B-165794, APR. 25, 1969, 48 COMP. GEN. 702

B-165794, APR. 25, 1969, 48 COMP. GEN. 702

CONTRACTORS--CONFLICTS OF INTEREST--DEVELOPMENTAL OR PROTOTYPE ITEMS THE FACT THAT THE LOW BIDDER UNDER AN INVITATION FOR A TERMINAL, TELEGRAPH-TELEPHONE SYSTEM HAD IN THE DEVELOPMENT OF THE SYSTEM FURNISHED UNDER CONTRACT PRODUCTIVE DRAWINGS USED IN THE PREPARATION OF THE APPLICABLE MILITARY SPECIFICATIONS DOES NOT REQUIRE THAT THE BIDDER BE BARRED UNDER RULE 2--- "RESTRICTIONS ON FUTURE PROCUREMENTS"--- OF DEPARTMENT OF DEFENSE DIRECTIVE 5500.10 GOVERNING THE CONFLICTS OF INTEREST OF CONTRACTORS WHO FURNISH THE GOVERNMENT WITH ENGINEERING OR TECHNICAL SERVICES IN CONNECTION WITH THE INITIATION OF NEW SYSTEMS, PROGRAMS, OR SPECIFICATIONS. THE BIDDER NOT ONLY DID NOT FURNISH THE "COMPLETE SPECIFICATIONS" RESTRICTED BY RULE 2, BUT THE DRAWINGS OBTAINED UNDER A PRODUCTION CONTRACT AWARDED BY COMPETITIVE BIDDING, THEIR USE IS WITHIN THE EXCEPTION TO RULE 2 OF THE DIRECTIVE RELATING TO "CONTRACTS FOR DEVELOPMENTAL OR PROTOTYPE ITEMS." CONTRACTORS- CONFLICTS OF INTEREST-- AVOIDANCE DEPARTMENT OF DEFENSE DIRECTIVE 5500.10 (APPENDIX G OF THE ARMED SERVICES PROCUREMENT REGULATION) PROMULGATED TO AVOID CONFLICTS OF INTEREST ON THE PART OF CONTRACTORS IS NOT A SELF-EXECUTING REGULATION BUT REQUIRES NOTICE OF ITS APPLICABILITY IN THE SOLICITATION AND IN THE CONTRACT, AND THE EXERCISE OF JUDGMENT OR DISCRETION BY THE CONTRACTING OFFICER, SUBJECT TO REVIEW, AND, THEREFORE, THE DOCTRINE OF G. L. CHRISTIAN AND ASSOCIATES V. UNITED STATES, 312 F. 2D 418, MAY NOT BE INVOKED TO GIVE THE DIRECTIVE THE FORCE AND EFFECT OF LAW AND TO READ INTO THE CONTRACT MANDATORY CLAUSES OF ASPR THAT WERE NOT INCLUDED. CONTRACTS--AWARDS--ADVANTAGE TO GOVERNMENT-- AWARD PROTESTED WHEN A CONTRACTING OFFICER DETERMINES UNDER PARAGRAPH 2-407.9 (B) (3) (III) OF THE ARMED SERVICES PROCUREMENT REGULATION THAT A PROMPT AWARD WOULD BE ADVANTAGEOUS TO THE GOVERNMENT, AND THE AWARD IS PROPERLY AUTHORIZED BY HIGHER AUTHORITY, THERE IS NO REQUIREMENT THAT THE AWARD BE HELD UP PENDING A DECISION BY THE UNITED STATES GENERAL ACCOUNTING OFFICE IN ACCORDANCE WITH PARAGRAPH 2-407.9 (B) (2) OF THE REGULATION.

