B-174899, JUN 1, 1972

B-174899, JUN 1, 1972

CONTRACT - RELIEF FROM MISTAKE - INTENTIONALLY ERRONEOUS BID - AGENCY PRINCIPAL - REVIEW OF ASBC A DECISIONS DENIAL OF REQUEST ON BEHALF OF LAND-AIR, INC; FOR RELIEF FROM A CONTRACT AWARDED BY THE NAVAL AMMUNITION DEPOT, CRANE, IND; FOR 17,600 FUZE BODIES. CLAIMANT CONTENDS THAT THE CONTRACT SHOULD BE TERMINATED BECAUSE AN INTENTIONALLY ERRONEOUS BID WAS SUBMITTED BY A DISSIDENT COMPANY OFFICER. RELIEF FOR MISTAKE MAY NOT BE AFFORDED IN THIS CASE BECAUSE THE OFFICER DESIGNATED BY LAND-AIR TO SUBMIT BIDS TO THE GOVERNMENT SUBMITTED A BID WHICH WAS FREE FROM TYPOGRAPHICAL OR MATHEMATICAL ERROR, AND WHICH WAS THE BID HE ACTUALLY INTENDED TO SUBMIT. FURTHER, THE CONTRACTING OFFICER CANNOT BE CHARGED WITH CONSTRUCTIVE NOTICE OF THE ERROR BECAUSE SEVERAL OF THE OTHER BIDS WERE IN THE SAME PRICE RANGE. ALSO, STANDARD PRINCIPLES OF AGENCY PRECLUDE RELIEF SINCE THE PERSON WHO SUBMITTED THE BID FOR LAND-AIR HAD THE ACTUAL AUTHORITY TO DO SO, AND THERE WAS NO REASON FOR THE CONTRACTING OFFICER TO KNOW THAT THE COMPANY OFFICER WAS ACTING IN DEROGATION OF THE BEST INTERESTS OF THE COMPANY. SINCE THE SUPREME COURT DECISION IN S & E CONTRACTORS, INC. V UNITED STATES, NO. 70-88, APRIL 24, 1972, GAO WILL NO LONGER REVIEW BOARD OF CONTRACT APPEALS DECISIONS ABSENT A SHOWING OF FRAUD OR BAD FAITH.

TO THEODORE C. HUKE:

REFERENCE IS MADE TO YOUR LETTER OF JANUARY 4, 1972, AND SUBSEQUENT CORRESPONDENCE ON BEHALF OF LAND-AIR, INC; REQUESTING RELIEF FROM CONTRACT N00164-68-C-0517, AWARDED BY THE NAVAL AMMUNITION DEPOT, CRANE, INDIANA.

THE INVITATION SOLICITED BIDS FOR 17,600 FUSE BODIES. TWENTY-EIGHT RESPONSIVE BIDS WERE RECEIVED, RANGING IN PRICE FROM LAND-AIR'S BID OF $2.48 PER FUSE BODY TO A BID OF $64.80 EACH. AFTER OPENING, THE CONTRACTING OFFICER REQUESTED LAND-AIR TO VERIFY ITS BID. YOUR CLIENT CONFIRMED ITS BID PRICE, AND A CONTRACT WAS SUBSEQUENTLY AWARDED. THEREAFTER, LAND-AIR DEFAULTED, THE CONTRACT WAS TERMINATED AND BIDS WERE RESOLICITED. A CONTRACT FOR $4.68 PER FUSE BODY WAS AWARDED TO THE LOW BIDDER ON THE RESOLICITATION, AND EXCESS COSTS IN THE AMOUNT OF $39,526.40 WERE ASSESSED AGAINST LAND-AIR. YOUR CLIENT APPEALED THE TERMINATION FOR DEFAULT AND ASSESSMENT OF EXCESS COSTS TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS (ASBCA), BUT THE BOARD DENIED THE APPEAL. ASBCA NO. 14438, SEPTEMBER 23, 1971.

