B-156023, JUL. 2, 1965

B-156023, JUL. 2, 1965

TO DAVID H. PEIREZ, ESQ.:

FURTHER REFERENCE IS MADE TO YOUR LETTERS OF JANUARY 26 AND FEBRUARY 8, 1965, ON BEHALF OF HAMMARLUND MANUFACTURING COMPANY AND TRW ELECTRONIC COMPONENTS DIVISION OF THOMPSON RAMO WOOLDRIDGE, INC., PROTESTING THE SALE OF CERTAIN SURPLUS SPECIAL TOOLING BY THE U.S. ARMY ELECTRONICS COMMAND, PHILADELPHIA, PENNSYLVANIA.

THE ARMY REPORTS THAT THE TOOLING IN QUESTION WAS ACQUIRED UNDER PURCHASE ORDER NO. 13611-PP-53 WITH BENDIX CORPORATION AND WAS FABRICATED IN 1953 AND 1954 BY THE CONTRACTOR AND ITS VENDORS FOR PERFORMANCE UNDER A SUPPLY CONTRACT FOR AN/ARC-44 RADIO SETS, AND SUBSEQUENTLY TRANSFERRED AS GOVERNMENT-FURNISHED PROPERTY BY MODIFICATION NO. 3 TO PURCHASE ORDER NO. 4059-PP-60, CONTRACT NO. DA 36-039-SC-86028 (E). AFTER COMPLETION OF THE SUBJECT CONTRACT CONSIDERABLE PORTIONS OF THE SPECIAL TOOLING WERE TRANSFERRED AT VARIOUS TIMES TO ELECTRONIC ASSISTANCE CORPORATION, ORDER NO. 52715-PP 61; TO LAPOINTE INDUSTRIES, INC., ORDER NO. 4285-PP-61; AND TO BENDIX CORPORATION, ORDER NO. 20881-PP-63.

ON MAY 27, 1964, THE CONTRACTING OFFICER REQUESTED THE U.S. ARMY ELECTRONICS COMMAND (USAECOM) PROPERTY DISPOSAL OFFICER TO EFFECT DISPOSITION OF ALL SPECIAL TOOLING ACCOUNTABLE ON PURCHASE ORDER 4059 PP- 60 WITH THE BENDIX CORPORATION, SINCE THE TOOLING WAS NOT IN USE AND THE GOVERNMENT HAD OTHER TOOLING LOCATED AT VARIOUS CONTRACTORS' PLANTS AVAILABLE FOR ANY ANTICIPATED REQUIREMENTS FOR THE RADIO SET AN/ARC-44. AFTER DETERMINING THAT NONE OF THE ITEMS COULD BE UTILIZED BY THE LEXINGTON ARMY DEPOT OR BY THE STATE OF MARYLAND, THE CONTRACTING OFFICER AUTHORIZED BENDIX TO DISPOSE OF THE TOOLING BY COMPETITIVE SALE.

BASED ON PAST EXPERIENCE, THE BENDIX REPRESENTATIVE WAS CONVINCED THAT ONLY SCRAP VALUE, ESTIMATED AT $350, WOULD BE REALIZED FOR THE TOOLING FOR WHICH IT WAS STILL ACCOUNTABLE, A SUBSTANTIAL PART OF WHICH WAS IN THE CUSTODY OF SOME 20 TO 40 FIRMS WITH WHOM BENDIX HAD HAD SUBCONTRACTS. HOWEVER, SINCE THE PROPERTY DISPOSAL OFFICER WAS OF THE OPINION THAT THE TOOLING HAD VALUE IN EXCESS OF ITS METALLIC CONTENT, HE REQUIRED BIDS TO BE REQUESTED FROM TEN FIRMS, SEVEN OF WHICH WERE MANUFACTURERS, INCLUDING TWO RECENT PRODUCERS OF THE AN/ARC 44 RADIO SET, AND THE OTHER THREE OF WHICH WERE SCRAP DEALERS WHO HAD BEEN ADDED BECAUSE OF THE BENDIX REPRESENTATIVE'S BELIEF THAT THE TOOLING HAD ONLY SCRAP VALUE. THE SALE WAS ALSO ADVERTISED IN THE BALTIMORE SUN, A NEWSPAPER OF WIDE CIRCULATION. THE PROPERTY TO BE DISPOSED OF CONSISTED OF APPROXIMATELY 1750 ITEMS LOCATED, IN PART, ON THE PREMISES OF THE BENDIX CORPORATION, THE PRIME CONTRACTOR, AND THE BALANCE AT THE PLANTS OF FORMER SUPPLIERS AND SUBCONTRACTORS TO BENDIX. BIDS WERE RECEIVED FROM ONE SCRAP DEALER IN THE AMOUNT OF $250, AND FROM TWO MANUFACTURERS IN THE AMOUNTS OF $525 AND $5,800, THE HIGH BID HAVING BEEN SUBMITTED BY LAPOINTE INDUSTRIES, INC., WHICH RECEIVED THE AWARD.

