B-161782, NOVEMBER 21, 1967, 47 COMP. GEN. 279

B-161782, NOVEMBER 21, 1967, 47 COMP. GEN. 279

CONTRACTS - NEGOTIATION - LIMITATION ON NEGOTIATION - PROPRIETY NEGOTIATION PROCEDURES UNLIKE FORMAL ADVERTISING PROCEDURES DESIGNED TO BE FLEXIBLE AND INFORMAL, THE RESERVATION IN A REQUEST FOR PROPOSALS TO AWARD A CONTRACT ON THE BASIS OF INITIAL PROPOSALS WAS NOT AN IRREVOCABLE DETERMINATION, AND HAVING INVOKED 10 U.S.C. 2304 (A) (10) AUTHORITY, THE CONTRACTING OFFICER SHOULD HAVE NEGOTIATED A LATE PRICE REDUCTION THAT REPLACED THE LOW OFFER AS REQUIRED BY PARAGRAPH 3-805.1 OF THE ARMED SERVICES PROCUREMENT REGULATION, PARAGRAPH 3-506, RESPECTING THE ACCEPTANCE OF A LATE OFFER, NOT PRECLUDING NEGOTIATION, AND THE EXERCISE OF A CONTRACT OPTION WITHIN THE DISCRETION OF THE GOVERNMENT, THE PRICE REDUCTION IS NOT CONSIDERED AN ATTEMPT TO "BUY IN," ABSENT EVIDENCE OF "INSIDE" KNOWLEDGE OR FRAUD ON THE PART OF THE OFFEROR. HOWEVER, NO LAW OR REGULATION HAVING BEEN VIOLATED, THE CONTRACT AWARDED IS LEGAL, BUT A FUTURE RECURRENCE OF THE SITUATION SHOULD BE PREVENTED AND THE CONTRACT OPTION NOT EXERCISED UNLESS ADVANTAGEOUS TO THE GOVERNMENT.

TO THE SECRETARY OF THE NAVY, NOVEMBER 21, 1967:

WE REFER TO A TELEGRAM OF JUNE 12, 1967, AND SUBSEQUENT CORRESPONDENCE TO OUR OFFICE, FROM UNITEC INDUSTRIES PROTESTING AGAINST THE AWARD OF A CONTRACT TO BENDIX FIELD ENGINEERING CORPORATION UNDER REQUEST FOR PROPOSALS NO. N00178-67-R-0020 ISSUED BY THE NAVAL WEAPONS LABORATORY, DAHLGREN, VIRGINIA, FOR THE OPERATION AND MAINTENANCE OF THE NAVY SPACE SURVEILLANCE SYSTEM.

THE REQUEST FOR PROPOSALS WAS ISSUED ON JANUARY 16, 1967. PROPOSALS WERE OPENED ON MARCH 15, 1967, AS SCHEDULED. SIX FIRMS SUBMITTED PROPOSALS. THESE PROPOSALS, WITHOUT THE PRICING INFORMATION, WERE FORWARDED TO THE U.S. NAVAL SPACE SURVEILLANCE SYSTEM HEADQUARTERS (NAVSPASUR) FOR TECHNICAL EVALUATION ON MARCH 16, 1967. ON THE TECHNICAL EVALUATION, THREE PROPOSALS, INCLUDING THOSE SUBMITTED BY UNITEC AND BENDIX, WERE FOUND ACCEPTABLE WITH GOOD OR BETTER RATINGS; TWO OTHERS WERE FOUND TO BE MARGINAL TO GOOD; AND ONE WAS FOUND TO BE TECHNICALLY UNACCEPTABLE. THEREAFTER, ON MARCH 22, 1967, THE PRICES PROPOSED WERE RELEASED TO NAVSPASUR WHICH, ON THE SAME DAY, THEN RECOMMENDED AWARD TO BENDIX AT ITS PRICE OF $738,455. THIS RECOMMENDATION WAS PREDICATED ON THE COMBINATION OF PRICE AND TECHNICAL FACTORS. IN THAT CONNECTION, HOWEVER, IT SHOULD BE NOTED THAT UNITEC AND BENDIX RECEIVED THE SAME ADJECTIVE RATING OF "VERY GOOD" ON THE TECHNICAL EVALUATION AND THAT AS TO "TECHNICAL PREFERENCE" UNITEC WAS RATED NO. 1. ON THE SAME DAY (MARCH 22) THE CONTRACTING OFFICER CONCURRED IN THE RECOMMENDATION, BUT WITHHELD ACTION PENDING RECEIPT OF FURTHER JUSTIFICATION FOR THE DISQUALIFICATION OF TWO MARGINAL OFFERORS.