TO ISIDORE H. WACHTEL, APRIL 25, 1969:

FURTHER REFERENCE IS MADE TO YOUR TELEGRAM OF DECEMBER 11, 1968, AND SUBSEQUENT CORRESPONDENCE, RELATIVE TO THE PROTEST YOU FILED ON BEHALF OF SENTINEL ELECTRONICS, INC. (SENTINEL), AGAINST AWARD OF A CONTRACT TO ANOTHER BIDDER UNDER INVITATION FOR BIDS (IFB) NO. DAAB05 69-B-0657. THE SUBJECT INVITATION SOUGHT PRICES FOR THE MANUFACTURE AND DELIVERY OF VARIOUS RANGES OF QUANTITIES FOR THE TERMINAL, TELEGRAPH-TELEPHONE AN/TCC- 29 AND THREE MAJOR SUB-ASSEMBLIES. THE IFB WAS ISSUED ON OCTOBER 22, 1968, BY THE PROCUREMENT AND PRODUCTION DIRECTORATE, UNITED STATES ARMY ELECTRONICS COMMAND (USAECOM), WHICH WAS OPENED ON DECEMBER 2, 1968. SIXTY-ONE FIRMS WERE SOLICITED AND 68 OTHER FIRMS REQUESTED AND WERE FURNISHED COPIES OF THE SOLICITATION. OF THE 23 RESPONSIVE BIDS WHICH WERE RECEIVED, STELMA INC; STAMFORD, CONNECTICUT, WAS LOW WITH A NET TOTAL PRICE OF $601,589.15 AND SENTINEL WAS THE SECOND LOW BIDDER WITH A NET TOTAL PRICE OF $727,936.33.

THE EXPIRATION DATE FOR STELMA'S BID WAS ORIGINALLY JANUARY 2, 1969, WHICH SUBSEQUENTLY WAS EXTENDED BY IT TO JANUARY 6, 1969. STELMA INDICATED THAT THEIR BID PRICES WERE BASED ON FIRM VENDOR AND SUBCONTRACTOR COMMITMENTS AND THAT AN EXTENSION BEYOND THE JANUARY 6 DATE WOULD WORK A FINANCIAL HARDSHIP ON IT. THEREFORE, IN ACCORDANCE WITH SECTION 2-407.9 (B) (3) (III) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), THE CONTRACTING OFFICER DETERMINED THAT UNDER THE CIRCUMSTANCES, A PROMPT AWARD WOULD BE ADVANTAGEOUS TO THE GOVERNMENT, AND AWARD OF A CONTRACT TO STELMA WAS AUTHORIZED BY THE OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY (I&L).

THE BASIS FOR YOUR PROTEST ON BEHALF OF SENTINEL IS THAT THE FAILURE TO PROHIBIT STELMA FROM BIDDING OR TO REJECT ITS BID VIOLATED THE"RULES FOR THE AVOIDANCE OF ORGANIZATIONAL CONFLICT OF INTEREST," DEPARTMENT OF DEFENSE (DOD) DIRECTIVE 5500.10, APPENDIX G, OF ASPR. YOU ALSO COMPLAIN THAT THE CONTRACTING OFFICER SHOULD NOT HAVE MADE THE AWARD WITHOUT WAITING FOR A DECISION OF OUR OFFICE IN ACCORDANCE WITH ASPR 2-407.9 (B) (2).

YOU SUGGEST THAT THE THRESHOLD QUESTION PRESENTED IN THIS PROTEST IS "WHETHER STELMA, BY ITS RELATIONSHIP IN THE AN/TCC-29 PROGRAM,HAS AN 'UNFAIR COMPETITIVE ADVANTAGE' SO THAT IT SHOULD HAVE BEEN ELIMINATED AS A BIDDER IN THE ABOVE-REFERENCED IFB." A BRIEF REVIEW OF THE PROCUREMENT HISTORY OF THIS ITEM, AS REPORTED TO OUR OFFICE BY THE DEPARTMENT OF THE ARMY, IS AS FOLLOWS:

THE TERMINAL, TELEGRAPH-TELEPHONE AN/TCC-29 IS A TRANSISTORIZED TELEPHONE -TELEGRAPH CARRIER TERMINAL, WHICH CONVERTS TELETYPEWRITER SIGNALS TO AUDIO SIGNALS, THUS PERMITTING TRANSMISSIONS THROUGH MULTIPLEX AND RADIO CIRCUITS, AND ALSO PERMITS SIMULTANEOUS VOICE AND TELETYPE TRANSMISSIONS OVER THE SAME CHANNEL. THERE ARE THREE MAJOR SUB-ASSEMBLIES OF THE AN/TCC -29, NAMELY, TH-22/TG TELEGRAPH TERMINAL. CV-425/U TELEGRAPH-TELEPHONE SIGNAL CONVERTER, AND F-316/U ELECTRICAL FILTER ASSEMBLY.

THE AN/TCC-29, WHICH REPLACED THE AN/TCC-14 (THE NON-TRANSISTORIZED PREDECESSOR), WAS ORIGINALLY DEVELOPED UNDER THE AUSPICES OF COLES SIGNAL LABORATORY, FORT MONMOUTH, NEW JERSEY, BY KELLOGG SWITCHBOARD. SUBSEQUENTLY, CONTRACTS NOS. DA-36-039-SC-64741, DATED 17 JUNE 1955, AND DA-36-039-SC-87188, DATED 27 MARCH 1961, WERE PLACED WITH STELMA, INC; THE FORMER AS AN R & D CONTRACT FOR THE AN/TCC-29 AND THE LATTER TO SECURE 14 EACH SERVICE TEST MODELS OF THE TH-22/TG. NEITHER CONTRACT CONTAINED ANY RESTRICTIVE NOTIFICATION PER DOD DIRECTIVE 5500.10, DATED 1 JUNE 1963, ASPR APPENDIX G, AS NONE WERE DEEMED APPLICABLE.

THE AN/TCC-29 PERFORMANCE SPECIFICATION, MIL-T-55255 DATED 20 FEBRUARY 1964, WAS DEVELOPED INDEPENDENTLY BY THE USAECOM LABORATORY.

MANUFACTURER'S DRAWINGS WERE PROCURED FROM STELMA, INC; ON CONTRACT NO. DA-36-039-SC-87188; HOWEVER, THESE DRAWINGS COULD NOT BE USED FOR A PRODUCTION CONTRACT DUE TO THE MANY REQUIREMENT CHANGES AND TO THE FACT THAT THESE DRAWINGS REPRESENTED PRODUCTION TECHNIQUES PECULIAR ONLY TO STELMA, INC.

THE FIRST COMPETITIVE PROCUREMENT OF THE AN/TCC-29 WAS MADE BY USAECOM ON 26 JUNE 1964 UNDER CONTRACT NO. DA-36-039-AMC-04898 (E) TO STELMA, INC. THE COMPETITIVE PROCUREMENT DATA PACKAGE CONSISTED OF SPECIFICATION MIL-T- 55255 WITH SEVEN (7) MINOR EXCEPTIONS, AN/TCC-29 MODEL (FROM STELMA CONTRACT NO. DA-36-039-SC-64741), AND THIRTY-SIX (36) GOVERNMENT SPECIFIED EXCEPTIONS TO THE MODEL. THE MANUFACTURER'S DRAWINGS PROCURED ON CONTRACT NO. DA-36-039-SC-87188 WERE NOT USED SINCE THEY DID NOT REPRESENT THE ITEM TO BE DELIVERED. THE IFB COVERED A TWO-YEAR MULTI-YEAR REQUIREMENT. EIGHTY-TWO FIRMS WERE SOLICITED AND 37 OTHER FIRMS REQUESTED AND WERE FURNISHED COPIES OF THE SOLICITATION. TWENTY-FOUR RESPONSIVE BIDS WERE RECEIVED, INCLUDING BIDS FROM STELMA AND SENTINEL. STELMA WAS THE FIRST LOW BIDDER AT $576.64 AND SENTINEL THIRD LOW BIDDER AT $699.00.

