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B-144432, AUGUST 21, 1961, 41 COMP. GEN. 124

B-144432 Aug 21, 1961
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- CHANGE IN STATUS THE REMOVAL OF AN ITEM OFFERED BY A LOW BIDDER FROM THE QUALIFIED PRODUCTS LIST AFTER BIDS ARE OPENED AND EVALUATED UNDER AN INVITATION WHICH OBLIGATES THE BIDDER TO FURNISH AN ITEM MEETING THE SPECIFICATIONS IS IMMATERIAL IN THE CONSIDERATION OF THE LEGALITY OF THE AWARD OR THE ENFORCEMENT OF THE CONTRACT AND. IS PROPER. WHICH AUTHORIZE THE SMALL BUSINESS ADMINISTRATION TO DETERMINE WHETHER CERTIFICATES OF COMPETENCY SHOULD BE ISSUED IN ANY CASE WHERE THE LOW BID OF AN OTHERWISE RESPONSIVE SMALL BUSINESS BIDDER IS QUESTIONED BY THE CONTRACTING OFFICER BECAUSE OF LACK OF RESPONSIBILITY. THE FACT THAT ONLY SMALL BUSINESS BIDDERS ARE IN COMPETITION FOR THE AWARD DOES NOT RENDER THE CERTIFICATE OF COMPETENCY PROCEDURES INAPPLICABLE OR INAPPROPRIATE IN THE ABSENCE OF ANYTHING IN THE LEGISLATIVE HISTORY OF THE ACT WHICH INDICATES THAT THERE SHOULD BE A DISTINCTION IN THE ISSUANCE OF CERTIFICATIONS BETWEEN SET-ASIDE PROCUREMENTS AND NON-SET ASIDE PROCUREMENTS.

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B-144432, AUGUST 21, 1961, 41 COMP. GEN. 124

CONTRACTS - SPECIFICATIONS - QUALIFIED PRODUCTS - REMOVAL - AWARDS - SMALL BUSINESS CONCERNS - CERTIFICATIONS - APPLICABILITY--- CHANGE IN STATUS THE REMOVAL OF AN ITEM OFFERED BY A LOW BIDDER FROM THE QUALIFIED PRODUCTS LIST AFTER BIDS ARE OPENED AND EVALUATED UNDER AN INVITATION WHICH OBLIGATES THE BIDDER TO FURNISH AN ITEM MEETING THE SPECIFICATIONS IS IMMATERIAL IN THE CONSIDERATION OF THE LEGALITY OF THE AWARD OR THE ENFORCEMENT OF THE CONTRACT AND, THEREFORE, THE REMOVAL OF THE ITEM FROM THE QUALIFIED PRODUCTS LIST DOES NOT MAKE THE LOW BID NONRESPONSIVE TO PRECLUDE AN AWARD. AN AWARD TO A SMALL BUSINESS LOW BIDDER ON THE BASIS OF A CERTIFICATE OF COMPETENCY ISSUED UNDER SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT, 15 U.S.C. 637 (B) (7), AFTER THE CONTRACTING AGENCY HAD DETERMINED THAT THE BIDDER LACKED THE CAPABILITIES TO PERFORM THE CONTRACT, IS PROPER, UNDER THE ACT AND THE IMPLEMENTING REGULATIONS, WHICH AUTHORIZE THE SMALL BUSINESS ADMINISTRATION TO DETERMINE WHETHER CERTIFICATES OF COMPETENCY SHOULD BE ISSUED IN ANY CASE WHERE THE LOW BID OF AN OTHERWISE RESPONSIVE SMALL BUSINESS BIDDER IS QUESTIONED BY THE CONTRACTING OFFICER BECAUSE OF LACK OF RESPONSIBILITY, AND THE FACT THAT ONLY SMALL BUSINESS BIDDERS ARE IN COMPETITION FOR THE AWARD DOES NOT RENDER THE CERTIFICATE OF COMPETENCY PROCEDURES INAPPLICABLE OR INAPPROPRIATE IN THE ABSENCE OF ANYTHING IN THE LEGISLATIVE HISTORY OF THE ACT WHICH INDICATES THAT THERE SHOULD BE A DISTINCTION IN THE ISSUANCE OF CERTIFICATIONS BETWEEN SET-ASIDE PROCUREMENTS AND NON-SET ASIDE PROCUREMENTS. AN AFTER-AWARD CHANGE IN THE STATUS OF A SMALL BUSINESS BIDDER WHO WAS AWARDED A CONTRACT ON THE BASIS OF THE ISSUANCE OF A CERTIFICATE OF COMPETENCY BY THE SMALL BUSINESS ADMINISTRATION HAS NO RETROACTIVE EFFECT TO INVALIDATE THE AWARD WHEN THE CONCERN BECOMES AN AFFILIATE OF A LARGE BUSINESS CONCERN, THE CERTIFICATE OF COMPETENCY BEING CONCLUSIVE UNDER 15 U.S.C. 637 (B) (7) ON THE CONTRACTING AGENCY AND THERE BEING NO STATUTORY OR OTHER REQUIREMENT THAT A SMALL BUSINESS BIDDER RETAIN ITS SMALL BUSINESS SIZE AFTER AWARD OR THROUGHOUT THE PERFORMANCE OF THE CONTRACT TO LEND LEGALITY TO AN AWARD WHICH WAS PROPER WHEN MADE.