YOU HAVE PROTESTED THE ABOVE SALE ON THE GROUNDS THAT:

"/1) THE METHODS AND PROCEDURES USED BY THE GOVERNMENT IN INITIATING AND DIRECTING THE SALE OF THIS PROPERTY WERE IN DEROGATION OF THE APPLICABLE STATUTORY AND REGULATORY LAW GOVERNING THE DISPOSITION OF SURPLUS PROPERTY;

"/2) THE SALE AS CONDUCTED RESULTED IN A MONETARY RETURN TO THE GOVERNMENT FAR BELOW THAT OF THE ACTUAL FAIR MARKET VALUE OF THE PROPERTY; AND,

"/3) THE SALE AS CONDUCTED, AND IF ALLOWED TO STAND, WILL SERIOUSLY AND SUBSTANTIALLY AFFECT THE RELEVANT COMPETITIVE AND COMMERCIAL MARKET AS IT NOW EXISTS.'

IN SUPPORT OF YOUR THIRD CONTENTION YOU STATE THAT BOTH OF YOUR CLIENTS, HAMMARLUND AND TRW, HAVE IN THEIR POSSESSION PARTS OF THE TOOLING FOR WHICH BENDIX WAS ACCOUNTABLE, AND WHICH WAS INCLUDED IN THE SALE; THAT SUCH TOOLING HAD BEEN USED, AND IS STILL USABLE, FOR MANUFACTURE OF COMPONENTS OR SPARE PARTS FOR THE AN/ARC-44; THAT THEY HAD NO NOTICE OF THE SALE AND THEREFORE NO OPPORTUNITY TO BID ON THE TOOLING; AND THAT THE SALE OF THE SPECIAL TOOLING TO LAPOINTE, WHICH HAS BEEN THE SUCCESSFUL BIDDER ON THE LAST THREE AN/ARC-44 PROCUREMENTS, REDUCES THE POSSIBILITY OF COMPETITION WITH THAT FIRM FOR FUTURE PROCUREMENTS.

SECTION 8-507 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"8-507 SALE OR OTHER DISPOSITION OF TERMINATION INVENTORY.

"8-507.1GENERAL. UNDER THE STANDARD TERMINATION CLAUSES, THE CONTRACTOR IS REQUIRED TO USE HIS BEST EFFORTS TO SELL TERMINATION INVENTORY, IN THE MANNER, AT THE TIMES, TO THE EXTENT, AND AT THE PRICES DIRECTED OR AUTHORIZED BY THE CONTRACTING OFFICER, EXCEPT THAT THE CONTRACTOR (I) IS NOT REQUIRED TO EXTEND CREDIT TO ANY PURCHASER, AND (II) MAY PURCHASE OR RETAIN AT LESS THAN COST ANY ITEMS OF TERMINATION INVENTORY NOT RETAINED BY HIM AT COST. ANY PROPERTY WHICH IS INCLUDED IN THE CONTRACTOR'S INVENTORY SCHEDULES, WHICH HAS NOT BEEN ACQUIRED BY THE GOVERNMENT UNDER 8 -505, MAY BE PURCHASED OR RETAINED AT LESS THAN COST BY THE CONTRACTOR OR SOLD BY THE CONTRACTOR TO A THIRD PARTY AS PROVIDED IN 8-507.2 OR 8-507.3 AT ANY TIME AFTER NOTIFICATION BY THE CONTRACTING OFFICER THAT SCREENING HAS BEEN ACCOMPLISHED OR WILL NOT BE REQUIRED. ANY SUCH PURCHASE, RETENTION OR SALE SHALL BE SUBJECT TO THE APPROVAL OF THE CONTRACTING OFFICER, AS PART OF OR PRIOR TO THE FINAL SETTLEMENT (SEE 8-512 AS TO REVIEW BY PROPERTY DISPOSAL REVIEW BOARDS).

"8-507.2 COMPETITIVE SALES.

