B-148260, MAY 8, 1962

B-148260, MAY 8, 1962

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO LETTER DATED APRIL 4, 1962, FROM THE CHIEF, CONTRACTS DIVISION, ON BEHALF OF THE ASSISTANT SECRETARY OF THE ARMY (INSTALLATIONS AND LOGISTICS), FURNISHING A REPORT CONCERNING THE PROTEST OF SELECTO-FLASH, INC., AGAINST THE AWARD MADE UNDER INVITATION FOR BIDS NO. ENG-18-020-29, ISSUED BY THE U.S. ARMY ENGINEER DISTRICT, BALTIMORE, MARYLAND.

THE INVITATION REQUESTED BIDS FOR FURNISHING 1,000,000 FALLOUT SHELTER SIGNS, TYPE II (STEEL OR ALUMINUM), TO BE MANUFACTURED IN ACCORDANCE WITH MILITARY SPECIFICATION MIL-S-43046 (CE), DATED NOVEMBER 24, 1961, AS AMENDED. IN ADDITION TO THE SIGNS, THERE WERE TO BE FURNISHED VARIOUS QUANTITIES OF FOUR TYPES OF OVERLAYS FOR THE SIGNS (ARROW, NUMERAL SET,"CAPACITY" INDICATOR AND ,STARTS HERE" OVERLAY). THE SIGNS ARE TO BE PACKED 40 TO A PACKAGE AND EACH PACKAGE IS TO CONTAIN A NUMBER OF EACH TYPE OF THE OVERLAYS. BIDDERS WERE REQUIRED TO SUBMIT SAMPLES OF THE SIGN AND OF EACH OVERLAY THEY PROPOSED TO FURNISH.

PAGE 1 OF THE INVITATION PROVIDED THAT THE PROCUREMENT WAS A TOTAL SET- ASIDE FOR SMALL BUSINESS FIRMS ONLY, AND REFERS TO CLAUSE 13 OF THE TERMS AND CONDITIONS OF THE INVITATION FOR BIDS WHICH PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"/A) RESTRICTION. BIDS OR PROPOSALS UNDER THIS PROCUREMENT ARE SOLICITED FROM SMALL BUSINESS CONCERNS ONLY AND THIS PROCUREMENT IS TO BE AWARDED ONLY TO ONE OR MORE SMALL BUSINESS CONCERNS. THIS ACTION IS BASED ON A DETERMINATION BY THE CONTRACTING OFFICER, ALONE OR IN CONJUNCTION WITH A REPRESENTATIVE OF THE SMALL BUSINESS ADMINISTRATION, THAT IT IS IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, IN THE INTEREST OF WAR OR NATIONAL DEFENSE PROGRAMS, OR IN THE INTEREST OF ASSURING THAT A FAIR PROPORTION OF GOVERNMENT PROCUREMENT IS PLACED WITH SMALL BUSINESS CONCERNS. BIDS OR PROPOSALS RECEIVED FROM FIRMS WHICH ARE NOT SMALL BUSINESS CONCERNS SHALL BE CONSIDERED NONRESPONSIVE AND SHALL BE REJECTED.

"/B) DEFINITIONS. (1) A "SMALL BUSINESS CONCERN" IS A CONCERN THAT (I) IS CERTIFIED AS A SMALL BUSINESS CONCERN BY THE SMALL BUSINESS ADMINISTRATION, OR (II) IS INDEPENDENTLY OWNED AND OPERATED, IS NOT DOMINANT IN THE FIELD OF OPERATION IN WHICH IT IS BIDDING ON GOVERNMENT CONTRACTS AND, WITH ITS AFFILIATES, EMPLOYS EITHER NOT MORE THAN 500 EMPLOYEES OR, IF THE CONCERN QUALIFIES AS A LABOR SURPLUS AREA CONCERN, NOT MORE THAN 625 EMPLOYEES. IN ADDITION TO MEETING THESE CRITERIA, A MANUFACTURER OR REGULAR DEALER SUBMITTING BIDS OR PROPOSALS IN HIS OWN NAME MUST AGREE TO FURNISH IN THE PERFORMANCE OF THE CONTRACT END ITEMS MANUFACTURED OR PRODUCED IN THE UNITED STATES, ITS POSSESSIONS, OR PUERTO RICO, BY SMALL BUSINESS CONCERNS; PROVIDED, THAT THIS ADDITIONAL REQUIREMENT DOES NOT APPLY IN CONNECTION WITH CONSTRUCTION OR SERVICE CONTRACTS.'