IT IS REPORTED THAT ON MARCH 23, 1967, THE CONTRACTING OFFICER RECEIVED A TELEGRAM DATED MARCH 22, 1967, FROM UNITEC REDUCING ITS COST PROPOSAL FROM $795,397 TO $636,317, BUT HE INFORMED UNITEC BY TELEPHONE THAT THE COST REDUCTION WOULD BE CONSIDERED AS A LATE MODIFICATION.

ON APRIL 6, 1967, THE CONTRACTING OFFICER INITIATED A REQUEST FOR AUTHORITY TO CONTRACT WHICH WAS APPROVED ON MAY 25, 1967, AND RETURNED TO THE CONTRACTING OFFICER ON MAY 29, 1967, FOR FURTHER ACTION. A CONTRACT WAS AWARDED TO BENDIX ON JUNE 12, 1967, WITHOUT NEGOTIATIONS WITH ANY OFFEROR. DURING THE PERIOD APRIL 7 THROUGH JUNE 12, 1967, UNITEC AND ITS ATTORNEY REPEATEDLY CONTACTED THE CONTRACTING OFFICER CONTENDING THAT THE CONTRACTING OFFICER SHOULD ENTER INTO NEGOTIATIONS WITH UNITEC. UNITEC AND ITS ATTORNEY WERE NOTIFIED OF THE AWARD ON JUNE 12, 1967. A TELEGRAM OF PROTEST AGAINST THE AWARD WAS SENT ON JUNE 12, 1967, TO THE CONTRACTING OFFICER AND OUR OFFICE AND WAS RECEIVED BY US ON JUNE 13, 1967.

IT IS URGED BY UNITEC THAT AMPLE TIME REMAINED TO PERMIT NEGOTIATIONS SINCE THE THEN CURRENT CONTRACT WITH UNITEC WOULD NOT BE COMPLETED UNTIL AUGUST 31, 1967 (IF THE TWO-MONTH "PHASE-IN" OPTION WAS EXERCISED), AND THAT THE RESERVATION OF THE RIGHT NOT TO NEGOTIATE SHOULD BE UTILIZED ONLY WHEN PRICE CONSIDERATIONS ARE SUCH THAT AN INITIAL PROPOSAL WOULD CLEARLY GIVE TO THE GOVERNMENT THE BEST POSSIBLE PRICE. IT IS FURTHER URGED BY UNITEC THAT IN VIEW OF THE SUBSTANTIAL REDUCTION IN PRICE CONTAINED IN UNITEC'S PROPOSAL OF MARCH 22, AN UNCERTAINTY WAS CREATED AS TO THE BEST PRICE PROPOSAL WHICH, UNDER ASPR 3-805.1 (V), OBLIGATED THE CONTRACTING OFFICER TO WITHHOLD AWARD UNTIL FURTHER EXPLORATION AND DISCUSSION WITH THE OFFERORS. IT IS ALSO CONTENDED THAT THE TRANSITION PERIOD BETWEEN THE PHASING-IN OF A NEW CONTRACTOR AND THE PHASING-OUT OF THE OLD, IS A DIFFICULT AND COSTLY ONE, AND THAT THERE SHOULD BE NEGOTIATIONS TO INSURE A SMOOTH TRANSITION. UNITEC CONCLUDES THAT "WHAT IS INVOLVED HEREIN IS STRICTLY A QUESTION OF DOLLARS, AND THE U. S. GOVERNMENT, IN MAKING AN AWARD TO A CONTRACTOR AT A PRICE FAR IN EXCESS OF THE PRICE PROPOSED BY UNITEC, HAS ACTED WITH IMPRUDENCE AND IN COMPLETE DISREGARD OF THE TAX PAYERS MONEY.'

UNITEC'S LETTER OF AUGUST 14, 1967, ADVANCES ADDITIONAL ARGUMENTS. EMPHASIZES A CONTENTION THAT ITS COUNSEL UNDERSTOOD THAT NO AWARD WOULD BE MADE TO OTHER THAN UNITEC PRIOR TO NOTIFICATION TO UNITEC. THIS LETTER ALSO STATES:

"IT IS SUBMITTED THAT ONCE A DECISION IS MADE TO EMBARK ON A PROCUREMENT PURSUANT TO NEGOTIATION, THAT ALL OF THE PROVISIONS OF SECTION 3 OF ASPR COME INTO PLAY. THIS MEANS THAT THE DETERMINATION TO EFFECT A PROCUREMENT BY THE NEGOTIATION PROCESS MUST BE DECIDED UPON IN GOOD FAITH AND IN THIS CONNECTION IT IS NECESSARY THAT DETERMINATIONS AND FINDINGS IN ACCORDANCE WITH ASPR 3-300 MUST BE MADE AS TO THAT PARTICULAR CRITERIA WHICH IS UTILIZED BY THE PROCURING ACTIVITY AS ITS BASIS FOR USING NEGOTIATION AS THE BASIS FOR THE PROCUREMENT, AS OPPOSED TO FORMAL ADVERTISING. IN OTHER WORDS, BEFORE THE RFP WAS SENT OUT, ONE OF THE SEVENTEEN (17) BASES FOR NEGOTIATION PURSUANT TO 10 U.S.C. 2304 (A) HAD TO BE SELECTED AND AN APPROPRIATE DETERMINATION AND FINDING ISSUED PURSUANT THERETO.

