B-165422, JAN. 16, 1969

B-165422, JAN. 16, 1969

TO LIDDELL, DAWSON, SAPP AND ZIVLEY:

FURTHER REFERENCE IS MADE TO YOUR LETTERS OF OCTOBER 10 AND 15, NOVEMBER 11, AND DECEMBER 2, 1968, PROTESTING ON BEHALF OF YOUR CLIENT, FORT WORTH REFINING COMPANY, TO THE NEGOTIATION PROCEDURE BEING FOLLOWED UNDER THE DEFENSE FUEL SUPPLY CENTER (DFSC) SOLICITATION NO. DSA-600-69-B-0043.

THE SUBJECT INVITATION FOR BIDS WAS ISSUED ON AUGUST 2, 1968, TO MEET REQUIREMENTS OF THE ARMY, NAVY, AIR FORCE, FEDERAL AVIATION AGENCY, AND NATIONAL AERONAUTICS AND SPACE ADMINISTRATION FOR JET FUEL, GRADE JP-4, FOR APPROXIMATELY 306 LOCATIONS THROUGHOUT THE UNITED STATES FOR THE PERIOD JANUARY 1 THROUGH JUNE 30, 1969. THE INVITATION CONTAINED AN OVERALL 29.6 PERCENT SET-ASIDE FOR SMALL BUSINESS. PARAGRAPH 22 OF THE SOLICITATION ON PAGES 6 AND 6A PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"22. NOTICE OF PARTIAL SMALL BUSINESS SET-ASIDE (DFSC MAY 1968)

"/B) GENERAL INFORMATION.

"/1) A PORTION OF CERTAIN ITEMS OF THIS PROCUREMENT, AS LISTED ON THE FOLLOWING PAGES, HAS BEEN SET ASIDE FOR AWARD TO ELIGIBLE SMALL BUSINESS CONCERNS. THE QUANTITIES INDICATED FOR SUCH ITEMS IN THE SCHEDULE INCLUDE THE SET-ASIDE PORTION. ALL OFFERORS ARE URGED TO OFFER THE MAXIMUM QUANTITIES THEY DESIRE AND ARE CAPABLE OF DELIVERING. A SMALL BUSINESS CONCERN INTERESTED IN RECEIVING A SET ASIDE CONTRACT SHOULD SUBMIT AN OFFER IN THE SAME MANNER AS THOUGH THERE WAS NO SET-ASIDE. TO BE CONSIDERED FOR THE SET-ASIDE PORTION OF THIS PROCUREMENT, AN OFFEROR QUALIFYING AS A SMALL BUSINESS CONCERN MUST OFFER ON THE NON-SET-ASIDE PORTION OF THE PROCUREMENT. SEPARATE OFFERS SHOULD NOT BE SUBMITTED ON THE NON-SET-ASIDE AND SET-ASIDE PORTIONS.

"/2) THE SUCCESSFUL CONTRACTORS FOR THE SET-ASIDE PORTION WILL BE DETERMINED IN ACCORDANCE WITH THE PROCEDURES SET FORTH BELOW. THE PARTIAL SMALL BUSINESS SET-ASIDE OF THE PROCUREMENT IS BASED ON A DETERMINATION BY THE CONTRACTING OFFICER THAT IT IS IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, OR IN THE INTEREST OF NATIONAL DEFENSE PROGRAMS, OR IN THE INTEREST OF ASSURING THAT A FAIR PORTION OF GOVERNMENT PROCUREMENT IS PLACED WITH SMALL BUSINESS CONCERNS.

"/C) AWARD PROCEDURE.

