B-146336, AUGUST 18, 1961, 41 COMP. GEN. 121

B-146336, AUGUST 18, 1961, 41 COMP. GEN. 121

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - SET-ASIDES - ECONOMIC RUN REQUIREMENT - LABOR SURPLUS AREAS - SET-ASIDE V. TOTAL PROCUREMENT COSTS WHERE A MILITARY PROCUREMENT FOR A QUALIFIED PRODUCT ITEM WAS DIVIDED SO THAT THE PORTION SET ASIDE FOR AWARD TO A SMALL BUSINESS CONCERN IN A LABOR SURPLUS AREA WAS MORE THAN 50 PERCENT OF THE TOTAL PROCUREMENT BUT THE RESULTS OF BIDDING ON THE NON-SET-ASIDE PORTION INDICATED THAT THE ONLY SMALL BUSINESS CONCERN ON THE QUALIFIED PRODUCTS LIST WHO WAS IN A POSITION TO BID ON THE TOTAL PROCUREMENT COULD NOT SUBMIT A BID MEETING THE PRICES QUOTED BY ANY OTHER QUALIFIED BIDDER, THE NON-SET-ASIDE PORTION CANNOT BE CONSIDERED AN UNECONOMIC RUN UNDER PARAGRAPH 1-804.2 (A) OF THE ARMED SERVICES PROCUREMENT REGULATION WHICH REQUIRES THAT THE DIVISION BETWEEN THE NON-SET-ASIDE PORTION AND THE SET-ASIDE PORTION SHALL BE NOT LESS THAN AN ECONOMIC PRODUCTION OR REASONABLE RUN. WHERE THE BIDDING ON THE NON-SET-ASIDE PORTION OF A MILITARY PROCUREMENT FOR A QUALIFIED PRODUCT RESULTED IN ONLY ONE SMALL BUSINESS CONCERN ON THE QUALIFIED PRODUCTS LIST SUBMITTING A BID WHICH WAS NOT WITHIN 120 PERCENT OF THE LOW BID SUBMITTED BY A CONCERN IN A SUBSTANTIAL LABOR SURPLUS AREA, THE USE OF THE SURPLUS LABOR AREA SET ASIDE DOES NOT CONTRAVENE THE RESTRICTION IN SECTION 523 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1961, 74 STAT. 353, WHICH PRECLUDES THE USE OF APPROPRIATED FUNDS FOR CONTRACTS AWARDED ON THE BASIS OF A LABOR SURPLUS AREA SITUATION AT A PRICE IN EXCESS OF THE LOWEST OBTAINABLE ON AN UNRESTRICTED SOLICITATION OF BIDS. IN ORDER TO JUSTIFY A SET-ASIDE FOR SURPLUS LABOR AREA CONCERNS OF MORE THAN 50 PERCENT OF A TOTAL PROCUREMENT, THE USE OF SUCH A SET ASIDE SHOULD BE BASED ON DEFINITE DETERMINATIONS AND ON SUBSTANTIAL GROUNDS THAT COSTS OR BID PRICES ON THE NON-SET-ASIDE PORTION OF THE PROCUREMENT COULD NOT REASONABLY BE EXPECTED TO BE GREATER THAN THEY WOULD BE FOR THE TOTAL QUANTITY OF THE PROCUREMENT.

TO THE JOHN OSTER MANUFACTURING CO., AUGUST 18, 1961:

WE REFER TO YOUR TELEGRAM OF JULY 6, 1961, AND LETTER OF JULY 7, 1961, PROTESTING AGAINST THE LABOR SURPLUS SET-ASIDE UNDER INVITATION FOR BIDS NO. 600-1168-61, ISSUED BY THE U.S. NAVY PURCHASING OFFICE, WASHINGTON 25, D.C.

