B-152011, OCT. 3, 1963

B-152011, OCT. 3, 1963

TO MANAGEMENT TECHNOLOGY, INC.:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED JULY 5, 1963, PROTESTING AN AWARD OF A CONTRACT TO THE INTERNATIONAL ELECTRIC CORPORATION, A DIVISION OF THE INTERNATIONAL TELEPHONE AND TELEGRAPH CORPORATION, PARAMUS, NEW JERSEY, UNDER A REQUEST FOR PROPOSALS ISSUED ON APRIL 5, 1963, BY THE U.S. NAVY PURCHASING OFFICE, LOS ANGELES, CALIFORNIA, FOR THE PROCUREMENT OF SERVICES TO DESIGN A RANGE OPERATIONS MONITORING AND CONTROL SYSTEM.

THIRTEEN COMPANIES SUBMITTED PROPOSALS AND FIVE OF THOSE FIRMS LISTED SEPARATE ESTIMATES BASED UPON FACTORS SUCH AS PERFORMANCE TIME AND WHETHER A MINIMAL OR COMPLETE STUDY OF THE PROJECT WAS TO BE REQUIRED BY THE GOVERNMENT. FOR THE COMPLETE PROGRAM THE COSTS STATED IN THE 13 PROPOSALS RANGED FROM $281,627 TO $498,261. THE AMOUNT STATED IN YOUR PROPOSAL WAS $399,643. THE FIVE LOWEST COST FIGURES, IN AMOUNTS RANGING FROM $281,627 TO $324,588, WERE INCLUDED IN THE PROPOSALS OF DANIEL, MANN, JOHNSON AND MENDENHALL, THE HUGHES AIRCRAFT CORPORATION, THE INTERNATIONAL ELECTRIC CORPORATION, THE RADIO CORPORATION OF AMERICA AND THE SPERRY GYROSCOPE COMPANY.

AFTER TECHNICAL EVALUATION BY THE PACIFIC MISSILE RANGE, THE PROCUREMENT OFFICE WAS ADVISED ON JUNE 4, 1963, THAT ALL 13 PROPOSALS WERE TECHNICALLY ACCEPTABLE AND REQUESTED TO NEGOTIATE WITH THE ABOVE FIVE OFFERORS ON THE BASIS OF COST IN ACCORDANCE WITH SUBSECTION 3 805.1, PARAGRAPH (A) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR).

ONE OF THE FIVE CONCERNS HAD OFFERED A COST-SHARING ARRANGEMENT AND IN NEGOTIATIONS WITH THE SELECTED OFFERORS EACH COMPANY WAS REQUESTED TO GIVE CONSIDERATION TO THE POSSIBILITY OF COST-SHARING ARRANGEMENTS. FOUR OFFERORS INCLUDED SUCH ARRANGEMENTS IN THEIR FINAL PROPOSALS. UNDER THE CONTRACT AS AWARDED TO THE INTERNATIONAL ELECTRIC CORPORATION ON JUNE 29, 1963, THE CONTRACTOR WILL ABSORB 41.5 PERCENT OF THE ESTIMATED COST OF PERFORMANCE AND THE GOVERNMENT'S LIABILITY, EXCEPT IN THE CASE OF CONTRACT AMENDMENT, WILL BE LIMITED TO PAYMENT OF THE AMOUNT OF $154,888 FOR COMPLETION OF THE PROJECT.

YOUR PROTEST IS BASED UPON THE CONTENTION THAT A CONTRACT AWARD ON A COST -SHARING BASIS WAS PREJUDICIAL TO SMALL BUSINESS FIRMS; THE ALLEGATION THAT DEPARTMENT OF DEFENSE DIRECTIVE 5500.10 OF JUNE 1, 1963, WAS NOT CALLED TO THE ATTENTION OF PROSPECTIVE OFFERORS WHO WERE HARDWARE PRODUCERS; AND THE ALLEGATION THAT THERE WAS CONFUSION AS TO WHETHER YOUR PROPOSAL WAS REJECTED ON TECHNICAL GROUNDS OR FOR REASONS OF COST.

THIS PROCUREMENT WAS NOT SET ASIDE EXCLUSIVELY FOR SMALL BUSINESS CONCERNS, AND THE RECORD OTHERWISE SHOWS THAT YOU INTENDED TO PERFORM THE CONTRACT WORK IN CONJUNCTION WITH THE PHILCO DIVISION OF THE FORD MOTOR COMPANY, WHICH IS LARGE BUSINESS. ALSO, TO A CERTAIN EXTENT, YOUR PROPOSAL APPARENTLY CONTAINED AN ELEMENT OF COST-SHARING SINCE YOU HAVE INDICATED THAT THE ESTIMATED COST IN YOUR PROPOSAL DID NOT INCLUDE A MARK- UP IN TERMS OF OVERHEAD COSTS AND FEE ON PHILCO'S PORTION OF THE PROPOSED WORK.

