B-164313, JUL. 5, 1968

B-164313, JUL. 5, 1968

TO MR. KYROS:

FURTHER REFERENCE IS MADE TO YOUR PROTEST AGAINST THE AWARD OF CONTRACTS TO GENERAL MOTORS AND HARRINGTON AND RICHARDSON FOR THE PROCUREMENT OF M- 16 RIFLES PURSUANT TO REQUEST FOR PROPOSALS DAAF03-68 R-0014, ISSUED BY THE UNITED STATES ARMY WEAPONS COMMAND. A REPORT DATED JUNE 11, 1968, SIGNED BY ROBERT A. BROOKS, ASSISTANT SECRETARY OF THE ARMY, IN RESPONSE TO OUR REQUEST FOR A REPORT ON YOUR PROTEST WAS RECEIVED BY OUR OFFICE ON JUNE 12, 1968.

IT IS THEREIN REPORTED THAT PRIOR PROCUREMENTS OF THE M-16 RIFLE HAVE BEEN FROM A SINGLE SOURCE, THE FIREARMS DIVISION OF COLT INDUSTRIES. 1966 THE SECRETARY OF THE DEPARTMENT OF DEFENSE DIRECTED THE ARMY TO ESTABLISH AN ADDITIONAL SOURCE. AS A RESULT OF THIS DIRECTIVE, THE NECESSARY RIGHTS AND LICENSES WERE ACQUIRED FROM COLT INDUSTRIES IN JUNE 1967 FOR THE USE OF THE GOVERNMENT IN THIS PROCUREMENT. THE SUBJECT REQUEST FOR PROPOSALS (RFP) WAS ISSUED ON OCTOBER 3, 1967, FOR THE STATED PURPOSE OF ESTABLISHING A "STRONG, RESPONSIBLE, SECOND SOURCE FOR THE M-16 WEAPONS SYSTEM FAMILY AND THUS BROADEN THE PRODUCTION BASE.' THE PROCUREMENT WAS INITIATED AS A TWO STEP NEGOTIATED PROCUREMENT PURSUANT TO THE AUTHORITY OF 10 U.S.C. 2304 (A) (16), WHICH PERMITS NEGOTIATION WHEN THE HEAD OF THE AGENCY DETERMINES THAT:

"/A) IT IS IN THE INTEREST OF NATIONAL DEFENSE TO HAVE A PLANT, MINE, OR OTHER FACILITY, OR A PRODUCER, MANUFACTURER, OR OTHER SUPPLIER, AVAILABLE FOR FURNISHING PROPERTY OR SERVICES IN CASE OF A NATIONAL EMERGENCY; OR (B) THE INTEREST OF INDUSTRIAL MOBILIZATION IN CASE OF SUCH AN EMERGENCY, OR THE INTEREST OF NATIONAL DEFENSE IN MAINTAINING ACTIVE ENGINEERING, RESEARCH, AND DEVELOPMENT, WOULD OTHERWISE BE SUB-SERVED.'

THE REPORT FURNISHED BY THE ARMY INCLUDES A DETERMINATION AND FINDINGS DATED SEPTEMBER 27, 1967, SIGNED BY ROBERT A. BROOKS, ASSISTANT SECRETARY OF THE ARMY (INSTALLATION AND LOGISTICS), AS REQUIRED BY 10 U.S.C. 2310 (A) TO JUSTIFY THE USE OF THE AUTHORITY TO NEGOTIATE, WHICH IS AS FOLLOWS:

"1. I HEREBY FIND THAT:

"A. THE U.S. ARMY WEAPONS COMMAND PROPOSES TO PROCURE APPROXIMATELY 167,000 M16A1 RIFLES TO SUPPORT THE FY68, FY69 AND FY70 PROGRAMS, AND IN THE SAME PROCUREMENT ESTABLISH A PRODUCTION BASE FOR THE M16 FAMILY OF WEAPONS (I.E. - M16, M16A1, XM177, XM177E2) WHICH WILL BE CAPABLE OF PRODUCING AT THE RATE OF 10,000 WEAPONS PER MONTH IN A SPECIFIED MIX ON A 1-8-5 BASIS, WITH EXPANSION CAPABILITY TO 25,000 PER MONTH ON A MULTI- SHIFT BASIS.

"B. THE ESTIMATED COST OF THE PROPOSED PROCUREMENT IS $21,294,200.

"C. PROCUREMENT BY NEGOTIATION OF THE ABOVE DESCRIBED PROPERTY IS JUSTIFIED BECAUSE IT IS IN THE INTEREST OF NATIONAL DEFENSE AND INDUSTRIAL MOBILIZATION TO ESTABLISH AND MAKE AVAILABLE A SECOND SOURCE OF SUPPLY OF THE M16 RIFLE FAMILY IN THE EVENT OF NATIONAL EMERGENCY. IN VIEW OF THE ANTICIPATED NEED FOR THE M16A1 WEAPON, THE DEPARTMENT OF DEFENSE HAS DEEMED IT ESSENTIAL TO ESTABLISH A SECOND PRODUCER (BY FY71) WHO WILL BE CAPABLE OF MANUFACTURING THE M16A1 WEAPON, COMPETING WITH THE NOW EXISTING SOLE SOURCE, AND PROVIDING A PRODUCTION BASE IN THE EVENT OF NATIONAL EMERGENCY.

"D. USE OF FORMAL ADVERTISING FOR PROCUREMENT OF THE ABOVE DESCRIBED PROPERTY IS NOT FEASIBLE OR PRACTICABLE. THE PURPOSE OF THIS PROCUREMENT IS TO ESTABLISH A SOUND SECOND SOURCE PRODUCER WHO WILL SUPPLY A QUALITY PRODUCT IN AN ECONOMICAL MANNER AND ACT AS AN ADDITIONAL PRODUCTION BASE. THIS WILL NECESSITATE PRE-AWARD DISCUSSION, NEGOTIATION, AND ACQUISITION OF ESTIMATED COST, PRICE, AND PRODUCTION DATA TO ENSURE SELECTION OF THE BEST OVERALL PROSPECTIVE CONTRACTOR, PRICE AND OTHER FACTORS CONSIDERED. THIS OBJECTIVE CANNOT BE FULFILLED IN A FORMALLY ADVERTISED PROCUREMENT.

"2. UPON THE BASIS OF THE FINDINGS SET FORTH ABOVE, I HEREBY DETERMINE THAT IT IS IN THE INTEREST OF NATIONAL DEFENSE TO HAVE A PRODUCER AVAILABLE FOR FURNISHING THE M16 FAMILY WEAPONS IN CASE OF A NATIONAL EMERGENCY, AND THE INTEREST OF INDUSTRIAL MOBILIZATION IN CASE OF SUCH EMERGENCY WOULD BE SUBSERVED.

"3. SUBJECT TO THE AVAILABILITY OF FUNDS, AND PROVIDED THAT THE ABOVE DESCRIBED PROPERTY HAS OTHERWISE BEEN AUTHORIZED FOR PROCUREMENT, IT MAY BE PROCURED BY NEGOTIATION FOR A PERIOD OF TWELVE (12) MONTHS FROM THE DATE HEREOF PURSUANT TO 10 U.S.C. 2304 (A) (16) AND PARAGRAPH 3-216 OF THE ARMED SERVICES PROCUREMENT REGULATIONS.

"4. THE ABOVE DETERMINATION APPLIES TO THE APPROVED PROGRAM FOR FISCAL YEAR 1968, AND TO ESTIMATED PROGRAMS FOR FISCAL YEARS 1969 AND 1970.'

