B-143682, DEC. 30, 1960

B-143682, DEC. 30, 1960

TO MR. C. J. HARING:

REFERENCE IS MADE TO YOUR LETTER OF JULY 29, 1960, CONCERNING CERTAIN ALLEGED DIFFICULTIES EXPERIENCED BY YOUR COMPANY WITH THE DEPARTMENT OF THE ARMY REGARDING A PROCUREMENT OF 325 MOTOR GRADERS BY THE UNITED STATES ARMY ENGINEER PROCUREMENT OFFICE IN CHICAGO. YOU ADVISE THAT A NEGOTIATED CONTRACT FOR MOTOR GRADERS HAS BEEN CONCLUDED WITH THE HUBER-WARCO COMPANY, AND YOU WISH TO PROTEST THE AWARD FOR THE PURPOSE OF BRINGING ABOUT A REVIEW OF THE STANDARDIZED PROCUREMENT POLICY AS IT RELATES TO MOTOR GRADERS.

SPECIFICALLY, YOU STATE THAT YOU WERE RULED OUT BY A SO-CALLED "PERCENTAGE CRITERIA" IN THE STANDARDIZED PROCUREMENT POLICY, AND IT IS PARTICULARLY THIS "PERCENTAGE CRITERIA" WHICH YOU BELIEVE SHOULD BE REVIEWED AS BEING UNJUST AND UNWARRANTED AND NOT IN THE BEST INTEREST OF THE GOVERNMENT OR THE PUBLIC IN GENERAL, ESPECIALLY AS IT RELATES TO MOTOR GRADERS. ACCOMPANYING YOUR LETTER WERE COPIES OF CORRESPONDENCE BETWEEN YOUR COMPANY AND THE DEPARTMENT OF THE ARMY PERTAINING TO THE SUBJECT OF YOUR COMPLAINT.

IN RESPONSE TO OUR REQUEST OF AUGUST 9, 1960, WE NOW ARE IN RECEIPT OF A REPORT FROM THE DEPARTMENT OF THE ARMY COVERING THE MATTER AND, IN ADDITION, WE HAVE MADE AN INDEPENDENT EXAMINATION OF THE REFERRED TO STANDARDIZED PROCUREMENT POLICY OF THE DEPARTMENT WITH SPECIAL REFERENCE TO YOUR PARTICULAR CASE, AND HAVE DEVELOPED THE FOLLOWING:

THE ARMED SERVICES PROCUREMENT ACT OF 1947, AS AMENDED, SECTION 2304 (A) (13), TITLE 10 UNITED STATES CODE, AUTHORIZES THE HEAD OF A DEFENSE AGENCY TO NEGOTIATE A CONTRACT IF "THE PURCHASE OR CONTRACT IS FOR EQUIPMENT THAT HE DETERMINES TO BE TECHNICAL EQUIPMENT WHOSE STANDARDIZATION AND THE INTERCHANGEABILITY OF WHOSE PARTS ARE NECESSARY IN THE PUBLIC INTEREST AND WHOSE PROCUREMENT BY NEGOTIATION IS NECESSARY TO ASSURE THAT STANDARDIZATION AND INTERCHANGEABILITY; " AND, IN IMPLEMENTATION OF THIS AUTHORITY, SECTION 3-213.2E OF THE ARMY PROCUREMENT PROCEDURE PROVIDES THAT "THE STOCKS ON HAND AND DUE IN FROM PROCUREMENT OF ANY MAKE AND MODEL OF EQUIPMENT PROPOSED FOR STANDARDIZATION MUST CONSTITUTE A SIGNIFICANT PORTION, NORMALLY AT LEAST 15 PERCENT, OF THE TOTAL STOCKS OF THE EQUIPMENT IN THE SUPPLY SYSTEM AND DUE IN FROM PROCUREMENT.' FURTHERMORE, APP 3-213.3B (II) PROVIDES THAT REQUESTS FOR APPROVAL OF STANDARDIZATION OF EQUIPMENT UNDER THIS AUTHORITY MUST INCLUDE "RECOMMENDATION OF AT LEAST TWO MAKES AND MODELS OF EQUIPMENT TO BE STANDARDIZED, MANUFACTURED BY DIFFERENT FIRMS, UNLESS OTHERWISE JUSTIFIED.'

