B-146494, DEC. 28, 1961

B-146494, DEC. 28, 1961

TO BOGLE, BOGLE AND GATES:

REFERENCE IS MADE TO YOUR LETTER DATED JULY 18, 1961, AND TO SUBSEQUENT CORRESPONDENCE WRITTEN IN BEHALF OF PENNSALT CHEMICALS CORPORATION AND PROTESTING AGAINST THE ACTION OF THE DEPARTMENT OF THE NAVY IN AWARDING A CONTRACT FOR 7,770,000 POUNDS OF AMMONIUM PERCHLORATE TO AMERICAN POTASH AND CHEMICAL CORPORATION (AMPOT) UNDER REQUEST FOR PROPOSAL NO. 4688-61.

RFP NO. 4688-61 WAS ISSUED ON MARCH 8, 1961, AND SOLICITED PROPOSALS FROM QUALIFIED PRODUCERS ON VARIOUS QUANTITIES OF AMMONIUM PERCHLORATE REQUIREMENTS UP TO A MAXIMUM QUANTITY OF 6,000,000 POUNDS, CONSISTING OF 5,760,000 POUNDS OF CLASS I PRODUCT AND 240,000 POUNDS OF CLASS II PRODUCT. THE RFP WAS SENT TO AMERICAN POTASH AND CHEMICAL CORPORATION, PENNSALT CHEMICALS CORPORATION, AND PACIFIC ENGINEERING AND PRODUCTION COMPANY, AND BY THE CLOSING DATE OF MARCH 28, 1961, THESE THREE COMPANIES HAD SUBMITTED OFFERS AS FOLLOWS:

CHART

ITEM QUANTITY (LBS.) AMPOT PENNSALT PACIFIC

1 1,152,000 CLASS I $---- $0.3142 $0.3367

2 2,304,000 CLASS I ---- 0.3142 ----

3 3,456,000 CLASS I ---- 0.29 ----

4 4,608,000 CLASS I ---- ---- ----

5 5,760,000 CLASS I 0.2941 ---- ----

6 240,000 CLASS II 0.314 ---- ----

1) THE PROPOSAL STATES THAT IF ADVANCE DELIVERIES CAN BE MADE ON ITEM 5, THE PRICE WILL BE REDUCED TO $0.2895 PER POUND.

UNDER DATE OF APRIL 19, 1961, ALL OFFERORS WERE NOTIFIED THAT THE PROCUREMENT HAD BEEN INCREASED TO 7,770,000 POUNDS, CONSISTING OF 6,690,000 POUNDS OF CLASS I AND 1,080,000 POUNDS OF CLASS II, AND ALL OFFERORS WERE REQUESTED TO SUBMIT PROPOSALS ON THE INCREASED REQUIREMENTS BY APRIL 26, 1961. EACH OF THE THREE COMPANIES SUBMITTED REVISED OFFERS AS FOLLOWS:

CHART

ITEM QUANTITY (LBS.) AMPOT PENNSALT PACIFIC

1 1,115,000 CLASS I $ ---- $0.3142 $0.3367

2 2,230,000 CLASS I ---- 0.3142 ----

3 3,345,000 CLASS I ---- 0.29 ----

4 4,460,000 CLASS I ---- ---- ----

5 5,575,000 CLASS I 0.294 ---- ----

6 6,690,000 CLASS I 0.2857 ---- ----

7 360,000 CLASS II ---- ---- 0.385 5 AND 7 5,575,000 CLASS I AND

1,080,000 CLASS II 0.29 ---- ---- 6 AND 7 6,690,000 CLASS I AND

1,080,000 CLASS II 0.281 ---- ----

1. THE PROPOSAL STATES THAT IF ADVANCE DELIVERIES CAN BE MADE ON ITEM 6 THE PRICE FOR ALL 7,770,000 POUNDS WILL BE REDUCED TO $0.2755 PER POUND.

IN EVALUATING THESE OFFERS, A FREIGHT COST OF $0.0136 PER POUND FROM PORTLAND, OREGON, TO CONCORD, CALIFORNIA, WAS ADDED TO PENNSALT'S OFFERED PRICE ON 3,345,000 POUNDS OF CLASS I PRODUCT, WHICH RESULTED IN AN EVALUATED PRICE OF $0.3036 PER POUND. IN EVALUATING AMPOT'S OFFER A FREIGHT COST OF $0.0090 PER POUND FROM HENDERSON, NEVADA, TO CONCORD, CALIFORNIA, WAS ADDED. ADDITIONALLY, SINCE AMPOT PROPOSED TO USE GOVERNMENT-OWNED FACILITIES IN ITS POSSESSION AT HENDERSON ON A RENT-FREE BASIS, A CHARGE OF $0.0142 PER POUND DESIGNED TO EQUALIZE ANY COMPETITIVE ADVANTAGE ACCRUING TO AMPOT FROM SUCH RENT-FREE USE WAS ALSO ADDED TO AMPOT'S OFFERED PRICE. THIS RESULTED IN AN EVALUATED OFFERED PRICE FROM AMPOT OF $0.2987 PER POUND, AND SINCE THIS WAS THE LOWEST EVALUATED OFFER A CONTRACT FOR THE TOTAL REQUIREMENT OF 7,770,000 POUNDS WAS AWARDED TO AMPOT ON MAY 12, 1961.