BETWEEN JUNE 1964 AND DECEMBER 1968, STELMA PRODUCED FOR THE GOVERNMENT IN EXCESS OF 15,000 EACH AN/TCC-29'S, EITHER AS A RESULT OF THE FIRST PRODUCTION CONTRACT AND MODIFICATIONS THERETO, OR AS THE RESULT OF CONTRACT NO. DA-36-039-AMC-09016, AWARDED TO STELMA ON 25 MARCH 1966, AND MODIFICATIONS THERETO.

AS THE RESULT OF A CONTRACTUAL REQUIREMENT ON THE FIRST PRODUCTION CONTRACT, STELMA FURNISHED PRODUCTION DRAWINGS FOR THE AN/TCC-29. THESE DRAWINGS WERE FIRST SUBMITTED FOR ACCEPTANCE IN JANUARY 1968 AND FINALLY ACCEPTED BY THE GOVERNMENT IN NOVEMBER 1968.

THESE PRODUCTION DRAWINGS,SPECIFICATION MIL-T-55255 (EL) WITH AMENDMENT NO. 2, AND A PROCUREMENT MODEL OF THE AN/TCC-29 FROM CONTRACT NO. DA-36- 039-AMC-09016 CONSTITUTED THE PROCUREMENT DATA PACKAGE FOR THE PROTESTED FORMALLY ADVERTISED PROCUREMENT. * * *

DOD DIRECTIVE 5500.10, ISSUED ON JUNE 1, 1963 (WHICH IS NOW FOUND IN APPENDIX G OF ASPR), WAS AN ATTEMPT TO WRITE A "CODE OF CONDUCT" FOR INDUSTRIAL CONTRACTORS IN CERTAIN KINDS OF TECHNICAL WORK TO AVOID ORGANIZATIONAL CONFLICTS OF INTEREST. IT WAS INSPIRED, IN PART, BY THE REPORT OF AN INTERDEPARTMENTAL COMMITTEE ON GOVERNMENT CONTRACTING FOR RESEARCH AND DEVELOPMENT, HEADED BY DAVID E. BELL, THEN DIRECTOR OF THE BUREAU OF THE BUDGET. THE DOD DIRECTIVE CONTAINS FOUR BASIC RULES, WITH SPECIFIED EXCEPTIONS, SUPPLEMENTED BY SPECIFIC EXAMPLES, GOVERNING POTENTIAL CONFLICTS OF INTEREST ON THE PART OF CONTRACTORS WHO FURNISH THE GOVERNMENT WITH ENGINEERING OR TECHNICAL SERVICES IN CONNECTION WITH THE INITIATION OF NEW SYSTEMS OR PROGRAMS OR SPECIFICATIONS. BROADLY SPEAKING, THE RULES LAID DOWN IN THE CODE FALL INTO TWO CATEGORIES: "RESTRICTIONS ON FUTURE PROCUREMENTS (RULES 1, 2, AND 3);" AND "RESTRICTIONS ON THE USE OF PROPRIETARY DATA (RULE 4)."

SPECIFICALLY, YOU ASSERT THAT THE AWARD TO STELMA VIOLATED RULE 2, WHICH PROVIDES:

2. IF A CONTRACTOR AGREES TO PREPARE AND FURNISH COMPLETE SPECIFICATIONS COVERING NONDEVELOPMENTAL ITEMS TO BE USED IN COMPETITIVE PROCUREMENT, THAT CONTRACTOR SHALL NOT BE ALLOWED TO FURNISH SUCH ITEMS, EITHER AS A PRIME OR SUBCONTRACTOR, FOR A REASONABLE PERIOD OF TIME INCLUDING, AT LEAST, THE INITIAL PROCUREMENT.

