B-144308, DEC. 6, 1960

B-144308: Dec 6, 1960

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H. ELLIOTT COMPANY: FURTHER REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 21. SEVEN BIDS WERE RECEIVED. THE LOWEST OF WHICH WAS REJECTED BECAUSE IT OFFERED AN ALTERNATE ITEM. THE NEXT LOWEST BID WAS SUBMITTED BY THE W. THE THIRD LOWEST BID WAS SUBMITTED BY YOUR FIRM AND YOU OFFERED MACHINERY MANUFACTURED BY LARGE BUSINESS. AWARD WAS MADE TO THE W. YOU REQUEST THAT THE SUBJECT INVITATION BE CANCELED BECAUSE OF THE INCLUSION THEREIN OF THE FOLLOWING PARAGRAPHS: "NOTICE OF SMALL BUSINESS SET-ASIDE "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.

B-144308, DEC. 6, 1960

TO THE J. H. ELLIOTT COMPANY:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 21, 1960 , WITH ENCLOSURE, PROTESTING THE TOTAL SMALL BUSINESS SET-ASIDE UNDER INVITATION NO. 600-276-61, ISSUED BY THE U.S. NAVY PURCHASING OFFICE, WASHINGTON, D.C.

THE INVITATION REQUESTED BIDS FOR FURNISHING TWO ENGINE LATHES, 16 INCH BY 54-INCH CAPACITY. SEVEN BIDS WERE RECEIVED, THE LOWEST OF WHICH WAS REJECTED BECAUSE IT OFFERED AN ALTERNATE ITEM. THE NEXT LOWEST BID WAS SUBMITTED BY THE W. E. SHIPLEY MACHINERY COMPANY, A SMALL BUSINESS FIRM OFFERING EQUIPMENT MANUFACTURED BY SMALL BUSINESS. THE THIRD LOWEST BID WAS SUBMITTED BY YOUR FIRM AND YOU OFFERED MACHINERY MANUFACTURED BY LARGE BUSINESS. ON OCTOBER 21, 1960, AWARD WAS MADE TO THE W. E. SHIPLEY MACHINERY COMPANY AT A TOTAL CONTRACT PRICE OF $31,648.

YOU REQUEST THAT THE SUBJECT INVITATION BE CANCELED BECAUSE OF THE INCLUSION THEREIN OF THE FOLLOWING PARAGRAPHS:

"NOTICE OF SMALL BUSINESS SET-ASIDE

"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.

"IN ADDITION TO MEETING THESE CRITERIA, A MANUFACTURER OR A REGULAR DEALER SUBMITTING BIDS OR PROPOSALS IN ITS OWN NAME MUST AGREE TO FURNISH IN THE PERFORMANCE OF THE CONTRACT END ITEMS MANUFACTURED OR PRODUCED IN THE UNITED STATES, ITS TERRITORIES, ITS POSSESSIONS, OR PUERTO RICO, BY SMALL BUSINESS CONCERNS; PROVIDED, THAT THIS ADDITIONAL REQUIREMENT DOES NOT APPLY IN CONNECTION WITH CONSTRUCTION OR SERVICE CONTRACTS. BIDS OR PROPOSALS RECEIVED FROM FIRMS WHICH ARE NOT SMALL BUSINESS CONCERNS SHALL BE CONSIDERED NONRESPONSIVE.'

YOU CONTEND THAT THE BEST INTERESTS OF THE GOVERNMENT HAVE BEEN JEOPARDIZED BY THE INCLUSION OF TOTAL SMALL BUSINESS SET-ASIDES IN INVITATIONS TO BID BECAUSE IT HAS RESULTED IN GREATER COSTS TO THE GOVERNMENT. YOU STATE THAT SINCE JANUARY 1, 1960, THE NAVY PURCHASING OFFICE HAS PURCHASED 32 COMPARABLE MACHINES AT A TOTAL COST OF $465,879.30; THAT 19 MACHINES COSTING $276,118.32 (APPROXIMATELY $14,527 PER MACHINE), WERE AWARDED TO SMALL BUSINESS, AND THAT THE BALANCE OF 13 MACHINES COSTING $189,759.98 (APPROXIMATELY $14,596 PER MACHINE), WAS AWARDED FOR MACHINES MANUFACTURED BY LARGE COMPANIES. IT IS STATED FURTHER THAT PRIOR TO THE BID OPENING DATE OF THE SUBJECT INVITATION, IN ANSWER TO AN INQUIRY MADE TO THE SMALL BUSINESS SPECIALIST OF THE NAVY PURCHASING OFFICE, YOU WERE INFORMED: " ". . . IT WAS THE OPINION OF ALL CONCERNED THAT AMPLE COMPETITION WAS AVAILABLE FROM SMALL BUSINESS, THEREFORE A JOINT DETERMINATION RESULTED.'" YOU CONTEND THAT THE ABOVE ADMINISTRATIVE CONCLUSION IS IN ERROR AND THAT A JOINT DETERMINATION WAS NOT JUSTIFIED IN THE PRESENT CASE. WITH YOUR LETTER YOU SUBMITTED A LISTING OF THE INVITATIONS WHERE LARGE BUSINESS CONCERNS AND SMALL BUSINESS FIRMS WERE ALLOWED TO PARTICIPATE AND YOU SHOWED THE AMOUNTS THE GOVERNMENT SAVED BY THE PARTICIPATION OF LARGE BUSINESS FIRMS.