TO THE KURZ AND ROOT COMPANY, AUGUST 21, 1961:

BY TELEGRAM DATED MARCH 16, 1961, LETTER DATED MAY 1, 1961, AND SUBSEQUENT CORRESPONDENCE, YOU PROTESTED AGAINST THE AWARD OF A CONTRACT TO THE INTERNATIONAL FERMONT MACHINERY COMPANY FOR A QUANTITY OF GENERATOR SETS UNDER INVITATION FOR BIDS NO. 104-606-61-9 ISSUED ON OCTOBER 4, 1960, AS THE SECOND PHASE OF A TWO-STEP PROCUREMENT INITIATED BY LETTER REQUEST FOR TECHNICAL PROPOSAL NO. SM-0-6115-6168, 6198 AND 6199 DATED MARCH 16, 1960.

THE TECHNICAL PROPOSAL COVERED FIVE DIFFERENT SIZES OF GENERATOR SETS, TYPES MB-14 THROUGH 19 IN ACCORDANCE WITH SPECIFICATION MIL-G 26727B. THE REQUEST FOR TECHNICAL PROPOSALS ORIGINALLY INDICATED THAT THE DIESEL ENGINES WHICH WOULD BE USED AS A COMPONENT PART MUST MEET THE REQUIREMENTS OF SPECIFICATION MIL-E-11276. AMENDMENT NO. 1 TO THE REQUEST DATED APRIL 15, 1960, CLARIFIED THIS REQUIREMENT BY PROVIDING:

ENGINES USED ARE NOT RESTRICTED TO ONLY THOSE WHICH HAVE ACTUALLY PASSED THE QUALIFICATION TEST REQUIREMENTS OF MIL-E-11276. HOWEVER, ANY ENGINES USED SHALL BE CAPABLE OF MEETING SAID QUALIFICATION TEST REQUIREMENTS.

ON MAY 12, 1960, BY AMENDMENT NO. 5, THE ABOVE LAST SENTENCE WAS CHANGED TO READ:

HOWEVER, ANY ENGINE USED SHALL BE CAPABLE OF MEETING THE QUALIFICATION REQUIREMENTS OF MIL-E-11276.

TECHNICAL PROPOSALS WERE EVALUATED BY AIR FORCE ENGINEERS TO DETERMINE WHETHER THEY WERE ACCEPTABLE. WITH RESPECT TO THE PROPOSAL SUBMITTED BY INTERNATIONAL FERMONT, IT WAS FOUND THAT THEY DID NOT INDICATE WHETHER THE ENGINES PROPOSED TO BE USED WERE QUALIFIED OR CAPABLE OF BEING QUALIFIED AS MEETING THE REQUIREMENTS OF SPECIFICATION MIL-E-11276. THE AIR FORCE ENGINEERS THEREFORE REQUESTED THAT INTERNATIONAL FERMONT BE ACQUIRED TO CERTIFY THAT THE ENGINES THEY PROPOSED TO USE WERE CAPABLE OF MEETING SUCH REQUIREMENTS. IT WAS FURTHER REQUESTED THAT THE CERTIFICATION BE BASED ON THE ENGINE MANUFACTURER'S EVALUATION OF ITS ENGINE AGAINST THE SPECIFICATION REQUIREMENTS. INCIDENTALLY, A NUMBER OF OTHER FIRMS SUBMITTING TECHNICAL PROPOSALS ALSO FAILED TO INDICATE WHETHER THE ENGINES THEY INTENDED TO USE MET SPECIFICATION REQUIREMENTS. INTERNATIONAL FERMONT, AS WELL AS ALL THE OTHER FIRMS INVOLVED, WAS REQUESTED TO MAKE THIS CERTIFICATION. ON SEPTEMBER 14, 1960, INTERNATIONAL FERMONT REPLIED THAT THE ENGINES THEY PROPOSED TO USE WERE CAPABLE OF MEETING MIL-E 11276A UNDER ALL OPERATING CONDITIONS SPECIFIED IN MIL-G-26727B AND AMENDMENTS THERETO. THEY FURTHER STATED THAT HERCULES AND HARNISCHFEGER, THE MANUFACTURERS OF ENGINES THEY PROPOSED TO USE, HAD CONFIRMED THEIR EVALUATION OF THEIR RESPECTIVE ENGINES TO THE SPECIFICATION REQUIREMENTS.

