B-130725, MAY 13, 1957

B-130725, MAY 13, 1957

TO JOHN ADDISON FOOTWEAR, INC.:

YOUR LETTER OF FEBRUARY 13, 1957, PROTESTS AN AWARD BY THE MILITARY CLOTHING AND SUPPLY AGENCY, PHILADELPHIA QUARTERMASTER DEPOT, UNITED STATES ARMY, OF A CONTRACT FOR A QUANTITY OF SERVICE SHOES, PURSUANT TO INVITATION FOR BIDS NO. QM/CTM/-36-030-57-562, ON THE GROUND THAT THE LOW BIDDER MISREPRESENTED THE NUMBER OF PERSONS EMPLOYED BY IT AND ITS AFFILIATES. AN ATTACHMENT TO YOUR LETTER INDICATES THAT THE NUMBER OF SUCH EMPLOYEES MIGHT HAVE EXCEEDED 500 ABOUT THE TIME THE LOW BID WAS SUBMITTED.

THE INVITATION, ISSUED JANUARY 17, 1957, PERMITTED BIDS ONLY FROM SMALL BUSINESS CONCERNS. THE LOW BIDDER, THE SPORTWELT SHOE COMPANY, INDICATED IN ITS BID THAT, TOGETHER WITH ITS AFFILIATES, IT EMPLOYED 316 PERSONS. YOU CHALLENGED THE QUALIFICATION OF THE LOW BIDDER AS A SMALL BUSINESS CONCERN ON THE BASIS OF A LARGER NUMBER OF PERSONS ALLEGED BY YOU TO BE EMPLOYED BY SPORTWELT AND ITS AFFILIATES. AFTER DUE CONSIDERATION OF YOUR ALLEGATIONS, IT WAS DETERMINED BY THE CONTRACTING OFFICER UPON CONSIDERATION OF FINDINGS BY THE SMALL BUSINESS ADMINISTRATION, THAT THE LOW BIDDER QUALIFIED AS A SMALL BUSINESS AND AWARD WAS MADE TO SPORTWELT ON FEBRUARY 11, 1957.

IN YOUR LETTER OF FEBRUARY 13, YOU STATE:

"IT IS OUR IMPRESSION THAT THE SPORTWELT SHOE COMPANY ANSWERED THE INQUIRY OF THE SMALL BUSINESS ADMINISTRATION RELATIVE TO THE NUMBER OF THEIR EMPLOYEES BY USING THE FIRST METHOD OF DETERMINING SAME AS CONTAINED IN FEDERAL CODE SECTION C OF 103.2, IN WHICH THEY NOTED THE AVERAGE NUMBER OF EMPLOYEES FOR THE PRECEDING FOUR QUARTERS RATHER THAN BY THE SECOND METHOD IN WHICH THEY WERE TO NOTE THE MOST RECENT NUMBER OF EMPLOYEES. IS OUR CONTENTION THAT METHOD TWO MORE NEARLY REFLECTS THE SIZE OF THEIR BUSINESS, PARTICULARLY DUE TO THEIR RAPID GROWTH DURING 1956 AND CURRENTLY. THE SMALL BUSINESS ADMINISTRATION JUDGED THE SPORTWELT SHOE COMPANY TO BE SMALL BUSINESS ON THE BASIS OF THE COMPANY'S ANSWERING TO THEIR INQUIRY AS HAVING FOUR HUNDRED SEVENTY-FIVE (475) AS AN AVERAGE EMPLOYMENT FOR THE PRECEDING FOUR QUARTERS, YET THEY NOTED THREE HUNDRED NINETEEN (319) ON THE INVITATION FOR BID. SEE SCHEDULE ONE ATTACHED. THIS NOT DELIBERATELY MISINFORMING THE GOVERNMENT?