IN YOUR BRIEF FILED WITH THIS OFFICE, YOU REQUEST RESCISSION OF THE CONTRACT ON THE GROUNDS THAT LAND-AIR MADE A MISTAKE IN ITS BID, THAT THE GOVERNMENT KNEW OF OR SHOULD HAVE KNOWN OF THE MISTAKE, AND THEREFORE A VALID CONTRACT WAS NOT CREATED BY ACCEPTANCE OF LAND-AIR'S BID. ALTERNATIVELY, YOU REQUEST THAT WE SET ASIDE THE DECISION OF THE ARMED SERVICES BOARD OF CONTRACT APPEALS BECAUSE THE GOVERNMENT FAILED TO CARRY ITS BURDEN OF PROOF BEFORE THE BOARD WITH RESPECT TO ITS ENTITLEMENT TO EXCESS COSTS AND BECAUSE THE BOARD'S DECISION WAS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE.

IN SUPPORT OF YOUR MISTAKE IN BID ALLEGATION, YOU CLAIM THAT LAND AIR'S BID WAS SUBMITTED BY AN OFFICER OF THE COMPANY WHO WAS ATTEMPTING TO "SABOTAGE" THE COMPANY IN AN EFFORT TO FORCE LAND-AIR, INC. TO PURCHASE HIS 48 PERCENT OWNERSHIP OF STOCK. YOU STATE THAT THIS OFFICER, WHOSE DUTIES INCLUDED BID SUBMISSIONS, BID LOW ON THIS AND OTHER PROCUREMENTS SO THAT LAND-AIR COULD NOT MAKE A PROFIT OR EVEN RECOUP ITS PRODUCTION COSTS. YOU ALSO STATE THAT EVEN THOUGH THE ACT OF BIDDING WAS WILLFUL, IT WAS SO GROSSLY CONTRARY TO THE NORMAL ACTIONS EXPECTED OF AN EMPLOYEE THAT IT CONSTITUTES A "MISTAKE" ON THE PART OF LAND-AIR BECAUSE IT WOULD NOT HAVE BID THE $2.48 PRICE HAD IT BEEN AWARE OF THE ACTS OF THE DISSIDENT OFFICER.

YOU FURTHER CLAIM THAT THE GOVERNMENT SHOULD HAVE BEEN AWARE OF THE MISTAKE, SINCE THE COST ESTIMATE FOR THE FUSE BODIES WAS $4.70 EACH AND THE CONTRACTING OFFICER SHOULD HAVE KNOWN THAT THE ITEMS COULD NOT BE PROFITABLY PRODUCED IN ACCORDANCE WITH THE SPECIFICATIONS AT LAND-AIR'S BID PRICE. YOU THEN ASSERT THAT, SINCE THE GOVERNMENT WAS AWARE OF THE MISTAKE, ITS REQUEST FOR VERIFICATION HAD TO INCLUDE ADEQUATE NOTICE OF THE SUSPECTED MISTAKE. IT IS YOUR POSITION THAT THE VERIFICATION REQUEST WAS FAULTY IN THIS RESPECT AND THEREFORE A BINDING CONTRACT DID NOT RESULT FROM THE GOVERNMENT'S ACCEPTANCE OF LAND-AIR'S BID.

IT IS WELL ESTABLISHED THAT RELIEF FROM A CONTRACT WILL NOT BE GRANTED FOR A UNILATERAL MISTAKE IN SUBMITTING A BID UNLESS THE CONTRACTING OFFICER KNEW OR HAD REASON TO KNOW OF THE MISTAKE PRIOR TO ACCEPTANCE OF THE BID. CHERNICK V U.S; 178 CT. CL. 498 (1967); 44 COMP. GEN. 383 (1965); 49 ID. 272 (1969). IF THE CONTRACTING OFFICER HAS ACTUAL OR CONSTRUCTIVE KNOWLEDGE OF A MISTAKE, IT IS INCUMBENT UPON HIM TO SEEK VERIFICATION OF THE BID. ASPR 2.406-1. THE REQUEST FOR VERIFICATION MUST PUT THE BIDDER ON NOTICE AS TO THE NATURE OF THE SUSPECTED MISTAKE. UNITED STATES V METRO NOVELTY MANUFACTURING COMPANY, INC; 125 F. SUPP. 713 (S.D. N.Y. 1954); 35 COMP. GEN. 136 (1955). IF IT DOES NOT, REFORMATION OR RESCISSION OF A CONTRACT MAY BE GRANTED NOTWITHSTANDING VERIFICATION OF AN ERRONEOUS BID. CHERNICK V U.S; SUPRA; 44 COMP. GEN. 383, SUPRA; B- 167954 (OCTOBER 14, 1969); B 170691 (JANUARY 28, 1971).

