B-125183, NOV. 23, 1955

B-125183, NOV. 23, 1955

TO THE HONORABLE SECRETARY OF THE NAVY:

REFERENCE IS MADE TO LETTERS DATED AUGUST 30 AND SEPTEMBER 12 AND 15, 1955, FROM THE ASSISTANT SECRETARY OF THE NAVY (MATERIAL) IN RESPONSE TO OUR LETTERS OF AUGUST 18 AND 26, RELATIVE TO THE PROTEST BY THE IDEAL UNIFORM CAP COMPANY, FREEPORT, NEW YORK, AGAINST THE ACTION OF YOUR DEPARTMENT IN DEBARRING THAT FIRM FROM RECEIVING NAVY CONTRACTS UNTIL JUNE 30, 1956.

THE ASSISTANT SECRETARY'S LETTER OF AUGUST 30 REPORTS THAT THE PROTESTANT IS THE LOW BIDDER IN RESPONSE TO MARINE CORPS INVITATION FOR BIDS NO. 1196 C, BUT SINCE THAT FIRM IS ON THE CONSOLIDATED LIST OF DEBARRED, INELIGIBLE AND SUSPENDED CONTRACTORS, THE CONTRACTING OFFICER IS READY TO MAKE AN AWARD TO THE NEXT-LOW BIDDER. THE AWARD IS BEING DEFERRED, HOWEVER, PENDING OUR CONSIDERATION OF THE PROTEST.

WITH RESPECT TO THE DEBARMENT OF MR. SOL. O. SCHLESINGER, DOING BUSINESS AS IDEAL UNIFORM CAP COMPANY, THE REPORT STATES AS FOLLOWS:

"PURSUANT TO SECTION 1, PART 6 OF THE ARMED SERVICES PROCUREMENT REGULATIONS, 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.'

IN CONSEQUENCE OF OUR DECISION DATED NOVEMBER 25, 1952, B-112861, THERE WAS INCLUDED IN THE ARMED SERVICES PROCUREMENT REGULATIONS ON MARCH 16, 1953, SECTION 1, PART 6, WHICH PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"1-604 CAUSES AND CONDITIONS UNDER WHICH DEPARTMENTS MAY DEBAR CONTRACTORS. THE SECRETARY OF EACH DEPARTMENT OR HIS AUTHORIZED REPRESENTATIVE IS AUTHORIZED TO DEBAR IN THE PUBLIC INTEREST A FIRM OR AN INDIVIDUAL FOR ANY OF THE CAUSES AND UNDER ALL CONDITIONS SET FORTH BELOW. DEBARMENT OF A FIRM OR INDIVIDUAL BY THE SECRETARY OF A DEPARTMENT OR HIS AUTHORIZED REPRESENTATIVE SHALL OPERATE TO DEBAR SUCH FIRM OR INDIVIDUAL THROUGHOUT THE DEPARTMENT OF DEFENSE.

"1-604.1 CAUSES FOR DEBARMENT.

"/A) CONVICTION BY OR A JUDGMENT OBTAINED IN A COURT OF COMPETENT JURISDICTION FOR (I) COMMISSION OF FRAUD OR A CRIMINAL OFFENSE AS AN INCIDENT TO OBTAINING, ATTEMPTING TO OBTAIN, OR IN THE PERFORMANCE OF A CONTRACT; AND (II) VIOLATION OF THE FEDERAL ANTITRUST STATUTES ARISING OUT OF THE SUBMISSION OF BIDS OR PROPOSALS. IN THE EVENT APPEAL TAKEN FROM SUCH CONVICTION OR JUDGMENT RESULTS IN REVERSAL, THE DEBARMENT SHALL BE REMOVED UPON RECEIPT OF NOTIFICATION THEREOF. (NOTE, HOWEVER, THAT THE FOREGOING DO NOT NECESSARILY REQUIRE THAT THE FIRM OR INDIVIDUAL BE DEBARRED, AND THAT THE DECISION TO DEBAR IS STILL WITHIN THE DISCRETION OF THE SECRETARY OF THE DEPARTMENT CONCERNED, OR HIS AUTHORIZED REPRESENTATIVE. THE SERIOUSNESS OF THE OFFENSE, THE CIVIL SATISFACTION RECEIVED BY OR AVAILABLE TO THE GOVERNMENT, AND ALL MITIGATING FACTORS SHOULD BE CONSIDERED IN MAKING THE DETERMINATION TO DEBAR.)

"/B) CLEAR AND CONVINCING EVIDENCE OF VIOLATION OF CONTRACT PROVISIONS, AS SET FORTH BELOW, WHEN SUCH VIOLATIONS ARE OF A CHARACTER REGARDED BY THE SECRETARY OF THE DEPARTMENT INVOLVED, OR HIS AUTHORIZED REPRESENTATIVE, TO BE SO SERIOUS AS TO JUSTIFY DEBARMENT ACTIONS:

"/1) WILFUL FAILURE TO DELIVER IN ACCORDANCE WITH THE SPECIFICATIONS OR WITHIN THE TIMES OF DELIVERY PROVIDED IN A CONTRACT.

