B-144621, AUGUST 1, 1961, 41 COMP. GEN. 47

B-144621, AUGUST 1, 1961, 41 COMP. GEN. 47

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - SELF-CERTIFICATION--- CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - SELF-CERTIFICATION - PAYMENTS - ABSENCE OR UNENFORCEABILITY OF CONTRACTS - QUANTUM VALEBAT A LOW BIDDER WHO, IN RESPONSE TO A TOTAL SMALL BUSINESS SET-ASIDE PROCUREMENT, CERTIFIES HIMSELF AS A SMALL BUSINESS CONCERN ALTHOUGH HE IS ON NOTICE BY THE SMALL BUSINESS ADMINISTRATION PRIOR TO THE SUBMISSION OF THE BID THAT HIS SIZE STATUS IS SUBJECT TO QUESTION, AND WHO, AFTER AWARD, IS ULTIMATELY DETERMINED NOT TO BE SMALL BUSINESS BECAUSE OF THE CIRCUMSTANCES WHICH PREVIOUSLY EXISTED IS NOT REGARDED AS HAVING UTILIZED THE SELF-CERTIFICATION PROCEDURE PRUDENTLY AS REQUIRED UNDER THE SMALL BUSINESS ACT, AND, THEREFORE, HIS BID MAY NOT BE CONSIDERED ELIGIBLE FOR AWARD. AN AWARD UNDER A TOTAL SMALL BUSINESS SET-ASIDE PROCUREMENT TO A LOW LARGE BUSINESS BIDDER WHO, AFTER CERTIFICATION THAT HE WAS A SMALL BUSINESS CONCERN, TOOK ACTION AFTER OPENING OF BIDS FOR THE SOLE PURPOSE OF MEETING THE SMALL BUSINESS SIZE CRITERIA THEREBY QUALIFYING FOR CONSIDERATION, IS AN AWARD TO A BIDDER WHO WAS GIVEN A SECOND CHANCE AND AN UNDUE ADVANTAGE OVER OTHER BIDDERS AND IS AN AWARD WHICH IS NOT ONLY DESTRUCTIVE OF THE COMPETITIVE BIDDING PROCESS BUT IS IN CIRCUMVENTION OF THE SMALL BUSINESS PROGRAM AND, THEREFORE, THE CONTRACT SHOULD BE CANCELED. IN VIEW OF THE FACT THAT A CONTRACTOR HAS PROCEEDED WITH THE WORK PRIOR TO THE TIME OF CANCELLATION OF A SMALL BUSINESS SET-ASIDE CONTRACT FOR FAILURE OF THE BIDDER TO QUALIFY AS SMALL BUSINESS, THE EQUIPMENT SCHEDULED FOR DELIVERY AS WELL AS THAT MANUFACTURED MAY BE ACCEPTED AND PAID FOR ON A QUANTUM VALEBAT BASIS.

TO THE SECRETARY OF THE ARMY, AUGUST 1, 1961:

REFERENCE IS MADE TO A LETTER DATED JANUARY 19, 1961, WRITTEN IN BEHALF OF THE ASSISTANT SECRETARY OF THE ARMY ( LOGISTICS), FURNISHING A REPORT ON THE PROTEST OF THE E. D. ETNYRE AND CO., OREGON, ILLINOIS, AGAINST THE AWARD OF CONTRACT NO. DA-11-184-ENG-18465 TO STANDARD STEEL WORKS, INC., NORTH KANSAS CITY, MISSOURI, ON THE GROUNDS THAT THE CONTRACTOR WAS NOT IN FACT A SMALL BUSINESS CONCERN.

INVITATION FOR BIDS NO. DA-ENG-11-184-61-B-20-JD ISSUED ON JULY 18, 1960, BY THE U.S. ARMY ENGINEER OFFICE, CHICAGO, ILLINOIS, SOLICITED BIDS TO BE OPENED AUGUST 17, 1960, FOR FURNISHING 50 BITUMINOUS MATERIAL DISTRIBUTORS IN ACCORDANCE WITH CERTAIN SPECIFICATIONS. THE PROCUREMENT WAS BASED ON A 100 PERCENT SET-ASIDE FOR SMALL BUSINESS--- A PROVISION IN THE INVITATION FOR BIDS PROVIDING IN PART AS FOLLOWS:

NOTICE OF SMALL BUSINESS SET-ASIDE: BIDS OR PROPOSALS UNDER THIS PROCUREMENT ARE SOLICITED FROM SMALL BUSINESS CONCERNS ONLY AND THIS PROCUREMENT IS TO BE AWARDED ONLY TO ONE OR MORE SMALL BUSINESS CONCERNS. * * * A SMALL BUSINESS CONCERN IS A CONCERN THAT:

(I) IS INDEPENDENTLY OWNED AND OPERATED, IS NOT DOMINANT IN ITS FIELD OF OPERATION AND, WITH ITS AFFILIATES, EMPLOYS FEWER THAN 500 EMPLOYEES, OR

(II) IS CERTIFIED AS A SMALL BUSINESS CONCERN BY THE SMALL BUSINESS ADMINISTRATION. * * * BIDS OR PROPOSALS RECEIVED FROM FIRMS WHICH ARE NOT SMALL BUSINESS CONCERNS SHALL BE CONSIDERED NON-RESPONSIVE.

SIX BIDS WERE RECEIVED IN RESPONSE TO THE INVITATION, INCLUDING BIDS SUBMITTED BY E. D. ETNYRE AND CO., STANDARD STEEL WORKS, INC., AND THE SEAMAN CORPORATION. THE LOWEST BID, SUBMITTED BY CITY TANK CORPORATION, WAS REJECTED BECAUSE IT WAS DETERMINED THAT THE BIDDER WAS NOT SMALL BUSINESS. A BID SUBMITTED BY LITTLEFORD BROS., INC., WAS CONSIDERED TO BE NONRESPONSIVE IN THAT THE INITIAL DELIVERY DATE WAS LATER THAN THAT REQUIRED BY THE GOVERNMENT.

IN A REPORT DATED JULY 7, 1961, FROM THE SMALL BUSINESS ADMINISTRATION WHICH DETAILS THE CIRCUMSTANCES SURROUNDING THE SUBMISSION OF STANDARD STEEL WORKS' BID IT IS STATED THAT:

1. ON JUNE 9, 1960, THE KANSAS CITY, MISSOURI, OFFICE OF THE SMALL BUSINESS ADMINISTRATION RECEIVED A TELEGRAM REQUEST FROM THE ST. LOUIS OFFICE OF THE SMALL BUSINESS ADMINISTRATION FOR A SIZE DETERMINATION OF STANDARD. THIS REQUEST WAS PREDICATED UPON AN INQUIRY BY THE ST. LOUIS AIR PROCUREMENT DISTRICT.

