B-142468, MAY 27, 1960

B-142468: May 27, 1960

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PROSPECTIVE PRIME CONTRACTORS WERE ADVISED BY THE ARCHITECT ENGINEERS FOR THE PROJECT AS FOLLOWS: "FOR YOUR INFORMATION. HAVE BEEN SPECIFICALLY APPROVED BY THE HOSPITAL AUTHORITIES. THE NAMES OF CERTAIN MECHANICAL AND ELECTRICAL SUBCONTRACTORS FROM WASHINGTON AND PHILADELPHIA WERE CONSIDERED BY THE AUTHORITIES. WERE ADVISED THE STANDARD ENGINEERING COMPANY. IN RESPONSE TO A REQUEST TO BE "THE DECISION OF THE HOSPITAL AUTHORITIES TO LIMIT THE SUBCONTRACT BIDDERS FOR MECHANICAL/ELECTRICAL WORK TO THE BETTER GROUP OF BIDDERS IN BALTIMORE WAS BASED. WE WERE ADVISED BY THE DEPARTMENT OF HEALTH. PROVIDED THAT THE REQUIREMENTS OF THE HILL BURTON ACT AND APPLICABLE REGULATIONS WERE MET. THE REPORT FURTHER INDICATED THAT THE PROJECT COST WAS ESTIMATED AT $8 MILLION.

B-142468, MAY 27, 1960

TO ROGER E. BROOKS, ESQUIRE:

WE REFER AGAIN TO YOUR LETTER OF MARCH 30, 1960, WITH ENCLOSURES, ON BEHALF OF THE STANDARD ENGINEERING COMPANY OF WASHINGTON, D.C., WITH RESPECT TO THE LIMITATIONS PRESCRIBED ON THE ELIGIBILITY OF SUBCONTRACTORS IN CONNECTION WITH THE CONSTRUCTION OF MERCY HOSPITAL, BALTIMORE, INVOLVING THE USE OF FEDERAL ASSISTANCE FUNDS UNDER THE HILL-BURTON ACT, AS AMENDED, 42 U.S.C. 291.

BY LETTER OF MARCH 9, 1960, PROSPECTIVE PRIME CONTRACTORS WERE ADVISED BY THE ARCHITECT ENGINEERS FOR THE PROJECT AS FOLLOWS:

"FOR YOUR INFORMATION, THE FOLLOWING MECHANICAL AND ELECTRICAL SUB CONTRACTORS, ALL OF BALTIMORE, HAVE BEEN SPECIFICALLY APPROVED BY THE HOSPITAL AUTHORITIES; THE NAMES OF CERTAIN MECHANICAL AND ELECTRICAL SUBCONTRACTORS FROM WASHINGTON AND PHILADELPHIA WERE CONSIDERED BY THE AUTHORITIES, BUT NOT APPROVED; NO OTHER MECHANICAL OR ELECTRICAL SUB CONTRACTORS' PROPOSAL SHALL BE USED WITHOUT PRIOR REFERENCE TO THE ARCHITECT FOR CONSIDERATION BY HOSPITAL AUTHORITIES: - "

THERE FOLLOWS A LIST OF FIVE MECHANICAL AND FIVE ELECTRICAL CONTRACTORS.

THE STANDARD ENGINEERING COMPANY, IN RESPONSE TO A REQUEST TO BE CONSIDERED FOR THE MECHANICAL WORK TO BE SUBCONTRACTED, WERE ADVISED