IN PROTESTING THIS AWARD YOU HAVE ASKED THAT OUR OFFICE EXAMINE INTO THE FOLLOWING MATTERS:

1. WHETHER RENTAL EVALUATION FACTOR OF $0.0142 PER POUND APPLIED TO AMPOT'S OFFER WAS SUFFICIENT TO REFLECT AND COMPENSATE FOR ITS COST ADVANTAGE OVER PRODUCERS USING PRIVATELY-OWNED FACILITIES, AS CONTEMPLATED BY THE EQUALIZATION OF COMPETITIVE ADVANTAGE POLICY SET OUT IN ASPR 13-407 (A) (3).

2. WHETHER THE FREIGHT COST OF $0.0136 PER POUND ADDED TO PENNSALT'S OFFERED PRICE FOR EVALUATION PURPOSES WAS PROPER.

3. WHETHER THE DIFFERENCE OF ONLY $0.0003 BETWEEN YOUR OFFER OF $0.29 PER POUND AND AMPOT'S OFFER OF $0.2897 ($0.2755 PLUS EVALUATED RENTAL OF $0.0142) INDICATES THAT NEGOTIATIONS WERE CONDUCTED WITH AMPOT ON AN AUCTION BASIS IN VIOLATION OF ASPR 3-805.1 (B).

4. WHETHER CONSIDERATION WAS GIVEN TO AWARDING A PORTION OF THE PROCUREMENT TO A PRODUCER OTHER THAN AMPOT IN ORDER TO BROADEN THE INDUSTRIAL BASE.

5. WHETHER THE NAVY DELIBERATELY REJECTED ALL OFFERS ON THE 6,000,000 POUND PROCUREMENT INITIALLY PROPOSED AND INCREASED THE TOTAL CONTRACT AMOUNT BY 1,770,000 POUNDS IN ORDER TO FAVOR AMPOT.

YOU HAVE ALSO ASKED US TO EXAMINE INTO THE MANAGEMENT OF THE GOVERNMENT- OWNED FACILITIES AT HENDERSON, WITH SPECIFIC REFERENCE TO THE PROPRIETY OF NAVY'S ACTION IN AUTHORIZING AMPOT TO USE THE FACILITIES ON A RENT-FREE BASIS, AND WHETHER NAVY IMPROPERLY ALLOWED AMPOT TO COMMINGLE ITS FACILITIES WITH NAVY FACILITIES TO THE EXTENT THAT, AS A PRACTICAL MATTER, ONLY AMPOT WILL BE ABLE TO SUBMIT A REALISTIC BID ON THE SALE OF THE FACILITIES PRESENTLY BEING CONDUCTED BY THE GENERAL SERVICES ADMINISTRATION.

WE SHALL CONSIDER THESE QUESTIONS IN THE ORDER THEY ARE SET OUT ABOVE.

CONCERNING THE RENTAL EVALUATION FACTOR APPLIED TO AMPOT'S OFFER, ASPR 13 -407 (A) (3) PROVIDES IN PERTINENT PART AS FOLLOWS:

"/3) IN ORDER TO INSURE THAT A CONCERN POSSESSING GOVERNMENT FACILITIES WITHOUT CHARGE IS NOT THEREBY PLACED IN A FAVORED POSITION IN COMPETING FOR GOVERNMENT BUSINESS, EITHER AS A PRIME CONTRACTOR OR A SUBCONTRACTOR, WITH RELATION TO CONCERNS POSSESSING EITHER A LESSER AMOUNT OF GOVERNMENT FACILITIES OR THEIR OWN FACILITIES, A SUITABLE METHOD FOR ELIMINATING ANY COMPETITIVE PRICING ADVANTAGE SHALL BE EMPLOYED. THIS MAY BE ACCOMPLISHED (I) BY CHARGING A RENTAL IN A MANNER PRESCRIBED IN THIS SECTION XIII, OR (II) IN THE PRICE EVALUATION OF COMPETITIVE PROPOSALS, BY ADDING TO THE PROPOSED CONTRACT PRICE OF A CONCERN POSSESSING GOVERNMENT FACILITIES WITHOUT CHARGE AN EVALUATION FACTOR CONSISTING OF AN AMOUNT WHICH IT IS ESTIMATED WOULD EQUAL SUCH RENTAL CHARGE, OR (III) BY ANY OTHER AVAILABLE METHOD WHICH WILL GIVE EFFECT TO THE BASIC POLICY SET FORTH IN THIS PARAGRAPH 13-407 UNDER THE FACTS OF THE PARTICULAR CASE. * * *"

