We then made up proposals and sent them to the firms which Bayonne and the Bureau considered to be the leading industrial firms in the United States. It wasn't limited to firms in the New York area; they included midwestern firms. We received 100 percent replies from these firms and requested quotations on three bases. First we asked them to quote on the basis of a fixed price for the auction. We received only one bid on that basis. Several people came in to see me and stated that they weren't interested in a fixedprice auction. The element of incentive was completely removed. We also asked them to quote on a minimum price plus percent over and above the minimum. We received 1 or 2 comments but still had the fatal difficulty of fixed procedure. Fixed price limits initiative. The third basis was quoting on percent of take, and all companies quoted on that basis. They quoted on the standard procedure of trend. It is important that the Government recognize these trend procedures and effect them. There were 14 bidders. The range ran from 5 percent down to the percent of the firm which has the contract of 12 percent on the first $100,000 and 1 percent for each $100,000 after. They were stepladder bids. We allowed them to give us a quotation using percentage on the first $100,000. This $100,000 is what we realize from the sale not acquisition price. For example: Parke-Bernet has to take in $200,000 in sales. That means he will get 12 percent or $1,500 on the first $100,000 of his take today. He will receive 1 percent on the second $100,000 or $1,000. Parke-Bernet's bill to the Navy would be for $2,500. In determining sources of this service, we took into consideration some facts: That the firm had to have background in the industrial field. We couldn't take a chap who sells automobiles and nothing else. We asked all those companies to give us detailed statements of their background and they all did. We spelled out in our proposal that we would request a performance bond from the contractor. The purpose of the performance bond was his guaranty that he would not bid in or quote for his own account. We used one other technique to assure that we had a good contract. We got Dun & Bradstreet reports on them and, on the two companies that were in line for the contract, they both quoted the best price for the Government; we got confidential bank statements on them. We had information regarding responsibility, past history, and reputation in the trade. Using all of these considerations, we awarded the contract to the company giving us the best rate, which was the Parke-Bernet concern. Industrial Plants gave us a good price on the basis of fixed fee. They were the only firm that gave a fixed price, $3,500. Parke-Bernet gave the best fee for the percentage basis. I discussed the matter with the officers in Bayonne and BuSandA representatives and we agreed that it was desirable to try the percentage basis for this auction inasmuch as Philadelphia had been on the fixed price. Therefore, I called both firms in and I said to them-you have given us the best quotation on fixed price. As we are interested in placing a contract on a percentage basis, would you like to revise your quotation, which you can do when you negotiate contracts. Industrial Plants said yes, they would like to revise their price. They sent me a letter and in it revised his quotation downward to 22 percent on the first $100,000 and 32 percent on anything after the first. I also informed Parke-Bernet, who was the other firm, that we would give them an opportunity to revise their quotation. They reduced it from 212 to 12 percent on the first $100,000, 1 percent on the second and third $100,000. Parke-Bernet was the best quotation to the Government on either basis. Mr. BALWAN. I wondered if your analysis used in determining awarding of contract to Parke-Bernet was put in the record. From: Officer in Charge. NAVY PURCHASING OFFICE, New York, N. Y., January 12, 1954. To: Chief, Bureau of Supplies and Accounts, Department of the Navy, Washington, D. C. Subject: Auction services at Naval Supply Depot, Bayonne. Enclosures: (1) Requisition 138-8074/54 dated July 29, 1953. (3) Copy of the proposal. (4) Abstract of bids. (5) Dun & Bradstreet reports on Parke-Bernet and Industrial Plants Corp. (6) Confidential bank statements on Parke-Bernet and Industrial Plants Corp. (7) Copy of contract N140s-47463B, dated September 24, 1953. 1. The reference requests this activity to provide a detailed chronological résumé of the procurement action prior to award of a contract for auctioneering services at Naval Supply Depot, Bayonne. 2. Enclosure (1) was received by this Office on July 30, 1953. This requisition incorporated a generalized statement that the service of an auctioneer was required at the Naval Supply Depot, Bayonne, and that the services were to be contracted for by August 15, 1953. Based upon this request the following events took place: (a) Conferences were held between this Office and representatives of the Naval Supply Depot, Bayonne, in order to determine the applicable specifications, method of submission of bids, whether the procurement would be based on formal competitive bidding or whether it would be negotiated direct, and other pertinent aspects of the requirement. During these discussions Comdr. R. O. Merrill, of the Surplus Property Division, Bureau of Supplies and Accounts, stated that the Bureau had no policy with reference to the type of contract, that is, whether the procurement should be made on the basis of a fixed fee or on the basis of an incentive-type contract. (b) Based upon the experience of the Naval Supply Depot, Mechanicsburg, contract which was canceled upon outbreak of Korean war prior to its consummation and based upon information received as a result of the sale effected by the Naval Shipyard, Philadelphia, this Office issued proposals to 17 auctioneering firms whose names are listed in enclosure (2). (c) The intent of this proposal was to provide alternate methods of submitting quotations in order that the contracting officer would have sufficient elasticity to determine which method would serve the best interests of the Government, price and quality of the service being considered. The proposal required the bidders to quote on one or more of three alternate schedules of rates as follows: Bid A: Total amount. Bid