GOVERNMENT'S MOTION TO DISMISS AND/OR MOTION FOR SUMMARY RELIEF DENIED; APPELLANT'S CROSS MOTION FOR PARTIAL SUMMARY RELIEF GRANTED: February 3, 1994 GSBCA 12364-TD GOVERNMENT MICRO RESOURCES, INC., Appellant, v. DEPARTMENT OF THE TREASURY, Respondent. Andrew J. Mohr and Alan J. Shusterman of Cohen & White, Washington, DC, counsel for Appellant. Ingrid D. Falanga, Daniel J. Mazella, and David A. Ingold, Financial Management Service, Department of the Treasury, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), LaBELLA, and PARKER. LaBELLA, Board Judge. Government Micro Resources, Inc. (GMR) has appealed from a decision by the Department of the Treasury's Financial Management Service (FMS or the Government) to deny GMR's request that FMS permit correction of a mistake in its bid. GMR seeks to have the contract reformed with the base period price changed to reflect its intended bid. In the alternative, GMR seeks to have the contract rescinded and seeks damages in quantum meruit or quantum valebant. FMS filed a Motion to Dismiss and/or Motion for Summary Relief. GMR filed a Cross Motion for Partial Summary Relief on the issue of entitlement only. We grant GMR's cross motion and deny the Government's motions. Background The following facts are uncontested. Pursuant to the Small Business Administration's (SBA's) 8(a) program, FMS nominated GMR as the vendor to supply its requirements under Solicitation No. RFP-FMS-92-0028. Appeal File, Exhibit 50 at 5-6. The solicitation sought additional direct access storage devices (DASD) with automatic backup capabilities for FMS's National Computer Center, together with maintenance, operator training, user manuals, and publications. The DASD requirement was for one storage controller (IBM 3990-J03 or equal) supporting two strings of storage devices. The first string was to consist of one "head of string" or primary unit (IBM 3390-A38 or equal), and two recording units (IBM 3390-B3C or equal). Id., Exhibit 37 at 14. The second string was to consist of one "head of string" unit and one secondary unit. Id. In its letter to the SBA, FMS stated that the independent Government cost estimate for the procurement was $1,800,000. Appeal File, Exhibit 50 at 5. FMS's request for Treasury Department approval for a Delegation of Procurement Authority (DPA) estimated the DASD equipment would cost $1,700,000. Id., Exhibit 56 at 5, 8. The total for the contract was listed in the DPA request at $2,000,000, inclusive of maintenance costs. Id. FMS's budgeting memorandum dated August 13, 1992, listed the total estimated system equipment cost at $1,403,469. Id., Exhibit 59 at 2. On August 28, 1992, GMR submitted its initial price proposal of $884,208 for the DASD equipment. Appeal File, Exhibit 24 at 3. On September 1, 1992, FMS Contract Specialist Valerie Raynor contacted GMR to inquire about its general and administrative cost (G&A) and profit rates. Id., Exhibit 20 at 2. In response to Ms. Raynor's inquiry, GMR submitted documentation explaining its rates and also submitted a new price proposal. Id., Exhibit 20 at 3-11. GMR's second price proposal listed the price of the DASD equipment at $874,268. Id., Exhibit 20 at 10. Ms. Raynor did not verify the correctness of the prices listed in GMR's proposal. Id., Exhibit 2 at 4. On or about September 9, 1992, Ms. Raynor prepared a Memorandum of Prenegotiation Objectives which compared GMR's initial price proposal with the commercial list and General Services Administration (GSA) schedule prices of IBM, the brand name specified, and a quote obtained for comparison purposes from another vendor. Appeal File, Exhibit 19 at 4. Ms. Raynor listed IBM's commercial list price for the equipment at $1,781,750; IBM's GSA schedule price at $1,245,636; and the other vendor's comparison quote at $1,290,000.[foot #] 1 Id. All of GMR's equipment prices, which include maintenance for the first year at no additional charge, were significantly lower than the comparison figures. Id. at 4-5. On September 11, 1992, GMR submitted its final price proposal of $864,482, inclusive of training manuals and maintenance for the base period.[foot #] 2 Appeal File, Exhibit 18 at 3. GMR's final price proposal was incorporated into the contract awarded to GMR on September 28, 1992. Id., Exhibit 14 at 11. On September 30, 1992, GMR contacted Ms. Raynor to inform her that it had made a mistake when preparing its proposal and to request reformation of the contract. Appeal File, Exhibit 12 at 1. GMR stated that when it calculated its cost of goods, including its discount from the list price of International Business Machines Corporation (IBM), its supplier, it used its cost of goods from the supplier (sixty percent of IBM's commercial list price) as its discount (sixty percent off IBM's commercial list price) when preparing its proposal. Id., Exhibit 6 at 3. GMR explained the discrepancy as follows: The IBM quote . . . itemized the