"/1) ALL OF THE OFFERS RECEIVED WILL FIRST BE EVALUATED AS THOUGH THERE WAS NO SET-ASIDE. SMALL BUSINESS CONCERNS WILL BE OFFERED THE SET-ASIDE PORTION AT PRICES (APPROPRIATELY ADJUSTED TO REFLECT TRANSPORTATION AND ANY OTHER APPLICABLE EVALUATION COST FACTORS) WHICH WILL REPRESENT WHAT THE GOVERNMENT WOULD OTHERWISE HAVE HAD TO PAY, PURSUANT TO SUCH EVALUATION, HAD THERE BEEN NO SET-ASIDE. CONTRACTS FOR THE SET-ASIDE PORTION WILL BE NEGOTIATED WITH THOSE ELIGIBLE SMALL BUSINESS CONCERNS WHO HAVE SUBMITTED A RESPONSIVE OFFER ON THE VARIOUS ITEMS ON WHICH A SET- ASIDE HAS BEEN INDICATED. NEGOTIATIONS WILL COMMENCE WITH THE SMALL BUSINESS CONCERN WHO HAS SUBMITTED THE LOWEST OFFER ON THE NON-SET-ASIDE PORTION AND WHO HAS REMAINING A QUANTITY WHICH WOULD NOT BE ACCEPTED UNDER THE NON-SET-ASIDE PORTION OF THE ITEM. IF THE LOW SMALL BUSINESS CONCERN ON THE ITEM DOES NOT ACCEPT THE SET-ASIDE QUANTITY, THE NEXT LOW SMALL BUSINESS CONCERN ON THE ITEM WILL BE GIVEN THE SAME OPPORTUNITY AND CONTINUING WITH THE NEXT LOW SMALL BUSINESS CONCERN UNTIL ALL SMALL BUSINESS CONCERNS HAVE BEEN CONTACTED. FOR THIS PURPOSE, WHEN AN OFFER CONTAINS INCREMENTS AT DIFFERENT PRICES, EACH INCREMENT WILL BE CONSIDERED A SEPARATE OFFER. EACH NEGOTIATION WILL BE LIMITED TO THE QUANTITY OFFERED IN EACH OFFER AND NOT ACCEPTABLE UNDER THE NON-SET-ASIDE PORTION.

"/2) THE GOVERNMENT RESERVES THE RIGHT TO MAKE AWARDS TO THE OTHERWISE LOW OFFER FOR ALL OR ANY PORTION OF THE SET-ASIDE QUANTITIES, WITHOUT REGARD TO THE SIZE OF THE COMPANY, IF ELIGIBLE SMALL BUSINESS CONCERNS DO NOT OFFER A QUANTITY OF PRODUCT SUFFICIENT TO MEET A SET-ASIDE OR DO NOT ACCEPT SET-ASIDE OFFERS. THE TOTAL QUANTITY WHICH WILL BE AWARDED A SMALL BUSINESS CONCERN ON BOTH THE UNRESERVED AND RESERVED PORTIONS WILL NOT EXCEED THE TOTAL QUANTITY OFFERED UNDER THIS SOLICITATION BY SUCH SMALL BUSINESS OFFER. HOWEVER, IF INSUFFICIENT PRODUCT IS OFFERED BY SMALL BUSINESS TO MEET THE QUANTITY SET-ASIDE FOR SMALL BUSINESS, THE SMALL BUSINESS CONCERNS WITH WHOM NEGOTIATIONS HAVE BEEN COMMENCED MAY BE GIVEN AN OPPORTUNITY IN THE SAME ORDER AS SPECIFIED UNDER (B) (1) ABOVE TO OFFER ADDITIONAL PRODUCT.'

