B-131078, FEBRUARY 26, 1958, 37 COMP. GEN. 544

B-131078: Feb 26, 1958

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IS PERMISSIBLE UNDER THE COMPETITIVE PROCUREMENT SYSTEM TO PROTECT THE GOVERNMENT FROM UNSCRUPULOUS SUBCONTRACTORS. PROVIDED THAT THE CONDITION IS STATED IN THE INVITATION. WE WERE TOLD. IN VIEW OF THE FACT THAT CERTAIN CLOTHING MANUFACTURERS HAVE ENGAGED IN FRAUDULENT AND CRIMINAL PRACTICES. IT IS FELT THAT THE GOVERNMENT IS NOT FULLY PROTECTED MERELY BY DENYING THE OFFENDING FIRMS' CONTRACTS. THAT IT MUST ESTABLISH BID AND CONTRACT CONDITIONS WHICH WILL PRECLUDE THEM FROM PARTICIPATION IN THE PERFORMANCE OF CONTRACTS AS SUBCONTRACTORS FOR END ITEM OR MAJOR COMPONENT MANUFACTURE. IT WAS BELIEVED NECESSARY TO TAKE THE RATHER STERN VIEW THAT PRIOR UNSATISFACTORY SERVICE OR IRREGULARITY IN PERFORMANCE WAS NOT A VALID REASON FOR SUBSEQUENT REFUSAL TO CONSIDER BIDS.

B-131078, FEBRUARY 26, 1958, 37 COMP. GEN. 544

CONTRACTS - SUBCONTRACTOR'S QUALIFICATIONS - CONTRACTING OFFICER APPROVAL A CONTRACT CONDITION WHICH WOULD PRECLUDE SUBCONTRACTING, EXCEPT SUBJECT TO DETERMINATION AND APPROVAL BY THE CONTRACTING OFFICER OF THE SUBCONTRACTOR'S QUALIFICATIONS TO PERFORM THE WORK IN A CAPABLE AND RESPONSIBLE MANNER, IS PERMISSIBLE UNDER THE COMPETITIVE PROCUREMENT SYSTEM TO PROTECT THE GOVERNMENT FROM UNSCRUPULOUS SUBCONTRACTORS, PROVIDED THAT THE CONDITION IS STATED IN THE INVITATION.

TO THE SECRETARY OF THE ARMY, FEBRUARY 26, 1958:

IN LETTER OF SEPTEMBER 30, 1957, THE ASSISTANT SECRETARY OF THE ARMY ( LOGISTICS) REQUESTED OUR ASSISTANCE IN DEVELOPING AN ACCEPTABLE AND WORKABLE PROCEDURE TO PROTECT THE GOVERNMENT FROM UNSCRUPULOUS SUBCONTRACTORS. WE WERE TOLD, IN PART, THAT, IN VIEW OF THE FACT THAT CERTAIN CLOTHING MANUFACTURERS HAVE ENGAGED IN FRAUDULENT AND CRIMINAL PRACTICES, SUCH AS THE MISAPPROPRIATION OF GOVERNMENT-FURNISHED MATERIALS BRIBERY OF GOVERNMENT EMPLOYEES, SUBMISSION OF FALSE REPORTS AND FALSE CLAIMS, SUBSTITUTION OF INFERIOR ITEMS FOR THOSE PREVIOUSLY APPROVED BY GOVERNMENT INSPECTORS, AND DELIBERATE, FRAUDULENT SUBMISSION OF SUBSTANDARD ITEMS, IT IS FELT THAT THE GOVERNMENT IS NOT FULLY PROTECTED MERELY BY DENYING THE OFFENDING FIRMS' CONTRACTS, BUT THAT IT MUST ESTABLISH BID AND CONTRACT CONDITIONS WHICH WILL PRECLUDE THEM FROM PARTICIPATION IN THE PERFORMANCE OF CONTRACTS AS SUBCONTRACTORS FOR END ITEM OR MAJOR COMPONENT MANUFACTURE.

THE GENERAL ACCOUNTING OFFICE HAS ALWAYS BEEN DEEPLY CONCERNED WITH CONDITIONS WHICH OPERATE AS RESTRICTIONS UPON THE COMPETITIVE PROCUREMENT SYSTEM. AS A GENERAL RULE, ITS POSITION HAS BEEN THAT, TO GIVE EFFECT TO SECTION 3709, REVISED STATUTES, 41 U.S.C. 5 (SEE, ALSO, 10 U.S.C. 2305 (B) AND 41 U.S.C. 253 (B) (, ALL BIDS SHOULD BE RECEIVED AND GIVEN CONSIDERATION ON AN EQUAL BASIS. AT THE SAME TIME, IT HAS RECOGNIZED THAT THERE MIGHT BE INSTANCES IN WHICH A LACK OF RESPONSIBILITY WOULD BE SO EVIDENT THAT A PARTICULAR BIDDER PROPERLY COULD BE PLACED IN A STATUS (VARIOUSLY DENOMINATED SUSPENSION, DEBARMENT, OR INELIGIBILITY) AND DENIED AWARDS OVER A REASONABLE PERIOD OF TIME AFTER DETAILED NOTICE, ETC. (TO ENABLE IT TO CORRECT OBJECTIONABLE CONDITIONS). 14 COMP. GEN. 313 (1934).

