BNUMBER: B-272069
DATE: September 6, 1996
TITLE: Lewis Machine & Tool Co.
**********************************************************************
Matter of:Lewis Machine & Tool Co.
File: B-272069
Date:September 6, 1996
Alan M. Grayson, Esq., and Victor A. Kubli, Esq., Law Offices of Alan
M. Grayson, for the protester.
Daniel C. Sauls, Esq., Jerald S. Howe, Jr., Esq., and Paul R. Hurst,
Steptoe & Johnson, for United Defense Limited Partnership, an
intervenor.
Richard A. Couch, Esq., and Vera Meza, Esq., Department of the Army,
for the agency.
Adam Vodraska, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Under a solicitation for a prototype lightweight howitzer, the
protester's proposal, premised on a prototype developed and fabricated
by an Army arsenal and provided under a subcontract to the protester,
could not be accepted because the subcontract was not authorized by 10
U.S.C. sec. 2208(j), which permits subcontracting by arsenals only where
they can compete directly under the solicitation with private firms,
which this solicitation did not permit.
DECISION
Lewis Machine & Tool Co. protests the decision by the Army
Tank-Automotive and Armaments Command, Armament Research, Development
and Engineering Center, Picatinny Arsenal, New Jersey, to eliminate
Lewis from the competition under request for proposals (RFP) No.
DAAE30-96-R-0003 for a contract to participate in the "shoot-off"
phase of the development of a lightweight 155 millimeter (mm)
howitzer. This RFP contemplated the award of fixed-priced contracts
to all acceptable offerors for the "shoot-off," the first phase in the
acquisition of a lightweight 155 mm howitzer to replace aging and
heavier howitzers currently in use by the Army and Marine Corps.
We deny the protest.
The RFP required offerors to deliver a single prototype howitzer, as
well as related equipment, technical and other specified
documentation, and a support team, to Yuma Proving Ground in Arizona
by April 25, 1996. Agency personnel then performed an initial
screening of the proposed howitzers for compliance with the criteria
listed in the RFP and reviewed the acceptability of the submitted
technical and other specified documentation. All offerors whose
howitzers passed the initial screening were awarded firm, fixed-price
contracts in the amount of $500,000 to participate in the "shoot-off"
between the competing prototype howitzers. The "shoot-off" is a
6-month long period of developmental tests and operational assessments
at several Army and Marine Corps sites, during which agency personnel
test, evaluate, and compare the features and attributes of the
howitzers which passed the initial screening. During the "shoot-off,"
each offeror is responsible for training agency personnel in the
operation and maintenance of its howitzer, and for responding to
government technical inquiries. Offerors are also responsible for
providing technical support and engineering, spare parts, and
maintenance, and for shipping the howitzers from test site to test
site.
For the next phase of this procurement, the Army will use the results
of the "shoot-off" together with the evaluations of proposals
submitted by the competitors to select a contractor for the
Engineering and Manufacturing Development (EMD) phase of the project.
The EMD contractor is to supply eight test article howitzers, based on
the successful prototype used at the "shoot-off," at specified
intervals for further tests to validate engineering changes and
manufacturing technologies. The EMD contract will also contain
options for subsequent large-scale production of the howitzer.
The Arsenal Statute, 10 U.S.C. sec. 4532 (1994), requires the Army to
make its supplies in government-owned factories or arsenals if
economical. See Action Mfg, Co., B-220013, Nov. 12, 1985, 85-2 CPD para.