ITEM 151 CALLED FOR DELIVERY OF 40,000,000 GALLONS OF FUEL BY TANK CAR, TRANSPORT TRUCKS, OR PIPELINE TO BARKSDALE AIR FORCE BASE IN LOUISIANA. ONE-HALF OF THE ITEM, OR 20,000,000 GALLONS, WAS SET ASIDE FOR SMALL BUSINESS. TRIANGLE REFINERIES, INC., A LARGE BUSINESS CONCERN, BID A MAXIMUM OF 40,000,000 GALLONS AND A MINIMUM OF 20,000,000 GALLONS DELIVERED F.O.B. ORIGIN (WHICH ORIGIN WAS AT ITS OPTION) BY PIPELINE $ .11088 AT FITCH STATION, LOUISIANA; $ .11088 BENTON, LOUISIANA; $ .11148 SHREVEPORT, LOUISIANA; OR $ .10931 AT TYLER, TEXAS. IN ITS COVERING LETTER, TRIANGLE QUALIFIED ITS BID BY STATING THAT ALL OF THE PRODUCT ORDERED OVER 20,000,000 GALLONS WOULD BE REDUCED IN PRICE BY $ .01 PER GALLON. IT IS REPORTED THAT ALL BIDS ARE TRANSFERRED TO IBM CARDS, SORTED AND EVALUATED BY COMPUTER. THE COMPUTER IS PROGRAMMED TO LIST THE BIDS FROM THE LOWEST TO THE HIGHEST AS TO LAID DOWN PRICE, AND EVALUTES EACH ORIGIN BID TO ALL POSSIBLE DESTINATIONS. CONSIDERING ALL FACTORS, TRIANGLE'S LAID DOWN BID PRICE AT BARKSDALE AIR FORCE BASE WAS $ .113303 PER GALLON FOR THE FIRST 20,000,000 GALLON INCREMENT, AND WAS THE LOWEST FOR THAT DESTINATION. THE SECOND 20,000,000 GALLON INCREMENT WOULD, UNDER THE TERMS OF THE OFFER, BE $ .01 PER GALLON LESS, OR $ .103303 LAID DOWN AT BARKSDALE.

FORT WORTH, WITH A BID EVALUATED AT $ .11451 PER GALLON, WAS THE LOWEST SMALL BUSINESS BIDDER FOR THE BARKSDALE REQUIREMENT.

THE AWARD PROCEDURE, AS OUTLINED IN PARAGRAPH 22 OF THE SOLICITATION QUOTED ABOVE, CONCERNING THE METHOD OF AWARDING THE SET-ASIDE PORTION OF THE SOLICITATION, IS NOT THE PROCEDURE PRESCRIBED IN SECTION 1-706.6 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), BUT RATHER IS GOVERNED BY ASPR DEVIATION NUMBER 68-11, GRANTED TO DFSC ON MAY 16, 1968, BY THE ASPR COMMITTEE FOR USE THROUGH FISCAL YEAR 1970.

IN A STATEMENT DATED APRIL 18, 1968, TO THE ASPR COMMITTEE IN SUPPORT OF ITS REQUEST FOR SAID DEVIATIONS, DFSC GAVE THE FOLLOWING PERTINENT PURPOSES AND JUSTIFICATIONS FOR ITS REQUEST:

"1. * * * THE SPECIFIC AREAS OF ASPR FROM WHICH DSA SEEKS DEVIATION APPROVAL ARE IDENTIFIED BELOW, FOLLOWED BY A DISCUSSION OF THE DFSC DESIRED PROCEDURES AND RATIONALE.

"2. ASPR 1-706.6 (D) (1) - -THE SET-ASIDE WILL BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED OR TO BE AWARDED FOR THE NON-SET-ASIDE PORTION.-

"A. DFSC, UNDER A PROCEDURE FOR WHICH IT AGAIN SEEKS APPROVAL, HAS OCCASIONS WHERE SMALL BUSINESS IF OFFERED THE SET-ASIDE AT A PRICE HIGHER THAN HIGHEST PRICE PAID ON NON-SET-ASIDE. ESSENTIALLY, THE PRICE OFFERED SMALL BUSINESS BY DFSC ON THE SET-ASIDE QUANTITY IS THE SAME PRICE THE GOVERNMENT WOULD HAVE HAD TO PAY FOR THAT QUANTITY HAD THERE BEEN NO SET- ASIDE. MULTIPLE AWARDS MUST BE MADE IN MOST BULK PETROLEUM PROCUREMENTS IN ORDER TO COVER THE LARGE QUANTITIES SOLICITED. THE AWARDS, NORMALLY, ARE MADE AT INCREASINGLY HIGHER UNIT PRICES UNTIL COMPLETE COVERAGE IS OBTAINED. DFSC UTILIZES THREE EVALUATION METHODS IN DETERMINING PRICE TO BE OFFERED SMALL BUSINESS ON SET-ASIDE QUANTITIES.