ORIGINALLY, IT WAS BELIEVED NECESSARY TO TAKE THE RATHER STERN VIEW THAT PRIOR UNSATISFACTORY SERVICE OR IRREGULARITY IN PERFORMANCE WAS NOT A VALID REASON FOR SUBSEQUENT REFUSAL TO CONSIDER BIDS. IT WAS FELT THAT THE GOVERNMENT WOULD BE FULLY PROTECTED BY BID AND PERFORMANCE BONDS THAT COULD BE REQUIRED. HOWEVER, IN RECENT YEARS, MORE EXTENSIVE AND COMPLICATED PROCUREMENTS HAVE RESULTED IN MORE DEFINITE AND SPECIALIZED ADMINISTRATIVE NEEDS. THE DEVELOPMENT CAN BE MEASURED BEST, PERHAPS, BY THE APPROACH TAKEN IN THE LAST TEN OR FIFTEEN YEARS TO THE ENTIRE QUESTION OF RESTRICTIVE QUALIFICATIONS. IT HAS BEEN RECOGNIZED GENERALLY THAT ESTABLISHMENT OF THE QUALIFICATIONS OF BIDDERS IS A FUNCTION PRIMARILY OF THE ADMINISTRATIVE OFFICE, AND THAT THE WIDE DEGREE OF DISCRETION INVOLVED SHOULD NOT BE QUESTIONED IN THE ABSENCE OF A CLEAR SHOWING OF BAD FAITH OR LACK OF A REASONABLE FACTUAL BASIS. 35 COMP. GEN. 167; 36 COMP. GEN. 649. ALSO, IT HAS BEEN RECOGNIZED GENERALLY THAT REASONABLE QUALIFICATIONS ENCOMPASS AREAS NOT ONLY OF FINANCIAL RESPONSIBILITY BUT OF "JUDGMENT, SKILL, INTEGRITY, AND FITNESS AND ABILITY TO PERFORM.' COMP. GEN. 676; 28 COMP. GEN. 662; 30 COMP. GEN. 235. EXPERIENCE OR PAST PERFORMANCE (UPON WHICH THE INELIGIBILITY STATUS IS PREDICATED) USUALLY IS ACCEPTED, PERHAPS NOT AS A DISTINCT QUALIFICATION, BUT AS A MEASURE IN EVALUATING BASIC QUALIFICATIONS OF CAPABILITY AND RESPONSIBILITY. THUS, WE APPROVED REJECTION OF A LOW BID FOR EQUIPMENT OF A DESIGN AS YET UNTESTED (34 COMP. GEN. 227) AND AGREED TO CONDITIONS FOR MOTION PICTURE SERVICES REQUIRING AN INDIVIDUAL WITH EXPERIENCE AND PAST PERFORMANCE DEMONSTRATING ABILITY OF A NEEDED DEGREE (20 COMP. GEN. 862). 21 COMP. GEN. 56; 26 COMP. GEN. 676; 34 COMP. GEN. 86; 35 COMP. GEN. 411. IN 35 COMP. GEN. 161, IT WAS AGREED THAT AN EXPERIENCE QUALIFICATION HAS BEEN FOUND TO BE MORE IMPORTANT IN OBTAINING SERVICES (WHICH COULD INCLUDE MANUFACTURING OF CLOTHING FROM GOVERNMENT FURNISHED MATERIALS) THAN IT IS IN OBTAINING SUPPLIES, SINCE REJECTION OF SUBSTANDARD PERFORMANCE, IF ENCOUNTERED, RESULTS IN GREATER DISRUPTION OF BUSINESS AND IS LESS READILY CORRECTED OR REPLACED.

THE PROBLEM HAS BEEN CONSISTENTLY DEALT WITH BY TRYING TO KEEP THE CHANNELS OF COMPETITION OPEN. THIS HAS INVOLVED AN INCREASING NEED TO RECONCILE THE RESTRICTIONS OF QUALIFICATIONS NECESSARY TO MEET DETAILED AGENCY REQUIREMENTS WITH THE OVERALL RESPONSIBILITY OF SEEING THAT EXCLUSIONS FROM COMPETITION FOR CONTRACTS ARE REASONABLE. WITH RESPECT TO THE EXCLUSION OF PERSONS PLACED IN A STATUS OF INELIGIBILITY TO RECEIVE AWARDS, HOWEVER, SOME UNRESOLVED PROBLEMS EXIST IN THE AREA WHERE THIS STATUS IS IMPOSED ADMINISTRATIVELY WITHOUT AUTHORIZING OR GOVERNING LEGISLATION. STATUTORY DEBARMENTS ARE THREE IN NUMBER--- DAVIS-BACON ACT, 40 U.S.C. 276A, WALSH-HEALEY ACT, 41 U.S.C. 35, AND THE BUY AMERICAN ACT, 41 U.S.C. 10C (THERE ALSO IS A SORT OF HYBRID UNDER SECTION 512 OF THE NATIONAL HOUSING ACT, 12 U.S.C. 1731A). ADMINISTRATIVE DEBARMENTS (EMPLOYING THE TERM BROADLY TO COVER THE STATUS OF EXCLUSION) ORIGINALLY WERE CAREFULLY REVIEWED HERE. IN RECENT YEARS SUCH A REVIEW LARGELY HAS BEEN ABANDONED IN FAVOR OF MORE AUTONOMOUS ADMINISTRATIVE ACTION, ALTHOUGH PROTESTS BY DISSATISFIED BIDDERS ARE GIVEN CAREFUL CONSIDERATION TO SEE THAT BIDDERS ARE TREATED FAIRLY AND THE GOVERNMENT RECEIVES THE BENEFITS CONTEMPLATED BY THE APPLICABLE PROCUREMENT STATUTES WHICH REQUIRE, EITHER EXPRESSLY OR IMPLIEDLY, THAT AWARD BE MADE TO THAT RESPONSIBLE BIDDER WHOSE BID CONFORMS TO THE INVITATION SPECIFICATIONS AND WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT.