A BACKGROUND REVIEW OF THIS PROGRAM, INSOFAR AS APPLICABLE TO YOUR COMPANY, INDICATES THAT ON APRIL 2, 1954, THE CHIEF OF ENGINEERS REQUESTED PROCUREMENT STANDARDIZATION APPROVAL OF A SINGLE MAKE AND MODEL, THE CATERPILLER MODEL 12 GRADER, WHICH WAS PREDOMINANT IN THE ARMY SYSTEM. HOWEVER, ON JUNE 3, 1954, THE ADVISORY COMMITTEE ON PROCUREMENT WITHOUT ADVERTISING RECOMMENDED THAT THIS REQUEST FOR APPROVAL WITH A SINGLE SUPPLIER BE HELD IN ABEYANCE UNTIL OCTOBER OF THAT YEAR WHEN IT WAS EXPECTED THAT YOUR MODEL 118, OF WHICH A QUANTITY WAS ON HAND IN THE ARMY SUPPLY SYSTEM, WOULD HAVE BEEN TESTED. ON NOVEMBER 12, 1954, A REQUEST WAS SUBMITTED FOR APPROVAL OF THE CATERPILLAR MODEL 12 AND GALIEN MODEL 118, AND SUCH REQUEST WAS APPROVED BY THE ASSISTANT SECRETARY OF THE ARMY ON DECEMBER 29, 1954.

ON JUNE 28, 1957, A NEGOTIATED CONTRACT WAS AWARDED TO CATERPILLAR FOR APPROXIMATELY 310 GRADERS; NEGOTIATIONS HAVING BEEN CONDUCTED WITH BOTH CATERPILLAR AND YOUR COMPANY, FOLLOWING WHICH CATERPILLER SUBMITTED THE LOW OFFER. IN OCTOBER, 1958, A REQUIREMENT DEVELOPED FOR APPROXIMATELY 600 GRADERS. SUPPLIERS OTHER THAN THE TWO SUPPLIERS APPROVED FOR PROCUREMENT STANDARDIZATION EXPRESSED A DESIRE TO PARTICIPATE IN THE PROPOSED PROCUREMENT; WHEREUPON, THE ASSISTANT SECRETARY OF THE ARMY (LOGISTICS) REQUESTED THE CHIEF OF ENGINEERS TO REVIEW THE REQUIREMENT FOR PROCUREMENT STANDARDIZATION. IT WAS REVEALED THAT CATERPILLAR ASSETS TOTALED 83 PERCENT, AND THOSE OF YOUR COMPANY 12 PERCENT. THE ASSISTANT SECRETARY, AFTER CONSIDERATION OF ALL THE FACTS, DECIDED THAT THE PUBLISHED ARMY PROCUREMENT POLICIES MUST BE FOLLOWED, AND THAT THE CURRENT REQUIREMENT SHOULD BE ADVERTISED. ACCORDINGLY, ON FEBRUARY 4, 1959, INVITATION FOR BIDS NO. DA-ENG-11-184-59-A-447 WAS ISSUED AND MAILED TO 22 PROSPECTIVE BIDDERS, FOLLOWING WHICH SIX BIDS WERE RECEIVED WITH UNIT PRICES RANGING FROM $9,742 TO $18,350. THE HUBER-WARCO COMPANY SUBMITTED THE LOW BID OF $9,742, AND THE SECOND LOW BID OF $11,214 WAS SUBMITTED BY YOUR COMPANY. THE CHIEF OF ENGINEERS THEN ON OCTOBER 27, 1959, SUBMITTED A REQUEST FOR APPROVAL OF PROCUREMENT STANDARDIZATION WITH CATERPILLAR AND HUBER-WARCO, WHICH APPROVAL WAS UNANIMOUSLY RECOMMENDED BY THE ADVISORY COMMITTEE ON NOVEMBER 10, 1959; AND ON NOVEMBER 30 THE ASSISTANT SECRETARY OF THE ARMY APPROVED THE REQUEST FOR STANDARDIZATION OF THE GRADERS. FOLLOWING THIS APPROVAL, THE CHIEF OF ENGINEERS ON JANUARY 11, 1960, FORWARDED A DETERMINATION AND FINDINGS TO THE ASSISTANT SECRETARY RECOMMENDING APPROVAL FOR AUTHORITY TO NEGOTIATE AN INDIVIDUAL CONTRACT FOR 325 EACH OF THE GRADERS, WHICH AUTHORITY WAS GRANTED ON FEBRUARY 15, 1960.

