B-147833, MAY 4, 1962, 41 COMP. GEN. 737

B-147833: May 4, 1962

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IS NOT PRECLUDED BY THE PERMISSIVE RATHER THAN MANDATORY EXPERIENCE REQUIREMENT FROM SHOWING EXPERIENCE WITH OTHER COMPARABLE ITEMS. IS A PROPER REGULATION UNDER THE AUTHORITY VESTED IN THE ADMINISTRATOR OF SMALL BUSINESS AND IS IN CONFORMITY WITH THE SIZE STANDARD PROVISION IN SECTION 2 (3) WHICH WAS DESIGNED TO INSURE FLEXIBILITY IN SIZE STANDARDS RATHER THAN TO PRECLUDE THE ADMINISTRATOR FROM INCREASING THE SIZE WITHIN AN INDUSTRY BASED ON CONSIDERATION OF OTHER RELEVANT FACTORS. 1962: REFERENCE IS MADE TO YOUR LETTERS OF DECEMBER 21 AND 22. YOU CONTEND THAT THE SUCCESSFUL BIDDER DID NOT MEET THE PRODUCTION AND EXPERIENCE REQUIREMENTS OF THE INVITATION AND THAT ITS BID WAS THEREFORE NOT RESPONSIVE.

B-147833, MAY 4, 1962, 41 COMP. GEN. 737

BIDDERS - QUALIFICATIONS - EXPERIENCE - MANDATORY OR PERMISSIVE--- CONTRACTS - AWARDS - LABOR SURPLUS AREAS - EFFECT ON SMALL BUSINESS SIZE UNDER AN INVITATION RESERVING TO THE GOVERNMENT THE RIGHT, AFTER OPENING, TO REQUIRE BIDDERS TO SHOW EXPERIENCE IN MANUFACTURING CERTAIN SPECIFIC COMMERCIAL ITEMS DESIGNATED AS COMPARABLE TO THE EQUIPMENT DESIRED, A BIDDER WHO HAS NOT MANUFACTURED THE PARTICULAR COMMERCIAL EQUIPMENT LISTED AS COMPARABLE, BUT WHO HAS MANUFACTURED SIMILAR EQUIPMENT OF A HIGHER QUALITY AND GREATER COMPLEXITY, IS NOT PRECLUDED BY THE PERMISSIVE RATHER THAN MANDATORY EXPERIENCE REQUIREMENT FROM SHOWING EXPERIENCE WITH OTHER COMPARABLE ITEMS, AND HIS BID SHOULD NOT BE CONSIDERED NONRESPONSIVE AS NOT MEETING THE EXPERIENCE REQUIREMENT IN THE INVITATION. A REGULATION BY THE SMALL BUSINESS ADMINISTRATION WHICH PERMITS AN INCREASE IN THE SIZE STANDARD FOR SMALL BUSINESS CONCERNS OFFERING TO PERFORM GOVERNMENT CONTRACTS IN LABOR SURPLUS AREAS ISSUED UNDER THE SMALL BUSINESS ACT, WHICH IN SECTION 2 (3), 15 U.S.C. 632, LISTS CERTAIN CRITERIA FOR DETERMINING SMALL BUSINESS CONCERNS, INCLUDING THE SIZE STANDARD WHICH MAY VARY FROM INDUSTRY TO INDUSTRY, IS A PROPER REGULATION UNDER THE AUTHORITY VESTED IN THE ADMINISTRATOR OF SMALL BUSINESS AND IS IN CONFORMITY WITH THE SIZE STANDARD PROVISION IN SECTION 2 (3) WHICH WAS DESIGNED TO INSURE FLEXIBILITY IN SIZE STANDARDS RATHER THAN TO PRECLUDE THE ADMINISTRATOR FROM INCREASING THE SIZE WITHIN AN INDUSTRY BASED ON CONSIDERATION OF OTHER RELEVANT FACTORS.

TO ARNDT AND DAY, MAY 4, 1962:

REFERENCE IS MADE TO YOUR LETTERS OF DECEMBER 21 AND 22, 1961, ON BEHALF OF THE REDMANSON CORPORATION, PROTESTING THE AWARD OF A CONTRACT TO AMERICAN ASTRO-SYSTEMS, INC., BY THE DEPARTMENT OF THE NAVY, UNDER INVITATION FOR BIDS IFB-600-75-62-S, CONTRACT NO. NOBS-86363.

