B-125183, MAR. 1, 1956

B-125183, MAR. 1, 1956

TO IDEAL UNIFORM CAP COMPANY:

REFERENCE IS MADE TO YOUR TELEGRAM OF AUGUST 15, 1955, AND SUBSEQUENT CORRESPONDENCE RELATIVE TO YOUR PROTEST AGAINST THE ACTION OF THE DEPARTMENT OF THE NAVY IN DEBARRING YOUR FIRM FROM GOVERNMENT CONTRACTS FOR A PERIOD ENDING JUNE 30, 1956.

IN RESPONSE TO OUR REQUEST, THE DEPARTMENT OF THE NAVY FURNISHED A REPORT ON AUGUST 30, 1955, WHICH RECOGNIZED THAT YOU WERE THE LOW BIDDER ON MARINE CORPS INVITATION FOR BIDS NO. 1196C BUT STATED, IN PERTINENT PART, AS FOLLOWS:

"THE LOW BIDDER IN RESPONSE TO MARINE CORPS INVITATION FOR BIDS NO. 1196C WAS SOL. O. SCHLESINGER, DOING BUSINESS AS IDEAL UNIFORM CAP COMPANY, FREEPORT, NEW YORK, BUT THAT BID WAS REJECTED SINCE THE COMPANY IS ON THE CONSOLIDATED LIST OF DEBARRED, INELIGIBLE AND SUSPENDED CONTRACTORS. * *

"PURSUANT TO SECTION 1, PART 6 OF THE ARMED SERVICES PROCUREMENT REGULATION, EACH MILITARY DEPARTMENT IS AUTHORIZED TO ESTABLISH AND MAINTAIN A CONSOLIDATED LIST OF FIRMS AND INDIVIDUALS TO WHOM CONTRACTS WILL NOT BE AWARDED AND FROM WHOM BIDS OR PROPOSALS WILL NOT BE SOLICITED. AMONG THE CAUSES FOR DEBARMENT IS A HISTORY OF FAILURE TO PERFORM OR OF UNSATISFACTORY PERFORMANCE IN ACCORDANCE WITH THE TERMS OF ONE OR MORE CONTRACTS. MR. SCHLESINGER AND HIS COMPANY COULD HAVE BEEN DEBARRED UNDER THAT CATEGORY ALONE AND INDEED THAT WAS ONE OF THE REASONS WHICH LED TO THE DEBARMENT. ANOTHER REASON WHICH I, AS SECRETARY, ADOPTED PURSUANT TO PARAGRAPH 1-109 OF ASPR ENTITLED "DEVIATIONS FROM THIS REGULATION * * *," WAS MY BELIEF THAT A SUPPLIER WHO REFUSED TO COMPLY WITH A REQUEST FOR DATA BY A SENATE COMMITTEE MAKING A STUDY OF FRAUD IN PROCUREMENT WAS NOT A FIT AND RESPONSIBLE SOURCE OF SUPPLY.'

ATTACHED TO THE LETTER WAS ONE COPY EACH OF THE DEPARTMENT'S "MEMORANDUM OF DEBARMENT," DATED JULY 14, 1955, AND ITS LETTER OF AUGUST 10, NOTIFYING YOU OF THE DEBARMENT ACTION. THE REASONS FOR THE ACTION WERE STATED IN THE NOTIFICATION OF AUGUST 10 AS FOLLOWS:

"* * * FIRST, YOUR REFUSAL TO ANSWER QUESTIONS AND TO MAKE YOUR BOOKS AND RECORDS AVAILABLE TO THE INVESTIGATIONS SUBCOMMITTEE OF THE PERMANENT COMMITTEE ON GOVERNMENT OPERATIONS OF THE U.S. SENATE HAS THROWN DOUBT ON YOUR RIGHT TO CONTINUE TO BE ELIGIBLE FOR NAVY CONTRACTS. YOU HAVE PLEADED THE FIFTH AMENDMENT IN CONNECTION WITH AN INCOME TAX INVESTIGATION RELATING TO THE PROFITS FROM A BUSINESS, SOME 85 PERCENT OF WHICH COMES FROM THE GOVERNMENT. AT THE VERY LEAST, THESE FACTS CREATE DOUBT AS TO WHETHER YOU HAVE PAID ALL THE TAXES DUE ON THE PROFITS WHICH YOU HAVE RECEIVED FROM GOVERNMENT BUSINESS, AND UNTIL THESE DOUBTS ARE RESOLVED, I CANNOT, IN GOOD CONSCIENCE, AS TRUSTEE OF THE TAXPAYERS' MONEYS AND TO PREVENT THEIR WASTE, PERMIT FURTHER NAVY CONTRACTS TO GO TO YOU.