"B. REASONS WHY THIS PORTION OF DEVIATION REQUEST SHOULD BE APPROVED.

"/1) PREVIOUSLY APPROVED BY ASPR COMMITTEE. (ASPR CASE 60-127).

"/2) SET-ASIDE AWARDS ARE MADE AT FAIR AND REASONABLE PRICES, AND THE OVERALL COST OF THE PROCUREMENT IS ACTUALLY NO HIGHER THAN IF A SET-ASIDE WERE NOT USED.

"/3) DFSC PROCEDURE ENCOURAGES GREATER SMALL BUSINESS PARTICIPATION AND PROVIDES A MARKET FOR THEIR PRODUCTS. (THIS HELPS TO DECELERATE THE GRADUAL EROSION OF SMALL BUSINESS REFINING CAPACITY.)

"/4) PROCEDURE HAS PREVIOUSLY BEEN APPROVED BY THE SMALL BUSINESS ADMINISTRATION.

"3. ASPR 1-706.7 - -IF THE * * * SET-ASIDE PORTION IS NOT PROCURED * * * THE DETERMINATION * * * IS AUTOMATICALLY DISSOLVED AS TO THE UNAWARDED PORTION OF THE SET-ASIDE, AND SUCH UNAWARDED PORTION MAY BE PROCURED BY ADVERTISING OR NEGOTIATION * * *.-

"A. THIS IS THE SECOND PART OF ASPR FROM WHICH DFSC REQUESTS DEVIATION. UNDER THE DFSC PROCEDURE, BIDDERS ARE PERMITTED TO BID ON THE TOTAL QUANTITY, JUST AS IF THERE WERE NO SET-ASIDE. IF ELIGIBLE SMALL BUSINESS CONCERNS FAIL TO ACCEPT THE SET-ASIDE, AWARDS CAN BE MADE TO LARGE BUSINESS CONCERNS WHO HAVE UNAWARDED QUANTITIES REMAINING. AWARDS CAN BE MADE UP TO AND AT THE PRICE OFFERED SMALL BUSINESS CONCERNS. IF COMPLETE COVERAGE HAS NOT YET BEEN OBTAINED, ELIGIBLE SMALL BUSINESS CONCERNS MAY BE GIVEN THE OPPORTUNITY TO OFFER ADDITIONAL PRODUCT. AWARD PRICE WOULD BE THE SAME AS THAT OFFERED THEM PREVIOUSLY. SHOULD ALL OF THESE PROCEDURES STILL FAIL TO PROVIDE COMPLETE COVERAGE, THE SET-ASIDE WOULD BE DISSOLVED AND QUANTITIES REMAINING WOULD BE RESOLICITED.

"B. REASONS WHY THIS PORTION OF DEVIATION REQUEST SHOULD BE APPROVED.

"/1) ENABLES DFSC TO COVER REQUIREMENTS WITHOUT RESOLICITATION. THIS, IN TURN, DECREASES PROCUREMENT LEAD TIME AND SAVES DFSC CONSIDERABLE TIME AND EFFORT.

"/2) COULD RESULT IN LARGER QUANTITY AWARDS TO SMALL BUSINESS.

"/3) AWARD PRICES ARE NO HIGHER, AND MAY EVEN BE LOWER, THAN SET ASIDE PRICE. "4. ASPR 1-706.6 (D) (1) - -NEGOTIATIONS SHALL BE CONDUCTED ONLY WITH THOSE BIDDERS OR OFFERORS 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 AWARD TO BE MADE ON THE NON-SET-ASIDE PORTION.-

"A. THIS IS THE THIRD DEVIATION REQUESTED. THIS DEVIATION DOES NOT REQUIRE SMALL BUSINESSES TO BE WITHIN 120 PERCENT OF HIGHEST NON SET-ASIDE AWARD. DFSC PREVIOUSLY OBTAINED APPROVAL OF THIS DEVIATION IN 1958 (ASPR CASE 58-53). BULK FUEL, SMALL BUSINESS SUPPLIERS DO NOT NORMALLY POSSESS THE CAPABILITY TO DETERMINE PRICES WITHIN THE 120 PERCENT RANGE. ONLY THE LARGE REFINERIES, WITH THEIR VAST DOMESTIC AND OVERSEAS OPERATIONS, HAVE THE CAPABILITY TO ACCURATELY FORECAST TRENDS AND PRICES IN THE WORLD-WIDE MARKET. WAIVER OF THE 120 PERCENT FACTOR IS CONSIDERED NECESSARY TO ASSURE SMALL BUSINESS PARTICIPATION.

