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SINCE CERTAIN ENGINEERING AND DEVELOPMENT ASPECTS WERE INVOLVED. THE FORM ON WHICH THE REQUEST FOR PROPOSALS WAS PRINTED CONTAINED SPACES FOR THE QUOTING OF PROMPT PAYMENT DISCOUNTS WITHIN 10 CALENDAR DAYS. PROVIDED THAT THE PERIOD OF THE OFFERED DISCOUNT WAS SUFFICIENT TO PERMIT PAYMENT WITHIN SUCH PERIOD IN THE REGULAR COURSE OF BUSINESS. THE CONTRACT WAS AWARDED ON JUNE 29. YOUR FIRM PROTESTED THIS AWARD ON THE GROUND THAT DIELECTRIC WAS NOT SMALL BUSINESS. THE SMALL BUSINESS ADMINISTRATION MADE THE DETERMINATION THAT ALTHOUGH DIELECTRIC WAS NOT SMALL BUSINESS ON JUNE 29. THE DEPARTMENT OF THE NAVY WAS UNABLE TO OFFER THE CONTRACT TO THE NEXT LOW OFFEROR. THE CONTRACT WAS CANCELED ON JULY 24.

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B-147636, JAN. 9, 1962

TO SCHUTTER MICROWAVE CORPORATION:

YOUR LETTER OF NOVEMBER 17, 1961, PROTESTS THE AWARD OF CONTRACT NO. N171 -22722A, UNDER A TOTAL SMALL BUSINESS SET-ASIDE, ISSUED BY UNITED STATES NAVAL WEAPONS PLANT, WASHINGTON, D.C., TO DIELECTRIC PRODUCTS ENGINEERING COMPANY, INC., HEREINAFTER REFERRED TO AS DIELECTRIC, UNDER REQUEST FOR PROPOSALS 9140-1605.

THE DEPARTMENT OF THE NAVY DECIDED TO CONDUCT THIS PROCUREMENT UNDER CONVENTIONAL NEGOTIATION METHODS RATHER THAN SMALL BUSINESS RESTRICTED ADVERTISING, SINCE CERTAIN ENGINEERING AND DEVELOPMENT ASPECTS WERE INVOLVED. (SEE 10 U.S.C. 2304 (A) (11) AND ASPR PARAGRAPH 1-706.5 (6) (. THE FORM ON WHICH THE REQUEST FOR PROPOSALS WAS PRINTED CONTAINED SPACES FOR THE QUOTING OF PROMPT PAYMENT DISCOUNTS WITHIN 10 CALENDAR DAYS, 20 CALENDAR DAYS, AND 30 CALENDAR DAYS. CLAUSE 3 (A) OF THE TERMS AND CONDITIONS OF THE REQUEST FOR PROPOSALS PROVIDED THAT DISCOUNTS WOULD BE INCLUDED IN THE EVALUATION OF THE PROPOSALS, PROVIDED THAT THE PERIOD OF THE OFFERED DISCOUNT WAS SUFFICIENT TO PERMIT PAYMENT WITHIN SUCH PERIOD IN THE REGULAR COURSE OF BUSINESS.

DIELECTRIC OFFERED THE LOWEST PROPOSAL AND, AFTER NEGOTIATION WITH THE THREE LOWEST RESPONSIVE OFFERORS, THE CONTRACT WAS AWARDED ON JUNE 29, 1961, TO DIELECTRIC. ON JULY 5, 1961, YOUR FIRM PROTESTED THIS AWARD ON THE GROUND THAT DIELECTRIC WAS NOT SMALL BUSINESS. THE CONTRACTING OFFICER REPORTS THAT ON JULY 10, 1961, THE SMALL BUSINESS ADMINISTRATION MADE THE DETERMINATION THAT ALTHOUGH DIELECTRIC WAS NOT SMALL BUSINESS ON JUNE 29, 1961, IT COULD QUALIFY FOR AWARD PROVIDED IT CERTIFIED THAT WORK WOULD BE PERFORMED IN A LABOR SURPLUS AREA. (SEE ASPR PARAGRAPH 1-804.2, NOTICE OF LABOR SURPLUS AREA SET-ASIDE, (B) (3).) SINCE THE FISCAL YEAR HAD ELAPSED ON JUNE 30, 1961, BEFORE FUNDS FOR THIS PROJECT HAD BEEN LEGALLY OBLIGATED, THE DEPARTMENT OF THE NAVY WAS UNABLE TO OFFER THE CONTRACT TO THE NEXT LOW OFFEROR, YOUR FIRM. THE CONTRACT WAS CANCELED ON JULY 24, 1961.

AMENDED PROPOSALS, WHICH REQUESTED PRICES ON INCREASED QUANTITIES, WERE RESOLICITED FROM ALL OFFERORS WHO HAD PREVIOUSLY PARTICIPATED. THE AMENDMENT TO REQUEST FOR PROPOSALS PROVIDED: "THE ABOVE REQUEST FOR PROPOSALS IS AMENDED AS FOLLOWS (ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED).' ON AUGUST 10, 1961, DIELECTRIC SUBMITTED A BID OF $148,604. YOUR FIRM SUBMITTED A BID OF $149,113, WITHOUT MAKING ANY REFERENCE TO THE DISCOUNT OF ONE-HALF PERCENT, 10 DAYS OFFERED WITH THE INITIAL PROPOSAL. IT IS CONCEDED THAT IF YOUR OFFERED DISCOUNT HAD BEEN CONSIDERED IN THE EVALUATION, YOUR BID WOULD HAVE BEEN LOW BY APPROXIMATELY $236.