"IT IS SUBMITTED THAT THE CONTRACTING OFFICER HAS TWISTED COMPLETELY THE INTENTION OF ASPR 3-805.1. THE AVAILABILITY TO THE CONTRACTING OFFICER OF A CLAUSE PERMITTING THE CONTRACTING OFFICER TO MAKE AN AWARD WITHOUT FURTHER NEGOTIATIONS AFTER SUBMISSION OF THE INITIAL PRICE PROPOSAL WAS NEVER INTENDED TO BE A DEVICE BY WHICH THE PROCURING ACTIVITY COULD AVOID THE CLEAR INJUNCTION OF ASPR TO PROCURE SUPPLIES AND SERVICES FROM RESPONSIBLE SOURCES AT FAIR AND REASONABLE PRICES CALCULATED TO RESULT IN THE LOWEST ULTIMATE OVERALL COST TO THE GOVERNMENT * * *.'

THE FOLLOWING DETERMINATION AND FINDINGS DATED NOVEMBER 1, 1966, WAS EXECUTED BY THE CONTRACTING OFFICER IN SUPPORT OF NEGOTIATION FOR THE SERVICES REQUIRED UNDER THE SUBJECT RFP: ,UPON THE BASIS OF THE FOLLOWING FINDINGS AND DETERMINATION THE PROPOSED CONTRACT MAY BE NEGOTIATED WITHOUT FORMAL ADVERTISING PURSUANT TO THE AUTHORITY OF TITLE 10 U.S.C. 2304 (A) (10) AS IMPLEMENTED BY PARAGRAPH 3-210.2 (VII) OF THE ARMED SERVICES PROCUREMENT REGULATION. "1. THE PROPOSED CONTRACT WILL PROVIDE FOR THE FURNISHING OF TECHNICAL, NONPERSONAL ENGINEERING SERVICES OF TRAINED TECHNICIANS AND QUALIFIED ENGINEERS NECESSARY TO MAINTAIN AND OPERATE NINE (9) FIELD STATIONS OF THE U. S. NAVAL SPACE SURVEILLANCE SYSTEM FOR A PERIOD OF TWELVE (12) MONTHS, WITH AN OPTION FOR EXTENSION ON A YEARLY BASIS FOR A PERIOD UP TO THREE (3) YEARS. * * * "WORK WILL INCLUDE, BUT NOT BE LIMITED TO: (A) PERFORMING ROUTINE STATION EQUIPMENT OPERATION AND PROVIDING TECHNICAL SUPPORT THEREFORE; (B) MAINTAINING ALL COMMUNICATION AND ELECTRONIC EQUIPMENT; (C) INSTALLING, OPERATING, MAINTAINING AND/OR MODIFYING EXISTING, NEW, SPECIAL, OR RESEARCH AND DEVELOPMENT EQUIPMENT; (D) CONDUCTING MAINTENANCE OF STATIONS, EQUIPMENT, AND FACILITIES; (E) MAINTAINING STATIONS LOGS, REPAIR RECORDS, TECHNICAL REPORTS, AND MATERIALS USAGE DATA, AS WELL AS MAINTAINING CURRENT THE HANDBOOK FOR MAINTENANCE AND OPERATIONS OF THE U. S. NAVAL SPACE SURVEILLANCE STATIONS- ; (F) PERFORMING GENERAL SUPPORT DUTIES AT EACH STATION AS REQUIRED; AND (G) PREPARING AND FURNISHING ACTIVITIES REPORTS. "2. THE PROPER ASSEMBLY, INSTALLATION, SERVICING, MAINTENANCE, AND OPERATION OF THE HIGHLY TECHNICAL AND SPECIALIZED RECEIVING AND TRANSMITTING EQUIPMENT LOCATED AT EACH OF THE ABOVE MENTIONED NAVAL SPACE SURVEILLANCE STATIONS REQUIRE THE SERVICES OF HIGHLY SKILLED TECHNICIANS AND/OR ENGINEERS WHO ARE THOROUGHLY FAMILIAR WITH THIS TYPE OF EQUIPMENT. "3. IT IS IMPRACTICABLE TO FORMALLY ADVERTISE THE PROPOSED PROCUREMENT BECAUSE IT IS FOR TECHNICAL, NONPERSONAL SERVICES IN CONNECTION WITH THE ASSEMBLY, INSTALLATION, SERVICING, MAINTENANCE, AND OPERATION OF EQUIPMENT OF A HIGHLY TECHNICAL AND SPECIALIZED NATURE. "4. THE PRICE IS NOT FIXED BY LAW OR REGULATION. "THE USE OF A NEGOTIATED CONTRACT, WITHOUT FORMAL ADVERTISING, IS JUSTIFIED BECAUSE THE CONTEMPLATED PROCUREMENT IS FOR TECHNICAL, NONPERSONAL SERVICES IN CONNECTION WITH THE ASSEMBLY, INSTALLATION, SERVICING, AND MAINTENANCE OF EQUIPMENT OF A HIGHLY TECHNICAL AND SPECIALIZED NATURE.'