2. THE KANSAS CITY OFFICE REPLIED TO THIS REQUEST, ON JUNE 23, 1960, THAT THE SUBJECT CONCERN COULD NOT, IN ITS OPINION, QUALIFY AS A SMALL BUSINESS BUT THAT THE MATTER WAS BEING SUBMITTED TO THE WASHINGTON, D.C. OFFICE FOR DETERMINATION.

3. IN ORDER THAT A PROPER DETERMINATION OF STANDARD'S SIZE STATUS COULD BE MADE, THE SUBJECT CONCERN WAS REQUESTED TO COMPLETE SMALL BUSINESS ADMINISTRATION FORM 355. THIS SBA FORM 355, BEING DULY COMPLETED BY STANDARD WAS RECEIVED BY OUR KANSAS CITY REGIONAL OFFICE ON OR ABOUT JULY 14, 1960. COPIES OF STANDARD'S LETTER AND THE SBA FORM 355 ARE ATTACHED AS ENCLOSURES (1).

4. BASED UPON AN EXAMINATION OF THE INFORMATION FURNISHED, THE DIRECTOR OF THE OFFICE OF SMALL BUSINESS SIZE STANDARDS NOTIFIED THE KANSAS CITY OFFICE OF THE SMALL BUSINESS ADMINISTRATION ON AUGUST 10, 1960, THAT STANDARD WAS AFFILIATED, BY VIRTUE OF STOCK OWNERSHIP, WITH OTHER CONCERNS SO THAT STANDARD COULD NOT BE CLASSIFIED AS A SMALL BUSINESS.

5.ON AUGUST 12, 1960, THE KANSAS CITY OFFICE ADVISED MR. HARL S. DAY, PRESIDENT OF STANDARD, BY TELEPHONE, OF THIS DECISION. MR. DAY INDICATED THAT HE DESIRED TO REVIEW THE DECISION AT A LATER DATE, EARLY IN SEPTEMBER, 1960. ON SEPTEMBER 8, 1960, MR. DAY WAS MAILED THE MATERIAL FOR HIS REVIEW BY THE KANSAS CITY OFFICE. A COPY OF A MEMORANDUM FROM OUR KANSAS CITY REGIONAL OFFICE REPORTING THIS CONVERSATION IS ATTACHED AS ENCLOSURE (2).

6. ON AUGUST 17, 1960, THE PURCHASING DIVISION OF THE CHICAGO DISTRICT, CORPS OF ENGINEERS, U.S. ARMY, OPENED BIDS SUBMITTED IN RESPONSE TO INVITATION FOR BIDS NO. DA-ENG-11-184-61-B-21-JD. THIS PROCUREMENT WAS A 100 PERCENT SMALL BUSINESS SET-ASIDE. IT IS UNDERSTOOD THAT STANDARD SUBMITTED THE LOW BID ON THIS PROCUREMENT, ON AUGUST 16, 1960, AND CERTIFIED ITSELF AS A SMALL BUSINESS CONCERN.

AN EXAMINATION OF THE COMPLETED SBA FORM 355 SIGNED ON JULY 7, 1960, BY H. S. DAY AS PRESIDENT OF STANDARD STEEL WORKS, INC., REVEALS THAT UNDER ITEM 4 THEREOF ENTITLED " AFFILIATES OF PPLICANT" THE ONLY AFFILIATED COMPANY LISTED IS THE AERO-1TEST EQUIPMENT CO., INC., OF DALLAS, TEXAS. IMMEDIATELY ABOVE ITEM 4 ON THE FACE OF THE FORM APPEAR THE FOLLOWING PROVISIONS:

AFFILIATION. BUSINESS CONCERNS ARE AFFILIATES OF EACH OTHER WHEN EITHER DIRECTLY OR INDIRECTLY (A) ONE CONCERN CONTROLS OR HAS THE POWER TO CONTROL THE OTHER, OR (B) A THIRD PARTY CONTROLS OR HAS THE POWER TO CONTROL BOTH. IN DETERMINING WHETHER CONCERNS ARE INDEPENDENTLY OWNED AND OPERATED, AND WHETHER OR NOT AFFILIATION EXISTS, CONSIDERATION SHALL BE GIVEN TO ALL APPROPRIATE FACTORS INCLUDING COMMON OWNERSHIP, COMMON MANAGEMENT, AND CONTRACTUAL RELATIONSHIPS.

A. THE FOLLOWING IS A LIST OF FACTORS, THE EXISTENCE OF ANY OF WHICH RAISES A PRESUMPTION OF AFFILIATION:

(1) COMMON OWNERSHIP: WHEN A SIGNIFICANT PORTION OF THE CONCERN UNDER CONSIDERATION IS DIRECTLY OR INDIRECTLY HELD BY AN INDIVIDUAL (OR INDIVIDUALS) OR AN ASSOCIATED GROUP (FAMILY, HOLDING COMPANY, OTHER BUSINESS ENTITY, ETC.) WHICH ALSO HOLDS A SIMILAR INTEREST IN ANOTHER CONCERN, THEY MAY BE SAID TO BE AFFILIATED.

(2) COMMON CONTROL: WHEN THOSE WHO EXERCISE OR MAY EXERCISE SIGNIFICANT CONTROL OVER THE CONCERN UNDER CONSIDERATION, CAN ALSO EXERCISE SIMILAR CONTROL OVER ANOTHER CONCERN, THE CONCERNS MAY BE SAID TO BE AFFILIATED. THIS CONTROL MAY ARISE AS AN INCIDENT OF OWNERSHIP, OR IT MAY ARISE THROUGH INTERLOCKING MANAGEMENT SUCH AS COMMON DIRECTORS OR COMMON OFFICERS.

(3) AFFILIATION BY AGREEMENT: WHERE THERE EXISTS ACTUAL OR TACIT AGREEMENTS RELATING TO THE OPERATION OF THE CONCERNS INVOLVED BETWEEN INDIVIDUALS OR ASSOCIATED GROUPS HAVING SIGNIFICANT OWNERSHIP OR CONTROL OF CONCERNS, THESE CONCERNS MAY BE SAID TO BE AFFILIATED. THESE AGREEMENTS MAY EMBRACE A WIDE VARIETY OF SUBJECTS, INCLUDING USE OF COMMON FACILITIES (BOTH PHYSICAL AND MANAGEMENT FACILITIES SUCH AS COMMON GENERAL COUNSEL, PURCHASING OR SELLING AGENCY, BANK ACCOUNT, ETC.), PURCHASING ACTIVITIES METHODS OF DOING BUSINESS, AND THE LIKE.