THE GOVERNMENT-OWNED PROPERTY IN THE POSSESSION OF AMPOT AT HENDERSON INCLUDES LAND (CLASS I PROPERTY), BUILDINGS (CLASS II PROPERTY), PERSONAL PROPERTY (CLASS III), AND PLATINUM, WHICH ARE HELD BY AMPOT ON A RENT-FREE BASIS UNDER THREE SEPARATE FACILITIES CONTRACTS. HOWEVER, ALL OF THE GOVERNMENT-OWNED PROPERTY INCLUDED IN THESE CONTRACTS IS NOT USED BY AMPOT IN THE PRODUCTION OF AMMONIUM PERCHLORATE.

IN COMPUTING THE RENTAL EVALUATION FACTOR TO BE APPLIED TO AMPOT'S BIDS, THE RECORDS OF THE DEPARTMENT OF THE NAVY INDICATE THAT THE ACQUISITION COST OF THE GOVERNMENT-OWNED CLASS I AND CLASS II PROPERTY UTILIZED BY AMPOT IN PRODUCING AMMONIUM PERCHLORATE WAS ESTABLISHED AT $2,186,388; THE ACQUISITION COST OF GOVERNMENT-OWNED CLASS III PROPERTY USED IN SUCH PRODUCTION WAS ESTABLISHED AT $2,009,204; AND THE VALUE OF GOVERNMENT- OWNED PLATINUM USED IN SUCH PRODUCTION WAS ESTABLISHED AT ITS THEN CURRENT MARKET VALUE OF $1,934.856. BASED UPON ANNUAL RENTAL RATES OF 8 PERCENT OF THE ACQUISITION COST OF THE CLASS I AND CLASS II PROPERTY AND 12 PERCENT OF THE ACQUISITION COST OF THE CLASS III PROPERTY, AN ANNUAL RENTAL VALUE FOR THE FACILITIES WAS ESTABLISHED AT $416,015. THE ANNUAL RENTAL RATE FOR USE OF THE GOVERNMENT-OWNED PLATINUM WAS ESTABLISHED AT 5 PERCENT OF ITS THEN CURRENT MARKET VALUE, OR $96,743. THIS RENTAL RATE APPEARS TO HAVE BEEN BASED UPON EVIDENCE THAT MONEY WAS AVAILABLE TO AMPOT AT THAT RATE OF INTEREST FOR THE PURCHASE OF SUFFICIENT PLATINUM TO REPLACE THAT OWNED BY THE GOVERNMENT. A PRODUCTION CAPACITY FIGURE OF 36,000,000 POUNDS PER YEAR OF AMMONIUM PERCHLORATE WAS THEN APPLIED TO THE TOTAL ANNUAL RENTAL OF $512,758 TO ARRIVE AT THE RENTAL EVALUATION FACTOR OF $0.0142 PER POUND APPLIED TO AMPOT'S OFFERED PRICE IN THE INSTANT PROCUREMENT.

CONCERNING THE RENTAL RATES APPLIED TO THE ACQUISITION COST OF GOVERNMENT -OWNED INDUSTRIAL FACILITIES IN ARRIVING AT THIS RENTAL EVALUATION FACTOR, IT SHOULD BE NOTED THAT THE RATE OF 12 PERCENT PER ANNUM APPLIED TO CLASS III PROPERTY IS IN ACCORDANCE WITH THE RATE ESTABLISHED BY ASPR 13-601.2 (II). THIS RATE IS FOR UNIFORM APPLICATION TO ALL PROPERTY OF THIS NATURE LEASED BY THE DEPARTMENT OF DEFENSE AND WE HAVE FOUND NO JUSTIFIABLE BASIS FOR EXCEPTING THE FACILITIES HERE INVOLVED FROM SUCH APPLICATION.