THIRTEEN FIRMS RECEIVED THE PROPOSAL PACKAGE FROM THE UNITED STATES ARMY WEAPONS COMMAND AT A PRE-SOLICITATION CONFERENCE HELD ON OCTOBER 3, 1967. THE CLOSING DATE FOR STEP ONE, TECHNICAL PROPOSALS, WAS FEBRUARY 5, 1968. STEP TWO CONTEMPLATED SUBMISSION OF PRICE PROPOSALS ON MAY 10, 1968, BY THOSE FIRMS DETERMINED TECHNICALLY QUALIFIED ON THE BASIS OF THEIR TECHNICAL PROPOSALS. AWARD WAS SCHEDULED FOR JUNE 1968. TECHNICAL PROPOSALS WERE SUBMITTED BY THE HYDRO-MATIC DIVISION OF GENERAL MOTORS, HARRINGTON AND RICHARDSON, MAREMONT CORPORATION, AND CADILLAC GAGE COMPANY. ALL FOUR FIRMS' TECHNICAL PROPOSALS WERE DETERMINED ACCEPTABLE UNDER THE PROCUREMENT CONTEMPLATED AT THAT TIME; THAT IS, FOR THE NUMBER OF RIFLES AND THE DELIVERY DATES CALLED FOR IN THE OCTOBER 1967 RFP.

HOWEVER, BEFORE THE PRICE PROPOSALS REQUIRED UNDER THE SECOND STEP WERE DUE TO BE SUBMITTED, A REVIEW OF THE M-16 REQUIREMENT REVEALED THAT BOTH THE IMMEDIATE AND LONG RANGE REQUIREMENTS FOR THE WEAPONS WERE SUBSTANTIALLY IN EXCESS OF PREVIOUSLY PROGRAMMED REQUIREMENTS. ADDITION TO REQUESTING COLT INDUSTRIES TO EXPAND ITS MONTHLY CAPACITY, IT IS REPORTED THAT ALTERNATIVE METHODS OF MEETING THE INCREASED DEMAND WERE EXPLORED. THE FIRST ALTERNATIVE CONSIDERED WAS TO SELECT ONE OF THE FOUR OFFERORS ON THE PENDING PROCUREMENT FOR AWARD OF A LETTER CONTRACT IN APRIL, AND AT THE SAME TIME CONTINUE UNDER THE ORIGINAL PROCUREMENT PLAN WITH THE REMAINING THREE OFFERORS AND AWARD A CONTRACT IN JUNE. GENERAL MOTORS WAS CONSIDERED FOR AWARD OF THE LETTER CONTRACT UNDER THE FIRST ALTERNATIVE "IN VIEW OF THAT COMPANY'S CAPACITY AND ITS CONSISTENTLY OUTSTANDING RECORD OF PERFORMANCE AGAINST ACCELERATED SCHEDULES" , AND DISCUSSIONS WERE HELD WITH IT. HOWEVER, IT IS REPORTED THAT THIS ALTERNATIVE WAS ABANDONED BECAUSE IT WAS DETERMINED THAT A SECOND ALTERNATIVE WOULD PRODUCE MORE RIFLES. THE SECOND ALTERNATIVE INVOLVED MODIFICATION OF THE SUBJECT RFP TO PROVIDE FOR INCREASED QUANTITIES, ACCELERATED DELIVERY, AND EARLY AWARD OF LETTER CONTRACTS TO TWO SOURCES.

ACCORDINGLY, ON MARCH 28, 1968, THE DETERMINATION AND FINDINGS OF SEPTEMBER 27, 1967, WAS SUPERSEDED BY THE FOLLOWING D AND F:

"1. I HEREBY FIND THAT:

"A. THE U.S. ARMY WEAPONS COMMAND PROPOSES TO PROCURE APPROXIMATELY 480,000 RIFLES TO SUPPORT THE FY 68 AND FY 69 PROGRAMS, AND IN THE SAME PROCUREMENT, ESTABLISH A PRODUCTION BASE OF TWO ADDITIONAL PRODUCERS FOR THE M16 FAMILY OF WEAPONS (E.G. - M16, M16A1, XM177, AND XM177E2). EACH OF THE TWO NEW PRODUCERS WILL BE CAPABLE OF PRODUCING AT A RATE OF 10,000 WEAPONS PER MONTH IN A SPECIFIED MIX ON A 1-8-5 BASIS, WITH AN EXPANSION CAPABILITY TO 25,000 PER MONTH ON A MULTI SHIFT BASIS.

"B. THE ESTIMATED COST OF THE PROPOSED PROCUREMENT IS $106,600,000.

"C. PROCUREMENT BY NEGOTIATION OF THE ABOVE DESCRIBED PROPERTY IS JUSTIFIED BECAUSE IT IS IN THE INTEREST OF NATIONAL DEFENSE AND INDUSTRIAL MOBILIZATION TO ESTABLISH AND MAKE AVAILABLE TWO ADDITIONAL SOURCES OF SUPPLY FOR THE M16 RIFLE FAMILY IN THE EVENT OF NATIONAL EMERGENCY. VIEW OF THE ANTICIPATED NEED FOR THE M16A1 WEAPON, IT IS ESSENTIAL TO ESTABLISH TWO ADDITIONAL PRODUCERS BY FY 70 WHO WILL BE CAPABLE OF MANUFACTURING THE M16A1 WEAPON, COMPETING WITH THE NOW EXISTING SOLE SOURCE, AND PROVIDING A PRODUCTION BASE IN THE EVENT OF NATIONAL EMERGENCY.

"D. USE OF FORMAL ADVERTISING FOR PROCUREMENT OF THE ABOVE DESCRIBED PROPERTY IS NOT FEASIBLE OR PRACTICABLE. THE PURPOSE OF THIS PROCUREMENT IS TO ESTABLISH TWO ADDITIONAL PRODUCERS WHO WILL SUPPLY A QUALITY PRODUCT IN AN ECONOMICAL MANNER AND ACT AS ADDITIONAL MOBILIZATION PRODUCERS. THIS WILL NECESSITATE PRE-AWARD DISCUSSION AND NEGOTIATIONS TO ENSURE SELECTION OF THE BEST OVERALL PROSPECTIVE CONTRACTORS. THIS OBJECTIVE CANNOT BE FULFILLED IN A FORMALLY ADVERTISED PROCUREMENT.

"2. UPON THE BASIS OF THE FINDINGS SET FORTH ABOVE, I HEREBY DETERMINE THAT IT IS IN THE INTEREST OF NATIONAL DEFENSE TO HAVE TWO ADDITIONAL PRODUCERS AVAILABLE FOR FURNISHING THE M16 FAMILY WEAPONS IN CASE OF A NATIONAL EMERGENCY, AND THE INTEREST OF INDUSTRIAL MOBILIZATION IN CASE OF SUCH EMERGENCY WOULD BE SUBSERVED.

"3. SUBJECT TO THE AVAILABILITY OF FUNDS, AND PROVIDED THAT THE ABOVE DESCRIBED PROPERTY HAS OTHERWISE BEEN AUTHORIZED FOR PROCUREMENT, IT MAY BE PROCURED BY NEGOTIATION FOR A PERIOD OF TWELVE (12) MONTHS FROM THE DATE HEREOF PURSUANT TO 10 U.S.C. 2304 (A) (16) AND PARAGRAPH 3-216 OF THE ARMED SERVICES PROCUREMENT REGULATIONS.

