an adequate reserve of available industrial capacity for war production while at the same time making such property available to the civilian economy, a provision was added to the bill specifically to authorize the Secretaries of War or Navy to direct the imposition of such terms, conditions, restrictions and reservations in the sale of surplus industrial property of strategic importance as would be adequate to insure its continued availability for war production purposes should need therefor arise.

This latter authorization gave legal sanction to the declaration as surplus to War Assets Administration of certain Navy industrial and shipyard installations for sale subject to the terms of the so-called "National Security Clause." If no purchaser could be found who was willing to purchase the property subject to the encumbrance and obligations of the National Security Clause, the Bill required the owning agency to modify or eliminate the restrictions or to withdraw the property from surplus.

As with the Armed Services Procurement Act, congressional committees conducted extensive hearings on the Bill, considering such vexed questions as, for example, the extent to which, if at all, Government-owned property leased for commercial uses should be made the subject of state and local taxation and the doctrine of Federal immunity with respect thereto suspended. The Bill was finally enacted as Public Law 364 of the 80th Congress 60 on August 5, 1947.

In the meantime and in order that the Industrial Reserve program might not be unduly deferred, Mr. Steelman, in his capacity as Director of War Mobilization and Reconversion, authorized the War and Navy Departments to utilize

50 Under the National Security Clause in a sales contract the pur. chaser agrees to maintain the productive capacity of the installation intact for a specified period and to devote such capacity to production for national defense purposes whenever deemed necessary by the Secretary of the Department concerned. In the event of failure to negotiate a mutually satisfactory contract within a limited specified period, the Government can take possession of the plant itself, for periods up to five years in duration, upon payment of a reasonable rental, compensation for loss on work-in-process in the plant and the costs of reinstalling the owner's machinery and equipment when Government possession is relinquished.

061 Stat. 774, 34 U. S. Code 522a.

150 U. S. Code App. 1171(b), extended and made applicable to the Navy under Executive Order 9262, dated November 5, 19492. Director OWMR Itrs to Sec Nav, dated July 18, 1946, and November 9, 1946. The scarcity of available machine tools was one of the most serious industrial bottlenecks of World War II.

the more liberal leasing and sales authority of an emergency wartime statute, Public Law 703 of the 76th Congress and to commence selecting and setting aside, pending passage of the legislation above referred to, a stockpile of essential machine tools and production equipment from the surplus pool.62

The Industrial Reserve program for stand-by facilities was given further statutory assistance through Public Law 883 of the 80th Congress, the "National Industrial Reserve Act of 1948," approved on July 2, 1948. Under the Leasing Act, Public Law 364, referred to above, industrial installations and shipyards which could not be sold subject to the obligations of the National Security Clause either had to have the restrictions lifted or the property had to be withdrawn from surplus by the declaring agency which, of course, would thereafter have to assume the costs and expenses of maintenance, custody and control of the property. Because of the scarcity of available funds for the purpose and because it is not an appropriate function of the Military Departments to act as repositories of and to manage large aggregations of surplus industrial installations, the National Industrial Reserve Act made the Federal Works Agency the agency responsible for administering property to be held in the standby industrial reserve and which has not otherwise been leased or sold under the National Security Clause or some equivalent restrictions. In this manner some of the industrial fruits of the last war are being held available for a future emergency as a "moth-ball industrial potential" comparable in the combat Navy to the "moth-ball fleets."

CONCLUSION

Attempt has been made in this initial chapter of the Navy's Contract Law Course to sketch very briefly the historical development of the procurement organization and practices of the Navy Department, with the hope that it will serve as a perspective and background against which the subsequent chapters, presenting in detail various aspects of current Navy procurement law, may be read.

