASIS FOR DETERMINING THE RESPONSIBILITY OF BIDDERS IS NOT REGARDED AS A REASONABLE ONE. IN THE ABSENCE OF ANY RESTRICTION IN AN INVITATION WHICH WOULD PRECLUDE A PRIME CONTRACTOR FROM SUBCONTRACTING A PERCENTAGE OF THE WORK OR A REQUIREMENT THAT THE PRIME CONTRACTOR OR POSSIBLE SUBCONTRACTORS HAVE EXPERIENCE IN FURNISHING THE SAME EQUIPMENT TO THE PROCURING AGENCY. WHO WAS PRESENTLY PERFORMING UNDER ANOTHER SIMILAR CONTRACT WITH THE PROCURING AGENCY. PROPOSED TO SUBCONTRACT 47 PERCENT OF THE WORK TO THE SAME SUBCONTRACTOR OR TO ANOTHER INEXPERIENCED FIRM IS NOT FOUNDED ON A REASONABLE BASIS SINCE IT OVERLOOKS THE FACT THAT THE CONTRACT IS WITH THE PRIME CONTRACTOR NOT THE 47 PERCENT SUBCONTRACTOR AND THAT THE SUBCONTRACTOR MIGHT NOT NECESSARILY BE THE SAME UNDER BOTH CONTRACTS.

View Decision

B-143234, B-143236, DECEMBER 7, 1960, 40 COMP. GEN. 339

BIDDERS - QUALIFICATIONS - EXPERIENCE IN CONTRACT WORK WITH SAME AGENCY IN THE ABSENCE OF ANY INDICATION IN AN INVITATION FOR FURNISHING HYDRAULIC TURBINES OF A CONVENTIONAL DESIGN AND SIZE ON FOUR PROJECTS THAT BIDDERS WHO HAD NOT PREVIOUSLY FURNISHED SUCH TURBINES WOULD NOT BE CONSIDERED FOR AWARD ON MORE THAN ONE CONTRACT, THE ESTABLISHMENT OF SUCH A BASIS FOR DETERMINING THE RESPONSIBILITY OF BIDDERS IS NOT REGARDED AS A REASONABLE ONE. IN THE ABSENCE OF ANY RESTRICTION IN AN INVITATION WHICH WOULD PRECLUDE A PRIME CONTRACTOR FROM SUBCONTRACTING A PERCENTAGE OF THE WORK OR A REQUIREMENT THAT THE PRIME CONTRACTOR OR POSSIBLE SUBCONTRACTORS HAVE EXPERIENCE IN FURNISHING THE SAME EQUIPMENT TO THE PROCURING AGENCY, THE REJECTION OF A LOW BID BECAUSE THE BIDDER, WHO WAS PRESENTLY PERFORMING UNDER ANOTHER SIMILAR CONTRACT WITH THE PROCURING AGENCY, PROPOSED TO SUBCONTRACT 47 PERCENT OF THE WORK TO THE SAME SUBCONTRACTOR OR TO ANOTHER INEXPERIENCED FIRM IS NOT FOUNDED ON A REASONABLE BASIS SINCE IT OVERLOOKS THE FACT THAT THE CONTRACT IS WITH THE PRIME CONTRACTOR NOT THE 47 PERCENT SUBCONTRACTOR AND THAT THE SUBCONTRACTOR MIGHT NOT NECESSARILY BE THE SAME UNDER BOTH CONTRACTS. ALTHOUGH AWARDS UNDER FOUR INVITATIONS FOR FURNISHING HYDRAULIC ENGINES WERE NOT MADE TO THE TWO LOW BIDDERS BECAUSE OF A FAILURE TO FOLLOW PROPER PROCUREMENT PRACTICES, TO QUESTION THE VALIDITY OF THESE CONTRACTS NOW WOULD NOT BE IN THE BEST INTERESTS OF THE GOVERNMENT.

