B-155910, APR. 7, 1965

B-155910, APR. 7, 1965

TO GENERAL ELECTRIC COMPANY:

THIS IS IN RESPONSE TO YOUR LETTER OF MARCH 8, 1965, REQUESTING RECONSIDERATION OF B-155910, FEBRUARY 19, 1965. YOUR LETTER STATES:

"1) OPINION B-155910 FAILS TO DISCLOSE A CLEAR-CUT DECISION ON THE QUESTION OF PROCUREMENT PRINCIPLE. WE ARE CONCERNED, THEREFORE, THAT THE OPINION MAY REPRESENT OR BE VIEWED BY CONTRACTING OFFICERS AS REPRESENTING A SIGNIFICANT EROSION OF POSITION FROM THOSE STATED IN EARLIER OPINIONS SUCH AS THOSE REPORTED IN 10 COMP. GEN. 261; 37 COMP. GEN. 51; 37 COMP. GEN. 50; AND 40 COMP. GEN. 160. YOU APPEAR TO AGREE THAT THE INVITATION DID NOT RESERVE THE UNRESTRICTED RIGHT TO MAKE AWARD ON EITHER A SINGLE OR A MULTI-YEAR BASIS. YET, YOU AGREE WITH THE NAVY'S COURSE OF ACTION DESPITE AN EVALUATION "CONTRARY TO THAT ENVISIONED BY THE SOLICITATION.' IN THE CIRCUMSTANCES, WE ARE CONSTRAINED TO CONCLUDE THAT YOU NO LONGER RECOGNIZE THE "FUNDAMENTAL" RULE, RECITED IN 40 COMP. GEN. 160 AT PAGE 161 "THAT BIDS BE EVALUATED UPON A COMMON BASIS WHICH IS PRESCRIBED IN THE INVITATION.'

"2) THE SOLE POSSIBILITY THAT OPINION B-155910 HAS NOT BEEN DECIDED CONTRARY TO THE FUNDAMENTAL RULES OF COMPETITIVE ADVERTISED BIDDING, THE FOREGOING QUOTED LANGUAGE NOTWITHSTANDING, LIES IN YOUR FINDING THAT GENERAL ELECTRIC'S MULTI-YEAR UNIT BID, INCLUDING CANCELLATION CHARGES, AMOUNTS TO $377 AS COMPARED WITH THE ACCEPTED UNIT BID OF $336.28.

"WHILE WE WOULD NOT AGREE THAT THE INVITATION PUT BIDDERS ON NOTICE THAT CANCELLATION CHARGES WOULD BE ADDED TO MULTI-YEAR UNIT BIDS IN ANY MULTI- YEAR, SINGLE-YEAR LOW BID DETERMINATION, SUCH A THEORY WOULD BE INFINITELY PREFERABLE TO AN APPARENT REVISION OF LONG-STANDING RULES OF COMPETITIVE BIDDING.

"HOWEVER, EVEN THAT THEORY MUST FAIL FOR TWO REASONS: FIRST, ASPR 1.322.3/B) PROVIDES, UNEQUIVOCALLY THAT "THE CANCELLATION CEILING SHALL NOT BE A FACTOR FOR EVALUATION.' SECOND, GENERAL ELECTRIC'S MULTI YEAR BID EVEN INCLUDING CANCELLATION CHARGES IS $333.50, NOT $377 AS STATED IN OPINION B-155910. THE FIGURE, YOU WILL NOTE, IS LOWER THAN THE ACCEPTED UNIT BID OF $336.28.'

AS POINTED OUT IN OUR EARLIER DECISION, AFTER BEING ADVISED OF A CHANGE IN REQUIREMENTS THE CONTRACTING OFFICER WAS CONFRONTED WITH THE CHOICE OF EITHER CANCELLING THE INVITATION OR MAKING AWARD ON THE BIDS AS MADE. CANCELLATION WAS NOT FELT NECESSARY OR DESIRABLE SINCE PRICES HAD BEEN PUBLICLY DISCLOSED AND ALL BIDDERS HAD BEEN GIVEN AN EQUAL COMPETITIVE OPPORTUNITY TO BID THE SINGLE-YEAR REQUIREMENT. IN ACCEPTING THE VALIDITY OF THE AWARD WE WERE NOT UNAWARE OF THE FACT THAT THE INVITATION DID NOT EXPLICITLY RESERVE TO THE GOVERNMENT THE UNRESTRICTED RIGHT TO MAKE AWARD ON THE BASIS OF THE ONE-YEAR REQUIREMENT. UNDER THE CIRCUMSTANCES, HOWEVER, WE BELIEVE THAT IT WAS A BETTER CHOICE TO HAVE MADE AWARD TO THE LOWEST SINGLE-YEAR BIDDER THAN TO HAVE EITHER READVERTISED, OR MADE AWARD TO THE LOWEST MULTI YEAR BIDDER WITH THE INTENTION OF CANCELLING THE UNNEEDED REQUIREMENT AS SUGGESTED IN YOUR CORRESPONDENCE OF JANUARY 4, 1965. AWARD ON THIS LATTER BASIS WOULD HAVE BEEN OBJECTIONABLE BECAUSE THE AWARD WOULD HAVE BEEN MADE UPON A BASIS WHICH THE AGENCY HAD NO INTENTION OF FOLLOWING. FURTHERMORE, THE COST TO THE GOVERNMENT MIGHT HAVE BEEN GREATER THAN UNDER THE AWARD MADE. READVERTISEMENT AFTER BID OPENING IS CLEARLY DETRIMENTAL TO THE CONCEPT OF SEALED BIDDING AND SHOULD BE AVOIDED WHENEVER POSSIBLE. 39 COMP. GEN. 695, 700. FACED WITH THE ABOVE UNDESIRABLE ALTERNATIVES, WE AGREED WITH THE ADMINISTRATIVE CONCLUSION THAT IT WAS LESS HARMFUL TO THE COMPETITIVE BIDDING SYSTEM TO ACCEPT THE LOWEST SINGLE YEAR BID THAN TO REJECT ALL BIDS AND READVERTISE.