extended "List Price" for each of the products and a "Total Hardware List Price" of $1,768,490. The IBM quote also provided a $707,396 "Adjustment" as a bundled figure for all products (rather than itemized by product) as the discount from list price to GMR. Finally, by subtracting the Adjustment from the List Price, the IBM quote provided GMR with a "total Hardware Bid Price" of $1,061,094, which is the bottom line GMR cost of product. . . . In order to break-out IBM's bundled adjustment dollar amount for all products so that GMR could derive individual product discounts, GMR assumed that all products would receive the same discount from list price. Using that assumption, in order to arrive at the item-by-item product cost to GMR, GMR performed a simple arithmetic function: ----------- FOOTNOTE BEGINS --------- [foot #] 1 The procurement apparently was conducted without competition pursuant to 41 U.S.C. 253(c)(5) (1988). [foot #] 2 We are unable to determine from the Government's submissions whether the comparison figures include training manuals and maintenance for the base period. ----------- FOOTNOTE ENDS ----------- GMR Cost 1,061,094 IBM List = Discount or 1,768,490 = 0.6 = 60% The 60% cost figure was then mistakenly used as GMR's discount in the cost and pricing calculations set forth in the SF 1141 spreadsheet submitted with GMR's Cost Proposal. . . . Id. at 3-4 (emphasis in original). On October 7, 1992, GMR sent FMS documentation describing how the mistake occurred and sought reformation or rescission of the contract. Appeal File, Exhibit 6 at 3. On October 12, 1992, FMS denied the request and required GMR to proceed with delivery of the DASD equipment as provided in the contract. Id., Exhibit 7 at 3. On or about October 28, 1992, GMR delivered the DASD equipment. On November 12, 1992, GMR submitted a certified claim to FMS which again sought reformation or rescission. Id., Exhibit 5 at 2. On February 9, 1993, FMS denied GMR's claim and GMR appealed. Discussion FMS has moved for summary relief, and GMR has moved for partial summary relief on the issue of entitlement. FMS argues that GMR did not make a mathematical error when preparing its offer. FMS contends that GMR made a mistake in judgment when determining its cost figures and that the contracting officer was not on notice that a mistake could have occurred. It also contends that even if a mistake occurred, the remedy of rescission is not available because GMR has already performed the contract with respect to delivery of the DASD equipment. GMR contends that it made a clerical mistake when computing the cost figures and that the contracting officer violated Federal Acquisition Regulation (FAR) 14.406-1 by not asking GMR to verify the offer. Summary relief is properly granted where there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Armco, Inc. v. Cyclops Corp., 791 F.2d 147, 149 (Fed. Cir. 1986). All evidence must be viewed in a light favorable to the non-movant, and all inferences must be drawn in its favor. Id. The relevant facts in this appeal are not in dispute. We are consequently able to rule on the two motions. Mistake The FAR requires that contracting officers examine all bids for mistakes. 48 CFR 14.406-1 (1992) (FAR 14.406-1). In cases of apparent mistake or where the contracting officer believes a mistake may have been made, the contracting officer must request verification of the bid from the bidder. Id. These provisions are made applicable to negotiated procurements by FAR 15.1005. When a mistake in a contractor's bid is not discovered until after award, agencies may rescind the contract, reform the contract to delete the items involved in the mistake or to increase the price if the corrected contract price does not exceed the next lowest acceptable bid, or make no change. FAR 14.406-4(b). The agency determination must be made on the basis of clear and convincing evidence that a mistake in bid was made. FAR 14.406-4(c). In order for the agency to take these actions, a unilateral mistake by the contractor must have been so apparent as to have put the contracting officer on notice of the probability of the mistake. Id. Our appellate authority instructs that the mistake must be "a clear cut clerical or arithmetical error, or a misreading of specifications." Aydin Corp. v. United States, 669 F.2d 681, 685 (Fed. Cir. 1982). The mistake cannot be one of judgment. Id. In addition, the appellant may recover only if the agency knew or should have known of the mistake at the time the bid was accepted. Id. at 686. Clerical and judgment errors The Government contends that GMR made a mistake in judgment when it prepared its offer by assuming that each product would receive the same percentage discount from list price. It argues that this mistake in judgment cannot support a claim of mistake. GMR argues that the mistake was a simple mathematical error made when it used the sixty percent