B-158525, MAY 26, 1966, 45 COMP. GEN. 735

B-158525, MAY 26, 1966, 45 COMP. GEN. 735

CONTRACTS - AWARDS - LABOR SURPLUS AREAS - MULTI-YEAR PROCUREMENTS AN AWARD OF THE ENTIRE LABOR SURPLUS SET-ASIDE UNDER A MULTI-YEAR PROCUREMENT INVITATION TO A SMALL BUSINESS CONCERN THAT IS NOT LOCATED IN A LABOR SURPLUS AREA (GROUP 5), THE CONCERN AWARDED THE NON-SET ASIDE PORTIONS OF THE PROCUREMENT FOR THE 2-YEAR PROGRAM, SHOULD BE CANCELED FOR THE FIRST YEAR'S REQUIREMENTS AND THE SMALL BUSINESS CONCERN LOCATED IN A PERSISTENT LABOR SURPLUS AREA (GROUP 1), AND BIDDING WITHIN THE REQUIRED 120 PERCENT OF THE NON-SET-ASIDE BID PRICE, GIVEN AN OPPORTUNITY TO ACCEPT AWARD OF THE CANCELED PORTION OF THE PROCUREMENT, THE CONTRACTING OFFICER ERRONEOUSLY DISQUALIFYING THE CONCERN BECAUSE IT OFFERED A QUANTITY LESS THAN THAT AWARDED ON THE NON SET-ASIDE, NOTWITHSTANDING A CONTRARY PROVISION IN THE SET-ASIDE NOTICE, AND THE SAME UNIT PRICE REQUIRED FOR ALL PROGRAM YEARS, THE DETERMINATION OF A BID PRICE WITHIN 120 PERCENT OF THE AWARDED PRICE ON THE NON-SET-ASIDE IS NOT AFFECTED BY THE MULTI-YEAR AWARD, A CHARACTERISTIC OF MULTI-YEAR PROCUREMENTS BEING THAT THE GOVERNMENT HAS NO OBLIGATION TO PURCHASE MORE THAN THE FIRST PROGRAM YEAR'S QUANTITY.

TO THE SECRETARY OF THE NAVY, MAY 26, 1966:

REFERENCE IS MADE TO LETTER DATED MARCH 29, 1966, FROM THE ASSISTANT CHIEF FOR PURCHASING, BUREAU OF SUPPLIES AND ACCOUNTS, FURNISHING A REPORT ON THE PROTEST OF RUBBER FABRICATORS, INCORPORATED, GRANTSVILLE, WEST VIRGINIA, IN CONNECTION WITH THE AWARD OF A CONTRACT TO SWITLIK PARACHUTE COMPANY, INCORPORATED, TRENTON, NEW JERSEY, FOR THE LABOR SURPLUS AREA SET -ASIDE PORTION OF THE PROCUREMENT ADVERTISED UNDER NAVY AVIATION SUPPLY OFFICE INVITATION FOR BIDS NO. 383-410-66, ISSUED OCTOBER 7, 1965, FOR VEST INFLATABLE LIFE PRESERVERS.

THE INVITATION COVERED A MULTI-YEAR PROCUREMENT OF THESE LIFE PRESERVERS WITH A 50 PERCENT SET-ASIDE FOR LABOR SURPLUS AREA CONCERNS. IT SOLICITED BIDS FOR THE DELIVERY OF 12,375 UNITS DURING THE FIRST PROGRAM YEAR AND, IN THE ALTERNATIVE, FOR THE 2-YEAR MULTI YEAR PROCUREMENT CONSISTING OF 12,375 UNITS FOR THE FIRST PROGRAM YEAR AND 9,026 UNITS FOR THE SECOND PROGRAM YEAR. THE SET-ASIDE WAS FOR THE SAME QUANTITIES FOR EACH YEAR.

IN ACCORDANCE WITH THE CRITERIA FOR MULTI-YEAR PROCUREMENT, THE INVITATION PROVIDED THAT BIDDERS MUST SUBMIT A PRICE FOR THE 1-YEAR PROGRAM (DESIGNATED AS LOT I), AND MIGHT SUBMIT A PRICE FOR THE 2-YEAR PROGRAM (LOT II) WITH THE CONDITION THAT PRICES MUST BE THE SAME FOR BOTH YEARS, AND THAT BIDS WOULD BE EVALUATED ON THE BASIS OF THE LOWEST COST COMPUTED BY MULTIPLYING THE LOWEST UNIT PRICE ON THE 1-YEAR BASIS BY THE TOTAL QUANTITY CALLED FOR UNDER THE 2-YEAR BASIS, PLUS ADMINISTRATIVE COSTS OF $816.98, AND COMPARING THIS TOTAL WITH THE LOWEST AGGREGATE PRICE OFFERED ON THE 2-YEAR BASIS.