537; B-143232, Dec. 15, 1960. Under current Army procedures, the Army
determines prior to issuing a solicitation whether it is more
economical to "make" the needed item utilizing in-house manufacturing
capacity or to "buy" the item from private industry.[1]
Here, the solicitation contemplated the purchase of the howitzer from
private industry, which has produced prototypes based on previous
development efforts, and did not contemplate that arsenals could
compete with private firms for the contracts; none of the standard
provisions announcing that arsenals could compete as a prime
contractor were included in the RFP. In this regard, where the Army
makes a "buy" determination, the Army procedures generally preclude
Army industrial facilities, such as arsenals, from competing with
private industry under the resulting solicitation.[2]
Following the Army's issuance of a draft RFP in June 1995, the Rock
Island Arsenal (RIA) requested the contracting activity to amend the
solicitation to allow offerors to utilize RIA as a subcontractor. RIA
is a working capital-funded Army industrial facility that has produced
various artillery systems, and operates an extensive artillery
manufacturing facility with related technological capabilities and the
necessary skilled personnel. The contracting activity previously
provided funding to RIA to help develop a new recoil technology for
the howitzer program, and, after the draft RFP was issued RIA
expressed interest in producing the weapon or its components. RIA's
representatives state that they discussed the possibility of
subcontracting with several large defense firms expected to compete
for the contract. Those firms had committed to proposing other
prototypes, but expressed interest in subcontracting with RIA for
components or services at a later date if selected for the EMD
contract. RIA proceeded to fabricate a technology demonstrator, which
became RIA's lightweight 155 mm howitzer prototype; RIA's
representatives state that RIA developed the prototype to showcase the
new recoil technology, which the contracting activity intended to make
available to the winner of the competition.
An amended draft RFP issued on January 12, 1996, informed offerors
that RIA was "allowed to sell items as a subcontractor to industry"
and that a solicitation provision prohibiting contractor personnel
from supervising or directing government personnel did not prohibit a
prime contractor/subcontractor relationship between industry and a
government-owned and operated facility such as an arsenal. RIA then
requested that the solicitation include the following provision:
"This solicitation is open to competition between Department of
Defense [DOD] activities and private firms for subcontracting
pursuant to 10 U.S.C. sec. 2208(j), and all other applicable
statutes and regulations."
The final version of the RFP was issued on April 10, 1996, but
inadvertently omitted the solicitation provision requested by RIA.
Meanwhile, Lewis--a small business defense contractor located near
RIA, which was cognizant of the procurement effort--learned that RIA
was completing its prototype. Lewis has weapons manufacturing
experience with such items as artillery components, grenade launchers,
and small arms. At the time, Lewis was subcontracting work to RIA
through the Manufacturing Technology Consortium, an organization
associated with RIA, which is involved in local business development,
training and technical assistance, including the utilization of excess
capacity at RIA's manufacturing and engineering facilities. Lewis was
aware that the solicitation prevented RIA from directly entering its
prototype in the "shoot-off," but suggested to RIA that Lewis enter
the competition as the prime contractor using RIA's prototype.
Although Lewis would not have been able to enter the competition
without using the RIA prototype, Lewis claims to be capable of
developing and fabricating the prototypes required for the EMD phase
of the contract based on the RIA design, as well as eventually
proceeding to full scale production of the gun, with subcontracting as
needed.
Following discussions with RIA representatives, Lewis submitted a
proposal to RIA on April 16 through the Manufacturing Technology
Consortium outlining how Lewis would enter the competition for the
lightweight 155 mm howitzer using RIA's prototype. RIA officials
considered Lewis's proposal beneficial to RIA because its prototype
would be entered in the "shoot-off" competition and, if successful,
result in future work for the arsenal. RIA officials also considered
the arrangement permissible under the solicitation because Lewis would
be acting as the prime contractor, which RIA was precluded from doing,
and because they expected the RFP to be amended to include the
RIA-requested solicitation provision permitting subcontracting with
DOD activities such as RIA.
On April 18, the contracting activity amended the final RFP to add the
subcontracting provision requested by RIA to the RFP's executive
summary.
RIA drafted a subcontract, which specified that Lewis, pursuant to
10 U.S.C. sec. 2208(j), had requested to team with RIA, whereby RIA
agreed to provide its prototype howitzer for Lewis's use during the
"shoot-off" and Lewis agreed to assume the cost of transporting the
gun to Yuma Proving Ground as well as engineering support provided by
RIA. The subcontract provided that Lewis shall have the sole and
exclusive right to perform the functions of project management and
systems integration to the extent RIA has the right to grant, and that
the United States has the right to purchase any of Lewis's design
changes or technical improvements. Despite being named a "Contract of
Sale" and referring to Lewis as the "Buyer" and RIA (representing the
United States) as the "Seller", the subcontract did not transfer
ownership of the prototype to Lewis; rather, the United States
continues to possess all rights, title, interest, and license to the
prototype. The subcontract also provided that Lewis and RIA would
continue the teaming arrangement if the RIA prototype was selected for
award. The subcontract was approved by the head of the RIA-based Army
Industrial Operations Command, reviewed by Lewis's attorney, and
signed by Lewis and a contracting officer for RIA on April 19.
