B-143208, JUNE 29, 1960, 39 COMP. GEN. 895

B-143208, JUNE 29, 1960, 39 COMP. GEN. 895

BIDDERS - QUALIFICATIONS - FINANCIAL RESPONSIBILITY AN ADMINISTRATIVE DETERMINATION THAT A LOW BIDDER, WHO WAS DENIED A SMALL BUSINESS CERTIFICATE OF COMPETENCY, DID NOT HAVE THE NECESSARY FINANCIAL CAPABILITY TO SATISFACTORILY PERFORM THE CONTRACT, WHICH DETERMINATION FOLLOWED A CAPABILITY SURVEY COMMITTEE REPORT AND A REEVALUATION OF THE FINANCIAL STATUS OF THE BIDDER AFTER A PRESENTATION OF EVIDENCE OF A BANK CREDIT, IS PROPER IN VIEW OF THE PROVISIONS OF THE INVITATION WHICH PUT BIDDERS ON NOTICE THAT THEY HAD THE BURDEN OF PROVIDING ADEQUATE FINANCING TO ASSURE SUCCESSFUL COMPLETION OF THE CONTRACT AND THAT THE BID PRICES WOULD BE EVALUATED IN CONJUNCTION WITH INFORMATION ON THE BIDDER'S FINANCIAL POSITION TO PROVIDE REASONABLE ASSURANCE THAT THE BIDDER COULD COMPLETE THE CONTRACT UPON PAYMENT OF THE AMOUNT BID. UNDER AN INVITATION WHICH IMPOSED UPON ALL BIDDERS THE RESPONSIBILITY FOR PROVIDING ADEQUATE FINANCES AT THE TIME OF A CAPABILITY COMMITTEE SURVEY, THE MATTER OF WHETHER THE LOW BIDDER, WHO WAS DETERMINED TO LACK THE NECESSARY FINANCIAL CAPABILITY TO SATISFACTORILY PERFORM AND WHO WAS DENIED A SMALL BUSINESS CERTIFICATE, SHOULD HAVE BEEN AFFORDED INFORMATION CONCERNING THE ADDITIONAL FINANCIAL ABILITY REQUIRED TO CORRECT THE DEFICIENCIES IS WITHIN THE SOUND DISCRETION OF THE CONTRACTING OFFICER IN VIEW OF THE RECORD WHICH SHOWS THAT ADDITIONAL CONSIDERATION WAS GIVEN BY THE SMALL BUSINESS ADMINISTRATION AFTER THE LOW BIDDER ACQUIRED A BANK CREDIT AND BY THE PROCUREMENT AGENCY AFTER DENIAL OF THE CERTIFICATE.

TO LEAR AND SCOUT, JUNE 29, 1960:

REFERENCE IS MADE TO YOUR TELEGRAM DATED JUNE 14, 1960, AND SUBSEQUENT CORRESPONDENCE, WRITTEN IN BEHALF OF AIRLINE TRANSPORT CARRIERS, INC., D/B/A) CALIFORNIA-1HAWAIIAN AIRLINES, AND PROTESTING AGAINST THE ACTION OF THE AIR FORCE IN REJECTING THE BID SUBMITTED BY THAT COMPANY UNDER IFB 11- 626-60-8.

THIS INVITATION WAS ISSUED BY THE MILITARY AIR TRANSPORTATION SERVICE AND REQUESTS BIDS ON FURNISHING AND OPERATING CARGO CONFIGURATED AIRCRAFT TO PROVIDE SPECIFIED AIR TRANSPORTATION SERVICES FOR THE DEPARTMENT OF THE NAVY. THE RECORD SHOWS THAT THE BID SUBMITTED BY CALIFORNIA-1HAWAIIAN AIRLINES IN THE AMOUNT OF $4,782,511.37 WAS SECOND LOW. HOWEVER, THE AIR FORCE REJECTED THE LOW BID AS NONRESPONSIVE AND THEREFORE ENTERED INTO A CAPABILITY SURVEY OF CALIFORNIA-HAWAIIAN AS THE LOWEST RESPONSIVE BIDDER.

