B-157055, FEB. 17, 1967

B-157055, FEB. 17, 1967

TO THE FREQUENCY ENGINEERING LABORATORIES:

REFERENCE IS MADE TO YOUR REQUEST BY TELEPHONE ON JUNE 24, 1966, AS SUPPLEMENTED BY YOUR LETTERS OF JULY 6, JULY 22 AND OCTOBER 14, 1966, THAT WE RECONSIDER OUR DECISION B-157055, DATED JUNE 21, 1966, IN WHICH WE DENIED YOUR PROTEST AGAINST AWARD BY THE DEPARTMENT OF THE ARMY OF A CONTRACT TO ANY OTHER BIDDER UNDER INVITATION FOR BIDS (IFB) NO. AMC (A/- 36-038-65-1033 (WEI), ISSUED MAY 3, 1965, BY FRANKFORD ARSENAL, PHILADELPHIA, PENNSYLVANIA.

THE PROCUREMENT IN QUESTION, WHICH WAS RESTRICTED TO SMALL BUSINESS CONCERNS, COVERED A QUANTITY OF COMPUTER LOGIC TEST SET UNITS (FALT) FOR USE WITH THE FIELD ARTILLERY DIGITAL AUTOMATIC COMPUTER (FADAC). BIDS WERE OPENED ON JUNE 4, 1965, AND YOU WERE THE LOWEST OF FIVE BIDDERS. HOWEVER, PENDING DISPOSITION OF PROTESTS FROM TWO OF THE COMPETING BIDDERS QUESTIONING YOUR RESPONSIBILITY, AND PENDING RESOLUTION OF SEVERAL DIFFICULTIES ENCOUNTERED IN THE PERFORMANCE OF A CONTRACT FOR THE FALT EQUIPMENT UNDER A CONTRACT WHICH HAD BEEN AWARDED TO YOU IN 1964 BY THE SAME PROCURING ACTIVITY, AWARD UNDER THE IFB WAS POSTPONED. ULTIMATELY, THE CONTRACTING OFFICER ISSUED A DETERMINATION IN FEBRUARY 1966 THAT YOU WERE NOT RESPONSIBLE, AND DURING THE SAME MONTH THE SMALL BUSINESS ADMINISTRATION (SBA) ISSUED A DECISION STATING THAT YOU WERE LARGE BUSINESS, THEREBY DISQUALIFYING YOU FOR AWARD UNDER THE IFB.

IN A LETTER DATED FEBRUARY 22, 1966, TO OUR OFFICE, YOU PROTESTED THE ADMINISTRATIVE NONRESPONSIBILITY DETERMINATION; YOU CONTENDED THAT THE BID PRICE OF CALIFORNIA COMPUTER PRODUCTS, INC. (CALIFORNIA), THE NEXT BIDDER WHO COULD QUALIFY FOR AWARD, WAS UNREASONABLE; AND YOU REQUESTED THAT THE PROCUREMENT BE READVERTISED ON AN UNRESTRICTED BASIS. OUR DECISION OF JUNE 21, 1966, INFORMED YOU OF THE REPORTED BASIS ON WHICH THE DEPARTMENT OF THE ARMY MADE ITS NONRESPONSIBILITY DETERMINATION; ADVISED YOU THAT THE CHANGE OF YOUR STATUS FROM SMALL TO LARGE BUSINESS IN ITSELF DISQUALIFIED YOU FOR AWARD; ADVISED YOU FURTHER THAT THE MATTER OF WITHDRAWAL OF A SET- ASIDE PROCUREMENT RESTED WITHIN ADMINISTRATIVE DISCRETION; AND CONCLUDED, IN THE LIGHT OF THE ADMINISTRATIVE REPORT, WHICH INCLUDED STATEMENTS THAT THE PROCUREMENT HAD BECOME CRITICALLY URGENT AND THAT CALIFORNIA HAD VOLUNTARILY OFFERED TO REDUCE ITS BID TO A LEVEL WHICH WAS REGARDED AS REASONABLE, THAT WE WOULD INTERPOSE NO OBJECTION TO AN AWARD TO CALIFORNIA AT THE REDUCED BID PRICE IF SUCH ACTION WERE DETERMINED TO BE IN THE BEST INTEREST OF THE GOVERNMENT.