YOUR CONTENTION IS BASED UPON THE ALLEGATION THAT STELMA FURNISHED DRAWINGS WHICH WERE USED IN THE COMPETITIVE PROCUREMENT, AND HAD PREVIOUSLY PARTICIPATED IN DEVELOPMENT OF THE ITEM. WHILE YOU RECOGNIZE THAT ASPR 1-113.2 IMPOSES UPON THE CONTRACTING OFFICER THE OBLIGATION AND RESPONSIBILITY FOR APPLYING THE RULES OF THE DIRECTIVE, YOU QUESTION WHETHER SUCH AUTHORITY SHOULD BE SUPREME AND NOT SUBJECT TO REVIEW. YOU ALSO URGE THAT UNDER THE DOCTRINE OF G. L. CHRISTIAN AND ASSOCIATES V. UNITED STATES, 160 CT. CL. 1, 312 F. 2D 418, THE ASPR PROVISIONS IN APPENDIX G HAVE THE FORCE AND EFFECT OF LAW, SO THAT CLAUSES MADE MANDATORY BY ASPR WOULD BE READ INTO A CONTRACT IF NOT PHYSICALLY INCLUDED, AND THE QUESTION OF WHETHER IT IS BEING CORRECTLY FOLLOWED IS WITHIN THE JURISDICTION OF OUR OFFICE.

RULE 2 IS SUBJECT TO THREE EXCEPTIONS, THE FIRST OF WHICH, CONSIDERED BY THE ARMY TO BE APPLICABLE HERE, READS AS FOLLOWS:

A. CONTRACTORS WHO FURNISH AT GOVERNMENT REQUEST SPECIFICATIONS OR DATA WITH RESPECT TO THE PRODUCT THEY FURNISHED, EVEN THOUGH THE SPECIFICATIONS OR DATA MAY HAVE BEEN PAID FOR SEPARATELY OR IN THE PRICE OF THE PRODUCT.

THE "SPECIFICATIONS" IN QUESTION, WHILE COMPOSED IN PART OF STELMA PRODUCTION DRAWINGS, ARE REPORTED TO BE MILITARY SPECIFICATIONS WHICH WERE PREPARED BY GOVERNMENT PERSONNEL AND ARE CONSIDERED MANDATORY FOR PROCUREMENT PURPOSES. THE STELMA DRAWINGS INCLUDED IN THE BIDDING DOCUMENTS ARE REPORTED TO BE PRODUCTION DRAWINGS OBTAINED FROM STELMA UNDER A PRODUCTION CONTRACT WHICH WAS AWARDED AS THE RESULT OF COMPETITIVE BIDDING ON WHICH 24 BIDS WERE RECEIVED, INCLUDING ONE FROM YOUR CLIENT. UNDER THESE CIRCUMSTANCES WE FEEL THAT STELMA WAS CLEARLY WITHIN THE QUOTED EXCEPTION TO RULE 2, AND COULD NOT PROPERLY HAVE BEEN BARRED FROM BIDDING ON THE CURRENT PROCUREMENT.

WITH RESPECT TO YOUR CONTENTION THAT THE CONTRACTING OFFICER'S STATEMENT, THAT ANY COMPETITIVE ADVANTAGE ENJOYED BY STELMA WAS UNAVOIDABLE, INDICATES A MISCONCEPTION OF THE REQUIREMENTS OF THE DIRECTIVE AND HIS RESPONSIBILITIES THEREUNDER, WE BELIEVE THAT HIS POSITION IS COMPLETELY IN ACCORD WITH THE FOLLOWING STATEMENT IN THE SECOND PARAGRAPH OF THE "EXPLANATION" UNDER RULE 2 IN THE DIRECTIVE:

IN DEVELOPMENT WORK IT IS NORMAL TO SELECT FIRMS WHICH HAVE DONE THE MOST ADVANCED WORK IN THE FIELD. IT IS TO BE EXPECTED THAT THESE FIRMS WILL DESIGN AND DEVELOP AROUND THEIR OWN PRIOR KNOWLEDGE. DEVELOPMENT CONTRACTORS CAN FREQUENTLY START PRODUCTION EARLIER AND MORE KNOWLEDGEABLY THAN FIRMS WHICH DID NOT PARTICIPATE IN THE DEVELOPMENT, AND THIS AFFECTS THE TIME AND QUALITY OF PRODUCTION, BOTH OF WHICH ARE IMPORTANT TO THE DEPARTMENT OF DEFENSE. IN MANY INSTANCES THE GOVERNMENT MAY HAVE FINANCED SUCH DEVELOPMENT. THUS, THE DEVELOPMENT CONTRACTOR MAY HAVE AN UNAVOIDABLE COMPETITIVE ADVANTAGE WHICH IS NOT CONSIDERED UNFAIR AND NO PROHIBITION SHOULD BE IMPOSED.

IN THE LIGHT OF THIS EXPLANATION WE MUST CONCLUDE THAT STELMA'S DEVELOPMENTAL CONTRACTS FALL WITHIN EXCEPTION C TO RULE 2, WHICH COVERS "CONTRACTS FOR DEVELOPMENTAL OR PROTOTYPE ITEMS."

IN FACT, EVEN WITHOUT THE EXCEPTION, RULE 2 WOULD APPEAR TO BE INAPPLICABLE, SINCE STELMA DID NOT "PREPARE AND FURNISH COMPLETE SPECIFICATIONS."

AS TO YOUR ATTEMPT TO INVOKE THE CHRISTIAN DOCTRINE, THE DIRECTIVE IS NOT SELF-EXECUTING, BUT SPECIFICALLY STATES IN THE LAST SENTENCE OF PARAGRAPH 2 OF THE PREAMBLE, THAT PROSPECTIVE CONTRACTORS WILL BE ADVISED OF THE APPLICABILITY OF THE RULES BY A NOTICE IN SOLICITATIONS AND BY A CLAUSE IN RESULTING CONTRACTS. THE DIRECTIVE ALSO CLEARLY INDICATES THAT THE RULES ESTABLISHED ARE GENERAL AND THAT THERE APPLICABILITY IN PARTICULAR CASES IS TO BE DETERMINED BY THE CONTRACTING OFFICER. THE CONCLUDING SECTION OF THE DIRECTIVE, "REVIEW AND WAIVER," PROVIDES THAT IF A PROSPECTIVE CONTRACTOR DISAGREES WITH A DECISION REACHED BY THE CONTRACTING OFFICER IN THIS REGARD, THE CONTRACTING OFFICER SHALL REPORT HIS DECISION AND THE CONTRACTOR'S CONTENTIONS, THROUGH CHANNELS, TO SUPERIOR AUTHORITY FOR FINAL DETERMINATION. SINCE WE DO NOT INTERPRET THE CHRISTIAN DECISION AS APPLYING TO A REGULATION THE APPLICABILITY OF WHICH IS DEPENDENT UPON THE EXERCISE OF JUDGMENT OR DISCRETION, WE DO NOT FEEL THAT IT CAN PROPERLY BE APPLIED IN THIS CASE. IN THE RECORD BEFORE US, WE MUST THEREFORE ANSWER IN THE NEGATIVE YOUR QUESTION, "IN OTHER WORDS, CAN THE DIRECTIVE COME IN PLAY TO PREVENT A CONTRACTOR FROM RECEIVING THE AWARD?"

CONCERNING YOUR COMPLAINT THAT THE AWARD SHOULD HAVE BEEN HELD UP PENDING A DECISION OF YOUR PROTEST IN ACCORDANCE WITH ASPR 2-407.9 (B) (2), IT WAS DETERMINED BY THE CONTRACTING OFFICER IN ACCORDANCE WITH ASPR 2-407.9 (B) (3) (III) THAT PROMPT AWARD WOULD BE ADVANTAGEOUS TO THE GOVERNMENT, AND THE AWARD WAS PROPERLY AUTHORIZED BY HIGHER AUTHORITY.

FOR THE REASONS STATED, WE SEE NO LEGAL BASIS TO OBJECT TO THE AWARD TO STELMA, AND YOUR PROTEST IS THEREFORE DENIED.