B-148255, MAY 25, 1962, 41 COMP. GEN. 781

B-148255: May 25, 1962

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AFTER AN ADMINISTRATIVE DETERMINATION THAT THE PORTION OF A PROCUREMENT SET ASIDE FOR SMALL BUSINESS WAS IN ERROR BECAUSE THERE WAS NO NEED FOR THE ADDITIONAL TOOLING TO BE FURNISHED UNDER THE RESTRICTED PORTION. RATHER THAN WITHDRAW THE SET-ASIDE A CONTRACT IS NEGOTIATED WITH THE ONLY ELIGIBLE SMALL BUSINESS BIDDER ON THE BASIS OF THE SAME UNIT PRICE AT WHICH THE NON-SET-ASIDE AWARD WAS MADE. NEGOTIATION WAS JUSTIFIED AND. EVEN THOUGH THE OVERALL CONTRACT PRICE BY REASON OF THE LOWER TOOLING COST IS LESS THAN THE OVERALL PRICE UNDER THE NON-SET-ASIDE AWARD. WAS AWARDED TO YOUR FIRM. THE SMALL BUSINESS CONCERN MUST HAVE SUBMITTED A RESPONSIVE BID ON SUCH ITEM IN ACCORDANCE WITH THE REQUIREMENTS OF (B) (2) ABOVE AT A UNIT PRICE NO GREATER THAN 120 PERCENT OF THE HIGHEST UNIT PRICE FOR SUCH ITEM AWARDED UNDER THE NON SET-ASIDE PORTION. * * * (4) PRICE.

B-148255, MAY 25, 1962, 41 COMP. GEN. 781

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - PRICE DETERMINATIONS WHERE, AFTER AN ADMINISTRATIVE DETERMINATION THAT THE PORTION OF A PROCUREMENT SET ASIDE FOR SMALL BUSINESS WAS IN ERROR BECAUSE THERE WAS NO NEED FOR THE ADDITIONAL TOOLING TO BE FURNISHED UNDER THE RESTRICTED PORTION, BUT RATHER THAN WITHDRAW THE SET-ASIDE A CONTRACT IS NEGOTIATED WITH THE ONLY ELIGIBLE SMALL BUSINESS BIDDER ON THE BASIS OF THE SAME UNIT PRICE AT WHICH THE NON-SET-ASIDE AWARD WAS MADE, PLUS THE LOWER TOOLING COST ORIGINALLY OFFERED BY THE SMALL BUSINESS CONCERN, NEGOTIATION WAS JUSTIFIED AND, EVEN THOUGH THE OVERALL CONTRACT PRICE BY REASON OF THE LOWER TOOLING COST IS LESS THAN THE OVERALL PRICE UNDER THE NON-SET-ASIDE AWARD, ACCEPTANCE BY THE SMALL BUSINESS CONTRACTOR OF THE NEGOTIATED TERMS PRECLUDES ANY PRICE ADJUSTMENT.

TO THE AMERICAN FABRICATED PRODUCTS CO., INC., MAY 25, 1962:

YOUR LETTER OF FEBRUARY 15, 1962, REQUESTS AN INCREASE IN THE PRICE AT WHICH AMENDED CONTRACT NO. N195-13631, JOINTLY SET ASIDE IN PART FOR SMALL BUSINESS, WAS AWARDED TO YOUR FIRM.

INVITATION FOR BIDS NO. 164-5-62 CALLED FOR THE PURCHASE OF 20 MM PROJECTILES IN TWO PORTIONS OF 1,300,000 OR 2,600,000 UNITS EACH, AND PROVIDED ON PAGES 18 AND 19 AS FOLLOWS:

NOTICE OF SMALL BUSINESS SET-ASIDE

(C) SET-ASIDE PORTION AND AWARD PROCEDURE

(1) ELIGIBILITY. TO BE ELIGIBLE FOR CONSIDERATION FOR THE SET ASIDE PORTION OF AN ITEM, THE SMALL BUSINESS CONCERN MUST HAVE SUBMITTED A RESPONSIVE BID ON SUCH ITEM IN ACCORDANCE WITH THE REQUIREMENTS OF (B) (2) ABOVE AT A UNIT PRICE NO GREATER THAN 120 PERCENT OF THE HIGHEST UNIT PRICE FOR SUCH ITEM AWARDED UNDER THE NON SET-ASIDE PORTION. * * *

(4) PRICE. THE SET-ASIDE SHALL BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED ON THE NON-SET-ASIDE PORTION, ADJUSTED TO REFLECT TRANSPORTATION AND OTHER COST FACTORS WHICH WERE CONSIDERED IN EVALUATING BIDS ON THE NON -SET-ASIDE PORTION. * * *

IN REGARD TO PRICE, PAR. 1-706.6 (E), ARMED SERVICES PROCUREMENT REGULATION, ALSO PROVIDES THAT THE "SET-ASIDE PORTION WILL BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED FOR THE NON-SET-ASIDE PORTION.'