B: Minimum amount for services of auctioneer and assistants plus a percentage of all sales in excess of stipulated amounts. Bid C: Commission only, based on the gross amount actually realized by the Government. (d) The proposal (see enclosure (3)) was sent to 14 firms on August 25, 1953, and 3 additional companies wrote to this Office requesting copy of the proposal. (e) The proposal required all companies to submit quotations not later than September 11, 1953. In this connection it is pertinent to point out that several companies, including Joseph P. Day, Samuel Freeman, Parke-Bernet, and others, visited the contracting officer for the purpose of providing additional background regarding their ability and standing in the field of "crying" auctions. It is important to note that all companies prior to the opening date for quotations stated that the request for quotations (enclosure (3)) was complete, clear, and covered the subject thoroughly; also most representatives stated that they would bid on alternate bid C only. These representatives, during their discussions with the contracting officer prior to the opening of quotations, stated that the entire theory of an auction was predicated upon the incentive concept and, therefore, a percentage of the sale was the most effective method of obtaining optimum results from the contractor. (f) Enclosure (3) was opened on September 14, 1953, and the results are listed in enclosure (4). Representatives of the Naval Supply Depot, Bayonne, were present at the opening of all quotations and they were receptive to the fact that practically all companies demonstrated an interest in the commissiononly method of reimbursement for crying an auction. (g) In evaluating the quotations, it was quite apparent from the outset that the Parke-Bernet Co. was the low bidder on the basis of a commission based upon the gross amount actually received by the Government; also the Industrial Plants Corp. was the low bidder on the basis of a fixed price. In order to assure a correct evaluation of the bids the contracting officer requested Dun & Bradstreet and confidential bank reports on both companies. These reports were received on or about September 17, 1953, and are submitted as enclosures (5) and (6) respectively. It is pertinent to point out that one of the basic considerations in procurement of an auctioneering service is for the contracting officer to assure himself that the proposed contractor will deal at "arms length" with the bidders. Inasmuch as the Dun & Bradstreet report plus other information received concerning the Industrial Plants Corp. was to the effect that this company dealt in surplus for its own account, the contracting officer considered it necessary to call in their Mr. Thaller and request that he verify or refute this point. Mr. Thaller advised that although the company did purchase surplus material and equipment, it did not participate when it was conducting the auction. This answer was considered unsatisfactory, however, the determination of whether this company met the requirements of providing an auctioneering service without dealing in surplus materials for its own account was unnecessary for the following reasons: (1) All quotations were submitted to the Bureau of Supplies and Accounts on September 14 for a review and recommendation regarding award. The Bureau of Supplies and Accounts' recommendation is quoted as follows: "Urltr puro /jfmci/ znh 14 Sep procurement of auctioneer services for NSD Bayonne, N. J. Analysis of quotations indicates Industrial Plants Corp. and Parke-Bernet as low bidders. If both companies acceptable recommend further negotiation with them only on a percentage basis cmm indicating return to the Government at 12 percent of acquisition cost." (2) Based upon the recommendation of the Bureau of Supplies and Accounts the contracting officer called in representatives from each of the two low bidders and explained the situation as follows: (a) The Industrial Plants Corp. is the low bidder on a fixed-price basis and the Parke-Bernet Co. is the low bidder on the basis of a commission reimbursement. The Naval Supply Depot, Bayonne, and the contracting officer have determined that a commission-type contract is in the best interests of the Government as this type of contract provides the maximum incentive to the contractor to obtain maximum dollar return for the Government. Each company was told that it had the opportunity of either revising bid C or standing firm. Neither company knew the identity of the other. Both companies submitted revised bids as noted in enclosure (4). It is interesting to note that originally Parke-Bernet was low bidder on the commission basis only and that his revision kept him in the position of being the successful bidder. The results of the negotiation with the two low bidders was transmitted to the Bureau of Supplies and Accounts by telephone and oral approval to place the contract was granted on September 24. The contracting officer immediately issued a letter notice of award to the successful contractor in order that he might make preparations sufficiently in advance for the Naval Supply Depot, Bayonne, to conduct the auction on November 4. 3. Subsequent to the award, Mr. Thaller, of the Industrial Plants Corp. visited this Office and protested the award to Parke-Bernet alleging that the latter firm was not qualified in this field. The contracting officer relied very heavily on the Dun & Bradstreet report submitted on Parke-Bernet and also on the confidential bank report given to the contracting officer. Based upon these reports and considering the successful results achieved during the auction by that company, it is felt that the contract was properly awarded and that the successful contractor had the necessary know-how and technical knowledge required for this type of service. The formal contract was dated September 24, 1953, and is included as enclosure (7). DATE DATE ARTICLES OR SERVICES SERVICES OF AUCTIONEER TO 138) "NSD BAYONNEVILLA TRACTED FOR: CODE 120 ULTIMATELY APPROPRIATION CHARGEABLE EXPENDITURE JOB ORDER NO. ACCOUNT 0120-4026-04 TOTAL ESTIMATED 2000.00 QUANTITY UNIT UNIT AMOUNT $2000.00 SUFFICIENT FUNDS TO COVER THE PURCHASE ARE ON DEPOSIT WITH (CONTINUED) The items of services or articles listed above are required under the appropriation and for the purpose indicated. |