"/A) EXCEPT AS PROVIDED IN 8-507.3, TERMINATION INVENTORY SHALL BE OFFERED FOR SALE ON A COMPETITIVE BASIS. GENERALLY, 3 BIDS SHALL BE OBTAINED, ONE OF WHICH MAY BE SUBMITTED BY THE CONTRACTOR. HOWEVER, SOLICITATIONS SHALL NOT BE RESTRICTED TO THREE BIDS, UNLESS THE CIRCUMSTANCES CLEARLY JUSTIFY SUCH RESTRICTION. THE PROPERTY SHALL BE SOLD TO THAT RESPONSIBLE BIDDER WHOSE BID IS MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED, OR PURCHASED OR RETAINED BY THE CONTRACTOR IF HIS BID IS MOST ADVANTAGEOUS TO THE GOVERNMENT; PROVIDED, THAT THE PRICE SHALL BE FAIR AND REASONABLE IN THE LIGHT OF REASONABLE KNOWLEDGE OR TEST OF THE MARKET, DUE REGARD BEING HAD FOR CURRENT PRICES FOR ANY RAW MATERIALS OR PRODUCTS FOR WHICH QUOTATIONS ARE PUBLISHED, AND TO THE CIRCUMSTANCES, NATURE, CONDITION, QUANTITY, AND LOCATION OF PROPERTY. ANY BID BY THE CONTRACTOR SHALL BE SUBMITTED IN THE SAME MANNER AS AND CONCURRENTLY WITH OTHER BIDS. THE CONTRACTOR SHALL NOT BE ENTITLED TO PREFERENCE IN ANY SALE.

"/B) BIDS SHALL BE SOLICITED SUFFICIENTLY IN ADVANCE OF THE OPENING OF BIDS TO ALLOW BIDDERS AN ADEQUATE OPPORTUNITY TO PREPARE AND SUBMIT THEIR BIDS. THE CONTRACTING OFFICER SHALL FURNISH THE CONTRACTOR FOR AVAILABLE RECORDS AND BIDDERS LISTS THE NAMES OF PROSPECTIVE PURCHASERS. BIDS SHALL BE SOLICITED FROM THE ORIGINAL SUPPLIERS AND THOSE PROSPECTIVE BIDDERS DESIGNATED BY THE CONTRACTING OFFICER. BIDS SHALL BE SOLICITED BY ANY ONE OF THE METHODS SET FORTH BELOW; PROVIDED, THAT WHEN DEEMED NECESSARY BY THE CONTRACTOR TO ASSURE FULL AND FREE COMPETITION, MORE THAN ONE METHOD MAY BE USED; AND PROVIDED FURTHER THAT WHERE THE ORIGINAL ACQUISITION COST OF SERVICEABLE MATERIAL AVAILABLE FOR SALE AT ANY ONE TIME AND LOCATION IS $25,000 OR MORE, IN ADDITION TO ANY OTHER METHOD OF SOLICITATION USED, THE SALE SHALL ALSO BE ADVERTISED IN A NEWSPAPER OF GENERAL CIRCULATION AS PROVIDED IN (IV) BELOW:

(I) A NOTICE OF THE PROPOSED SALE MAY BE MAILED OR DELIVERED TO ALL PROSPECTIVE BIDDERS; IF THIS METHOD IS USED, THE BIDDERS LIST SHALL INCLUDE ALL RESPONSIBLE PROSPECTIVE PURCHASERS KNOWN TO THE CONTRACTOR AND LOCATED IN THE GENERAL AREA IN WHICH THE PROPERTY IS LOCATED;

(II) A NOTICE OF THE PROPOSED SALE MAY BE DISPLAYED AT APPROPRIATE PUBLIC PLACES;

(III) A NOTICE OF THE PROPOSED SALE MAY BE PUBLISHED IN APPROPRIATE TRADE JOURNALS OR MAGAZINES;

(IV) A NOTICE OF THE PROPOSED SALE MAY BE PUBLISHED IN A NEWSPAPER OF GENERAL CIRCULATION IN THE LOCALITY IN WHICH THE PROPERTY IS LOCATED; OR

(V) WHERE THE AMOUNT OR VALUE OF THE PROPERTY IS NOT LARGE ENOUGH TO WARRANT PREPARATION OF A FORMAL NOTICE OF THE PROPOSED SALE, OR OTHER SPECIAL CIRCUMSTANCES ARE PRESENT, INVITATIONS TO BID MAY, WITH THE CONTRACTING OFFICER'S APPROVAL, BE ISSUED ORALLY, BY TELEPHONE, OR BY OTHER INFORMAL MEDIA, SO LONG AS THE ELEMENT OF COMPETITION IS MAINTAINED, AND EACH SUCH SALE IS FULLY DOCUMENTED.

