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B-182236, APR 25, 1975

B-182236 Apr 25, 1975
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IS AFFIRMED AS DECISION B-183039. INCORPORATED: THIS DECISION IS IN RESPONSE TO THE REQUEST BY PROBE SYSTEMS. THE PROTEST WHICH WAS THE SUBJECT OF THE CITED DECISION INVOLVED THE ACTION OF MCDONNELL AIRCRAFT COMPANY. THE SUBCONTRACT IN QUESTION WAS AWARDED PURSUANT TO A SOLICITATION FOR FIRM FIXED PRICE PROPOSALS FOR THE FURNISHING OF EIGHT PREPRODUCTION MODELS OF SPECIAL WARNING RECEIVERS FOR THE F-4. THE PRINCIPAL IRREGULARITY OF WHICH PROBE COMPLAINS IS MCDONNELL'S ALLEGED AMENDMENT OF THE SUBCONTRACT SOLICITATION TO REDUCE THE PREPRODUCTION MODEL QUANTITY REQUIREMENT FROM EIGHT TO SIX UNITS WITHOUT NOTICE TO ALL BIDDERS. PROBE CLAIMS THAT MCDONNELL ADVISED ONLY APPLIED TECHNOLOGY OF THE QUANTITY REDUCTION AND CONDUCTED NEGOTIATIONS ONLY WITH THAT FIRM NOTWITHSTANDING THAT PROBE WAS ADVISED BY THE PRIME CONTRACTOR THAT ITS BID WAS LOWER THAN APPLIED TECHNOLOGY'S AND OF VIRTUALLY IDENTICAL TECHNICAL COMPETENCE.

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B-182236, APR 25, 1975

DECISION B-182236, JANUARY 2, 1975, DECLINING TO CONSIDER MERITS OF SUBCONTRACT PROTEST, IS AFFIRMED AS DECISION B-183039, MARCH 19, 1975, 54 COMP. GEN. , MAKES IT CLEAR THAT NEITHER ALLEGED VIOLATIONS OF ASPR BY PRIME CONTRACTOR, NOR PROVISIONS OF 31 U.S.C. 71 OR 4 C.F.R. 20, PROVIDE ANY BASIS FOR AN EXCEPTION TO POLICY AGAINST CONSIDERATION OF SUBCONTRACTOR PROTESTS. MOREOVER, EVIDENCE OF RECORD DOES NOT SUPPORT CONTENTION THAT PROTEST SHOULD BE CONSIDERED BECAUSE PRIME CONTRACTOR ACTED "FOR" GOVERNMENT.

PROBE SYSTEMS, INCORPORATED:

THIS DECISION IS IN RESPONSE TO THE REQUEST BY PROBE SYSTEMS, INCORPORATED (PROBE), FOR RECONSIDERATION OF OUR PREVIOUS HOLDING IN MATTER OF PROBE SYSTEMS, INCORPORATED, B-182236, JANUARY 2, 1975. THE PROTEST WHICH WAS THE SUBJECT OF THE CITED DECISION INVOLVED THE ACTION OF MCDONNELL AIRCRAFT COMPANY, A DIVISION OF MCDONNELL DOUGLAS CORPORATION (MCDONNELL), IN AWARDING A SUBCONTRACT TO APPLIED TECHNOLOGY, A DIVISION OF ITEK CORPORATION, UNDER ITS PRIME CONTRACT NO. 33657-75-C-0017 TO PROVIDE F-4 AIRCRAFT TO THE DEPARTMENT OF THE AIR FORCE.