YOU CONTEND THAT THE SUCCESSFUL BIDDER DID NOT MEET THE PRODUCTION AND EXPERIENCE REQUIREMENTS OF THE INVITATION AND THAT ITS BID WAS THEREFORE NOT RESPONSIVE. YOU ALSO QUESTION AMERICAN ASTRO-SYSTEMS' STATUS AS A SMALL BUSINESS CONCERN ON THE GROUND THAT THE COMPANY, TOGETHER WITH ITS AFFILIATES, EMPLOYS IN EXCESS OF 500 PERSONS, THE BASIC STANDARD FOR THIS TYPE OF PROCUREMENT, AND THE SMALL BUSINESS ADMINISTRATION REGULATION INCREASING THE SIZE STANDARD BY 25 PERCENT FOR CONTRACTS PERFORMED SUBSTANTIALLY IN AREAS OF SUBSTANTIAL LABOR SURPLUS IS OF DOUBTFUL LEGALITY.

THE INVITATION CONTAINS THE FOLLOWING:

NOTICE TO BIDDERS: IN ORDER TO ASSIST THE BUREAU OF SHIPS IN DETERMINING THE RESPONSIBILITY OF ANY BIDDER ON THIS PROCUREMENT, THE BUREAU OF SHIPS RESERVES THE RIGHT TO REQUIRE, AFTER BID OPENING AND ON TEN (10) DAYS NOTICE, ANY BIDDER TO SUBMIT A TECHNICAL REPORT IN WRITING. THIS REPORT SHALL BE SUFFICIENTLY COMPLETE AND DETAILED TO PERMIT THE BUREAU OF SHIPS, WITHOUT REFERENCE TO ANY OTHER DATA, TO DETERMINE WHETHER THE BIDDER IS TECHNICALLY QUALIFIED TO PRODUCE THE SUPPLIES AS SPECIFIED IN THIS INVITATION AND CAPABLE OF FURNISHING THEM BY THE REQUIRED DELIVERY DATE/S). TO THIS END, THE REPORT MUST INCLUDE THE BIDDER'S EXPERIENCE IN DESIGNING AND PRODUCING ITEMS OF A QUALITY, COMPLEXITY AND PURPOSE COMPARABLE TO THE ITEMS CALLED FOR BY THIS INVITATION. THE BUREAU OF SHIPS CONSIDERS THAT SUCH COMPARABLE ITEMS ARE AIR CONDITIONERS, SIZE 2, 3 AND 5 USED ON U.S. NAVAL SHIPS. THE REPORT SHOULD ALSO SET FORTH THE FACILITIES, PLANT EQUIPMENT, TOOLING AND TEST EQUIPMENT, AND THE BACKGROUND AND EXPERIENCE OF THE KEY PERSONNEL WHICH THE BIDDER HAS AVAILABLE FOR DESIGNING AND PRODUCING THE SUPPLIES CALLED FOR BY THE INVITATION.

YOU CONTEND THAT THE ABOVE " NOTICE TO BIDDERS" MAKES IT MANDATORY THAT A BIDDER, IN ORDER TO QUALIFY FOR THE AWARD, MUST SHOW THAT HE HAS HAD SUFFICIENT EXPERIENCE IN DESIGNING AND PRODUCING ITEMS COMPARABLE TO THOSE CALLED FOR IN THE INVITATION, WHICH COMPARABLE ITEMS ARE CONSIDERED BY THE BUREAU OF SHIPS TO BE AIR CONDITIONERS, SIZE 2, 3 AND 5, USED ON U.S. NAVAL SHIPS, AND THAT, SINCE, ACCORDING TO RELIABLE INFORMATION RECEIVED BY YOU, AMERICAN ASTRO-SYSTEMS HAS NEVER PRODUCED SIZE 2, 3 AND 5 AIR CONDITIONERS, ITS BID SHOULD BE CONSIDERED NONRESPONSIVE AS NOT MEETING THE BASIC REQUIREMENT OF THE INVITATION.