THE WRITTEN FINDINGS BY THE CONTRACTING OFFICER EXECUTED IN SUPPORT OF HIS DETERMINATION TO NEGOTIATE UNDER 10 U.S.C. 2304 (A) (10) ARE MADE FINAL BY STATUTE (10 U.S.C. 2310 (B) ( AND, THUS, CANNOT BE LEGALLY QUESTIONED BY OUR OFFICE. HOWEVER, WE THINK IT CONSISTENT WITH THE FACTS TO STATE THAT WHILE, ON THE ONE HAND, THE CONTRACTING OFFICER INVOKED NEGOTIATION AUTHORITY TO ACCOMPLISH THE PROCUREMENT; ON THE OTHER, HE MADE NO USE OF THE PROCEDURES PERMITTED BY THAT AUTHORITY IN THE FACE OF A SITUATION WHICH CLEARLY CALLED FOR ITS USE. FOR ALL INTENTS AND PURPOSES FORMAL ADVERTISING PROCEDURES WERE ACTUALLY USED IN AWARDING THE CONTRACT. IN VIEW OF THIS AND, ALSO, SINCE AT LEAST THREE RESPONSIVE, RESPONSIBLE OFFERS WERE RECEIVED, WE QUESTION THE WISDOM AND NECESSITY OF INVOKING NEGOTIATION AUTHORITY IN THE FIRST INSTANCE.

IN SUPPORT OF THE ACTIONS TAKEN HERE BY THE CONTRACTING OFFICER, THE COMMANDER OF THE NAVAL SUPPLY SYSTEMS COMMAND FORWARDS BY INDORSEMENT DATED JULY 27, 1967, A REPORT, APPARENTLY PREPARED BY THE CONTRACTING OFFICER, WHICH ADVANCES THE FOLLOWING ARGUMENTS:

FIRST, UNITEC'S TELEGRAM OF MARCH 23 WAS CONSIDERED TO BE A "LATE MODIFICATION" WHICH WAS RECEIVED AFTER THE REVIEWS AND AWARD RECOMMENDATIONS OF NAVSPASUR HAD BEEN CONCURRED IN BY THE CONTRACTING OFFICER.

SECOND, THE LATE MODIFICATION WAS EVALUATED USING THE CRITERIA OF ASPR 3- 506 (B), (C) AND (G) AND UNDER THESE CRITERIA THE LATE MODIFICATION WAS DETERMINED UNACCEPTABLE BECAUSE: (1) UNITEC WAS NOT THE OTHERWISE SUCCESSFUL OFFEROR, (2) MORE THAN ONE PROPOSAL WAS RECEIVED, (3) UNITEC'S PROPOSAL OFFERED NO ITEM THAT COULD BE CONSIDERED TO BE OF EXTREME IMPORTANCE TO THE GOVERNMENT, AND (4) THE MODIFICATION WAS NOT TIMELY MAILED.

THIRD, ALL OFFERORS WERE INFORMED IN WRITING BY THE RFP THAT THE GOVERNMENT MIGHT AWARD ON INITIAL PROPOSALS RECEIVED WITHOUT DISCUSSION OF SUCH PROPOSALS.