WITH RESPECT TO THE RENTAL FACTOR TO BE APPLIED TO CLASS I AND CLASS II PROPERTY, ASPR 13-601.2 (IV) PROVIDES ONLY THAT A FAIR AND REASONABLE RENTAL SHALL BE CHARGED. WHILE AN ANNUAL RENTAL RATE OF 8 PERCENT OF THE ACQUISITION COST OF INDUSTRIAL REAL PROPERTY MIGHT, UNDER SPECIAL CIRCUMSTANCES, BE REGARDED AS UNREASONABLE LOW, THE RECORDS OF THE DEPARTMENT OF THE NAVY ON BOTH THE GOVERNMENT-OWNED REAL PROPERTY AND PERSONAL PROPERTY HELD BY AMPOT INDICATE THAT A SUBSTANTIAL PORTION THEREOF IS NEITHER NECESSARY NOR USED FOR PRODUCTION. SUCH PROPERTY APPEARS TO BE HELD BY AMPOT AS PART OF THE PLANT EITHER FOR MOBILIZATION PURPOSES OR TO SATISFY SAFETY REQUIREMENTS WHICH WERE OVER-ESTIMATED IN 1951 WHEN THE PLANT WAS BUILT, NEVERTHELESS AMPOT IS REQUIRED TO MAINTAIN AND PRESERVE THIS UNUSED PROPERTY UNDER THE TERMS OF ITS FACILITIES CONTRACTS. ADDITIONALLY, THE DEPARTMENT OF THE NAVY ADVISES THAT EXPENDITURES INCURRED BY AMPOT IN PERFORMING ITS TOTAL MAINTENANCE OBLIGATION APPROXIMATED $138,000 IN 1958, $188,000 IN 1959, AND $160,000 IN 1960. UNDER THE CIRCUMSTANCES WE ARE UNABLE TO CONCLUDE THAT THE RENTAL RATE OF 8 PERCENT OF THE ACQUISITION COST OF THE REAL PROPERTY, AS APPLIED BY NAVY, IS UNREASONABLY LOW.

CONCERNING THE ANNUAL RENTAL RATE OF 5 PERCENT OF THE MARKET VALUE OF THE PLATINUM, IT SHOULD BE NOTED THAT AMPOT IS REQUIRED UNDER THE TERMS OF ITS FACILITIES CONTRACT TO REPLACE ALL PLATINUM USED IN THE MANUFACTURING PROCESSES. IN VIEW THEREOF, IT WOULD APPEAR THAT NO LOSS FROM DEPRECIATION OR USE ACCRUES TO THE GOVERNMENT FROM AMPOT'S USE OF THE PLATINUM, AND THAT NO GREATER RENTAL CHARGE THAN AMPOT'S COST OF ACQUIRING SUBSTITUTE PLATINUM WOULD BE NECESSARY TO EQUALIZE THE COMPETITIVE ADVANTAGE OTHERWISE ACCRUING TO AMPOT FROM USE OF THE GOVERNMENT'S PLATINUM. UNDER THE CIRCUMSTANCES, WE BELIEVE THE ANNUAL RENTAL RATE OF 5 PERCENT OF MARKET VALUE APPLIED BY THE NAVY WAS PROPER.

WITH RESPECT TO THE ACQUISITION COST OF THE GOVERNMENT-OWNED INDUSTRIAL FACILITIES HELD BY AMPOT AND USED IN ITS PRODUCTION OF AMMONIUM PERCHLORATE, OUR REVIEW INDICATES THAT AMPOT HAS BEEN USING 60 PERCENT OF THE SPACE IN DRYING AND BLENDING BUILDING NO. 1 FOR SPECIAL CROSS-BLENDING OPERATIONS ON ORDERS FROM THIOKOL CHEMICAL CORPORATION. HOWEVER, SINCE THIOKOL ORDERS REPRESENT ONLY ONE-THIRD OF TOTAL PLANT PRODUCTION, ONLY 20 PERCENT OF THE ACQUISITION COST OF THIS BUILDING WAS INCLUDED IN COMPUTING THE RENTAL EVALUATION FACTOR. IT IS OUR OPINION THAT 60 PERCENT OF THIS BUILDING'S ACQUISITION COST SHOULD PROPERLY HAVE BEEN INCLUDED IN SUCH COMPUTATION, AND THAT THE TOTAL ACQUISITION COST USED IN COMPUTING THE RENTAL EVALUATION FACTOR THEREFORE SHOULD BE INCREASED BY $159,771. ADDITIONALLY, OUR REVIEW DISCLOSED MATHEMATICAL ERRORS IN THE NAVY'S COMPUTATIONS WHICH WOULD INCREASE THE TOTAL ACQUISITION COST OF CLASS I AND CLASS II PROPERTY USED BY AMPOT BY $1,000, AND THE ACQUISITION COST OF CLASS III PROPERTY BY $23,807. FURTHER, THE NAVY FAILED TO INCLUDE PLATINUM VALUED AT $31 IN THE COMPUTATION OF THE RENTAL FACTOR. WE HAVE ADVISED THE SECRETARY OF THE NAVY OF THESE FINDINGS AND RECOMMENDED THAT APPROPRIATE CORRECTIONS BE MADE IN THE RENTAL EVALUATION FACTOR APPLIED TO ANY FUTURE BIDS, OFFERS, OR PRODUCTION BY AMPOT WHILE IT IS IN POSSESSION OF THE FACILITIES UNDER ITS PRESENT FACILITIES CONTRACTS.