"THE SECOND GROUND FOR YOUR DEBARMENT IS THAT YOU ARE IN DEFAULT UNDER CONTRACT N140-62236S-54294B.'

YOU PROTEST THAT THE DEBARMENT ACTION WAS MADE ON GROUNDS NOT TENABLE IN LAW OR FACT AND THAT THE REASONS GIVEN IN THE NOTICE TO YOU ARE NOT PROPER BASIS FOR SUCH ACTION UNDER THE ARMED SERVICES PROCUREMENT REGULATION. SPECIFICALLY, YOUR ATTORNEY URGED IN HIS LETTER OF SEPTEMBER 8, 1955, THAT YOU HAVE NEVER BEEN ACCUSED, INDICTED OR CONVICTED OF ANY CRIME OR WRONGDOING BY ANY BRANCH OF GOVERNMENT; THAT YOU WERE NOT CITED FOR CONTEMPT OF THE SENATE AS A RESULT OF YOUR TESTIMONY; THAT ALL CONTRACTS RECEIVED BY YOUR FIRM FROM THE GOVERNMENT FOR THE PAST THREE YEARS HAVE RESULTED FROM OPEN, COMPETITIVE BIDDING; THAT YOUR PLEADING OF THE FIFTH AMENDMENT BEFORE THE SENATE COMMITTEE WAS TO AVOID MAKING YOUR RECORDS AVAILABLE TO THE INTERNAL REVENUE SERVICE DURING THE COURSE OF ITS INCOME TAX INVESTIGATION AND PROVIDED NO BASIS UNDER THE ARMED SERVICES PROCUREMENT REGULATIONS FOR DEBARMENT; THAT THE LETTER OF DEBARMENT DID NOT IMPLY TO YOU A WILLFUL FAILURE TO DELIVERY PURSUANT TO THE TERMS OF THE CONTRACT (AS PROVIDED BY ASPR 1-604.1/B) (1); AND THAT, IN VIEW OF ASPR 1-604.3 (II), WE SHOULD NOT CONSIDER INSTANCES OF DELINQUENT DELIVERIES UNDER ANY CONTRACTS OTHER THAN CONTRACT NO. N140 62236S-54294B, WHICH WAS CITED AS THE SECOND REASON FOR THE DEBARMENT ACTION. WITH RESPECT TO THE CITED CONTRACT, THE ATTORNEY ADVISED THAT YOU HAD AN APPEAL PENDING BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS FROM THE DETERMINATION OF DEFAULT THEREUNDER ON THE GROUNDS THAT THE FAILURE TO MEET THE DELIVERY SCHEDULE WAS THE FAULT OF THE GOVERNMENT AND THUS BEYOND YOUR CONTROL. IN HIS SUPPLEMENTAL LETTER OF FEBRUARY 8, 1956, YOUR ATTORNEY URGED THAT THE DEPARTMENT'S LETTER OF AUGUST 10, 1955, DID NOT SATISFY THE REQUIREMENTS OF ASPR 1-604.3 IN THAT IT DID NOT CONTAIN ANY STATEMENT AFFORDING YOU AN OPPORTUNITY TO PRESENT INFORMATION IN YOUR BEHALF. HOWEVER, THOUGH HE CONCEDED THAT A NEW NOTICE COULD BE ISSUED WHICH WOULD CORRECT ANY DEFICIENCY AND ASSERT ADDITIONAL BASES FOR THE DEBARMENT ACTION, HE URGED THAT UNTIL THAT IS DONE WE SHOULD CONSIDER ONLY THE GROUNDS STATED IN THE NOTICE TO YOU OF AUGUST 10.