THE SUBCONTRACT IN QUESTION WAS AWARDED PURSUANT TO A SOLICITATION FOR FIRM FIXED PRICE PROPOSALS FOR THE FURNISHING OF EIGHT PREPRODUCTION MODELS OF SPECIAL WARNING RECEIVERS FOR THE F-4, TOGETHER WITH BUDGETARY QUOTES FOR VARIOUS FOLLOW-ON PRODUCTION QUANTITIES. THE PRINCIPAL IRREGULARITY OF WHICH PROBE COMPLAINS IS MCDONNELL'S ALLEGED AMENDMENT OF THE SUBCONTRACT SOLICITATION TO REDUCE THE PREPRODUCTION MODEL QUANTITY REQUIREMENT FROM EIGHT TO SIX UNITS WITHOUT NOTICE TO ALL BIDDERS. ESSENTIALLY, PROBE CLAIMS THAT MCDONNELL ADVISED ONLY APPLIED TECHNOLOGY OF THE QUANTITY REDUCTION AND CONDUCTED NEGOTIATIONS ONLY WITH THAT FIRM NOTWITHSTANDING THAT PROBE WAS ADVISED BY THE PRIME CONTRACTOR THAT ITS BID WAS LOWER THAN APPLIED TECHNOLOGY'S AND OF VIRTUALLY IDENTICAL TECHNICAL COMPETENCE.

PROBE REQUESTED THAT WE REVIEW THE SUBCONTRACT SELECTION PROCEDURES. HOWEVER, CONSISTENT WITH VARIOUS DECISIONS OF OUR OFFICE, INCLUDING 51 COMP. GEN. 803 (1972), LIMITING THE SCOPE OF OUR REVIEW OF SUBCONTRACT AWARDS TO PROCUREMENTS IN WHICH THE PRIME CONTRACTOR WAS ACTING AS A PURCHASING AGENT FOR THE GOVERNMENT OR IN WHICH FRAUD OR BAD FAITH ON THE PART OF GOVERNMENT CONTRACTING OFFICIALS IN APPROVING A SUBCONTRACT AWARD WAS ALLEGED, WE DECLINED TO REVIEW THE MERITS OF PROBE'S PROTEST.

IN REQUESTING RECONSIDERATION, PROBE SETS FORTH VARIOUS ARGUMENTS IN SUPPORT OF ITS CONTENTION THAT THIS OFFICE IS OBLIGED TO OR SHOULD CONSIDER THE PROTEST OF THE AWARD OF THE SUBCONTRACT IN THIS CASE. PROBE FIRST URGES THAT RELIANCE ON OUR DECISION IN 51 COMP. GEN. 803, SUPRA, IS MISPLACED INASMUCH AS THAT CASE INVOLVED AN ALLEGED MISAPPROPRIATION OF TRADE SECRETS, WHEREAS PROBE'S CONCERN IS WITH VIOLATIONS OF SPECIFIC SECTIONS OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR). IN THIS CONNECTION, IT IS THE PROTESTER'S POSITION THAT THE PROVISIONS OF ASPR GOVERNING SOLICITATION AND AWARD OF GOVERNMENT CONTRACTS ARE APPLICABLE TO SUBCONTRACT AWARDS. IN ADDITION, THE PROTESTER CLAIMS THAT 31 U.S.C. 71 AND SECTION 20.1 OF TITLE 4 OF THE CODE OF FEDERAL REGULATIONS (C.F.R.) MAKE NO DISTINCTION BETWEEN PRIME AND SUBCONTRACTS AND THAT, INASMUCH AS BOTH ULTIMATELY INVOLVE EXPENDITURES OF FEDERAL FUNDS, THIS OFFICE IS OBLIGED TO CONSIDER SUBCONTRACT PROTESTS. IN SUPPORT OF THIS CONTENTION, PROBE HAS RAISED SEVERAL POLICY REASONS FOR CONCLUDING THAT OUR CONSIDERATION OF SUCH PROTESTS IS DESIRABLE. LASTLY, PROBE CLAIMS THAT WE ARE OBLIGED TO ENTERTAIN ITS PROTEST IN THIS PARTICULAR CASE BECAUSE MCDONNELL, IN ITS ROLE AS A PRIME CONTRACTOR, IS THE AGENT OF THE UNITED STATES GOVERNMENT FOR THE PURPOSES OF THE F-4 PROGRAM.