FOURTH, SINCE: (1) THE PRICE OFFERED BY BENDIX WAS DETERMINED FAIR AND REASONABLE, (2) THERE WAS NO DOUBT OR UNCERTAINTY IN THE PRICING OR TECHNICAL ASPECTS OF THE PROCUREMENT, (3) THE OFFERORS HAD BEEN FOREWARNED THAT THE AWARD MIGHT BE MADE WITHOUT FURTHER DISCUSSIONS, AND (4) THERE WAS ADEQUATE COMPETITION,"THE DECISION WAS MADE TO AWARD TO BENDIX, THE LOWEST RESPONSIVE, RESPONSIBLE BIDDER, WITHOUT NEGOTIATIONS PURSUANT TO ASPR 3-805.1.' MOREOVER, IT IS STATED, UNITEC'S LATE MODIFICATION COULD NOT BE CONSIDERED AND THE DECISION OF THE CONTRACTING OFFICER TO AWARD TO BENDIX HAD BEEN MADE PRIOR TO ITS RECEIPT AND "IF THE GOVERNMENT HAD USED THE COST INFORMATION CONTAINED IN UNITEC'S LATE MOFIFICATION IT WOULD BE PUTTING ITSELF IN A POSITION OF BARGAINING.'

FIFTH, IT IS CONTENDED: "CONCLUSION - IN CONCLUSION IT CAN BE STATED THAT NEGOTIATIONS, NO MATTER HOW WELL PLANNED OR EXECUTED WILL NOT PRODUCE THE PRICE THAT A COMPETITIVE PROCUREMENT WILL PRODUCE. WHEN THE CONTRACTING OFFICER DETERMINES THAT THE PRODUCT OR SERVICE IS OF SUCH A NATURE THAT IT CAN BE OBTAINED ON A FIXED PRICE COMPETITIVE BASIS, BUT HAS SOME RESERVATIONS THAT NEGOTIATIONS MIGHT BE NECESSARY, AND FOREWARNS PROPOSED CONTRACTORS IN WRITING OF THIS INTENT, HE SHOULD NOT ARBITRARILY NEGOTIATE. THIS ARBITRARY NEGOTIATION WILL EVENTUALLY DILUTE THE SYSTEM BY HAVING CONTRACTORS PURPOSELY BID HIGHER PRICES IN HOPES THAT RESULTING NEGOTIATIONS WILL REALIZE A HIGHER PROFIT FOR THEM, RESULTING IN A HIGHER OVERALL COST TO THE GOVERNMENT.'

THE FOREGOING REASONS ADVANCED FOR NOT CONDUCTING NEGOTIATIONS AFTER THE RECEIPT OF UNITEC'S PRICE REDUCTION ON MARCH 23 DEMONSTRATES, IN OUR OPINION, CONSIDERABLE CONFUSION ON THE PART OF THE CONTRACTING OFFICER IN RESPECT TO APPLICABLE LAWS AND REGULATIONS GOVERNING NEGOTIATION PROCEDURES. FOR EXAMPLE, WE FAIL TO SEE THE SIGNIFICANCE IN THE ARGUMENT THAT UNITEC'S PRICE REDUCTION PROPOSAL WAS RECEIVED AFTER THE CONTRACTING OFFICER HAD CONCURRED IN THE AWARD RECOMMENDATION OF NAVSPASUR. WE FIND NOTHING IN EITHER LAW OR REGULATION WHICH, ON THE FACTS PRESENT HERE, MAKES SUCH A "CONCURRENCE" IRREVOCABLE. ON MARCH 23, WHEN UNITEC'S OFFER WAS RECEIVED, THE ACCEPTANCE OF BENDIX'S OFFER HAD NOT BEEN COMMUNICATED TO BENDIX. SHORT OF AN ACTUAL CONTRACT AWARD, THERE WAS NOTHING IN THIS CASE TO PREVENT THE GOVERNMENT'S PROCUREMENT OFFICIALS FROM RECONSIDERING ANY SUBJECTIVE UNDISCLOSED INTENT OR DECISION TO AWARD TO BENDIX.