UNDER THE PROVISIONS OF PARAGRAPH 21 OF THE TERMS AND CONDITIONS OF THE INVITATION EACH BIDDER WAS REQUIRED TO SUBMIT WITH HIS BID THREE COPIES OF THE MOST RECENT FINANCIAL STATEMENT PREPARED FROM HIS OWN RECORDS AND SIGNED BY AN OFFICER OF THE FIRM, TOGETHER WITH ANY ADDITIONAL INFORMATION RELEVANT TO AN EVALUATION OF ITS CURRENT FINANCIAL ABILITY TO PERFORM IN ACCORDANCE WITH ITS BID. IN ADDITION, PARAGRAPH 18 PROVIDED AS FOLLOWS:

18. FINANCIAL AND TECHNICAL ABILITY--- BIDDERS ARE CAUTIONED TO SUBMIT WITH THEIR BIDS FULL INFORMATION CONCERNING THE FINANCIAL ABILITY OF THE BIDDER TO PERFORM AND THE ARRANGEMENTS MADE BY THE BIDDER TO ASSURE THAT AIRCRAFT MEETING THE GOVERNMENT'S REQUIREMENTS WILL BE AVAILABLE TO BIDDER FOR USE ON ANY RESULTING CONTRACT. IF, ON THE BASIS OF THIS INFORMATION, THE BID OR PROPOSAL SUBMITTED IN RESPONSE TO THIS INVITATION IS FAVORABLY CONSIDERED, A SURVEY TEAM MAY CONTACT BIDDER'S FACILITY FOR THE PURPOSE OF DETERMINING BIDDER'S TECHNICAL AND FINANCIAL ABILITY TO PERFORM. DATA PERTINENT TO THIS PURPOSE SHOULD BE AVAILABLE AT THE TIME, IF NOT ALREADY ON FILE WITH HEADQUARTERS, MILITARY AIR TRANSPORT SERVICE. THE TEAM WILL ALSO EVALUATE BIDDERS SYSTEM FOR DETERMINING THE FINANCIAL AND TECHNICAL ABILITY OF BIDDER'S PROPOSED SUB-CONTRACT OR PROCUREMENT SOURCES TO PERFORM. BIDDER WILL BE REQUIRED TO FURNISH EVIDENCE OF ITS ABILITY TO ASSURE THAT THE TYPES AND QUANTITIES OF AIRCRAFT REQUIRED TO PERFORM IN ACCORDANCE WITH ITS BID WILL BE AVAILABLE TO IT IN AN ACCEPTABLE CONFIGURATION IN SUFFICIENT TIME TO COMMENCE PERFORMANCE. THE ADEQUACY OF BIDDER'S ARRANGEMENTS TO ASSURE THAT IT WILL BE ABLE TO PERFORM ANY RESULTING CONTRACT WILL BE CONSIDERED BY THE CONTRACTING OFFICER IN DETERMINING THE RESPONSIBILITY OF THE BIDDER FOR PURPOSES OF AWARD. ADDITION, BIDDER MUST PROVIDE TO THE SURVEY TEAM SATISFACTORY EVIDENCE THAT IT WILL BE CURRENTLY AUTHORIZED BY THE FEDERAL AERONAUTICS AUTHORITY TO OPERATE IN TRANSPORTATION SERVICES THE TYPE OF AIRCRAFT (E.G. DC-6, L- 1049) SPECIFIED IN ITS BID. ONLY BIDDERS SO AUTHORIZED WILL BE CONSIDERED FOR AWARD. EXAMPLES OF OTHER TYPES OF TECHNICAL, FINANCIAL AND CAPABILITY MATTERS THE SURVEY TEAM VISITING BIDDER'S FACILITY WILL EVALUATE ARE GIVEN BELOW:

(A) PAST EXPERIENCE

(B) FINANCIAL STRENGTH

(C) ACCOUNTING SYSTEM

(D) FACILITIES

(E) ABILITY TO MEET THE REQUIRED SCHEDULE

(F) SUBCONTRACTING

(G) QUALITY CONTROL

(H) MANPOWER AVAILABILITY AND LABOR RELATIONS

(I) MANAGEMENT CONTROLS

(J) ANY OTHER AREAS PERTINENT TO THE BID

THE RECORDS OF THE AIR FORCE SHOW THAT THE MATS CAPABILITY SURVEY COMMITTEE SURVEYED CALIFORNIA-1HAWAIIAN ON MAY 26 AND 27, 1960, AND ON MAY 28 A DETERMINATION WAS MADE THAT CALIFORNIA-1HAWAIIAN WAS NOT CONSIDERED CAPABLE OF PERFORMING THE SERVICES REQUIRED UNDER THE INVITATION "DUE TO THE CARRIER'S APPARENT FINANCIAL INSTABILITY AT THE TIME OF SURVEY.' THIS CONCLUSION APPEARS TO HAVE BEEN BASED PRIMARILY UPON THREE FACTORS. FIRST, THAT THE NET WORTH OF THE COMPANY WAS ONLY $66,056, WHILE ITS TOTAL BID PRICE WAS $4,782,511.37. SECOND, THAT THE COMPANY HAD SUSTAINED A LOSS OF $22,832 ON OPERATIONS THROUGH MARCH 1960 AND, THIRD, THAT WHILE THE COMPANY HAD ADVISED IT WAS NEGOTIATING A LOAN OF $300,000, WHICH SHOULD BE AVAILABLE BY JUNE 3, THE COMPANY'S FINANCIAL CAPABILITY TO PERFORM THE CONTRACT WOULD BE MARGINAL EVEN WITH THE ADDITION OF SUCH AMOUNT. THE CONTRACTING OFFICER FURNISHED THIS INFORMATION TO THE REGIONAL SMALL BUSINESS ADMINISTRATION OFFICE ON MAY 28 WITH ADVICE THAT AWARD WOULD BE WITHHELD PENDING DETERMINATION BY THAT OFFICE AS TO WHETHER A CERTIFICATE OF COMPETENCY WOULD BE ISSUED TO CALIFORNIA-1HAWAIIAN.

WHILE IT APPEARS THAT THE COMPANY EFFECTED A LOAN OF $300,000 ON JUNE 2, THE REGIONAL SMALL BUSINESS OFFICE DENIED THE COMPANY A CERTIFICATE OF COMPETENCY ON JUNE 9, AND SUCH ACTION WAS UPHELD BY THE SMALL BUSINESS ADMINISTRATOR ON JUNE 14.

ON THE SAME DATE, AND APPARENTLY AS A RESULT OF THE FINAL DENIAL OF A CERTIFICATE OF COMPETENCY, YOU FILED A FORMAL PROTEST ON BEHALF OF CALIFORNIA-1HAWAIIAN WITH THIS OFFICE AND WITH THE AIR FORCE AGAINST AN AWARD TO ANY OTHER COMPANY. THIS PROTEST IS BASED UPON THE UNDERSTANDING AND AFFIRMATION OF MR. C. C. SHERMAN, THE PRESIDENT OF CALIFORNIA- HAWAIIAN, THAT DURING HIS DISCUSSIONS WITH THE SURVEY TEAM ON MAY 27 HE WAS ADVISED BY CAPTAIN R. E. HENNESSEY, THE TEAM'S FINANCIAL ADVISOR, THAT HIS RECOMMENDATION WOULD BE THAT $250,000 ON DEPOSIT IN THE COMPANY'S BANK WOULD BE ADEQUATE TO START PERFORMING THE CONTRACT, AND UPON THE FURTHER UNDERSTANDING OF MR. SHERMAN THAT HE WAS ADVISED BY THE SURVEY TEAM TO HAVE THE COMPANY'S BANK ADVISE HEADQUARTERS, MATS ON OR BEFORE JUNE 3 IF CREDIT IN THAT AMOUNT HAD BEEN ESTABLISHED. SINCE THE COMPANY'S BANK NOTIFIED MATS OF A $300,000 CREDIT ON JUNE 2, THIS PORTION OF YOUR PROTEST WOULD APPEAR TO BE BASED UPON A CONTENTION THAT SUCH ACTION ESTABLISHED THE COMPANY'S FINANCIAL RESPONSIBILITY AND PRECLUDES REJECTION OF ITS BID ON THAT GROUND.

