B-165795, AUG. 21, 1969

B-165795, AUG. 21, 1969

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - LABOR SURPLUS SET-ASIDE - ELIGIBILITY REAFFIRMATION OF DECISION OF JULY 2, 1969, HOLDING THAT KENTUCKY APPALACHIAN INDUSTRIES, INC. IS NOT ENTITLED TO CONSIDERATION AS A SMALL BUSINESS CONCERN FOR AWARD OF LABOR SURPLUS SET-ASIDE UNDER INVITATION ISSUED BY WARNER ROBBINS AIR FORCE BASE. A BIDDER WHO SELF-CERTIFIED AS SMALL BUSINESS AND THEN AFTER OPENING TOOK STEPS DURING SIZE APPEALS TO TERMINATE ITS MANAGEMENT CONTRACT WITH A LARGE BUSINESS FIRM MUST HAVE SUCH STEPS RECOGNIZED AS GIVING HIM THE OPTION OF REMAINING ELIGIBLE FOR AWARD OR BY FOREGOING SUCH STEPS TO DENY ELIGIBILITY FOR AWARD.

TO MR. ROBERT F. STEPHENS:

YOUR LETTERS OF JULY 8 AND 25, 1969, REQUEST RECONSIDERATION OF OUR DECISION B-165795, JULY 2, 1969, WHEREIN WE HELD THAT YOUR CLIENT, KENTUCKY APPALACHIAN INDUSTRIES, INC. (KAI), IS NOT ENTITLED TO CONSIDERATION AS A SMALL BUSINESS CONCERN FOR AWARD OF A LABOR SURPLUS SET -ASIDE UNDER INVITATION FOR BIDS NO. F09603-69-B-0234, ISSUED BY WARNER ROBINS AIR FORCE BASE, GEORGIA.

OUR DECISION HELD THAT THE TERMINATION BY KAI OF A MANAGEMENT CONTRACT WITH A LARGE BUSINESS CONCERN DURING THE PENDENCY OF AN APPEAL TO THE SMALL BUSINESS ADMINISTRATION SIZE APPEALS BOARD INVOLVING THE SIGNIFICANCE OF THE MANAGEMENT CONTRACT IN RELATION TO KAI'S SELF CERTIFIED SMALL BUSINESS STATUS COULD NOT SERVE TO QUALIFY KAI AS A SMALL BUSINESS CONCERN FOR PURPOSES OF THE INSTANT PROCUREMENT. THE APPEAL ULTIMATELY DETERMINED THAT THE MANAGEMENT CONTRACT VITIATED KAI'S SMALL BUSINESS STATUS. THE REASON FOR OUR DECISION WAS THAT TERMINATION OF THE AGREEMENT GAVE KAI THE OPTION, NOT EXTENDED TO OTHER BIDDERS, OF TAKING STEPS AFTER THE OPENING OF BIDS "FOR THE PURPOSE OF PRESERVING THE EFFICACY OF ITS SELF-CERTIFICATION TO OBTAIN THE AWARD OF THE SET-ASIDE PORTION OF THE INVITATION.' IN SO HOLDING, OUR DECISION RECOGNIZED AN EXCEPTION TO THE GENERAL RULE THAT SIZE STATUS IS FOR DETERMINATION AT THE TIME OF AWARD BY STATING THAT TIME OF AWARD DOES NOT GOVERN IN THOSE SITUATIONS WHERE "A BIDDER'S CHANGE IN STATUS BEFORE AWARD FROM LARGE BUSINESS TO SMALL BUSINESS AFTER A GOOD FAITH SELF-CERTIFICATION IS BROUGHT ABOUT BY THE BIDDER'S AFFIRMATIVE ACTS.' 41 COMP. GEN. 47, REFERRED TO IN YOUR LETTER AS THE STANDARD STEEL CASE, WAS CITED AS AUTHORITY FOR THIS EXCEPTION TO THE GENERAL RULE.

IT IS YOUR POSITION THAT THE STANDARD STEEL CASE PROVIDES FOR DISQUALIFICATION OF BIDDERS WHO TAKE AFFIRMATIVE ACTS WHICH CHANGE THEIR SIZE STATUS BETWEEN BID OPENING AND AWARD ONLY WHERE IT CAN BE SHOWN THAT THE SOLE PURPOSE FOR THE AFFIRMATIVE ACT IS TO ACHIEVE SMALL BUSINESS STATUS AND THAT THE BIDDER "HAD SOME PRIOR KNOWLEDGE FROM THE APPROPRIATE ADMINISTRATIVE AGENCY THAT THE ITEM CHANGED WOULD JEOPARDIZE THEIR SMALL BUSINESS STATUS.' IN THIS REGARD, YOU CONTEND THAT BECAUSE NO OFFICIAL DETERMINATION THAT KAI WAS LARGE BUSINESS HAD BEEN MADE AT THE TIME THE MANAGEMENT CONTRACT WAS CANCELED, IT CANNOT BE SAID THAT KAI'S ACTION IN BRINGING ABOUT THE TERMINATION WAS TAKEN FOR THE PURPOSE OF PRESERVING ITS SMALL BUSINESS STATUS, ESPECIALLY SINCE KAI CONSIDERED ITSELF TO BE SMALL BUSINESS UNTIL ADVISED TO THE CONTRARY BY THE SIZE APPEALS BOARD. YOU MAINTAIN THAT THE IMPORT OF OUR DECISION IS THAT ANY AFFIRMATIVE ACTS BY SELF-CERTIFIED BIDDERS ACTING IN GOOD FAITH BETWEEN BID OPENING AND AWARD -- WITHOUT REGARD TO MOTIVATION -- THE EFFECT OF WHICH IS A CHANGE FROM LARGE TO SMALL BUSINESS STATUS WILL CAUSE DISQUALIFICATION. YOU CONCLUDE THAT THIS RESULT IS AN UNWARRANTED EXTENSION OF THE RULE ESTABLISHED IN THE STANDARD STEEL CASE.