THE STANDARD ENGINEERING COMPANY, IN RESPONSE TO A REQUEST TO BE

"THE DECISION OF THE HOSPITAL AUTHORITIES TO LIMIT THE SUBCONTRACT BIDDERS FOR MECHANICAL/ELECTRICAL WORK TO THE BETTER GROUP OF BIDDERS IN BALTIMORE WAS BASED, NOT ONLY ON THE HOSPITAL AUTHORITIES' FEELING OF CLOSE ASSOCIATION WITH, SERVICE TO, AND DEPENDENCE ON THE BALTIMORE COMMUNITY, BUT ALSO TO A CONSIDERABLE EXTENT ON THE THOUGHT THAT LOOKING TO THE FUTURE, WHEN CHANGES MAY BE MADE FOR ONE REASON OR ANOTHER OR WHEN CALL-BACK SERVICE MAY BE NECESSARY FOR ONE REASON OR ANOTHER, IT WOULD BE VERY GREATLY TO THEIR ADVANTAGE AND INTEREST TO BE ASSURED THAT NOT ONLY THE HEAD OFFICE OF THE MECHANICAL AND ELECTRICAL ORGANIZATIONS INVOLVED SHOULD BE LOCAL, BUT THAT THE PROJECT MANAGERS, FOREMEN, AND AT LEAST SOME OF THE MECHANICS INVOLVED IN THE ORIGINAL INSTALLATION WOULD CONTINUE TO BE AVAILABLE FOR SOME YEARS.'

YOU REQUEST OUR OPINION AS TO WHETHER THE ACCEPTABLE SUBCONTRACTORS MAY BE SO LIMITED, IN VIEW OF THE CONTRIBUTION MADE OR TO BE MADE BY THE GOVERNMENT TOWARD THE PROJECT, AND OF THE STATUTORY PROVISIONS GOVERNING SUCH CONTRIBUTIONS.

IN A REPORT DATED APRIL 22, 1960, WE WERE ADVISED BY THE DEPARTMENT OF HEALTH, EDUCATION AND WELFARE THAT THE APPLICATION FOR THE MERCY HOSPITAL PROJECT HAD AT THAT TIME RECEIVED THE PRELIMINARY APPROVAL OF THE PUBLIC HEALTH SERVICE AND WOULD BE FORMALLY APPROVED UPON RECEIPT OF THE CONSTRUCTION BIDS, PROVIDED THAT THE REQUIREMENTS OF THE HILL BURTON ACT AND APPLICABLE REGULATIONS WERE MET. THE REPORT FURTHER INDICATED THAT THE PROJECT COST WAS ESTIMATED AT $8 MILLION; THAT FEDERAL ASSISTANCE AMOUNTING TO $525,871 HAD BEEN REQUESTED; AND THAT THE AMOUNT OF FEDERAL PARTICIPATION WOULD NOT BE AFFECTED BY ANY INCREASE IN THE TOTAL COST OF THE FACILITY.

AS INDICATED, IF REQUIREMENTS ARE MET, FEDERAL ASSISTANCE WILL BE AVAILABLE UNDER THE HILL-BURTON ACT. WHILE THE ACT ITSELF CONTAINS NO LIMITATION WITH RESPECT TO THE MANNER OF AWARD OF CONTRACTS FOR PROJECTS GRANTED FEDERAL ASSISTANCE THEREUNDER, 42 U.S.C. 291E PROVIDES FOR THE PROMULGATION OF THE REGULATIONS BY THE PUBLIC HEALTH SERVICE. SECTION 53.127 (C) OF THE PUBLIC HEALTH SERVICE REGULATIONS REQUIRES ASSURANCE FROM THE SPONSOR:

"/1) THAT ACTUAL CONSTRUCTION WORK WILL BE PERFORMED BY THE LUMP SUM (FIXED PRICE) CONTRACT METHOD, THAT ADEQUATE METHODS OF OBTAINING COMPETITIVE BIDDING WILL BE OR HAVE BEEN EMPLOYED PRIOR TO AWARDING THE CONSTRUCTION CONTRACT, EITHER BY PUBLIC ADVERTISING OR CIRCULARIZING THREE OR MORE BIDDERS, AND THAT THE AWARD OF A CONTRACT WILL BE OR HAS BEEN MADE TO THE RESPONSIBLE BIDDER SUBMITTING THE LOWEST ACCEPTABLE BID. * * *"