THE INVITATION INCORPORATED BY REFERENCE THE NOVEMBER 1964 FORM OF NOTICE RELATING TO LABOR SURPLUS AREA SET-ASIDES, AS FOUND IN SECTION 1-804.2 (B) OF THE ARMED SERVICES PROCUREMENT REGULATION. THIS PROVISION READS IN PART AS FOLLOWS:

* * * NEGOTIATIONS FOR AWARD OF THE SET-ASIDE PORTION WILL BE CONDUCTED ONLY WITH RESPONSIBLE LABOR SURPLUS AREA CONCERNS (AND SMALL BUSINESS CONCERNS TO THE EXTENT INDICATED BELOW) WHO HAVE SUBMITTED RESPONSIVE BIDS OR PROPOSALS ON THE NON-SET-ASIDE PORTION AT A UNIT PRICE NO GREATER THAN 120 PERCENT OF THE HIGHEST UNIT PRICE AT WHICH AN AWARD IS MADE ON THE NON -SET-ASIDE PORTION. NEGOTIATIONS FOR THE SET-ASIDE PORTION WILL BE CONDUCTED WITH SUCH BIDDERS IN THE FOLLOWING ORDER OF PRIORITY:

GROUP 1. PERSISTANT LABOR SURPLUS AREA CONCERNS WHICH ARE ALSO SMALL BUSINESS CONCERNS.

GROUP 2. OTHER PERSISTENT LABOR SURPLUS AREA CONCERNS.

GROUP 3. SUBSTANTIAL LABOR SURPLUS AREA CONCERNS WHICH ARE ALSO SMALL BUSINESS CONCERNS.

GROUP 4. OTHER SUBSTANTIAL LABOR SURPLUS AREA CONCERNS.

GROUP 5. SMALL BUSINESS CONCERNS WHICH ARE NOT LABOR SURPLUS AREA CONCERNS. * * *.

BIDS WERE OPENED NOVEMBER 12, 1965. FOUR BIDS WERE RECEIVED AS FOLLOWS:

CHART

BIDDER TERMS UNIT PRICE UNIT PRICE

LOT I LOT II

RUBBER FABRICATIONS, INC.

5 PERCENT - 30 $31.11 NO BID RUBBERCRAFT CORPORATION OF 1 PERCENT - 30 41.739 $41.481

AMERICA SWITLIK PARACHUTE CO., INC. 1 PERCENT - 30 30.69 30.195M. STEINTHAL AND CO., INC. NET 26.77 NO BID THE UNIT PRICES LISTED ABOVE HAVE BEEN ADJUSTED FOR THE DISCOUNTS OFFERED. M. STEINTHAL AND COMPANY ALLEGED A MISTAKE IN BID AND WAS PERMITTED TO WITHDRAW ITS BID. IN ACCORDANCE WITH THE EVALUATION CRITERIA SET FORTH IN THE INVITATION IT WAS DETERMINED THAT THE BID OF SWITLIK PARACHUTE ON THE MULTI-YEAR BASIS (LOT II) OFFERED THE LOWEST PRICE AND AWARD OF THE NON-SET-ASIDE PORTION WAS MADE TO THAT FIRM ON JANUARY 6, 1966, ON THE LOT II BASIS, OR AT A UNIT PRICE OF $30.195. THE BID OF RUBBER FABRICATORS AT A UNIT PRICE OF $31.11 IS, OF COURSE, WITHIN 120 PERCENT OF THE UNIT PRICE OF $30.195 AT WHICH AWARD WAS MADE TO SWITLIK.

THE CONTRACTING OFFICER DETERMINED THAT RUBBER FABRICATORS HAD NOT OFFERED A "RESPONSIVE BID * * * ON THE NON-SET-ASIDE PORTION AT A UNIT PRICE NO GREATER THAN 120 PERCENT OF THE HIGHEST UNIT PRICE AT WHICH AN AWARD IS MADE ON THE NON-SET-ASIDE PORTION" WITHIN THE MEANING OF THE SET- ASIDE NOTICE INCORPORATED IN THE INVITATION, AND ACCORDINGLY MADE AWARD OF THE SET-ASIDE PORTION FOR BOTH PROGRAM YEARS TO SWITLIK. RUBBER FABRICATORS IS IN PRIORITY GROUP 1 FOR SET-ASIDE CONSIDERATION, BEING A SMALL BUSINESS IN A PERSISTENT LABOR SURPLUS AREA. SWITLIK, A SMALL BUSINESS CONCERN IS IN GROUP 5, NOT IN A LABOR SURPLUS AREA.