THE AVAILABLE RECORDS OF THE AIR FORCE CONTAIN A STATEMENT BY LIEUTENANT COLONEL HARRY A. WAGNER, THE SURVEY TEAM CHIEF, THAT THE INITIAL EVALUATION INDICATED THAT THE CARRIER WOULD NEED A MINIMUM OF $300,000 FOR WORKING CAPITAL TO BEGIN OPERATION AND, WHILE THIS INFORMATION WAS MADE KNOWN TO THE SURVEY TEAM AND TO OBSERVERS FROM SBA AND LAAPD AND APPARENTLY BECAME KNOWN TO MR. SHERMAN, AT NO TIME WAS ANY STATEMENT OR INDICATION MADE TO MR. SHERMAN OR OTHER PERSONNEL OF CALIFORNIA-1HAWAIIAN THAT IT WOULD BE AWARDED THE CONTRACT IF $300,000 WAS INJECTED INTO THE COMPANY. ADDITIONALLY, THE RECORD CONTAINS A DENIAL BY CAPTAIN HENNESSEY OF THE STATEMENT ATTRIBUTED TO HIM BY MR. SHERMAN, AND SUCH DENIAL APPEARS TO BE SUBSTANTIATED BY A TELEGRAPHIC REPORT DATED MAY 27 FROM THE SURVEY TEAM TO HQ. MATS, A PORTION OF WHICH IS SIGNED BY CAPTAIN HENNESSEY AND STATES THAT "EVEN WITH THE ADDITIONAL $300,000 CARRIER'S FINANCIAL CAPABILITY WOULD BE MARGINAL.' IN VIEW OF THE FACT THAT ANY STATEMENTS OF THE NATURE ATTRIBUTED BY MR. SHERMAN TO CAPTAIN HENNESSEY OR SIMILAR STATEMENTS BY COLONEL WAGNER WOULD NOT OPERATE TO BIND OR ESTOP THE SURVEY COMMITTEE OR THE AIR FORCE, AND IN VIEW OF SUBSEQUENT DEVELOPMENTS TO BE DISCUSSED IN CONSIDERING THE SECOND PORTION OF YOUR PROTEST, IT WOULD APPEAR THAT ANY FURTHER DISCUSSION OR INVESTIGATION OF THE ACCURACY OF MR. SHERMAN'S ALLEGATIONS WOULD SERVE NO USEFUL PURPOSE.

FOLLOWING YOUR PROTEST ON JUNE 14, THE FINANCIAL CAPABILITY OF CALIFORNIA -1HAWAIIAN WAS REEVALUATED BY THE AIR FORCE WITH FULL CONSIDERATION BEING GIVEN TO THE $300,000 LOAN CONSUMMATED BY THE COMPANY ON JUNE 2 AND TO A SUBSEQUENT CONSENT BY THE LENDER TO SUBORDINATE THE LOAN FOR THE DURATION OF THE CONTRACT. THIS REEVALUATION INCLUDED A REVIEW OF THE WORKING CAPITAL POSITION OF THE COMPANY, WHICH SHOWED A DEFICIT OF $62,879 AS OF MARCH 31, 1960, AND OF THE "START-UP" AND OPERATING COSTS USED IN COMPUTING THE COMPANY'S BID PRICE. AS A RESULT THE CASH FLOW SCHEDULE SUBMITTED BY THE CONTRACTOR WAS ADJUSTED TO REFLECT INCREASES OF $90,000 FOR A TOTAL OF $273,000 IN INITIAL CASH OUTLAY, AND OF $456,105 IN OPERATING EXPENSES. IT WAS, THEREFORE, CONCLUDED BY THE AIR FORCE THAT ONLY $27,000 OF THE $300,000 LOAN WOULD REMAIN TO BEGIN OPERATION AS OF JULY 1 AND THAT THE CASH FLOW INDICATED THERE WOULD BE A CASH DEFICIT OF $162,696 AT THE END OF THE CONTRACT WHICH, WHEN ADDED TO THE INITIAL $27,000 CASH DEPLETION, WOULD INDICATE A TOTAL LOSS TO THE COMPANY OF $189,696 IF THE CONTRACT WERE TO BE COMPLETED.

THE AIR FORCE RECORDS FURTHER SHOW THAT CONSIDERATION, IN DETERMINING THE FINANCIAL CAPABILITY OF THE COMPANY TO PERFORM THE CONTRACT, WAS GIVEN TO ADVICE FROM RESPONSIBLE PERSONNEL OF THE NAVY DEPARTMENT RELATIVE TO THE IMPORTANCE OF UNINTERRUPTED PERFORMANCE OF THE CONTRACT AND THE NECESSITY FOR OBTAINING A CONTRACTOR WHOSE ABILITY TO PERFORM WAS BEYOND QUESTION.