THE FACT THAT THE APPLICANT MAY BE A DIVISION OF A COMPANY, A SUBSIDIARY OR AFFILIATE, MUST BE CONSIDERED IN MAKING A SIZE DETERMINATION, EVEN THOUGH THE APPLICANT AND ITS AFFILIATES ARE NOT PRIMARILY ENGAGED IN THE SAME FIELD OF OPERATION. IN MAKING A SIZE DETERMINATION THE TOTAL SIZE OF THE APPLICANT AND ITS AFFILIATES, REGARDLESS OF BUSINESS ACTIVITY, WILL BE CONSIDERED.

A COVER LETTER DATED JULY 7, 1960, BY MR. DAY ADDRESSED TO THE SMALL BUSINESS ADMINISTRATION IN KANSAS CITY ACCOMPANIED THE COMPLETED SBA FORM 355. THAT LETTER READS IN PART AS FOLLOWS:

ENCLOSED ARE THE COMPLETED FORMS NO. 355 FOR SIZE DETERMINATION WHICH YOU REQUESTED.

I AM SORRY THAT IT HAS TAKEN THIS MUCH TIME TO GET TOGETHER THE INFORMATION THAT IS REQUIRED FOR THESE FORMS.

YOU HAVE CONSISTENTLY RAISED THE QUESTION OF AFFILIATION, AND THE ONLY FACTOR THAT CAN BE CONSIDERED AFFILIATING US WITH ANY COMPANIES, EXCEPT THE ONE SHOWN UNDER PARAGRAPH 4 OF YOUR FORM, IS THE POINT OF COMMON OWNERSHIP.

AS I HAVE CONSISTENTLY POINTED OUT TO YOU, WE DO NOT HAVE COMMON CONTROL, COMMON MANAGEMENT NOR ANY ACTUAL OR TACIT AGREEMENTS RELATING TO THE OPERATION OF THIS COMPANY WITH ANY OTHER.

COMMON OWNERSHIP IS A LITTLE TOUGHER ONE TO DELINEATE. STANDARD STEEL WORKS IS ACTUALLY OWNED BY A GROUP OF COMPANIES, WITH STOCK OWNERSHIP AS FOLLOWS:

350 SHARES--- GEORGE WASHINGTON LIFE INSURANCE CO.--- DALLAS, TEX. 1050 SHARES--- AMERICAN SECURITY LIFE INSURANCE CO.--- DALLAS, TEX.

500 SHARES--- AMERICAN REPUBLIC LIFE INSURANCE CO. OF ARKANSAS

700 SHARES--- FIDELITY NATIONAL LIFE INSURANCE COMPANY 4400 SHARES-- RESERVE LIFE INSURANCE COMPANY--- DALLAS, TEX.

THE FACT THAT THESE INSURANCE COMPANIES MAY ALSO OWN STOCK IN OTHER COMPANIES DOES NOT, IN MY INTERPRETATION OF THE REGULATION, CONSTITUTE AFFILIATION BY COMMON OWNERSHIP.

IT IS ON THE ABOVE BASIS THAT I DISCLAIM ANY AFFILIATION, UNDER THE TERMS OF THE SMALL BUSINESS ADMINISTRATION, WITH ANY COMPANIES EXCEPT THE ONE SHOWN ON THE FORM. THIS COMPANY, WHICH IS SHOWN AS AN AFFILIATE, HAS BEEN SUCCESSFUL IN OBTAINING A SMALL BUSINESS CERTIFICATE, WHICH MAY INDICATE THAT SOME INVESTIGATION HAS ALREADY BEEN MADE ALONG THIS LINE.

IN A LETTER TO THIS OFFICE BY THE ATTORNEY OF STANDARD STEEL WORKS DATED JULY 10, 1961, IT IS STATED THAT MR. DAY STATED TO HIM UNEQUIVOCALLY THAT ALTHOUGH HE PROBABLY DID HAVE A TELEPHONE CONVERSATION WITH A MR. WOODWARD OF THE SBA KANSAS CITY OFFICE ON AUGUST 12, MR. WOODWARD DID NOT ADVISE HIM THAT ANY DETERMINATION HAD BEEN MADE THAT STANDARD STEEL WORKS WAS AFFILIATED WITH RESERVE LIFE INSURANCE COMPANY AND WAS, THEREFORE, A BIG BUSINESS. STANDARD STEEL WORKS' ATTORNEY FURTHER REPORTS THAT MR. DAY STATED THAT IF SUCH A DETERMINATION HAD BEEN COMMUNICATED TO HIM, STANDARD WOULD NOT HAVE SUBMITTED A BID ON AUGUST 16 AND THAT HE WOULD HAVE WRITTEN A LETTER OF PROTEST IMMEDIATELY ALONG THE SAME LINES OF HIS LETTER OF OCTOBER 31, 1960, WHICH PROTESTED A DETERMINATION OF OCTOBER 28, 1960, THAT STANDARD WAS NOT A SMALL BUSINESS CONCERN.

AFTER BID OPENING, WHICH OCCURRED ON AUGUST 17, 1960, AND WHILE THE BIDS WERE BEING EVALUATED, THE E. D. ETNYRE COMPANY WIRED THE CONTRACTING OFFICE ON OCTOBER 10, 1960, FOLLOWED BY A LETTER OF THE SAME DATE, ALLEGING THAT STANDARD WAS NOT SMALL BUSINESS. ALSO, ON THAT DATE THE CONTRACTING OFFICE TELEPHONED THE DISTRICT ENGINEER, ST. LOUIS, MISSOURI, AND REQUESTED HIM TO SUPPLY THE AFFILIATIONS OF STANDARD. THE DISTRICT ENGINEER REPLIED ON OCTOBER 11, THAT THE PRESIDENT OF STANDARD HAD STATED THAT RESERVE LIFE INSURANCE COMPANY OF TEXAS OWNED FOUR-SEVENTHS OF THE STOCK OF STANDARD BUT THAT STANDARD OPERATED "COMPLETELY INDEPENDENT WITH NO COMMON MANAGEMENT FUNCTION, NO COMMON TECHNICAL FUNCTION, AND NO COMMON FINANCIAL OR CAPITALIZATION FUNCTION OTHER THAN STOCK OWNERSHIP BY RESERVE.' ALSO, THE PRESIDENT HAD STATED THAT STANDARD OWNED AERO-1TEST EQUIPMENT COMPANY, DALLAS, TEXAS, EMPLOYING 60 TO 70 PERSONS. THE FOLLOWING DAY, OCTOBER 12, THE CONTRACTING OFFICE ASKED THE SBA REGIONAL OFFICE, KANSAS CITY, TO MAKE A DETERMINATION AS TO THE SMALL BUSINESS STATUS OF STANDARD. ON OCTOBER 27, 1960, THE ACTING DEPUTY ADMINISTRATOR, SBA, WIRED THE CONTRACTING OFFICE THAT HE HAD DETERMINED THAT STANDARD WAS "NOT A SMALL BUSINESS FOR GOVERNMENT PROCUREMENT" AND STANDARD WAS INFORMED OF THIS DETERMINATION ON OCTOBER 28. WHEREUPON ON NOVEMBER 2, 1960, STANDARD ADVISED THE CONTRACTING OFFICE THAT IT WAS APPEALING THE DETERMINATION BY SBA. THEREAFTER, DURING THE MONTH OF NOVEMBER 1960, THE ATTORNEY FOR STANDARD CONTRACTED THE SBA OFFICE IN WASHINGTON, D.C., WITH REGARD TO THE POSSIBILITY OF CHANGING THE STOCK OWNERSHIP OF STANDARD. A LETTER DATED NOVEMBER 11, 1960, THE ATTORNEY ADVISED SBA AS FOLLOWS:

AS NOW ISSUED, THE STOCKHOLDERS OF STANDARD STEEL WORKS, INC. ARE: RESERVE LIFE INSURANCE COMPANY--- 4,400 SHARES GEORGE WASHINGTON LIFE INSURANCE COMPANY--- 350 SHARES AMERICAN SECURITY LIFE INSURANCE COMPANY-- - 1,050 SHARES FIDELITY NATIONAL LIFE INSURANCE COMPANY--- 700 SHARES AMERICAN REPUBLIC LIFE INSURANCE COMPANY--- 500 SHARES

WE PROPOSE TO CHANGE BY CHARTER AMENDMENT THE TYPE OF STOCK WHICH THE CORPORATION CAN ISSUE WHERE THAT IT WILL HAVE VOTING AND NONVOTING COMMON STOCK. WE HOPE TO AUTHORIZE 1,000 SHARES OF $100.00 PAR VALUE COMMON VOTING STOCK AND 6,000 SHARES OF COMMON $100.00 PAR VALUE NONVOTING STOCK. AFTER THE CHARTER AMENDMENT AND THE INSURANCE COMPANIES HAVE ELECTED TO TAKE VOTING AND NONVOTING STOCK, THE STOCK OWNERSHIP OF STANDARD STEEL WORKS, INC., WILL LOOK AS FOLLOWS:

VOTING STOCK

FIDELITY NATIONAL LIFE INSURANCE COMPANY--- 600 SHARES

AMERICAN SECURITY LIFE INSURANCE COMPANY--- 300 SHARES

RESERVE LIFE INSURANCE COMPANY--- 100 SHARES

NONVOTING STOCK

GEORGE WASHINGTON LIFE INSURANCE COMPANY--- 350 SHARES

AMERICAN SECURITY LIFE INSURANCE COMPANY--- 750 SHARES

AMERICAN REPUBLIC LIFE INSURANCE COMPANY--- 500 SHARES

RESERVE LIFE INSURANCE COMPANY--- 4,300 SHARES

FIDELITY NATIONAL LIFE INSURANCE--- 100 SHARES

FIDELITY NATIONAL LIFE INSURANCE COMPANY IS A VERY SMALL TEXAS LIFE INSURANCE COMPANY AND MOST OF ITS BUSINESS IS EITHER GROUP LIFE, GROUP HOSPITALIZATION OR REINSURED LIFE INSURANCE. BECAUSE OF THIS TYPE OF OPERATION IT ONLY HAS A VERY LIMITED NUMBER OF EMPLOYEES, WHICH I AM SURE WOULD NOT EXCEED IN THE AGGREGATE, AT ANY ONE TIME, OVER 15. AMERICAN SECURITY LIFE INSURANCE COMPANY, ALTHOUGH IT HOLDS LESS THAN 50 PERCENT OF THE COMMON VOTING STOCK OF STANDARD STEEL, IT HAS A VERY LIMITED NUMBER OF EMPLOYEES AND I DO NOT BELIEVE WOULD AT ANY ONE TIME EXCEED 25 OR 30 EMPLOYEES. THE STOCKHOLDERS OF RECORD OF FIDELITY NATIONAL LIFE INSURANCE COMPANY ARE LEE V. WILLIAMS, R., J. B. RAGLAND, J. R. ACKER, D. S. HARTMAN, AND R. B. LONG.

AS YOU WILL NOTE, THE STOCKHOLDER OF FIDELITY, LEE V. WILLIAMS, JR., IS ALSO AN OFFICER AND DIRECTOR OF FIDELITY NATIONAL LIFE INSURANCE COMPANY AND IS ALSO AN OFFICER AND DIRECTOR IN EITHER STANDARD STEEL OR AERO- 1TEST. I HAVE DISCUSSED THIS MATTER WITH MR. WILLIAMS AND HE WILL BE HAPPY TO RESIGN AS AN OFFICER OR DIRECTOR OF EITHER FIDELITY OR STANDARD STEEL AND AERO-1TEST IF THE INTERLOCKING OF DIRECTORS AFFECTS THE TRANSACTION. I WOULD APPRECIATE YOUR ANALYZING THIS PROPOSAL AND ADVISING ME IMMEDIATELY AS TO WHETHER OR NOT THE PROPOSED CHANGES, IF ACCOMPLISHED, WOULD MAKE STANDARD STEEL AND IN TURN AERO-1TEST BE SMALL BUSINESS. YOU GIVE US A FAVORABLE DECISION, WE WILL IMMEDIATELY PROCEED TO HAVE THE CHARTER AMENDMENT, CERTIFICATES SURRENDERED AND NEW CERTIFICATES ISSUED ALL IN ACCORDANCE WITH THIS PROPOSAL.

IN A SUBSEQUENT LETTER OF NOVEMBER 17 THE ATTORNEY INFORMED SBA FURTHER AS FOLLOWS:

I ALSO ENCLOSE HEREWITH A COPY OF THE CHARTER AMENDMENT FILED BY STANDARD STEEL WORKS, INC. WITH THE SECRETARY OF STATE OF THE STATE OF TEXAS ON NOVEMBER 16, 1960. THIS CHARTER AMENDMENT CREATED VOTING AND NONVOTING STOCK AND THE STOCK OF STANDARD STEEL WORKS, INC. IS BEING ISSUED IN ACCORDANCE WITH MY LETTER OF NOVEMBER 11, 1960 AND SHOULD BE COMPLETED BY NOVEMBER 21, 1960.