TO THE SECRETARY OF THE INTERIOR, DECEMBER 7, 1960:

REFERENCE IS MADE TO YOUR REPORTS TO US DATED AUGUST 17 AND OCTOBER 3, 1960, CONCERNING THE PROTEST MADE BY THE BALDWIN-1LIMA-1HAMILTON CORPORATION AGAINST THE FAILURE OF THE BUREAU OF RECLAMATION TO AWARD IT A CONTRACT FOR HYDRAULIC TURBINES UNDER ONE OF THE FOUR INVITATIONS WHICH RESULTED IN CONTRACTS BEING AWARDED AUGUST 12, 1960, FOR THE FLAMING GORGE, SPRING CREEK, CLEAR CREEK, AND TRINITY PROJECTS.

THE LOWEST BIDS SUBMITTED FOR THE FIRST THREE PROJECTS MENTIONED ABOVE WERE SUBMITTED BY THE JAPANESE FIRM OF HITACHI, AND THE LOWEST BID SUBMITTED ON THE TRINITY PROJECT WAS BY ENGLISH ELECTRIC. IF AWARD HAD BEEN MADE TO THESE TWO LOW BIDDERS ON ALL FOUR PROJECTS, THE AGGREGATE COST TO THE UNITED STATES (WITHOUT CONSIDERATION OF THE APPROXIMATELY $200,000 REQUIRED TO BE ADDED TO FOREIGN BIDS FOR EVALUATION PURPOSES ONLY ON ACCOUNT OF THE BUY AMERICAN ACT, 41 U.S.C. 10 A, B, C), WOULD HAVE BEEN SOME $600,000 LESS THAN THE COST UNDER THE AWARDS ACTUALLY MADE. YOUR INITIAL REPORT OF AUGUST 17, 1960, GAVE NO REASONS FOR THE AWARDS MADE, AND WE THEREFORE REQUESTED A SUPPLEMENTAL REPORT BY OUR LETTER OF SEPTEMBER 13, 1960. IN REPLY THERETO THE LETTER OF OCTOBER 3, 1960, FROM THE ACTING SECRETARY OF THE INTERIOR, GAVE THE REASONS FOR THE AWARDS.

ESSENTIALLY, THE REASONS GIVEN MAY BE STATED AS CONSISTING OF A RELUCTANCE ON THE PART OF THE BUREAU OF RECLAMATION TO FIND THE TWO LOW BIDDERS RESPONSIBLE FOR PERFORMANCE OF ALL THE CONTRACTS ON WHICH THEY WERE THE LOW BIDDERS. THE LETTER STATES, IN THIS CONNECTION, AS FOLLOWS:

IN CONSIDERING THE QUALIFICATIONS OF THE TWO FIRMS SUBMITTING LOW BIDS UNDER THESE INVITATIONS, IT WAS RECOGNIZED THAT NEITHER HAD PREVIOUSLY FURNISHED HYDRAULIC TURBINES TO THE BUREAU OF RECLAMATION AND THEREFORE HAD NOT PERFORMED UNDER RECLAMATION SPECIFICATIONS FOR THIS TYPE OF EQUIPMENT. WE THEREFORE LACKED A SOUND BASIS ON WHICH WE COULD JUDGE THE CAPABILITIES OF THE BIDDERS AND BE ASSURED THAT EITHER OF THESE FIRMS COULD SATISFACTORILY FULFILL THE EXACTING CONDITIONS OF THE SPECIFICATIONS GOVERNING THE MANUFACTURE OF THIS HIGHLY TECHNICAL EQUIPMENT. THIS PRESENTED A VERY DIFFICULT PROBLEM.

HERE WE WERE DEALING WITH HIGHLY COMPLICATED EQUIPMENT TO BE MANUFACTURED TO PRECISE PERFORMANCE SPECIFICATIONS. THE TURBINES FOR EACH INSTALLATION ARE CRUCIAL TO THE SATISFACTORY OPERATION OF THE POWER SYSTEMS OF WHICH THEY WILL BE A PART. THEREFORE, THE PROSPECTIVE CONCENTRATION OF AWARDS POSED THE DILEMMA OF "PLACING ALL OUR EGGS IN ONE BASKET," BY DEALING ENTIRELY WITH FIRMS WHOSE CAPABILITIES IN THE MANUFACTURE OF HYDRAULIC TURBINES HAVE NOT BEEN ASCERTAINED BY THE BUREAU THROUGH ACTUAL EXPERIENCE. SUCH A SITUATION DEMANDED THE CLOSEST SCRUTINY IN ORDER TO AVOID THE POSSIBILITY OF GREAT LOSS TO THE GOVERNMENT IN THE EVENT OF UNSATISFACTORY PERFORMANCE UNDER THE CONTRACTS. IT IS NOT IN ANY WAY INTENDED AS A REFLECTION ON THESE FIRMS TO SAY THAT THIS CONCENTRATION PRESENTED US WITH A RISK THAT NEITHER THE SECRETARY OF THE INTERIOR NOR THE COMMISSIONER OF RECLAMATION, AS THE OFFICIALS OF THE UNITED STATES GOVERNMENT CHARGED BY THE CONGRESS WITH THE ULTIMATE RESPONSIBILITY FOR THE SUCCESS OR FAILURE OF THESE PROJECTS, WAS PREPARED TO TAKE.