WE DO NOT AGREE WITH THE REASONING OF THE CONTRACTING OFFICER ON THE QUESTION INVOLVED. IT MAY BE ADMITTED, AT THE OUTSET, THAT THE CONTRACT PROVISIONS PRESCRIBED BY THE ARMED SERVICES PROCUREMENT REGULATION DO NOT COVER, AND APPARENTLY FAILED TO CONSIDER, THE PRECISE SITUATION INVOLVED IN THIS CASE. HOWEVER, LOGIC AND REASON SHOULD LEAD TO A CONCLUSION WHICH CARRIES OUT THE PURPOSE INTENDED BY THE MAKING OF A LABOR SURPLUS SET- ASIDE. IT MAY WELL BE HELD THAT THE AWARD UNDER LOT II IS NOT AN "AWARD" OF THE SECOND PROGRAM YEAR, SINCE UNDER THE MULTI-YEAR PROCUREMENT PROCEDURES ANY SO-CALLED "AWARD" OF ANY YEAR BEYOND THE FIRST PROGRAM YEAR IS NO MORE THAN AN AGREEMENT TO BUY FROM THE SUCCESSFUL BIDDER IN THE EVENT THAT FUNDS ARE MADE AVAILABLE AND FURTHER THAT NOTICE IS GIVEN OF THE GOVERNMENT'S INTENT TO BUY BEYOND THE FIRST PROGRAM YEAR. THERE IS NO LEGAL OBLIGATION ON THE PART OF THE GOVERNMENT TO PURCHASE MORE THAN THE FIRST PROGRAM YEAR'S QUANTITY, AND, INDEED, THE ABSENCE OF SUCH AN OBLIGATION IS AN ESSENTIAL CHARACTERISTIC TO THE LEGALITY OF MULTI-YEAR PROCUREMENT. FURTHERMORE, THE CRITERIA LAID DOWN FOR MULTI-YEAR PROCUREMENT SPECIFICALLY REQUIRE THE SAME UNIT PRICE FOR ALL PROGRAM YEARS, SO THAT THE DETERMINATION OF A BID PRICE WITHIN 120 PERCENT OF THE AWARDED PRICE IS NOT AFFECTED BY THE AWARD ON A MULTI-YEAR BASIS.

IT MAY BE NOTED FURTHER THAT THE LABOR SURPLUS AREA SET-ASIDE NOTICE INCORPORATED IN THE INVITATION SPECIFICALLY PROVIDES FOR CONSIDERATION OF A BID FOR THE SET-ASIDE EVEN THOUGH SUCH BID HAS FAILED TO BID ON THE TOTAL QUANTITY ACTUALLY AWARDED ON THE NON-SET-ASIDE. ADMITTEDLY, THE NOTICE DEALS ONLY WITH THE SITUATION WHERE SUCH A BID ON LESS THAN THE NON -SET-ASIDE QUANTITY AWARDED IS ALSO LESS IN PRICE THAN THE AWARDED PRICE, BUT WE BELIEVE IT FURNISHES LOGICAL PRECEDENT FOR THE PROPOSITION THAT A BID SHOULD NOT BE CONSIDERED "NON-RESPONSIVE" MERELY BECAUSE IT OFFERS A QUANTITY LESS THAN THAT ACTUALLY AWARDED UNDER THE NON-SET-ASIDE PORTION.

THIS, ESSENTIALLY, IS THE SITUATION INVOLVED WHEN AN ELIGIBLE LABOR SURPLUS AREA BIDDER BIDS ONLY ON THE FIRST PROGRAM YEAR OF A MULTI-YEAR PROCUREMENT AND AWARD IS MADE ON THE MULTI-YEAR BASIS. ADMITTEDLY, NEGOTIATION WITH SUCH A BIDDER FOR THE SET-ASIDE PORTION OF THE FIRST PROGRAM YEAR WILL REQUIRE NEGOTIATION WITH OTHERS FOR THE SET-ASIDE PORTION OF ADDITIONAL PROGRAM YEARS, BUT WE SEE NO SUBSTANTIAL DIFFERENCE BETWEEN THIS SITUATION AND THAT CONTEMPLATED BY THE NOTICE IN THE CASE OF A LOWER PRICE OFFERED FOR LESS THAN THE AWARDED QUANTITY ON THE NON-SET- ASIDE, SINCE THE SET-ASIDE REQUIRED TO BE OFFERED TO SUCH LOWER BIDDER IS LIMITED TO THE QUANTITY ON WHICH HE BID ON A NON SET-ASIDE BASIS. EITHER CASE, NEGOTIATIONS MUST BE CONDUCTED WITH OTHERS FOR THE REMAINING PORTION OF THE SET-ASIDE. IN THE PRESENT CASE, THIS WOULD MEAN NEGOTIATION WITH SWITLIK FOR THE SET-ASIDE PORTION FOR THE SECOND PROGRAM YEAR.

WE MUST CONCLUDE THAT RUBBER FABRICATORS WAS ENTITLED TO AN OPPORTUNITY TO ACCEPT AWARD OF THE SET-ASIDE PORTION OF THE FIRST PROGRAM YEAR'S REQUIREMENTS, AND THAT THE AWARD OF THIS PORTION OF THE PROCUREMENT TO SWITLIK PARACHUTE SHOULD BE CANCELED IN THE EVENT RUBBER FABRICATORS IS WILLING TO ACCEPT AWARD OF THIS PORTION OF THE PROCUREMENT AT THE PRICE OF THE AWARD TO SWITLIK.

WE ARE RETURNING HEREWITH, AS REQUESTED, THE SIGNED BID OF RUBBER FABRICATORS, INCORPORATED.