IN THE LIGHT OF THE DETAILED PROTESTATIONS WHICH WERE MADE SUBSEQUENT TO OUR ORIGINAL REQUEST UPON THE SECRETARY OF THE NAVY FOR A REPORT IN THE MATTER, WE REQUESTED A FURTHER REPORT WITH EMPHASIS UPON THE PERTINENT PARTS OF THE APPLICABLE REGULATIONS TO WHICH YOU ADDRESSED YOUR ARGUMENTS, INCLUDING THE REFERENCE TO YOUR LETTER OF SEPTEMBER 26 TO A NAVY MEMORANDUM WHICH STATED THAT THE 50,000 CAP PROCUREMENT UNDER CONTRACT NO. N140-62236S-54294B WAS FOR RESERVE STOCKS AND NOT URGENTLY REQUIRED. ALSO POINTED OUT THAT THE RECORD THEN BEFORE US DISCLOSED NO HISTORICAL PATTERN OF UNSATISFACTORY PERFORMANCE BY YOU NOR PRIOR DEFAULTS.

IN A LETTER DATED JANUARY 3, 1956, THE DEPARTMENT OF THE NAVY REPORTED, IN PERTINENT PARTS, AS FOLLOWS:

"THE CONTRACTOR'S CONDUCT BEFORE A CONGRESSIONAL COMMITTEE: THE COMMITTEE'S VIEWS: THE PARTICULAR MATTER WHICH, SO TO SPEAK, "TRIGGERED" THE ACTION TAKEN BY THE NAVY WAS MR. SCHLESINGER'S TESTIMONY BEFORE THE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS OF THE COMMITTEE ON GOVERNMENT OPERATIONS OF THE UNITED STATES SENATE. YOU MAY RECALL THAT THE PURPOSE OF THE SUBCOMMITTEE WAS TO INQUIRE INTO CHARGES OF GRAFT AND CORRUPTION WHICH MAY HAVE TAKEN PLACE IN CONNECTION WITH TEXTILE PROCUREMENT IN THE MILITARY SERVICES.

"IN CONNECTION WITH THAT INVESTIGATION, MR. SCHLESINGER WAS SERVED WITH A SUBPOENA WHICH REQUIRED HIM TO PRODUCE HIS LEDGERS, CASH RECEIPTS AND DISBURSEMENT RECORDS, GENERAL JOURNAL, CORRESPONDENCE FILES, CANCELLED CHECKS, PAYROLL RECORDS, CONTRACT FILES AND INCOME TAX RETURNS. ON JUNE 23, 1955 MR. SCHLESINGER, AS HE HAD PREVIOUSLY DONE IN EXECUTIVE SESSION, DECLINED TO PRODUCE THESE RECORDS, PLEADING THE FIFTH AMENDMENT UPON THE GROUND THAT THE RECORDS WOULD TEND TO INCRIMINATE HIM. HERE WAS A SITUATION WHERE A CONTRACTOR WHO IN THE COURSE OF 10 YEARS TIME HAD SOLD ABOUT $3,000,000 WORTH OF PRODUCTS TO THE ARMED FORCES, THE CONTRACTS AS TO WHICH CONSTITUTED THE GREAT BULK OF HIS BUSINESS, WHO REFUSED TO COOPERATE WITH A SENATE COMMITTEE LOOKING INTO CHARGES OF FRAUD IN GOVERNMENT PROCUREMENT. WHILE I RECOGNIZE AND RESPECT THE PREROGATIVES GRANTED TO ALL AMERICANS, BE THEY CONTRACTORS OR NOT, TO INVOKE ANY CONSTITUTIONAL SAFEGUARD IN THEIR BEHALF, I WAS ALSO CONFRONTED WITH THE UNWHOLESOME SITUATION OF A NAVY CONTRACTOR REFUSING TO GIVE PERFECTLY REASONABLE INFORMATION TO A CONGRESSIONAL COMMITTEE UNDER THESE CIRCUMSTANCES. * * * THE MEMBERS (OF THE SUBCOMMITTEE) THOUGHT THAT GOVERNMENT PROCUREMENT OFFICIALS SHOULD BE ALERTED TO THE CONTRACTOR'S ATTITUDE IN REFUSING TO REVEAL RECORDS OF AN INCRIMINATING NATURE AND THAT HE SHOULD NOT BE PERMITTED TO SELL TO THE GOVERNMENT.