WHILE THE ACTION IN THE FOREGOING WAS PREMISED UPON THE AUTHORITY CONTAINED IN 10 UNITED STATES CODE, SECTION 2304 (A) (13), THE PRACTICE OF STANDARDIZATION APPEARS GENERALLY TO BE IN CONSONANCE WITH THE INTENT OF CONGRESS, AS EVIDENCED BY THE ENACTMENT OF PUBLIC LAW 436, 82ND CONGRESS, ON JULY 1, 1952, TITLE 10 U.S.C. CHAPTER 145, SECTION 2451, ENTITLED ,CATALOGING AND STANDARDIZATION.' IN REVIEWING THE INSTANT CASE, WE OBSERVED THAT ALL PROCEDURES SET FORTH IN BOTH THE ARMED SERVICES PROCUREMENT REGULATION AND THE ARMY PROCUREMENT PROCEDURE--- ALL OF WHICH REPORTEDLY HAVE BEEN WELL KNOWN TO THE INDUSTRY--- WERE FOLLOWED.

IT APPEARS TO BE YOUR CONTENTION THAT, WHILE YOU APPROVE OF A STANDARDIZATION POLICY IN GENERAL, STANDARDIZATION IS NOT APPROPRIATE OR APPLICABLE IN THE CASE OF MOTOR GRADERS WHERE THE SUPPLY SUPPORT IN REPAIRS WOULD BE NEEDED ON ASSEMBLIES AND SUBASSEMBLIES ALREADY COVERED BY SUPPLY STOCK. IN OTHER WORDS, YOU FEEL THAT BECAUSE THE ARMY HAD REPAIR PARTS SUPPLY FOR COMPONENTS OF YOUR GRADERS BEING USED IN OTHER ENGINEER EQUIPMENT, THE PERCENTAGE CRITERIA WAS IMPROPERLY APPLIED AND YOU SHOULD HAVE BEEN CONTINUED AS A SUPPLIER.

WE ARE INFORMED BY THE DEPARTMENT OF THE ARMY THAT SIGNIFICANT PARTS INTERCHANGEABILITY DOES NOT EXIST BETWEEN ALL GRADERS OF DIFFERENT MANUFACTURERS. THEY ADVISE THAT THE ENGINE FOR THIS GRADER IS REQUIRED TO BE A QUALIFIED PRODUCTS LIST TYPE DIESEL ENGINE OF WHICH THERE ARE A VARIETY OF MAKES AVAILABLE; AND THEY HAVE NO STANDARD MILITARY PARTS AND LITTLE OR NO INTERCHANGEABILITY BETWEEN THEM. THE ARMY FURTHER EXPLAINS THAT EVEN THOUGH THERE IS SOME DEGREE OF PARTS INTERCHANGEABILITY WITH ENGINEER EQUIPMENT OTHER THAN GRADERS, THE EXISTENCE OF SUCH INTERCHANGEABILITY DOES NOT ACCOMPLISH THE OBJECTIVE OF PROCUREMENT STANDARDIZATION FOR A PARTICULAR END ITEM OF EQUIPMENT, SUCH AS GRADERS. IN THIS CONNECTION, THERE IS NOTED THE FOLLOWING SENTENCE IN A LETTER DATED MAY 24, 1960, ADDRESSED TO YOU BY THE ASSISTANT SECRETARY OF THE ARMY (LOGISTICS) PERTAINING TO THE SO CALLED PERCENTAGE CRITERIA:

"SINCE STANDARDIZATION IS A MILITARY NECESSITY, IT IS ESSENTIAL THAT THERE BE A PRACTICABLE, SOUND BASIS FOR SELECTION OF SUPPLIERS FOR PROCUREMENT STANDARDIZATION. ARMY INVENTORY OF THE END ITEM IS THE ONLY PRACTICABLE, SOUND BASIS FOR SUCH SELECTION.'