"B. REASONS WHY THIS PORTION OF DEVIATION REQUEST SHOULD BE APPROVED.

"/1)PREVIOUSLY APPROVED BY ASPR COMMITTEE.

"/2) NON-APPROVAL COULD RESULT IN REDUCED SMALL BUSINESS PARTICIPATION.

"5. ASPR 1-706.6 (C) - -NOTICE OF PARTIAL SMALL BUSINESS SET-ASIDE (DEC 1967). GENERAL. A PORTION OF THIS PROCUREMENT, AS IDENTIFIED ELSEWHERE IN THE SCHEDULE, HAS BEEN SET ASIDE FOR AWARD ONLY TO ONE OR MORE SMALL BUSINESS CONCERNS.-

"A. THIS IS THE FOURTH PART OF ASPR FROM WHICH DFSC REQUESTS DEVIATION. ASPR IMPLIES HERE THAT LARGE BUSINESSES SHALL NOT BE PERMITTED TO OFFER AGAINST SET-ASIDE QUANTITIES. TO ASSURE COMPLETE COVERAGE OF REQUIREMENTS AT A GIVEN MILITARY INSTALLATION AND, IN THE ABSENCE OF HAVING FULL ASSURANCE THAT SMALL BUSINESS CONCERNS ARE NOT SO HEAVILY COMMITTED TO COMMERCIAL REQUIREMENTS THAT THEY COULD NOT OFFER ON THE SET-ASIDE, DFSC HAS FOUND IT NECESSARY TO PERMIT TOTAL QUANTITY OFFERS. THIS DEVIATION IS AN INTEGRAL PART OF THE DEVIATION REQUESTED IN PARAGRAPH 3 OF THIS MEMORANDUM. THE RATIONAL SET FORTH FOR THAT DEVIATION WOULD ALSO APPLY HERE.'

IT IS REPORTED THAT THE NEED FOR THE DEVIATIONS WAS PREDICATED UPON THE FACT THAT PETROLEUM BIDDING IS UNIQUE, IN THAT THE FIRST INCREMENT BID BY A REFINERY IS AT THE LOWEST PRICE AND SUCCESSIVE INCREMENTS ARE BID AT INCREASINGLY HIGHER PRICES. THUS DFSC ENACTED ITS DEVIATED PROCEDURE IN AN EFFORT TO GIVE SMALL BUSINESS CONCERNS THE BENEFIT OF THE HIGHER PRICES WHICH WOULD NORMALLY BE PAID FOR QUANTITIES IN EXCESS OF THOSE AWARDED ON THE NON-SET-ASIDE SCHEDULE, RATHER THAN TO LIMIT THEM TO THE LOWER PRICES AT WHICH THE NON-SET-ASIDE AWARDS WOULD BE MADE, UNDER THE USUAL ASPR SET- ASIDE PROCEDURES. THE DEVIATION PROVIDES THEN, IN MATERIAL PART, THAT ALL BIDDERS SHALL BID ON THE MAXIMUM QUANTITIES THEY ARE WILLING TO OFFER, THAT BIDS SHALL BE EVALUATED AS THOUGH THERE WERE NO SET-ASIDE, AND THAT "SMALL BUSINESS WILL BE OFFERED THE SET-ASIDE PORTION AT PRICES * * * WHICH WILL REPRESENT WHAT THE GOVERNMENT WOULD OTHERWISE HAVE HAD TO PAY * * * HAD THERE BEEN NO SET-ASIDES.'