CONCERNING THAT PRODUCTIVE CAPACITY OF THE GOVERNMENT-OWNED AMMONIUM PERCHLORATE FACILITIES, OUR REVIEW INDICATES THAT THE 36,000,000 POUND PER YEAR CAPACITY USED BY THE NAVY IN COMPUTING THE RENTAL EVALUATION FACTOR OF $0.0142 PER POUND MAY HAVE BEEN PREDICATED UPON ESTIMATES OF MAXIMUM PRODUCTION ON A FORCED DRAFT BASIS. HOWEVER, EVIDENCE INDICATES THAT THE PRODUCTIVE CAPACITY OF THESE FACILITIES UNDER NORMAL OPERATION MAY BE 28,800,000 POUNDS PER YEAR. IT IS OUR OPINION THAT THE RENTAL FACTOR FOR THE GOVERNMENT-OWNED FACILITIES AT HENDERSON SHOULD BE COMPUTED ON THE BASIS OF THE NORMAL PRODUCTIVE CAPACITY OF THE AMMONIUM PERCHLORATE FACILITIES, AND WE HAVE THEREFORE ALSO RECOMMENDED TO THE SECRETARY OF THE NAVY THAT SUCH CAPACITY BE ESTABLISHED AND APPLIED IN DETERMINING THE RENTAL EVALUATION FACTOR APPLICABLE TO ANY FUTURE BIDS, OFFERS, OR PRODUCTION BY AMPOT WHILE IT IS IN POSSESSION UNDER ITS PRESENT FACILITIES CONTRACTS. WHILE OUR REVIEW DID NOT DISCLOSE CONCLUSIVE EVIDENCE ON THE PRODUCTIVE CAPACITY OF THE AMMONIUM PERCHLORATE PLANT, THE EVIDENCE INDICATES THAT SUCH CAPACITY IS NOT LESS THAN 28,800,000 POUNDS PER YEAR. APPLYING THIS PRODUCTION FIGURE TO THE CORRECTED ACQUISITION COST AND APPLYING THIS PRODUCTION FIGURE TO THE CORRECTED ACQUISITION COST AND MARKET VALUE OF THE GOVERNMENT-OWNED PROPERTY SET OUT ABOVE IT WOULD APPEAR THAT THE RENTAL EVALUATION FACTOR ASSESSED AGAINST AMPOT'S OFFER WOULD HAVE BEEN $0.0183, COMPUTED AS FOLLOWS: TABLE

CLASS I AND II PROPERTY $2,347,159 TIMES 8 PERCENT EQUALS $187,772

CLASS III PROPERTY 2,033,011 TIMES 12 PERCENT EQUALS 243,961 PLATINUM 25,128.4 OZ. TIMES $77 TIMES 5 PERCENT EQUALS 96,744

$528,477

$528,477 DIVIDED BY 28,800,000 LBS. EQUALS $0.0183 PER LB.