ON NOVEMBER 30, 1960, THE DEPUTY ADMINISTRATOR, SBA, WIRED THE CONTRACTING OFFICE THAT HE HAD DETERMINED THAT STANDARD MIGHT SELF CERTIFY AS A SMALL BUSINESS FOR GOVERNMENT PROCUREMENT. THE BASIS FOR THE CHANGE IN DETERMINATION IS INDICATED IN A LETTER WRITTEN BY THE ADMINISTRATOR, SBA, ON DECEMBER 6, 1960, IN PERTINENT PART AS FOLLOWS:

OUR ORIGINAL DETERMINATION WAS BASED ON THE FACT THAT RESERVE LIFE INSURANCE COMPANY OF DALLAS, DALLAS, TEXAS, OWNED 57 PERCENT OF THE VOTING STOCK OF STANDARD STEEL WORKS, INC. AND THEREFORE, CONTROLLED OR HAD THE POWER TO CONTROL IT AND HENCE WAS AFFILIATED WITH IT WITHIN THE MEANING OF SECTION 121.3-2 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION (24 F.R. 3491) AND THAT THE TOTAL AVERAGE EMPLOYMENT OF RESERVE LIFE INSURANCE COMPANY (OVER 3,500 EMPLOYEES) AND STANDARD STEEL WORKS, INC. (AND ITS SUBSIDIARY, AERO-1TEST EQUIPMENT COMPANY) SUBSTANTIALLY EXCEEDED THE PUBLISHED PROCUREMENT SIZE STANDARD (500 EMPLOYEES) FOR MANUFACTURING CONCERNS (SEE SECTION 121.3-8 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION (24 F.R. 3491) ).

HOWEVER, SINCE OUR ORIGINAL DETERMINATION, STANDARD STEEL WORKS, INC. HAS AMENDED ITS CHARTER AND HAS, UNDER SUCH AMENDMENT, ISSUED BOTH COMMON STOCK AND NON-VOTING CLASS A COMMON STOCK, AND RESERVE LIFE INSURANCE, AFTER AN EXCHANGE OF SHARES, NOW HOLDS ONLY 10 PERCENT OF STANDARD'S OUTSTANDING VOTING STOCK. IT, THEREFORE, IS NO LONGER CONSIDERED AS AN AFFILIATE THEREOF UNDER SECTION 121.3-2 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION.

AWARD OF THE CONTRACT TO STANDARD WAS MADE ON NOVEMBER 30.

BY LETTER DATED DECEMBER 2, 1960, ETNYRE WAS ADVISED OF THE AWARD TO STANDARD. ON DECEMBER 9 ETNYRE WIRED THE CONTRACTING OFFICE AND PROTESTED THE AWARD AND ON DECEMBER 12, 1960, IT ADDRESSED A LETTER TO OUR OFFICE PROTESTING THE AWARD. ETNYRE ALSO APPEALED TO SBA FROM THE DETERMINATION THAT STANDARD WAS SMALL BUSINESS. OUR DECISION IN THE MATTER NECESSARILY HAD TO BE HELD IN ABEYANCE PENDING THE OUTCOME OF THE APPEAL BEFORE THE SIZE APPEALS BOARD OF THE SBA. ON JUNE 22, 1961, THE BOARD SUSTAINED THE APPEAL OF ETNYRE AND HELD THAT STANDARD DID NOT QUALIFY AS A SMALL BUSINESS CONCERN FOR THE PURPOSE OF GOVERNMENT PROCUREMENT. THE DECISION OF THE BOARD ON THAT DATE, AS APPROVED BY THE ADMINISTRATOR, SBA, IS IN PERTINENT PART AS FOLLOWS:

1. SECTION 121.3-2 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION PROVIDES THAT:

CONCERNS ARE AFFILIATES OF EACH OTHER WHEN EITHER DIRECTLY OR INDIRECTLY (1) ONE CONCERN (OTHER THAN AN INVESTMENT COMPANY LICENSED UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958 OR REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, CONTROLS OR HAS THE POWER TO CONTROL THE OTHER, OR (2) A THIRD PARTY OR PARTIES (OTHER THAN AN INVESTMENT COMPANY LICENSED UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958 OR REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED), CONTROLS OR HAS THE POWER TO CONTROL BOTH. IN DETERMINING WHETHER CONCERNS ARE INDEPENDENTLY OWNED AND OPERATED AND WHETHER OR NOT AFFILIATION EXISTS, CONSIDERATION SHALL BE GIVEN TO ALL APPROPRIATE FACTORS INCLUDING COMMON OWNERSHIP, COMMON MANAGEMENT AND CONTRACTUAL RELATIONSHIPS.

6. PRIOR TO NOVEMBER 24, 1960, C. A. SAMMONS, WHO CONTROLS RESERVE LIFE INSURANCE COMPANY AND KENNETH SEIDENBERG, WHO IS AN ATTORNEY FOR RESERVE LIFE INSURANCE COMPANY, WERE OFFICERS OF STANDARD STEEL WORKS, INC. MR. LEE V. WILLIAMS, WHO IS THE SON-IN-LAW OF MR. SAMMONS, THE PRINCIPAL STOCKHOLDER OF FIDELITY NATIONAL LIFE INSURANCE COMPANY AND ALSO A STOCKHOLDER OF RESERVE LIFE INSURANCE COMPANY, WAS A DIRECTOR OF STANDARD STEEL WORKS, INC.

7. FIDELITY NATIONAL LIFE INSURANCE COMPANY MAINTAINS OFFICES AT THE SAME ADDRESS AND HAS THE SAME TELEPHONE NUMBER AS DOES RESERVE LIFE INSURANCE COMPANY. IN ADDITION, SEVERAL OF THE OFFICERS AND DIRECTORS OF FIDELITY NATIONAL LIFE INSURANCE COMPANY ARE ALSO OFFICERS OR DIRECTORS OF RESERVE LIFE INSURANCE COMPANY OR OF OTHER COMPANIES WHICH MR. SAMMONS AND/OR RESERVE LIFE INSURANCE COMPANY HAVE A SUBSTANTIAL INTEREST.

