B-154756, NOVEMBER 2, 1964, 44 COMP. GEN. 253

B-154756, NOVEMBER 2, 1964, 44 COMP. GEN. 253

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - FOREIGN FIRMS ACCEPTABILITY A FOREIGN BUSINESS CORPORATION WHICH DOES NOT MAINTAIN A PLACE OF BUSINESS IN THE UNITED STATES, THEREFORE, NOT MEETING THE REQUIREMENT OF SECTION 121.3-2 (G) OF THE SMALL BUSINESS SIZE STANDARD REGULATION IS NOT AN ELIGIBLE BIDDER ENTITLED TO THE PREFERRED STATUS ESTABLISHED BY THE SMALL BUSINESS ACT TO ENABLE SMALL BUSINESS CONCERNS TO COMPLETE FOR GOVERNMENT PROCUREMENT, THEREBY CONTRIBUTING TO THE NATIONAL ECONOMY AND DEFENSE, AND AN AWARD TO A CANADIAN CORPORATION, THE LOW BIDDER UNDER AN INVITATION FOR CONSTRUCTION IN ALASKA SOLICITING BIDS FROM SMALL BUSINESS CONCERNS PURSUANT TO 15 U.S.C. 644, FAILING TO MEET THE ESSENTIAL REQUIREMENT OF A "PLACE OF BUSINESS LOCATED IN THE UNITED STATES" SHOULD BE CANCELED; HOWEVER, FOREIGN SMALL BUSINESS CONCERNS LOCATED IN THE UNITED STATES AND CONTRIBUTING TO THE AMERICAN ECONOMY QUALIFY UNDER THE SMALL BUSINESS ACT.

TO THE SECRETARY OF AGRICULTURE, NOVEMBER 2, 1964:

BY LETTER DATED AUGUST 7, 1964, WITH ENCLOSURES, ASSISTANT SECRETARY, JOHN A. BAKER, FURNISHED A REPORT WITH RESPECT TO THE PROTEST OF B AND A AND YUTAN CONSTRUCTION COMPANY, A JOIN VENTURE, AGAINST THE AWARD MADE TO MID-WEST CONSTRUCTION, LTD., UNDER INVITATION FOR BIDS NO. 1-64-18, ISSUED BY THE FOREST SERVICE ON MAY 26, 1964, FOR THE CONSTRUCTION OF PORTAGE BAY ROAD NO. 6316, NORTH TONGASS NATIONAL FOREST, PETERSBURG RANGER DISTRICT, ALASKA. ALSO, UNDER DATE OF OCTOBER 12, 1964, THE SMALL BUSINESS ADMINISTRATION FURNISHED ITS VIEWS WITH RESPECT TO FOREIGN BUSINESS CORPORATIONS QUALIFYING AS SMALL BUSINESS CONCERNS FOR THE PURPOSE OF RECEIVING THE BENEFITS PROVIDED BY THE SMALL BUSINESS ACT.

THE INVITATION SOLICITED BIDS FROM SMALL BUSINESS CONCERNS ONLY UNDER 15 U.S.C. 644. SECTION 6 OF THE SPECIAL CONDITIONS OF THE INVITATION PROVIDED:

NOTICE OF TOTAL SMALL BUSINESS SET ASIDE:

THIS PROCUREMENT WILL BE AWARDED TO A SMALL BUSINESS CONCERN. THIS ACTION IS THE RESULT OF A DETERMINATION BY THE SMALL BUSINESS ADMINISTRATION AND THE FOREST SERVICE THAT IT IS IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY TO LIMIT COMPETITION AND AWARD TO SMALL BUSINESS CONCERNS, OR IN THE INTEREST OF ASSURING THAT A FAIR PROPORTION OF GOVERNMENT PROCUREMENT IS PLACED WITH SMALL BUSINESS. BIDS RECEIVED FROM CONCERNS NOT CLASSIFIED AS SMALL BUSINESS IN ACCORDANCE WITH CRITERIA SET FORTH IN THE INVITATION WILL BE CONSIDERED AS NONRESPONSIVE. THE AUTHORITY FOR THIS ACTION IS CONTAINED IN SECTION 214 OF THE SMALL BUSINESS ACT OF 1953, AS AMENDED.