"DEBARMENT IN RELATION TO THE CONTRACT IN QUESTION: IN ADDITION, LET ME PRESENT YOU WITH DATA (ENCLOSURE 5) PERTAINING TO CONTRACT N140 62236S- 54294B WITH MR. SCHLESINGER, THE TERMINATION OF WHICH FOR DEFAULT WAS MADE A BASIS FOR DEBARMENT. THIS ENCLOSURE SUMMARIZES THE UNSATISFACTORY PERFORMANCE UNDER THAT CONTRACT.

"THE CONTRACTOR'S PREVIOUS PERFORMANCE: SO FAR AS YOU ARE AWARE, YOU HAVE SAID, MR. SCHLESINGER HAS BEEN CONTRACTING WITH THE GOVERNMENT OVER A LONG PERIOD OF TIME AND THERE HAS BEEN NO HISTORICAL PATTERN OF UNSATISFACTORY PERFORMANCE OR PRIOR DEFAULTS. YOU WILL OBSERVE FROM THE NAVY'S MEMORANDUM OF DEBARMENT THAT THE UNSATISFACTORY PERFORMANCE COMPLAINED OF BY THIS CONTRACTOR WAS THAT INVOLVED IN CONTRACT N140-62236S-54294B. THAT MEMORANDUM DID NOT REFER TO OTHER CONTRACTS. PARAGRAPH 1-604.1 OF THE ARMED SERVICES PROCUREMENT REGULATION INCLUDES AMONG CAUSES FOR DEBARMENT "A HISTORY OF FAILURE TO PERFORM OR OF UNSATISFACTORY PERFORMANCE IN ACCORDANCE WITH THE TERMS OF ONE OR MORE CONTRACTS * * *.' AT THE TIME THE REGULATION WAS WRITTEN, IT WAS DECIDED THAT, WITHIN A DISCRETION OF THE MILITARY DEPARTMENT INVOLVED, A DETERMINATION COULD BE MADE TO BAR FOR UNSATISFACTORY PERFORMANCE IN ONE CONTRACT OR OVER A SERIES OF CONTRACTS.

"SINCE YOU HAVE ASKED US ABOUT THE PERFORMANCE RECORD OF THIS COMPANY, WE ARE IN A POSITION TO ADVISE YOU THAT THE DEPARTMENT WAS AWARE OF PROBLEMS WHICH HAD BEEN ENCOUNTERED WITH MR. SCHLESINGER BEFORE 1955 ALTHOUGH THE DIFFICULTIES WHICH WE HAVE HAD WITH HIM WERE NOT, IN THEMSELVES, HERETOFORE DEEMED SUCH AS TO URGE UPON US THE NEED FOR DEBARMENT.

"YOU MAY BE INTERESTED ALSO IN THE UNSATISFACTORY EXPERIENCE RECORDS OF THIS COMPANY UNDER CERTAIN CONTRACTS PERTAINING TO DELIVERIES IN 1952, 1953 AND 1954. I AM ANNEXING A SCHEDULE OF SUCH DATA (ENCLOSURES 2, 3 AND 4) SHOWING THE CONTRACT DELIVERY SCHEDULE AND ACTUAL DELIVERY DATES.

