B-206384 L/M, MAR 15, 1982, OFFICE OF GENERAL COUNSEL

B-206384 L/M, MAR 15, 1982, OFFICE OF GENERAL COUNSEL

DIGEST: 1. SUBMISSION OF BELOW-COST BID IS NOT PROPER BASIS TO CHALLENGE VALIDITY OF CONTRACT AWARD. 2. CONTRACTING AGENCY'S FAILURE TO SET ASIDE PROCUREMENT FOR SMALL BUSINESS IS NOT FOR REVIEW BY GAO SINCE DETERMINATION TO SET ASIDE PROCUREMENT IS MATTER GENERALLY WITHIN AUTHORITY AND DISCRETION OF AGENCY.

MERCHANTS DELIVERY SERVICE, INC.:

ATTENTION: BOB VETTERS, PRESIDENT

WE REFER TO YOUR INQUIRY CONCERNING CONTRACTS FOR TRANSPORTING GOVERNMENT FREIGHT FROM THE DEPARTMENT OF DEFENSE DEPOT, MEMPHIS, TENNESSEE AND THE FEDERAL SUPPLY SERVICE DISTRIBUTION FACILITY, FT. WORTH, TEXAS TO VARIOUS RECEIVING INSTALLATIONS IN THE SAN ANTONIO, TEXAS AREA. YOU CONTEND THAT LARGE COMMON CARRIER CORPORATIONS, SPECIFICALLY ETMF AND MISSOURI PACIFIC, BID SUCH LOW PRICES ON THESE CONTRACTS THAT THEY WILL NOT BE ABLE TO RECOVER THEIR COSTS WITH THE REVENUES RECEIVED AND THEREFORE THEY UNFAIRLY ELIMINATED YOUR FIRM FROM COMPETITION FOR THE CONTRACTS.

EVEN IF ETMF AND MISSOURI PACIFIC IN FACT SUBMITTED BID PRICES WHICH WERE LOWER THAN THEIR COSTS, THE SUBMISSION OF A BELOW-COST BID IS NOT, IN ITSELF, A LEGAL BASIS FOR PRECLUDING OR DISTURBING A CONTRACT AWARD. ACCEPTANCE OF THE BIDS WILL BIND THE AWARDEES TO PERFORM AT THE PRICE OFFERED IN THEIR BIDS, AND THUS THE FACT THAT THEY MAY INCUR A LOSS AT THE BID PRICE DOES NOT JUSTIFY THE REJECTION OF OTHERWISE ACCEPTABLE BIDS.

YOUR CONCERN THAT THE AWARDEES' BIDS ARE UNREASONABLY LOW REALLY RAISES A QUESTION OF THE BIDDERS' RESPONSIBILITY, I.E., THEIR ABILITY TO PERFORM THE CONTRACTS AT THE PRICE BID. BEFORE AWARDING THE CONTRACTS, THE CONTRACTING AGENCY WAS REQUIRED TO DETERMINE THE AWARDEES' RESPONSIBILITY. DEFENSE ACQUISITION REGULATION (DAR) SEC. 1 904.1 (1976 ED.); FEDERAL PROCUREMENT REGULATIONS (FPR) SEC. 1-1.1204-1 (1964 ED.). OUR OFFICE WILL NOT REVIEW A DETERMINATION OF RESPONSIBILITY UNLESS IT IS DEMONSTRATED THERE IS FRAUD ON THE PART OF THE PROCURING OFFICIALS OR THAT THE SOLICITATION CONTAINED DEFINITIVE RESPONSIBILITY CRITERIA WHICH WERE NOT APPLIED.

YOU ALSO SUGGEST THAT THESE CONTRACTS SHOULD HAVE BEEN SET ASIDE FOR SMALL BUSINESS. CONGRESS HAS ESTABLISHED A POLICY OF ASSISTING SMALL BUSINESS, 15 U.S.C. SEC. 631 (1976), BUT THE DECISION OF WHETHER A PARTICULAR PROCUREMENT SHOULD BE SET ASIDE FOR SMALL BUSINESS IS GENERALLY WITHIN THE AUTHORITY AND DISCRETION OF THE CONTRACTING AGENCY AND NOT FOR REVIEW BY OUR OFFICE. A CONTRACT MUST BE RESERVED EXCLUSIVELY FOR SMALL BUSINESS ONLY WHERE THERE IS A CONTRACT WHICH HAS AN ANTICIPATED VALUE OF LESS THAN $10,000 AND WHICH IS SUBJECT TO SMALL PURCHASE PROCEDURES, 15 U.S.C. SEC. 644(J) (SUPP. III 1979), OR WHERE A PRODUCT OR SERVICE HAS PREVIOUSLY BEEN ACQUIRED SUCCESSFULLY ON THE BASIS OF A SMALL BUSINESS SET -ASIDE, DAR SEC. 1-706.1(F).

THESE EXCEPTIONS DO NOT APPEAR TO APPLY TO THE MEMPHIS-SAN ANTONIO CONTRACT AND THEREFORE IT WAS WITHIN THE CONTRACTING AGENCY'S DISCRETION WHETHER TO SET ASIDE THE CONTRACT FOR SMALL BUSINESS. IN REGARD TO THE FT. WORTH-SAN ANTONIO SITUATION, THE GENERAL SERVICES ADMINISTRATION (GSA) SUCCESSFULLY SET ASIDE THE TRANSPORTATION CONTRACT FOR SMALL BUSINESS IN 1970, BUT THE AGENCY HAS ADVISED US THAT IT DISCONTINUED CONTRACTING FOR THESE SERVICES AS OF APRIL 30, 1979. AT THAT TIME GSA DETERMINED THAT IT WAS NOT ADVANTAGEOUS FOR IT TO CONTRACT FOR THESE SERVICES AND IT NOW HANDLES ITS FT. WORTH-SAN ANTONIO TRANSPORTATION REQUIREMENTS ON A TENDER BASIS.

WE TRUST THIS IS RESPONSIVE TO YOUR INQUIRY.