THE ADDITION OF THIS FACTOR TO AMPOT'S OFFERED PRICE OF $0.2755 PER POUND (BASED UPON EARLY DELIVERY) WOULD HAVE RESULTED IN A PRICE OF $0.2938 PER POUND FOR THE TOTAL REQUIREMENT OF 7,770,000 POUNDS, AS COMPARED TO PENNSALT'S OFFER OF $0.29 PER POUND ON 3,345,000 POUNDS OF THE CLASS I REQUIREMENT. HOWEVER, SINCE THE COST OF TRANSPORTATION FROM CONTRACTOR'S PLANT WAS TO BE BORNE BY THE GOVERNMENT SUCH COST WAS REQUIRED TO BE ADDED TO BOTH OF THESE PRICES BEFORE IT COULD BE DETERMINED WHICH OFFER WAS THE LOWER. AS INDICATED ABOVE, TRANSPORTATION COSTS OF $0.0136 PER POUND FROM PORTLAND, OREGON, TO CONCORD, CALIFORNIA, WERE ADDED TO YOUR OFFERED PRICE OF $0.29 PER POUND AND TRANSPORTATION COSTS OF $0.0090 PER POUND FROM HENDERSON, NEVADA, TO CONCORD, CALIFORNIA, WERE ADDED TO AMPOT'S PRICE OF $0.2987 (INCLUDING EVALUATED RENTAL OF $0.0142) PER POUND. WHILE YOUR PROTEST ALLEGES THAT THE MOTOR FREIGHT RATE FROM PORTLAND TO CONCORD IS $0.0090 AND THAT EVALUATION OF PENNSALT'S OFFER AT THE $0.0136 RATE WAS THEREFORE IMPROPER, OUR REVIEW INDICATES THAT THE MOTOR FREIGHT RATE FROM PORTLAND TO CONCORD WHICH WAS IN EFFECT ON MAY 12, 1961, THE DATE OF CONTRACT AWARD, WAS IN FACT $0.0178 PER POUND. WE HAVE BEEN UNABLE TO VERIFY THE EXISTENCE OF A $0.0136 RATE ON THAT DATE, AND THE NAVY COULD FURNISH NO SUPPORT FOR THE USE OF SUCH RATE. FURTHER OUR REVIEW INDICATES THAT THE RATE OF $0.0178 WAS NOT OFFICIALLY REDUCED TO $0.0090 UNTIL MAY 23, 1961, OR ELEVEN DAYS AFTER A CONTRACT WAS AWARDED TO AMPOT. WE FOUND NO EVIDENCE THAT THIS PROPOSED REDUCTION WAS KNOWN TO NAVY PROCUREMENT PERSONNEL AT THE TIME THE CONTRACT WAS AWARDED, AND IN THE ABSENCE OF EVIDENCE OF SUCH KNOWLEDGE WE ARE UNABLE TO CONCLUDE THAT PENNSALT'S OFFER SHOULD THEN HAVE BEEN, OR SHOULD NOW BE, EVALUATED ON THE BASIS OF SUCH REDUCED RATE.

IN VIEW OF OUR CONCLUSIONS AS SET OUT ABOVE, IT WOULD APPEAR THAT AN EVALUATION, ON THE BASIS MOST FAVORABLE TO PENNSALT, OF THE OFFERS SUBMITTED BY BOTH AMPOT AND PENNSALT WOULD BE AS OLLOWS:

CHART

AMPOT PENNSALT

LOWEST PER POUND PRICE QUOTED $0.2755 $0.29

FREIGHT 0.0090 0.0178

RENTAL EVALUATION FACTOR 0.0183 ------

TOTAL EVALUATED OFFERED PRICE $0.3028 $0.3078

WE MUST THEREFORE CONCLUDE THAT AMPOT WAS THE LOW OFFEROR ON AN EVALUATED PRICE BASIS.

YOUR PROTEST ALSO QUESTIONS WHETHER THE NAVY CONSIDERED DIVIDING THE TOTAL PROCUREMENT OF 7,770,000 POUNDS AMONG DIFFERENT SUPPLIERS IN ORDER TO BROADEN THE INDUSTRIAL BASE. OUR REVIEW INDICATES THAT SUCH DIVISION WAS CONSIDERED BY THE NAVY; THAT NEGOTIATIONS WERE CONDUCTED WITH AMPOT TO THAT END; AND THAT THE ADDITIONAL COST OF SUCH DIVISION RESULTED IN ITS REJECTION. WHILE 10 U.S.C. 2304 (A) (16) AUTHORIZES THE NEGOTIATION OF CONTRACTS, REGARDLESS OF ADDITIONAL COST, FOR THIS PURPOSE, THE DETERMINATION TO EXERCISE SUCH AUTHORITY IS SOLELY WITHIN THE DISCRETION OF THE HEAD OF THE CONTRACTING AGENCY. WHILE THIS OFFICE MAY, UNDER PROPER CIRCUMSTANCES, EXAMINE INTO THE PROPRIETY OF THE USE OF THIS EXTRAORDINARY AUTHORITY, WE ARE AWARE OF NO BASIS UPON WHICH WE WOULD BE JUSTIFIED IN QUESTIONING THE NAVY'S FAILURE TO EXERCISE SUCH AUTHORITY IN THE INSTANT PROCUREMENT. IN VIEW THEREOF, AND IN VIEW OF THE FACT THAT THE OFFERS RECEIVED INDICATE THAT ANY DIVISION OF THE TOTAL REQUIREMENTS AMONG TWO TO MORE SUPPLIERS WOULD HAVE RESULTED IN SUBSTANTIAL ADDITIONAL COST TO THE GOVERNMENT, WE CANNOT SUSTAIN THIS PORTION OF YOUR PROTEST.