A SMALL BUSINESS CONCERN IS A BUSINESS CONCERN, INCLUDING ITS AFFILIATES, WHICH (A) IS INDEPENDENTLY OWNED AND OPERATED, (B) IS NOT DOMINANT IN THE FIELD OF OPERATION IN WHICH IT IS BIDDING ON GOVERNMENT CONTRACTS, AND (C) HAD AVERAGE ANNUAL RECEIPTS FOR THE PRECEEDING THREE FISCAL YEARS NOT EXCEEDING $7,500,000 OR IF THE CONCERN IS LOCATED IN ALASKA, NOT EXCEEDING $9,375,000. FOR ADDITIONAL INFORMATION SEE GOVERNING REGULATIONS OF THE SMALL BUSINESS ADMINISTRATION.

BIDS WERE OPENED ON JUNE 25, 1964, AND IT APPEARED THAT MID-WEST SUBMITTED THE LOWEST BID AND YUTAN SUBMITTED THE NEXT LOWEST BID. ON JUNE 29, 1964, THE ATTORNEYS FOR YUTAN PROTESTED AGAINST CONSIDERATION OF THE MID-WEST BID ON THE BASIS THAT IT WAS A CANADIAN CORPORATION, AND, AS SUCH, COULD NOT QUALIFY AS AN ELIGIBLE SMALL BUSINESS CONCERN UNDER THE SMALL BUSINESS ACT TO RECEIVE AN AWARD UNDER A SMALL BUSINESS SET-ASIDE. THE CONTRACTING OFFICER DEFERRED ACTION ON THE MID-WEST BID PENDING A DECISION BY THE SMALL BUSINESS ADMINISTRATION (SBA) REGIONAL OFFICE ON THE PROTEST. ON JULY 13, 1964, THE SIZE STANDARDS DIVISION, SBA, DETERMINED THAT MID-WEST QUALIFIED AS A SMALL BUSINESS CONCERN FOR THE PURPOSE OF BIDDING ON GOVERNMENT CONSTRUCTION CONTRACTS. YUTAN APPEALED THIS DECISION ON JULY 14, 1964. ON THE BASIS OF ADVICE RECEIVED FROM THE SBA REGIONAL OFFICE ON JULY 14, THE CONTRACTING OFFICER ACCEPTED THE MID-WEST BID ON JULY 15, AND THE EXECUTED CONTRACT AND BONDS WERE RECEIVED BY THE PROCUREMENT OFFICE ON JULY 27.

BY FINDINGS AND DECISION OF THE SIZE APPEALS BOARD, SMALL BUSINESS ADMINISTRATION, DATED AUGUST 28, 1964, IT WAS DETERMINED THAT MID-WEST DID NOT MAINTAIN A PLACE OF BUSINESS IN THE UNITED STATES AND WAS NOT, THEREFORE, A SMALL BUSINESS CONCERN FOR GOVERNMENT CONSTRUCTION PROCUREMENTS WITHIN THE MEANING OF SECTION 121.3-2 (G) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION.

AS ABOVE INDICATED THE BASIC QUESTION RAISED BY THE PROTEST IS WHETHER A FOREIGN SMALL BUSINESS CONCERN IS ENTITLED, UNDER THE SMALL BUSINESS ACT, TO PREFERENCE IN THE AWARD OF A GOVERNMENT CONTRACT. THE CONGRESS IN ENACTING THE SMALL BUSINESS ACT (15 U.S.C. 631, ET SEQ.) DECLARED ITS POLICY AS FOLLOWS (15 U.S.C. 631 (A) ):

THE ESSENCE OF THE AMERICAN ECONOMIC SYSTEM OF PRIVATE ENTERPRISE IS FREE COMPETITION. ONLY THROUGH FULL AND FREE COMPETITION CAN FREE MARKETS, FREE ENTRY INTO BUSINESS, AND OPPORTUNITIES FOR THE EXPRESSION AND GROWTH OF PERSONAL INITIATIVE AND INDIVIDUAL JUDGMENT BE ASSURED. THE PRESERVATION AND EXPANSION OF SUCH COMPETITION IS BASIC NOT ONLY TO THE ECONOMIC WELL-BEING BUT TO THE SECURITY OF THIS NATION. SUCH SECURITY AND WELL-BEING CANNOT BE REALIZED UNLESS THE ACTUAL AND POTENTIAL CAPACITY OF SMALL BUSINESS IS ENCOURAGED AND DEVELOPED. IT IS THE DECLARED POLICY OF THE CONGRESS THAT THE GOVERNMENT SHOULD AID, COUNSEL, ASSIST, AND PROTECT, INSOFAR AS IS POSSIBLE, THE INTERESTS OF SMALL BUSINESS CONCERNS IN ORDER TO PRESERVE FREE COMPETITIVE ENTERPRISE, TO INSURE THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS OR SUBCONTRACTS FOR PROPERTY AND SERVICES FOR THE GOVERNMENT (INCLUDING BUT NOT LIMITED TO CONTRACTS OR SUBCONTRACTS FOR MAINTENANCE, REPAIR, AND CONSTRUCTION) BE PLACED WITH SMALL-BUSINESS ENTERPRISES, TO INSURE THAT A FAIR PROPORTION OF THE TOTAL SALES OF GOVERNMENT PROPERTY BE MADE TO SUCH ENTERPRISES, AND TO MAINTAIN AND STRENGTHEN THE OVER-ALL ECONOMY OF THE NATION.