ALTHOUGH ADMITTING THAT THE BID OF TRIANGLE WAS UNIQUE AND TOTALLY UNEXPECTED, AND "NEVER BEFORE HAS THE FIRST LOW SMALL BUSINESS BEEN IN LINE FOR A SET-ASIDE AWARD AT A PRICE LOWER THAN THAT AWARDED LARGE BUSINESS AFTER THE FIRST COMPUTER RUN," DFSC IS OF THE OPINION THAT THE AWARD TO FORT WORTH AND OTHER SMALL BUSINESS CONCERNS ELIGIBLE FOR AWARD UNDER ITEM 151 MUST BE BASED UPON THE LAID DOWN PRICE OF $ .103303 AT BARKSDALE. SPECIFICALLY, IT IS STATED "AWARDS BASED ON A $ .103303 LAID DOWN PRICE, WIOLE NOT INTENDED OR EXPECTED ARE WITHIN THE LITERAL REQUIREMENTS OF THE DEFENSE FUEL SUPPLY CENTER'S ASPR DEVIATION, AND INSTRUCTIONS CONTAINED IN PARAGRAPH 22 OF THE SOLICITATION.' IT IS REPORTED THAT AWARD HAS BEEN MADE TO TRIANGLE ON THE NON-SET-ASIDE PORTION OF THE PROCUREMENT AND ALL PARTIES HAVE AGREED THAT AWARD NEGOTIATIONS COULD PROCEED WITH FORT WORTH ON THE SET-ASIDE PORTION OF THE PROCUREMENT WHEREIN FORT WORTH HAS AGREED TO FURNISH 16,078,000 GALLONS OF FUEL TO THE BARKSDALE BASE, BUT THE PRICE OF THE AWARD REMAINS OPEN, SUBJECT TO THE FINAL DECISION OF OUR OFFICE. THUS, THE PRINCIPAL QUESTION TO BE DECIDED IN THIS MATTER IS WHAT PRICE SHALL FORT WORTH RECEIVE ON THE SET-ASIDE PORTION.

ALTHOUGH MANY ARGUMENTS ARE PRESENTED IN YOUR LETTERS SUPPORTING THE PROTEST OF YOUR CLIENT, WE THINK THE FOLLOWING CONTENTIONS ARE MOST COGENT AND BEST SUMMARIZE THE CRUCIAL POINTS TO BE CONSIDERED. IN YOUR LETTER OF OCTOBER 10, 1968, YOU STATE:

"* * * THE AWARD PROCEDURE FOR SET-ASIDES FOUND IN PARA. 22 (C) AT PAGE 6A OF THE SOLICITATION ESTABLISHES THE SET-ASIDE PRICE AT WHAT THE GOVERNMENT WOULD HAVE HAD TO PAY HAD THERE BEEN NO SET-ASIDE. IT SEEMS UNDISPUTED THAT TRIANGLE INTENTIONALLY CHOSE THIS METHOD OF BIDDING IN AN EFFORT TO PUT SMALL BUSINESS AT A DISADVANTAGE. HAD THERE NOT BEEN A SET- ASIDE TRIANGLE WOULD NOT HAVE BID IN THE MANNER THAT IT DID. ALL OFFICIALS AT THE DFSC STATED THAT THIS WAS THE FIRST TIME THAT THEY HAD EVER SEEN A JET FUEL BID SUBMITTED IN THIS MANNER. WITH THE EXCEPTION OF THE LATEST TRIANGLE BID, THE UNANIMOUS METHOD OF PRACTICE IN THE REFINING INDUSTRY HAS BEEN TO BID THE FIRST INCREMENT AT THE LOWEST PRICE AND SUCCESSIVE INCREMENTS AT SUCCESSIVELY HIGHER PRICES. ASPR 1-706.6 (C) (1) (A) EXPRESSLY STATES: -THE GOVERNMENT RESERVES THE RIGHT NOT TO CONSIDER TOKEN BIDS OR OTHER DEVICES DESIGNED TO SECURE AN UNFAIR ADVANTAGE OVER OTHER BIDDERS ELIGIBLE FOR THE SET ASIDE PORTION.-