"THE MATTER OF SERIOUSNESS OF THE CONTRACT VIOLATION IS TO BE DETERMINED BY THE SECRETARY. THE ONLY DOCUMENT FOR WHICH YOU EXPRESSLY ASKED IS A COPY (ENCLOSURE (1) ( OF A MEMORANDUM DATED 27 JANUARY 1955 WITH RESPECT TO THE 50,000 CAP PROCUREMENT BEING FOR RESERVE STOCKS AND NOT URGENTLY REQUIRED. YOU MENTION THIS MEMORANDUM IN THE SAME PARAGRAPH AS YOU REMIND US THAT OUR REGULATION REQUIRES CONTRACT VIOLATIONS "TO BE SO SERIOUS AS TO JUSTIFY DEPARTMENT ACTIONS," AS TO WHICH YOU SAY THAT MR. SCHLESINGER URGES THAT HIS DELINQUENCIES UNDER THE CONTRACT WERE NOT SERIOUS. ALSO, WHETHER OR NOT A PRODUCT IS IMMEDIATELY "REQUIRED" IS NOT TH TEST IN DETERMINING WHETHER A CONTRACT HAS BEEN BREACHED. THERE ARE TIMES WHEN THE URGENCY OF A REQUIREMENT IN TERMS OF CONTEMPLATED ISSUANCE FOR IMMEDIATE USE MAY INDUCE OUR CONTRACTING OFFICERS TO GRANT AN EXTENSION OF TIME IN WHICH TO PERFORM, NOT BECAUSE THE CONTRACTOR HAS WARRANTED IT BUT BECAUSE IT MAY BE MORE PRACTICAL TO RECEIVE THE PRODUCT LATE RATHER THAN TERMINATE FOR DEFAULT AND GET IT SOMEWHERE ELSE EVEN LATER. THE NEEDS OF THE NAVY SUPPLY SYSTEM HAVE NO BEARING UPON WHETHER OR NOT A CONTRACTOR HAS COMPLIED WITH THE PROVISIONS OF HIS CONTRACT.

"WITH RESPECT TO THE REFERENCE YOU HAVE MADE TO PARAGRAPHS 1-606 OF ASPR LIMITING THE CAUSES OR CONDITIONS FOR LISTING FIRMS OR INDIVIDUALS ON THE CONSOLIDATED LIST, IT IS CONSIDERED THAT PARAGRAPH 1 109 OF ASPR WITH REGARD TO DEVIATIONS IS OVERRIDING IN THE SENSE THAT THE AUTHORITY TO DEVIATE IN SPECIAL SITUATIONS PERMEATES THE ENTIRE REGULATION.'

THE ASSISTANT SECRETARY OF DEFENSE REPLIED TO OUR INQUIRY IN THIS LETTER REGARD THAT HIS DEPARTMENT CONSIDERS THAT ASPR 1-109 AUTHORIZES THE SECRETARY OF THE NAVY TO "DEVIATE FROM PART 6, SECTION 1 OF THE REGULATION IN A SITUATION WHICH AFFECTS A SINGLE CONTRACT OR CONTRACTOR.'

IN CONCLUSION, THE REPORT STATED---

"DEBARMENT ACTION CAREFULLY EVALUATED. WE IN THE NAVY REALIZE THAT DEBARMENT IS A VERY SERIOUS MATTER. CONSEQUENTLY, SUCH ACTION IS NOT TAKEN UNLESS WE ARE CONVINCED, AFTER CAREFUL CONSIDERATION OF ALL THE CIRCUMSTANCES, THAT THE BEST INTERESTS OF THE GOVERNMENT SO REQUIRE. THIS CASE, MR. SCHLESINGER'S NONCOMPLIANCE WITH THE TERMS OF CONTRACT N140 -62236S-54294B WHICH RESULTED IN THAT CONTRACT HAVING BEEN PROPERLY TERMINATED FOR DEFAULT, TAKEN IN CONJUNCTION WITH HIS CONDUCT BEFORE THE SENATE COMMITTEE WHOSE CHAIRMAN EXPRESSLY CALLED IT TO OUR ATTENTION, AND VIEWED ALSO IN THE BACKGROUND OF PREVIOUS CONTRACTUAL DELINQUENCIES, ALL SERVE TO WARRANT A DETERMINATION THAT THIS CONTRACTOR BE DEBARRED FOR A REASONABLE PERIOD OF TIME.'