THE MATTER OF SUBCONTRACTORS' QUALIFICATIONS HAS RECEIVED CONSIDERATION WHILE STATUTORY DEBARMENT ORDINARILY DOES NOT, PER SE, PRECLUDE LEGITIMATE SUBCONTRACTING WITH CONTRACTORS DOING BUSINESS WITH THE UNITED STATES, THE PROPRIETY OF LIMITING BY CONTRACT CONDITION THE USE OF SUBCONTRACTORS TO THOSE HAVING QUALIFICATIONS, INCLUDING EXPERIENCE, ETC., OF A NECESSARY ORDER HAS BEEN RECOGNIZED. 37 COMP. GEN. 196.

IT SEEMS CLEAR, THEREFORE, THAT THE SITUATION CONFRONTING THE ARMY IS NOT NEW IN ITS ESSENTIALS AND THAT THE PROBLEMS IT PRESENTS MAY BE SYMPATHETICALLY CONSIDERED WITHIN THE FRAMEWORK OF MORE OR LESS ESTABLISHED AND DESIRABLE PRECEDENTS. THAT IS TO SAY, THE PROPER USE OF ADMINISTRATIVE PROCUREMENT CONTROLS WHICH PRECLUDE PERFORMANCE BY INCAPABLE OR IRRESPONSIBLE PERSONS, WHETHER AS PRIME CONTRACTORS OR AS SUBCONTRACTORS, EVEN THOUGH RESTRICTIVE OF COMPETITION TO THAT EXTENT, IS NOT INCONSISTENT WITH THE FUNCTIONING OR OBJECTIVES OF THE COMPETITIVE PROCUREMENT SYSTEM, AND IS IN ORDER UNDER OUR DECISIONS.

THE LEAST COMPLICATED WAY OF ACHIEVING THE DESIRED PROCUREMENT CONTROL WOULD APPEAR TO BE A SIMPLE CONTRACT CONDITION (TO WHICH SPECIAL ATTENTION SHOULD BE CALLED IN INVITATIONS) THAT NO PORTION OF THE WORK BE SUBLET, EXCEPT SUBJECT TO DETERMINATION AND APPROVAL BY THE CONTRACTING OFFICER OF A PROPOSED SUBCONTRACTOR'S QUALIFICATIONS TO PERFORM THE WORK IN A CAPABLE AND RESPONSIBLE MANNER. THE SAME STANDARDS THEN COULD BE APPLIED IN ASCERTAINING THE FITNESS OF A SUBCONTRACTOR AS WERE OBSERVED IN DETERMINING THE FITNESS OF THE PRIME CONTRACTOR. SUCH A CONDITION NOT ONLY WOULD RESULT IN CLEAR AND DEFINITE OBLIGATIONS BUT, ALSO, HAVE THE VIRTUE OF LEAVING QUESTIONS RELATING TO THE PROPRIETY OF DEBARMENT STATUS, IF ANY, FOR RESOLUTION AS SEPARATE MATTERS. OBVIOUSLY, AUTHORITY TO MAKE A DETERMINATION OF FITNESS MUST PRECEDE AND EXIST INDEPENDENTLY OF ITS EXERCISE IN ANY PARTICULAR INSTANCE, AND DEBARMENT SITUATIONS, AS INDICATED, OFTEN POSE TROUBLESOME QUESTIONS ON AN INDIVIDUAL BASIS.

FROM INFORMAL DISCUSSIONS WITH MEMBERS OF YOUR STAFF IT IS UNDERSTOOD THAT A PROCUREMENT CONTROL OF THIS NATURE WOULD BE WORKABLE AND, SUPPLEMENTING SUCH OTHER INCIDENTAL CONDITIONS AS MAY BE ESSENTIAL AND PROPER IN INSTANCES OF PARTICULAR PROCUREMENTS, WILL SATISFACTORILY SERVE THE NEEDS OF YOUR DEPARTMENT.