Within the Navy Department we have seen that World War II wrought far-reaching changes in the procurement authority, organi

zation and practices which had theretofore existed. Gone was the formalized and mechanical system of buying all of the Navy's requirements from that small group of professional Government suppliers who understood the ramifications of bidding on publicly advertised invitations, and in its place had come the realization that buying for the Navy was big business in which the employment of sound business methods and the wide development of additional sources of supply would pay dividends far surpassing the frequently only theoretical economy of award to the lowest bidder. The Bureau of Supplies and Accounts ceased to be the Navy's exclusive purchasing agent and all material Bureaus assumed the responsibility of and became adept at contracting for the materiel which was within their particular province and which they best understood. With the growth of negotiated purchasing, the lawyer assumed a more important role in the commercial and business side of the Navy, aiding in negotiations, advising on the innumerable day-to-day legal problems that arose in connection with procurement on a multi-million dollar scale annually, and drafting the types of contracts, contract clauses and contractual instruments that were required to fit the infinite variety of circumstances met with by a Navy engaged in business on a scale larger than the largest private industry.

Policy control over and coordination of purchasing activities became centralized in the Secretary's Office, acting through the Office of Naval Material; the type of control employed, however, was designed to leave Negotiating and Contracting Officers in the Bureaus with the maximum independence of judgment and action within the framework of general policy

63 Public Law 253, 80th Congress; 61 Stat. 495, approved July 26, 1947.

directives. This is perhaps best illustrated by the fact that the Navy Procurement Directives issued by the Secretary's Office occupy one fairly small loose-leaf volume, while the War Department's Procurement Regulations, issued during the same period and covering the same field, filled sixteen volumes; the one evidences central direction in matters of detail, the other only general policy guidance.

In the Navy's relations with its two sister services we have seen that the concept of unification, born of the National Security Act of 1947,63 was given strong impetus in the fields of procurement and property by the Armed Services Procurement Act, the Leasing Act, and the National Industrial Reserve Act, which had the effect of rendering uniform the statutory authority and basic procedures of each of the Services in these fields. Already since the war, long strides have been taken to coordinate and unify the procurement practices and procedures of the three Services, so that industry dealing with the Army will operate under the same rules as when it sells to the Navy or Air Force, and vice versa.

In conclusion, one word of warning may be necessary. Enough has been said in this chapter, and it will be demonstrated time and again in the chapters which follow, to show that the field of Navy Contract Law, and the Navy's procurement organization and practices are far from static; they are subject to constant change, development and improvement. As such, these chapters comprising the Contract Law Course are to be regarded not as a textbook on Navy Procurement but rather as an exposition of some of the procurement practices and many of the procurement problems met with from day to day by the lawyers called upon to advise and assist the Department in its relationships with industry.

INTRODUCTION

On 19 May 1948, the effective date of the Armed Services Procurement Act of 1947 (41 U. S. Code 151), the Armed Services returned to the long-established method of procurement by means of formal advertising and competitive bids. Prior to World War II, this method of Government purchasing had been required of all Government Departments since 1861 by Revised Statutes 3709 (41 U. S. Code 5). From 1942 until the effective date of the new Act, the Armed Services negotiated practically all contracts under the authority of the First War Powers Act and Executive Order 9001. Under the new Act, procurement by formal advertising is again the general rule, and contracts now may be negotiated only when negotiation is authorized by one of the specific exceptions set forth in the Act. It is to be noted that the new Act is more liberal with reference to instances where contracts may be negotiated than the former statute. The particular exceptions where negotiation is authorized under the new Act are discussed in detail in Chapter 3 of this course.

By virtue of marked differences in statutory language, as well as the legislative history of the Armed Forces Procurement Act, the somewhat rigid rules under the predecessor statute will probably not apply with like effect to advertised purchases under the new Act. For example, in purchasing under R. S. 3709, award had to be made to the "lowest responsible bidder;" whereas Section 3 (b) of the new Act provides that award shall be made "to that responsible bidder whose bid, conforming to the invitation for bids, will be most advanta

Prepared by Meritt H. Steger, Counsel, Bureau of Supplies and Accounts.

geous to the Government, price and other factors considered." Furthermore, it was stated as follows in the Senate Report with respect to Section 3 (b) of the Act:

"The question whether a particular bidder is a 'responsible bidder' requires sound business judgment, and involves an evaluation of the bidder's experience, facilities, technical organization, reputation, financial resources, and other factors. The service concerned with the procurement of goods of the type dealt in by the bidder is naturally best qualified to make this evaluation, and broad discretion is accordingly reserved to the service in this respect. In virtually all cases this will result in an award to the lowest responsible bidder. However, it will also provide for situations where the public interest dictates an award to someone other than the lowest responsible bidder."