"JUDGING FROM PRIOR UNIFORM BIDDING PRACTICES FOLLOWED BY THE REFINING INDUSTRY, THE CONCLUSION IS INESCAPABLE THAT, HAD THERE NOT BEEN A SET- ASIDE, THE GOVERNMENT WOULD HAVE HAD TO PAY A PRICE IN THE 11-CENT RANGE ON THE SECOND 20 MILLION GALLONS OF JET FUEL. THEREFORE, FOLLOWING THE DFSC'S OWN REGULATIONS, IT SHOULD NOT BE PERMITTED TO NEGOTIATE WITH SMALL BUSINESSES AT A PRICE IT COULD NOT HAVE GOTTEN IN THE ABSENCE OF THE SET- ASIDE. THE ARMED SERVICES PROCUREMENT REGULATIONS, AND PURPORTEDLY THE DEVIATIONS FOLLOWED BY THE DFSC, WERE ENACTED TO ALLOW SMALL BUSINESSES TO EQUITABLY COMPETE FOR GOVERNMENT CONTRACTS. THEY WERE NOT ENACTED TO ALLOW GOVERNMENTAL AGENCIES TO NEGOTIATE WITH SMALL BUSINESS ON TERMS UNACCEPTABLE TO BID BUSINESS. IN LIGHT OF GOVERNMENTAL POLICY AND IN LIGHT OF THE PROVISIONS OF ASPR AND THE BID SOLICITATION DICTATING THAT THE CONTRACTING OFFICER ADMINISTER SET-ASIDE NEGOTIATIONS IN CONFORMITY WITH THE INTENT AND PURPOSE OF SUCH POLICY THE CONTRACTING OFFICER SHOULD NOT BE ALLOWED TO USE A DEPARTMENTAL DEVIATION IN A WAY THAT CIRCUMVENTS THE POLICY IT IS SUPPOSED TO ENFORCE.'

THE MAIN BASIS FOR YOUR PROTEST IS YOUR ASSERTION THAT TRIANGLE WOULD NOT HAVE BID IN THE MANNER IT DID HAD THERE NOT BEEN A SET-ASIDE, AND CONSEQUENTLY THE PRICE THE GOVERNMENT WOULD HAVE PAID, ABSENT THE SET- ASIDE, WOULD HAVE BEEN IN THE 11-CENT RANGE FOR THE SECOND 20 MILLION GALLONS OF FUEL. EVEN THOUGH THE HISTORICAL RECORD OF BIDDING PRACTICES APPEARS TO SUPPORT THE CONCLUSION THAT THE TRIANGLE BID WOULD PROBABLY HAVE BEEN DIFFERENT IF THERE HAD BEEN NO SET-ASIDE, IT DOES NOT NECESSARILY FOLLOW THAT THE GOVERNMENT WOULD HAVE PAID MORE FOR THE TOTAL 40 MILLION GALLON PURCHASE, SINCE YOUR ASSUMPTION APPARENTLY IS THAT THE BID WOULD HAVE BEEN IN THE 10-CENT RANGE FOR THE FIRST 20 MILLION, AND 11 FOR THE SECOND.

IN ANY EVENT, WE CANNOT CONCLUDE THAT IN THE CIRCUMSTANCES PRESENTED THE TRIANGLE BID WAS OF THE TYPE INTENDED TO BE COVERED BY ASPR 1 706.6 (C) (1) (A), WHICH STATES,"THE GOVERNMENT RESERVES THE RIGHT NOT TO CONSIDER TOKEN BIDS OR OTHER DEVICES DESIGNED TO SECURE AN UNFAIR ADVANTAGE OVER OTHER BIDDERS ELIGIBLE FOR THE SET-ASIDE PORTION.' SINCE UNDER THE CLEAR TERMS OF THE INVITATION TRIANGLE CAN BE REQUIRED TO FURNISH THE SECOND 20 MILLION GALLONS AT ITS 10-CENT PRICE IF NO SMALL BUSINESS BIDDER WILL ACCEPT AWARD AT THAT PRICE, ITS BID CANNOT BE CONSIDERED A TOKEN BID. NEITHER DO WE FEEL THAT THE SUPPOSED "ADVANTAGE" WHICH YOU SAY IT WAS ATTEMPTING TO SECURE MAY PROPERLY BE CONSIDERED AN AN "UNFAIR" ADVANTAGE, BECAUSE THE ALLEGED UNFAIRNESS OF THE RESULT OBJECTED TO IS OCCASIONED BY THE TERMS LAID DOWN IN THE INVITATION RATHER THAN BY THE FORM OF THE TRIANGLE BID, WHICH WAS IN NO WAY PROHIBITED BY ANYTHING IN THE INVITATION, EVEN THOUGH IT WAS NOT ANTICIPATED.