YOU CONTEND THAT INTERNATIONAL FERMONT, BY THE TERMS OF THE INVITATION AND THEIR TECHNICAL PROPOSAL, MUST USE THE HARNISCHFEGER ENGINE AND, SINCE THIS ENGINE WAS SUBSEQUENTLY REMOVED FROM THE QUALIFIED PRODUCTS LIST, SUCH FACT MAKES PERFORMANCE BY INTERNATIONAL FERMONT IMPOSSIBLE AND THEIR BID NONRESPONSIVE. WE DO NOT AGREE WITH THIS ALLEGATION. THE TECHNICAL PROPOSAL AND THE INVITATION REQUIRED THAT THE ENGINE SHALL MEET THE REQUIREMENTS OF MIL-E-11276. THE HARNISCHFEGER ENGINE WAS ON THE QUALIFIED PRODUCTS LIST AT THE TIME BIDS WERE OPENED ON OCTOBER 25, 1960. IT WAS NOT UNTIL SOME TIME IN DECEMBER 1960, NEARLY 2 MONTHS AFTER THE OPENING OF BIDS, THAT ONE OF THE HARNISCHFEGER ENGINES OFFERED BY INTERNATIONAL FERMONT WAS REMOVED FROM THE QUALIFIED PRODUCTS LIST BY THE DEPARTMENT OF THE ARMY. NOTICE OF THIS ACTION WAS RECEIVED BY THE PROCURING ACTIVITY IN FEBRUARY 1961. THE AWARD OF A CONTRACT TO INTERNATIONAL FERMONT WAS DELAYED BECAUSE INTERNATIONAL FERMONT APPLIED TO THE SMALL BUSINESS ADMINISTRATION ( SBA) FOR A CERTIFICATE OF COMPETENCY RESPECTING THEIR COMPETENCY, AS TO CAPACITY AND CREDIT, TO PERFORM THE PROCUREMENT. PENDING A DECISION BY SBA ON THIS APPLICATION, A PROTEST WAS FILED WITH OUR OFFICE BY AMERICAN MARC, INC., WHICH RESULTED IN FURTHER DELAYS IN MAKING THE AWARD. THE AWARD TO INTERNATIONAL FERMONT, AS THE LOW BIDDER, WAS FINALLY MADE ON MARCH 11, 1961, AFTER SBA HAD ISSUED A CERTIFICATE OF COMPETENCY TO THIS BIDDER AND AFTER WE HAD DENIED THE PROTEST OF AMERICAN MARC BY DECISION DATED MARCH 16, 1961.

AS INDICATED ABOVE, THE AIR FORCE WAS AWARE, PRIOR TO MAKING THIS AWARD, THAT ONE OF THE HARNISCHFEGER ENGINES PROPOSED TO BE USED BY INTERNATIONAL FERMONT HAD BEEN REMOVED FROM THE QUALIFIED PRODUCTS LIST. HOWEVER, THE AIR FORCE DETERMINED AT THAT TIME THAT THERE WAS NO VALID REASON FOR REFUSING THE AWARD OF THE CONTRACT TO INTERNATIONAL FERMONT. UNDER THE TERMS AND CONDITIONS OF THE INVITATION AND THE CONTRACT INCORPORATING SUCH TERMS AND CONDITIONS, INTERNATIONAL FERMONT WAS OBLIGATED TO DELIVER AN ITEM WHICH CONFORMED TO THE SPECIFICATIONS. EVEN IF THERE WAS A DEFICIENCY IN THEIR TECHNICAL PROPOSAL TO WHICH THE AIR FORCE HAD NOT TAKEN EXCEPTION IN ITS TECHNICAL EVALUATION, IT WAS NOT, AND COULD NOT BE, RELEASED FROM THAT OBLIGATION.

WE POINTED OUT IN OUR DECISION ON THE PROTEST OF AMERICAN MARC, 40 COMP. GEN. 514, THAT PART XV (A) OF THE INVITATION, ENTITLED," FIRST ARTICLE TEST APPROVAL, METHOD OF PRODUCTION," PROVIDES:

* * * IN THE EVENT SUCH TESTING BY THE CONTRACTOR OR ANY INSPECTION WHICH THE GOVERNMENT MAY DESIRE TO PERFORM DURING SUCH TESTING REVEALS DEFICIENCIES IN THE FIRST ARTICLES, THE CONTRACTOR SHALL IMMEDIATELY MAKE SUCH CORRECTIONS IN THE FIRST ARTICLES AS ARE NECESSARY TO MAKE SAID ARTICLES CONFORM TO THE CONTRACT SPECIFICATIONS FOR SUBMISSION AS CONTRACT ITEMS. * * *

PART XXVI OF THE CONTRACT PROVIDED THAT:

IN THE EVENT OF CONFLICT BETWEEN THE GOVERNMENT SPECIFICATIONS AND THE CONTRACTOR'S TECHNICAL PROPOSAL, THE GOVERNMENT SPECIFICATIONS SHALL GOVERN.