"4.THE ABOVE DETERMINATION APPLIES TO THE APPROVED PROGRAM FOR FISCAL YEAR 1968, AND TO THE ESTIMATED PROGRAMS FOR FISCAL YEAR 1969.

"5. THIS DETERMINATION AND FINDINGS SUPERSEDES THE ONE EXECUTED ON 23 SEPTEMBER 1967, WITHOUT PREJUDICE TO ANY ACTIONS TAKEN THEREUNDER.'

AS A RESULT OF THE NEW D AND F, THE RFP WAS AMENDED BY A TELEGRAM ON MARCH 29, 1968, DESIGNATED AMENDMENT NO. 10. THE AMENDMENT CANCELLED STEP TWO, PRICE PROPOSALS, AND CHANGED THE OBJECTIVE OF THE PROCUREMENT AS FOLLOWS:

"PARA. 2 AS A RESULT OF INCREASED URGENCY TO SUPPLY THE MAXIMUM NUMBER OF RIFLES AT THE EARLIEST POSSIBLE DATE WITH MINIMUM RISKS OF PRODUCTION INTERRUPTION, THE OBJECT OF THIS PROCUREMENT IS CHANGED TO SELECT THOSE TWO SOURCES WHICH WILL AFFORD TO THE GOVERNMENT THE HIGHEST DEGREE OF CONFIDENCE IN THEIR ABILITY IN MEETING OR EXCEEDING THE ACCELERATED SCHEDULE SET FORTH BELOW WHILE MAINTAINING GOOD QUALITY AND PROVIDE THE GOVERNMENT THE STRONGEST MOBILIZATION BASE.' IN ADDITION, THE AMENDMENT PROVIDED THAT LETTER CONTRACTS BASED ON CEILING PRICES WOULD BE AWARDED TO THE TWO SOURCES SELECTED ON THE BASIS OF THE STEP ONE TECHNICAL PROPOSALS AS CLARIFIED AND MODIFIED DURING DISCUSSIONS TO BE HELD ON APRIL 4 AND 5, AND ON THE BASIS OF "ABILITY TO MEET THE SPECIAL STANDARDS AND OTHER FACTORS WHICH OFFER THE GOVERNMENT THE GREATEST ASSURANCE OF MEETING THE ABOVE OBJECTIVE.' THE OPTION TO INCREASE THE QUANTITY BY AS MUCH AS 150 PERCENT PROVIDED FOR INITIALLY WAS RETAINED. HOWEVER, THE LIMITATION ON NEW FACILITIES TO BE PURCHASED FOR THE GOVERNMENT'S ACCOUNT WAS REMOVED, AS WERE INCENTIVE BONUS AND PENALTY PROVISIONS OF THE RFP. THE QUANTITY WAS INCREASED TO 240,000 RIFLES AND THE DELIVERY SCHEDULE CHANGED FROM THREE TO TWO YEARS WITH INITIAL DELIVERIES SCHEDULED SEVEN MONTHS EARLIER. IN A SECOND TELEGRAM DATED MARCH 29, THE FOUR OFFERORS WERE ADVISED OF THE EXACT TIME DISCUSSIONS WOULD BE HELD WITH THEM AND WERE REQUESTED TO PREPARE BUDGETARY ESTIMATES TO BE USED AS CEILING PRICES IN ANY SUBSEQUENT LETTER CONTRACT AND TO HAVE SUCH ESTIMATES AVAILABLE ON APRIL 13, 1968. THIS TELEGRAM ALSO ADMONISHED THAT "UNDER NO CIRCUMSTANCES ARE THE BUDGETARY ESTIMATES TO BE PROVIDED TO THE GOVERNMENT UNTIL SPECIFICALLY REQUESTED" .

ON APRIL 4 AND 5 DISCUSSIONS WERE HELD WITH EACH OFFEROR CONCERNING ITS TECHNICAL PROPOSAL AND ITS PLAN TO MEET OR EXCEED THE ACCELERATED SCHEDULE. THE TECHNICAL PROPOSALS WHICH HAD PREVIOUSLY BEEN EVALUATED IN ACCORDANCE WITH THE EVALUATION AND SOURCE SELECTION PLAN ESTABLISHED ON JANUARY 10, 1968, BY THE UNITED STATES ARMY MATERIEL COMMAND, WERE REEVALUATED ON THE BASIS OF MODIFICATIONS MADE DURING THE ABOVE DISCUSSIONS AND IN LIGHT OF THE CHANGES IN THE RFP, WITH SPECIAL EMPHASIS ON PRODUCTION CAPABILITY AND THE ABILITY TO ACCELERATE IN ACCORDANCE WITH THE NEW SCHEDULES. BASED UPON THE APRIL 10, 1968, REPORT OF THE SOURCE SELECTION EVALUATION BOARD (SSEB), THE SOURCE SELECTION ADVISORY COUNCIL (SSAC) RECOMMENDED GENERAL MOTORS AND HARRINGTON AND RICHARDSON TO THE SOURCE SELECTION AUTHORITY (SSA). IT IS REPORTED THAT THESE TWO FIRMS WERE SELECTED FOR AWARD BY THE SSA ON APRIL 15, 1968, BECAUSE IT WAS BELIEVED THAT THEY AFFORDED TO THE GOVERNMENT A HIGHER DEGREE OF CONFIDENCE IN THEIR ABILITY TO MEET THE ACCELERATED SCHEDULE WHILE PROVIDING THE STRONGEST MOBILIZATION BASE. THEREAFTER, THE TWO SUCCESSFUL OFFERORS WERE REQUESTED TO SUBMIT CEILING PRICES TO BE INCORPORATED IN LETTER CONTRACTS WITH THE UNDERSTANDING THAT NEGOTIATIONS WOULD CONTINUE TO ESTABLISH DEFINITIVE PRICES. PRICE PROPOSALS WERE NOT REQUESTED FROM THE TWO UNSUCCESSFUL OFFERORS. LETTER CONTRACTS WITH GENERAL MOTORS AND HARRINGTON AND RICHARDSON WERE EXECUTED ON APRIL 19, 1968. IT IS REPORTED THAT THE CONTRACTUAL CEILING PRICES FOR GENERAL MOTORS AND HARRINGTON AND RICHARDSON ARE APPROXIMATELY $56.2 MILLION AND $41.6 MILLION, RESPECTIVELY. WE UNDERSTAND FROM HEARINGS HELD BY THE SPECIAL SUBCOMMITTEE ON THE M-16 RIFLE PROGRAM, HOUSE COMMITTEE ON ARMED SERVICES, THAT MAREMONT AND CADILLAC GAGE HAD ESTABLISHED CEILING PRICES OF APPROXIMATELY $36.5 MILLION AND $36.8 MILLION, RESPECTIVELY. YOU PROTESTED THE AWARD OF THESE CONTRACTS TO OUR OFFICE IN A TELEGRAM DATED MAY 13, 1968, IN WHICH YOU STATED THAT THE AWARD TO GENERAL MOTORS WAS FOR A CEILING PRICE OF $20 MILLION IN EXCESS OF THE CEILING PRICE CONTEMPLATED BY MAREMONT CORPORATION, WHICH WAS FULLY QUALIFIED TO HANDLE THE PROCUREMENT. THIS TELEGRAM WAS SUPPLEMENTED BY YOUR LETTERS OF MAY 23 AND JUNE 19, 1968, TO OUR OFFICE. IN ADDITION, WE HAVE BEEN FURNISHED COPIES OF YOUR STATEMENT BEFORE THE SPECIAL SUBCOMMITTEE ON THE M-16 RIFLE PROGRAM ON MAY 14, 1968, A TRANSCRIPT OF THE HEARINGS CONDUCTED BY THAT SUBCOMMITTEE ON MAY 20, 1968, YOUR LETTERS TO THE SUBCOMMITTEE DATED MAY 15 AND 20, 1968, AND OTHER PERTINENT DOCUMENTS. BRIEFLY STATED, IT IS YOUR POSITION THAT THESE CONTRACTS WERE AWARDED "WITH CALLOUS DISREGARD OF THE COST TO THE TAXPAYER" , AND IN VIOLATION OF THE "LETTER, SPIRIT, AND INTENT NOT ONLY OF ASPR, BUT ALSO OF CONTROLLING LEGISLATION AND DECISIONS OF THE SUPREME COURT OF THE UNITED STATES AND THE COMPTROLLER GENERAL. YOU EXPRESS THE VIEW THAT THE ARMY'S POSITION IS INDEFENSIBLE SINCE IT FAILED TO RECEIVE AND AT LEAST CONSIDER MAREMONT'S CEILING PRICE, WHICH WAS APPROXIMATELY $20 MILLION BELOW GENERAL MOTOR'S CEILING PRICE, EVEN THOUGH MAREMONT HAD BEEN DETERMINED A QUALIFIED SOURCE BY THE ARMY. FURTHERMORE, IT IS YOUR POSITION THAT EVEN IF THE SUCCESSFUL OFFERORS' PROPOSALS WERE TECHNICALLY SUPERIOR AND THE ARMY THEREFORE HAD MORE CONFIDENCE IN THEIR ABILITY TO MEET THE SCHEDULE, THIS DOES NOT JUSTIFY THE FAILURE TO CONSIDER THE PRICE PROPOSALS OF OTHER QUALIFIED SOURCES. WITH REGARD TO THE ,CONFIDENCE" FACTOR, IT IS YOUR OPINION THAT THIS RESTS ON RATHER TENUOUS GROUNDS INSOFAR AS GENERAL MOTORS IS CONCERNED IN VIEW OF THE VERY LIMITED EXPERIENCE GENERAL MOTORS HAS HAD IN THE PRODUCTION OF SMALL ARMS.