THE PURPOSE OF THE QUOTED PROVISION WAS TO ASSIST THE CONTRACTING OFFICER IN DETERMINING THE BIDDER'S RESPONSIBILITY AND THE REFERENCE TO PARTICULAR AIR CONDITIONERS WAS AN INDICATION BY WAY OF EXAMPLE OF A COMPARABLE ITEM, WHICH WAS NOT INTENDED TO AND COULD NOT PRECLUDE A SHOWING OF EXPERIENCE WITH OTHER COMPARABLE ITEMS. THE NAVY SECURED THE TECHNICAL REPORT REFERRED TO IN THE ABOVE QUOTED CLAUSE, REQUEST FOR WHICH, INCIDENTALLY, WAS PERMISSIVE AND NOT MANDATORY, WHICH SHOWED THAT AMERICAN ASTRO-SYSTEMS HAD VERY SUBSTANTIAL EXPERIENCE IN DESIGNING AND PRODUCING AIR- CONDITIONING EQUIPMENT, INCLUDING UNITS FOR SHIPBOARD USE, WHICH WERE OF HIGHER QUALITY AND GREATER COMPLEXITY THAN THE EQUIPMENT CALLED FOR BY THE INVITATION. IT APPEARS THEREFORE THAT THE BID OF AMERICAN ASTRO-SYSTEMS MET THE QUOTED REQUIREMENT OF THE INVITATION.

IN ANY EVENT, THE CONTRACTING OFFICER, BASED ON THE TECHNICAL REPORT, A PREAWARD SURVEY AND THE RECOMMENDATION OF THE COGNIZANT TECHNICAL BRANCH OF THE BUREAU OF SHIPS, DETERMINED THE LOW BIDDER TO BE RESPONSIBLE. THIS CONNECTION, IT SHOULD BE POINTED OUT THAT SINCE EXPERIENCE REQUIREMENTS RELATE PRIMARILY TO THE RESPONSIBILITY OF A BIDDER, A LOW BID MAY NOT BE REJECTED AS NONRESPONSIVE SOLELY BECAUSE THE BIDDER FAILS TO MEET AN EXPERIENCE REQUIREMENT, UNLESS IT IS DETERMINED THAT HE IS NOT, IN FACT, RESPONSIBLE. 39 COMP. GEN. 173, 178.

PARAGRAPH 3.1 OF THE APPLICABLE SPECIFICATION, MIL-A-19865 ( SHIPS), DATED MARCH 29, 1957, PROVIDES AS FOLLOWS:

3.1 STANDARD PRODUCT.--- EXCEPT WHERE MODIFIED HEREIN IT IS INTENDED THAT THE EQUIPMENT AND ITS COMPONENT PARTS SHALL BE A REGULAR COMMERCIAL PRODUCT OF THE MANUFACTURER OR HIS SUPPLIER.

YOU ALLEGE THAT AMERICAN ASTRO-SYSTEMS IS NOT IN THE COMMERCIAL AIR CONDITIONING BUSINESS, THAT THE ONLY AIR CONDITIONERS EVER MANUFACTURED BY THIS COMPANY WERE OF A SPECIAL NATURE WHICH WERE NOT COMMERCIALLY MARKETED, AND THAT THE BIDDER THUS COULD NOT QUALIFY AS A RESPONSIVE BIDDER IN VIEW OF THE SPECIFIC REQUIREMENT OF PARAGRAPH 3.1 QUOTED ABOVE. YOU ALLEGE FURTHER THAT IF THE SPECIFICATION HAD NOT BEEN WRITTEN IN A MANNER DEFINITELY REQUIRING THE SUPPLY OF THE COMMERCIAL AIR-CONDITIONING UNIT OF THE MANUFACTURER, REDMANSON WOULD HAVE BEEN FREE TO MERELY DESIGN A UNIT AROUND THE SOMEWHAT LOOSE SPECIFICATIONS, AS EMBODIED IN MIL-A- 19865, AND WOULD HAVE BEEN ABLE TO SUBMIT A BID AT A CONSIDERABLY LOWER PRICE.