BASED UPON THE ABOVE, ON JUNE 24 THE PROCUREMENT POLICY DIVISION OF THE AIR FORCE CONCLUDED THAT THE COMPANY COULD NOT BE CONSIDERED CAPABLE OF PERFORMING THE CONTRACT AND THAT, IN VIEW OF THE EXTREMELY MARGINAL FINANCIAL CONDITION OF CALIFORNIA-1HAWAIIAN AS A COMPANY, THE ESTIMATED FINANCIAL LOSS IF AWARDED THE CONTRACT AT ITS BID PRICE, THE DEFINITE UNCERTAINTY OF CERTAIN COST ARRANGEMENT STATEMENTS MADE BY THE COMPANY, AND ITS PRIOR FINANCIAL HISTORY, AN AWARD TO THE COMPANY WOULD PLACE THE OPERATIONAL REQUIREMENTS OF THE NAVY IN JEOPARDY.

THE SECOND PORTION OF YOUR PROTEST, WHICH WAS SUBMITTED UNDER DATE OF JUNE 23, IS DIRECTED TO THIS REEVALUATION. FROM THE INFORMATION IN THIS LETTER AND FROM DISCUSSIONS WITH REPRESENTATIVES OF THIS OFFICE, WE UNDERSTAND IT TO BE YOUR POSITION THAT THE PORTION OF THE REEVALUATION WHICH WAS DIRECTED TO DETERMINING WHETHER CALIFORNIA 1HAWAIIAN COULD BE EXPECTED TO MAKE, OR LOSE, MONEY IN PERFORMING THE CONTRACT WAS IMPROPER, OR, IN THE EVENT SUCH PROCEDURE WAS PROPER, IT WAS INCUMBENT UPON THE AIR FORCE TO ADVISE THE COMPANY OF THE AMOUNT OF ADDITIONAL WORKING CAPITAL WHICH WOULD BE REQUIRED BEFORE THE COMPANY WOULD BE CONSIDERED FINANCIALLY CAPABLE OF PERFORMING THE CONTRACT AND TO AFFORD THE COMPANY AN OPPORTUNITY TO RAISE SUCH ADDITIONAL CAPITAL BEFORE FINAL REJECTION OF ITS BID.

WE ARE UNABLE TO AGREE WITH THESE CONTENTIONS. AS INDICATED ABOVE, PARAGRAPH 21 OF THE TERMS AND CONDITIONS OF THE INVITATION FOR BIDS REQUIRED BIDDERS TO SUBMIT WITH THEIR BIDS ALL INFORMATION RELEVANT TO EVALUATION OF THEIR CURRENT FINANCIAL ABILITY TO PERFORM IN ACCORDANCE WITH THEIR BIDS. ADDITIONALLY, PARAGRAPH 18 CAUTIONED BIDDERS TO HAVE ANY DATA PERTINENT TO FINANCIAL ABILITY TO PERFORM, WHICH WAS NOT ALREADY ON FILE AT MATS HEADQUARTERS, AVAILABLE AT THE TIME THE BIDDER'S FACILITY WAS VISITED BY A CAPABILITY SURVEY TEAM. THE SAME PARAGRAPH GAVE NOTICE THAT ,THE ADEQUACY OF BIDDER'S ARRANGEMENTS TO ASSURE THAT IT WILL BE ABLE TO PERFORM ANY RESULTING CONTRACT WILL BE CONSIDERED BY THE CONTRACTING OFFICER IN DETERMINING THE RESPONSIBILITY OF THE BIDDER FOR PURPOSES OF AWARD.'