IN CONSONANCE WITH THAT DECLARATION OF POLICY, 15 U.S.C. 644, AUTHORIZING THE TOTAL SET ASIDE OF A PROCUREMENT FOR AWARD TO SMALL BUSINESS CONCERNS ONLY, PROVIDES IN PERTINENT PART:

TO EFFECTUATE THE PURPOSES OF THIS CHAPTER, SMALL-BUSINESS CONCERNS WITHIN THE MEANING OF THIS CHAPTER SHALL RECEIVE ANY AWARD OR CONTRACT OR ANY PART THEREOF, AND BE AWARDED ANY CONTRACT FOR THE SALE OF GOVERNMENT PROPERTY, AS TO WHICH IT IS DETERMINED BY THE ADMINISTRATION AND THE CONTRACTING PROCUREMENT OR DISPOSAL AGENCY (1) TO BE IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, (2) TO BE IN THE INTEREST OF WAR OR NATIONAL DEFENSE PROGRAMS, (3) TO BE IN THE INTEREST OF ASSURING THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS FOR PROPERTY AND SERVICES FOR THE GOVERNMENT ARE PLACED WITH SMALL-BUSINESS CONCERNS * *

ALSO, SEE SECTION 1-1.706, FEDERAL PROCUREMENT REGULATIONS, WHICH IMPLEMENTS THIS STATUTORY AUTHORITY, AND THE JOINT SET-ASIDE REGULATIONS IN 13 CFR 127-15.

IN ANSWER TO OUR INQUIRY AS TO THE AUTHORITY FOR INCLUDING FOREIGN FIRMS WITHIN THE CATEGORY OF SMALL BUSINESS, THE SBA ADVISED IN ITS LETTER OF OCTOBER 12, 1964, THAT IT HAS TAKEN THE POSITION THAT THE BENEFITS OF THE ACT WERE INTENDED BY THE CONGRESS TO EXTEND ONLY TO THOSE SMALL BUSINESS CONCERNS WHICH CONTRIBUTE TO THE MAINTENANCE AND STRENGTHENING OF THE NATION'S OVERALL ECONOMY AND SECURITY. AS A RESULT, SBA SIZE REGULATIONS EXCLUDE FROM THE CLASSIFICATION OF SMALL BUSINESS CONCERNS THOSE ALIEN CONCERNS WHOSE PLANTS ARE LOCATED IN FOREIGN COUNTRIES BECAUSE SUCH ALIEN CONCERNS DO NOT CONTRIBUTE TO THE NATIONAL ECONOMY, DO NOT PROVIDE EMPLOYMENT FOR AMERICAN NATIONALS, PURCHASE LITTLE OR NO AMERICAN PRODUCTS, MATERIALS OR SERVICES AND DO NOT PAY FEDERAL OR STATE TAXES. WHILE THE SBA REGULATIONS EXCLUDE SUCH ALIEN CONCERNS, THEY DO NOT IMPOSE A REQUIREMENT OF AMERICAN OWNERSHIP OF CONCERNS WHOSE PLANTS ARE LOCATED IN THE UNITED STATES SINCE THESE CONCERNS CONTRIBUTE TOWARD THE EFFECTUATION OF THE CONGRESSIONAL POLICY. SBA ADVISED THAT THESE CONCERNS UTILIZE AMERICAN MATERIALS, EMPLOY AMERICAN LABOR, AND PAY FEDERAL AND STATE TAXES. FOR THESE REASONS, THE SBA SIZE REGULATIONS NO DOT DISTINGUISH SMALL BUSINESS CONCERNS SOLELY ON THE BASIS OF THE CITIZENSHIP OF THE OWNER OF THE BUSINESS.