THIRTY-ONE BIDS WERE RECEIVED IN RESPONSE TO THE INVITATION. THE LOWEST BID WAS SUBMITTED BY ALFRAY PRODUCTS, INC., COSHOCTON, OHIO, AND ITS SAMPLES WERE FOUND TO COMPLY WITH THE REQUIREMENTS OF THE SPECIFICATION. ALFRAY PRODUCTS CERTIFIED ON PAGE 1 OF ITS BID THAT IT WAS A SMALL BUSINESS CONCERN AND THAT IT WAS A MANUFACTURER OF THE SUPPLIES BID UPON.

A PREAWARD SURVEY WAS CONDUCTED TO DETERMINE THE CAPABILITY OF ALFRAY PRODUCTS TO PERFORM THE CONTRACT WORK. THE SURVEY DISCLOSED THAT A SUBCONTRACTOR, AMERICAN ART WORKS, LOCATED IN THE SAME CITY, "POSSESSES THE NECESSARY PLANT CAPACITY AND HAS COMMITTED ITSELF TO MANUFACTURE AND TRANSPORT THE SIGNS TO ALFRAY PRODUCTS IN SUFFICIENT TIME TO ENABLE HIM TO INCORPORATE THEM WITH THE OVERLAYS, PACKAGE AND SHIP IN ACCORDANCE WITH DELIVERY REQUIREMENTS.' IT IS STATED THAT THE AMERICAN ART WORKS "WILL FURNISH METAL SIGN COMPLETE" AND THAT ALFRAY PRODUCTS WILL PRINT ALL OVERLAYS IN ITS OWN SHOP AND HAS A COMMITMENT OF ONE WEEK TO 10 DAYS FROM MINNESOTA MINING FOR DELIVERY OF BLANK SCOTCHLITE. AMERICAN ART WORKS WAS INVESTIGATED AND WAS REPORTED TO BE FINANCIALLY AND TECHNICALLY CAPABLE OF MANUFACTURING THE COMPLETE SIGN. IN CONNECTION WITH THE FINANCIAL RESPONSIBILITY OF ALFRAY PRODUCTS THE REPORT STATES, AMONG OTHER THINGS, THAT "HIS SUBCONTRACTOR WILL MANUFACTURE, STORE AND SHIP AS NEEDED. WILL BILL AFTER GOV-T PAYMENTS BEGIN.'

THERE APPARENTLY IS NO QUESTION THAT ALFRAY PRODUCTS IS A SMALL BUSINESS CONCERN AND THAT AMERICAN ART WORKS, A DIVISION OF RAPID AMERICAN CORPORATION, IS BIG BUSINESS WITHIN THE MEANING OF THE SMALL BUSINESS ACT AND CLAUSE 13 OF THE INVITATION, QUOTED ABOVE.

IN VIEW OF THE INFORMATION CONTAINED IN THE PREAWARD SURVEY SHOWING THAT ALFRAY PRODUCTS INTENDED TO SUBCONTRACT THE MANUFACTURE OF THE METAL SIGNS TO A LARGE BUSINESS CONCERN AND THE DEFINITION OF A SMALL BUSINESS CONCERN CONTAINED IN CLAUSE 13, THE CONTRACTING OFFICER CONTACTED THE LOCAL SMALL BUSINESS ADMINISTRATION OFFICE ON FEBRUARY 20, 1962, TO SECURE A RULING AS TO THE STATUS OF ALFRAY PRODUCTS AS A SMALL BUSINESS CONCERN. THE CONTRACTING OFFICER WAS GIVEN A TENTATIVE OPINION THAT SUCH FACTS WOULD NOT CHANGE THE STATUS OF ALFRAY PRODUCTS UNDER THE SMALL BUSINESS ADMINISTRATION POLICIES AND REGULATIONS. THIS ADVICE WAS CONFIRMED ON FEBRUARY 23, 1962, AND THE AWARD WAS MADE TO ALFRAY PRODUCTS ON THE SAME DAY.

SELECTO-FLASH, INC., A SMALL BUSINESS CONCERN, PROTESTS THE AWARD MADE TO ALFRAY PRODUCTS ON THE BASIS THAT CLAUSE 13 OF THE INVITATION, IN ADDITION TO REQUIRING THAT THE BIDDER BE A SMALL BUSINESS CONCERN, PROVIDES THAT THE SMALL BUSINESS CONCERN MUST AGREE TO FURNISH IN THE PERFORMANCE OF THE CONTRACT END ITEMS MANUFACTURED OR PRODUCED BY SMALL BUSINESS CONCERNS. IT IS ALLEGED THAT SINCE ALFRAY PRODUCTS IS HAVING THE SIGN ITSELF, WHICH CONSTITUTES THE LARGEST PORTION OF THE WORK INVOLVED, MANUFACTURED BY AMERICAN ART WORKS, A BIG BUSINESS CONCERN, ALFRAY PRODUCTS DOES NOT QUALIFY FOR AWARD.