IT IS THE POSITION OF THE PROCUREMENT AGENCY, WITH WHICH WE AGREE, THAT THE RESPONSIBILITY FOR FURNISHING AN ENGINE MEETING THE REQUIREMENTS OF THE SPECIFICATION RESTS CLEARLY WITH THE CONTRACTOR. THE FACT THAT THE ENGINE THE CONTRACTOR ORIGINALLY PROPOSED TO FURNISH WAS ON A QUALIFIED PRODUCTS LIST WHEN THE TECHNICAL PROPOSAL WAS SUBMITTED AND WAS SUBSEQUENTLY REMOVED FROM THAT LIST IS, IN OUR OPINION, IMMATERIAL WHEN CONSIDERING THE LEGALITY OF THE AWARD OR THE ENFORCEMENT OF THIS CONTRACT REQUIREMENT. AS STATED IN OUR ABOVE-CITED DECISION:

* * * TO THE EXTENT THAT THE TECHNICAL PROPOSAL DOES NOT MEET THE GOVERNMENT SPECIFICATIONS, THE SPECIFICATIONS PREVAIL AND CONTROL. FOR THIS REASON IT IS INCUMBENT UPON EACH BIDDER TO ASSURE ITSELF BEFORE BIDDING THAT THE EQUIPMENT WILL SATISFY THE PERFORMANCE REQUIREMENTS OR ELSE FIND ITSELF REQUIRED TO MAKE ADJUSTMENTS WITHOUT COST TO THE GOVERNMENT IN THE EVENT THE EQUIPMENT FAILS TO MEET THE PERFORMANCE STANDARD AFTER A CONTRACT IS AWARDED AND THE EQUIPMENT IS TESTED.

WE HAVE CONSISTENTLY HELD THAT THE FUNCTION OF DETERMINING WHETHER EQUIPMENT OFFERED BY A SUCCESSFUL BIDDER CONFORMS TO THE DETAILED TECHNICAL REQUIREMENTS OF THE SPECIFICATIONS IS ONE FOR EXERCISE BY THE CONTRACTING AND ADMINISTRATIVE OFFICIALS OF THE GOVERNMENT AND, WHEN A DETERMINATION IS MADE IN THE EXERCISE OF SUCH FUNCTION, IT IS CONTROLLING IN THE ABSENCE OF CAPRICIOUS OR ARBITRARY ACTION. SEE O BRIEN V. CARNEY, 6 F.1SUPP. 761; ROYAL SUNDRIES CORP. V. UNITED STATES, 111 F.1SUPP. 136; 17 COMP. GEN. 554; 36 ID. 251; 40 ID. 35. WE, THEREFORE, ARE OF THE OPINION THAT THE AWARD MADE TO INTERNATIONAL FERMONT MAY NOT BE QUESTIONED ON THE BASIS THAT THEIR BID WAS NONRESPONSIVE TO THE REQUIREMENTS OF THE PROCUREMENT.

IN YOUR LETTER OF MAY 1, 1961, YOU CHALLENGE THE LEGALITY OF THE SMALL BUSINESS PROCEDURES AND REGULATIONS EMPLOYED IN DETERMINING THE RESPONSIBILITY OF INTERNATIONAL FERMONT AS A PROSPECTIVE GOVERNMENT CONTRACTOR. IN ESSENCE, IT IS YOUR OPINION THAT THE AWARD TO INTERNATIONAL FERMONT ,GROUNDED SOLELY AND EXCLUSIVELY IN THE SBA CERTIFICATE OF COMPETENCY" WAS A NULLITY BECAUSE THE APPLICABLE REGULATIONS RESPECTING THE CERTIFICATE OF COMPETENCY PROCEDURES ARE INVALID.