THE SBA ALSO POINTS OUT THAT:

WHILE WE EXCLUDE ALIEN-OWNED AND -BASED CONCERNS, THERE ARE SEVERAL REASONS WHY WE HAVE NOT IMPOSED A REQUIREMENT OF AMERICAN OWNERSHIP OF CONCERNS WHOSE PLANTS ARE LOCATED IN THE UNITED STATES. PLANTS LOCATED IN THE UNITED STATES, EVEN THOUGH OWNED BY ALIENS, CONTRIBUTE TOWARD EFFECTUATION OF THE CONGRESSIONAL POLICY. THEY, LIKE PLANTS OWNED BY AMERICAN NATIONALS, UTILIZE AMERICAN MATERIALS, EMPLOY AMERICAN LABOR, PAY TAXES TO THE STATES AND FEDERAL GOVERNMENT. THUS, WE DO NOT BELIEVE THERE IS A BASIS FOR DISTINGUISHING SOLELY ON THE GROUND OF THE CITIZENSHIP OF THE OWNER OF THE PLANT.

THE CURRENT SBA REGULATION DEFINING "CONCERN" FOR PURPOSES OF SMALL BUSINESS SIZE DETERMINATIONS IS CONTAINED IN 13 CFR 121.3-2 (G) (JANUARY 4, 1964).

"CONCERN," EXCEPT FOR SEC. 121.3-13, MEANS ANY BUSINESS ENTITY ORGANIZED FOR PROFIT WITH A PLACE OF BUSINESS LOCATED IN THE UNITED STATES, INCLUDING, BUT NOT LIMITED TO, AN INDIVIDUAL, PARTNERSHIP, CORPORATION, JOINT VENTURE, ASSOCIATION, OR COOPERATIVE. FOR THE PURPOSE OF MAKING SIZE DETERMINATION, ANY BUSINESS ENTITY, WHETHER ORGANIZED FOR PROFIT OR NOT, AND ANY FOREIGN BUSINESS ENTITY SHALL BE INCLUDED.

THUS,"PLACE OF BUSINESS LOCATED IN THE UNITED STATES" IS THE CRITERION EMPLOYED IN DETERMINING THE ELIGIBILITY OF AN ALIEN CONCERN TO PREFERENCE UNDER THE SMALL BUSINESS ACT. IN THIS REGARD, SBA ADVISED IN ITS LETTER OF OCTOBER 12, 1964, THAT:

OUR SIZE REGULATIONS HAVE ENABLED OTHERWISE SMALL CONCERNS WHICH CONTRIBUTE TO THE NATIONAL ECONOMY AND SECURITY AND THEREBY ACHIEVE THE CONGRESSIONAL GOAL TO PARTICIPATE IN THE GOVERNMENT SMALL BUSINESS PROGRAMS. AT THE SAME TIME THESE REGULATIONS HAVE EXCLUDED CONCERNS WHICH DO NOT MAKE SUCH CONTRIBUTIONS. THE EFFECTIVENESS OF OUR REGULATIONS IN IMPLEMENTING THE SMALL BUSINESS ACT IS READILY APPARENT IN PROCUREMENTS FOR SUPPLY ITEMS. WE RECOGNIZE THAT THEIR APPLICABILITY TO CONSTRUCTION PROCUREMENT IS NOT AS READILY APPARENT SINCE THE BIDDER DOES NOT OPERATE THE FACTORY OR OTHER PLANT. HOWEVER, OUR APPLICATION OF THE REGULATIONS HAS ACHIEVED THE SMALL RESULT. THIS IS EVIDENT IN THE CASE OF MID-WEST CONSTRUCTION COMPANY, INC. WE HAVE, ON TWO OCCASIONS CONCLUDED THAT THIS CONCERN DOES NOT MAINTAIN THE PLACE OF BUSINESS REQUIRED BY OUR REGULATIONS. AT THE TIME OF THE FIRST APPEAL, MID-WEST CONSTRUCTION COMPANY, INC., WAS NOT AN ALASKAN CORPORATION AND HAD NOT COMPLIED WITH THE ALASKAN STATUTES WHICH REQUIRED A "CERTIFICATE OF AUTHORITY" IN ORDER TO TRANSACT BUSINESS IN THAT STATE. AT THE TIME OF THE SECOND DECISION, MID-WEST CONSTRUCTION COMPANY, INC., ALTHOUGH IT HAD SUCH CERTIFICATE OF AUTHORITY, DID NOT MAINTAIN, IN THE USUAL AND CUSTOMARY SENSE, A PERMANENT PLACE OF BUSINESS IN ALASKA. ACCORDINGLY, WE DETERMINED THAT IT DID NOT HAVE A PLACE OF BUSINESS WITHIN THE MEANING OF OUR REGULATIONS.

