EVANS REAMER & MACHINE COMPANY v. United States

• Decision Date: 11 March 1968
• Docket Number: No. 434-59.,434-59.
• Citation: 386 F.2d 873
• Parties: EVANS REAMER & MACHINE COMPANY v. The UNITED STATES.
• Court: U.S. Claims Court

386 F.2d 873 (1967)

EVANS REAMER & MACHINE COMPANY v. The UNITED STATES.

No. 434-59.

United States Court of Claims.

November 9, 1967.

Certiorari Denied March 11, 1968.

Victor Strimbu, Jr., Cleveland, Ohio, for plaintiff. Herbert A. Spring, Cleveland, Ohio, attorney of record. Richard F. Stevens, Baker, Hostetler & Patterson, Cleveland, Ohio, of counsel.

James A. Pemberton, Jr., with whom was Acting Asst. Atty. Gen. Carl Eardley, for defendant.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON and NICHOLS, Judges.

Certiorari Denied March 11, 1968. See 88 S.Ct. 1102.

OPINION

PER CURIAM:

This case was referred to Trial Commissioner Lloyd Fletcher with directions to make findings of fact and recommendation for conclusions of law. The commissioner has done so in an opinion and report filed on October 21, 1966. Exceptions to the commissioner's opinion and report were filed by plaintiff and the case has been submitted to the court on the briefs of the parties and oral argument of counsel. Since the court agrees with the commissioner's findings, opinion, and recommended conclusion of law, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in this case.^* Therefore, plaintiff is not entitled to recover and the petition is dismissed.

OPINION OF COMMISSIONER^**

FLETCHER, Commissioner:

In 1952 the Office of Defense Mobilization issued Defense Manpower Policy No. 4 (DMP-4) which had as its purpose:

* * * procurement by negotiated contracts and purchases with responsible concerns which are in an area of current or imminent labor surplus * * * in cases where the public interest dictates the need for doing so * * *¹

Under this policy a system of so-called "set-asides" was introduced into Government procurement practice. A typical procurement would be split into two segments with a portion of the total purchase being awarded to the lowest responsible bidder, wherever located, and with the remainder being "set-aside" for negotiation with firms located in labor surplus areas. Although, originally, procuring agencies were authorized in such procurements to pay price differentials (see 31 Comp.Gen. 279), by November 1953 the policy had changed to the end that the contract price for the "set-aside" could not exceed the award price for the bid, or non-set-aside, portion of the procurement.²

The contract in dispute here arose out of such a "set-aside" procurement. During 1953 the Army Chemical Corps had designed and developed a new type of fire bomb for use by the Air Force. The casing for this bomb was made primarily of aluminum and resembled a cigar in shape with a length of 11 feet and a diameter of 18 inches. It was designed to contain 650 pounds of napalm, a jellied gasoline which will burn at high temperatures when ignited and is very difficult to extinguish.

The Chemical Corps assigned procurement responsibility for the fire bomb to its New York Chemical Procurement District. On May 14, 1954, the Procurement District issued its Invitation For Bids for the manufacture and supply of 73,944 fire bombs on the basis of both F.O.B. origin and F.O.B. destination. The invitation contained a note indicating that a "set-aside" procurement might be negotiated with firms located in labor surplus areas in accordance with pertinent provisions of the Armed Services Procurement Regulations (ASPR). Any bidder desiring to participate in such negotiations was invited to attach to its bid on the non-set-aside portion of the procurement a supplemental letter furnishing data as to its eligibility to negotiate for the potential set-aside portion.

The plaintiff, Evans Reamer & Machine Company (Evans), was one of more than 50 bidders who responded to the IFB. Its manufacturing plant was located in Perry County, Ohio, a coal mining area where chronic unemployment had existed for many years. Accordingly, Evans attached to its competitive bid a statement indicating its interest in, and eligibility for, negotiations on any set-aside portion of the fire bomb procurement.³

The bids were opened at the Procurement District's offices on June 15, 1954. The low bidder, by reason of an apparent mistake, was allowed to withdraw its bid. The next lowest bid was submitted by The Aircraftsmen Company (Aircraftsmen) at $73.98 per bomb, F.O.B. origin. Following, in order, were the bids of Evans' parent company, Lempco Products, Inc. (Lempco) at $87.40 F.O.B. origin, and of Evans itself at $87.65 F.O.B. origin.⁴

Defendant's contracting officer immediately dispatched pre-award survey teams to Aircraftsmen and Lempco for the purpose of ascertaining their respective manufacturing and financial capabilities. Favorable survey reports were furnished by both teams. However, the survey team at Aircraftsmen discovered that, due to a mistake, Aircraftsmen's bid was $2.056 per bomb lower than it should have been. Notwithstanding, Aircraftsmen asked that it be awarded the contract at its erroneous bid price upon the mutual understanding that it would process a mistake-in-bid claim to the General Accounting Office (GAO) seeking a price increase of $2.056 per bomb.