AFTER THE MOST CAREFUL WEIGHING OF ALL RELEVANT FACTORS IT WAS DETERMINED THAT, AS A MATTER OF SOUND PROCUREMENT POLICY, QUESTIONS OF DOUBT WOULD HAVE TO BE RESOLVED BY DISPERSAL OF THE AWARDS UNDER THE SEVERAL INVITATIONS, TAKING INTO ACCOUNT THE ABSENCE OF SUCH A SUBSTANTIAL DISPARITY IN PRICE AS TO APPEAR TO COMPENSATE FOR THE CALCULATED RISK INVOLVED.

THE NET RESULT OF THE CONSIDERATIONS QUOTED ABOVE WAS TO MAKE AWARD OF NO MORE THAN ONE PROJECT TO A FIRM WHICH HAD NOT PREVIOUSLY FURNISHED HYDRAULIC TURBINES TO THE BUREAU OF RECLAMATION. IT IS NOTED, HOWEVER, THAT THE RECOMMENDATION OF THE COMMISSIONER OF THE BUREAU OF RECLAMATION TO YOU, DATED JULY 18, 1960, WAS THAT IT WOULD NOT BE IN THE NATIONAL INTEREST TO CONCENTRATE FOUR CONTRACTS OF THE IMPORTANCE INVOLVED IN THE PLANTS OF FOREIGN BIDDERS. THAT RECOMMENDATION WAS TO THE EFFECT THAT THE PROVISIONS OF SECTION 3 OF EXECUTIVE ORDER NO. 10582 BE INVOKED TO AVOID THIS RESULT. SECTION 3 (D) OF EXECUTIVE ORDER NO. 10582 PERMITS THE AWARD OF CONTRACTS TO OTHER THAN A LOW FOREIGN BIDDER IF IT IS DETERMINED (BY THE OFFICE OF CIVIL AND DEFENSE MOBILIZATION) THAT AWARD TO IT WOULD IMPAIR OR THREATEN TO IMPAIR THE NATIONAL SECURITY. IT IS SIGNIFICANT TO NOTE THAT THE DIRECTOR OF CIVIL AND DEFENSE MOBILIZATION MADE PUBLIC ON JUNE 12, 1959, A MEMORANDUM IN WHICH HE CONCLUDED, AFTER MORE THAN A YEAR LONG INVESTIGATION, THAT HYDRAULIC TURBINES WERE NOT BEING IMPORTED INTO THE UNITED STATES IN SUCH QUANTITIES AS TO THREATEN TO IMPAIR THE NATIONAL SECURITY. WHILE THAT MEMORANDUM RECOMMENDED THAT THERE BE A REVIEW FROM TIME TO TIME OF THE EXTENT TO WHICH THE UNITED STATES DEPENDED UPON FOREIGN HYDRAULIC TURBINES, THERE IS NO INDICATION THAT THE DECISION AS TO THE AWARDS MADE IN THE INSTANT MATTER WAS BASED UPON ANY EXEMPTION FROM THE BUY AMERICAN ACT PROVIDED BY EXECUTIVE ORDER NO. 10852. WE MUST, THEREFORE, CONSIDER THE VALIDITY OF THE AWARDS MADE WITHOUT REGARD TO THE BUY AMERICAN ACT, EXCEPT AS IT AFFECTS THE AMOUNT OF THE BIDS FOR EVALUATION PURPOSES.