SUBSEQUENT TO OUR INITIAL CONSIDERATION OF PROBE'S PROTEST, OUR DECISION IN MATTER OF OPTIMUM SYSTEMS, INCORPORATED - SUBCONTRACT PROTEST, B- 183039, MARCH 19, 1975, 54 COMP. GEN. , WAS ISSUED. THEREIN WE SPECIFICALLY UNDERTOOK TO CLARIFY AND REDEFINE OUR POLICY CONCERNING THE CIRCUMSTANCES UNDER WHICH WE WILL CONSIDER PROTESTS AGAINST SUBCONTRACT AWARDS BY GOVERNMENT PRIME CONTRACTORS. IN THAT DECISION WE MADE IT CLEAR THAT OUR DECISION IN 51 COMP. GEN. 803, SUPRA, WAS NOT CONFINED TO THE PARTICULAR CIRCUMSTANCES THERE INVOLVED, BUT WAS INTENDED AS A GENERAL ENUNCIATION OF OUR POLICY WITH REGARD TO CONSIDERATION OF SUBCONTRACT PROTESTS. HAVING DISCUSSED THAT DECISION, AS WELL AS PRIOR CASES, WE PROCEEDED TO INDICATE THE SPECIFIC INSTANCES IN WHICH SUBCONTRACTOR'S PROTESTS WOULD BE ENTERTAINED BY THIS OFFICE AS FOLLOWS:

"TO CLARIFY AND REDEFINE OUR POLICY REGARDING SUBCONTRACT PROTESTS, WE WILL NOT CONSIDER PROTESTS AGAINST THE AWARDS OF SUBCONTRACTS BY PRIME CONTRACTORS OF THE GOVERNMENT, UNLESS ONE OF THE APPROPRIATE CIRCUMSTANCES SET OUT BELOW EXISTS. THIS INCLUDES THOSE PROTESTS INVOLVING PRIME CONTRACTS OF A COST-REIMBURSEMENT TYPE WHERE THE SUBCONTRACTS COULD WELL HAVE A SIGNIFICANT EFFECT ON THE CONTRACT COSTS TO THE GOVERNMENT AND MIGHT BE PREJUDICIAL TO THE GOVERNMENT'S INTERESTS. FURTHERMORE, WE NO LONGER BELIEVE ANY VALID REASON EXISTS FOR MAKING ANY DISTINCTION BASED ON WHETHER AWARD HAS BEEN MADE IN DETERMINING WHETHER OR NOT WE WILL CONSIDER A PARTICULAR SUBCONTRACT PROTEST. OUR DECISION IN 51 COMP. GEN. 803 IS MODIFIED IN THIS REGARD. WE BELIEVE THE POSSIBILITY OF FINDING ADEQUATE JUSTIFICATION TO RECOMMEND REMEDIAL ACTION IN THE CASE OF A PROTESTED SUBCONTRACT IS ORDINARILY REMOTE. MOREOVER, MANY MATTERS SURROUNDING THE REVIEW OF AWARDS OF SUBCONTRACTS ARE MATTERS OF CONTRACT ADMINISTRATION, WHICH WE BELIEVE ARE PRIMARILY FOR RESOLUTION BY THE CONTRACTOR OR CONTRACTING AGENCY AND WHICH ARE, THEREFORE, INAPPROPRIATE FOR OUR OFFICE TO CONSIDER.

"WE WILL CONTINUE TO ISSUE DECISIONS ON AWARDS MADE BY CONTRACTORS ACTING AS PURCHASING AGENTS OF THE GOVERNMENT, SINCE THE LEGAL EFFECT OF THE TRANSACTIONS MADE BY SUCH CONTRACTORS ON BEHALF OF THE GOVERNMENT IS TO DIRECTLY BIND THE FEDERAL GOVERNMENT. SEE 21 COMP. GEN. 682 (1942).

"WE WILL ALSO CONSIDER PROTESTS OF THE AWARDS OF SUBCONTRACTS WHERE IT HAS BEEN SHOWN THAT THE FEDERAL GOVERNMENT HAS SO DIRECTLY OR ACTIVELY PARTICIPATED IN THE SELECTION OF THE SUBCONTRACTOR THAT THE NET EFFECT OF THE GOVERNMENT PARTICIPATION WAS TO CAUSE OR CONTROL THE REJECTION OR SELECTION OF A POTENTIAL SUBCONTRACTOR, OR HAS IMPOSED SUCH CONDITIONS ON THE CONTRACTOR AS TO SIGNIFICANTLY LIMIT THE SOURCES TO WHICH SUBCONTRACTS COULD HAVE BEEN AWARDED. ***