HOWEVER, THE ABOVE LEGAL PRINCIPLES ARE FOR APPLICATION ONLY IN THOSE INSTANCES WHERE AN ACTUAL BONA FIDE MISTAKE IN SUBMITTING A BID HAS BEEN MADE. IF THERE HAS BEEN NO MISTAKE, THERE IS NO BASIS FOR RESCISSION OF THE CONTRACT.

YOU CLAIM THAT LAND-AIR MADE A MISTAKE IN ITS BID PRICE IN THAT THE "BID WOULD NOT HAVE BEEN MADE HAD THE TRUE FACTS OF THE ATTEMPTED SABOTAGE BEEN DISCLOSED." YOU ASSERT THAT "THE ACTS OF AN EMPLOYEE WHICH ARE GROSSLY CONTRARY TO NORMAL AND EXPECTED ACTIONS ARE CONSIDERED 'MISTAKES' EVEN THOUGH THE ACTUAL ACT WAS INTENDED BY THE EMPLOYEE." YOU CITE B-162379, OCTOBER 20, 1967, AS A CASE IN WHICH WE ASCRIBED TO THIS THEORY BY DETERMINING THAT "THE EMPLOYEE'S GROSSLY NEGLIGENT ACT CONSTITUTED A MISTAKE ON THE PART OF THE CORPORATION." HOWEVER, WE MADE NO SUCH DETERMINATION. THE FACTS OF THAT CASE REVEAL THAT AN EMPLOYEE, APPARENTLY IGNORANT OF MANUFACTURING COSTS, SUBMITTED A BID WITHOUT FIRST CHECKING SUCH COSTS. WE DECIDED ONLY THAT THE DEFENSE SUPPLY AGENCY WAS CORRECT IN BELIEVING THAT THE CONTRACTING OFFICER SHOULD HAVE SOUGHT VERIFICATION OF A BID THAT WAS AT VARIANCE WITH OTHER BIDS RECEIVED AND WITH PRIOR PURCHASE PRICES AND THAT UNDER THE CIRCUMSTANCES IT WAS NOT TOO LATE FOR THE CONTRACTOR TO ALLEGE MISTAKE IN BID.

MISTAKE HAS BEEN DEFINED AS "A STATE OF MIND THAT IS NOT IN ACCORD WITH THE FACTS," RESTATEMENT, CONTRACTS SEC 500, AND MORE FULLY AS AN "UNINTENTIONAL ACT, OMISSION, OR ERROR ARISING FROM IGNORANCE, SURPRISE, IMPOSITION, OR MISPLACED CONFIDENCE." BLACK, LAW DICTIONARY (4TH ED. 1951). "A MISTAKE EXISTS WHEN A PERSON, UNDER SOME ERRONEOUS CONVICTION OF LAW OR FACT, DOES, OR OMITS TO DO, SOME ACT WHICH, BUT FOR THE ERRONEOUS CONVICTION, HE WOULD NOT HAVE DONE OR OMITTED." BLACK, SUPRA.

ACCORDINGLY, RELIEF HAS BEEN GRANTED FOR SUCH MISTAKES AS MAKING A TYPOGRAPHICAL OR MATHEMATICAL ERROR IN COMPUTING A BID PRICE, CHERNICK V U.S; SUPRA; MISUNDERSTANDING A SUPPLIER'S PRICE QUOTATION, 44 COMP. GEN. 383 (1965); INCORRECTLY INTERPRETING SPECIFICATION REQUIREMENTS, 35 COMP. GEN. 136 (1955); REVERSING INTENDED BID ENTRIES FOR TWO DIFFERENT ITEMS, B -154955 (AUGUST 26, 1964); AND SUBMITTING A BID WHILE IGNORANT OF ACTUAL MANUFACTURING COSTS. B-162379, OCTOBER 20, 1967. HOWEVER, WE HAVE BEEN UNABLE TO DISCOVER ANY CASE IN WHICH RELIEF FOR MISTAKE WAS GRANTED UNDER CIRCUMSTANCES SIMILAR TO THE FACTS HERE.