IN DECISION OF APRIL 14, 1958, 37 COMP. GEN. 678, WHILE RECOGNIZING THAT THERE IS NO GENERAL PROHIBITION AGAINST SUBCONTRACTING, IT WAS HELD THAT THE ISSUANCE OF AN ADMINISTRATIVE REGULATION WHICH WOULD PRECLUDE SMALL BUSINESS CONTRACTORS UNDER SET-ASIDE PROCUREMENTS FROM SUBCONTRACTING WITH LARGE BUSINESS FIRMS WOULD BE IN CONSONANCE WITH THE SPIRIT AND THE INTENT OF THE STATUTES AFFECTING SMALL BUSINESS PARTICIPATION IN GOVERNMENT CONTRACTS.

CLAUSE 13 (B), QUOTED ABOVE, WHICH IS BASED UPON SECTION 1-706.5 OF THE ARMED SERVICES PROCUREMENT REGULATION (NOVEMBER 1961 REVISION), PROVIDES THAT A SMALL BUSINESS CONCERN BIDDER MUST BE A MANUFACTURER OR A REGULAR DEALER AND MUST AGREE TO FURNISH IN THE PERFORMANCE OF THE CONTRACT END ITEMS MANUFACTURED OR PRODUCED BY SMALL BUSINESS CONCERNS. HOWEVER, THERE IS NOTHING IN THE REGULATION OR THE INVITATION DEFINING "END ITEMS.'

IN THE INSTANT CASE IT WOULD APPEAR TO US THAT THE "SIGN," WHICH APPARENTLY CONSTITUTES THE MAJOR PORTION OF THE WORK AND IS SUSCEPTIBLE OF BEING MADE BY SMALL BUSINESS, WOULD CONSTITUTE AN ,END ITEM" WHICH SHOULD BE MANUFACTURED BY A SMALL BUSINESS CONCERN. IT WOULD HARDLY APPEAR THAT THE PROCUREMENT WAS SET ASIDE FOR SMALL BUSINESS SOLELY FOR THE OVERLAYS AND PACKAGING. IN A SOMEWHAT SIMILAR CASE, REPORTED IN 38 COMP. GEN. 434, INVOLVING A PROCUREMENT OF FOAM RUBBER MATTRESSES, A SMALL BUSINESS CONCERN BIDDER PROPOSED TO FURNISH MATRESSES ON WHICH IT WOULD DO ONLY A SMALL AMOUNT OF SEWING, AND ALL THE OTHER LABOR AND MATERIAL WOULD BE SUPPLIED TO IT BY BIG BUSINESS. IN SUCH CIRCUMSTANCES THE SMALL BUSINESS ADMINISTRATION DETERMINED FOR THAT PROCUREMENT THAT THE SMALL BUSINESS BIDDER DID NOT QUALIFY AS A SMALL BUSINESS CONCERN SINCE IT WOULD BE ACTING AS A DEALER FURNISHING A PRODUCT PRIMARILY MANUFACTURED BY A LARGE BUSINESS CONCERN.

IT IS RECOGNIZED THAT AN OVERALL PERCENTAGE OR OTHER LIMITATION ON SUBCONTRACTING TO BIG BUSINESSES MIGHT ADVERSELY AFFECT OR DISCRIMINATE AGAINST SMALL BUSINESSES SUCH AS JOBBERS, DISTRIBUTORS, FABRICATORS AND ASSEMBLERS WHO MIGHT NECESSARILY DEPEND UPON LARGE BUSINESSES FOR PURCHASE OF MATERIALS AND PARTS WHICH REPRESENT A LARGE PORTION OF THE CONTRACT VOLUME. NEVERTHELESS, IT WOULD SEEM IN DETERMINING THAT A PARTICULAR PROCUREMENT SHOULD BE RESTRICTED TO SMALL BUSINESS CONCERNS, THERE COULD ALSO BE DETERMINED THE AMOUNT OF WORK BY PERCENTAGE OR FUNCTIONS THAT SMALL BUSINESS FIRMS COULD REASONABLE BE EXPECTED TO PERFORM IN CONNECTION WITH THE PARTICULAR PROCUREMENT. IN FAIRNESS TO ALL, THE AMOUNT AND TYPE OF WORK REQUIRED TO BE PERFORMED BY SMALL BUSINESS FIRMS SHOULD BE SET FORTH IN THE INVITATION FOR BIDS.

IN THE INSTANT CASE, SINCE THERE WAS NO PROVISION IN THE INVITATION PROVIDING SPECIFICALLY WHAT CONSTITUTED END ITEMS OR THE FUNCTIONS THAT WERE TO BE PERFORMED BY SMALL BUSINESSES, AND SINCE THE FACTS INVOLVED WERE KNOWN TO THE CONTRACTING OFFICER AND THE SMALL BUSINESS ADMINISTRATION PRIOR TO AWARD, WE SEE NO LEGAL BASIS TO QUESTION THE AWARD MADE.