"/C) ANY NOTICE OF A PROPOSED SALE UNDER (B) ABOVE SHALL INDICATE IN GENERAL TERMS THE TYPES OF MATERIAL FOR SALE, SHALL GIVE THE DATE ON OR AFTER WHICH SUCH MATERIAL WILL BE AVAILABLE FOR SALE, AND SHALL RESERVE THE RIGHT TO REJECT ANY OR ALL BIDS SUBMITTED. SO FAR AS FEASIBLE, LOTS SHALL BE OFFERED IN SUCH REASONABLE QUANTITIES AS TO PERMIT ALL BIDDERS, SMALL AS WELL AS LARGE, TO COMPETE ON EQUAL TERMS.

THE FACTS OF THIS CASE INDICATE THAT THE HANDLING OF THE SALE BY THE PRIME CONTRACTOR WAS IN STRICT ACCORDANCE WITH THE DIRECTIONS OF THE CONTRACTING OFFICER AND THAT AN HONEST ATTEMPT WAS MADE TO SECURE COMPETITION AMONG CONCERNS THAT WERE CONSIDERED BY THE CONTRACTING OFFICER TO BE LIKELY TO BE INTERESTED. SINCE THE TOOLING WAS LOCATED AT MANY DIFFERENT PLANTS, ALL OF WHICH, WITH THE EXCEPTION OF BENDIX, WERE THOSE OF SUBCONTRACTORS, AND IN MANY OF WHICH THERE WERE ONLY SINGLE OR VERY FEW ITEMS, IT WOULD NOT APPEAR TO HAVE BEEN REASONABLY FEASIBLE TO MAKE THE SALE ON OTHER THAN A LOT BASIS, AND THE CONTRACTING OFFICER CANNOT BE FAULTED FOR FAILING TO REQUIRE SOLICITATION OF BIDS FROM ALL OF THESE NUMEROUS SUPPLIERS. THE FACT THAT YOUR CLIENTS MAY HAVE HELD A LARGER NUMBER OF TOOLS THAN SOME OTHER SUPPLIERS MIGHT INDICATE THE POSSIBILITY THAT THEY WOULD BE MORE INTERESTED IN BUYING THE ENTIRE LOT, BUT WOULD BY NO MEANS REQUIRE THIS CONCLUSION, SO AS TO SUGGEST BAD FAITH OR REQUIRE A CONCLUSION THAT THERE WAS BAD JUDGMENT ON THE PART OF THE CONTRACTING OFFICER.

SINCE THE CONTRACTING OFFICER APPARENTLY HAD NO WAY OF KNOWING WHETHER THE TOOLING WOULD BRING A RETURN BASED ON ITS DEPRECIATED VALUE FOR USE AS ORIGINALLY INTENDED OR BASED ON ITS SCRAP VALUE, EXCEPT THE OPINION OF BENDIX THAT IT HAD ONLY SCRAP VALUE, THE ONLY MINIMUM ACCEPTABLE PRICE THAT COULD BE ESTABLISHED WAS THE ESTIMATED SCRAP VALUE OF $350. IN 43 COMP. GEN. 15, CITED BY YOU, THERE WAS INVOLVED A SALE CONDITION REQUIRING THAT CERTAIN USABLE ANCHORS BE SCRAPPED, WHICH RESULTED IN A RETURN OF LESS THAN ONE TENTH OF THEIR FAIR MARKET VALUE AS ANCHORS, WHICH WOULD NOT APPEAR TO BE IN POINT HERE. NO EVIDENCE HAS BEEN PRESENTED IN SUPPORT OF YOUR CONTENTION THAT LAPOINTE'S BID WAS "FAR BELOW" THE ACTUAL FAIR MARKET VALUE OF THE PROPERTY OR, IN FACT, THAT IT WAS BELOW IT AT ALL. THE FACT THAT THIS OFFICE STATED IN THE CITED DECISION THAT CANCELLATION OF A CONTRACT WOULD NOT BE IMPROPER IF CONSIDERED TO BE IN THE BEST INTERESTS OF THE GOVERNMENT, DOES NOT MEAN THAT SUCH ACTION WOULD BE JUSTIFIED MERELY ON THE POSSIBILITY THAT A HIGHER BID MIGHT HAVE BEEN RECEIVED FROM A FIRM WHICH WAS NOT SOLICITED. IT SEEMS SAFE TO SAY THAT IN MANY INSTANCES, INVOLVING BOTH PURCHASES AND SALES, THE GOVERNMENT MIGHT HAVE MADE A BETTER BARGAIN WITH SOME CONCERN THAT WAS NOT SOLICITED, BUT THIS, OF ITSELF, WOULD NOT AFFECT THE VALIDITY OF THE AWARDED CONTRACT.

