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SECRETARY: FURTHER REFERENCE IS MADE TO THE PROTEST OF VARO. THE SUBJECT INVITATION WAS ISSUED ON MAY 25. BIDS WERE REQUESTED ON A SINGLE-YEAR BASIS UNDER ALTERNATE "A" AND ON A MULTIYEAR BASIS FOR 2 YEARS UNDER ALTERNATE "B. THE QUANTITY IS 2. THE QUANTITY FOR THE FIRST YEAR IS 2. 031 AND THE QUANTITY FOR THE SECOND YEAR IS 2. AS STATED IN PARAGRAPH 5 BIDS WILL BE EVALUATED ON THE BASIS OF ADVANTAGES OR DISADVANTAGES TO THE GOVERNMENT THAT MIGHT RESULT FROM MAKING MORE THAN ONE AWARD (MULTIPLE AWARDS). IT WILL BE ASSUMED THAT THE SUM OF $50 WOULD BE THE ADMINISTRATIVE COST TO THE GOVERNMENT FOR ISSUING AND ADMINISTERING EACH CONTRACT AWARDED UNDER THIS INVITATION FOR BID. NO AWARD WILL BE MADE FOR LESS THAN THE FULL QUANTITY.

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B-164649, NOV. 7, 1968

TO MR. SECRETARY:

FURTHER REFERENCE IS MADE TO THE PROTEST OF VARO, INCORPORATED, AGAINST THE AWARD OF ANY CONTRACT UNDER INVITATION FOR BIDS NO. DAAB07 68-B-0485, ISSUED BY THE UNITED STATES ARMY ELECTRONICS COMMAND, FORT MONMOUTH, NEW JERSEY.

THE SUBJECT INVITATION WAS ISSUED ON MAY 25, 1968, FOR THE PROCUREMENT OF AN/TVS-2 CREW SERVED WEAPON NIGHT VISION SIGHTS AND ANCILLARY EQUIPMENT. BIDS WERE REQUESTED ON A SINGLE-YEAR BASIS UNDER ALTERNATE "A" AND ON A MULTIYEAR BASIS FOR 2 YEARS UNDER ALTERNATE "B;, UNDER ALTERNATE " AS AMENDED, THE QUANTITY IS 2,031, AND UNDER ALTERNATE "B," AS AMENDED, THE QUANTITY FOR THE FIRST YEAR IS 2,031 AND THE QUANTITY FOR THE SECOND YEAR IS 2,300. IN ADDITION, THE INVITATION INCLUDES AN OPTION PROVISION FOR INCREASING ALTERNATE "A" OR ALTERNATE "B" UP TO 100 PERCENT.

THE INVITATION INCLUDES THE FOLLOWING PROVISIONS PERTINENT TO THE PROTEST:

"6. EVALUATION OF BIDS - IN ADDITION TO OTHER FACTORS, AS STATED IN PARAGRAPH 5 BIDS WILL BE EVALUATED ON THE BASIS OF ADVANTAGES OR DISADVANTAGES TO THE GOVERNMENT THAT MIGHT RESULT FROM MAKING MORE THAN ONE AWARD (MULTIPLE AWARDS). FOR THE PURPOSE OF MAKING THIS EVALUATION, IT WILL BE ASSUMED THAT THE SUM OF $50 WOULD BE THE ADMINISTRATIVE COST TO THE GOVERNMENT FOR ISSUING AND ADMINISTERING EACH CONTRACT AWARDED UNDER THIS INVITATION FOR BID. NO AWARD WILL BE MADE FOR LESS THAN THE FULL QUANTITY. EVALUATION OF BIDS RECEIVED WILL BE MADE ON THE BASIS OF PRICES QUOTED FOR SUPPLIES. THE GOVERNMENT MAY ELECT TO EXERCISE THE OPTION AT TIME OF AWARD, AND IF SUCH OPTION IS TAKEN, EVALUATION WILL BE ON THE BASIS OF TOTAL QUANTITY TO BE AWARDED, INCLUDING THE OPTION QUANTITY. "BIDDING INSTRUCTION 20. THE GOVERNMENT RESERVES THE RIGHT TO AWARD TWO OR MORE IDENTICAL CONTRACTS FROM THIS SOLICITATION, BUT NO OFFEROR WILL RECEIVE MORE THAN ONE AWARD.'