cost figure as its discount instead of as its cost. It contends that its decision to spread the lump sum discount equally among the various pieces of equipment was done to accommodate the Government's line item pricing requirements and does not involve a business judgment regarding the overall product cost. Thus, it claims its mistake was a clerical error and not an error in judgment. Errors of judgment arise during the contractor's decision- making process. In these cases, the contractor submits the bid it intended to submit. However, the decision or assumption on which the contractor relied later proves to be erroneous or unprofitable. Errors of judgment can arise when the contractor incorrectly estimates the cost or quantity of materials. See, e.g., United States v. Hamilton Enterprises, Inc., 711 F.2d 1038 (Fed. Cir. 1983) (contractor assumed that it could provide a much larger number of meals than it had under a previous contract without increasing the level of manhours); Aydin Corp., 669 F.2d at 683 (contractor submitted low bid when it made several "estimating judgment errors"). Relief is precluded when the contractor has made a mistake in judgment. Id., 669 F.2d at 685. Clerical errors arise when the contractor commits an unintended typographical or mathematical mistake. Some clerical errors are obvious on their face. Examples of apparent mistakes include misplacement of a decimal point, reversal of the price f.o.b. destination and price f.o.b. origin, and mistakes in designation of units. FAR 14.406-2(a) (discussing apparent clerical mistakes discovered prior to award). Clerical mistakes may not be obvious on their face, and may not be discovered until after award. Among this type of mistakes are adding or multiplication mistakes made while preparing proposal worksheets. See, e.g, Bromley Contracting Co. v. United States, 596 F.2d 448 (Ct. Cl. 1979) (contractor failed to include overhead and profit in bid); McCarty Corp. v. United States, 499 F.2d 633 (Ct. Cl. 1974) (contractor transposed two digits in the cost of item in bid); Carl Garris & Son, Inc., ASBCA 34651, 89-1 BCA 21,339 (1988) (contractor failed to double cost of electrical work in bid). GMR's mistake falls within the realm of clerical mistakes. GMR made a mathematical error when it unintentionally reversed the discount and cost rates while preparing its offer. It did not intend to submit an offer with the discount and cost rates transposed, but became confused while preparing the offer. Nor did it make an unpropitious judgment, as alleged by the Government, by merely apportioning the lump sum discount offered by its supplier equally among the equipment to be supplied in order to accommodate the Government's line item pricing methodology. This is the type of clerical mistake that the FAR provisions were intended to address. Thus, GMR is entitled to relief if the contracting officer knew or should have known of the mistake. Notice of the mistake FMS argues that GMR has failed to provide clear and convincing evidence of its mistake in offer. It also argues that the contracting officer did not have actual or constructive notice of the mistake and had no duty to seek verification of the offer. GMR contends that FMS should have been on notice that there was a mistake because of the disparity between GMR's offer and the Government's own estimates, IBM's list and GSA schedule prices, and another vendor's comparison quote. It avers that, because of the disparity, the contracting officer should have sought verification of the offer. FMS did not have actual knowledge that GMR had made a mistake in its offer by reversing the cost and discount rates. To determine if the agency was on constructive notice of the mistake, the Board must examine "whether under all the facts and circumstances of the case 'there were any factors which reasonably should have raised the presumption of error in the mind of the contracting officer.'" Aydin Corp., 669 F.2d at 686 (quoting Chernick v. United States, 372 F.2d 492, 496 (Ct. Cl. 1967)). A significant factor in this examination is whether Government estimates for the procurement were substantially equivalent to the bid. Id. at 687. As discussed below, FMS did have constructive notice that a mistake had been made in GMR's offer. FMS contends that GMR's offer, which was approximately thirty percent below the GSA schedule price, was not viewed as unreasonably low. It argues that the contracting officer conducting this procurement had reviewed Defense Contract Audit Agency (DCAA) audits of the pricing and discounts of IBM, GMR's supplier, during other procurements. The Government states that, based upon knowledge of the DCAA report, the contracting officer was aware that discounts exceeding sixty percent of IBM list prices were available. The Government goes on to note that the contracting officer was also aware that GSA Schedule prices for the equipment at issue