WE HAVE NOT BEEN ADVISED OF ANY PROTEST WITH RESPECT TO THE LETTING OF THE PRIME CONTRACT. SO FAR AS CONCERNS THE AWARD OF SUBCONTRACTS, IT HAS GENERALLY BEEN HELD THAT COMPETITIVE BID PROCEDURES NEED NOT BE FOLLOWED PARTICULARLY WHERE, AS HERE, THE PRIME CONTRACT IS OF THE FIXED PRICE TYPE. SEE 36 COMP. GEN. 311; B-130904, MARCH 21, 1957. HOWEVER, A LIMITATION ON THE SELECTION OF SUBCONTRACTORS, IF NOT DIRECTLY RELATED TO THE LEGITIMATE NEEDS OF THE AGENCY, MAY BE UNDULY RESTRICTIVE OF COMPETITION.

WE HAVE BEEN ADVISED IN THE REPORT OF APRIL 22 THAT IN THE VIEW OF PUBLIC HEALTH SERVICE THE FACTS IN THIS CASE WOULD NOT JUSTIFY A FINDING THAT THE SPONSOR IS FAILING TO COMPLY SUBSTANTIALLY WITH THE REGULATORY REQUIREMENTS. WE THINK THAT THE INTERPRETATION BY AN AGENCY OF ITS OWN REGULATIONS MUST BE GIVEN CONSIDERABLE PROBATIVE FORCE. AS NOTED ABOVE, THE HILL-BURTON ACT ITSELF CONTAINS NO REQUIREMENT FOR COMPETITIVE BIDDING, AND THE GENERAL TENOR OF THE ACT AND THE DISCUSSIONS IN THE CONGRESS AT THE TIME OF ITS PASSAGE ARE INDICATIVE OF AN INTENT THAT THERE BE A MINIMUM OF FEDERAL CONTROL OR INTERFERENCE WITH LOCAL AUTHORITIES IMMEDIATELY CONCERNED WITH THE PROJECTS AUTHORIZED TO BE ASSISTED.

THE ONLY REMEDY FOR VIOLATION OR BREACH OF THE REQUIREMENTS OF THE STATUTE OR REGULATIONS, BY A SPONSOR OF AN APPROVED PROJECT, IS THAT PROVIDED IN 42 U.S.C. 291J, AS FOLLOWS:

"WHENEVER THE SURGEON GENERAL, AFTER REASONABLE NOTICE AND OPPORTUNITY FOR HEARING TO THE STATE AGENCY * * * FINDS THAT THE STATE AGENCY IS NOT COMPLYING SUBSTANTIALLY WITH THE PROVISIONS REQUIRED * * * BY REGULATIONS PRESCRIBED PURSUANT TO SECTION 291E OF THIS TITLE * * * THE SURGEON GENERAL MAY FORTHWITH NOTIFY THE SECRETARY OF THE TREASURY AND THE STATE AGENCY THAT NO FURTHER CERTIFICATION WILL BE MADE UNDER SECTIONS 291A- 291C, SECTIONS 291D-291H, 291P-291R, OR 291S 291V OF THIS TITLE * * * OR THAT NO FURTHER CERTIFICATIONS WILL BE MADE FOR ANY PROJECT OR PROJECTS DESIGNATED BY THE SURGEON GENERAL AS BEING AFFECTED BY THE DEFAULT, AS THE SURGEON GENERAL MAY DETERMINE TO BE APPROPRIATE UNDER THE CIRCUMSTANCES; AND * * * HE MAY WITHHOLD FURTHER CERTIFICATIONS UNTIL THERE IS NO LONGER ANY FAILURE TO COMPLY * * *.'

IT WILL BE NOTED THAT THE QUOTED PROVISION PERMITS THE WITHHOLDING OF CERTIFYING ACTION AT THE DISCRETION OF THE SURGEON GENERAL; IT DOES NOT REQUIRE SUCH ACTION EVEN IF IT IS FOUND THAT THE REGULATIONS HAVE BEEN BREACHED. IN VIEW OF THE FOREGOING, IT DOES NOT APPEAR THAT ANY ACTION BY OUR OFFICE WITH RESPECT TO THE PROJECT HERE INVOLVED WOULD BE WARRANTED.