YOUR REQUEST FOR RECONSIDERATION OF OUR DECISION RAISES TWO BASIC ISSUES- -- THE PROPRIETY OF THE ACCEPTANCE OF THE BID REDUCTION FROM CALIFORNIA AND THE CREDIBILITY OF THE REPORTED FACTS RELATING TO THE MATTER OF YOUR RESPONSIBILITY. ACCORDINGLY, YOU AGAIN URGE THAT THE AWARD TO CALIFORNIA BE SET ASIDE AND THAT THE PROCUREMENT BE READVERTISED WITH BOTH SMALL AND LARGE BUSINESS CONCERNS PARTICIPATING.

WITH RESPECT TO THE BID REDUCTION BY CALIFORNIA, YOU POINT TO THE FACT THAT CALIFORNIA'S ORIGINAL BID, WHICH STOOD FOURTH AMONG THE FIVE BIDS RECEIVED UNDER THE IFB, EXCEEDED YOUR LOW BID BY 70 PERCENT AND WAS ALSO SUBSTANTIALLY HIGHER THAN THE PRICE AT WHICH THE FALT EQUIPMENT HAD BEEN PREVIOUSLY PROCURED FROM AMELCO, INC., A LARGE BUSINESS CONCERN. THEREFORE, YOU CONTEND, CALIFORNIA'S ORIGINAL BID WAS UNREASONABLY HIGH AND AN AWARD THEREON COULD NOT HAVE BEEN LAWFULLY MADE TO CALIFORNIA WITHOUT VIOLATING THE PROVISIONS OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-706.3 (A) RELATING TO REVIEW, WITHDRAWAL OR MODIFICATION OF SMALL BUSINESS SET-ASIDES WHEN IT IS ADMINISTRATIVELY CONSIDERED THAT AWARD THEREUNDER WOULD BE DETRIMENTAL TO THE PUBLIC INTEREST (E.G., BECAUSE OF UNREASONABLE PRICE), THE CIRCUMSTANCES INVOLVED MAKING IT NECESSARY, IN YOUR OPINION, FOR THE CONTRACTING OFFICER TO CONCLUDE THAT AWARD TO CALIFORNIA WOULD BE CONTRARY TO THE BEST INTERESTS OF THE GOVERNMENT.

IN SUPPORT OF SUCH CONTENTION, YOU CITE THE CASE OF LEITMAN V. UNITED STATES, 104 CT.CL. 324 (1945), RELATING TO A TELEGRAPHIC BID REDUCTION RECEIVED AFTER BID OPENING FROM A LOW BIDDER, IN WHICH THE COURT OF CLAIMS HELD THAT THE RULE AGAINST CONSIDERATION OF LATE BID MODIFICATIONS NEED NOT BE APPLIED AND THE MODIFICATION WAS PROPERLY FOR CONSIDERATION AT THE OPTION OF THE GOVERNMENT. YOU CITE, ALSO, SEVERAL DECISIONS OF OUR OFFICE, WHICH ARE IN LINE WITH THE LEITMAN RULING, IN WHICH WE HELD THAT ONCE A BIDDER HAS BEEN DETERMINED TO HAVE SUBMITTED THE LOWEST RESPONSIVE BID OR THE OTHERWISE LOW ACCEPTABLE BID, NO REASON APPEARS WHY A VOLUNTARY DECREASE IN HIS BID MAY NOT BE ACCEPTED. ON THE BASIS THAT SUCH DECISIONS STAND FOR THE PROPOSITION THAT A BID AS ORIGINALLY SUBMITTED MUST BE ACCEPTABLE IN ORDER TO WARRANT CONSIDERATION OF A LATE MODIFICATION, YOU URGE THAT THE BID PRICE REDUCTION OFFERED BY CALIFORNIA DOES NOT COME WITHIN SUCH RULING SINCE AN AWARD BASED ON CALIFORNIA'S UNREASONABLY PRICED ORIGINAL BID WOULD NOT HAVE BEEN IN THE BEST INTEREST OF THE GOVERNMENT.