WE BELIEVE THAT THE FACTS AND CIRCUMSTANCES OF THIS CASE DO NOT PERMIT THE CONCLUSION THAT A MISTAKE WAS MADE IN THE SUBMISSION OF LAND AIR'S BID. THE RECORD REVEALS THAT AN OFFICER AND EMPLOYEE OF THE COMPANY RESPONSIBLE FOR BIDDING ON GOVERNMENT CONTRACTS, WHILE NOT LABORING UNDER ANY FALSE ASSUMPTIONS OR RELYING ON INCORRECT INFORMATION AND NOT IGNORANT OF THE COSTS INVOLVED, SUBMITTED A BID FREE FROM TYPOGRAPHICAL OR MATHEMATICAL ERROR AND WHICH WAS ACTUALLY THE BID HE INTENDED TO SUBMIT. THE FACT THAT THE EMPLOYEE MIGHT NOT HAVE BEEN SERVING THE COMPANY'S BEST INTERESTS BY SUBMITTING THE BID DOES NOT MAKE THAT SUBMISSION A MISTAKE OF THE COMPANY FOR WHICH CONTRACTUAL RELIEF MAY BE GRANTED.

HOWEVER, EVEN IF WE ASSUME THAT A MISTAKE WAS MADE BY THE COMPANY, WE DO NOT BELIEVE THAT THE CONTRACTING OFFICER CAN BE CHARGED WITH NOTICE OF THE MISTAKE. ALTHOUGH MUCH IS MADE OF THE GOVERNMENT COST ESTIMATE OF $4.70 PER UNIT, WHICH WAS BASED ON A PRIOR PROCUREMENT, WE NOTE THAT 10 OF THE 28 RESPONSIVE BIDS RECEIVED RANGED FROM $2.48 TO $4.67. WE FURTHER NOTE THAT A BID OF $1.284 WAS ALSO RECEIVED, BUT WAS REJECTED AS NONRESPONSIVE FOR FAILURE TO COMPLY WITH DELIVERY REQUIREMENTS. ALSO, WHILE YOU STATE THAT THE CONTRACTING OFFICER KNEW THAT THE FUSE BODIES COULD NOT BE PROFITABLY PRODUCED AT LAND-AIR'S BID PRICE IF THE SPECIFICATIONS WERE ADHERED TO, IT IS NOT THE JOB OF THE CONTRACTING OFFICER TO INSURE THAT PROFIT HAS BEEN COMPUTED IN THE SUBMISSION OF BIDS. THE "RESPONSIBILITY FOR THE PREPARATION OF BIDS IS ON THE BIDDER WHO IS PRESUMED TO BE QUALIFIED TO ESTIMATE THE PRICES WHICH CAN BE CHARGED IN ORDER FOR A BIDDER TO REALIZE A REASONABLE PROFIT. SEE FRAZIER-DAVIS CONSTRUCTION COMPANY V UNITED STATES, 100 CT. CL. 120, 163." B-165297, DECEMBER 6, 1968. FURTHERMORE, BIDDERS ARE FREE TO SUBMIT UNPROFITABLE PRICES AND ARE ENTITLED TO HAVE SUCH BIDS CONSIDERED. 50 COMP. GEN. 50 (1970).