THE DECISION TO AWARD NO MORE THAN ONE CONTRACT TO ANY FIRM WHICH HAD NOT PREVIOUSLY FURNISHED HYDRAULIC TURBINES TO THE BUREAU OF RECLAMATION PRESENTS A NOVEL QUESTION IN THE AREA OF DETERMINATION OF THE LOWEST "RESPONSIBLE" BIDDER UNDER FEDERAL PROCUREMENT STATUTES. WHILE IT IS STATED THAT THE TURBINES INVOLVED ARE "HIGHLY COMPLICATED EQUIPMENT TO BE MANUFACTURED TO PRECISE PERFORMANCE SPECIFICATIONS," IT IS NOT STATED THAT THE TURBINES ARE MORE COMPLICATED OR DIFFICULT TO MANUFACTURE THAN ANY CONVENTIONAL TYPE OF HYDRAULIC TURBINE. WE HAVE BEEN INFORMED THAT THE TURBINES INVOLVED ARE IN FACT CONVENTIONAL IN CONCEPT, DESIGN, AND SIZE. ASSUMING THIS TO BE THE CASE, WE CAN FIND NO REASONABLE BASIS FOR THE CRITERION THAT THE RESPONSIBILITY OF BIDDERS PROPERLY MAY BE BASED UPON WHETHER OR NOT THEY HAVE FURNISHED HYDRAULIC TURBINES TO THE BUREAU OF RECLAMATION. WE ARE NOT AWARE OF ANY REASON WHY SUCH A CRITERION SHOULD EXCLUDE THE FURNISHING OF HYDRAULIC TURBINES TO OTHER GOVERNMENTAL OR PRIVATE PURCHASERS. IT MAY BE NOTED, ALSO, THAT NO INDICATION OF THE POSSIBLE APPLICATION OF SUCH A CRITERION OF RESPONSIBILITY WAS EVEN SUGGESTED IN THE INVITATIONS TO BID ON THE FOUR PROJECTS IN QUESTION.

IF AWARDS HAD BEEN MADE TO ENGLISH ELECTRIC ON THE TRINITY PROJECT AND TO THE JAMES LEFFEL COMPANY ON THE FLAMING GORGE PROJECT, AS WAS DONE, AND AWARD MADE TO HITACHI ON THE SPRING CREEK INSTEAD OF THE CLEAR CREEK PROJECT, THE CLEAR CREEK PROJECT WOULD THEN HAVE BEEN AWARDED TO BALDWIN- 1LIMA-1HAMILTON. THE RESULT OF AWARDS IN THIS MANNER WOULD HAVE BEEN A NET SAVING OF NEARLY $140,000 TO THE GOVERNMENT OVER THE AWARDS AS MADE. IT IS STATED IN THE LETTER OF OCTOBER 3, 1960, THAT CONSIDERATION WAS GIVEN TO THE MAKING OF AWARDS IN THIS WAY BUT THAT THIS COURSE OF ACTION WAS NOT TAKEN FOR THE FOLLOWING REASONS:

BALDWIN-1LIMA-HAMILTON IS PRESENTLY PERFORMING A TURBINE CONTRACT FOR THE GLEN CANYON PROJECT UNDER WHICH IT PLANS TO SUBCONTRACT ABOUT 43 PERCENT OF THE WORK TO A FIRM WHICH HAS HAD NO PREVIOUS EXPERIENCE ON TURBINES FURNISHED TO THE BUREAU OF RECLAMATION. IN ITS BID ON CLEAR CREEK, BALDWIN-1LIMA-1HAMILTON PROPOSED TO SUBCONTRACT THE MANUFACTURE OF ABOUT 47 PERCENT OF THE TURBINE COMPONENTS TO THE SAME SUBCONTRACTOR OR TO ANOTHER FIRM NOT EXPERIENCED IN RECLAMATION WORK. AS TO THIS, IT IS STATED IN THE LETTER OF OCTOBER 3, 1960, THAT:

WE ARE NO MORE PREPARED TO TAKE THE RISKS OF PLACING A COLLECTION OF EGGS 43 TO 47 PERCENT UNTRIED IN THE BASKET THAN IN PLACING A COLLECTION OF 100 PERCENT UNTRIED EGGS THEREIN. THE POTENTIAL NECESSITY OF UNSCRAMBLING AN OMELET DOES NOT SEEM TO US TO CONSTITUTE A LEGALLY ESSENTIAL REQUIREMENT OF GOVERNMENT PROCUREMENT.