THE INVITATION WAS ISSUED ON JUNE 13, 1961, CALLING FOR BIDS UNDER VARIOUS ITEM NUMBERS, ON A TOTAL OF 894 "ID-663/U BEARING DISTANCE HEADING INDICATORS," WITH SUPPORTING TECHNICAL DATA AND SPARES. IN ADDITION, A QUANTITY OF 1,810 INDICATOR UNITS WAS SET ASIDE UNDER THE INVITATION FOR NEGOTIATION WITH CONCERNS IN LABOR SURPLUS AREAS (WITH PREFERENCE TO SMALL BUSINESS CONCERNS IN SUCH AREAS). NEGOTIATIONS WERE TO BE CONDUCTED ONLY WITH RESPONSIBLE LABOR SURPLUS AREA CONCERNS, AS DEFINED IN THE INVITATION, OR SMALL BUSINESS CONCERNS, WHO SUBMITTED RESPONSIVE BIDS ON THE NON-SET-ASIDE PORTION AT A UNIT PRICE WITHIN 120 PERCENT OF THE HIGHEST AWARD MADE ON THE NON-SET-ASIDE PORTION, IN THE FOLLOWING ORDER OF PRIORITY.

GROUP 1. PERSISTENT LABOR SURPLUS AREA CONCERNS WHICH ARE ALSO SMALL

BUSINESS CONCERNS.

GROUP 2. OTHER PERSISTENT LABOR SURPLUS AREA CONCERNS.

GROUP 3. SUBSTANTIAL LABOR SURPLUS AREA CONCERNS WHICH ARE ALSO SMALL

BUSINESS CONCERNS.

GROUP 4. OTHER SUBSTANTIAL LABOR SURPLUS AREA CONCERNS.

GROUP 5. SMALL BUSINESS CONCERNS WHICH ARE NOT LABOR SURPLUS AREA

CONCERNS.

THE INVITATION ALSO CALLED FOR " QUALIFIED PRODUCTS.' MANUFACTURERS WERE TOLD (PAGE 17 OF THE INVITATION) THAT AWARDS WOULD BE MADE ONLY FOR PRODUCTS THAT HAD, PRIOR TO TIME SET FOR OPENING OF BIDS, BEEN TESTED AND QUALIFIED FOR INCLUSION IN THE QUALIFIED PRODUCTS LIST ENTITLED " INDICATOR, BEARING-1DISTANCE-1HEADING," WHETHER OR NOT SUCH PRODUCTS HAD ACTUALLY BEEN INCLUDED IN THE LIST BY THAT DATE.

THE CONTRACTING OFFICER REPORTS THAT A TOTAL OF FIVE POTENTIAL SUPPLIERS, WHOSE NAMES APPEAR ON THE QUALIFIED PRODUCTS LIST ( QPL), WERE SOLICITED. BY BID OPENING ON JULY 3, 1961, SIX BIDS WERE OPENED AND TABULATED ON THE ABSTRACT OF BIDS AS FOLLOWS:

CHART

SIZE UNIT PRICE ASTRONAUTICS CORP. OF AMERICA SMALL $739.00 THE BENDIX CORP. BIG 607.98 COLLINS RADIO CO. BIG 657.00 DAYSTROM, INC.

BIG 624.50 JOHN OSTER MFG. BIG 697.47 THE RAINIER CO., INC. (NOT ON QPL) SMALL 675.00

THE CONTRACTING OFFICER STATES THAT NONE OF THE BIDDERS ARE LOCATED IN A PERSISTENT LABOR SURPLUS AREA; HOWEVER, THE LOW BIDDER, BENDIX CORPORATION, IS LOCATED IN A SUBSTANTIAL LABOR SURPLUS AREA.

THE DEPARTMENT OF THE NAVY INFORMS US THAT AWARD UNDER THIS INVITATION IS BEING WITHHELD PENDING OUR DECISION.