AS YOU NOTE, THE AIR FORCE CONTRACTING OFFICER DETERMINED, ON THE BASIS OF A FACILITIES CAPABILITY REPORT, THAT INTERNATIONAL FERMONT LACKED THE CAPABILITIES TO PERFORM THE RESULTING CONTRACT. PURSUANT TO PARAGRAPH 1- 705.6 (B), ARMED SERVICES PROCUREMENT REGULATION, THE NONRESPONSIBILITY OF INTERNATIONAL FERMONT WAS REFERRED TO SBA FOR DETERMINATION AS TO WHETHER A CERTIFICATE OF COMPETENCY SHOULD BE ISSUED. ON FEBRUARY 26, 1961, THE DEPUTY ADMINISTRATOR, SBA, NOTIFIED THE PROCUREMENT ACTIVITY THAT: " PURSUANT TO SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT, AS AMENDED, 15 U.S.C. 637 (B) (7), THE SMALL BUSINESS ADMINISTRATION HEREBY CERTIFIES THAT THE SUBJECT SMALL BUSINESS FIRM IS COMPETENT, AS TO CAPACITY AND CREDIT, TO PERFORM THE PROPOSED PROCUREMENT.' THEREAFTER, AWARD WAS MADE TO INTERNATIONAL FERMONT ON MARCH 11, 1961.

YOUR POSITION IS BASED ON THE PREMISE THAT SINCE THE SMALL BUSINESS ACT AND THE MILITARY PROCUREMENT STATUTE RESTATE THE POLICY OF THE CONGRESS THAT A FAIR PORTION OF GOVERNMENT CONTRACTS BE PLACED WITH SMALL BUSINESS CONCERNS, APPLICATION OF THE CERTIFICATE OF COMPETENCY PROCEDURES TO THIS PROCUREMENT CREATED AN UNWARRANTED AND ILLEGAL PREFERENCE IN FAVOR OF A SMALL BUSINESS LOW BIDDER TO THE DETRIMENT OF OTHER SMALL BUSINESS BIDDERS SOLELY BECAUSE SUCH BIDDER OBTAINED A CERTIFICATE OF COMPETENCY IN DEROGATION OF THE ADMINISTRATIVE DETERMINATION OF NONRESPONSIBILITY.

THE APPLICABLE REGULATIONS RESPECTING CERTIFICATES OF COMPETENCY ARE CONTAINED IN PARAGRAPH 1-705.6, ASPR, AND 13 CFR 124.7-16. THE SBA REGULATION ON THE CERTIFICATE OF COMPETENCY PROCEDURE, APPEARING IN 13 CFR 124.7-16, WAS PROMULGATED UNDER THE AUTHORITY OF 15 U.S.C. 634 (B) (6) WHEREUNDER THE ADMINISTRATOR, SBA, MAY "MAKE SUCH RULES AND REGULATIONS AS HE DEEMS NECESSARY TO CARRY OUT THE AUTHORITY VESTED IN HIM BY OR PURSUANT TO THIS CHAPTER ( AIDS TO SMALL BUSINESS).' THE AUTHORITY OF THE SECRETARY OF DEFENSE TO PROMULGATE PROCUREMENT REGULATIONS IS BASED UPON 10 U.S.C. 2202 AND 5 U.S.C. 22, WHICH REQUIRE THE ISSUANCE OF REGULATIONS GOVERNING, AMONG OTHERS, THE PROCUREMENT OF SUPPLIES FOR THE MILITARY DEPARTMENTS, AND THE CONDUCT OF THEIR BUSINESS GENERALLY. THE FEDERAL COURTS HAVE CONSISTENTLY HELD THAT A REGULATION OF A GOVERNMENT AGENCY OR DEPARTMENT ADDRESSED TO AND ADAPTED TO THE ENFORCEMENT OR EXECUTION OF AN ACT OF THE CONGRESS, THE ADMINISTRATION OF WHICH IS CONFIDED TO THAT AGENCY OR DEPARTMENT, IS LEGALLY VALID UNLESS IN CONFLICT WITH EXPRESS STATUTORY PROVISIONS. UNITED STATES V. BARNARD, 255 F.2D 583, CERTIORARI DENIED, 358 U.S. 919; UNITED STATES V. SHORT, 240 F.2D 292; UNITED STATES V. ANSANI, 240 F.2D 216; CERTIORARI DENIED, 353 U.S. 936; UNITED STATES V. CHAPMAN, 179 F.1SUPP. 447. SEE ALSO PUBLIC UTILITIES COMMISSION OF CALIFORNIA V. UNITED STATES, 355 U.S. 534, 542.