THE CONTRACTING OFFICER STATES THAT THE ABOVE PROVISIONS WERE INCLUDED IN ORDER THAT THE GOVERNMENT'S REQUIREMENT OF UP TO 1,000 UNITS PER MONTH, EXCLUSIVE OF A SMALL BUSINESS SET-ASIDE, COULD BE FULFILLED, AS IT WAS BELIEVED THAT NO FIRM COULD PRODUCE MORE THAN 500 UNITS. THE DELIVERY SCHEDULE CALLS FOR NO MORE THAN 500 UNITS TO BE DELIVERED BY THE CONTRACTOR IN A GIVEN MONTH.

THIRTEEN BIDS WERE RECEIVED AND OPENED ON JUNE 19, 1968. THE THREE LOWEST BIDS ON A MULTIYEAR BASIS ARE AS FOLLOWS:

BIDDER UNIT PRICE TOTAL PRICE ELECTRO OPTICAL SYSTEM (EOS) $577.00

$2,511,150.06 ELECTROSPACE CORPORATION 625.00 2,706,116.17 VARO, INCORPORATED

746.50 3,236,642.40 THE CONTRACTING OFFICER REPORTS THAT EOS HAS ADVISED THAT IF THE OPTION IS EXERCISED AT THE TIME OF AWARD IT CAN PRODUCE 1,000 UNITS PER MONTH. HE ALSO REPORTS THAT A PREAWARD SURVEY HAS CONFIRMED THIS FACT. HE THEREFORE RECOMMENDS AWARD TO EOS. HOWEVER, IN HIS LETTER FORWARDING THE REPORT, THE ACTING DIRECTOR OF PROCUREMENT AND PRODUCTION, HEADQUARTERS UNITED STATES ARMY MATERIEL COMMAND, STATES THAT IT IS NOT THE CONTRACTING OFFICER'S INTENTION TO EXERCISE THE OPTION AT THE TIME OF AWARD. APPARENTLY A SECOND AWARD TO ELECTROSPACE IS CONTEMPLATED TO FULFILL THE REQUIREMENTS.

BASICALLY, IT IS VARO'S CONTENTION THAT THE INVITATION IS DEFECTIVE AND, THEREFORE, SHOULD BE CANCELED AND THE REQUIREMENT FOR 1,000 UNITS PER MONTH READVERTISED. FIRST, VARO CONTENDS THAT THE FAILURE TO DISCLOSE THE GOVERNMENT'S FULL REQUIREMENTS WAS A MATERIAL DEFECT. IT IS ITS POSITION THAT THIS DEFECT PREVENTED THE GOVERNMENT FROM RECEIVING THE BENEFIT OF FULL AND FREE COMPETITION AND ALSO PREVENTED BIDDERS FROM BIDDING ON ONE- HALF OF THE GOVERNMENT'S TOTAL REQUIREMENTS. FURTHER, IT IS CONTENDED THAT LIMITING THE QUANTITY TO BE AWARDED TO ANY ONE BIDDER TO 500 UNITS PER MONTH WAS BASED UPON AN ERRONEOUS OPINION THAT NO POTENTIAL BIDDER HAD THE CAPACITY TO PRODUCE MORE WHEN, IN FACT, AT LEAST VARO AND APPARENTLY EOS HAVE SUFFICIENT CAPACITY. VARO ALSO EXPRESSES THE VIEW THAT THE RECORD INDICATES EOS HAD KNOWLEDGE OF THE GOVERNMENT'S FULL REQUIREMENTS AND, THEREFORE, WAS ABLE TO BID A LOWER PRICE BECAUSE IT WAS BIDDING ON THE SOLICITED QUANTITY AND THE ADDITIONAL QUANTITY.