The contract for the non-set-aside portion of the procurement was awarded to Aircraftsmen in late June 1954. It called for the manufacture and delivery of 73,944 fire bombs at a delivery rate (after the first two months of production) of 8,000 bombs per month. The original contract prices per bomb were $73.98 and $77.78 F.O.B. origin and destination, respectively, but when, in October, GAO approved Aircraftsmen's mistake-in-bid claim, those prices were increased, in keeping with the Procurement District's prior commitment, by $2.056 per bomb.

Meanwhile, it had developed that Evans was the only bidder who was eligible to negotiate for a set-aside procurement of the fire bombs.⁵ A survey team dispatched to Evans' plant by the contracting officer reported favorably on Evans' financial and technical capacity to perform, subject to its obtaining a guarantee of financial support from its parent, Lempco. Thereupon, the contracting officer sent a letter to Evans under date of July 20, 1954, inviting Evans to quote on a set-aside quantity of 71,661 bombs with monthly deliveries commencing in April 1955. He referred specifically to ASPR 1-302.4 providing that set-aside procurements could be negotiated at prices no higher than those paid on the non-set-aside portion, and advised Evans that the award under the non-set-aside portion had been made at $73.98 per bomb F.O.B. origin.

By return mail, Evans rejected "the opportunity of taking on" the set-aside because its basic manufacturing costs would exceed the proposed set-aside price of $73.98 and because, in addition, there was a strong probability of substantial increases in aluminum prices during the production period. Thereupon, the contracting officer consulted his commanding officer regarding further action on the procurement assignment. The latter decided that inquiry should be made of Evans as to whether it would be interested in negotiations if the maximum price were set at $76.036 on the assumption that Aircraftsmen's claim before GAO for an increase of $2.056 would be successful. The contracting officer immediately made such an inquiry of Evans' representatives by telephone but was told that Evans could not meet the $76.036 price either. In the belief that negotiations with Evans had thus terminated, the contracting officer commenced action leading to the issuance of another Invitation For Bids on the remaining quantity of fire bombs.⁶

A few days later Evans' chief negotiator reconsidered the matter and concluded that his rejection of the $76.036 price had been premature. He telephoned the contracting officer to advise him that Evans was interested in negotiating for the set-aside portion of the fire bomb procurement at any price allowed Aircraftsmen in excess of the $73.98 price. This advice was confirmed by telegrams and letters. Also, Evans' chief negotiator had a personal conference on the matter with the Commanding General, Army Chemical Corps, Materiel Command (MATCOM), which visit resulted in an order to the contracting officer to forward the file for appellate review by MATCOM.

In a letter to the contracting officer dated August 23, 1954, Evans had forwarded a cost breakdown and stated its willingness to accept a contract for the set-aside quantity of fire bombs at the Aircraftsmen's price of $73.98 subject to an increase of $2.056 if Aircraftsmen's claim to GAO were successful. The contracting officer forwarded the letter to MATCOM where the matter was under review.

At this point, a change in the delivery schedule set forth in the non-set-aside contract (8,000 bombs per month) was imported into the correspondence. Under instructions from MATCOM, the contracting officer on August 26 inquired of Evans whether the same "terms and conditions" contained in its letter of August 23 would apply to a production rate of 3,000 bombs per month. Evans replied on September 1:

We are pleased to advise you that the terms and conditions contained in our letter of August 23, 1954, are applicable to a production rate of three thousand (3,000) bombs per month with deliveries to begin in April or May, 1955, as well as to the production rate originally specified.

On October 12, 1954, MATCOM instructed the Procurement District to continue negotiations with Evans for the set-aside quantity and to expedite those negotiations to the point of signing a formal contract. Three days later the contracting officer wrote Evans that he had been "authorized to re-enter into negotiations * * * under the terms of the labor surplus provisions of this bid, at an optimum production rate of 3,000 bombs per month, the deliveries commencing May 1955." He asked for Evans' cost breakdowns and other relevant data with a view to scheduling a preliminary conference.

A series of negotiation conferences followed, commencing with a...