other two sources, and that interchangeability requirements would be complicated if it received an award. Although it is true that Babcock and Wilcox had no prior experience with this particular prototype, it had actually had more experience than either Foster Wheeler or Combustion with other comparable types of reactor vessels. The draft report also points out that Babcock and Wilcox was experiencing difficulties in scheduling deliveries of its current production because of a substantial existing workload. It is significant to note that this workload related directly to prior awards for other

It was recognized that Babcock

comparable type components. and Wilcox might not be able to meet the delivery schedule for the total quantity requirement. Nevertheless, at the time of the decision to solicit proposals on the basis of making a split award, it was regarded by the Navy as being in at least as good a position as Foster Wheeler or Combustion to meet deliveries for half the total requirements. Babcock & Wilcox would not have been solicited if the interchangeability feature was considered to be overriding or if there had been any serious reservations as to its ability to meet the requirements of the

procurement as to delivery, specifications, and quality, on an effectively competitive basis resulting in a reasonable price, for at least part of the total quantity requirements. Its final proposal was in a close competitive range with the final price proposals of the other two bidders. If Babcock & Wilcox had been one of the two low offerors on the final proposals, the existing ground rules would have called for award to it of a subcontract for half the total quantity required. Further, while it was indicated that awards would be split into two equal quantities, each of the three bidders had to remain in competition with the other two for half of the total quantity requirement. In addition, price analysis was performed which indicated a reasonable relationship with prior prices for comparable components. Under these circumstances in light of the standards then prevailing, review of the Combustion and Foster Wheeler cost estimates was not considered necessary. Accordingly, it is not considered that it was imprudent or unreasonable for PAD to make the awards and for the contracting officer to consent thereto, without such review.

Subcontract 56-P-3202-P awarded October 1957. Some

six or seven months after the split award to Foster Wheeler and Combustion discussed above in connection with subcontract 56-P-3007-P, it became apparent that Foster Wheeler was experiencing problems which might jeopardize the urgent delivery for half the units under its subcontract though it was equally apparent it could meet the delivery schedule for the balance. At the same time it was concluded that Combustion could deliver additional units within schedule

requirements. Under the circumstances, half the units in the Foster Wheeler subcontract were cancelled and the subcontract price reduced by $1,410,000.

A few days later subcontract

56-P-3202-P was awarded for this quantity to Combustion at $1,410,000; hence, this transaction resulted in no additional cost to the Government. An extensive price analysis was made by the contracting officer to evaluate PAD's justification and request for approval of the transfer. This involved allocating non-recurring costs to the first lot of units being manufactured by Combustion under subcontract 56-P-3007-P and then applying a 10 percent reduction to the allocated price of the second lot of units under that subcontract. This showed that $1,430,190

would have been a reasonable price for the additional or third lot of units but the lower figure, equal to the reduction in the Foster Wheeler subcontract, was negotiated.

The draft report does not question the transfer of the units from Foster Wheeler to Combustion nor the method of arriving at this price. Indeed, the draft report utilizes the same method but applies it to the reduced price for

56-P-3007-P which GAO says could have been negotiated had review of Combustion's cost estimate for that subcontract been made. Such application, utilizing a lower base, results in a lower figure for the additional units than the $1,410,000 original price of subcontract 56-P-3202-P. Thus, the conclusions of the draft report concerning this subcontract stem entirely from the GAO position with respect to the earlier subcontract, 56-P-3007-P. Since the price of that earlier

subcontract was properly arrived at through competition supported by price analysis, as discussed above, the price for additional units under the second subcontract, 56-P-3007-P,

was also proper.

Subcontract 56-RE-10031-P awarded October 1959. This subcontract for S5W reactor vessels and closure heads for submarines,

similar to the procurement of A2W reactor vessels and closure heads for an aircraft carrier, which has been discussed above in connection with subcontract 56-P-3007-P, resulted from competition among Babcock & Wilcox, Combustion, and Foster Wheeler. Each of these sources had previous experience with S5W reactor vessels. On a comparable basis, the bid prices were as follows:

Although the usual practice of obtaining proposals in stepladder quantities was followed in order to permit a split award if deemed necessary to assure timely deliveries, as well as to assure a consistent pattern of solicitation, there was no particular indication that a split award would be made. In accordance with the practice usually followed for similar components, award of the entire quantity required was made to the lowest offeror, Combustion. This was after its price had

been somewhat reduced from its initial quotation as a result

of price analysis and negotiation.

The draft report contends that the competition in this

case could not offer adequate assurance that the prices obtained