THE CONGRESSIONAL DECLARATION OF POLICY, QUOTED ABOVE, LEAVES NO ROOM FOR DOUBT THAT THE CONGRESS INTENDED TO ESTABLISH A PREFERRED STATUS FOR SMALL BUSINESS TO COMPETE FOR GOVERNMENT PROCUREMENTS. IT IS EQUALLY EVIDENT THAT SUCH PREFERENCE WAS GRANTED BECAUSE THE CONGRESS ALSO RECOGNIZED THAT THE BENEFITS FLOWING THEREFROM WOULD CONTRIBUTE TO THE AMERICAN ECONOMY AND NATIONAL DEFENSE. IT ALSO APPEARS THAT THE PURPOSES OF THE ACT GENERALLY WOULD BE MET IF A FOREIGN SMALL BUSINESS LOCATED IN THE UNITED STATES WOULD RECEIVE AN AWARD OF A CONTRACT SET ASIDE FOR SMALL BUSINESS SINCE SUCH AWARD COULD INURE TO THE BENEFIT OF THE ECONOMY THROUGH THE USE OF AMERICAN PRODUCTS, MATERIAL AND LABOR.

HAVING REGARD FOR THE REASONS STATED IN THE SBA LETTER OF OCTOBER 12, 1964, AND ITS BROAD AUTHORITY TO PROMULGATE REGULATIONS TO CARRY OUT THE PURPOSES OF THE LAW (15 U.S.C. 634 (B) (6) (, WE SEE NO VALID REASON FOR OBJECTING TO ITS DETERMINATION THAT A FOREIGN SMALL BUSINESS CONCERN HAVING A PLACE OF BUSINESS LOCATED IN THE UNITED STATES QUALIFIES AS AN ELIGIBLE CONCERN UNDER THE SMALL BUSINESS ACT.

INSOFAR AS CONCERNS THE AWARD MADE TO MID-WEST, WE FEEL THAT SUCH AWARD SHOULD BE CANCELED BECAUSE WE UNDERSTAND THE NOTICE TO PROCEED HAS NOT BEEN ISSUED UNDER THE CONTRACT AND MID-WEST FAILED TO MEET THE ESSENTIAL REQUIREMENT OF THE SIZE STANDARD REGULATIONS CONCERNING "PLACE OF BUSINESS LOCATED IN THE UNITED STATES.'

WE RECOGNIZE THAT UNDER SOME CIRCUMSTANCES WE HAVE HELD THAT THE FINAL DETERMINATION OF THE ELIGIBILITY OF A BIDDER AS A SMALL BUSINESS CONCERN UNDER A SMALL BUSINESS RESTRICTED INVITATION IS MADE AS OF THE DATE OF AWARD, AND THAT AN AWARD PROPERLY MADE ON THE BASIS OF A SMALL BUSINESS STATUS WILL NOT BE DISTURBED BECAUSE OF A POST AWARD CHANGE IN THAT STATUS. B-143630, OCTOBER 13, 1960; CF. 41 COMP. GEN.47. HOWEVER, WE DO NOT FEEL THAT THIS GENERAL RULE SHOULD BE APPLIED TO PERMIT A FOREIGN CONCERN TO MAINTAIN ITS PREFERRED ELIGIBILITY AS A SMALL BUSINESS CONTRACTOR WHERE IT DID NOT HAVE A PLACE OF BUSINESS LOCATED IN THE UNITED STATES AT THE DATE OF AWARD AS CONTEMPLATED BY THE SIZE STANDARD REGULATIONS AND WHERE SUCH AWARD WOULD BE IN DEROGATION OF THE RIGHTS OF DOMESTIC SMALL BUSINESS AND, TO A LESSER EXTENT, TO THOSE OF DOMESTIC LARGE BUSINESS.