SINCE YOUR LETTER INDICATES A MISUNDERSTANDING ON HOW WE ARRIVED AT THE FIGURE OF $377, WE INVITE YOUR ATTENTION TO SECTION 1-322.2 (C) OF THE ARMED SERVICES PROCUREMENT REGULATION. WE THINK IT EVIDENT FROM THAT REGULATION THAT THE CANCELLATION CEILING OF 10 PERCENT ESTABLISHED FOR THE FIRST PROGRAM YEAR IS APPLICABLE TO BOTH REMAINING PROGRAM YEARS; THE CEILING OF 5 PERCENT ESTABLISHED FOR THE SECOND PROGRAM YEAR IS APPLICABLE ONLY IF CANCELLATION OCCURRED AT THE END OF THE SECOND YEAR. OBVIOUSLY, SINCE THERE COULD ONLY BE ONE CANCELLATION, THE TOTAL POSSIBLE CANCELLATION CHARGES AT THE END OF THE FIRST YEAR WOULD BE 10 PERCENT. YOU WILL NOTICE FURTHER THAT BY THE TERMS OF THE REGULATION THE CANCELLATION CEILING IS EXPRESSED AS A PERCENTAGE OF THE TOTAL MULTI-YEAR CONTRACT PRICE. YOUR TOTAL MULTI YEAR PRICE WAS $870,000. THE TOTAL POSSIBLE MAXIMUM COST TO THE GOVERNMENT UNDER YOUR MULTI-YEAR BID, IF CANCELLED AT THE END OF THE FIRST PROGRAM YEAR, WOULD THEREFORE HAVE BEEN $290,000 PLUS $87,000 OR $377,000. THIS FIGURE IS EQUAL TO A PER UNIT PRICE OF $377. WE REALIZE THAT YOUR ACTUAL CANCELLATION CHARGES MIGHT BE LESS, BUT THE MAXIMUM COULD BE $87,000.

WE DID NOT CONSIDER THE CANCELLATION CEILING AS A FACTOR IN EVALUATION. OUR COMPUTATION WAS MADE ONLY TO DEMONSTRATE THE UNLIKELIHOOD OF ANY PREJUDICE TO YOUR FIRM. WE ALSO WISH TO POINT OUT THAT THE PROHIBITION AGAINST THE USE OF CANCELLATION CHARGES AS A FACTOR IN EVALUATION IS INTENDED TO APPLY ONLY WHEN IT IS ASSUMED THAT THERE WILL BE NO CANCELLATION, WHICH WAS NOT THE CASE HERE.

THE RULE THAT BIDS ARE TO BE EVALUATED ON A COMMON BASIS PRESCRIBED IN THE INVITATION IS DESIGNED TO INSURE FAIRNESS AND EQUALITY TO ALL BIDDERS AND TO PREVENT UNJUST FAVORITISM, COLLUSION OR FRAUD. WHILE IT WOULD HAVE BEEN PREFERABLE FOR THE GOVERNMENT TO HAVE EXPRESSLY RETAINED THE UNRESTRICTED RIGHT TO MAKE AWARD FOR THE SINGLE-YEAR REQUIREMENT, SINCE IT APPEARS UNLIKELY THAT ANY PREJUDICE RESULTED TO ANY BIDDER IN THIS CASE, WE CANNOT SAY THAT THIS OMISSION RENDERED THE INVITATION SO LEGALLY DEFECTIVE AS TO NULLIFY THE AWARD. AS INDICATED PREVIOUSLY, BIDS WERE EVALUATED FAIRLY AND EQUALLY ON A COMMON BASIS WITH AWARD GOING TO THE LOWEST ONE-YEAR BIDDER. UNDER THESE CIRCUMSTANCES WE MUST AGAIN CONCLUDE THAT CANCELLATION WOULD NOT BE IN THE GOVERNMENT'S BEST INTEREST.

TO AVOID A RECURRENCE OF THIS SITUATION BY LETTER DATED FEBRUARY 19, 1965, WE ADVISED THE SECRETARY OF THE NAVY THAT FUTURE PROBLEMS WOULD BE AVOIDED IF THE INVITATION EXPRESSLY INFORMED BIDDERS THAT THE GOVERNMENT RESERVES THE RIGHT TO MAKE AWARD ON EITHER THE SINGLE-YEAR OR MULTI-YEAR REQUIREMENT, IF, PRIOR TO AWARD, IT IS DETERMINED THAT THE SUBSEQUENT YEARS' REQUIREMENTS ARE NO LONGER NEEDED.