THE ADMINISTRATIVE REPORT RECEIVED FROM THE DEPARTMENT OF THE ARMY INDICATES THAT THE LOW BIDDER WAS CERTIFIED AS A SMALL BUSINESS BY THE SMALL BUSINESS ADMINISTRATION WHICH AGENCY BY LETTER AND TELEGRAM OF FEBRUARY 5, 1957, ADVISED THE PROCURING OFFICE THAT IT HAD DETERMINED THAT SPORTWELT WAS A SMALL BUSINESS FOR PURPOSES OF GOVERNMENT PROCUREMENT. HAVE BEEN FURTHER ADVISED BY LETTER OF APRIL 4, 1957, FROM THE SMALL BUSINESS ADMINISTRATION IN RESPONSE TO OUR REQUEST FOR A REPORT ON THE MATTER, THAT:

"AFTER RECEIPT OF YOUR LETTER, THIS AGENCY MADE A FURTHER INVESTIGATION OF THE SIZE OF SPORTWELT SHOE COMPANY, INC. WE HAVE DETERMINED THAT, AT THE TIME OF ITS BID, THE SPORTWELT SHOE COMPANY TOGETHER WITH ITS AFFILIATES EMPLOYED LESS THAN 500 PERSONS AND WAS A SMALL BUSINESS WITHIN THE MEANING OF THE SMALL BUSINESS ACT OF 1953, AS AMENDED, AND THE SMALL BUSINESS SIZE STANDARDS.

"WE HAVE CONSTRUED SECTION 103.2/C) TO MEAN THAT THE ALTERNATE METHOD FOR COMPUTING THE NUMBER OF EMPLOYEES WHICH RESULTS IN THE LOWER AVERAGE NUMBER OF EMPLOYEES MAY BE SAID TO MORE CORRECTLY REFLECT THE SIZE OF THE CONCERN IN QUESTION. * * *"

SECTIONS 212 AND 213 OF THE SMALL BUSINESS ACT OF 1953, 67 STAT. 238, AS AMENDED BY SECTION 7/A) AND 8 OF PUBLIC LAW 268, APPROVED AUGUST 9, 1955, 69 STAT. 550, IN EFFECT EMPOWER THE SMALL BUSINESS ADMINISTRATION TO DETERMINE WITHIN ANY INDUSTRY, THE FIRMS TO BE DESIGNATED SMALL BUSINESS CONCERNS FOR PURPOSES OF GOVERNMENT PROCUREMENT, AND SUCH CERTIFICATION BY THE ADMINISTRATION IS MADE CONCLUSIVE UPON THE PROCUREMENT OFFICERS OF THE GOVERNMENT. IN VIEW THEREOF, IT DOES NOT APPEAR THAT OUR OFFICE MAY QUESTION SUCH DETERMINATION OR CERTIFICATION EXCEPT UPON CLEAR AND CONVINCING PROOF THAT THE FINDING IS ARBITRARY OR CLEARLY ERRONEOUS.

THE FEDERAL REGISTER FOR DECEMBER 7, 1956, AT PAGE 9709, CONTAINS THE SMALL BUSINESS ADMINISTRATION REGULATIONS WITH REGARD TO DETERMINATIONS AND CERTIFICATIONS SUCH AS THAT UNDER CONSIDERATION HERE. SECTION 103.2/C) OF THE REGULATIONS DEFINES "NUMBER OF EMPLOYEES, AS THE QUARTERLY EMPLOYMENT OF THE FIRM AND ITS AFFILIATES, BASED EITHER ON THE AVERAGE NUMBER OF EMPLOYEES REPORTED FOR THE PRECEDING FOUR QUARTERS UNDER THE OLD AGE AND SURVIVORS INSURANCE PROGRAM, OR THE NUMBER OF EMPLOYEES SHOWN IN THE LAST RECENT QUARTERLY REPORT,"WHICHEVER MORE CORRECTLY REFLECTS THE SIZE OF THE CONCERN IN QUESTION.' THE REPORT FROM THE SMALL BUSINESS ADMINISTRATION AS QUOTED ABOVE INDICATES THAT THE METHOD WHICH RESULTS IN THE LOWER AVERAGE NUMBER OF EMPLOYEES MAY BE REGARDED AS THAT MORE CORRECTLY REFLECTING THE SIZE OF THE CONCERN. THE ADMINISTRATION ADVISES THAT AN AMENDMENT TO THIS PROVISION WILL BE FORTHCOMING SHORTLY WHICH, IT IS HOPED, WILL CLARIFY THE MATTER AND PREVENT SUCH MISUNDERSTANDINGS AS THAT WHICH APPEARS TO HAVE OCCURRED HERE.