"/2) A HISTORY OF FAILURE TO PERFORM OR OF UNSATISFACTORY PERFORMANCE IN ACCORDANCE WITH THE TERMS OF ONE OR MORE CONTRACTS, PROVIDED THAT THE PREVIOUS FAILURE OR FAILURES BY THE CONTRACTOR ARE WITHIN A REASONABLE PERIOD OF TIME PRECEDING THE DETERMINATION TO DEBAR. FAILURE TO PERFORM CAUSED BY ACTS BEYOND THE CONTROL OF THE CONTRACTOR SHALL NOT BE CONSIDERED.

"/3) VIOLATION OF THE CONTRACTUAL PROVISION AGAINST CONTINGENT FEES.

"/4) VIOLATION OF THE CONTRACTUAL PROVISION AGAINST GRATUITIES, AS DETERMINED BY THE SECRETARY OF A DEPARTMENT IN ACCORDANCE WITH THE PROVISIONS OF THE GRATUITIES CLAUSE.'

THE ASSISTANT SECRETARY'S REPORT OF AUGUST 30, ADOPTS THE ABOVE-QUOTED LANGUAGE OF ASPR 1-604.1 (2) IN STATING THAT 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" WHICH, ALONE, WAS CONSIDERED SUFFICIENT TO WARRANT THE DEBARMENT. FORWARDED WITH THE REPORT WAS A COPY OF A ,MEMORANDUM OF DEBARMENT," DATED JULY 14, AND A COPY OF THE NOTICE OF DEBARMENT, DATED AUGUST 10, TO THE PROTESTANT. THESE REFER TO THE PROTESTANT'S DELINQUENCY AND RESULTING DEFAULT UNDER ONE NAVY CONTRACT, AS ONE BASIS FOR THE DEBARMENT ACTION.

AS A PREREQUISITE TO DEBARMENT ON SUCH GROUNDS, THE REGULATION REQUIRES THAT VIOLATIONS OF CONTRACT PROVISIONS MUST BE "OF A CHARACTER REGARDED BY THE SECRETARY OF THE DEPARTMENT INVOLVED, OR HIS AUTHORIZED REPRESENTATIVE, TO BE SO SERIOUS AS TO JUSTIFY DEBARMENT ACTIONS.' THIS CONNECTION, THE PROTESTANT URGES THAT HIS DELINQUENCY IN DELIVERIES UNDER THE CONTRACT WAS NOT ,SERIOUS" AND ALLEGES THAT A "MEMO TO FILE," REFERENCE N140-62236S-5429B, JUNE 27, 1955, PREPARED BY THE CONTRACTING OFFICER AND OBTAINED FROM THE NAVY FILES DURING THE PROCEEDINGS BEFORE THE BOARD OF CONTRACT APPEALS ON HIS APPEAL FROM THAT OFFICER'S DETERMINATION OF DEFAULT, STATES THAT HE HAD BEEN ADVISED "THAT THE 50,000 CAP PROCUREMENT WITH IDEAL WAS FOR RESERVE STOCKS AND THEY WERE NOT URGENTLY REQUIRED.'

SO FAR AS WE ARE AWARE, THE PROTESTANT HAS BEEN CONTRACTING WITH THE GOVERNMENT OVER A LONG PERIOD OF TIME AND THERE HAS BEEN NO HISTORICAL PATTERN OF UNSATISFACTORY PERFORMANCE UNDER ITS CONTRACTS, OR PRIOR DEFAULTS. IN ANY EVENT, YOU ARE REQUESTED TO ADVISE US OF ANY MATERIAL INFORMATION AVAILABLE TO YOU INDICATING THE SERIOUS CHARACTER OF THE DEFAULT AND SHOWING A HISTORY OF FAILURE TO PERFORM, AND TO FURNISH US WITH A COPY OF THE "MEMO TO FILE" CITED BY THE PROTESTANT.

THE OTHER REASON ASSIGNED FOR THE DEBARMENT IS THE ACTION OF MR. SCHLESINGER IN INVOKING THE FIFTH AMENDMENT TO THE CONSTITUTION TO AVOID PRODUCTION OF HIS FINANCIAL RECORDS BEFORE A SUBCOMMITTEE OF THE UNITED STATES SENATE. THE ASSISTANT SECRETARY STATES IN HIS LETTER OF AUGUST 10 TO THE PROTESTANT THAT SUCH ACTION CREATED DOUBT AS TO WHETHER HE HAD PAID ALL TAXES DUE ON THE PROFITS RECEIVED FROM GOVERNMENT BUSINESS AND THAT UNTIL THAT DOUBT IS RESOLVED, HE CANNOT, IN GOOD CONSCIENCE, AS TRUSTEE OF THE TAXPAYERS' MONEYS AND TO PREVENT THEIR WASTE, PERMIT FURTHER NAVY CONTRACTS TO BE AWARDED THE PROTESTANT.