IN 49 COMP. GEN. 272 (1969), WE QUOTED THE FOLLOWING COMMENT FROM B 164845, JANUARY 27, 1969:

" *** HOWEVER, THE TEST IS WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF 'THE PARTICULAR CASE THERE WERE ANY FACTORS WHICH REASONABLY SHOULD HAVE RAISED THE PRESUMPTION OF ERROR IN THE MIND OF THE CONTRACTING OFFICER' (WELCH, MISTAKES IN BID, 18 FED. B. J. 75, 83) WITHOUT MAKING IT NECESSARY FOR THE CONTRACTING OFFICER TO ASSUME THE BURDEN OF EXAMINING EVERY BID FOR POSSIBLE ERROR BY THE BIDDER. *** "

ALTHOUGH YOU CITE CASES IN WHICH WE HAVE HELD A WIDE DISPARITY BETWEEN A BID PRICE AND BOTH PRIOR PURCHASE PRICES AND THE CURRENT COST ESTIMATE SHOULD HAVE PUT THE CONTRACTING OFFICER ON NOTICE OF A POSSIBLE ERROR, SUCH A DISPARITY WILL NOT CHARGE THE GOVERNMENT WITH NOTICE IF UNDER ALL THE ATTENDANT CIRCUMSTANCES IT WAS REASONABLE FOR THE CONTRACTING OFFICER TO BELIEVE THAT NO APPARENT ERROR WAS EVIDENT. 50 COMP. GEN. 39 (1970). WE THINK THAT IN THIS CASE THE CONTRACTING OFFICER WAS NOT REASONABLY ON NOTICE OF AN APPARENT MISTAKE IN LAND AIR'S BID IN VIEW OF THE LARGE NUMBER OF BIDS RECEIVED THAT WERE BELOW THE COST ESTIMATE. THEREFORE, THERE IS NO BASIS FOR CHALLENGING THE ADEQUACY OF THE REQUEST FOR VERIFICATION.

IN OUR OPINION, THIS MATTER IS GOVERNED BY STANDARD PRINCIPLES OF AGENCY AND CONTRACT LAW, UNDER WHICH THE ACTS OF AN AGENT/EMPLOYEE IN ENTERING INTO A CONTRACT WITHIN THE SCOPE OF HIS AUTHORITY, WILL BIND HIS PRINCIPAL/COMPANY. AM. JUR. 2D, AGENCY 84, SEC 268. THIS IS TRUE NOT ONLY WHEN THE EMPLOYEE HAS ACTUAL AUTHORITY, BUT ALSO WHEN HE IS CLOAKED WITH APPARENT AUTHORITY, WILLISTON ON CONTRACTS, THIRD ED. 277, AND ACTS "IN HIS OWN INTERESTS AND ADVERSELY TO HIS PRINCIPAL, WHERE THE PARTY WITH WHOM THE AGENT CONTRACTS HAS NO KNOWLEDGE OF THE AGENT'S DERELICTION AND IS NOT COGNIZANT OF ANY FACTS CHARGING HIM WITH KNOWLEDGE THEREOF." AM. JUR. 2D, AGENCY 270. SEE 17 COMP. GEN. 1110, 1112 (1938).

THE FACTS HEREIN CLEARLY INDICATE THAT THE BID WAS SUBMITTED BY AN OFFICER OF LAND-AIR WHO HAD ACTUAL AUTHORITY TO SUBMIT BIDS, AND THAT THERE WAS NO REASON WHY THE CONTRACTING OFFICER SHOULD HAVE KNOWN THIS OFFICER WAS ACTING IN DEROGATION OF THE BEST INTERESTS OF THE COMPANY. FACT, YOU STATE IN YOUR BRIEF THAT "THE EXACT NATURE OF THE APPELLANT'S BID WAS PROBABLY NOT EVEN SUSPECTED BY THE CONTRACTING OFFICER."

ACCORDINGLY, WE BELIEVE ACCEPTANCE OF LAND-AIR'S BID RESULTED IN A VALID AND BINDING CONTRACT AND THAT YOUR CLIENT IS LIABLE UNDER THE TERMS OF THAT CONTRACT.

WITH RESPECT TO YOUR APPEAL FROM THE ASBCA RULING, THIS OFFICE, FOLLOWING THE SUPREME COURT DECISION IN S & E CONTRACTORS, INC. V UNITED STATES, NO. 70-88, APRIL 24, 1972, WILL NO LONGER REVIEW BOARD OF CONTRACT APPEALS DECISIONS ABSENT A SHOWING OF FRAUD OR BAD FAITH.

FOR THE FOREGOING REASONS, YOUR REQUEST FOR RELIEF MUST BE DENIED.