Lewis entered the RIA prototype in the competition as Lewis's proposed
howitzer, which was delivered to Yuma Proving Ground in time for the
April 25 commencement of the "shoot-off," along with the required
equipment, documentation, and support team.
After consulting with other Army officials and with the approval of
the head of the contracting activity, the contracting officer
eliminated Lewis from the competition on May 10 on the basis that:
"[RIA's] efforts are of such [a] substantial nature that [RIA is]
in effect the prime contractor under the proposal [Lewis]
submitted for this effort. This is not in compliance with the
provision allowing [DOD] activities to compete for subcontracts."
In this regard, the Army asserts that besides supplying the actual
prototype howitzer and equipment, RIA also provided personnel for
Lewis's support team, and was primarily responsible for preparing the
technical and other required documentation. The Army explains that in
doing so, RIA circumvented the statutory requirements governing such
agreements, as well as the Army's own internal policy procedures
restricting Army industrial facilities from competing directly with
private firms where, as here, the competition for the prime
contract(s) to be awarded under the solicitation is not open to
participation by DOD activities.
Lewis protested to our Office that the Army improperly eliminated it
from the competition for doing exactly what the RFP permitted, namely
subcontracting with a DOD activity pursuant to 10 U.S.C. sec. 2208(j).
We find that, notwithstanding the inclusion in the RFP of the
solicitation provision expressly allowing for subcontracting with DOD
activities pursuant to 10 U.S.C. sec. 2208(j), Lewis's subcontract with
RIA was not authorized by that statute, which provides:
"The Secretary of a military department may authorize a working
capital funded industrial facility of that department to
manufacture or remanufacture articles and sell these articles, as
well as manufacturing or remanufacturing services provided by
such facilities, to persons outside the [DOD] if--
(1) the person purchasing the article or service is fulfilling
a
[DOD] contract; and
(2) the [DOD] solicitation for such contract is open to
competition between [DOD] activities and private firms."
In implementing 10 U.S.C. sec. 2208(j), the Army's policy statement
(noted above) states that:
"[b]y its terms, [10 U.S.C. sec. 2208(j)] requires that only [DOD]
contracts awarded through public/private competition can be open
to subcontracting by Army industrial facilities. When a
competition is open to public facilities, it is thus also open
for possible subcontracting under [10 U.S.C. sec. 2208(j)]."
Likewise, the Army's draft regulation (noted above) provides that an
arsenal's authorization to compete with private industry for
subcontract awards is subject to the requirement that "[t]he DOD prime
contract must have been open to competition from both public and
private entities."
It is undisputed that the RFP here was not open to competition between
DOD activities and private firms, such that an Army arsenal could
compete directly with private firms for the prime contract(s) to be
awarded under the RFP. The plain language of 10 U.S.C. sec. 2208(j), as
confirmed by the implementing Army policy and procedures, precluded
the Army from opening the competition to DOD activities for
subcontracting since the solicitation was not open to competition
between DOD activities and private firms for the prime contract(s).[3]
Lewis's proposal was premised upon its subcontract with RIA; Lewis
could not and did not allege that it could or would offer a howitzer
from an alternate source for the "shoot-off." Thus, the acceptance of
Lewis's proposal would have been inconsistent with 10 U.S.C. sec.
2208(j). Under the circumstance, Lewis's elimination from the
competition was required, since its proposal was premised upon the
improper RIA subcontract.[4] See Energy Compression Research Corp.,
B-243650.2, Nov. 18, 1991, 91-2 CPD para. 466, aff'd, B-243650.3, May 11,
1992, 92-1 CPD para. 432 (awardee's proposal premised on use of Federally
Funded Research and Development Center (FFRDC) should have been
rejected as contrary to prohibition against FFRDCs competing with
private firms).