SECOND, VARO CONTENDS THAT THE INVITATION IS DEFECTIVE BECAUSE IT DOES NOT INFORM BIDDERS OF THE PROCURING AGENCY'S INTENT TO AWARD A CONTRACT TO THE SECOND LOW BIDDER AND BECAUSE THIS INTENT IS INCONSISTENT WITH BIDDING INSTRUCTION 20 SINCE ANY CONTRACT AWARDED TO THE SECOND LOW BIDDER WOULD NOT BE "IDENTICAL" WITH THAT AWARDED THE LOW BIDDER. IN THIS CONNECTION VARO CONTENDS THAT THE PROVISION FOR IDENTICAL AWARDS IS IN "CONTRAVENTION OF THE EXPRESS WORDING OF THE FORMAL ADVERTISING STATUTE PROVIDING THAT AWARDS SHALL BE MADE TO THE RESPONSIBLE BIDDER (NOT BIDDERS) WHOSE BID CONFORMS TO THE INVITATION.' VARO ALSO CONTENDS THAT THIS PROVISION IS IN CONFLICT WITH THE PROVISION FOR MULTIPLE AWARDS QUOTED ABOVE AND, THEREFORE, THE METHOD OF EVALUATION AND AWARD IS AMBIGUOUS.

FINALLY, VARO CONTENDS THAT THERE IS SUCH A WIDE RANGE OF UNITS WHICH MAY BE AWARDED THAT THE INVITATION IS DEFECTIVE. IT POINTS OUT THAT THE RANGE RUNS FROM AT LEAST 2,031 UNDER ALTERNATE A" TO 8,662 UNDER ALTERNATE "B" WITH THE OPTION QUANTITY AND POSSIBLE HIGHER IF "IDENTICAL" AWARDS ARE MADE. THIS, VARO CONTENDS, PROVENTS BIDDERS FROM OFFERING THEIR BEST PRICE BECAUSE THEY MUST ASSUME THAT THE MINIMUM QUANTITY MAY BE ALL THAT IS AWARDED. ALSO, IT POINTS OUT THAT PARAGRAPH 1-1504 OF THE ARMED SERVICES PROCUREMENT REGULATION PROHIBITS OPTION QUANTITIES IN EXCESS OF 50 PERCENT OF THE BASIC QUANTITY UNLESS THE HEAD OF THE PROCUREMENT ACTIVITY APPROVES A HIGHER PERCENTAGE, WHICH DOES NOT APPEAR TO BE THE CASE HERE.

THE RECORD IN THIS CASE INDICATES THAT PRIOR TO ISSUING THE SUBJECT INVITATION IT WAS DETERMINED THAT THE GOVERNMENT'S REQUIREMENTS FOR THIS ITEM WERE 1,300 UNITS PER MONTH. THE PROJECT MANAGER AND AN INDUSTRIAL ENGINEER WITH THE PROCURING ACTIVITY WERE OF THE OPINION THAT A SMALL BUSINESS CONCERN WOULD BE CAPABLE OF PRODUCING AND DELIVERING APPROXIMATELY 300 UNITS A MONTH AND THAT NO LARGE BUSINESS FIRM COULD PRODUCE AND DELIVER MORE THAN 500 UNITS PER MONTH. THE RECORD ALSO SHOWS THAT THESE JUDGMENTS WERE BASED UPON THE PRIOR PROCUREMENT HISTORY OF THIS ITEM. IN A MEMORANDUM DATED MAY 10, 1968, THE CHIEF OF THE INDUSTRIAL ENGINEERING DIVISION REPORTED THE FOLLOWING:

"A. PROCUREMENT HISTORY: - VARO INC., THE ONLY PRODUCER OF THE SUBJECT ITEM, HAS PERFORMED AS FOLLOWS: SHORTLY BEFORE THE INITIAL CONTRACT WAS AWARDED, 5 FEBRUARY 1965, VARO, INC., WAS A SMALL BUSINESS CONCERN. INITIAL PRODUCTION DELIVERY OCCURRED IN DECEMBER 1965 AND DELIVERY WAS COMPLETED IN NOVEMBER 1966. THE COMPANY WAS AWARDED A LETTER CONTRACT MAY 1966 AND STILL PRODUCED AN AVERAGE OF 200 MONTHLY AGAINST A CONTRACTUAL REQUIREMENT OF 300 MONTHLY. THEY WERE SUCCESSFUL IN INCREASING THEIR PRODUCTION TO 500 PER MONTH ONLY AFTER BECOMING A LARGE BUSINESS AND PHYSICALLY EXPANDING PLANT FACILITIES AND PERSONNEL. THE 500 PER MONTH QUANTITY WAS REACHED AFTER 30 MONTHS PRODUCTION EXPERIENCE.

"B. SMALL BUSINESS CAPACITY: - THIS DIVISION DEVELOPED A LIST OF SMALL BUSINESS CONCERNS HAVING OPTICAL/MECHANICAL CAPABILITIES. RESEARCH AND CONVERSATIONS WITH SOME FIRMS INDICATED AN INABILITY TO COMPETE WITH LARGE BUSINESSES ON AN EQUAL BASIS (PRICE AND QUANTITIES). THE ANNUAL DOLLAR VALUE OF THE SMALL CONTRACTORS RANGED FROM $2,000,000 TO $10,000,000. CONSIDERING THEIR PRODUCT MIX OF COMMERCIAL AND MILITARY ITEMS, COUPLED WITH EXPERIENCE OF VARO, A MONTHLY RATE OF 300 PER MONTH OF THE SUBJECT ITEM (APPROXIMATELY $3,000,000 PER YEAR) IS A PRACTICAL LIMIT THAT WILL ATTRACT THE MAXIMUM COMPETITION AMONGST TECHNICALLY COMPETENT SMALL BUSINESS FIRMS.'

THEREFORE, IT WAS DECIDED TO SET ASIDE 300 UNITS FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION AND TO PROCURE THE BALANCE FROM TWO LARGE BUSINESS FIRMS. THE SUBJECT INVITATION WAS ISSUED WITH THE LATTER PURPOSE IN MIND, AND THE PROVISIONS FOR MULTIPLE AWARDS AND "IDENTICAL" AWARDS WERE INCLUDED TO ACCOMPLISH THIS PURPOSE. ALTHOUGH IT DEVELOPED AFTER BIDS WERE OPENED THAT THE OPINION CONCERNING LARGE BUSINESS CAPACITY WAS ERRONEOUS, THERE APPEARS TO HAVE BEEN A REASONABLE BASIS FOR SUCH OPINION. EOS HAS DENIED THAT IT HAD ANY KNOWLEDGE CONCERNING THE GOVERNMENT'S TOTAL REQUIREMENTS AND HAS FURNISHED AN AFFIDAVIT IN SUPPORT OF SUCH DENIAL. WE HAVE ALSO BEEN INFORMALLY ADVISED THAT THE CONTRACTING OFFICER DENIES THAT ANY FIRM WAS FURNISHED SUCH KNOWLEDGE.