IN SPITE OF THE HISTORIC, AS WELL AS THE CURRENT PRICING METHODS OF PETROLEUM BIDDING, IT SEEMS CLEAR TO US THAT TRIANGLE'S BID WAS NOT A DEVICE TO SECURE AN UNFAIR ADVANTAGE OVER FORT WORTH, BUT A PERMISSIBLE PRICING TECHNIQUE WHICH INVOLVED RISKS AS WELL AS POSSIBLE ADVANTAGES, AND WAS ENTIRELY CONSISTENT WITH THE TERMS OF THE INVITATION. WE AGREE WITH THE REASONING OF THE ADMINISTRATIVE REPORT WHICH STATES, "IT IS A DANGEROUS METHOD, THIS BIDDING THE HIGHER INCREMENT FIRST. A LITTLE LOWER PRICE AND A LITTLE MORE PRODUCT FROM FORT WORTH AND TRIANGLE WOULD NOT HAVE SOLD A DROP OF PRODUCT UNDER THIS SOLICITATION. HOWEVER, TRIANGLE'S BID IS A VALID ONE AND HARDLY TO BE CONSIDERED TOKEN. SHOULD THIS COMPETITION BE CONSIDERED A DEVICE TO SECURE AN UNFAIR ADVANTAGE? THINK NOT, FOR IF IT IS TO BE CONSIDERED UNFAIR WHERE SHOULD ONE DRAW THE LINE? " WE FEEL THAT FORT WORTH WAS GIVEN AN EQUITABLE OPPORTUNITY TO COMPETE AS A QUALIFIED SMALL BUSINESS CONCERN, AND WHILE AN AWARD AT A PRICE LOWER THAN THE NON-SET-ASIDE PRICE IS NOT THE INTENDED RESULT, IT IS THE PRICE CLEARLY REQUIRED BY THE EXPRESS TERMS OF THIS SOLICITATION, WHICH CANNOT BE IGNORED OR CHANGED AFTER BID OPENING. ACCEPTANCE OF THE AWARD WAS ENTIRELY OPTIONAL WITH FORT WORTH, WHICH COULD HAVE REFUSED IT.

OUR CONCLUSION IS STRENGTHENED BY THE FACT THAT THE TERMS OF THE SUBJECT INVITATION AS WE INTERPRET THEM COINCIDE WITH THE POLICY EMBODIED IN THE ASPR OF AVOIDING PAYMENT OF PRICE DIFFERENTIALS OR PREMIUMS ON AWARDS TO SMALL BUSINESS CONCERNS. SEE ASPR REVISION NO. 8, NOVEMBER 1, 1964, EXPLAINING THE PURPOSE OF AMENDMENTS THEREIN PROMULGATED TO THE SMALL BUSINESS SET-ASIDE PROVISIONS.

WE ARE THEREFORE BY SEPARATE LETTER ADVISING THE PROPER AUTHORITIES AT THE DEFENSE FUEL SUPPLY CENTER THAT THE PRICE AT WHICH THE SET-ASIDE QUANTITY OF ITEM 151 OF THIS PROCUREMENT SHOULD BE FURNISHED BY FORT WORTH IS THE PRICE AT WHICH IT COULD HAVE BEEN OBTAINED FROM TRIANGLE: NAMELY, ONE CENT PER GALLON LESS THAN THE PRICE PAID TO TRIANGLE FOR THE NON-SET- ASIDE QUANTITY OF THAT ITEM.