PRIOR TO THE AWARD, THE APPLICABILITY OF PARAGRAPH 3.1 TO AMERICAN ASTRO- SYSTEMS' BID WAS RAISED WITHIN THE BUREAU OF SHIPS AND REFERRED TO ITS OFFICE OF COUNSEL WHICH GAVE THE OPINION THAT THE BID WAS RESPONSIVE. ALSO, ENGINEERING AND CONTRACTING PERSONNEL OF THE BUREAU OF SHIPS, WHO ARE FAMILIAR WITH THIS TYPE OF EQUIPMENT, CONSIDER IT HIGHLY UNLIKELY THAT A SPECIALLY DESIGNED UNIT COULD BE FURNISHED AT A SUBSTANTIALLY LOWER PRICE THAN A MODIFIED COMMERCIAL UNIT. HOWEVER, IT NOW HAS BEEN REPORTED BY THE DEPARTMENT OF THE NAVY THAT AFTER AWARD IT DEVELOPED THAT THE QUANTITY OF EQUIPMENT ACTUALLY REQUIRED WAS SUBSTANTIALLY LESS THAN CALLED FOR BY THE CONTRACT, AND IT WAS DETERMINED TO BE IN THE BEST INTEREST OF THE GOVERNMENT TO TERMINATE THE CONTRACT IN ITS ENTIRETY AND READVERTISE THE REQUIRED QUANTITY. ACCORDINGLY, ON DECEMBER 29, 1961, THE CONTRACT WAS TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT AND THE PROCUREMENT IS BEING READVERTISED BY INVITATION FOR BIDS NO. 600-1016-62, SCHEDULED FOR RELEASE EARLY THIS MONTH. IN ORDER TO ELIMINATE ANY POSSIBLE AMBIGUITY IN PARAGRAPH 3.1 OF THE SPECIFICATION, THIS PARAGRAPH HAS BEEN DELETED.

WITH REFERENCE TO THE SMALL BUSINESS STATUS OF AMERICAN ASTRO SYSTEMS, THE SMALL BUSINESS ADMINISTRATION HAS DETERMINED THAT THE TOTAL AVERAGE EMPLOYMENT OF AMERICAN ASTRO-SYSTEMS AND ITS AFFILIATES FOR THE FOUR QUARTERS ENDING DECEMBER 15, 1961, WAS 532 PERSONS, THAT THE APPLICABLE SIZE STANDARD FOR THIS PROCUREMENT WAS 625 PERSONS, AND THAT AMERICAN ASTRO-SYSTEMS WAS A SMALL BUSINESS CONCERN FOR THE PURPOSE OF CONTRACT NO. NOBS-86363.

THE SIZE STANDARD UNDER WHICH AMERICAN ASTRO-SYSTEMS QUALIFIED AS A SMALL BUSINESS CONCERN WAS ESTABLISHED BY PARAGRAPH 121.3-7 (B) (1) (I) OF THE SMALL BUSINESS ADMINISTRATION RULES AND REGULATIONS, WHICH READS AS FOLLOWS:

NOTWITHSTANDING ANY OTHER PROVISION OF THIS PART, FOR THE PURPOSE OF A SPECIFIC GOVERNMENT PROCUREMENT THE SIZE STANDARDS CONTAINED HEREIN FOR A MANUFACTURING, CONSTRUCTION OR SERVICE CONCERN ARE INCREASED BY TWENTY- FIVE PERCENT (25 PERCENT) WHENEVER SUCH CONCERN AGREES TO PERFORM OR TO CAUSE THE CONTRACT TO BE PERFORMED SUBSTANTIALLY IN AREAS OF SUBSTANTIAL LABOR SURPLUS.

YOU QUESTION THE LEGALITY OF THIS REGULATION IN VIEW OF THE PROVISIONS OF SECTION 2 (3) OF THE SMALL BUSINESS ACT, 72 STAT. 384, 15 U.S.C. 632, AS FOLLOWS:

FOR THE PURPOSE OF THIS ACT, A SMALL-BUSINESS CONCERN SHALL BE DEEMED TO BE ONE WHICH IS INDEPENDENTLY OWNED AND OPERATED AND WHICH IS NOT DOMINANT IN ITS FIELD OF OPERATION. IN ADDITION TO THE FOREGOING CRITERIA THE ADMINISTRATOR, IN MAKING A DETAILED DEFINITION, MAY USE THESE CRITERIA, AMONG OTHERS: NUMBER OF EMPLOYEES AND DOLLAR VOLUME OF BUSINESS. WHERE THE NUMBER OF EMPLOYEES IS USED AS ONE OF THE CRITERIA IN MAKING SUCH DEFINITION FOR ANY OF THE PURPOSES OF THIS ACT, THE MAXIMUM NUMBER OF EMPLOYEES WHICH A SMALL-BUSINESS CONCERN MAY HAVE UNDER THE DEFINITION SHALL VARY FROM INDUSTRY TO INDUSTRY TO THE EXTENT NECESSARY TO REFLECT DIFFERING CHARACTERISTICS OF SUCH INDUSTRIES AND TO TAKE PROPER ACCOUNT OF OTHER RELEVANT FACTORS.