"HOWEVER, WHERE THE ONLY GOVERNMENT INVOLVEMENT IN THE SUBCONTRACTOR SELECTION PROCESS IS ITS APPROVAL OF THE SUBCONTRACT AWARD OR PROPOSED AWARD (TO BE CONTRASTED WITH THE CIRCUMSTANCES SET OUT ABOVE WHERE DIRECT OR ACTIVE GOVERNMENT PARTICIPATION IN OR LIMITATION OF SUBCONTRACTOR SELECTION EXISTED), WE WILL ONLY REVIEW THE AGENCY'S APPROVAL ACTION IF FRAUD OR BAD FAITH IS SHOWN. SEE 51 COMP. GEN. 803; MATTER OF AIRCRAFT SYSTEMS CORPORATION, B-181676, AUGUST 7, 1974; MATTER OF LITTON INDUSTRIAL PRODUCTS, INC., B-181676, NOVEMBER 26, 1974; MATTER OF PROBE SYSTEMS INCORPORATED, B-182236, JANUARY 2, 1975. HOWEVER, WE STILL ARE OF THE VIEW THAT THE GENERAL PRINCIPLES SET OUT ABOVE CONCERNING THE STANDARDS AND SCOPE OF AN AGENCY'S REVIEW AND APPROVAL OF ITS PRIME CONTRACTORS' SUBCONTRACTOR SELECTION AND PROCEDURES ARE STILL VALID AND FOR APPLICATION BY THE CONTRACTING AGENCIES.

"WE WILL ALSO CONSIDER, UNDER APPROPRIATE CIRCUMSTANCES, PROTESTS OF AWARDS MADE BY PRIME CONTRACTORS ACTING UNDER THOSE COST-TYPE MANAGEMENT CONTRACTS AND SUCH OTHER CASES WHERE WE FIND THE CONTRACTOR'S AWARD WAS MADE 'FOR' AN AGENCY OF THE FEDERAL GOVERNMENT. SEE 4 C.F.R. SEC. 20.1(A) (1974). FOR EXAMPLE, WE HAVE ALWAYS CONSIDERED PROTESTS OF AWARDS MADE 'FOR' THE ATOMIC ENERGY COMMISSION (AEC) (NOW THE ENERGY RESOURCES DEVELOPMENT ADMINISTRATION) BY PRIME MANAGEMENT CONTRACTORS WHO OPERATED AND MANAGED AEC FACILITIES. SEE B 152946, SUPRA; B-169942, JULY 27, 1970; B-170202, SEPTEMBER 1, 1970; B 172959(2), SEPTEMBER 10, 1971; 51 COMP. GEN. 329 (1971); B-179462, NOVEMBER 12, 1973. ALSO, SEE 49 COMP. GEN., SUPRA, AND LOMBARD CORPORATION V. RESOR, 321 F. SUPP. 687 (D. D.C. 1970), WHERE THE GOVERNMENT PRIME CONTRACTOR, WHO MANAGED A GOVERNMENT-OWNED CONTRACTOR OPERATED PLANT, PURCHASED EQUIPMENT FOR THE PLANT.

"ALSO, WHERE APPROPRIATE, WE WILL CONSIDER QUESTIONS CONCERNING THE AWARDS OF SUBCONTRACTS SUBMITTED TO OUR OFFICE BY THOSE OFFICIALS OF FEDERAL AGENCIES, WHO ARE ENTITLED TO ADVANCE DECISIONS FROM OUR OFFICE. SEE 31 U.S.C. 74 (1970); 36 COMP. GEN. 311 (1956)."