IN THIS CONNECTION THE PROTESTANT STATES THAT HE HAS NOT BEEN ACCUSED, INDICTED, OR CONVICTED OF THE VIOLATION BY ANY LAWS. HE UNEQUIVOCALLY DENIED IN HIS TESTIMONY BEFORE THE SENATE SUBCOMMITTEE THAT HE HAD EVER GIVEN ANY MONEY OR GIFTS TO GOVERNMENT OFFICIALS TO OBTAIN GOVERNMENT CONTRACTS. IT FURTHER IS ASSERTED BY THE PROTESTANT THAT ALL CONTRACTS BETWEEN HIS COMPANY AND THE GOVERNMENT FOR THE PAST THREE YEARS AND MORE HAVE BEEN AWARDED AS THE RESULT OF OPEN, COMPETITIVE BIDDING.

THE ASSISTANT SECRETARY IMPLIEDLY CONCEDES THAT SECTION 1-604 OF THE REGULATIONS, QUOTED ABOVE, DOES NOT AUTHORIZE THE DEBARMENT BECAUSE HE RELIES ON SECTION 1-109, WHICH PROVIDES, AS FOLLOWS:

"1-109 DEVIATIONS FROM THIS REGULATION AND DEPARTMENT OF DEFENSE PUBLICATIONS GOVERNING PROCUREMENT. DEVIATIONS FROM THE REQUIREMENTS OF THIS REGULATION AND DEPARTMENT OF DEFENSE PUBLICATIONS GOVERNING PROCUREMENT SHALL BE MADE AS FOLLOWS:

"1-109.1 INDIVIDUAL CASE DEVIATIONS. DEVIATIONS FROM THE REQUIREMENTS OF THIS REGULATION AND DEPARTMENT OF DEFENSE PUBLICATIONS GOVERNING PROCUREMENT MAY BE AUTHORIZED IN ACCORDANCE WITH PROCEDURES PRESCRIBED BY EACH RESPECTIVE DEPARTMENT IN INDIVIDUAL CASES, WHERE SPECIAL CIRCUMSTANCES JUSTIFY THE DEVIATION. A REPORT OF ANY SUCH DEVIATION SHALL BE FURNISHED TO THE OTHER MILITARY DEPARTMENTS AND TO THE ASSISTANT SECRETARY OF DEFENSE (SUPPLY AND LOGISTICS).'

HOWEVER, WHILE SECTION 1-109.1 IS THE GENERAL AUTHORITY FOR DEVIATIONS "IN ACCORDANCE WITH PROCEDURES PRESCRIBED BY EACH RESPECTIVE DEPARTMENT IN INDIVIDUAL CASES," SECTION 1-606 (INCLUDED IN THE PART OF THE ASPR GOVERNING DEBARMENTS AND SUSPENSIONS) EXPRESSLY PROVIDES THAT---

"NO FIRM OR INDIVIDUAL WILL BE LISTED ON THE CONSOLIDATED LIST FOR CAUSES OR UNDER CONDITIONS OTHER THAN THOSE SET FORTH IN THIS PART 6.'

IT IS INTERESTING TO NOTE THAT THE SITUATION HERE INVOLVED DOES NOT EVEN COME WITHIN THE LESS DRASTIC PROVISIONS OF SECTION 1-605 RELATING TO SUSPENSION OF BIDDERS. UNDER THE REGULATIONS, EVEN TO SUSPEND A BIDDER FOR A TEMPORARY PERIOD PENDING COMPLETION OF AN INVESTIGATION OR LEGAL PROCEEDINGS--- DURING WHICH PERIOD THE SUSPENDED BIDDER MAY SUBMIT BIDS AND RECEIVE AWARDS--- THE ACTION "MUST BE BASED UPON ADEQUATE EVIDENCE RATHER THAN MERE ACCUSATION," IT MUST BE FOR "THE PURPOSE OF PROTECTING THE INTEREST OF THE GOVERNMENT AND NOT FOR PUNISHMENT," AND THE SUSPENDED FIRM OR INDIVIDUAL MUST BE "SUSPECTED OF HAVING COMMITTED FRAUD OR A CRIMINAL OFFENSE AS AN INCIDENT TO OBTAINING, ATTEMPTING TO OBTAIN, OR IN THE PERFORMANCE OF A CONTRACT.'

IN VIEW OF THE FOREGOING, YOU ARE REQUESTED TO FURNISH YOUR FURTHER VIEWS ON THE ALLEGATIONS OF THE PROTESTANT AND THE APPLICABILITY OF THE AUTHORITY FOR DEVIATIONS CONTAINED IN SECTION 1-109 TO THE SITUATION HERE INVOLVED.