YOUR CONTENTIONS ARE AS FOLLOWS. THE UNIT COST FOR PRODUCTION OF 894 OF THESE UNITS WOULD BE AT LEAST 10 TO 12 PERCENT HIGHER THAN UNIT COSTS FOR PRODUCTION OF 2,704 SUCH UNITS, AND A MINIMUM OF 6 PERCENT HIGHER THAN UNIT COSTS OF 1,810 UNITS, DUE TO THE NATURE OF THE INDICATOR. THEREFORE, THE USE OF A LABOR AREA SET-ASIDE HERE RESULTS IN PRICES HIGHER THAN ARE OTHERWISE OBTAINABLE, IN CONTRAVENTION OF PARAGRAPHS 1-804, 1-802, ARMED SERVICES PROCUREMENT REGULATION; 40 COMP. GEN. 489, AND THE PROVISIONS OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1961, 74 STAT. 338, ALL OF WHICH PROHIBIT THE USE OF A LABOR SURPLUS AREA SET-ASIDE IF IT RESULTS IN PREMIUM PRICES. FURTHERMORE, YOU CONTEND THAT THE USE OF THE QUALIFIED PRODUCTS LIST HERE, WHERE ONLY ONE OF SUCH LISTED MANUFACTURERS IS A SMALL BUSINESS CONCERN, HAS THE EFFECT OF GIVING THAT FIRM AN UNFAIR ADVANTAGE IN THE BIDDING SINCE IT HAS HIGHEST PRIORITY ON THE SET-ASIDE PORTION AND THEREFORE CAN COMPUTE ITS BID PRICE ON THE BASIS OF 2,704 UNITS, RATHER THAN 894 UNITS. (THIS WOULD, OF COURSE, BE TRUE ONLY IF THE SMALL BUSINESS FIRM IS ENTITLED TO SURPLUS LABOR AREA PREFERENCE AS HIGH AS THAT OF ANY OTHER BIDDER.) YOU REQUEST THAT THE SET-ASIDE BE CANCELED AND THAT UNRESTRICTED BIDDING BE CONDUCTED ON THE 2,704 UNITS.

SECTION 523 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1961 ( PUBLIC LAW 86-601, 74 STAT. 353) AND SIMILAR PROVISIONS CONTAINED IN PRIOR APPROPRIATION ACTS PROVIDE THAT NO FUNDS SHALL BE USED FOR THE PAYMENT OF A PRICE DIFFERENTIAL ON CONTRACTS MADE FOR THE PURPOSE OF RELIEVING ECONOMIC DISLOCATIONS. WE HAVE CONSTRUED THIS LIMITATION AS PRECLUDING THE EXPENDITURE BY THE DEFENSE ESTABLISHMENT OF APPROPRIATED FUNDS UNDER ANY CONTRACT AWARDED ON THE BASIS OF A LABOR SURPLUS AREA SITUATION AT A PRICE IN EXCESS OF THE LOWEST OBTAINABLE ON AN UNRESTRICTED SOLICITATION OF BIDS OR PROPOSALS. 40 COMP. GEN. 489. TO IMPLEMENT THE POLICY OF THE DEPARTMENT OF DEFENSE TO AID LABOR SURPLUS AREAS BY PLACING CONTRACTS WITH LABOR SURPLUS CONCERNS, BUT AT PRICES NO HIGHER THAN THOSE OBTAINABLE FROM OTHER CONCERNS (SEE PARAGRAPH 1 802, ARMED SERVICES PROCUREMENT REGULATION), PARAGRAPH 1-804-1 PROVIDES THAT:

1-804 PARTIAL SET-ASIDES FOR LABOR SURPLUS AREA CONCERNS. 1-804.1 GENERAL

(A) (1) IN ACCORDANCE WITH THE POLICY SET FORTH IN 1-802 AND 1-803, A PORTION OF EACH PROCUREMENT SHALL BE SET ASIDE FOR LABOR SURPLUS AREA CONCERNS IF:

(I) THE PROCUREMENT IS SEVERABLE INTO TWO OR MORE ECONOMIC PRODUCTION RUNS OR REASONABLE LOTS; AND

(II) ONE OR MORE LABOR SURPLUS AREA CONCERNS ARE EXPECTED TO HAVE THE TECHNICAL COMPETENCY AND PRODUCTIVE CAPACITY TO FURNISH A SEVERABLE PORTION OF THE PROCUREMENT AT A REASONABLE PRICE.