B. ON NOVEMBER 14, 1960 STANDARD STEEL WORKS, INC. AMENDED ITS ARTICLES OF INCORPORATION TO ESTABLISH TWO CLASSES OF CAPITAL STOCK, ONE CLASS WITH VOTING RIGHTS AND ONE CLASS WITH NONVOTING RIGHTS. EXCEPT AS RELATES TO THE VOTING RIGHTS, THE RIGHTS OF THE TWO CLASSES OF STOCK ARE IDENTICAL.

10. NO CONSIDERATION WAS PAID BY OR RECEIVED BY ANY OF THE STOCKHOLDERS IN CONNECTION WITH THIS REALIGNMENT. THE SIZE APPEALS BOARD MAKES NO FINDING AS TO WHEN THIS STOCK REALIGNMENT OCCURRED, IT BEING THE OPINION OF THE BOARD THAT THE DATE IS IMMATERIAL IN VIEW OF THE BOARD'S DECISION ON THIS APPEAL.

11. THE SOLE PURPOSE OF THE ESTABLISHMENT OF THE TWO CLASSES OF STOCK AND THE REALIGNMENT OF THE STOCK OF STANDARD STEEL WORKS, INC. WAS TO OVERCOME THE FINDING MADE BY THE SMALL BUSINESS ADMINISTRATION THAT STANDARD STEEL WORKS, INC. AND RESERVE LIFE INSURANCE COMPANY ARE AFFILIATED, AND APART FROM THIS, NO CHANGE WAS MADE IN THE RELATIONS OR OPERATIONS OF THE RESPECTIVE CONCERNS OR IN THE INTERESTS OF THE VARIOUS PARTIES THEREIN.

12. THE SIZE APPEALS BOARD FINDS THAT THE REALIGNMENT OF STOCK IN STANDARD STEEL WORKS, INC., WAS A CHANGE IN FORM ONLY AND NOT ONE OF SUBSTANCE.

13. RESERVE LIFE INSURANCE COMPANY AND ITS PRINCIPAL STOCKHOLDER, C. A. SAMMONS, STILL ARE THE PRINCIPAL OWNERS OF STANDARD STEEL WORKS, INC. ALTHOUGH IT OWNS A MINORITY OF THE VOTING STOCK, RESERVE LIFE INSURANCE COMPANY OWNS APPROXIMATELY 62 PERCENT OF THE TOTAL OUTSTANDING STOCK OF STANDARD STEEL WORKS, INC. IN ADDITION, OTHER CONCERNS WHICH MR. SAMMONS AND/OR RESERVE LIFE INSURANCE COMPANY CONTROL ALSO OWN SUBSTANTIAL INTERESTS IN STANDARD STEEL WORKS, INC.

14. WHILE THERE IS EVIDENCE TO INDICATE THAT RESERVE LIFE INSURANCE COMPANY AND FIDELITY NATIONAL LIFE INSURANCE COMPANY ARE AFFILIATED WITHIN THE MEANING OF SECTION 121.3-2 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION, THE SIZE APPEALS BOARD DOES NOT MAKE ANY FINDING WITH RESPECT THERETO, THIS ISSUE BEING CONSIDERED BY THE BOARD TO BE IMMATERIAL IN VIEW OF ITS DECISION HEREIN.

15. IN VIEW OF (A) OWNERSHIP BY RESERVE LIFE INSURANCE COMPANY OF THE MAJORITY INTEREST IN STANDARD STEEL WORKS, INC., (B) THE OWNERSHIP OF ADDITIONAL INTERESTS IN STANDARD STEEL WORKS, INC. BY OTHER CONCERNS IN WHICH MR. SAMMONS AND/OR RESERVE LIFE INSURANCE COMPANY ARE THE PRINCIPAL STOCKHOLDERS, (C) MR. SAMMONS BEING THE PRINCIPAL STOCKHOLDER OF RESERVE LIFE INSURANCE COMPANY, STANDARD STEEL WORKS, INC. IS AFFILIATED WITH RESERVE LIFE INSURANCE COMPANY WITHIN THE MEANING OF SECTION 121.3-2 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION AND THEREFORE DOES NOT QUALIFY AS A SMALL BUSINESS CONCERN FOR THE PURPOSE OF GOVERNMENT PROCUREMENT FOR ITEMS FOR WHICH ONE OF THE SMALL BUSINESS SIZE CRITERIA IS 500 EMPLOYEES.

THE CIRCUMSTANCES OUTLINED ABOVE PRESENT TWO BASIC QUESTIONS FOR OUR CONSIDERATION: (1) WHAT EFFECT SHOULD BE GIVEN TO THE FACT THAT STANDARD PRIOR TO THE SUBMISSION OF ITS BID ON AUGUST 16, 1960, WAS INFORMED BY A SMALL BUSINESS ADMINISTRATION REPRESENTATIVE THAT STANDARD WAS AFFILIATED, BY VIRTUE OF STOCK OWNERSHIP, WITH OTHER CONCERNS SO THAT IT COULD NOT BE CLASSIFIED AS A SMALL BUSINESS AND (2) WHAT EFFECT SHOULD BE GIVEN THE LATEST DETERMINATION BY SBA IN VIEW OF THE FACT THAT STANDARD HAS PROCEEDED WITH PERFORMANCE UNDER THE CONTRACT. (IN CONNECTION WITH THIS LATTER QUESTION, IT HAS BEEN INFORMALLY ASCERTAINED THAT THE TWO PROTOTYPES PRODUCED UNDER THE CONTRACT WERE APPROVED BY THE GOVERNMENT ON OR ABOUT JUNE 8, 1961, AND THAT THE FIRST INSTALLMENT DELIVERY OF 10 BITUMINOUS MATERIAL DISTRIBUTORS IS SCHEDULED FOR DELIVERY ON SEPTEMBER 11, 1961, ALTHOUGH IT IS INDICATED THAT DELIVERY MIGHT BE MADE SOMEWHAT AHEAD OF SCHEDULE.)