THE AMENDMENT TO THE INVITATION, ISSUED AUGUST 25, 1961, CONTAINED THE FOLLOWING:

NOTE TO BIDDERS: TOOLING CLAUSE

NO GOVERNMENT OWNED TOOLING IS AVAILABLE FOR USE ON ANY CONTRACT AWARDED HEREUNDER. ANY AND ALL TOOLING NECESSARY IS TO BE FIGURED SEPARATELY AND WILL BE CONSIDERED AS A PART OF THE OVERALL COST TO THE GOVERNMENT IN AWARD OF CONTRACT. TOOLING WILL BECOME THE PROPERTY OF THE U.S. GOVERNMENT UPON COMPLETION OF CONTRACT AWARDED HEREUNDER.

AT A LATER DATE, THE GOVERNMENT RESERVES THE RIGHT TO FURNISH USABLE GOVERNMENT OWNED TOOLING TO SUCCESSFUL CONTRACTOR AND THEREBY REDUCE TOOLING COST UNDER THE CONTRACT. THE ESTIMATED ACQUISITION COST OF GOVERNMENT OWNED SPECIAL TOOLING WHICH MAY BECOME AVAILABLE IS APPROXIMATELY $7,000.00. * * *

THE BID PRICE AT WHICH THE NON-SET-ASIDE PORTION WAS AWARDED WAS $0.22 A UNIT, PLUS $27,245 FOR TOOLING. YOUR BID OF $0.259 A UNIT, PLUS $10,588 FOR TOOLING, WAS THE ONLY SMALL BUSINESS BID WHICH WAS WITHIN 120 PERCENT OF THE HIGHEST UNIT PRICE AT WHICH THE UNRESTRICTED PORTION WAS AWARDED. AFTER NEGOTIATIONS ON AN ALLEGED "TAKE IT OR LEAVE IT" BASIS, PROPOSED BY THE GOVERNMENT, YOU AGREED TO ENTER INTO A CONTRACT AT A PRICE OF $0.22 A UNIT, PLUS $10,588 FOR TOOLING, AND AWARD OF THE SET-ASIDE PORTION WAS MADE TO YOU ON THIS BASIS. THE RESULT IS THAT, WHILE THE LARGE BUSINESS CONCERN IS RECEIVING $599,245 ON THE CONTRACT, YOU ARE RECEIVING ONLY $582,588 FOR THE SAME WORK. THE DIFFERENCE BETWEEN THE TWO FIGURES, $16,657, IS THE AMOUNT BY WHICH THE TOOLING COSTS OF THE BIG BUSINESS EXCEED YOUR OWN TOOLING COSTS.

YOU CONTEND THAT THE PRICE OF $0.22 A UNIT BID BY THE LARGE BUSINESS CONCERN SHOULD BE ADJUSTED TO REFLECT THE $27,245 COST OF ITS TOOLING, IN ORDER TO ARRIVE AT "THE HIGHEST UNIT PRICE" AT WHICH SMALL BUSINESS WAS TO RECEIVE THE RESTRICTED PORTION OF THE PROCUREMENT. THE NAVY ARGUES THAT TOOLING COST IS NOT A COST WHICH CAN BE USED TO ADJUST THE UNIT PRICE BECAUSE THE COST OF TOOLING, UNLIKE TRANSPORTATION COSTS, CONSTITUTES AN EXPENDITURE FOR A SEPARATE END PRODUCT.

HOWEVER, WE DO NOT FIND IT NECESSARY AT THIS TIME TO DECIDE THIS ISSUE, SINCE WE BELIEVE IT WAS PROPER UNDER THE FACTS OF THIS CASE FOR THE DEPARTMENT OF THE NAVY TO NEGOTIATE WITH YOU FOR A PRICE LOWER THAN SUCH ADJUSTED HIGHEST UNIT PRICE.