CONCERNING YOUR QUESTION WHETHER THE NAVY DELIBERATELY REJECTED ALL OFFERS ON THE 6,000,000 POUND PROCUREMENT INITIALLY PROPOSED AND INCREASED THE TOTAL CONTRACT AMOUNT BY 1,770,000 POUNDS IN ORDER TO FAVOR AMPOT, OUR REVIEW OF THE NAVY RECORDS INDICATES THE FOLLOWING CIRCUMSTANCES. MARCH 8, 1961, THE DATE THE REQUEST FOR PROPOSAL WAS ISSUED, THE NAVY'S REQUIREMENTS FOR PROCUREMENT OF AMMONIUM PERCHLORATE WERE STATED AT 7,850,000 POUNDS, CONSISTING OF 6,770,000 POUNDS OF CLASS I AND 1,080,000 POUNDS OF CLASS II FOR THE POLARIS MISSILE PROGRAM, THE SPARROW MISSILE PROGRAM, AND FOR JATOS. HOWEVER, IT APPEARS THAT THE NAVY REQUESTED PROPOSALS FOR ONLY 6,000,000 POUNDS WHICH, AT NAVY'S ESTIMATE OF COST WOULD HAVE EXHAUSTED THE FUNDS AVAILABLE AT THAT TIME FOR THIS PROCUREMENT PURPOSE. ON APRIL 10 AND 14, 1961, ADDITIONAL FUNDS WERE MADE AVAILABLE AND UNDER DATE OF APRIL 19, 1961, THE PROPOSED PROCUREMENT WAS INCREASED TO 7,770,000 POUNDS. OUR REVIEW DISCLOSED NO EVIDENCE THAT THIS INCREASE WAS FOR THE PURPOSE OF FAVORING AMPOT, OR THAT THE INCREASE WAS MOTIVATED BY ANY PURPOSE OTHER THAN TO INCLUDE THE NAVY'S TOTAL CURRENT REQUIREMENTS IN THE CURRENT PROCUREMENT. IN THE ABSENCE OF SUCH EVIDENCE, WE MUST CONCLUDE THAT THE REVISION TO THE REQUEST FOR PROPOSAL ON APRIL 19 TO INCLUDE SUCH INCREASED REQUIREMENTS WAS PROPER.

WITH RESPECT TO WHETHER THE SMALL DIFFERENCE BETWEEN THE OFFERED PRICES OF AMPOT AND PENNSALT INDICATES NEGOTIATIONS WERE CONDUCTED ON AN AUCTION BASIS IN VIOLATION OF ASPR 3-805.1 (B), THE NAVY RECORDS INDICATE THAT THE OFFERS BY BOTH PENNSALT AND AMPOT UNDER THE REVISED REQUEST FOR PROPOSAL WERE RECEIVED IN THE BUWEPS MAILROOM ON APRIL 27, 1961. SINCE AVAILABLE RECORDS ALSO INDICATE THAT BOTH OF THESE OFFERS WERE RECEIVED BY MAIL, THERE WOULD APPEAR TO BE LITTLE, IF ANY, POSSIBILITY THAT INFORMATION RELATIVE TO PENNSALT'S PROPOSAL WAS REVEALED BY NAVY PERSONNEL TO AMPOT PRIOR TO THE SUBMISSION OF AMPOT'S PROPOSAL. IN VIEW THEREOF, AND SINCE OUR REVIEW FAILED TO DISCLOSE ANY EVIDENCE THAT INFORMATION RELATIVE TO PENNSALT'S PROPOSAL WAS DISCLOSED PREMATURELY, WE MUST CONCLUDE THAT THE CONDUCT OF THE NEGOTIATIONS DID NOT VIOLATE ASPR 3-805.1 (B).