In the "Justification of the Bill" the same Report also stated, with respect to the former legislation providing for formal advertising, sealed bids, and award to the lowest responsible bidder:

"However, the committee also recognizes that during the time this legislation has been in effect a substantial number of strict administrative interpretations have been made, out of which has grown the present traditional approach that Government contracts must be awarded primarily on a lowestprice basis, irrespective of the best public interest or of lower ultimate cost. While existing law does not require this result it is nevertheless a fact. . . . This attitude has had the only result which could be expected-the award of contracts in a purely mechanical way to the lowest bidder with no exercise of judgment or discretion on the part of the purchasing officer. The committee is firmly of the opinion that this is not in all cases the best way to conduct a business.... Under present circumstances buying for the armed services is definitely a large-scale business and should be conducted accordingly. The committee is convinced that there are a number of situations in which the exercise of judgment by the purchasing officer should not merely be permitted but should be encouraged."

Time has not yet permitted, of course, the growth of any body of decisions or opinions under the Armed Services Procurement Act, other than from the Services themselves; and accordingly, general guides must be obtained

from the precedents offered by the decisions and opinions of the courts, the Attorney General, and the Comptroller General under Revised Statutes 3709. In general, the bid procedures approved under the more restrictive language of the earlier statute would be permissible under the more liberal language of the present law. It is to be noted that R. S. 3709 remains in effect with respect to practically all of the Departments of the Government other than the Armed Services.

For purposes of discussion this chapter is divided into the following parts:

1. Introduction.

2. Solicitation of bids.

3. Submission of bids.

4. Opening and recording of bids.

5. Waiver of minor informalities or irregularities in bids.

6. Rejection of bids.

7. Mistakes in bids. 8. Award.

SOLICITATION OF BIDS

Revised Statutes 3709 provides for-"advertising a sufficient time previously for proposals." Section 3 (a) of the Armed Services Procurement Act provides that whenever advertising is required—

"The advertisement for bids shall be a sufficient time previous to the purchase or contract, and specifications and invitations for bids shall permit such full and free competition as is consistent with the procurement of types of supplies and services necessary to meet the requirements of the agency concerned." It is apparent from the above quoted provisions that neither Section 3709 of the Revised Statutes nor the new Act prescribes the exact procedure to be followed or the forms to be used in advertising for bids.

It has been repeatedly held, under R. S. 3709, that the selection of a particular method of advertising is left by law to the discretion of the Department advertising. The method required to be used by the Navy in all cases is that of displaying a copy of the invitation for bids in the purchasing office or other appro

115 Op. Atty. Gen. 226; 21 Op. Atty Gen. 595; 3 Comp. Dec. 175.

224 Comp. Gen. 481.

344 U. S. Code 324; 5 U. S. Code 22a.

422 Comp. Gen. 817.

priate public place and of mailing or delivering invitations for bids to a representative selection of prospective bidders. This procedure has been approved by the Comptroller General.2 In the use of this method, the issuing activity provides the prospective bidders with the following bid forms: Invitation for Bids, Bid, Schedule, and General Provisions. These forms and the award form are set forth in the appendix to this chapter, with the exception of the General Provisions (Standard Contract Clauses) which are discussed in chapter 9 of this course.

The contract with the successful bidder consists of the invitation for bids, the bid, and the award. The Navy has discontinued its prewar practice of formalizing the agreement in a two-party contract after the issuance of an award.

Paid advertisements in newspapers are seldom used by the Navy for the solicitation of bids, and when this method is used, the invitation for bids must also be mailed or delivered to prospective bidders and displayed at the purchasing office or at some other appropriate public place. A brief announcement of any proposed purchase may be made available to newspapers and trade journals for free publication. When the use of paid newspaper advertisements is deemed necessary to secure full competition, written authority must be secured in advance from the Secretary of the Department or from his duly authorized representative.3 The forms and the detailed procedure for paid newspaper advertising are prescribed in General Regulation No. 109-Revised, issued 17 January 1949 by the Comptroller General.