THE CONTRACTING OFFICER'S RELIANCE ON ASPR 3-506 (B), (C), AND (G) AND ASPR 3-805.1 (ARGUMENTS 2 AND 4) IS, WE THINK, MISPLACED AND BEGS THE BASIC QUESTION PRESENTED IN UNITEC'S PROTEST. UNITEC DOES NOT CONTEND THAT ITS MARCH 23 PRICE REDUCTION OFFER SHOULD HAVE BEEN ACCEPTED, AS SUCH. UNITEC ONLY CONTENDS THAT THE CONTRACTING OFFICER, UPON RECEIPT OF ITS MARCH 23 TELEGRAM, SHOULD HAVE CONDUCTED NEGOTIATIONS WITH ALL RESPONSIBLE OFFERORS WHO HAD SUBMITTED PROPOSALS WITHIN A COMPETITIVE RANGE, PRICE AND OTHER FACTORS CONSIDERED, AS REQUIRED BY ASPR 3-805.1 (A). WHILE THE PROVISIONS OF ASPR 3-506 OPERATE TO PRECLUDE, IN THE SPECIFIED CIRCUMSTANCES, ACCEPTANCE OF A LATE OFFER OR MODIFICATION AS SUCH, THEY DO NOT, AND WERE NEVER INTENDED TO, PRECLUDE THE OPENING-UP OF NEGOTIATIONS WITH ALL OFFERORS COMPETITIVELY SITUATED UPON THE RECEIPT OF A LATE MODIFICATION TO A TIMELY OFFER WHICH FAIRLY INDICATES THAT SUCH NEGOTIATIONS WOULD PROVE TO BE HIGHLY ADVANTAGEOUS TO THE GOVERNMENT. THAT CONNECTION, IT SHOULD BE NOTED THAT THE PROVISIONS OF ASPR 3-506 HAVE NO GREATER WEIGHT OR FORCE THAN THOSE OF ASPR 3-805.1. NEGOTIATION PROCEDURES, UNLIKE THOSE REQUIRED FOR FORMAL ADVERTISING, ARE DESIGNED TO BE FLEXIBLE AND INFORMAL. THESE PROCEDURES PROPERLY PERMIT THE CONTRACTING OFFICER TO DO THINGS IN THE AWARDING OF A NEGOTIATED CONTRACT THAT WOULD BE A RADICAL VIOLATION OF THE LAW IF THE PROCUREMENT WERE BEING ACCOMPLISHED BY FORMAL ADVERTISING. THIS IS RECOGNIZED BY A PROVISION IN ASPR 3-805.1 (V) WHICH PERMITS RESOLICITATION OF OFFERORS UPON THE RECEIPT OF A NONRESPONSIVE OFFER. THE PROVISION STATES:"* * * WHEN THE PROPOSAL MOST ADVANTAGEOUS TO THE GOVERNMENT INVOLVES A MATERIAL DEPARTURE FROM THE STATED REQUIREMENTS, CONSIDERATION SHALL BE GIVEN TO OFFERING THE OTHER FIRMS WHICH SUBMITTED PROPOSALS AN OPPORTUNITY TO SUBMIT NEW PROPOSALS ON A TECHNICAL BASIS WHICH IS COMPARABLE TO THAT OF THE MOST ADVANTAGEOUS PROPOSAL, PROVIDED THAT THIS CAN BE DONE WITHOUT REVEALING TO OTHER FIRMS ANY INFORMATION WHICH IS ENTITLED TO PROTECTION UNDER 3-507.1.' THE EMPHASIS HERE IS ON PERMITTING THE CONTRACTING OFFICER TO TAKE A COURSE OF ACTION WHICH WOULD BE OF GREAT BENEFIT TO THE GOVERNMENT. CERTAINLY, IF ASPR AUTHORIZES THE CONSIDERATION OF AN INITIALLY NONRESPONSIVE OFFER IT OUGHT NOT, A FORTIORI, TO PRECLUDE THE OPENING UP OF NEGOTIATIONS UPON THE RECEIPT OF A LATE PRICE MODIFICATION TO A RESPONSIVE TIMELY PROPOSAL. ASPR 3-506 DOES NOT, IN OUR OPINION, REQUIRE THAT ANOMALOUS RESULT.

THE ABOVE REFERENCED REPORT MAKES MUCH OF WHAT THE CONTRACTING OFFICER CONSIDERS TO BE THE RECEIPT OF A FAIR AND REASONABLE PRICE FROM BENDIX. THIS CONCLUSION WAS APPARENTLY REACHED ON THE BASIS OF A COMPARISON (SHOWN IN PARAGRAPH 9.A. OF ENCLOSURE 1 OF EXHIBIT II) BETWEEN THE BENDIX AND THE REDUCED UNITEC PRICES WHICH WERE BROKEN DOWN INTO A "COST/TECHNICAL MAN- YEAR" PER 10-MONTH PERIOD AND INTO A "COST/TECHNICAL MAN-YEAR" PER OPTION PERIOD. ON THIS BASIS UNITEC'S PRICE PROPOSAL FOR THE 10-MONTH PERIOD IS $7,070 AND BENDIX'S IS $7,705. ON THE OPTION PERIOD THE COST/TECHNICAL MAN-YEAR FOR UNITEC IS $7,940 AND FOR BENDIX IT IS $7,782. (IT SHOULD BE POINTED OUT THAT BENDIX PROPOSED TO FURNISH 115 TECHNICAL PERSONNEL, WHEREAS UNITEC PROPOSED 108.) THE NET DIFFERENCE FOR BOTH PERIODS IS THEN COMPUTED AND IT IS SHOWN THAT UNITEC WOULD ONLY BE LOW ON COST/TECHNICAL MAN YEAR BASIS FOR BOTH PERIODS BY $477. ON THE BASIS OF THESE FIGURES PARAGRAPH 9.A. CONCLUDES AS FOLLOWS: "TWO ASSUMPTIONS CAN BE DRAWN FROM THE ABOVE ANALYSIS - (I) BENDIX'S COSTS FOR THE FIRST AND SECOND PERIODS ARE STILL REASONABLE AFTER TAKING INTO CONSIDERATION THE LARGE REDUCTION OFFERED BY UNITEC; AND (II) UNITEC'S LARGE REDUCTION FOR THE FIRST PERIOD APPEARS TO BE AN ATTEMPT TO -BUY-IN-.'