IT IS OUR OPINION THAT THESE PROVISIONS OF THE INVITATION PROVIDED ADEQUATE NOTICE TO ALL BIDDERS THAT THE BURDEN OF PROVIDING ADEQUATE FINANCING TO ASSURE SUCCESSFUL COMPLETION OF THE CONTRACT WAS PLACED UPON THE BIDDER, AND THAT BID PRICES WOULD BE EVALUATED IN CONJUNCTION WITH INFORMATION ON AVAILABLE FINANCES FOR THE PURPOSE OF DETERMINING THAT A BIDDER'S FINANCIAL POSITION WOULD PROVIDE REASONABLE ASSURANCE THAT THE BIDDER COULD COMPLETE THE CONTRACT UPON PAYMENT OF THE AMOUNT BID. BOTH THE INITIAL EVALUATION BY THE AIR FORCE PRIOR TO THE SUBMISSION BY CALIFORNIA-1HAWAIIAN OF EVIDENCE OF A $300,000 CREDIT AND THE REEVALUATION SUBSEQUENT TO SUCH SUBMISSION APPEAR TO HAVE BEEN DIRECTED TO SUCH DETERMINATION.

DECISIONS WITH RESPECT TO THE FINANCIAL CAPACITY OF A BIDDER TO PERFORM A CONTRACT IN PROCUREMENTS OF THIS NATURE ARE PRIMARILY WITHIN THE PROVINCE OF THE CONTRACTING AGENCY AND THE SMALL BUSINESS ADMINISTRATION. HOWEVER, FROM OUR REVIEW OF THE RECORD IN THIS CASE WE SEE NO VALID REASON FOR DISAGREEING WITH THE CONCLUSIONS OF THE AIR FORCE ON THE FINANCIAL CAPABILITY OF CALIFORNIA-1HAWAIIAN TO PERFORM THE CONTRACT. SINCE THE VALIDITY OF SUCH CONCLUSIONS WOULD APPEAR TO BE FURTHER SUBSTANTIATED BY THE DENIAL OF A CERTIFICATE OF COMPETENCY BY THE SMALL BUSINESS ADMINISTRATION, THAT PORTION OF YOUR PROTEST WHICH QUESTIONS THE PROPRIETY OF THE EVALUATION PROCEDURES FOLLOWED BY THE AIR FORCE MUST BE DENIED.

CONCERNING YOUR CONTENTION THAT IT IS INCUMBENT UPON THE AIR FORCE TO ADVISE CALIFORNIA-1HAWAIIAN OF THE ADDITIONAL AMOUNT OF WORKING CAPITAL WHICH WOULD BE NECESSARY TO SUPPORT A DETERMINATION OF FINANCIAL CAPABILITY TO PERFORM THE CONTRACT, THE INVITATION IMPOSED UPON ALL BIDDERS THE RESPONSIBILITY FOR PROVING ADEQUATE FINANCES AT THE TIME OF INITIAL SURVEY. WHILE WE ARE IN AGREEMENT WITH THE PROPRIETY IN THIS CASE OF THE ADDITIONAL CONSIDERATION GIVEN BY THE SMALL BUSINESS ADMINISTRATION TO THE AFTER-ACQUIRED CREDIT OF $300,000, AND TO THE ADDITIONAL CONSIDERATION GIVEN BY THE AIR FORCE FOLLOWING DENIAL OF A CERTIFICATE OF COMPETENCY BY THE SMALL BUSINESS ADMINISTRATION, WHETHER ANY FURTHER OPPORTUNITY SHOULD BE AFFORDED THE LOW BIDDER AT THIS TIME TO CORRECT FINANCIAL DEFICIENCIES MUST, IN THE ABSENCE OF CLEAR AND CONVINCING EVIDENCE OF ERROR, BE LEFT TO THE SOUND DISCRETION OF THE CONTRACTING AGENCY. UNDER THE CIRCUMSTANCES IN THIS CASE WE ARE UNABLE TO SAY THAT THE FAILURE OR REFUSAL BY THE AIR FORCE TO ADVISE THE COMPANY OF THE EXTENT TO WHICH ITS FINANCES ARE DEFICIENT OR TO PERMIT THE COMPANY ADDITIONAL TIME AND OPPORTUNITY TO CORRECT SUCH DEFICIENCY WOULD CONSTITUTE AN ABUSE OF DISCRETION. IN THE ABSENCE OF SUCH ABUSE, THERE WOULD APPEAR TO BE NO SOUND BASIS UPON WHICH THIS OFFICE COULD JUSTIFY THE IMPOSITION OF FURTHER REQUIREMENTS IN THIS AREA ON THE AIR FORCE.