WHEN THE SMALL BUSINESS ADMINISTRATION WAS ESTABLISHED IN 1953, BASIC RESEARCH ON THE SIZE-STANDARD PROBLEM HAD ALREADY BEEN DONE BOTH BY THE DEPARTMENT OF COMMERCE AND THE SMALL DEFENSE PLANTS CORPORATION, AN AGENCY WHICH WAS THE PREDECESSOR OF THE SMALL BUSINESS ADMINISTRATION, BUT THE STANDARDS WERE QUITE RIGID. SINCE THAT TIME THE PROBLEM HAS RECEIVED SERIOUS AND EXTENSIVE CONSIDERATION BY THE SMALL BUSINESS ADMINISTRATION, IN CONCERT WITH REPRESENTATIVES OF BUSINESS AND OTHER GOVERNMENT AGENCIES, WITH A DEFINITE TREND AWAY FROM STANDARDS THAT ARE TOO FIXED. CONGRESSIONAL HEARINGS AND LEGISLATION IN THE INTERIM ALSO EVINCE A CLEAR RECOGNITION OF THE NEED FOR FLEXIBILITY IN THE ESTABLISHMENT OF SIZE STANDARDS AND AN INTENTION TO VEST THE SMALL BUSINESS ADMINISTRATION WITH WIDE AUTHORITY AND DISCRETION IN DETERMINING SAME. THE FOLLOWING APPEARS ON PAGE 6 OF HOUSE REPORT NO. 555, DATED JUNE 13, 1957, 85TH CONGRESS, ST SESSION:

* * * RECOGNITION OF VARYING SITUATIONS MOTIVATED THIS COMMITTEE IN DRAFTING THE PRESENT SMALL BUSINESS ACT TO DEPART FROM RIGID STANDARDS AND LEAVE THE DEFINITION OF SMALL BUSINESS TO ADMINISTRATIVE DETERMINATION. THE SMALL BUSINESS ACT PLACED THIS RESPONSIBILITY WHOLLY WITHIN THE SMALL BUSINESS ADMINISTRATION. * * *

SECTION 2 (5) (B) (6) OF THE SMALL BUSINESS ACT, 15 U.S.C. 634 (B) (6), PROVIDES THAT THE ADMINISTRATOR MAY MAKE SUCH RULES AND REGULATIONS AS HE DEEMS NECESSARY TO CARRY OUT THE AUTHORITY VESTED IN HIM BY OR PURSUANT TO THE ACT. SECTION 2 (8) (B) (6) OF THE ACT, 15 U.S.C. 637 (B) (6), PROVIDES FURTHER THAT IT SHALL BE THE DUTY OF THE ADMINISTRATION AND IT IS THEREBY EMPOWERED, WHENEVER IT DETERMINES SUCH ACTION IS NECESSARY, TO DETERMINE "WITHIN ANY INDUSTRY" THE CONCERNS, FIRMS, ETC., WHICH ARE TO BE DESIGNATED SMALL BUSINESS CONCERNS FOR THE PURPOSE OF EFFECTUATING THE PROVISIONS OF THE ACT.

THE FOREGOING APPEARS TO CONSTITUTE AMPLE AUTHORITY FOR THE PROMULGATION BY THE ADMINISTRATOR OF THE REGULATION TO WHICH YOU OBJECT. SECTION 3 OF THE ACT LISTS CERTAIN CRITERIA WHICH MAY BE USED ,AMONG OTHERS" BUT DOES NOT SPECIFICALLY, OR BY INFERENCE, PROHIBIT THE VARYING OF SIZE STANDARDS WITHIN AN INDUSTRY. THE PROVISION THAT THE NUMBER OF EMPLOYEES SHALL VARY FROM INDUSTRY TO INDUSTRY WAS APPARENTLY INSERTED TO INSURE FLEXIBILITY IN THE SIZE STANDARDS AND WAS NOT INTENDED TO LIMIT THE AUTHORITY OF THE ADMINISTRATOR TO INCREASE THE NUMBER WITHIN AN INDUSTRY WHEN, IN HIS JUDGMENT, CONSIDERATION OF OTHER RELEVANT FACTORS INDICATED THAT SUCH ACTION WAS DESIRABLE AND PROPER.

FOR THE REASONS STATED, WE ARE NOT REQUIRED TO OBJECT TO THE ACTION TAKEN BY THE NAVY DEPARTMENT IN MAKING THIS PROCUREMENT AND WE WOULD NOT BE LEGALLY JUSTIFIED IN QUESTIONING THE ISSUANCE OF THE ..END :