IN OUR OPINION, THE ANALYSIS AND CONCLUSIONS SET FORTH IN PARAGRAPH 9.A. ARE FAULTY AND MISLEADING SINCE THEY ARE BASED ON CRITERIA (I.E. "COST/TECHNICAL MAN-YEAR" AND "OPTION" PERIOD) WHICH WERE NOT SET FORTH IN THE REQUEST FOR PROPOSALS AS THE BASIS FOR EVALUATION OF OFFERS OR UPON WHICH OFFERS WERE INVITED. WE SEE NOTHING IN THE RFP INDICATING THAT OFFERS WERE INVITED, AND WOULD BE EVALUATED, ON A COST/TECHNICAL MAN-YEAR BASIS. IT IS NOTED THAT THE CONTRACT WAS AWARDED ON A LUMP-SUM BASIS. MOREOVER, AS TO THE OPTION PERIOD, PARAGRAPH 9.14.1 OF THE RFP, WHICH WAS ADDED BY AN AMENDMENT DATED FEBRUARY 7, 1967, PROVIDES IN PERTINENT PART: "THE OFFEROR SHALL SUBMIT HIS BID FOR THE OPTION STIPULATED ABOVE AND INCLUDE HIS COST BREAKDOWN IN THE SAME DETAIL AND FORMAT AS REQUIRED FOR THE INITIAL YEAR. THE AWARD WILL BE MADE TO THE LOWEST RESPONSIVE, RESPONSIBLE BIDDER ON THE INITIAL BID. THE PRICED OPTION WILL NOT BE USED TO DETERMINE THE LOW BIDDER. * * *"

IN VIEW OF THE ABOVE WE SEE LITTLE TO SUPPORT THE CONTRACTING OFFICER'S CONCLUSION THAT, AFTER TAKING INTO CONSIDERATION THE LARGE REDUCTION OFFERED BY UNITEC, BENDIX'S COSTS ARE STILL ,REASONABLE.' THE FACT REMAINS THAT A CONTRACT WAS AWARDED TO BENDIX AT A PRICE OF $738,455 IN THE FACE OF AN OUTSTANDING OFFER FROM UNITEC IN THE AMOUNT OF $636,317 OR A DIFFERENCE OF $102,138. FURTHERMORE, SINCE EXERCISE OF THE OPTION FOR THE SECOND YEAR IS WHOLLY WITHIN THE DISCRETION OF THE GOVERNMENT, WITH NO ASSURANCE THAT IT WOULD BE EXERCISED, WE SEE NO BASIS FOR THE CONTRACTING OFFICER'S CONCLUSION THAT UNITEC'S LARGE PRICE REDUCTION FOR THE FIRST PERIOD APPEARS TO BE AN ATTEMPT TO "BUY IN.' (IT IS NOTED, IN THAT CONNECTION, THAT UNITEC'S REDUCED LUMP-SUM OPTION PRICE IS LOWER THAN BENDIX'S OPTION PRICE - $847,520 AS OPPOSED TO $895,000.) IN ITS LETTER OF JUNE 15, 1967, TO THE CONTRACTING OFFICER WHICH PROTESTED THE AWARD TO BENDIX, UNITEC STATES: "AS EXPRESSED IN THE TELEGRAM (WHICH REDUCED UNITEC'S PRICE), THE REDUCTION WAS BY REASON OF -CERTAIN BUSINESS CONSIDERATIONS-. SAID BUSINESS CONSIDERATIONS WERE THAT UNITEC HAD IN THE INTERIM DECIDED AS A MATTER OF CORPORATE POLICY TO BECOME A PUBLICLY-OWNED CORPORATION, AND HAD DECIDED TO MAKE EVERY EFFORT TO RETAIN BUSINESS PRESENTLY ON HAND EVEN IF THIS MEANT REDUCING SUBSTANTIALLY ITS PROFIT MARGIN AND CUTTING COSTS TO THE MINIMUM POSSIBLE * * *.' THIS STATEMENT OF THE REASON WHY UNITEC REDUCED ITS PRICE AFTER PROPOSALS WERE OPENED HAS NOT BEEN CONTROVERTED BY THE CONTRACTING OFFICER AND IT APPEARS TO BE AT LEAST AS PERSUASIVE AS HIS "BUY-IN" CONCLUSION. IN ANY EVENT, SHORT OF CONVINCING EVIDENCE TENDING TO INDICATE "INSIDE" KNOWLEDGE OR FRAUD ON THE PART OF THE OFFEROR, WE SEE NO NEED TO SPECULATE ON THE REASONS WHY AN OFFEROR HAS CHOSEN VOLUNTARILY TO REDUCE HIS PRICE.