(2) IN FURTHERANCE OF THE POLICY TO ASSURE THAT A FAIR PROPORTION OF PROCUREMENTS IS PLACED WITH SMALL BUSINESS CONCERNS, EACH LABOR SURPLUS AREA SET-ASIDE SHALL PROVIDE THAT, IN ADDITION TO LABOR SURPLUS AREA CONCERNS, SMALL BUSINESS CONCERNS NOT PERFORMING IN SUCH AREAS ARE ALSO ELIGIBLE FOR PARTICIPATION IN THE SET-ASIDE FOR SUCH QUANTITIES THEREOF AS ARE NOT AWARDED TO LABOR SURPLUS AREA CONCERNS. * * *

(B) NONE OF THE FOLLOWING IS, IN ITSELF, SUFFICIENT CAUSE FOR NOT MAKING A SET-ASIDE:

(III) THE ITEM TO BE PURCHASED IS ON A QUALIFIED PRODUCTS LIST; * * *

FURTHER, PARAGRAPH 1-804.2 (A), ASPR PROVIDES THAT:

* * * WHERE A PORTION OF A PROCUREMENT IS TO BE SET ASIDE PURSUANT TO 1- 804.1, THE PROCUREMENT SHALL BE DIVIDED INTO A NON-SET-ASIDE PORTION AND SET-ASIDE PORTION, EACH OF WHICH SHALL BE NOT LESS THAN AN ECONOMIC PRODUCTION RUN OR REASONABLE LOT. INSOFAR AS PRACTICAL, THE SET-ASIDE PORTION WILL BE SUCH AS TO MAKE THE MAXIMUM USE OF THE CAPACITY OF LABOR SURPLUS AREA CONCERNS. * * *

IT IS NOTED HERE THAT THE ONLY SMALL BUSINESS CONCERN ON THE QUALIFIED PRODUCTS LIST, ASTRONAUTICS CORPORATION OF AMERICA, DID NOT SUBMIT A BID WITHIN 120 PERCENT OF THE LOW PRICE OF $607.98 AND WAS NOT ELIGIBLE FOR THE SET-ASIDE PORTION. THE RAINIER CO., INC., WHILE A SMALL BUSINESS CONCERN, DID NOT OFFER A QUALIFIED PRODUCT AS REQUIRED BY THE INVITATION. SEE 36 COMP. GEN. 809.

THE RESULTS OF THE BIDDING DO NOT APPEAR TO SUPPORT YOUR CONTENTIONS. ASTRONAUTICS, DESPITE ITS BEING IN A POSITION TO BID ON THE TOTAL PROCUREMENT OF 2,704 UNITS, COULD NOT MEET THE PRICES QUOTED BY ANY OTHER QUALIFIED BIDDER FOR 894 UNITS, THEN THE 894 UNITS COULD HARDLY BE CONSIDERED AN UNECONOMIC RUN. WE MUST CONCLUDE THAT CONSIDERATION OF THE BIDS RECEIVED HERE IN RESPONSE TO THIS INVITATION WOULD NOT VIOLATE THE PROVISIONS OF ASPR, CITED ABOVE, OR VIOLATE THE PROHIBITION CONTAINED IN SECTION 523 OF THE 1961 APPROPRIATION ACT, AS EXPRESSED IN OUR DECISION 40 COMP. GEN. 489.

WHILE ON THE FACTS PRESENTED WE FIND NO VALID GROUND FOR OBJECTION TO THE PROCUREMENT INVOLVED, WE BELIEVE THAT FUTURE SET-ASIDES FOR SURPLUS LABOR AREAS OF MORE THAN 50 PERCENT OF PARTICULAR PROCUREMENTS CAN BE JUSTIFIED ONLY BY DEFINITE DETERMINATIONS, ON SUBSTANTIAL GROUNDS, THAT COSTS OR BID PRICES ON THE NON-SET-ASIDE PORTION OF THE PROCUREMENT COULD NOT REASONABLY BE EXPECTED TO BE GREATER THAN THEY WOULD BE FOR THE TOTAL QUANTITY OF THE PROCUREMENT. BY LETTER OF TODAY WE ARE ADVISING THE SECRETARY OF THE NAVY OF OUR VIEW IN THIS REGARD AND ARE SUGGESTING THAT THE APPLICABLE PROVISIONS OF ASPR SHOULD BE CHANGED ACCORDINGLY.