were approximately thirty percent off IBM's list prices. Furthermore, FMS avers that, based on the DCAA report, the contracting officer was aware that she could expect an offer of an additional thirty percent discount, or more, off GSA Schedule prices. Thus, FMS argues that because the contracting officer expected to receive an offer that was at least thirty percent below GSA Schedule prices and sixty percent below IBM's list prices, the contracting officer was not on notice that GMR's offer could have been a mistake. We note that the DCAA report does not expressly state that the discounts at issue were off the GSA schedule prices. In fact, it is difficult to determine exactly from what the discounts are taken -- IBM's list price or its GSA schedule price. Furthermore, none of the Government's pre-award documentation referred to the report or acknowledged the amount of the discounts discussed in the report. For purposes of GMR's Cross Motion, we assume that FMS did rely on the DCAA report and that the report states that IBM has offered discounts which exceed sixty percent off list prices and thirty percent off GSA schedule prices. Even applying this assumption, we find that the Government's reliance on the DCAA report is misplaced. The DCAA report involved a $130,000,000 proposal that never culminated in a contract award in a different procurement. It is simply not reasonable to use a proposal more than 130 times larger than GMR's proposal as a yardstick to decide if a mistake in offer is possible. The DCAA report itself acknowledged that discounts were usually tied to the quantity of equipment purchased and that the discounts vary by the category of customer. Appeal File, Exhibit 63 at 45. The DCAA report also stated that the quantities being purchased and the total dollar value of the current purchase are among the factors to be considered in determining acceptable discounts. Id. at 44. Given the great disparity in size between the proposal at issue in the DCAA report and GMR's proposal, the contracting officer should have been on notice that the quantity- driven discounts discussed in the DCAA report were irrelevant to this procurement. Moreover, the contracting officer should have been alerted to a possible mistake when she discovered that GMR's offer was significantly lower than the Government's own estimates, IBM's list and schedule prices, and the other vendor's comparison quote. The Government's estimates for this procurement ranged from $1,400,000 to $1,800,000. These estimates greatly exceeded GMR's final price proposal of $864,482. Even the Government's lowest estimate was sixty-two percent more than GMR's price proposal. While the disparity between GMR's price proposal and the lowest of the comparison figures was not as dramatic, there was still a wide gap between these figures. IBM's GSA Schedule price of $1,245,636, the closest comparison figure, exceeds the proposal by almost $400,000. When the percentage differences between GMR's proposal and the comparison figures are examined, the disparity is readily apparent. GMR's price proposal was thirty-one percent below IBM's GSA Schedule price; fifty-one percent below IBM's commercial list price; and thirty-three percent below the other vendor's comparison quote. These comparison figures provide a more accurate benchmark for determining whether a mistake has been made than a proposal in a different procurement for a vastly greater dollar amount. The Government may explain why it reasonably believed that no mistake occurred by comparing the offer to an estimate or to prior contracts for the same products or services. George A. Harris Enterprises, Inc., GSBCA 9888, 90-1 BCA 22,405 (1989), at 112,550. However, in this case, FMS is attempting to compare the discount given to GMR with a discount given to a vendor in a procurement more than 130 times the size of the procurement in this appeal. The agency's estimates and competitive quotes are far more probative evidence than unrelated procurements for quantities which greatly exceed the procurement at issue. The disparity between the figures should have prompted the contracting officer to seek verification of GMR's offer to ensure that a mistake had not been made. Type of relief available We are dealing with a unique set of circumstances in this case. GMR has requested that the Board decide only its entitlement to relief as well as the measure or type of relief available, not the quantum of any relief to be granted. However, in mistake cases, the determination of entitlement and type of relief are tied together because of the evidence and standard of proof that a contractor must present in order to meet the prerequisites for reformation, i.e., establish by clear and convincing evidence not only the existence of a mistake but also the amount of its intended offer. Thus, we must examine certain aspects of quantum in determining entitlement to the types