WITH REGARD TO THE FIRST QUESTION PRESENTED, WE HAVE HELD THAT THE SELF- CERTIFICATION PROCEDURE WAS DESIGNED TO SIMPLIFY AND EXPEDITE SIZE DETERMINATIONS AND PROCUREMENT PROCESSES. SEE 40 COMP. GEN. 550 WHERE WE DISCUSSED THE PROPRIETY OF AWARDING A CONTRACT TO A BIDDER WHO HAD SELF- CERTIFIED ITSELF AS A LARGE BUSINESS CONCERN BUT WHO, AFTER BID OPENING, BECAME QUALIFIED AS A SMALL BUSINESS BECAUSE OF A CHANGE IN THE DEFINITION OF SMALL BUSINESS. WE SAID THERE THAT:

* * * THE SELF-CERTIFICATION PROCEDURE WAS DESIGNED TO SIMPLIFY AND EXPEDITE SIZE DETERMINATIONS AND PROCUREMENT PROCESSES. IT WAS HOPED THAT 95 TO 99 PERCENT OF THE CASES WOULD BE HANDLED UNDER THAT PROCEDURE. UNLESS THE SUBMISSION OF BIDS UNDER A 100 PERCENT SMALL BUSINESS SET-ASIDE CAN BE RESTRICTED SOLELY TO THOSE WHO, IN GOOD FAITH, CAN CERTIFY IN THEIR BIDS THAT THEY ARE SMALL BUSINESS, NO USEFUL PURPOSE WOULD BE SERVED BY REQUIRING, IN EVERY INSTANCE, SELF CERTIFICATION ON SIZE STATUS. BIDDERS WHO, PRIOR TO BID OPENING, CANNOT IN GOOD FAITH CERTIFY THEMSELVES AS SMALL BUSINESS MAY BE PERMITTED TO DELAY CONTRACT AWARDS IN ORDER TO ALLOW TIME TO MAKE APPLICATION TO THE SMALL BUSINESS ADMINISTRATION FOR A SMALL BUSINESS CERTIFICATE ON THE BASIS THAT THEIR STATUS MAY HAVE CHANGED SUFFICIENTLY IN THE INTERIM--- BETWEEN BID OPENING AND AWARD--- SO AS TO QUALIFY AS SMALL BUSINESS, THE EFFECTIVENESS OF THE SMALL-BUSINESS SET ASIDE PROCEDURE WOULD BE SERIOUSLY IMPAIRED. USUALLY A BIDDER HIMSELF IS IN A VERY GOOD POSITION TO KNOW HIS SIZE AND KNOWING THIS, IF HE CANNOT IN HONESTY REPRESENT HIMSELF AS A SMALL BUSINESS, THE INTEREST OF ORDERLY AND TIMELY PROCUREMENT REQUIRE THAT HIS BID BE REJECTED AS NONRESPONSIVE.

A FURTHER CONSIDERATION PERTINENT TO THE PRESENT MATTER SHOULD BE MENTIONED. IT IS A REASONABLE ASSUMPTION THAT OTHER LARGE BUSINESS CONCERNS HONORED THE RESTRICTION IN THE INVITATION LIMITING BIDS TO SMALL- BUSINESS CONCERNS AND DID NOT SUBMIT BIDS. TO THE EXTENT THAT SUCH OTHER LARGE CONCERNS COULD ALSO HAVE QUALIFIED AS SMALL BUSINESSES UNDER THE AMENDMENT OF FEBRUARY 18 TO THE SMALL BUSINESS SIZE STANDARDS, AN AWARD OF A CONTRACT AT THIS LATE DATE TO A BIDDER WHO DID NOT HONOR THE RESTRICTION WOULD PREJUDICE THOSE BIDDERS. IN FAIRNESS TO THEM, AND IN THE INTEREST OF PRESERVING THE INTEGRITY OF ORDERLY SMALL-BUSINESS PROCUREMENT PROCEDURES, A RULE WHICH WOULD PERMIT AN AWARD OF A CONTRACT TO A BIDDER UNDER THE CIRCUMSTANCES OUTLINED WOULD BE INEQUITABLE.

IN THE PRESENT CASE, UNLIKE THE SITUATION IN B-145236, MARCH 29, 1961, STANDARD STEEL SELF-CERTIFIED IN ITS BID OF AUGUST 16, 1960, THAT IT WAS SMALL BUSINESS AND, ALSO, THAT IT HAD NOT PREVIOUSLY BEEN DENIED A SMALL BUSINESS CERTIFICATE BY THE SMALL BUSINESS ADMINISTRATION. IMPLICIT IN THE REASONING BEHIND THE DECISION OF MARCH 29, 1961, HOWEVER, IS THE IDEA THAT THE SELF-CERTIFICATION PROCEDURE, IF IT IS TO WORK EFFICIENTLY, MUST BE UTILIZED BY PROSPECTIVE BIDDERS PRUDENTLY.

THE RECORD SHOWS THAT AS EARLY AS JULY 7, 1960, STANDARD KNEW THAT ITS SIZE STATUS WAS SUBJECT TO QUESTION. SEE THE COVER LETTER SIGNED BY MR. HARL S. DAY TO THE SMALL BUSINESS ADMINISTRATION, DATED JULY 7, 1960, IN WHICH HE ENCLOSED THE COMPLETED SBA FORM 355 REQUESTED BY SBA AND IN WHICH IT IS STATED " YOU HAVE CONSISTENTLY RAISED THE QUESTION OF AFFILIATION * * *.' FURTHERMORE, THE ADMINISTRATIVE REPORT FROM SBA MAKES THE UNEQUIVOCAL STATEMENT THAT " ON AUGUST 12, 1960, THE KANSAS CITY OFFICE ADVISED MR. HARL S. DAY, PRESIDENT OF STANDARD, BY TELEPHONE, OF (THE) DECISION" THAT STANDARD COULD NOT BE CLASSIFIED AS A SMALL BUSINESS CONCERN BECAUSE IT WAS AFFILIATED WITH OTHER CONCERNS BY VIRTUE OF STOCK OWNERSHIP. WE UNDERSTAND THAT THERE IS A NOTE IN SBA'S KANSAS CITY OFFICE, CONTEMPORANEOUSLY DATED, WHICH EVIDENCES THE FACT THAT MR. DAY WAS INFORMED BY TELEPHONE OF SBA'S DETERMINATION ON AUGUST 12, 1960. THE ATTORNEY FOR STANDARD STATES THAT, ALTHOUGH MR. DAY "PROBABLY DID HAVE A TELEPHONE CONVERSATION" WITH MR. WOODWARD, AN OFFICIAL OF SBA, ON AUGUST 12, 1960, MR. DAY UNEQUIVOCALLY STATES THAT MR. WOODWARD DID NOT ADVISE HIM OF A DETERMINATION HAVING BEEN MADE THAT STANDARD WAS AFFILIATED WITH RESERVE AND WAS THEREFORE A BIG BUSINESS. THIS CREATES A DISPUTED QUESTION OF FACT. WE HAVE CONSISTENTLY HELD IN SUCH CASES THAT IN THE ABSENCE OF EVIDENCE SUFFICIENTLY CONVINCING TO OVERCOME THE PRESUMPTION OF THE CORRECTNESS OF THE ADMINISTRATIVE REPORT, THIS OFFICE WILL ACCEPT THE ADMINISTRATIVE REPORT AS ACCURATELY REFLECTING THE DISPUTED FACTS. COMP. GEN. 568. ON THE BASIS OF THE RECORD BEFORE US WE FEEL THE PRESUMPTION IN FAVOR OF THE ADMINISTRATIVE REPORT HAS NOT BEEN OVERCOME. WHILE IT MAY BE THAT THE INFORMAL TELEPHONE NOTIFICATION AS TO STANDARD'S SIZE COULD NOT BE CONSIDERED SUFFICIENT TO CONSTITUTE A LEGAL DETERMINATION THAT STANDARD STEEL WAS, IN FACT, NOT SMALL BUSINESS, THE TELEPHONE COMMUNICATION WAS CERTAINLY SUFFICIENT TO PUT STANDARD ON NOTICE OF THE FACT THAT THE SMALL BUSINESS ADMINISTRATION DID NOT FEEL STANDARD WAS A SMALL BUSINESS CONCERN. IN VIEW OF THIS, IT IS DIFFICULT FOR THIS OFFICE TO UNDERSTAND HOW A REASONABLY PRUDENT BIDDER COULD, WITHOUT FIRST MAKING A FORMAL APPLICATION FOR A SMALL BUSINESS CERTIFICATE, SELF-CERTIFY HIMSELF AS A SMALL BUSINESS. IT WOULD APPEAR THAT SUFFICIENT TIME WAS AVAILABLE FOR THIS PURPOSE; ESPECIALLY IS THIS TRUE IF IT CAN BE CONCLUDED, WHICH WE FEEL IS WARRANTED, THAT STANDARD WAS AWARE AS EARLY AS JULY 7 THAT ITS SIZE STATUS WAS IN QUESTION. BUT EVEN IF THE JULY 7 DATE IS NOT THE PROPER ONE AT WHICH TO FIX THE TIME OF NOTICE, IT WOULD APPEAR THAT AT LEAST BY AUGUST 12, WHEN NOTICE WAS GIVEN BY TELEPHONE, STANDARD WAS CERTAINLY AWARE OF SBA'S VIEW AS TO ITS SIZE. WE DO NOT FEEL THAT A BIDDER WHO SUBMITS A BID UNDER THE CIRCUMSTANCES OUTLINED SHOULD BE ALLOWED TO HAVE HIS BID CONSIDERED ELIGIBLE FOR AWARD.