WE THINK THAT THE REASONING GIVEN FOR REJECTION OF THE B-L-H BID IS UNSUPPORTABLE FOR SEVERAL REASONS. FIRST, IT OVERLOOKS COMPLETELY THAT FACT THAT THE INSTANT B-L-H CONTRACT WOULD NOT BE WITH THE 47 PERCENT SUBCONTRACTOR BUT WITH B-L-H ITSELF, WHICH IS AN EXPERIENCED TURBINE SUPPLIER. SECOND, THE CONTRACT WOULD NOT BE WITH THE PENNSYLVANIA DIVISION OF B-L-H WHICH HAS THE GLEN CANYON PROJECT, BUT WITH THE PELTON DIVISION IN CALIFORNIA. THIRD, THE SUBCONTRACTOR TO BE USED BY B-L-H FOR THE CLEAR CREEK PROJECT WILL NOT NECESSARILY BE THE SAME SUBCONTRACTOR USED FOR THE GLEN CANYON PROJECT. FINALLY, THE BUREAU HAS NO ASSURANCE WHATEVER THAT EITHER THE JAMES LEFFEL COMPANY OR NEWPORT NEWS, TO WHOM AWARDS WERE MADE, WILL NOT SUBCONTRACT AS MUCH AS 47 PERCENT OF THEIR CONTRACTS TO UNTRIED SUPPLIERS.

NONE OF THE FOUR INVITATIONS CONTAINS ANY RESTRICTION AGAINST THE USE OF SUCH PERCENTAGE OF SUBCONTRACTING AS THE PRIME CONTRACTOR MAY CHOOSE, NOR IS THERE ANY REQUIREMENT THAT EITHER THE PRIME CONTRACTOR OR POSSIBLE SUBCONTRACTORS BE EXPERIENCED SUPPLIERS OF TURBINES TO THE BUREAU OF RECLAMATION. PARAGRAPH A-7 OF THE SPECIAL CONDITIONS OF THE INVITATIONS DOES NOTIFY BIDDERS THAT THEY MAY BE REQUIRED, BEFORE AWARD, TO SUBMIT STATEMENTS AS TO PREVIOUS EXPERIENCE. THAT CLAUSE FURTHER AUTHORIZES THE CONTRACTING OFFICER TO REQUIRE BIDDERS TO FURNISH EVIDENCE "OF SATISFACTORY PERFORMANCE OF COMPARABLE EQUIPMENT OVER A SUFFICIENT PERIOD OF TIME TO INSURE THE RELIABILITY OF THE EQUIPMENT BEING OFFERED.' IT IS SIGNIFICANT THAT THE EVIDENCE OF PREVIOUS EXPERIENCE WHICH MAY BE REQUIRED IS NOT IN ANY WAY LIMITED TO EXPERIENCE WITH THE BUREAU OF RECLAMATION.

THE REASONS GIVEN FOR THE MAKING OF THE AWARDS ARE, IN OUR OPINION, INCOMPATIBLE WITH THE REQUIREMENTS APPLICABLE TO FEDERAL PROCUREMENT BY ADVERTISING. TWO PROJECTS, CLEAR CREEK AND TRINITY, WERE AWARDED TO THE LOWEST BIDDERS, AND NO QUESTION CAN BE RAISED AS TO THE VALIDITY OF THOSE CONTRACTS. THE FLAMING GORGE AND SPRING CREEK PROJECTS WERE NOT AWARDED TO THE LOWEST BIDDER, HITACHI. HOWEVER, WE DO NOT FEEL THAT IT WOULD NOW BE IN THE BEST INTEREST OF THE UNITED STATES TO QUESTION THE VALIDITY OF THOSE CONTRACTS. CONSEQUENTLY, DESPITE OUR CONCERN OVER THE FAILURE TO FOLLOW PROPER PROCUREMENT PRACTICES, WE DO NOT PROPOSE TO DISTURB THE AWARDS MADE.

GAO Contacts