IN YOUR TESTIMONY BEFORE THE SPECIAL SUBCOMMITTEE ON THE M-16 RIFLE PROGRAM, YOU ALSO EXPRESSED THE VIEW THAT THE "TIMING OF EVENTS AND THE CHANGES WHICH WERE MADE IN THE REQUEST FOR PROPOSAL, AS WELL AS A NUMBER OF EXTRANEOUS EVENTS, MAKES IT APPEAR THAT THE PROCUREMENT ACTION WAS SPECIFICALLY TAILORED TO THE REQUIREMENTS OF GENERAL MOTORS" . IN SUPPORT OF THIS CONTENTION YOU CITE THE BRIEF NEGOTIATIONS WITH GENERAL MOTORS IN MARCH AFTER TECHNICAL PROPOSALS HAD BEEN SUBMITTED AND BEFORE THE RFP WAS CHANGED, WHICH YOU UNDERSTAND WERE TERMINATED ONLY BECAUSE OF ,CONGRESSIONAL FIRE" . ALSO IN SUPPORT OF THIS ARGUMENT, YOU CITE ELIMINATION OF THE LIQUIDATED DAMAGES PROVISION, WHICH YOU SAY GENERAL MOTORS RESISTS AS A MATTER OF CORPORATE POLICY; THE POINTED AVOIDANCE OF QUESTIONS DIRECTED TO MAREMONT AT THE DISCUSSIONS ON APRIL 4, EVEN THOUGH IT IS THE ARMY'S POSITION THAT THERE ARE DEFICIENCIES IN ITS PROPOSAL; AND ELIMINATION OF THE $4 MILLION LIMITATION ON FACILITIES TO BE PURCHASED FOR THE GOVERNMENT'S ACCOUNT.

FINALLY, IT IS YOUR CONTENTION THAT THE ARMY'S FAILURE TO CONSIDER THE PRICE FACTOR AND TO NEGOTIATE FURTHER WITH MAREMONT WAS A CLEAR VIOLATION OF LAW AND REGULATION AND, THEREFORE, THE CONTRACTS WERE ILLEGALLY AWARDED. IN THIS CONNECTION, YOU CITE SECTION 2304 (G) OF TITLE 10, U.S.C., WHICH PROVIDES, IN PERTINENT PART, THAT IN ALL NEGOTIATED PROCUREMENTS WRITTEN OR ORAL DISCUSSIONS SHALL BE CONDUCTED WITH ALL RESPONSIBLE OFFERORS WHO SUBMIT PROPOSALS WITHIN A COMPETITIVE RANGE, PRICE, AND OTHER FACTORS CONSIDERED. YOU ALSO CITE ASPR SECTIONS 3-101 AND 1-302.2 FOR THE PROPOSITIONS THAT IN NEGOTIATED PROCUREMENTS PRICE QUOTATIONS MUST BE SOLICITED FROM THE MAXIMUM NUMBER OF QUALIFIED SOURCES, PRICES QUOTED MUST BE COMPARED, AND THE BASIC POLICY IS TO OBTAIN FOR THE GOVERNMENT THE MOST ADVANTAGEOUS CONTRACT, PRICES, QUALITY, AND OTHER FACTORS CONSIDERED. IN SUPPORT OF YOUR POSITION THAT THE FOREGOING STATUTE AND REGULATIONS REQUIRE ACTIVE PRICE COMPETITION, YOU CITE PAUL V. UNITED STATES, 371 U.S. 245, AND A DECISION OF THE COMPTROLLER GENERAL, 45 COMP. GEN. 417. SINCE YOU CONCLUDE THAT ACTIVE PRICE COMPETITION WAS NOT PRESENT IN THE AWARD OF THESE CONTRACTS, YOU CONTEND THAT THEY WERE ILLEGALLY AWARDED AND MUST BE CANCELLED.

IN ITS REPORT OF JUNE 11, 1968, THE ARMY CONTENDS THAT, CONTRARY TO YOUR ALLEGATIONS, GENERAL MOTORS AND HARRINGTON AND RICHARDSON WERE SELECTED FOR AWARD ON THE BASIS OF COMPREHENSIVE AND OBJECTIVE DETERMINATIONS THAT AWARDS TO THEM WOULD AFFORD THE GOVERNMENT THE "HIGHEST DEGREE OF CONFIDENCE" THAT THE ACCELERATED DELIVERY SCHEDULE WOULD BE MET AND WOULD PROVIDE THE GOVERNMENT THE STRONGEST MOBILIZATION BASE. THIS CONCLUSION IS REPORTED TO HAVE BEEN REACHED ON THE BASIS OF AN EVALUATION PROCESS DESCRIBED AS FOLLOWS:

"UNDER THE EVALUATION PLAN THE COMMANDING GENERAL OF THE ARMY MATERIEL COMMAND WAS DESIGNATED AS THE SOURCE SELECTION AUTHORITY. TO ADVISE HIM, HE APPOINTED A FIVE-MEMBER SOURCE SELECTION ADVISORY COUNCIL, CHAIRED BY THE COMMANDING GENERAL OF THE ARMY WEAPONS COMMAND. TO PROVIDE STAFF ASSISTANCE TO THE SOURCE SELECTION ADVISORY COUNCIL, A SOURCE SELECTION EVALUATION BOARD WAS APPOINTED, WITH A TOTAL STAFF OF APPROXIMATELY 65 PEOPLE REPRESENTING SKILLS IN THE AREA OF WEAPONS ENGINEERING, SAFETY, PRODUCTION, TOOLING AND FINANCE. THE CONSIDERABLE EXPERTISE OF THE BOARD IS REFLECTED IN THE CHART AT TAB D. ON THE BASIS OF THEIR EXPERTISE, PERSONNEL OF THE BOARD WERE ASSIGNED TO ANALYZE DATA PERTAINING TO EACH OFFEROR IN THREE MAJOR AREAS -- TECHNICAL, MANAGEMENT AND FINANCIAL. WITHIN EACH AREA FACTORS, SUBFACTORS AND ELEMENTS WERE CREATED (TAB E) AND EACH OFFEROR WAS RATED ON EACH CRITERION EXCEPT SAFETY BY SEVERAL INDIVIDUAL RATINGS WERE THEN DERIVED. ULTIMATELY, EACH OFFEROR RECEIVED A RATING WHICH REFLECTED THE TECHNICAL, MANAGERIAL AND FINANCIAL MERIT OF ITS PROPOSAL.' APPLICATION OF THIS EVALUATION PROCESS TO MAREMONT'S TECHNICAL PROPOSAL RESULTED IN THE SSAC'S CONCLUDING THAT:

"WHILE THE MAREMONT CORPORATION HAS CONSIDERABLE PRODUCTION CAPABILITY AND OVERALL ABILITY, THERE IS LESS ASSURANCE (COMPARED TO HYDRA-MATIC AND HARRINGTON AND RICHARDSON) THAT IT CAN MEET THE ACCELERATED SCHEDULE WITH A QUALITY PRODUCT.'

THE ARMY DENIES THAT ITS SELECTION OF GENERAL MOTORS WAS INFLUENCED BY ANY PREDISPOSITION TO CONTRACT WITH IT, OR THAT THE RFP CHANGES WERE DESIGNED TO ASSIST GENERAL MOTORS. THE NEGOTIATIONS BEGUN WITH GENERAL MOTORS IN MARCH ARE REPORTED TO HAVE BEEN ABANDONED NOT BECAUSE OF CONGRESSIONAL CONCERN, BUT BECAUSE IT WAS DECIDED THAT THIS WOULD PRODUCE FEWER RIFLES THAN SELECTION OF TWO OFFERORS UNDER A REVISED RFP. THE ARMY POINTS OUT THAT REMOVAL OF THE LIMITATION ON THE PURCHASE OF NEW FACILITIES FOR THE GOVERNMENT'S ACCOUNT WAS CONDITIONED ON A SHOWING THAT THIS WOULD RESULT IN A HIGHER DEGREE OF CONFIDENCE THAT THE REVISED DELIVERY SCHEDULE COULD BE MET OR EXCEEDED. IT IS REPORTED THAT THE PENALTY PROVISIONS WERE REMOVED NOT TO FAVOR GENERAL MOTORS, BUT IN RECOGNITION OF THE FACT THAT THEY WERE UNREALISTIC AND INEQUITABLE TO ALL OFFERORS BECAUSE OF THE STRINGENT DELIVERY AND PRODUCTION REQUIREMENTS. THE ARMY ALSO DENIES THE ALLEGATION THAT THE DISCUSSION WITH MAREMONT ON APRIL 4 WAS POINTEDLY LIMITED.

IN YOUR LETTER OF JUNE 19, 1968, FOLLOWING THE TESTIMONY ON JUNE 18 OF THE GENERAL COUNSEL OF THIS OFFICE BEFORE THE SPECIAL SUBCOMMITTEE ON THE M-16 RIFLE PROGRAM, HOUSE COMMITTEE ON ARMED SERVICES, YOU PRESENT ADDITIONAL ARGUMENT IN SUPPORT OF YOUR CONTENTIONS THAT THE ARMY (1) IN FACT, CONSIDERED MAREMONT QUALIFIED, AND (2) DID NOT CONSIDER PRICE. WITH REGARD TO THE FIRST POINT, YOU HAVE QUOTED SEVERAL PASSAGES FROM THE DEBRIEFING SESSION ON APRIL 26, 1968, AND FROM THE ENSUING QUESTION AND ANSWER SESSION, AND FROM THE ADMINISTRATIVE REPORT. WHILE SOME OF THESE PASSAGES, WHEN READ OUT OF CONTEXT, MAY BE SUSCEPTIBLE OF BEING CONSTRUED AS INDICATING A FINDING BY THE ARMY THAT MAREMONT WAS QUALIFIED, WE BELIEVE IT IS CLEAR FROM A READING OF THE ENTIRE EVALUATION REPORT UPON WHICH THE DETERMINATION WAS MADE THAT THE ARMY DID NOT CONSIDER MAREMONT WITHIN A "COMPETITIVE RANGE" WHEN COMPARED TO GENERAL MOTORS AND HARRINGTON AND RICHARDSON. THE FOLLOWING EXCERPT FROM PAGE 10 OF SECRETARY BROOKS' REPORT SUCCINCTLY ILLUSTRATES THE FINDINGS OF THE PERSONNEL MAKING THE EVALUATION:

"THE NARRATIVE DESCRIPTIONS AND SUMMARIES CONTAINED IN THE SOURCE SELECTION EVALUATION BOARD REPORT SUPPORT THE NUMERICAL SCORES FOR EACH OF THE OFFERORS. THESE SUMMARIES ALONG WITH THE DEBRIEFING REPORT REFERRED TO BY CONGRESSMAN KYROS HIGHLIGHT WEAKNESSES IN THE MAREMONT PROPOSAL WARRANTING A LESSER DEGREE OF CONFIDENCE IN THAT CORPORATION. IN SEVERAL RESPECTS THE WEAKNESSES WERE RELATED TO THE ULTIMATE OBJECTIVE OF THE PROCUREMENT -- A SOUND ADDITION TO THE MOBILIZATION BASE. FOR EXAMPLE, MAREMONT'S PLANS FOR THE MODERNIZATION OF ITS PRODUCTION FACILITIES AND TOOLING WERE RELATIVELY WEAK. THESE PLANS REFLECT UNFAVORABLY ON MAREMONT'S RELIABILITY AS A PART OF THE MOBILIZATION BASE. MAREMONT'S METROLOGY LAB FACILITIES AND ITS TARGETING AND TESTING FACILITIES APPEARED TO BE OF QUESTIONABLE CAPACITY. THIS WEAKNESS IS SIGNIFICANT SINCE ADEQUATE TESTING FACILITIES WERE PART OF THE SPECIAL STANDARDS ESTABLISHED IN THE RFP AT THE BEGINNING OF THE PROCUREMENT. MAREMONT'S PROPOSAL REVEALED THAT 76 PERCENT OF THE REQUIRED INDUSTRIAL PRODUCTION EQUIPMENT (IPE) WOULD HAVE TO BE OBTAINED AFTER AWARD. ALTHOUGH THE COMPANY EXPRESSED THE BELIEF THAT THEY WOULD MEET THE GOVERNMENT'S ACCELERATED SCHEDULE, THE ABSENCE OF A SPECIFIC PRECEDENT FOR THE ESTABLISHMENT OF A PRODUCTION LINE AND INITIAL DELIVERY WITHIN 9-1/2 MONTHS CAST DOUBT ON THE REASONABLENESS OF THAT BELIEF. IN COMBINATION, THESE AND OTHER CONSIDERATIONS LED THE SOURCE SELECTION ADVISORY COUNCIL TO CONCLUDE THAT:

"WHILE THE MAREMONT CORPORATION HAS CONSIDERABLE PRODUCTION CAPABILITY AND OVERALL ABILITY, THERE IS LESS ASSURANCE (COMPARED TO HYDRA-MATIC AND HARRINGTON AND RICHARDSON) THAT IT CAN MEET THE ACCELERATED SCHEDULE WITH A QUALITY PRODUCT.' THE SECOND POINT IN YOUR LETTER OF JUNE 19, CONCERNING WHETHER ARMY CONSIDERED COST, IS DISCUSSED HEREINAFTER.