CONCERNING THE NAVY'S AUTHORITY TO INSTALL PRODUCTION EQUIPMENT IN PRIVATELY-OWNED PLANTS (I.E. THOSE OF AMPOT AND WESTERN ELECTRO CHEMICAL COMPANY AS ITS PREDECESSOR AT HENDERSON) AND TO LEASE FACILITIES ON A RENT -FREE BASIS, IT SHOULD BE NOTED THAT THE NAVY DEPARTMENT APPROPRIATION ACTS FOR 1951 AND SUCCEEDING YEARS APPROPRIATED FUNDS SPECIFICALLY FOR BOTH THE EXPANSION OF PRIVATE PLANTS AND THE PROCUREMENT AND INSTALLATION OF EQUIPMENT IN PRIVATE PLANTS. CERTAIN OF THESE ACTS ALSO PROVIDE SPECIFIC AUTHORITY TO ENTER INTO CONTRACTS FOR SUCH PURPOSES. IT SHOULD BE NOTED ALSO THAT 10 U.S.C. 2667 (A) (5) EXEMPTS PROPERTY HELD BY THE MILITARY DEPARTMENTS FROM THE CASH RENTAL REQUIREMENTS OF 40 U.S.C. 303B, AND SPECIFICALLY AUTHORIZES THE SECRETARY OF A MILITARY DEPARTMENT TO LEASE SUCH PROPERTY AND TO ACCEPT THE LESSEE'S OBLIGATION TO MAINTAIN, PROTECT, REPAIR, OR RESTORE THE PROPERTY AS FULL CONSIDERATION FOR THE LEASE. IN VIEW THEREOF, AND SINCE IT APPEARS THAT PRIVATELY-OWNED FACILITIES WERE THEN INADEQUATE FOR THE GOVERNMENT'S NEEDS, WE ARE AWARE OF NO SOUND BASIS UPON WHICH IT MAY BE CONTENDED THAT THE NAVY'S ORIGINAL INVESTMENTS IN THE HENDERSON FACILITIES, OR THE LEASING OF SUCH FACILITIES TO AMPOT ON A RENT-FREE BASIS WAS UNAUTHORIZED. IN THIS CONNECTION IT SHOULD BE NOTED THE LEASES EXECUTED WITH AMPOT PROHIBIT THE LESSEE FROM INCLUDING CHARGES FOR DEPRECIATION OR RENT OF GOVERNMENT-OWNED FACILITIES IN PRICES QUOTED TO THE GOVERNMENT, AND A CORRESPONDING BENEFIT THEREFORE ACCRUES TO THE GOVERNMENT IN THE FORM OF LOWER PRICES. ADDITIONALLY, AMPOT IS REQUIRED TO, AND HAS, PAID CASH RENTAL TO THE GOVERNMENT FOR ITS USE OF THE FACILITIES ON NON GOVERNMENTAL ORDERS.

WITH RESPECT TO WHETHER THE "SCRAMBLING" OF GOVERNMENT-OWNED FACILITIES WITH THOSE OWNED BY AMPOT IN THE HENDERSON COMPLEX HAS RESULTED IN CONDITIONS WHICH PREVENT ANY MANUFACTURER OTHER THAN AMPOT FROM SUBMITTING A REALISTIC BID TO THE GENERAL SERVICES ADMINISTRATION ON THE PRESENTLY PROPOSED SALE OF SUCH FACILITIES, IT WOULD APPEAR THAT AN ADVANTAGE OF THIS TYPE MAY OCCUR, IN SOME DEGREE, IN THE SALE OF ALL SCRAMBLED FACILITIES. HOWEVER, AS INDICATED ABOVE, THE VARIOUS APPROPRIATION ACTS OF THE DEPARTMENT OF THE NAVY SPECIFICALLY AUTHORIZED THE EXPENDITURE OF APPROPRIATED FUNDS FOR THE PURPOSE OF INSTALLING EQUIPMENT IN PRIVATE PLANTS, AND THE JURISDICTION OF THIS OFFICE UPON SALE OF SUCH GOVERNMENT- OWNED FACILITIES WOULD APPEAR TO BE LIMITED TO DETERMINING WHETHER THE TERMS AND CONDITIONS OF THE SALE "PERMIT THAT FULL AND FREE COMPETITION WHICH IS CONSISTENT WITH THE VALUE AND NATURE OF THE PROPERTY INVOLVED," AS REQUIRED BY 40 U.S.C. 484 (E) (2) (A). THIS QUESTION WAS THE SUBJECT OF A RECENT PROTEST BY HEF, INC., AND WE ARE ENCLOSING A COPY OF OUR DECISION OF DECEMBER 4, 1961, (B-146494) TO FORD, LARSON, GREENE AND HORAN AS ATTORNEYS FOR HEF, INC., EXPRESSING OUR OPINION THAT THE TERMS AND CONDITIONS, AS AMENDED, OF THE INVITATION FOR BIDS ON THE SALE OF THE HENDERSON FACILITIES DO NOT VIOLATE THE REQUIREMENTS OF 40 U.S.C. 484 (E) (2) (A).

IN VIEW OF THE FOREGOING YOUR PROTEST AGAINST THE AWARD OF CONTRACT NOW- 0917-F-/FBM) TO AMPOT AND AGAINST THE PROPOSED SALE OF THE GOVERNMENT- OWNED FACILITIES AT HENDERSON MUST BE DENIED.