IN OUR DECISION OF JUNE 21, 1966, TO YOU, IT WAS CLEARLY STATED THAT THE GROUNDS FOR OUR ADVICE TO THE SECRETARY OF THE ARMY, THAT WE WOULD INTERPOSE NO OBJECTION TO AN AWARD TO CALIFORNIA COMPUTER IF SUCH ACTION SHOULD BE DETERMINED BY HIS DEPARTMENT TO BE IN THE BEST INTEREST OF THE GOVERNMENT, WERE THAT CALIFORNIA WAS THE ONLY BIDDER ON THE PROCUREMENT WHO HAD BEEN FOUND TO BE RESPONSIBLE, AND THAT WE HAD BEEN ADVISED THAT THE NEED FOR THE MATERIAL HAD BECOME CRITICALLY URGENT AS A RESULT OF YOUR FAILURE TO DELIVER UNDER YOUR PRIOR CONTRACT. IN THESE CIRCUMSTANCES WE WERE RELUCTANT TO REQUIRE ANY ACTION WHICH WOULD INVOLVE FURTHER DELAY. AT THE SAME TIME, IN ADVISING THE SECRETARY OF THE ARMY OF OUR DECISION, WE MADE THE FOLLOWING STATEMENT:

"IN B-157411, NOVEMBER 4, 1965, 45 COMP. GEN. -, WE HELD THAT WHERE ONLY ONE SMALL BUSINESS BIDDER SUBMITTED A BID IN RESPONSE TO A SMALL BUSINESS RESTRICTED INVITATION, AND THE PRICE QUOTED WAS UNREASONABLE, IT WAS IMPROPER TO NEGOTIATE WITH THAT BIDDER ALONE TO OBTAIN A REASONABLE PRICE. THAT DECISION WAS BASED ON PART UPON DOUBT EXPRESSED AS TO THE PROPRIETY OF THE SMALL BUSINESS RESTRICTION, BUT SOME OF THE REASONING FOLLOWED IN THE DECISION AND THE DISCUSSION OF THE APPLICABILITY OF LEITMAN, SUPRA, CONTAINED THEREIN, CREATES DOUBT AS TO THE PROPRIETY (AT LEAST IN A SMALL BUSINESS RESTRICTED PROCUREMENT) OF CONSIDERING EVEN A VOLUNTARY OFFER OF A PRICE REDUCTION BY A LOW BIDDER WHERE IT APPEARS THAT IN THE ABSENCE OF SUCH REDUCTION ALL BIDS WOULD BE REJECTED AS UNREASONABLE.

"HOWEVER, IN VIEW OF THE FACT THAT WE ARE NOW ADVISED THAT THE FIFTH BIDDER ON THE SUBJECT PROCUREMENT, CHRISTIAN PRECISION MANUFACTURING COMPANY, IS CONSIDERED NONRESPONSIBLE FOR THE FALT EQUIPMENT, LEAVING CALIFORNIA COMPUTER AS THE ONLY ONE OF THE FIVE BIDDERS NOW REGARDED AS A RESPONSIBLE SOURCE, AND SINCE IT APPEARS THAT THE PRICE REDUCTION OFFERED WAS ENTIRELY VOLUNTARY AND UNSOLICITED, WE WILL INTERPOSE NO OBJECTION TO AWARD OF A CONTRACT TO CALIFORNIA COMPUTER ON ITS BID AS REDUCED, IF IT BE DETERMINED BY YOUR AGENCY THAT SUCH ACTION WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT, IN THE LIGHT OF THE REPORTED URGENCY OF THE NEED FOR THE ITEMS INVOLVED.'

IT WILL BE NOTED THAT IN THE ABOVE LETTER, WE POINTED OUT THE DISTINCTION BETWEEN THIS CASE, WHERE THE OFFER OF CALIFORNIA COMPUTER TO REDUCE ITS BID PRICE WAS SUBMITTED WITHOUT ANY SOLICITATION OR SUGGESTION BY THE GOVERNMENT AND BEFORE ANY FINAL DETERMINATION OF THE RESPONSIBILITY OF OTHER BIDDERS OR OF THE REASONABLENESS OF ANY BID HAD BEEN MADE, AND THE CASE DEALT WITH IN OUR CITED DECISION OF NOVEMBER 4, 1965, WHERE THE CONTRACTING OFFICER INSTITUTED NEGOTIATIONS WITH THE SINGLE RESPONSIVE BIDDER ON A SMALL BUSINESS RESTRICTED PROCUREMENT.