IT IS CLEAR FROM THE NAVY'S REPORT THAT THE DEBARMENT ACTION WAS NOT BASED UPON A WILLFUL FAILURE ON YOUR PART TO DELIVER IN ACCORDANCE WITH THE TERMS OF YOUR CONTRACT, NOR ANY ACCUSATION, INDICTMENT OR CONVICTION OR WRONGDOING. WITH RESPECT TO YOUR APPEAL FROM THE DETERMINATION OF DEFAULT UNDER CONTRACT NO. N140-62236S-54294B, WE UNDERSTAND THAT A HEARING AND REHEARING BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS RESULTED IN AFFIRMATION OF THE DEFAULT DETERMINATION. WITHOUT REGARD TO ANY DELINQUENCIES UNDER PRIOR CONTRACTS, THE ADMINISTRATIVE DETERMINATION THAT THE DEFAULT UNDER THE CITED CONTRACT ABOVE WAS SUFFICIENTLY SERIOUS TO JUSTIFY THE DEBARMENT IS A MATTER PRIMARILY FOR ADMINISTRATIVE DETERMINATION AND THE DEPARTMENT'S EXPLANATION RELATIVE TO THE REASON FOR DETERMINING THE URGENCY OF ITS NEEDS PRIOR TO DECLARING YOU IN DEFAULT THEREUNDER APPEARS TO PRECLUDE A FIRM CONCLUSION THAT SUCH ACTION WAS ARBITRARY OR CAPRICIOUS. WITH RESPECT TO THE CONTENTION MADE IN YOUR ATTORNEY'S LETTER OF FEBRUARY 8, SUPRA, RELATIVE TO A DEFICIENCY IN THE NOTICE OF DEBARMENT, IT IS CLEAR THAT ASPR 1-604.3 REQUIRES THAT ALL INSTANCES OF DERELICTIONS SERVING AS A BASIS FOR THE DEBARMENT ACTION MUST BE STATED AND THAT YOU WERE ENTITLED TO NOTICE THEREIN OF A REASONABLE OPPORTUNITY TO PRESENT INFORMATION FOR CONSIDERATION IN YOUR BEHALF. HOWEVER, IT APPEARS THAT YOU WERE, IN FACT, AFFORDED THAT OPPORTUNITY WITH RESPECT TO THE DEFAULT UNDER CONTRACT NO. N140 62236S-54294B BY THE HEARINGS BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS. THE OTHER GROUND STATED IN THE NOTICE OF DEBARMENT (YOUR REFUSAL TO COOPERATE WITH THE SENATE SUBCOMMITTEE) WAS BASED UPON THE "DEVIATION AUTHORITY" URGED BY THE DEPARTMENT OF THE NAVY AND CONCURRED IN BY THE DEPARTMENT OF DEFENSE. IN ANY EVENT, AS RECOGNIZED BY YOUR ATTORNEY, THE DEFICIENCY IN THE PROCEDURAL REQUIREMENTS COULD READILY BE CURED BY A NEW NOTICE OF DEBARMENT TO YOU WHICH COULD ALSO ASSERT ADDITIONAL CONTRACT DELINQUENCIES AS GROUNDS FOR THE ACTION AND POSSIBLY AN EXTENSION OF THE DEBARMENT PERIOD. CONSEQUENTLY, REQUIRING THE ISSUANCE OF A NEW NOTICE OF DEBARMENT --- A RESULT CLEARLY INDICATED BY THE TENOR OF THE NAVY'S REPORTS--- WOULD SERVE NO USEFUL PURPOSE.

IN SUMMARY, CONTRACTING WITH THE GOVERNMENT IS A PRIVILEGE, NOT A LEGAL RIGHT, AND CONSIDERING THE GROUNDS UPON WHICH THE ADMINISTRATIVE OFFICE--- WHICH IS PRIMARILY RESPONSIBLE FOR DETERMINING THE ACCEPTABILITY OF ITS CONTRACTORS--- DECIDED UPON THE DEBARMENT ACTION, WE DO NOT VIEW SUCH ACTION BY THE DEPARTMENT OF THE NAVY AS SO CLEARLY UNWARRANTED AS TO BE REGARDED AS IN VIOLATION OF LAW.

ACCORDINGLY, WE MUST DECLINE TO OBJECT TO THE ACTION OF THE DEPARTMENT OF THE NAVY AGAINST WHICH YOU PROTESTED.