WITH REGARD TO THE LEGALITY OF THE CONTRACTS, THE ARMY CONTENDS THAT THEY WERE AWARDED IN A MANNER CONSISTENT WITH THE LETTER AND SPIRIT OF THE GOVERNING STATUTES, REGULATIONS AND COMPTROLLER GENERAL DECISIONS. THE ARMY DENIES THAT PRICE WAS EVER ABANDONED AS A FACTOR FOR CONSIDERATION IN THE AWARD OF THE LETTER CONTRACTS. IT IS POINTED OUT THAT ALTHOUGH THE RFP ORIGINALLY PROVIDED FOR ACCEPTANCE OF THE PROPOSAL WHICH WOULD BE "MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE, QUALITY, AND OTHER FACTORS, INCLUDING SPECIAL STANDARDS CONSIDERED" , IT ALSO CLEARLY STATED IN THE RFP:

"IN ORDER THAT IT IS ABUNDANTLY CLEAR, THE GOVERNMENT EMPHASIZES THAT THE CONTRACT AWARDED AS A RESULT OF THIS SOLICITATION WILL NOT BE AWARDED SOLELY OR PRIMARILY ON THE BASIS OF THE LOWEST PRICE, BUT RATHER, IN VIEW OF THE URGENCY AND IMPORTANCE OF THE M-16 PROGRAM AND THE NEED TO BE ASSURED THAT THE RESULTING CONTRACTOR IS ABLE TO PRODUCE AND TO DELIVER IN ACCORDANCE WITH THE REQUIREMENTS, AWARD WILL BE MADE TO THAT RESPONSIBLE CONTRACTOR WHO SUBMITS THE MOST ADVANTAGEOUS PROPOSAL TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED.' ALSO, ARMY STATES THAT ALTHOUGH AMENDMENT NO. 10 ELIMINATED STEP TWO PRICE WAS NOT ABANDONED, BUT WAS MADE A RELATIVELY LESS IMPORTANT FACTOR FOR CONSIDERATION. FURTHERMORE, PARAGRAPH 3 OF THE AMENDMENT PROVIDED THAT THE LETTER CONTRACTS WOULD BE AWARDED "SUBJECT TO AGREEMENT ON REASONABLE CEILING PRICES ...' IN THIS CONNECTION, THE ARMY STATES THAT PRIOR TO SELECTION OF THE TWO OFFERORS IT ESTABLISHED ESTIMATED PRICES FOR EACH OFFEROR WHICH WERE REGARDED AS REASONABLE FOR CEILING PRICE PROPOSALS. DIFFERENT PRICES WERE ESTABLISHED FOR EACH OFFEROR BASED ON VARYING CIRCUMSTANCES SUCH AS AREA WAGE RATES AND OVERHEAD RATES. WE ARE INFORMED THAT THERE WAS A SUBSTANTIAL DIFFERENCE IN THE ESTIMATED PRICES AS BETWEEN GENERAL MOTORS AND MAREMONT. IT IS REPORTED THAT SINCE THE CEILING PRICES PROPOSED BY THE TWO OFFERS RECEIVING THE HIGHEST RATING BY THE SSEB WERE WITHIN THE ESTIMATES PREVIOUSLY ESTABLISHED FOR THEM, CEILING PRICES WERE NOT REQUESTED FROM MAREMONT OR CADILLAC GAGE.

THE ARMY CONTENDS THAT IN VIEW OF THE OBJECTIVE OF THE PROCUREMENT AND THE CRITICAL NEED FOR M-16 RIFLES, THEY ARE "CONVINCED THAT CEILING PRICES WERE SOLICITED FROM THE MAXIMUM NUMBER OF QUALIFIED SOURCES CONSISTENT WITH REQUIREMENTS AND THAT THE MOST ADVANTAGEOUS CONTRACTS WERE OBTAINED FOR THE GOVERNMENT" IN COMPLIANCE WITH THE STATUTE AND REGULATIONS CONCERNING NEGOTIATION.

IN THESE CIRCUMSTANCES, WE BELIEVE THAT THE BASIC ISSUE IS WHETHER THE FAILURE OF THE ARMY TO OBTAIN PRICE PROPOSALS FROM MAREMONT AND CADILLAC GAGE PRECLUDED THE CONSUMMATION OF VALID AND BINDING AWARDS TO GENERAL MOTORS AND HARRINGTON AND RICHARDSON. THE LAW UNDER WHICH THESE CONTRACTS WERE AWARDED, 10 U.S.C. 2304, WAS AMENDED BY PUBLIC LAW 87-653, EFFECTIVE DECEMBER 1, 1962, BY THE ADDITION OF SUBSECTION (G), WHICH INCLUDES THE FOLLOWING PROVISIONS PERTINENT TO THE ISSUE HERE PRESENTED:

"/G) IN ALL NEGOTIATED PROCUREMENTS IN EXCESS OF $2,500 IN WHICH RATES OR PRICES ARE NOT FIXED BY LAW OR REGULATION AND IN WHICH TIME OF DELIVERY WILL PERMIT, PROPOSALS SHALL BE SOLICITED FROM THE MAXIMUM NUMBER OF QUALIFIED SOURCES CONSISTENT WITH THE NATURE AND REQUIREMENTS OF THE SUPPLIES OR SERVICES TO BE PROCURED, AND WRITTEN OR ORAL DISCUSSIONS SHALL BE CONDUCTED WITH ALL RESPONSIBLE OFFERORS WHO SUBMIT PROPOSALS WITHIN A COMPETITIVE RANGE, PRICE, AND OTHER FACTORS CONSIDERED * * *.' THE ABOVE PROVISION OF LAW REQUIRES THAT THE SELECTION OF A CONTRACTOR IN A NEGOTIATED PROCUREMENT BE MADE (1) AFTER OBTAINING MAXIMUM COMPETITION CONSISTENT WITH THE NEEDS OF THE PROCUREMENT, AND (2) AFTER DISCUSSIONS ARE CONDUCTED WITH ALL RESPONSIBLE OFFERORS SUBMITTING PROPOSALS WITHIN A COMPETITIVE RANGE. IN THE USUAL CASE THE CONTRACTING AGENCY HAS BOTH PRICE AND OTHER FACTORS, SUCH AS TECHNICAL KNOW-HOW, DELIVERY CAPABILITY, AND THE LIKE BEFORE IT WHEN IT DETERMINES WHICH PROPOSALS ARE WITHIN A COMPETITIVE RANGE. ORDINARILY, OF COURSE, PRICE SHOULD BE CONSIDERED. UNDERSTAND THE ARMY'S POSITION AS AGREEING WITH THIS. HOWEVER, THERE ARE SITUATIONS IN WHICH FACTORS OTHER THAN PRICE ARE DETERMINATIVE IN DECIDING WHETHER A PARTICULAR PROPOSAL IS WITHIN A COMPETITIVE RANGE. FOR EXAMPLE, IF THE PRODUCT OR DELIVERY OFFERED FALLS SHORT OF THE NEEDS OF THE GOVERNMENT AND IT SEEMS IMPROBABLE THAT THE PROPOSAL CAN BE SATISFACTORILY UPGRADED, THE PRICE OF THAT PARTICULAR OFFEROR IS IMMATERIAL.