IN CONSIDERING THE EFFECT OF CERTIFICATES OF COMPETENCY ON MILITARY PROCUREMENTS, WE STATED IN 38 COMP. GEN. 864, 866-867, THAT:

AS STATED ON PAGE 2 OF THE REPORT FROM YOUR DEPARTMENT, THE CONGRESS INTENDED BY ENACTING THE ARMED SERVICES PROCUREMENT ACT OF 1947 TO ENCOURAGE THE EXERCISE OF JUDGMENT BY CONTRACTING OFFICERS TO DETERMINE THE RESPONSIBILITY OF PROSPECTIVE CONTRACTORS THROUGH AN EVALUATION OF THEIR EXPERIENCE, SIZE, TECHNICAL ORGANIZATION, REPUTATION, FINANCIAL RESOURCES, AND OTHER FACTORS. THE OBLIGATION AND RIGHT OF CONTRACTING OFFICERS TO EXERCISE THIS DISCRETIONARY AUTHORITY LONG HAS BEEN RECOGNIZED BY THE COURTS AND OUR OFFICE. SEE 27 ALR 2D 906 AND ANNOTATIONS COLLECTED UNDER NOTE 5 THEREOF; UNITED STATES WOOD PRESERVING COMPANY V. SUNDMAKER, 186 F. 678; 37 COMP. GEN. 430; 36 ID. 42; 30 ID. 235. WHILE THE 1947 ACT, NOW CODIFIED IN 10 U.S.C. 2301 ET. SEQ., VESTED IN THE CONTRACTING OFFICER THE ENTIRE RESPONSIBILITY TO DETERMINE THE QUALIFICATIONS OF PROSPECTIVE CONTRACTORS, THE LATER ENACTMENTS OF SMALL BUSINESS LEGISLATION CULMINATING IN THE ENACTMENT OF THE SMALL BUSINESS ACT, PUBLIC LAW 85-536, 15 U.S.C. 631 NOTE, LIMITED THAT DISCRETIONARY AUTHORITY WITH RESPECT TO THE COMPETENCY, AS TO CAPACITY AND CREDIT, OF A SMALL BUSINESS CONCERN COMPETING FOR A GOVERNMENT CONTRACT. CERTAINLY THERE CAN BE NO QUESTION THAT THE OBLIGATION OR AUTHORITY OF A CONTRACTING OFFICER TO DETERMINE THE FINANCIAL RESOURCES OF A SMALL BUSINESS BIDDER DOES NOT EXIST WHERE A CERTIFICATE OF COMPETENCY HAS BEEN ISSUED TO SUCH BIDDER.

HENCE, THE REGULATIONS CITED ABOVE MUST BE REGARDED AS CONTROLLING AND AS NOT IN CONFLICT WITH EXPRESS STATUTORY PROVISIONS RESPECTING THE AWARD OF GOVERNMENT CONTRACTS. THIS IS ESPECIALLY TRUE SINCE THE CONGRESS IN SUCCESSIVE ENACTMENTS OF SMALL BUSINESS LEGISLATION, BEGINNING IN 1942, CONTINUED WITHOUT CHANGE THE CERTIFICATION AUTHORITY OF OFFICERS CHARGED WITH THE DUTY OF ASSISTING SMALL BUSINESS IN OBTAINING A FAIR SHARE OF GOVERNMENT CONTRACTS. SUCH REPEATED GRANT OF CERTIFICATION AUTHORITY AS TO THE COMPETENCY OF SMALL BUSINESS BIDDERS EVIDENCED AN INTENT ON THE PART OF THE CONGRESS TO LIMIT THE AUTHORITY OF CONTRACTING OFFICERS TO DETERMINE ALL ELEMENTS OF RESPONSIBILITY OF SMALL BUSINESS CONCERNS COMPETING FOR GOVERNMENT CONTRACTS. THE FACT THAT SMALL BUSINESS BIDDERS ONLY ARE IN COMPETITION FOR THE AWARD OF A GOVERNMENT CONTRACT DOES NOT, IN OUR OPINION, RENDER THE CERTIFICATE OF COMPETENCY PROCEDURES INAPPLICABLE OR INAPPROPRIATE.

THE AUTHORITY FOR SBA TO ISSUE CERTIFICATES OF COMPETENCY IS CONTAINED IN 15 U.S.C. 637 (B) (7) WHICH READS AS FOLLOWS:

IT SHALL ALSO BE THE DUTY OF THE ADMINISTRATION AND IT IS EMPOWERED, WHENEVER IT DETERMINES SUCH ACTION IS NECESSARY--- * * * (7) TO CERTIFY TO GOVERNMENT PROCUREMENT OFFICERS, AND OFFICERS ENGAGED IN THE SALE AND DISPOSAL OF FEDERAL PROPERTY, WITH RESPECT TO THE COMPETENCY, AS TO CAPACITY AND CREDIT, OF ANY SMALL-BUSINESS CONCERN OR GROUP OF SUCH CONCERNS TO PERFORM A SPECIFIC GOVERNMENT CONTRACT. IN ANY CASE IN WHICH A SMALL-BUSINESS CONCERN OR GROUP OF SUCH CONCERNS HAS BEEN CERTIFIED BY OR UNDER THE AUTHORITY OF THE ADMINISTRATION TO BE A COMPETENT GOVERNMENT CONTRACTOR WITH RESPECT TO CAPACITY AND CREDIT AS TO A SPECIFIC GOVERNMENT CONTRACT, THE OFFICERS OF THE GOVERNMENT HAVING PROCUREMENT OR PROPERTY DISPOSAL POWERS ARE DIRECTED TO ACCEPT SUCH CERTIFICATION AS CONCLUSIVE, AND ARE AUTHORIZED TO LET SUCH GOVERNMENT CONTRACT TO SUCH CONCERN OR GROUP OF CONCERNS WITHOUT REQUIRING IT TO MEET ANY OTHER REQUIREMENT WITH RESPECT TO CAPACITY AND CREDIT; * * *