THE CONTRACTING OFFICER OF UNITED STATES NAVAL WEAPONS PLANT STATES THAT A DETERMINATION WAS MADE THAT 10-DAY DISCOUNT TERMS DID NOT PERMIT ADEQUATE TIME TO PROCESS THE DEALERS' INVOICES. THAT DETERMINATION WAS BASED ON THE BELIEF THAT SUCH PROCESSING COULD NOT TAKE PLACE UNTIL AFTER FINAL INSPECTION AT THE POINT OF DELIVERY, AND THAT THE TIME NEEDED FOR FINAL INSPECTION COULD NOT BE ASCERTAINED IN ADVANCE. THEREFORE, THE DEPARTMENT OF THE NAVY CONCLUDED THAT YOUR DISCOUNT SHOULD NOT BE CONSIDERED IN THE EVALUATION. THIS CONCLUSION WAS NOT DISCUSSED WITH YOUR FIRM BEFORE THE AWARD WAS MADE TO DIELECTRIC ON AUGUST 23, 1961.

SECTION III, PROCUREMENT BY NEGOTIATION, PARAGRAPH 3-805.1 (A) (V) OF ASPR PROVIDES THAT AFTER RECEIPT OF INITIAL PROPOSALS, DISCUSSIONS SHALL BE CONDUCTED WITH ALL RESPONSIBLE OFFERORS WHO SUBMITTED PROPOSALS WITHIN A COMPETITIVE RANGE, EXCEPT FOR THOSE PROCUREMENTS WHERE ACCEPTANCE OF THE "MOST FAVORABLE INITIAL PROPOSAL" WOULD RESULT IN A FAIR AND REASONABLE PRICE WITHOUT SUCH DISCUSSION. SINCE IT APPARENTLY WAS CONCLUDED THAT THE PROPOSAL OF DIELECTRIC PRODUCTS ENGINEERING COMPANY, INC., WAS FAIR AND REASONABLE, AWARD WAS MADE TO THAT FIRM WITHOUT FURTHER NEGOTIATIONS. THE CIRCUMSTANCES, OUR OFFICE CAN FIND NO PROPER BASIS ON WHICH WE WOULD BE JUSTIFIED IN HOLDING THAT THE ACTION OF THE CONTRACTING OFFICER IN REJECTING YOUR BID WAS ILLEGAL OR IMPROPER. HOWEVER, WE RECOGNIZE THAT THE DISCOUNT TERMS OF THE REQUEST FOR PROPOSALS WERE MISLEADING. PROVIDING DESIGNATED SPACES FOR THE OFFER OF 10-, 20-, AND 30-DAY DISCOUNTS ON THE FACE OF THE REQUEST, THE DEPARTMENT OF THE NAVY AT LEAST IMPLIED THAT ANY ONE OF SUCH DISCOUNTS WOULD BE ACCEPTED AS MEETING THE REQUIREMENT OF CLAUSE 3 (A) OF THE TERMS AND CONDITIONS, WHICH STATED THAT THE DISCOUNT MUST PROVIDE ENOUGH TIME TO PERMIT PAYMENT WITHIN THE OFFERED PERIOD. THIS IMPLICATION WAS MADE IN SPITE OF THE FACT THAT UNITED STATES NAVAL WEAPONS PLANT HAD A STANDARD PRACTICE OF CONSIDERING ONLY THOSE DISCOUNTS WHICH ALLOWED A MINIMUM OF 30 DAYS FOR PROMPT PAYMENT.

IN 38 COMP. GEN. 394, 397-98, A DECISION CONCERNING COMPETITIVE ADVERTISING, WE OFFERED THE FOLLOWING RECOMMENDATION TO THE SECRETARY OF THE NAVY:

"IN A LETTER OF JULY 2, 1956 (B-127594), WE ADVISED THE SECRETARY OF THE AIR FORCE THAT AS TO OFFERS OF PROMPT PAYMENT DISCOUNTS, WHERE THE MINIMUM ACCEPTABLE PAYMENT PERIOD IS KNOWN IN ADVANCE, THE BIDDERS SHOULD BE SPECIFICALLY AND CLEARLY INFORMED THAT OFFERS FOR LESSER PERIODS WILL NOT BE CONSIDERED IN THE EVALUATION OF BIDS. WE RECOMMEND THAT TO ELIMINATE THE CONFUSION WHICH MAY EXIST UNDERPARAGRAPH 7 (C), A MINIMUM ACCEPTABLE PAYMENT DISCOUNT PERIOD BE ESTABLISHED FOR EACH PROCUREMENT.'

OUR RECOMMENDATION WAS COMPATIBLE WITH THE REQUIREMENT IN ASPR, PARAGRAPH 2-407.3 (A):

"PRIOR TO ISSUING AN INVITATION FOR BIDS (EXCEPT FOR CONSTRUCTION), A DETERMINATION SHALL BE MADE AS TO WHAT MINIMUM PERIOD FOR PROMPT PAYMENT DISCOUNTS WILL BE CONSIDERED IN THE EVALUATION OF BIDS, AND SUCH MINIMUM PERIOD SHALL BE STATED IN THE INVITATION FOR BIDS. * * *"

WE BELIEVE THAT THIS REQUIREMENT IS NO LESS DESIRABLE IN CASES WHERE PROPOSALS ARE SOLICITED BEFORE AWARD IS MADE BY CONVENTIONAL NEGOTIATION. ACCORDINGLY, WE ARE CALLING THE MATTER TO THE ATTENTION OF THE ADMINISTRATIVE OFFICE TO PRECLUDE SIMILAR SITUATIONS IN THE FUTURE.

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