IN THIS REGARD, SECRETARY BROOKS' REPORT TO US STATES THAT THE ARMY IS CONVINCED THAT PRICES WERE SOLICITED FROM THE MAXIMUM NUMBER OF QUALIFIED SOURCES CONSISTENT WITH THE REQUIREMENTS OF THE GOVERNMENT. WE INTERPRET THIS TO MEAN THAT THE ARMY HAD DETERMINED, AFTER THE DISCUSSION HELD WITH ALL FOUR OFFERORS ON APRIL 4 AND 5 AND PRIOR TO REQUESTING CEILING PRICES FROM GENERAL MOTORS AND HARRINGTON AND RICHARDSON, THAT MAREMONT AND CADILLAC GAGE WERE NOT CONSIDERED WITH A COMPETITIVE RANGE AFTER REEVALUATION OF THE FOUR TECHNICAL PROPOSALS IN LIGHT OF THE REQUIREMENT FOR INCREASED QUANTITIES AND ACCELERATED DELIVERY, AND THAT GENERAL MOTORS AND HARRINGTON AND RICHARDSON AFFORDED TO THE GOVERNMENT A HIGHER DEGREE OF CONFIDENCE IN THEIR ABILITY TO MEET THESE REVISED REQUIREMENTS.

THE LEGISLATIVE HISTORY OF SECTION 2304 (G) DEMONSTRATES THAT DECISIONS AS TO WHICH FIRMS ARE AND WHICH FIRMS ARE NOT WITHIN A COMPETITIVE RANGE IS A MATTER OF ADMINISTRATIVE DISCRETION WHICH THIS OFFICE COULD CONSIDER REVERSING ONLY UPON A CLEAR SHOWING THAT SUCH DETERMINATION WAS AN ARBITRARY ABUSE OF THAT DISCRETION. IN THIS CONNECTION, BOTH THE ORIGINAL RFP AND THE AMENDMENT THERETO MADE IT QUITE CLEAR THAT SELECTION WOULD NOT BE MADE PRIMARILY ON THE BASIS OF PRICE, AND THE AMENDMENT EMPHASIZED THAT THE TWO SOURCES SELECTED WOULD BE THOSE WHICH WOULD AFFORD TO THE GOVERNMENT THE HIGHEST DEGREE OF CONFIDENCE IN THEIR ABILITY IN MEETING OR EXCEEDING THE ACCELERATED SCHEDULE WHILE MAINTAINING GOOD QUALITY AND PROVIDING THE STRONGEST MOBILIZATION BASE. BASED UPON OUR REVIEW OF THE ARMY'S RECORDS CONCERNING THE EVALUATIONS, WE WOULD NOT BE JUSTIFIED IN SUBSTITUTING OUR JUDGMENT FOR THAT OF THE ARMY IN CONCLUDING THAT OF THE FOUR OFFERORS GENERAL MOTORS AND HARRINGTON AND RICHARDSON AFFORDED TO THE GOVERNMENT A HIGHER DEGREE OF CONFIDENCE IN THEIR ABILITY TO MEET THE REQUIREMENTS OF THE REVISED RFP.

AS NOTED HERETOFORE, THE ARMY DENIES THAT IT DISREGARDED COST IN SELECTING THE TWO SUCCESSFUL OFFERORS. THE ARMY HAD MADE ITS OWN ESTIMATE OF THE PROBABLE PRICES OF ALL FOUR OFFERORS. THESE ESTIMATES REFLECTED A SUBSTANTIAL DIFFERENCE BETWEEN THE PROBABLE PRICES OF GENERAL MOTORS AND MAREMONT. THEREFORE, THE ARMY WAS AWARE THAT SELECTION OF GENERAL MOTORS WOULD PROBABLY BE MORE COSTLY TO THE GOVERNMENT. SINCE THE PROPOSED CEILING PRICE OF GENERAL MOTORS WAS WITHIN THE ARMY'S ESTIMATE, AND GENERAL MOTORS WAS OTHERWISE QUALIFIED, THE AWARD WAS MADE. WHILE WE BELIEVE THERE WOULD HAVE BEEN A SOUNDER BASIS FOR THE EXERCISE OF JUDGMENT HAD PRICES BEEN OBTAINED FROM ALL FOUR OFFERORS, WE BELIEVE THERE IS SOME SUPPORT FOR THE ARMY'S POSITION THAT COST TO THE GOVERNMENT WAS NOT IGNORED. WE DO NOT BELIEVE CONGRESS IN ENACTING 10 U.S.C. 2304 (G) CONTEMPLATED THE SUBSTITUTION OF GOVERNMENT ESTIMATES FOR PRICES FROM COMPETING OFFERORS IN DETERMINING THOSE WITHIN A COMPETITIVE RANGE. HOWEVER, SINCE THE ARMY DETERMINED AFTER TECHNICAL EVALUATIONS OF ALL FOUR PROPOSALS THAT GENERAL MOTORS AND HARRINGTON AND RICHARDSON WERE THE MOST QUALIFIED AND MAREMONT AND CADILLAC GAGE, HAVING BEEN RATED LOWER TECHNICALLY, WERE, IN EFFECT, NOT WITHIN A COMPETITIVE RANGE, WE ARE UNABLE TO CONCLUDE THAT THE FAILURE OF THE ARMY TO OBTAIN PRICES FROM THEM CONTRAVENED 10 U.S.C. 2304 (G).

WE ARE, OF COURSE, FAMILIAR WITH THE DECISION OF THE SUPREME COURT IN THE CASE OF PAUL V. UNITED STATES, 371 U.S. 245, WHICH YOU CITE. HOWEVER, WE DO NOT THINK THAT THE PAUL CASE HAS PRECEDENTIAL FORCE, CONSIDERING THE FACTS AND ISSUES IN THE INSTANT CASE. IN PAUL, THE COURT WAS CALLED UPON TO DECIDE WHETHER THE STATE OF CALIFORNIA COULD ENFORCE ITS MINIMUM PRICE REGULATION WITH RESPECT TO MILK SOLD TO UNITED STATES MILITARY INSTALLATIONS. IN DECIDING THE QUESTION IN THE NEGATIVE, THE COURT EMPHASIZED THAT THE STATE REGULATED PRICE SCHEME CONFLICTED WITH THE FEDERAL PROCUREMENT LAWS AND POLICY WHICH REQUIRE COMPETITIVE BIDDING OR NEGOTIATIONS THAT REFLECT ACTIVE COMPETITION, AND, HENCE, CALIFORNIA'S REGULATORY PRICE SCHEME CONSTITUTED AN UNCONSTITUTIONAL BURDEN ON THE UNITED STATES. WE THINK IT APPARENT FROM THE OPINION IN PAUL THAT THE COURT WAS NOT CONCERNED WITH DEFINING OR DELIMITING THE TERMS "COMPETITION" OR "NEGOTIATION" IN THE CONTEXT OF THE PRESENT PROCUREMENT. RATHER, THE THRUST OF THE COURT'SOPINION WAS DIRECTED TO DECIDING WHETHER FEDERAL PROCUREMENT OFFICERS MUST ACCEDE TO STATE PRICE FIXING SCHEMES IN DETERMINING THE PRICE PROVISIONS OF FEDERAL CONTRACTS. IN SHORT, THE QUESTION IN THE PAUL CASE, AS WE SEE IT, IS WHO -- THE FEDERAL GOVERNMENT OR THE STATE GOVERNMENT -- IS EMPOWERED TO DETERMINE THE EXTENT OF COMPETITION AND THE PRICES IN FEDERAL CONTRACTS OF THE KIND INVOLVED THERE. ACCORDINGLY, WHILE WE ARE IN COMPLETE AGREEMENT WITH THE COURT'S INTERPRETATION OF THE EFFECT OF THE FEDERAL STATUTES AND REGULATIONS WITH RESPECT TO REQUIRING ACTIVE COMPETITION WE DO NOT BELIEVE THE DECISION IS HELPFUL IN DETERMINING WHETHER THE FAILURE OF THE ARMY TO OBTAIN PRICE PROPOSALS FROM MAREMONT AND CADILLAC GAGE UNDER THE CIRCUMSTANCES HERETOFORE DISCUSSED PRECLUDED THE CONSUMMATION OF VALID AND BINDING AWARDS TO GENERAL MOTORS AND HARRINGTON AND RICHARDSON.