WE BELIEVE THIS DISTINCTION IS VALID, AND IN THE LIGHT OF THE DECISION OF THE COURT OF CLAIMS IN CONDEC CORPORATION V. UNITED STATES, CT.CL. NO. 304 -62, DECEMBER 16, 1966, THE RESTRICTION IMPOSED BY OUR CITED DECISION OF NOVEMBER 4, 1965, SHOULD NOT BE CONSIDERED APPLICABLE TO VOLUNTARY AND UNSOLICITED OFFERS FROM LOW BIDDERS, BUT ONLY TO NEGOTIATION OR SOLICITATION OF OFFERS BY THE CONTRACTING OFFICER. SEE B-152989, APRIL 6, 1964, IN WHICH WE HELD THAT LEITMAN, SUPRA, DID NOT JUSTIFY THE SOLICITATION OF IMPROVED BIDS. UNDER THE PROVISIONS OF ASPR 2-305, AS CONSTRUED BY THE COURT IN THE CONDEC CASE, SUPRA, A FAVORABLE MODIFICATION RECEIVED BEFORE AWARD FROM AN "OTHERWISE SUCCESSFUL" BIDDER MUST BE CONSIDERED.

THE REFERENCE IN OUR DECISION OF NOVEMBER 4, 1965, TO THE PROVISIONS OF 10 U.S.C. 2304 (A) (15), AUTHORIZING NEGOTIATION OF A CONTRACT WHERE BID PRICES RECEIVED AFTER ADVERTISING ARE NOT REASONABLE, MUST BE READ IN THE LIGHT OF THE FACT THAT THE DETERMINATION AS TO THE REASONABLENESS OF PRICES IS REQUIRED BY THE STATUTE TO BE MADE BY THE HEAD OF THE AGENCY INVOLVED, AND HIS AUTHORITY IN THIS RESPECT CANNOT BE DELEGATED. UNLESS AND UNTIL THE BID PRICES HAVE BEEN DETERMINED UNREASONABLE BY THE CONTRACTING OFFICER, EITHER TO SUPPORT CANCELLATION OF THE INVITATION FOR BIDS PURSUANT TO ASPR 2-404.1 (B) (VI), OR AS A BASIS FOR REFERRAL TO THE HEAD OF THE AGENCY FOR AUTHORITY TO NEGOTIATE UNDER 10 U.S.C. 2304 (A) (15), OR BY THE HEAD OF THE AGENCY IF NO SUCH DETERMINATION HAS PREVIOUSLY BEEN MADE, WE SEE NO REASON WHY A VOLUNTARY PRICE REDUCTION FROM THE LOWEST RESPONSIBLE AND RESPONSIVE BIDDER SHOULD NOT BE CONSIDERED.

WITH RESPECT TO YOUR CHALLENGE OF THE CREDIBILITY OF THE ADMINISTRATIVELY REPORTED FACTS ON WHICH THE CONTRACTING OFFICER'S DETERMINATION WAS MADE THAT YOU WERE NOT RESPONSIBLE, YOU HAVE BEEN FURNISHED WITH COPIES OF REPORTS FORWARDED TO OUR OFFICE BY THE DEPARTMENT OF THE ARMY ON AUGUST 20 AND SEPTEMBER 9, 1966, IN RESPONSE TO THE ISSUES RAISED IN YOUR LETTERS OF JULY 6 AND 22, 1966. ACCORDINGLY, OUR DECISION WILL BE CONFINED TO THE MATTERS DISCUSSED IN YOUR LETTER DATED OCTOBER 14, 1966, WHICH YOU CONSIDER NOT TO HAVE BEEN RESOLVED BY SUCH REPORTS.