WITH REGARD TO THE TYPE OF AFFIRMATIVE ACTS SUFFICIENT TO CAUSE DISQUALIFICATION, OUR JULY 2 DECISION STATED AS FOLLOWS:

"WHILE THE BIDDER'S GOOD FAITH IS THE CRITERION FOR DETERMINING THE ACCEPTABILITY OF HIS SELF-CERTIFICATION AS TO SMALL BUSINESS STATUS, THE DETERMINING FACTOR IN DECIDING WHETHER A BIDDER'S ACTIONS AFTER THE OPENING OF BIDS AFFECTING HIS SELF-CERTIFICATION ARE PERMISSIBLE IS WHETHER THOSE ACTIONS GIVE HIM AN UNDUE ADVANTAGE OVER OTHER BIDDERS BY GIVING HIM AN OPTION TO REMAIN INELIGIBLE OR TO TAKE STEPS WHICH WOULD PRESERVE HIS SMALL BUSINESS STATUS FOR AWARD PURPOSES. THE RULE AGAINST ALLOWING A BIDDER SUCH AN OPTION, THEREFORE, IS NOT DEPENDENT ON THE BIDDER'S GOOD FAITH OR LACK THEREOF IN SELF-CERTIFYING HIS SMALL BUSINESS STATUS, BUT RATHER THE CONTROLLING FACTOR IS THE DELETERIOUS EFFECT THE EXERCISE OF SUCH OPTIONS WOULD HAVE UPON THE INTEGRITY OF THE COMPETITIVE BIDDING SYSTEM. 41 COMP. GEN. 47, 55.'

IT IS OUR POSITION, THEREFORE, THAT IF THE BIDDER'S AFFIRMATIVE ACTS AFTER THE OPENING OF BIDS HAVE THE EFFECT OF GIVING HIM THE TYPE OF OPTION, DISCUSSED ABOVE, SUCH ACTIONS CANNOT SERVE TO QUALIFY THE BIDDER FOR AWARD. WE DO NOT VIEW THIS POSITION AS AN EXTENSION OF THE RULE ENUNCIATED IN THE STANDARD STEEL CASE. WHILE THAT CASE STATED THAT THE SOLE PURPOSE OF THE AFFIRMATIVE ACTS THEREIN INVOLVED WAS TO EFFECT A CHANGE IN STATUS, THE DECISION WAS NOT BOTTOMED ON THE CRITERION OF A "SOLE" PURPOSE. RATHER, WE VIEW THE DECISION AS APPLYING THE ESTABLISHED RULE THAT A BIDDER SHOULD NOT BE ALLOWED THE OPTION OF DECIDING AFTER BID OPENING WHETHER TO REMAIN ELIGIBLE FOR AWARD BY TAKING STEPS TO INSURE SUCH ELIGIBILITY OR BY FOREGOING SUCH STEPS TO DENY HIS ELIGIBILITY FOR AWARD.

CONCERNING THE QUESTION OF KAI'S MOTIVATION IN TERMINATING THE MANAGEMENT AGREEMENT, IT WAS OUR OPINION THAT THE LETTER FROM KAI TO IRVING TERMINATING THE MANAGEMENT AGREEMENT EVIDENCED NOT ONLY KAI'S DESIRE TO PRESERVE ITS SMALL BUSINESS STATUS, BUT ALSO KAI'S AWARENESS THAT IF ANY ADVERSE ACTION WERE TO BE TAKEN BY THE SBA SIZE APPEALS BOARD IT WOULD BE BASED ON THE MANAGEMENT AGREEMENT. THE FACT THAT THE SBA ADVERSE RULING WAS NOT ISSUED UNTIL AFTER THE TERMINATION OF THE AGREEMENT DOES NOT CHANGE THE FACT THAT UNTIL TERMINATION OF THE AGREEMENT KAI COULD NOT PROPERLY BE CLASSED AS SMALL BUSINESS. WE THINK THAT THIS FACT, COUPLED WITH KAI'S KNOWLEDGE OF THE POTENTIAL DANGER OF THE MANAGEMENT AGREEMENT, PROVIDED SUFFICIENT GROUNDS FOR OUR DECISION THAT THE TERMINATION OF THE MANAGEMENT AGREEMENT CONSTITUTED THE EXERCISE OF AN OPTION DESIGNED TO PRESERVE THE EFFICACY OF ITS SELF CERTIFICATION.

ACCORDINGLY, WE WOULD NOT BE JUSTIFIED IN DEPARTING FROM OUR PRIOR DECISION IN THIS MATTER.