ALSO, IN A LETTER DATED APRIL 5, 1960, ADDRESSED TO YOU, THE ASSISTANT SECRETARY STATED:

"PERMISSION TO STANDARDIZE FOR THE ARMY IS GRANTED ONLY BY THE ASSISTANT SECRETARY OF THE ARMY (LOGISTICS). THIS APPROVAL AUTHORITY HAS BEEN DELEGATED BY THE SECRETARY OF THE ARMY. ONLY AFTER THIS APPROVAL HAS BEEN GRANTED, AND A DETERMINATION AND FINDINGS IS MADE THAT SUCH PROCUREMENT IS IN THE PUBLIC INTEREST, CAN NEGOTIATION BE CONDUCTED WITH THE SELECTED SUPPLIERS FOR SUPPLY OF ADDITIONAL ITEMS. SUCH STANDARDIZATION IS SUBJECT TO REVIEW EVERY TWO YEARS, AND MAY BE CANCELED AT ANY TIME IF STOCKS ON HAND IN THE SUPPLY SYSTEM BECOME OUT OF BALANCE BETWEEN MAKES AND MODELS. THE ORIGINAL STANDARDIZATION AUTHORIZATION COVERING THIS ITEM WAS CANCELED WHEN A REVIEW OF ASSETS REVEALED THAT GALION'S PRODUCT DID NOT ACCOUNT FOR 15 PERCENT OF TOTAL ASSETS IN THE SUPPLY SYSTEM OR DUE IN FROM PROCUREMENT.'

DURING THE COURSE OF OUR REVIEW, WE HAVE FOUND NO BASIS FOR DISAGREEMENT WITH THE REGULATIONS ISSUED BY THE DEPARTMENT CONCERNING ITS STANDARDIZATION PROGRAM, NOR WITH THE POLICIES AND PROCEDURES ENUNCIATED ABOVE. AS STATED PREVIOUSLY, WE FOUND THAT THE REQUIREMENT FOR A DETERMINATION AND FINDINGS THAT THE PROCUREMENT WAS IN THE PUBLIC INTEREST IN THE INSTANT CASE WAS PROPERLY COMPLIED WITH IN EVERY RESPECT AS CONTEMPLATED BY THE REGULATIONS.

IN RESPONSE TO YOUR CONTENTION THAT OTHER EQUIPMENT IN THE SUPPLY SYSTEM CONTAINS THE SAME MODEL ENGINES USED IN YOUR GRADERS, WE OBSERVED THAT THE ARMY END ITEM STANDARDIZATION PROCEDURES WHICH THE ENGINEERS FOLLOWED APPEAR TO HAVE HAD THE OBJECTIVE OF OBTAINING AS MANY OF THE ADVANTAGES OF COMPETITION AS POSSIBLE, TOGETHER WITH THE FURTHER OBJECTIVE OF OBTAINING A STANDARDIZATION OF ITS EQUIPMENT TO A LIMITED NUMBER OF MAKES AND MODELS. THESE PROCEDURES PROVIDE EQUAL OPPORTUNITY TO ALL SUPPLIERS TO HAVE THEIR EQUIPMENT STANDARDIZED ON AN END ITEM BASIS. SUCH BEING THE CASE, WE BELIEVE THAT IF, AT THE TIME OF PROCURING END ITEMS, RECOGNITION WERE GIVEN TO THE FACT THAT A PARTICULAR MANUFACTURER MIGHT HAVE OTHER END ITEMS IN THE ARMY SUPPLY SYSTEM CONTAINING A NUMBER OF COMPONENTS ALSO USED IN THE MANUFACTURER'S MODEL OF THE ITEM BEING PROCURED, IT MIGHT RESULT IN THAT MANUFACTURER HAVING UNFAIR ADVANTAGE OVER OTHER SUPPLIERS WHOSE EQUIPMENT UTILIZES COMPONENTS NOT IN THE SYSTEM.

IN THE LIGHT OF THE FOREGOING, WE BELIEVE YOU WILL AGREE THAT THIS OFFICE WOULD HAVE NO BASIS UPON WHICH TO QUESTION THE ADMINISTRATIVE ACTION TAKEN IN THE MATTER.