OUR DECISION B-183039, SUPRA, ALSO SPECIFICALLY ADDRESSED PROBE'S ARGUMENT THAT THE PROVISIONS OF ASPR GOVERNING SOLICITATION AND AWARD OF GOVERNMENT CONTRACTS ARE APPLICABLE TO SUBCONTRACTS AS WELL AS PRIME CONTRACTS. WE THEREIN NOTED THAT THIS OFFICE HAS CONSISTENTLY RECOGNIZED THAT THE CONTRACTING PROCEDURES EMPLOYED BY PRIME CONTRACTORS IN THE AWARD OF SUBCONTRACTS ARE GENERALLY NOT SUBJECT TO THE STATUTORY AND REGULATORY REQUIREMENTS GOVERNING DIRECT PROCUREMENTS OF THE FEDERAL GOVERNMENT. 166532, APRIL 7, 1970; B-169942, JULY 27, 1970; B-170202, SEPTEMBER 1, 1970; 37 COMP. GEN. 315 (1957); 41 COMP. GEN. 424 (1961); 49 COMP. GEN. 668 (1970); MATTER OF OPTIMUM SYSTEMS, INCORPORATED, B-183039, SUPRA. THEREFORE, THE ALLEGED VIOLATION BY MCDONNELL OF VARIOUS PROVISIONS OF ASPR CITED BY THE PROTESTER PROVIDES NO BASIS FOR OUR OFFICE TO MAKE AN EXCEPTION TO THE POLICY ENUNCIATED IN THE LATTER DECISION.

WITH REGARD TO PROBE'S CONTENTION THAT 31 U.S.C. 71, REQUIRING THE GENERAL ACCOUNTING OFFICE TO SETTLE AND ADJUST ALL CLAIMS AND DEMANDS BY OR AGAINST THE GOVERNMENT, OBLIGATES THIS OFFICE TO ENTERTAIN ITS PROTEST AGAINST THE AWARD OF THE SUBCONTRACT HERE IN QUESTION, OUR DECISION IN THE MATTER OF OPTIMUM SYSTEMS, INCORPORATED, B-183039, SUPRA, AMOUNTS TO A REJECTION OF THAT ARGUMENT. IN FACT, THAT DECISION MAKES IT CLEAR THAT THE EXTENT OF OUR CONSIDERATION OF SUBCONTRACTOR'S PROTESTS IS A MATTER OF POLICY AND THE REASONS FOR THE STATED POLICY ARE INDICATED IN THE FIRST PARAGRAPH OF THE ABOVE-QUOTED LANGUAGE OF THAT DECISION. FURTHERMORE, AS NOTED IN THAT DECISION, APPROPRIATE ATTENTION IN OUR AUDIT FUNCTIONS INVOLVING THE AWARD OF SUBCONTRACTS UNDER COST-REIMBURSEMENT TYPE CONTRACTS WILL BE GIVEN TO ANY EVIDENCE INDICATING THAT THE COST TO THE GOVERNMENT HAS BEEN UNDULY INCREASED BECAUSE OF IMPROPER PROCUREMENT ACTIONS BY THE PRIME CONTRACTOR.

FINALLY, PROBE POINTS OUT THAT OUR INTERIM BID PROTEST PROCEDURES AND STANDARDS, 4 C.F.R. 20, REQUIRE OUR CONSIDERATION OF CONTRACTS MADE "FOR" THE GOVERNMENT. SPECIFICALLY, SUBSECTION 20.1(A) PROVIDES:

"(A) AN INTERESTED PARTY WISHING TO PROTEST THE PROPOSED AWARD OF A CONTRACT, OR THE AWARD OF A CONTRACT, BY OR FOR AN AGENCY OF THE FEDERAL GOVERNMENT WHOSE ACCOUNTS ARE SUBJECT TO SETTLEMENT BY THE GENERAL ACCOUNTING OFFICE MAY DO SO BY A TELEGRAM OR LETTER TO THE GENERAL COUNSEL, GENERAL ACCOUNTING OFFICE, WASHINGTON, D.C. 20548."