IT IS TO BE NOTED THAT THE LANGUAGE EMPLOYED IN THE QUOTED STATUTE IS EXTREMELY BROAD IN THAT IT APPLIES TO "A SPECIFIC GOVERNMENT CONTRACT" AND PROVIDES THAT THE CERTIFICATION IS CONCLUSIVE "IN ANY CASE.'

IN CASES HERETOFORE PRESENTED TO OUR OFFICE WHEREIN CERTIFICATES OF COMPETENCY WERE ISSUED TO SMALL BUSINESS BIDDERS, WE HAVE NOT CONSIDERED IT MATERIAL TO INQUIRE WHETHER THE PROCUREMENTS HAD OR HAD NOT BEEN SET ASIDE FOR SMALL BUSINESS, AND WE HAVE RECOGNIZED THE AUTHORITY OF SBA TO ISSUE CERTIFICATIONS WITHOUT REGARD TO WHETHER THE PROCUREMENTS WERE OR WERE NOT SET ASIDE FOR SMALL BUSINESS. WE FIND NOTHING IN THE STATUTE WHICH MAKES OR PERMITS ANY DISTINCTION BETWEEN THE TWO SITUATIONS AND THERE IS NO INDICATION IN THE LEGISLATIVE HISTORY OF THE ACT THAT THE CONGRESS INTENDED ANY SUCH DISTINCTION. WE HAVE THEREFORE CONSISTENTLY TAKEN THE VIEW THAT THE PRESENT STATUTE AND IMPLEMENTING REGULATIONS THEREUNDER AUTHORIZE SBA TO DETERMINE WHETHER CERTIFICATES OF COMPETENCY SHOULD BE ISSUED IN ANY CASE WHERE THE LOW BID OF AN OTHERWISE RESPONSIVE SMALL BUSINESS BIDDER IS QUESTIONED BY THE CONTRACTING OFFICER BECAUSE OF LACK OF RESPONSIBILITY.

FINALLY, YOU CONTEND THAT THE ISSUANCE OF A CERTIFICATE OF COMPETENCY TO INTERNATIONAL FERMONT ON THE BASIS OF THEIR SMALL BUSINESS SIZE WAS ARBITRARY AND CLEARLY ERRONEOUS SINCE THE DYNAMICS CORPORATION OF AMERICA- -- A LARGE BUSINESS CONCERN--- ACQUIRED CONTROL OF INTERNATIONAL FERMONT SHORTLY AFTER ISSUANCE OF THE CERTIFICATE OF COMPETENCY AND AWARD OF THE CONTRACT.

SINCE THIS MATTER IS PARTICULARLY WITHIN THE PROVINCE OF THE SBA, THE VIEWS OF THAT AGENCY ARE SET OUT BELOW IN PERTINENT PART:

THE REFERRAL OF THIS MATTER TO THE SMALL BUSINESS ADMINISTRATION FOR CERTIFICATE OF COMPETENCY ACTION WAS MADE ON JANUARY 19, 1961; THE WRITTEN REFERRAL BEING RECEIVED ON JANUARY 20, 1961, BY OUR NEW YORK REGIONAL OFFICE. AFTER APPROPRIATE INVESTIGATION, THIS AGENCY ON FEBRUARY 24, 1961, WAS PREPARED TO CERTIFY THAT INTERNATIONAL FERMONT MACHINERY COMPANY, INC., HAD THE CAPACITY AND CREDIT TO PERFORM IFB 104-606-61-9 ( ITEMS 1 THROUGH 8). HOWEVER, THE ISSUANCE OF THIS CERTIFICATION WAS DELAYED UNTIL FEBRUARY 28, 1961, IN ORDER TO PERMIT THE AIR FORCE TO SUBMIT TO US CERTAIN INFORMATION. I AM INFORMED THAT ALTHOUGH THIS CERTIFICATION WAS MADE ON FEBRUARY 26, 1961, THE CONTRACT WAS NOT AWARDED TO INTERNATIONAL FERMONT MACHINERY COMPANY, INC. UNTIL ON OR ABOUT MARCH 10, 1961. I ALSO AM INFORMED THAT ON MARCH 31, 1961, DYNAMICS CORPORATION OF AMERICA ACQUIRED CONTROL OF INTERNATIONAL FERMONT MACHINERY COMPANY, INC., BY PURCHASE OF THE LATTER'S OUTSTANDING STOCK.