YOU CONTEND THAT YOUR FAILURE TO ADHERE TO YOUR FALT CONTRACT SCHEDULE WAS SOLELY THE RESULT OF THE DELAYS CAUSED BY THE CHANGES MADE BY MODIFICATION NO. 5 TO THE FALT CONTRACT. YOU SET FORTH YOUR CONTENTIONS IN DETAIL, AND SUMMARIZE YOUR POSITION AS FOLLOWS:

"/A) MODIFICATION NO. 5 IMPOSED MAXIMUM SIZED LIMITATIONS AND THICKNESS TOLERANCES UPON THE PRINTED CIRCUIT BOARDS WHICH WERE OUTSIDE THE LIMITS OF ANY MATERIALS COMMERCIALLY AVAILABLE IN THE UNITED STATES, WHICH MADE THE PRODUCTION OF SUCH BOARDS IMPOSSIBLE UNDER KNOWN PRODUCTION TECHNIQUES. THE NECESSARY SUPPLY OF THESE PRINTED CIRCUIT BOARDS, CONFORMING TO THE REQUIREMENTS OF MODIFICATION NO. 5, WAS ACCOMPLISHED ONLY AFTER VERY SUBSTANTIAL DELAY AND BY MEANS OF TEDIOUS TESTING AND SELECTION OF ACCEPTABLE BOARDS FROM A GREAT MASS OF OVERSIZED OR OTHERWISE NONCOMPLYING BOARDS.

"/B) MODIFICATION NO. 5 DIRECTED A CHANGE IN MANUFACTURING PROCEDURE ("ALL MACHINING TO PRECEDE GOLD PLATING,") WHICH MADE IT IMPOSSIBLE TO PRODUCE ACCEPTABLE PRINTED CIRCUIT BOARDS. HOWEVER, AFTER THIS OPPRESSIVE REQUIREMENT WAS FINALLY WAIVED BY THE CONTRACTING OFFICER, HE SOUGHT TO ENFORCE A SUPERFLUOUS REQUIREMENT FOR THE GOLD PLATING OF THE CHAMFER EDGE. THIS LATER REQUIREMENT IS CONTRARY TO ALL KNOWN INDUSTRY PRACTICE, REQUIRED THE DEVELOPMENT OF NEW TECHNIQUES BY FREQUENCY AND FURTHER ADDED TO THE DELAY INRECEIVING THE NECESSARY SUPPLY OF PRINTED CIRCUIT BOARDS.

"/C) FREQUENCY WAS DILIGENT IN THE AWARD OF SUPPLY CONTRACTS FOR THE FURNISHING OF ITS PRINTED CIRCUIT BOARDS AND TOOK ALL POSSIBLE ACTION TO SECURE THESE BOARDS AT THE EARLIEST POSSIBLE TIME AND TO CURE DEFICIENCIES.

"/D) THE CHANGES EFFECTED BY MODIFICATION NO. 5 WAS SOLELY RESPONSIBLE FOR THE DELAYS IN THE RECEIPT OF PRINTED CIRCUIT BOARDS AND THE FAILURE TO RECEIVE THESE BOARDS WAS THE SOLE CAUSATIVE FACTOR OF THE DELINQUENCY IN THE PRODUCTION OF FALT UNITS IN ACCORDANCE WITH THE CONTRACT EDULE.'

IN ADDITION, YOU ASSERT THAT THE CONTRACT WAS A PRODUCTION CONTRACT FOR PERFORMANCE IN ACCORDANCE WITH GOVERNMENT SPECIFICATIONS AND DRAWINGS AND, THEREFORE, YOU HAD NO DESIGN OR DEVELOPMENT RESPONSIBILITY; THAT THE CONTRACTING OFFICER DID NOT ISSUE TO YOU ANY TECHNICAL DATA, ENGINEERING ADVICE OR EXPLANATION AS TO THE SCOPE OF THE CHANGES INVOLVED WHEN MODIFICATION NO. 5 WAS ISSUED; AND THAT SINCE THE PRINTED CIRCUIT BOARD WAS A PURCHASED PART, YOU WERE NOT IN A POSITION TO EVALUATE FULLY THE EFFECT OF THE CHANGES IN QUESTION AND LEARNED THE CONSEQUENCES ONLY THROUGH THE DIFFICULTIES SUBSEQUENTLY ENCOUNTERED.