SECTION 15 OF THE SMALL BUSINESS ACT OF 1958, APPROVED JULY 18, 1958, 15 U.S.C. 644, PROVIDES, IN PART, AS FOLLOWS:

"TO EFFECTUATE THE PURPOSES OF THIS CHAPTER, SMALL-BUSINESS CONCERNS WITHIN THE MEANING OF THIS CHAPTER SHALL RECEIVE ANY AWARD OF CONTRACT OF ANY PART THEREOF, AND BE AWARDED ANY CONTRACT FOR THE SALE OF GOVERNMENT PROPERTY, AS TO WHICH IT IS DETERMINED BY THE ADMINISTRATION AND THE CONTRACTING PROCUREMENT OR DISPOSAL AGENCY (1) TO BE IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, (2) TO BE IN THE INTEREST OF WAR OR NATIONAL DEFENSE PROGRAMS, (3) TO BE IN THE INTEREST OF ASSURING THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS FOR PROPERTY AND SERVICES FOR THE GOVERNMENT ARE PLACED WITH SMALL BUSINESS CONCERNS, * * *.'

SECTION 1-701.4 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), PROMULGATED PURSUANT TO THE PROVISIONS OF THE ACT OF JULY 18, 1958, PROVIDES THAT:

"ONE WHO SUBMITS BIDS OR OFFERS IN ITS OWN NAME, BUT WHO PROPOSES TO FURNISH A PRODUCT NOT MANUFACTURED BY ITSELF, SHALL BE DEEMED TO BE A SMALL BUSINESS CONCERN ONLY IF * * * IT AGREES TO FURNISH IN THE PERFORMANCE OF THE CONTRACT PRODUCTS MANUFACTURED OR PRODUCED IN THE UNITED STATES, ITS TERRITORIES, ITS POSSESSIONS, OR PUERTO RICO, BY SMALL BUSINESS CONCERNS; * * *.'

SECTION 1-706.1 OF THE ARMED SERVICES PROCUREMENT REGULATION READS, IN PERTINENT PART, AS FOLLOWS:

"ANY INDIVIDUAL PROCUREMENT OR CLASS OF PROCUREMENTS OR AN APPROPRIATE PART THEREOF, SHALL BE SET ASIDE FOR THE EXCLUSIVE PARTICIPATION OF SMALL BUSINESS CONCERNS WHEN SUCH ACTION IS (I) JOINTLY DETERMINED BY AN SBA REPRESENTATIVE AND THE CONTRACTING OFFICER * * * TO BE IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, OR 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. * * * "

SECTION 1-706.5, ENTITLED "TOTAL SET-ASIDES," OF SUCH REGULATION PROVIDES AS FOLLOWS:

"/A) THE ENTIRE AMOUNT OF AN INDIVIDUAL PROCUREMENT OR CLASS OF PROCUREMENTS (INCLUDING BUT NOT LIMITED TO CONTRACTS FOR MAINTENANCE, REPAIR, AND CONSTRUCTION) SHALL BE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION (SEE ASPR 1-706.1) WHERE THERE IS A REASONABLE EXPECTATION THAT BIDS OR PROPOSALS WILL BE OBTAINED FROM A SUFFICIENT NUMBER OF RESPONSIBLE SMALL BUSINESS CONCERNS SO THAT AWARDS WILL BE MADE AT REASONABLE PRICES. TOTAL SET-ASIDES SHALL NOT BE MADE UNLESS SUCH A REASONABLE EXPECTATION EXISTS; HOWEVER, SEE ASPR 1-706.6 AS TO PARTIAL SET -ASIDES.

"/B) CONTRACTS FOR TOTAL SMALL BUSINESS SET-ASIDES MAY BE ENTERED INTO BY CONVENTIONAL NEGOTIATION OR BY A SPECIAL METHOD OF PROCUREMENT KNOWN AS "SMALL BUSINESS RESTRICTED VERTISING.' THE LATTER METHOD SHALL BE USED WHEREVER POSSIBLE. INVITATIONS FOR BIDS AND REQUESTS FOR PROPOSALS SHALL BE RESTRICTED TO SMALL BUSINESS CONCERNS. SMALL BUSINESS RESTRICTED ADVERTISING, INCLUDING AWARDS THEREUNDER, SHALL BE CONDUCTED IN THE SAME WAY AS PRESCRIBED FOR FORMAL ADVERTISING IN ASPR, SECTION II, EXCEPT THAT BIDS AND AWARDS SHALL BE RESTRICTED TO SMALL BUSINESS CONCERNS.'