IN REGARD TO REASON NUMBER THREE CITED BY THE ADMINISTRATIVE REPORT IN SUPPORT OF THE ACTION TAKEN BY THE CONTRACTING OFFICER, IT NEED ONLY BE NOTED THAT MERELY BECAUSE THE RFP INFORMED ALL OFFERORS THAT THE GOVERNMENT HAS RESERVED THE RIGHT AND MAY MAKE AN AWARD ON INITIAL PROPOSALS WITHOUT DISCUSSION, SUCH ADVICE AND RESERVATION OF THE RIGHT TO DO SO CAN HARDLY BE CITED AS JUSTIFICATION FOR EXERCISING THE RESERVED RIGHT. UNITEC HAS NOT QUESTIONED THE GOVERNMENT'S RIGHT TO MAKE AN AWARD WITHOUT DISCUSSION BUT DOES QUESTION THE SOUNDNESS OF THE DISCRETION USED BY THE CONTRACTING OFFICER IN EXERCISING THE RIGHT. ON THE FACTS PRESENTED IN THE RECORD BEFORE US WE ALSO QUESTION THE SOUNDNESS OF THE DECISION TO AWARD WITHOUT DISCUSSIONS.

FINALLY, WE FIND THE FIFTH REASON CITED IN THE REPORT AS A "CONCLUSION" TO BE WITHOUT MERIT AND IT TENDS TO RAISE A QUESTION OF WHETHER THE SUBJECT PROCUREMENT COULD NOT HAVE BEEN JUST AS FEASIBLY ACCOMPLISHED BY FORMAL ADVERTISING. IF, AS INDICATED IN THE REPORT, THE CONTRACTING OFFICER "DETERMINES THAT THE PRODUCT OR SERVICE IS OF SUCH A NATURE THAT IT CAN BE OBTAINED ON A FIXED-PRICE COMPETITIVE BASIS, BUT HAS SOME RESERVATIONS THAT NEGOTIATIONS MIGHT BE NECESSARY" THEN BY ALL MEANS HE SHOULD NEGOTIATE WHEN, AFTER RECEIPT OF INITIAL PROPOSALS HE IS PRESENTED WITH A SITUATION WHEREBY THE GOVERNMENT STANDS TO BENEFIT GREATLY FROM SUCH NEGOTIATIONS. WE FIND IT DIFFICULT TO CONCEIVE HOW THE OPPORTUNITY TO SAVE THE GOVERNMENT APPROXIMATELY $100,000 BY LEGALLY AUTHORIZED AND PROPER NEGOTIATIONS CAN BE CHARACTERIZED AS "ARBITRARY.'

INASMUCH AS THE ACTIONS TAKEN BY THE CONTRACTING OFFICER IN THIS CASE ARE THE RESULT OF WHAT WE BELIEVE TO BE ONLY THE UNSOUND EXERCISE OF DISCRETION AND NOT IN VIOLATION OF LAW OR REGULATION, AND THE RECORD FAILS TO INDICATE CULPABILITY OR FAULT IN THE MATTER BY THE SUCCESSFUL OFFEROR, WE DO NOT QUESTION THE LEGALITY OF THE CONTRACT AS AWARDED. THE MATTER IS BROUGHT TO YOUR ATTENTION IN THE HOPES THAT IT MAY SERVE AS AN EXAMPLE TO CONTRACTING OFFICERS IN YOUR DEPARTMENT AND WILL PREVENT RECURRENCES OF LIKE CASES IN THE FUTURE. ALSO, WE MUST ADVISE THAT THE EXERCISE OF THE OPTION FOR THE SECOND-YEAR SERVICES IN THE BENDIX CONTRACT WITHOUT FIRST SOLICITING FORMALLY ADVERTISED BIDS OR NEGOTIATED OFFERS, AS THE CASE MAY BE, TO DETERMINE WHETHER THE OPTION IS THE MOST ADVANTAGEOUS ALTERNATIVE TO THE GOVERNMENT, WOULD BE CONSIDERED IMPROPER BY OUR OFFICE AND WE WOULD BE CONSTRAINED TO APPLY THIS VIEW IN THE AUDIT OF EXPENDITURES OF APPROPRIATED FUNDS UNDER ANY CONTRACT FOR THE SERVICES IN QUESTION.