Oral solicitation of bids has been authorized by the Comptroller General under R. S. 3709 where reasonable publicity was given and all available competition was obtained. While oral solicitation would be authorized under the new Act, the Armed Services Procurement Regulation (generally referred to as ASPR) requires that each prospective bidder actually receive the forms used in the solicitation of bids. Telegraphic solicitation of bids is not authorized by the Armed Services Procurement Regulation.

The solicitation must be made sufficiently in advance of the opening of bids to allow prospective bidders a reasonable time within which to prepare and submit their bids. What is a

sufficient time depends, of course, on the particular circumstances of each case.

In the cases discussed below, the advertisement was found by the Comptroller General to be inadequate to insure full and free competition because of (1) the method adopted, (2) the fact that insufficient time was allowed bidders, or (3) the invitation having been sent to an insufficient number of prospective bidders.

An invitation to bid on the purchase of three copies of a book was sent to only one dealer, and a notice was posted in a public place. It was held that this was not a sufficient compliance with R. S. 3709.5

An invitation to bid on a contract to supply two automobiles was readvertised. On the readvertisement, invitations were sent by telegram, 48 hours before the opening, to only four bidders who had responded to the original solicitation. Only one bid was received. The Comptroller General held that this was an insufficient advertisement, with respect to the inadequate number of prospective bidders solicited as well as the inadequate time afforded the bidders."

Bids on a contract in connection with the landscaping of public grounds were solicited by advertisement in The Washington Post and by posting a notice in a room set apart for contractors' representatives in the purchasing office. The contract had previously been advertised three times. There was no mailing to prospective bidders, not even to those who had bid before. After ruling that this did not constitute a sufficient advertisement, the Comptroller General recommended that, on readvertisement, notices should be sent to bidders who submitted bids in response to the original invitation and to other prospective bidders as well."

Invitations to prospective bidders may not impose conditions or restrictions which tend to limit competition unless required by statute or otherwise permitted in the public interest. For example, the Comptroller General has held that

$1 Comp. Gen. 232. 16 Comp. Gen. 485. 14 Comp. Gen. 364.

817 Comp. Gen. 37.

8 Comp. Gen. 252..

10 R. S. 3719, 34 U. S. Code 562, repealed by Sec. 11(a) of the Armed Services Procurement Act.

11 8 Comp. Gen. 310.

there was no authority to include in the invitation a requirement of compliance with the National Labor Relations Act, there being no statute that requires compliance with the Act as a condition of doing business with the Government.s

Cases involving restrictions in the invitation relating to a bidder's qualification to do the work or to furnish the supplies are discussed below under the part on Award, as also is the question of the use and propriety of debarred bidders lists. However, it may be noted that for projects of a special nature, such as the construction of a building, the invitation may properly state certain minimum qualifications which a bidder must possess in order to be considered in making the award, although a showing of such qualifications may not be made a condition of his right to submit a bid. The Armed Services Procurement Regulation provides that all supplies (other than those procured from other Government agencies) must be procured from manufacturers or regular dealers. A restriction to this effect may properly be imposed in invitations for supplies.

Contracting Officers in the Navy are now authorized, in their discretion, to require (by the terms of the invitation) bid and performance bonds. Prior to the enactment of the Armed Service Procurement Act, the requirement of furnishing a performance bond was mandatory.10 While the bidder may properly be required to submit a bid bond with his bid, he may not be required to submit a performance bond with the bid.11 One of the conditions of the bid bond is that the bidder will furnish a performance bond if awarded the contract. Therefore, in cases where a performance bond is deemed necessary, the performance bond should be required to be furnished at the time of the award.

Navy Specifications, Federal Specifications (prepared by the Director of the Bureau of Federal Supply, Treasury Department), and specifications prescribed by the Munitions Board are used in invitations to bid issued by the Navy.

As a general rule, the specifications must define the product being procured in terms sufficiently definite to assure that every bid made in compliance therewith will be for substan