THE RECORD INDICATES THAT THE ADMINISTRATIVE AGENCY BELIEVED IT SHOULD NOT HAVE SET ASIDE PART OF THE PROCUREMENT FOR SMALL BUSINESS. THE DEPARTMENT OF THE NAVY REPORTED THAT AFTER OPENING OF THE BIDS, BUT PRIOR TO AWARD, IT REALIZED THAT IT HAD IN REALITY REQUESTED BIDS FOR TWO SETS OF TOOLS, ONE OF WHICH IT DID NOT WANT OR NEED. IT CONCLUDED THAT PROCUREMENT OF THE RESTRICTED PORTION SHOULD BE AWARDED TO YOU ONLY IF YOU WERE WILLING TO ACCEPT THE CONTRACT AT $16,657 LESS THAN THE UNRESTRICTED PORTION.

IN EFFECT, THE DEPARTMENT CONSIDERED YOUR REQUEST FOR AN AWARD AT "THE HIGHEST UNIT PRICE AWARDED ON THE NON-SET-ASIDE PORTION" AS A DEMAND THAT IT EXPEND AN EXTRA AMOUNT OF $27,245 IN ORDER TO OBTAIN (1) 20 MM PROJECTILES, WHICH IT COULD HAVE ACQUIRED WITHOUT SUCH EXTRA EXPENDITURE IF IT HAD NOT PARTIALLY SET THE PROCUREMENT ASIDE FOR SMALL BUSINESS; AND (2) A DUPLICATE SET OF TOOLS FOR WHICH IT HAD NO WISH TO ACQUIRE.

IN LIGHT OF THE ABSENCE OF ANY NEED FOR ADDITIONAL TOOLING, WE CONCUR WITH THE VIEW THAT UNDER THE CIRCUMSTANCES IT WAS AN ERROR TO HAVE SET ASIDE PART OF THIS PROCUREMENT FOR SMALL BUSINESS. IN THE CIRCUMSTANCES, THE PURCHASE OF THIS UNNEEDED EQUIPMENT CLEARLY "WOULD BE DETRIMENTAL TO THE PUBLIC INTEREST," AND, THEREFORE, THE DEPARTMENT OF THE NAVY COULD HAVE COMMENCED PROCEDURES TO WITHDRAW THE SET-ASIDE PURSUANT TO ASPR 1- 706.3 (2) (1) AND 1-706.7. HOWEVER, THE DEPARTMENT APPARENTLY DETERMINED THAT THE VALUE TO THE GOVERNMENT OF THE ADDITIONAL TOOLING WAS PERHAPS COMMENSURATE WITH THE PRICE OF $10,588 BID BY YOU ON THE UNRESTRICTED PORTION, AND THAT THE PROCUREMENT SET ASIDE FOR SMALL BUSINESS WAS IN ACCORDANCE WITH THE POLICIES EXPRESSED IN SECTION 15 OF THE SMALL BUSINESS ACT OF 1958, 72 STAT. 395, 15 U.S.C. 644, AND THE ARMED SERVICES PROCUREMENT ACT OF 1947, CODIFIED AT 10 U.S.C. 2301.

SINCE WE BELIEVE THAT THE PROCUREMENT SHOULD NOT HAVE BEEN PARTIALLY SET ASIDE FOR SMALL BUSINESS, AND SINCE IT APPEARS THAT SUCH SET-ASIDE COULD PROPERLY HAVE BEEN WITHDRAWN IN THE BEST INTERESTS OF THE GOVERNMENT, WE CONCLUDE THAT THE DEPARTMENT OF THE NAVY WAS FULLY JUSTIFIED IN NEGOTIATING WITH YOU ON THE BASIS OF THE HIGHEST UNIT PRICE OF THE UNRESTRICTED PORTION PLUS THE PRICE ACTUALLY QUOTED BY YOU FOR THE TOOLING. FINALLY, IT MAY BE NOTED HERE, AS IT WAS IN OUR DECISION B- 139259, DATED JUNE 23, 1959, WHICH ALSO CONCERNED THE COMPLAINT OF A SUCCESSFUL BIDDER ON A PORTION OF AN AWARD SET ASIDE FOR SMALL BUSINESS, THAT "SINCE THIS WAS A NEGOTIATED CONTRACT THERE WAS NO OBLIGATION ON YOUR PART TO ACCEPT ITS TERMS AND CONDITIONS UNLESS THE SAME WERE ACCEPTABLE TO YOU BUT, HAVING DONE SO, YOU CANNOT NOW BE HEARD TO COMPLAIN THAT THE STATED CONTRACT PRICE IS LESS THAN THAT TO WHICH YOU BELIEVE YOU ARE ENTITLED.'

FOR THE FOREGOING REASONS, THE REQUEST FOR AN INCREASE IN THE PRICE AT WHICH AMENDED CONTRACT NO. N195-13631 WAS AWARDED TO YOUR FIRM IS DENIED.