THE INVITATION IN THIS INSTANCE CLEARLY STATED THAT THE PROCUREMENT HAD BEEN SET ASIDE FOR SMALL BUSINESS AND THAT THE DETERMINATION REQUIRED BY THE STATUTE HAD BEEN MADE. IT ALSO CONTAINED THE SUBSTANCE OF SECTION 1- 701.4 OF ASPR, WHICH REGULATION THE AGENCY HAD THE AUTHORITY TO ISSUE PURSUANT TO THE ACT. SEE 37 COMP. GEN. 678.

IT IS REPORTED THAT BASED ON AN EVALUATION OF PROCUREMENT DATA BY THE NAVY PURCHASING OFFICE FOR IDENTICAL BASIC EQUIPMENT, IT WAS DETERMINED THAT BIDS COULD BE EXPECTED FROM A SUFFICIENT NUMBER OF SMALL BUSINESS FIRMS AND THAT AN AWARD COULD BE MADE AT A REASONABLE PRICE. IT IS FURTHER REPORTED THAT THIS DETERMINATION WAS MADE IN VIEW OF THE BIDS RECEIVED UNDER INVITATION NO. 600-48-61 AND INVITATION NO. 600-1960-60. IN REGARD TO THE BIDS RECEIVED IN RESPONSE TO INVITATION NO. 600-48-61, IT IS REPORTED AS FOLLOWS:

"* * * THIS INVITATION FOR BIDS WAS NOT SET ASIDE AND THEREFORE NOT LIMITED TO SMALL BUSINESS FIRMS. SIX OF THE SEVEN BIDS RECEIVED WERE FROM SMALL BUSINESSES. HOWEVER, THREE OF THE BIDDERS (THE J. H. ELLIOTT COMPANY, MACHINERY ASSOCIATES, INC., CHESAPEAKE MACHINERY COMPANY, INC.), INDICATED THAT THE EQUIPMENT THEY OFFERED WOULD BE OBTAINED FROM SOURCES OTHER THAN SMALL BUSINESS.

THE AWARD WAS MADE TO THE LOWEST RESPONSIVE AND RESPONSIBLE BIDDER, THE W. E. SHIPLEY MACHINERY COMPANY, A SMALL BUSINESS FIRM OFFERING EQUIPMENT MANUFACTURED BY A SMALL BUSINESS FIRM.'

AS TO THE BIDS RECEIVED IN RESPONSE TO INVITATION NO. 600-1960-60, THE CONTRACTING OFFICE STATES AS FOLLOWS:

"* * * THIS INVITATION WAS NOT SET ASIDE AND THEREFORE NOT LIMITED TO SMALL BUSINESS FIRMS. SIX OF THE SEVEN BIDS RECEIVED WERE FROM SMALL BUSINESS FIRMS. HOWEVER, THREE OF THE BIDDERS (THE J. H. ELLIOTT COMPANY, MACHINERY ASSOCIATES, INC., CHESAPEAKE MACHINERY COMPANY, INC.), INDICATED THAT THE EQUIPMENT THEY OFFERED WOULD BE OBTAINED FROM SOURCES OTHER THAN SMALL BUSINESS. ANOTHER SMALL BUSINESS BIDDER, BOND INDUSTRIAL MACHINERY COMPANY BID ONLY ON ITEM 6, WHICH WAS THE GOVERNMENT'S OFFER TO SELL CERTAIN USED EQUIPMENT. THE REMAINING TWO SMALL BUSINESS FIRMS, W. E. SHIPLEY MACHINERY COMPANY, THE LOW BIDDER AND THE GEORGE E. VIERACK AND COMPANY, INC., SECOND LOW BIDDER. THE AWARD WAS MADE TO W. E. SHIPLEY MACHINERY COMPANY.'

THE SET-ASIDE OF THIS PROCUREMENT FOR SMALL BUSINESS APPEARS TO HAVE BEEN MADE WITHIN THE FRAMEWORK OF PERTINENT LAWS AND REGULATIONS ON THE BASIS OF A DETERMINATION AUTHORIZED TO BE MADE BY THE CONTRACTING OFFICER AND THE SMALL BUSINESS ADMINISTRATION. WE FIND NO LEGAL BASIS ON WHICH TO QUESTION THE DEPARTMENT'S DETERMINATION TO CLASSIFY THE EQUIPMENT CALLED FOR IN THE INVITATION AS A TOTAL SET ASIDE FOR SMALL BUSINESS CONCERNS. YOUR PROTEST MUST THEREFORE BE ..END :