WITH RESPECT TO VARIOUS OTHER AREAS IN WHICH THE CONTRACTING OFFICER STATED YOUR PERFORMANCE WAS DEFICIENT AND CONTRIBUTED TO YOUR DELINQUENCY UNDER YOUR FALT CONTRACT, YOU CONTEND THAT THE CONTRACTING OFFICER'S STATEMENTS ARE IN ERROR OR FAIL TO TAKE INTO ACCOUNT THE IMPACT UPON YOU OF THE FAILURE TO RECEIVE AND TO HAVE AVAILABLE WORKING PRINTED CIRCUIT BOARDS. YOU DISCUSS EACH SUCH AREA, AND YOU CONCLUDE THAT THE CONTRACTING OFFICER HAS FAILED TO SUBSTANTIATE THE CHARGE THAT ANY DEFICIENCY OTHER THAN THE DELAY IN RECEIPT OF THE PRINTED CIRCUIT BOARDS CONSTITUTED A MAJOR CAUSE FOR YOUR DELINQUENT PERFORMANCE OF YOUR FALT CONTRACT. ACCORDINGLY, YOU ASK THAT OUR DECISION OF JUNE 21 BE REVERSED IN ITS ENTIRETY. IN A 35-PAGE REPORT DATED DECEMBER 2, 1966, THE CONTRACTING OFFICER HAS REPLIED IN EXHAUSTIVE DETAIL TO THE VARIOUS POINTS RAISED IN YOUR REBUTTAL LETTER. A COPY OF THE REPORT IS ENCLOSED HEREWITH FOR YOUR INFORMATION. WITHOUT ATTEMPTING TO SUMMARIZE OR PARAPHRASE THE CONTRACTING OFFICER'S STATEMENTS, WE BELIEVE IT IS SUFFICIENT TO SAY THAT CAREFUL EXAMINATION OF HIS REPORT, AND A POINT-BY-POINT COMPARISON WITH YOUR CONTENTIONS, SATISFIES US THAT THERE IS A REASONABLE BASIS FOR HIS CONCLUSIONS AND NO ADEQUATE BASIS UPON WHICH WE MAY PROPERLY REFUSE TO ACCEPT HIS VERSION OF THE MATERIAL FACTS. IN THIS CONNECTION, THE REALLY DETERMINATIVE QUESTION ON YOUR PROTEST IS WHETHER THE CONTRACTING OFFICER'S DETERMINATION THAT YOU WERE NOT A RESPONSIBLE BIDDER FOR THE PROCUREMENT IN QUESTION COULD OR SHOULD BE DISREGARDED OR OVERRULED BY THIS OFFICE. ON THIS QUESTION WE HAVE UNIFORMLY HELD THAT THE DETERMINATION OF A PROSPECTIVE CONTRACTOR'S ABILITY TO PERFORM IS PRIMARILY THE FUNCTION OF THE ADMINISTRATIVE OFFICERS CONCERNED, AND IN THE ABSENCE OF A SHOWING OF BAD FAITH OR LACK OF ANY REASONABLE BASIS FOR THE ADMINISTRATIVE DETERMINATION THERE IS NO BASIS UPON WHICH WE MAY OBJECT. SEE 39 COMP. GEN. 705.

WE FIND NO EVIDENCE OF BAD FAITH ON THE PART OF THE CONTRACTING AGENCY, AND THE CONTRACTING OFFICER'S STATEMENTS, IN OUR OPINION, OFFER A REASONABLE BASIS FOR ACCEPTING THE FACTS ON WHICH THE ADMINISTRATIVE DETERMINATION REGARDING YOUR RESPONSIBILITY WAS MADE. ACCORDINGLY, WE ARE UNABLE TO CONCUR WITH YOUR CONTENTION THAT THE ADVERSE ADMINISTRATIVE DETERMINATION WAS WITHOUT A SUBSTANTIAL BASIS.

IN THE LIGHT OF OUR CONCLUSIONS REGARDING THE ADMINISTRATIVE DECISION TO MAKE AWARD UNDER THE ORIGINAL SET-ASIDE DETERMINATION AT THE REDUCED BID PRICE OFFERED BY THE ONLY RESPONSIVE AND RESPONSIBLE BIDDER, CALIFORNIA, AND THE PROPRIETY OF THE DETERMINATION THAT YOU WERE NOT A RESPONSIBLE BIDDER FOR THE PROCUREMENT IN QUESTION, WE MUST AFFIRM OUR DECISION OF JUNE 21. THEREFORE, YOUR REQUEST THAT THE CALIFORNIA CONTRACT BE CANCELLED AND THE PROCUREMENT BE READVERTISED ON A NONRESTRICTED BASIS BE DENIED.