THE LAW GOVERNING THE PROCUREMENT, 10 U.S.C. 2305, REQUIRES THAT SPECIFICATIONS AND INVITATIONS FOR BIDS "SHALL PERMIT SUCH FREE AND FULL COMPETITION" AS IS CONSISTENT WITH THE PROCUREMENT OF THE PROPERTY AND SERVICES NEEDED BY THE AGENCY CONCERNED AND THAT AWARD BE MADE TO THE RESPONSIBLE BIDDER WHOSE BID IS RESPONSIVE "AND WILL BE THE MOST ADVANTAGEOUS TO THE UNITED STATES, PRICE AND OTHER FACTORS CONSIDERED.' INHERENT IN THE FORMAL ADVERTISING SYSTEM IS THE CONCEPT THAT THE SOLICITATION OF BIDS IN AN ADVERTISEMENT BE GIVEN WIDE CIRCULATION; THAT THE INVITATION STATES THE GOVERNMENT'S NEEDS IN A CLEAR, DEFINITE AND COMPLETE MANNER; AND THAT THE AWARD OF A CONTRACT TO THE RESPONSIBLE BIDDER SUBMITTING THE LOW RESPONSIVE BID WILL RESULT IN OBTAINING THE "BEST BUY" FOR THE UNITED STATES. ALTHOUGH IT IS NOT WITHIN THE PROVINCE OF OUR OFFICE TO DRAFT SPECIFICATIONS AND INVITATIONS FOR THE CONTRACTUAL NEEDS OF THE DEPARTMENTS AND AGENCIES, IT IS A PROPER AND SIGNIFICANT FUNCTION OF THIS OFFICE TO DETERMINE WHETHER SPECIFICATIONS AND INVITATIONS ARE RESTRICTIVE AND DO NOT PERMIT BIDDERS TO COMPETE FULLY, AS PROVIDED BY THE ABOVE STATUTE, BY PREVENTING THEM FROM OFFERING THEIR LOWEST PRICES FOR FURNISHING THE ACTUAL NEEDS OF THE GOVERNMENT.

HERE, THE GOVERNMENT'S ACTUAL NEED, EXCLUSIVE OF THE SMALL BUSINESS SET- ASIDE, IS 1,000 UNITS PER MONTH. HOWEVER, UNDER THE TERMS OF THE SUBJECT INVITATION THE ADVERTISED QUANTITY IS HALF OF THE ACTUAL NEED. WHILE WE RECOGNIZE THAT IN DRAFTING THE INVITATION A BONA FIDE EFFORT WAS MADE TO FULFILL THE GOVERNMENT'S NEEDS, WE DO NOT BELIEVE THIS IS ADEQUATE JUSTIFICATION FOR WHAT, IN OUR OPINION, PREVENTS BIDDERS FROM COMPETING FULLY AND OFFERING THEIR MOST FAVORABLE PRICE FOR FULFILLING THE GOVERNMENT'S ACTUAL NEEDS. ALTHOUGH THERE IS MUCH ARGUMENT IN THE BRIEFS SUBMITTED ON BEHALF OF THE THREE LOW BIDDERS AS TO WHAT THE BID PRICES WOULD HAVE BEEN HAD THE FULL REQUIREMENTS BEEN ADVERTISED, WE NOTE THAT THERE IS A SIGNIFICANT DIFFERENCE IN THE UNIT PRICES FOR THE SINGLE-YEAR REQUIREMENT AS COMPARED TO THE MULTIYEAR REQUIREMENT. IN THE BID OF EOS THERE IS A $130 DIFFERENCE PER UNIT. THE ONLY WAY THIS QUESTION WILL BE RESOLVED IS TO ADVERTISE THE FULL REQUIREMENT, AND THAT IS WHAT WE BELIEVE THE STATUTE REQUIRES.

IN THESE CIRCUMSTANCES, WE MUST CONCLUDE THAT THE INVITATION WAS LEGALLY DEFECTIVE SINCE THE FULL AND FREE COMPETITION REQUIRED BY THE STATUTE HAS NOT BEEN OBTAINED AND, THEREFORE, NO VALID AWARD MAY RESULT FROM THE INVITATION. 41 COMP. GEN. 76; 47 ID. 236. WHILE IT IS UNFORTUNATE THAT THE BIDDERS HAVE IN GOOD FAITH SUBMITTED BIDS WHICH HAVE BEEN EXPOSED, WE DO NOT BELIEVE THIS FACT RENDERS THE DEFECTIVE INVITATION VALID. 41 COMP. GEN. 76, 82.

IN VIEW OF OUR CONCLUSION, WE DO NOT BELIEVE IT WOULD SERVE ANY USEFUL PURPOSE TO CONSIDER THE OTHER POINTS RAISED BY VARO OR THOSE IN THE BRIEFS SUBMITTED ON BEHALF OF EOS AND ELECTROSPACE.

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