Nevertheless, Lewis asserts that its proposal should be accepted
because Lewis relied upon the solicitation provision permitting
subcontracting with DOD activities, as well as on assurances from RIA
that the subcontract was legal, in submitting a proposal under the RFP
premised upon the RIA prototype.[5] However, the improper inclusion
in the solicitation of the provision permitting subcontracting with
DOD activities provides no basis to accept Lewis's proposal because
the government is neither bound nor estopped by the actions of its
officers or agents "in entering into an arrangement or agreement to do
or cause to be done what the law does not sanction or permit." Utah
Power & Light Co. v. United States, 243 U.S. 389, 409 (1917).
Further, offerors for government contracts are deemed to have
constructive notice of the contents of the United States Code, and
anyone entering into an arrangement with the Government takes the risk
of having accurately ascertained that he who purports to act for the
Government stays within the bounds of his authority. Federal Crop
Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947); Trapper Mining Inc.
v. Lujan, 923 F.2d 774, 781 (10th Cir. 1991), cert. denied, 502 U.S.
821 (1991); see Mine Safety Appliance Co., B-242379.5, Aug. 6, 1992,
92-2 CPD para. 76
(note 4); R.B.S., Inc., B-194941, Aug. 27, 1979, 79-2 CPD para. 156,
aff'd, B-194941,
Oct. 12, 1979, 79-2 CPD para. 249. Thus, notwithstanding the unauthorized
solicitation provision permitting subcontracting with DOD activities,
there is no basis to contract on the basis of a proposal premised on
such a subcontract, where, as here, the subcontract is inconsistent
with an applicable statute. See Honeywell Info. Sys., Inc., 56 Comp.
Gen. 167 (1976), 76-2 CPD para. 475.[6]
The protest is denied.
Comptroller General
of the United States
1. These procedures are found in a June 6, 1995, draft regulation
issued by the Commander, Army Materiel Command, prescribing policies,
responsibilities, and procedures for implementing a July 20, 1992,
policy statement from the Office of the Assistant Secretary of the
Army on the implementation of statutory authorities for manufacturing
by Army industrial facilities.
2. Army industrial facilities may be allowed to participate in a
solicitation where it is unclear whether it is economical to have the
work performed in-house or where a solicitation involves requirements
that are not appropriate for a "make" decision, but present
substantial subcontracting opportunities for Army facilities.
3. Counsel for the contracting activity now concedes that it probably
did not have the authority to include the RIA-requested solicitation
provision.
4. The protester has not cited, nor have we have found, any other
appropriate authority for this subcontract, which specified only 10
U.S.C. sec. 2208(j) as the authority on which it was based. In
requesting the solicitation provision allowing subcontracting under
the authority of 10 U.S.C. sec. 2208(j), RIA noted that without that
solicitation provision, subcontracting would have to be in accordance
with
10 U.S.C. sec. 4543 (1994), which authorizes Army industrial facilities
to sell manufactured articles or services outside DOD under certain
conditions which neither the record nor the protester indicate were or
could be met in this case. The subcontract with Lewis is apparently
the first time RIA has subcontracted under
10 U.S.C. sec. 2208(j).
5. Lewis also claims to have relied on RFP provisions which permitted
offerors to rely on the government for some or all of the background
intellectual property for their prototypes as well as on Government
Furnished Equipment (GFE). These provisions do not themselves
authorize subcontracting with arsenals, but recognize, as indicated in
the record, that prototypes may have been developed through authorized
licensing or cooperative research and development agreements with the
government and that proposals could be based on the use of the GFE
listed in the RFP.
6. As noted, the Arsenal Statute requires the Army to make supplies in
government-owned factories or arsenals if economical. See B-143232,
supra. The record before us shows that RIA operates an extensive
artillery manufacturing facility and has developed a prototype
howitzer that may satisfy the Army's requirements. However, the
record contains no evidence that the contracting activity determined,
in deciding to "buy" the weapon from private industry, that developing
and manufacturing the weapon in government-owned factories or
arsenals--such as RIA--could not be done on an economical basis. In
such an analysis, the costs of the government factory or arsenal must
be evaluated on an "out-of-pocket" basis. Action Mfg. Co., supra. By
separate letter, we are bringing this matter to the attention of the
Secretary of the Army for whatever action he deems appropriate.