IN REGARD TO YOUR CONTENTION THAT THE GOVERNMENT HAS BEEN DELIBERATELY MISINFORMED, IN VIEW OF THE DISCREPANCY IN THE NUMBER OF EMPLOYEES INDICATED BY SPORTWELT IN THE INVITATION AND, AS YOU ALLEGE, IN THE ANSWER TO THE SMALL BUSINESS ADMINISTRATION INQUIRY, IT DOES NOT APPEAR THAT SUCH MISINFORMATION, IF ANY WAS IN FACT FURNISHED, WAS MATERIAL AS STATED ABOVE, THE SMALL BUSINESS ADMINISTRATION HAS DETERMINED THAT SPORTWELT WAS QUALIFIED, AND THEREFORE WHETHER THE SPORTWELT BID INDICATED 316 EMPLOYEES OR 475 WOULD MAKE NO SUBSTANTIAL DIFFERENCE. A MISREPRESENTATION CAN BE MATERIAL, IN THE LEGAL ASPECT, ONLY WHEN IT IS OF SUCH CHARACTER THAT IF IT HAD NOT BEEN MADE, THE TRANSACTION UNDER CONSIDERATION WOULD NOT HAVE BEEN ENTERED INTO. CF. GREENAWALT V. ROGERS, 91 P. 526. THEREFORE, EVEN ASSUMING THE VALIDITY OF YOUR ALLEGATION, IT PROVIDES NO BASIS FOR REGARDING THE CONTRACT BETWEEN SPORTWELT AND THE QUARTERMASTER DEPOT AS OTHER THAN VALID AND BINDING.

IN YOUR LETTER, YOU FURTHER ALLEGE:

"WE FURTHER CONTEST THE DECISION OF THE CONTRACTING OFFICER AND THE SMALL BUSINESS ADMINISTRATION FOR THEY--- AS WELL AS THE OFFICE OF THE CONTRACTING OFFICER--- ARE NOT AUTHORIZED TO MAKE A JUDGMENT AS TO THE VALIDITY OF THE NUMBER OF THE NUMBER OF SPORTWELT SHOE COMPANY'S EMPLOYEES, AND THAT THEY DID NOT MAKE A JUDGMENT RELATIVE TO THE METHOD USED BY THE SPORTWELT SHOE COMPANY IN ANSWERING THE INQUIRY OF THE SMALL BUSINESS ADMINISTRATION. ALSO, NEITHER THE CONTRACTING OFFICER NOR THE SMALL BUSINESS ADMINISTRATION ARE AUTHORIZED TO INVESTIGATE, AND THEY DID NOT INVESTIGATE THE VALIDITY OF THE NUMBER OF EMPLOYEES REPORTED BY THE SPORTWELT SHOE COMPANY IN SPITE OF OUR TWICE PROTESTING THE AWARD OF THE BID UNTIL AN INVESTIGATION WAS MADE.'

THE ALLEGATION AS TO THE AUTHORITY OF THE SMALL BUSINESS ADMINISTRATION TO INVESTIGATE THE NUMBER OF EMPLOYEES OF SPORTWELT AND ITS AFFILIATES IS COMPLETELY CONTRARY TO THE LANGUAGE AND PURPOSE OF THE STATUTORY PROVISIONS CITED ABOVE. THE STATEMENT THAT THE SMALL BUSINESS ADMINISTRATION DID NOT INVESTIGATE THE SIZE OF THE SPORTWELT SHOE COMPANY IS IN DIRECT CONFLICT WITH THE STATEMENT CONTAINED IN THE REPORT FROM THE SMALL BUSINESS ADMINISTRATION, WHICH IS QUOTED ABOVE, AND IN MATTERS OF THIS KIND WE ARE REQUIRED TO ACCEPT THE STATEMENT OF FACTS FROM THE ADMINISTRATIVE AGENCY CONCERNED EXCEPT UPON A CLEAR SHOWING OF ERROR.

THEREFORE, WE PERCEIVE NO LEGAL BASIS UPON WHICH OUR OFFICE MAY TAKE ANY ACTION IN THE MATTER.