YOU HAVE CONTENDED THAT A CONTEMPLATED COST-PLUS-A-FIXED-FEE ARRANGEMENT WITH THE SUCCESSFUL OFFEROR SHOULD HAVE BEEN FOLLOWED IN THE CONTRACT NEGOTIATIONS. HOWEVER, THE INSTRUCTIONS FOR PREPARING QUOTATIONS CALLED NOT ONLY FOR THE SUBMISSION OF COSTS BASED UPON SUPPLYING THE BEST AVAILABLE PROJECT TEAM FOR AN ESTIMATED TOTAL COST OF $400,000, INCLUDING THE FIXED FEE, BUT ALSO FOR THE SUBMISSION OF AN ESTIMATE OF COST BASED UPON THE OFFEROR'S CONCEPT OF THE REQUIREMENTS TO PERFORM A COMPLETE STUDY. FURTHERMORE, OFFERORS WERE REQUESTED TO SUBMIT "THE BEST OFFER YOU CAN MAKE, AS THE GOVERNMENT RESERVES THE RIGHT TO MAKE AN AWARD WITHOUT PRIOR DISCUSSION WITH ANY QUOTER OR QUOTERS (ON) THE OFFER WHICH HAS BEEN MADE.' WE DO NOT BELIEVE THAT THE REQUEST FOR PROPOSALS WAS INTENDED IN ANY MANNER TO PREVENT THE CONSIDERATION OF PROPOSALS UNDER WHICH OFFERORS PROPOSED TO SHARE DEVELOPMENT COSTS WITH THE GOVERNMENT.

DEPARTMENT OF DEFENSE DIRECTIVE 5500.10 WAS ISSUED ON JUNE 1, 1963, AND THE DIRECTIVE IS INTENDED TO PREVENT CONFLICTS OF INTEREST AND UNFAIR COMPETITION IN INSTANCES WHERE A HARDWARE PRODUCER HAVING RESPONSIBILITY FOR SYSTEM ENGINEERING AND TECHNICAL DIRECTION IS ALSO PERMITTED TO BID ON SUBSEQUENT COMPETITIVE PROCUREMENT OF THE HARDWARE DELINEATED IN THE SYSTEM DESIGN.

THE INITIATION OF THIS PROCUREMENT CONSIDERABLY ANTEDATED THE EFFECTIVE DATE OF THE DIRECTIVE AND THE NAVY CONSIDERS THAT ITS APPLICATION CONCERNING SUCH PROCUREMENT IS OPEN TO SERIOUS DOUBT. IN ANY EVENT, THE DIRECTIVE DOES NOT PRECLUDE SOLICITING OR CONTRACTING WITH HARDWARE PRODUCERS FOR SYSTEM ENGINEERING WORK, AND THE NAVY COULD NOT HAVE BEEN EXPECTED TO ADVISE ALL PROSPECTIVE OFFERORS OF THE EFFECT OF A DIRECTIVE WHICH WAS NOT ISSUED PRIOR TO THE RECEIPT OF OFFERS ON THE PROCUREMENT INVOLVED. THE QUESTION AS TO WHETHER THE DIRECTIVE IS APPLICABLE TO THE PROCUREMENT OF ITEMS DELINEATED IN THE DESIGN SYSTEM WOULD EVENTUALLY BE FOR DETERMINATION WHEN THE CONTRACTOR HAS SUBMITTED ITS FINAL REPORT WHICH WILL INCLUDE DETAILED PROCUREMENT SPECIFICATIONS FOR EACH SYSTEM COMPONENT, RECOMMENDED SOURCES AND A COST ESTIMATE.

REGARDING THE ALLEGED CONFUSION WHICH EXISTED REGARDING THE NEGOTIATIONS, IT APPEARS THAT YOU QUESTIONED THE PROPRIETY OF ELIMINATING ANY OFFER FROM CONSIDERATION UNTIL AFTER A COMPLETE INVESTIGATION HAD BEEN MADE CONCERNING EACH OFFER TO ASCERTAIN THE COMPOSITION OF EACH OFFEROR'S TEAM OF TECHNICAL PERSONNEL TO BE ASSIGNED TO THE JOB, THE SALARIES OF SUCH PERSONNEL AND THE AMOUNTS INCLUDED IN EACH OFFER FOR OVERHEAD COSTS AND PROFIT OR FEE. IT APPEARS THAT THOSE FACTORS WERE CONSIDERED IN THE FINAL NEGOTIATIONS WITH THE FIVE SELECTED OFFERORS TO THE EXTENT REQUIRED UNDER ASPR 3 805.

WHILE THERE MAY BE SOME MERIT TO YOUR CONTENTION IN THE MATTER, THE REGULATION NEVERTHELESS DOES NOT PROHIBIT THE EMPLOYMENT OF THE TYPE OF PROCEDURE ADOPTED IN THIS CASE FOR THE PURPOSE OF CARRYING OUT FURTHER NEGOTIATIONS AFTER ELIMINATION OF OFFERS WHICH DO NOT APPEAR TO BE WITHIN A COMPETITIVE PRICE RANGE. FURTHERMORE, THE RESULTS OF THE FINAL NEGOTIATIONS WITH EACH OF THE SELECTED OFFERORS INDICATE THAT EACH OF THOSE FIRMS HAD, IN FACT, SUBMITTED A REALISTIC COST ESTIMATE WHICH ENABLED THE NAVY TO DETERMINE, IN THE WORDS OF SUBSECTION 3 805.2, ASPR,"THE PROSPECTIVE CONTRACTOR'S UNDERSTANDING OF THE PROJECT AND ABILITY TO ORGANIZE AND PERFORM THE CONTRACT.'

ALTHOUGH YOU HAVE INFORMALLY RAISED THE QUESTION AS TO THE CONTRACTOR'S POSSIBLE USE OF PROPRIETARY ITEMS IN THE SYSTEM DESIGN WORK, WE FIND NO PROPER BASIS FOR CONCLUDING THAT THE NEGOTIATIONS IN THIS CASE WERE NOT PROPERLY CONDUCTED AND YOUR PROTEST CONCERNING THE CONTRACT AWARD IS THEREFORE DENIED.