THE ADMINISTRATIVE REPORT ON YOUR PROTEST STATES THAT IN EVALUATING THE BIDS AND DETERMINING THAT THE HIGH BID REPRESENTED A FAIR RETURN FOR THE PROPERTY, THE FOLLOWING FACTORS WERE AMONG THOSE CONSIDERED:

(1) THAT THE SET OF TOOLING WAS NOT COMPLETE FOR FABRICATION OF THE RADIO SET, AN/ARC-44.

(2) THAT BENDIX CORPORATION FAILED TO BID EVEN THOUGH IT WAS THE PRIME CONTRACTOR AND HAD MORE KNOWLEDGE ABOUT THE CONDITION, USAGE AND APPLICABILITY OF THE TOOLING.

(3) THAT THE AGE OF THE TOOLING WAS APPROXIMATELY ELEVEN YEARS AND THE CONTRACT FILES INDICATED THAT IT HAD NOT BEEN USED IN RECENT YEARS.

(4) THAT THE TOOLING HAD HAD EXTENSIVE USAGE.

(5) THAT PREVIOUS OFFERINGS OF SPECIAL TOOLING INVARIABLY RESULTED IN ONLY SCRAP OR SALVAGE BIDS, AS IT HAD BEEN FOUND THAT THE ELECTRONIC INDUSTRY HAS LITTLE OR NO INTEREST IN RETENTION OR PURCHASE OF SPECIAL TOOLING.

(6) THAT THE ESTIMATED SCRAP VALUE OF THE TOOLS WOULD BE APPROXIMATELY $350.

IT SHOULD ALSO BE NOTED THAT A BID WAS SOLICITED FROM ELECTRONIC ASSISTANCE CORPORATION, WHICH YOU STATE WAS A PRIME CONTRACTOR IN MARCH 1962 AND SPENT $3,000 TO COVER NECESSARY TOOLING MODIFICATIONS, BUT THIS CORPORATION DID NOT SEE FIT TO SUBMIT A BID.

THE OBJECTION TO CERTAIN SALES IN THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED, 40 U.S.C. 484 (E) (3)(D), IS AIMED AT THOSE WHICH "WOULD CAUSE SUCH AN IMPACT ON AN INDUSTRY OR INDUSTRIES AS ADVERSELY TO AFFECT THE NATIONAL ECONOMY.' THIS IS HARDLY THE CASE HERE. NOR DOES THE RECORD APPEAR TO SUPPORT YOUR CONTENTION THAT THE SALE, IF ALLOWED TO AND,"WILL SERIOUSLY AND SUBSTANTIALLY AFFECT THE RELEVANT COMPETITIVE AND COMMERCIAL MARKET AS IT NOW EXISTS.' AS INDICATED ABOVE, THE DEPARTMENT OF THE ARMY HAS REPORTED THAT THE SET OF TOOLING WAS NOT COMPLETE; THAT THE CONTRACT FILES INDICATED IT HAD NOT BEEN USED IN RECENT YEARS; AND THAT THE GOVERNMENT HAS OTHER TOOLING LOCATED AT VARIOUS CONTRACTORS' PLANTS AVAILABLE FOR ANY ANTICIPATED REQUIREMENTS FOR THE RADIO SET AN/ARC 44. IT IS FURTHER REPORTED BY THE ARMY THAT AT THE TIME OF THE SALE LAPOINTE INDUSTRIES, INC., HAD BEEN THE SUCCESSFUL BIDDER ON THE LAST THREE PROCUREMENTS OF THE RADIO SETS (AUGUST 30, 1963, OCTOBER 21, 1963, AND OCTOBER 22, 1964) WITHOUT PREDICATING ITS BID ON THE USE OF GOVERNMENT TOOLING. FOR THE REASONS STATED, WE ARE OF THE OPINION THAT NO LEGAL OBJECTION MAY BE RAISED BY OUR OFFICE TO THE SALE AS CONSUMMATED.