ASIDE FROM THIS, AND TURNING TO THE SECOND QUESTION CONCERNING THE EFFECT TO BE GIVEN THE LATEST DETERMINATION BY SBA, INSOFAR AS IS DISCLOSED BY THE RECORD BEFORE OUR OFFICE THIS LATEST DETERMINATION BY SBA ON JUNE 22, 1961, THAT STANDARD WAS NOT A SMALL BUSINESS CONCERN WAS BASED ON THE SAME FACTS AVAILABLE TO IT WHEN ITS DETERMINATION TO THE CONTRARY WAS MADE ON NOVEMBER 30, 1960. ALTHOUGH NO SPECIFIC STATEMENT HAS BEEN MADE THAT THE LATTER DETERMINATION THAT STANDARD WAS NOT A SMALL BUSINESS CONCERN FOR PURPOSES OF GOVERNMENT PROCUREMENT WAS RETROACTIVE IN ITS APPLICATION, THE EFFECT OF THE DETERMINATION BASED, AS IT WAS, ON THE SAME CIRCUMSTANCES THAT PREVIOUSLY EXISTED, IS THAT STANDARD WAS NOT SMALL BUSINESS WHEN THE CONTRACT WAS AWARDED AND WAS NOT SMALL BUSINESS ON JUNE 22, 1961. ORDINARILY OUR OFFICE HAS 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. SEE B-143630, OCTOBER 13, 1960. WE DO NOT FEEL, HOWEVER, THAT THIS GENERAL RULE PROPERLY SHOULD BE APPLIED TO PERMIT A LARGE BUSINESS BIDDER TO CERTIFY HIMSELF AS SMALL BUSINESS AND THEN TAKE AFFIRMATIVE ACTION AFTER OPENING OF BIDS AND BEFORE AWARD FOR THE SOLE PURPOSE OF MEETING THE CRITERIA ESTABLISHED FOR SMALL BUSINESS, THUS QUALIFYING HIS BID FOR CONSIDERATION. CF. B-145236, MARCH 29, 1961. ANY OTHER VIEW WOULD RESULT IN PLACING A LOW BIDDER OTHERWISE RESPONSIVE TO THE INVITATION IN THE POSITION OF HAVING A SECOND CHANCE AT THE AWARD AND WOULD GIVE THAT BIDDER AN UNDUE ADVANTAGE OVER OTHER BIDDERS. THIS, IN OUR OPINION, WOULD BE DESTRUCTIVE OF THE COMPETITIVE BIDDING PROCESS, EVEN THOUGH IT MAY BE LIMITED, AS IN THIS CASE, TO SMALL BUSINESS CONCERNS. IT SEEMS CLEAR ALSO THAT TO PERMIT SUCH A PRACTICE WOULD RESULT IN CIRCUMVENTION OF THE SMALL BUSINESS SET-ASIDE PROGRAM WHICH HAS AS ONE OF ITS STATUTORY PURPOSES THE REQUIREMENT THAT A FAIR PROPORTION OF GOVERNMENT CONTRACTS BE PLACED WITH SMALL BUSINESS CONCERNS. IN THE INSTANT CASE IT APPEARS FROM THE ABOVE QUOTED CORRESPONDENCE--- AND THE DETERMINATION OF JUNE 22, 1961, BY SBA SO STATES--- THAT THE CHANGE IN THE STOCK ALIGNMENT WAS FOR THE SOLE PURPOSE OF QUALIFYING STANDARD'S BID FOR CONSIDERATION.

IN VIEW OF THE FOREGOING, WE MUST CONCLUDE THAT THE AWARD TO STANDARD SHOULD BE CANCELED. IN VIEW OF THE FACT, HOWEVER, THAT THE CONTRACTOR HAS PROCEEDED WITH THE CONTRACT WORK, THE FIRST INSTALLMENT DELIVERY OF 10 DISTRIBUTORS SCHEDULED FOR DELIVERY ON SEPTEMBER 11, 1961, AS WELL AS THE TWO PROTOTYPES MANUFACTURED BY THE CONTRACTOR, MAY BE ACCEPTED AND PAID FOR ON A QUANTUM VALEBAT BASIS. THE CONTRACT PRICE FOR SUCH DISTRIBUTORS MAY BE REGARDED AS THE AMOUNT TO BE SO PAID.