YOU HAVE ALSO CITED 45 COMP. GEN. 417 IN SUPPORT OF YOUR PROTEST. THAT CASE TWO OFFERORS SUBMITTED PROPOSALS ON RESEARCH AND DEVELOPMENT WORK. AS THE RESULT OF TECHNICAL EVALUATION OF THE TWO PROPOSALS, ONE WAS DETERMINED "SUBSTANTIALLY SUPERIOR" AND NEGOTIATIONS LEADING TO A CONTRACT WERE CONDUCTED WITH THAT OFFEROR. NO DETERMINATION WAS MADE AS TO WHETHER THE OTHER PROPOSAL WAS WITHIN A COMPETITIVE RANGE AND NO DISCUSSIONS WERE HELD WITH THE OTHER OFFEROR, THE AGENCY CONTENDED THAT NEGOTIATION WITH ONLY ONE OFFEROR WAS JUSTIFIED UNDER ASPR 3-805.1 (D), WHICH CONCERNS RESEARCH AND DEVELOPMENT CONTRACTS AND PROVIDES THAT AWARD MAY BE PROPERLY INFLUENCED BY THE PROPOSAL WHICH PROMISES THE GREATEST VALUE TO THE GOVERNMENT IN TERMS OF VARIOUS FACTORS RATHER THAN THE PROPOSAL OFFERING THE LOWEST COST. WE CONCLUDED THAT IN THE ABSENCE OF A DETERMINATION THAT THE OTHER PROPOSAL WAS NOT WITHIN A COMPETITIVE RANGE, THERE WAS AN OBLIGATION TO NEGOTIATE. WE BELIEVE THE CITED CASE IS DISTINGUISHABLE FROM THE INSTANT CASE IN THAT NEGOTIATIONS WERE CONDUCTED WITH MAREMONT AND CADILLAC GAGE UNTIL IT WAS DETERMINED THAT THEY WERE NOT WITHIN A COMPETITIVE RANGE.

IN A LETTER DATED JUNE 24, 1968, YOU ADVANCE AN ADDITIONAL REASON FOR HOLDING THE CONTRACTS ILLEGAL, WHICH IS, ESSENTIALLY, THAT THE ARMY REPRESENTATIVES EXCEEDED THEIR AUTHORITY IN CHANGING THE PURPOSE OF THE PROCUREMENT BY THE TELEGRAPHIC AMENDMENT OF MARCH 29, 1968. THIS ARGUMENT SEEMS TO REST ON TWO PREMISES; FIRST, THAT AUTHORITY TO CONSUMMATE THE CONTRACTS DERIVES FROM THE D AND F MADE BY SECRETARY BROOKS ON MARCH 28, 1968, AND SECOND, THAT CONTRACTING AUTHORITY SO DERIVED CAN LEGALLY BE EXERCISED ONLY IN ACCORDANCE WITH THE "GROUND RULES" SET FORTH IN THE D AND F.

WE WOULD STATE THE FIRST PREMISE SOMEWHAT DIFFERENTLY, THAT IS, IN THIS PARTICULAR CASE THE AUTHORITY GIVEN BY CONGRESS TO NEGOTIATE THE CONTRACTS WAS CONDITIONED UPON A PRIOR SECRETARIAL DETERMINATION AND FINDING THAT IT WOULD BE IN THE INTEREST OF NATIONAL DEFENSE TO HAVE AVAILABLE IN THE EVENT OF A NATIONAL EMERGENCY TWO ADDITIONAL SOURCES OF SUPPLY FOR THE M- 16 RIFLE FAMILY.

WE DO NOT DISAGREE THAT AUTHORITY TO NEGOTIATE THE CONTRACTS DERIVES FROM THE SECRETARIAL D AND F. WE DO NOT AGREE, HOWEVER, THAT THE PROCUREMENT PROCEDURES TO BE FOLLOWED MUST BE SET FORTH IN THE D AND F. THE STATUTORY AUTHORITY TO NEGOTIATE, 10 U.S.C. 2304 (A) (16), DOES NOT PRESCRIBE PROCEDURES WHICH MUST BE FOLLOWED IN THE NEGOTIATION PROCESS. NOR ARE SUCH PROCEDURES TO BE FOUND IN 10 U.S.C. 2310, SUBSECTION (B) OF WHICH REQUIRES ONLY THAT WRITTEN FINDINGS BE MADE SETTING FORTH THE FACTS AND CIRCUMSTANCES JUSTIFYING THE USE OF ONE OF THE EXCEPTIONS SET FORTH IN 10 U.S.C. 2304 (A).

IN OUR OPINION THE LEGALITY OF THE CONTRACTS DOES NOT DEPEND ON ADHERENCE TO ANY "GROUND RULES" FOR NEGOTIATION WHICH YOU BELIEVE ARE PRESCRIBED IN THE MARCH 28, 1968, D AND F. FIRST, WE DO NOT BELIEVE THE LANGUAGE OF THE MARCH 29, 1968, AMENDMENT IS INCONSISTENT WITH THE LANGUAGE OF THE D AND F. SECOND, THE CONGRESS HAS SET FORTH IN 10 U.S.C. 2304 (G) CERTAIN RULES TO BE FOLLOWED IN EXERCISING THE NEGOTIATING AUTHORITY GRANTED BY 10 U.S.C. 2304 (A), AND WE BELIEVE THE QUESTION WHETHER THE AUTHORITY TO NEGOTIATE WAS PROPERLY EXERCISED MUST BE DETERMINED BY THOSE RULES RATHER THAN BY ANY LANGUAGE IN THE D AND F. AS PREVIOUSLY INDICATED WE DO NOT THINK THAT THE PROCUREMENT IN QUESTION VIOLATED 10 U.S.C. 2304 (G).

IN ACCORDANCE WITH THE FOREGOING, WE DO NOT BELIEVE THE CONTRACTS AWARDED TO GENERAL MOTORS AND HARRINGTON AND RICHARDSON CAN BE QUESTIONED FROM A LEGAL STANDPOINT.