IN SUPPORT OF ITS CONTENTION, PROBE STATES:

"IN THIS CASE, MCDONNELL-DOUGLAS CORPORATION ('MCAIR') IN ITS ROLE AS PRIME CONTRACTOR, IS THE AGENT OF THE UNITED STATES GOVERNMENT. THE F 4 PROGRAM INVOLVES THE EXPENDITURE OF BILLIONS OF DOLLARS. THE GOVERNMENT HAS CHOSEN MCAIR TO ADMINISTER THAT PROGRAM, AND MCAIR HAS CONTROL OVER SUBCONTRACTS WHICH, IN THE AGGREGATE, REPRESENT VAST ECONOMIC POWER. PRACTICAL FACT, MCAIR IS ACTING AS A PURCHASING AGENT FOR THE GOVERNMENT AND BOTH FRAUD AND BAD FAITH HAVE BEEN ASSERTED IN PROBE'S PROTEST. FOR THESE REASONS, THE COMPTROLLER GENERAL MUST CONSIDER PROBE'S PROTEST ON ITS MERITS."

NOT EVERY PRIME CONTRACTOR IS ACTING "FOR" THE GOVERNMENT IN ADMINISTERING ITS CONTRACT. THE PARTICULAR PROVISIONS OF THE PRIME CONTRACT AND NOT ITS DOLLAR AMOUNT ARE CRITICAL TO THE DETERMINATION OF WHETHER A PRIME CONTRACTOR IS ACTING AS AN INDEPENDENT CONTRACTOR OR "FOR" THE GOVERNMENT. THE MAJORITY OF CASES IN WHICH WE HAVE CONSIDERED A PRIME CONTRACTOR TO BE ACTING FOR THE GOVERNMENT INVOLVE SITUATIONS IN WHICH THE PRIME CONTRACT IS FOR OPERATION OF A FACILITY, AND, IN PARTICULAR, AN ATOMIC ENERGY COMMISSION FACILITY. B-169942, JULY 27, 1970; B-179462, NOVEMBER 12, 1973; B-152946, MAY 14, 1964. IN CONCLUDING THAT PARTICULAR SUBCONTRACTS WERE MADE "FOR" THE GOVERNMENT, WE HAVE CONSIDERED AS PARTICULARLY PERSUASIVE THE FACT THAT THE PRIME CONTRACT SPECIFICALLY PROVIDED THAT THE PRIME CONTRACTOR WAS ACTING "BY AND FOR THE GOVERNMENT"; THAT TITLE TO ITEMS CONVEYED UNDER THE SUBCONTRACT WOULD PASS DIRECTLY FROM THE SELLER TO THE GOVERNMENT; AND THAT THE GOVERNMENT RATHER THAN THE CONTRACTOR WOULD BE DIRECTLY LIABLE FOR PAYMENT THEREFOR.

IN THE CASE AT HAND, THE PROTESTER HAS OFFERED NOTHING IN SUPPORT OF ITS CLAIM THAT MCDONNELL AIRCRAFT ACTED "FOR" THE GOVERNMENT IN AWARDING THE SUBCONTRACT IN QUESTION TO APPLIED TECHNOLOGY OTHER THAN THE FACT THAT THE PRIME CONTRACT RESERVES TO THE AIR FORCE THE RIGHT OF APPROVAL OVER SUBCONTRACTS. AS WE ARE AWARE OF NO PROVISION IN THE PRIME CONTRACT AUTHORIZING MCDONNELL TO ACT "FOR" THE GOVERNMENT, WE ARE UNABLE TO CONCLUDE THAT IT ACTED OTHER THAN IN ITS CAPACITY AS AN INDEPENDENT CONTRACTOR. FOR THIS REASON, AND INASMUCH AS THE PROTESTER MAKES NO CLAIM OF FRAUD OR BAD FAITH ON THE PART OF AIR FORCE OFFICIALS OR THAT THE AIR FORCE SO DIRECTLY OR ACTIVELY PARTICIPATED IN THE SUBCONTRACT AWARD AS TO CAUSE OR CONTROL MCDONNELL'S REJECTION OF ITS PROPOSAL, AND SINCE WE DISCONTINUED CONSIDERING SUBCONTRACT PROTESTS WHERE THE GOVERNMENT HAD THE RIGHT TO SUBCONTRACT APPROVAL BEGINNING WITH OUR DECISION AT 51 COMP. GEN. 803, SUPRA, OUR PREVIOUS DECISION DECLINING TO RULE UPON THE MERITS OF PROBE'S PROTEST IS AFFIRMED.

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