THIS AGENCY HAD NO INFORMATION AT ANY TIME PRIOR TO THE ISSUANCE OF THE CERTIFICATE OF COMPETENCY CONCERNING ANY INTEREST ON THE PART OF DYNAMICS CORPORATION OF AMERICA IN ACQUIRING INTERNATIONAL FERMONT MACHINERY COMPANY, INC. OUR FIRST INFORMATION WAS ACQUIRED FROM THE NEWSPAPER REPORTS OF THIS ACQUISITION. IN THIS CONNECTION, THE APPLICATION FOR THE CERTIFICATE OF COMPETENCY FILED BY INTERNATIONAL FERMONT MACHINERY COMPANY, INC. STATED THAT THIS COMPANY HAD NO SUBSIDIARIES AND EMPLOYED 99 PERSONS.

IMMEDIATELY UPON RECEIPT OF INFORMATION THAT DYNAMICS CORPORATION OF AMERICA ACQUIRED INTERNATIONAL FERMONT MACHINERY COMPANY, INC., THIS AGENCY CAUSED AN INVESTIGATION TO BE MADE TO DETERMINE WHEN THE ACQUISITION WAS EFFECTED.

THE INFORMATION RECEIVED IN THESE INVESTIGATIONS WAS TO THE EFFECT THAT DYNAMICS CORPORATION OF AMERICA BECAME INTERESTED IN THE ACQUISITION OF INTERNATIONAL FERMONT MACHINERY COMPANY, INC., IN DECEMBER 1960, MADE AN INSPECTION OF THE LATTER'S PLANT ON DECEMBER 8, 1960, CAUSED AN AUDIT OF THAT CONCERN TO BE MADE DURING FEBRUARY 1961, AND ON FEBRUARY 14, 1961, ACQUIRED A 30-DAY OPTION TO PURCHASE. THIS OPTION WAS DISCUSSED AS EARLY AS FEBRUARY 11, 1961, WHICH WAS PRIOR TO THE DATE WHEN THE CERTIFICATE OF COMPETENCY WAS ISSUED ALTHOUGH IT WAS AFTER ISSUANCE HAD BEEN RECOMMENDED BY THIS AGENCY'S NEW YORK REGIONAL OFFICE. THE OPTION WAS NOT EXERCISED WITHIN THE 30-DAY PERIOD AND WAS EXTENDED. DURING THIS EXTENDED PERIOD, DYNAMICS CORPORATION OF AMERICA EFFECTED AN AGREEMENT TO PURCHASE THE STOCK OF INTERNATIONAL FERMONT MACHINERY COMPANY, INC., ALTHOUGH ON SLIGHTLY DIFFERENT TERMS THAT THOSE SPECIFIED IN THE OPTION.

UNDER 15 U.S.C. 637 (B) (7), THE CERTIFICATE OF COMPETENCY IS CONCLUSIVE ON THE CONTRACTING OFFICER AND SUCH OFFICER IS AUTHORIZED THEREUNDER "TO LET SUCH GOVERNMENT CONTRACT TO SUCH CONCERN * * * WITHOUT REQUIRING IT TO MEET ANY OTHER REQUIREMENT WITH RESPECT TO CAPACITY AND CREDIT.' THE CERTIFICATE OF COMPETENCY BY SBA WAS CONCLUSIVE ON THE RIGHT OF INTERNATIONAL FERMONT TO RECEIVE THE AWARD AS A SMALL BUSINESS CONCERN. AS OF THE DATE OF AWARD, INTERNATIONAL FERMONT WAS IN THAT CATEGORY AS CERTIFIED BY SBA. AN AFTER-AWARD CHANGE IN SUCH STATUS HAS NO RETROACTIVE EFFECT TO INVALIDATE SUCH AN AWARD WHERE, AS HERE, THE SMALL BUSINESS CHARACTER OF THE BIDDER WAS AS REPRESENTED ON THE DATE OF AWARD. WE KNOW OF NO REGULATORY OR STATUTORY REQUIREMENT THAT A SMALL BUSINESS BIDDER MUST RETAIN ITS SMALL BUSINESS SIZE SUBSEQUENT TO AWARD OR THROUGHOUT CONTRACT PERFORMANCE TO LEND LEGALITY TO THE AWARD WHICH WAS PROPER WHEN MADE.

ACCORDINGLY, WE MUST CONCLUDE THAT NO LEGAL BASES EXIST TO QUESTION THE AWARD MADE TO INTERNATIONAL FERMONT.

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