of relief which may be available to GMR. In its motion, GMR seeks entitlement to either reformation or rescission of the contract. FMS argues that rescission is not available as a remedy because GMR has already performed the contract with respect to delivery of the DASD equipment. GMR avers that rescission is still available as a remedy even though the DASD equipment has already been delivered. It argues that it notified FMS of the mistake and requested reformation or rescission shortly after award and prior to performance. Rather than reform or rescind the contract, FMS required GMR to perform in accordance with the contract and GMR did so. GMR contends that it did everything necessary to establish that it was entitled to rescission prior to contract performance, and may still, in effect, be granted rescission if restitution is made on the basis of the reasonable value of performance, i.e., quantum valebant, now that contract performance is complete. Generally, the contractor's remedy in unilateral mistake cases is either rescission or reformation of the contract. Ruggiero v. United States, 420 F.2d 709, 713 (Ct. Cl. 1970). The degree of proof required for reformation, clear and convincing evidence, is higher than that required for rescission. Chernick v. United States, 372 F.2d 492, 497 (Ct. Cl. 1967). If the contractor has already performed, rescission normally is not granted, but reformation may be granted if the contractor is able to satisfy the clear and convincing standard regarding both the existence of a mistake and its intended price. Bromley Contracting Co., 596 F.2d at 458. The contractor can establish its bid within a "relatively narrow range" and still satisfy the clear and convincing standard. Id. at 459 (quoting Chris Berg, Inc. v. United States, 426 F.2d 314, 316 (Ct. Cl. 1970)). In addition, the contractor's recovery cannot exceed the difference between its bid and the next lowest bid. Hamilton Enterprises, Inc., 711 F.2d at 1048 n. 8; FAR 14.406-4(b)(2). We are concerned that granting rescission or reformation, as these two remedies are generally applied, does not appear appropriate. GMR has delivered and FMS has accepted the DASD equipment. Therefore, rescission does not seem to be available as a remedy. Further, determining GMR's intended offer or even a narrow range of offers appears to be problematic because the entire negotiation process was affected by the mistake. GMR's mistake regarding its cost of goods was made at the beginning of the procurement and negotiation process. Because GMR did not realize that it had made a mistake until after the contract was awarded, the negotiation process was thwarted from the start. GMR never had the opportunity to use the process as a way to establish what its price would have been absent the mistake. While we cannot grant reformation or rescission as these two remedies are generally applied, that does not mean that GMR is not entitled to a remedy. Although there was no valid agreement as to price, GMR delivered and the Government accepted the equipment. In cases such as this, the appropriate relief where a benefit has been conferred on, and accepted by, the Government is to award the contractor recovery on a quantum valebant basis, that is, the reasonable value of the goods actually furnished. See 53 Comp. Gen. 368 (1973) (if contractor can present evidence of mistake, no contract would have been effected at contract price and contractor can receive payment on quantum meruit or quantum valebant basis); 48 Comp. Gen. 672 (1969) (where contracting officer was chargeable with notice of mistake and in the absence of proof of what the bid would have been absent the mistake, sole source contractor is not bound to contract price and may recover actual costs under the contract). At this point in the proceedings, we need not determine the reasonable value of the equipment GMR furnished to FMS. GMR's motion for summary relief sought a decision only on the issue of entitlement and the form of relief. GMR has requested an opportunity to negotiate a settlement with FMS prior to seeking the Board's decision on the amount of the award. Because the issue of quantum has not been brought before us at this stage, we do not now need to decide the amount of recovery to be awarded to GMR. Decision The Government's motions are DENIED and GMR's motion is GRANTED. The appeal is GRANTED IN PART; GMR is entitled to some amount of recovery. If the parties are unable to negotiate a settlement based on the Board's decision, the parties shall jointly propose to the Board, within thirty days from the date of this decision, a schedule for proceedings as a result of which the Board will have sufficient evidence to determine the amount due GMR. If a settlement is reached, the parties shall promptly seek dismissal of this appeal. VINCENT A. LaBELLA Board Judge We concur: STEPHEN M. DANIELS ROBERT W. PARKER Board Judge Board Judge