B-150893, NOV. 4, 1963

B-150893, NOV. 4, 1963

TO THE SECRETARY OF THE AIR FORCE:

REFERENCE IS MADE TO LETTER DATED MAY 1, 1963, FROM THE CHIEF, PROCUREMENT OPERATIONS DIVISION, DIRECTORATE, PROCUREMENT POLICY, DEPUTY CHIEF OF STAFF, SYSTEMS AND LOGISTICS, DEPARTMENT OF THE AIR FORCE (YOUR REFERENCE AFSPPCA), IN RESPONSE TO OUR REQUEST FOR A REPORT ON THE PROTEST OF ATLANTIC AVIATION CORPORATION, BOYERTOWN, PENNSYLVANIA. THE PROTEST IS AGAINST ANY POSSIBLE AWARD OF A CONTRACT FOR A SMALL BUSINESS SET-ASIDE TO A DEALER IN "SURPLUS" GOVERNMENT PROPERTY, SOON ,AIR" CO., OKLAHOMA CITY, OKLAHOMA, UNDER FORMALLY ADVERTISED IFB 40-604-63-2603 DATED DECEMBER 14, 1962, BY HEADQUARTERS, 2709TH AIR FORCE VEHICLE CONTROL GROUP, UNITED STATES AIR FORCE, PROCUREMENT AND PRODUCTION DIVISION, MEMPHIS, TENNESSEE. THE PROTEST IS PRESENTED ON TWO GROUNDS: (1) THE ALLEGED ADMINISTRATIVE POLICY OF CONSIDERING BIDS FROM DEALERS OFFERING "SURPLUS" ITEMS ACQUIRED FROM THE GOVERNMENT UNDER SPECIFICATIONS SOLICITING PROPOSALS FROM SMALL BUSINESS CONCERNS ONLY FOR A "TOTAL SMALL BUSINESS SET-ASIDE" PROCUREMENT IS NOT IN ACCORD WITH THE PURPOSE AND INTENT OF THE SMALL BUSINESS ACT AND (2) SOON "AIR" CANNOT CONFORM TO THE ESSENTIAL REQUIREMENTS OF THE INVITATION FOR BIDS BY AGREEING TO FURNISH END ITEMS PRODUCED OR MANUFACTURED BY SMALL BUSINESS CONCERNS; THAT IS, THE BID OF SOON "AIR" IS NOT RESPONSIVE TO THE TERMS OF THE IFB.

IFB 40-604-63-2603 AS ORIGINALLY ISSUED CALLED FOR BIDS ON A QUANTITY OF AUXILIARY POWER PLANT CRANKSHAFT ASSEMBLIES,"IN ACCORDANCE WITH ATLANTIC AVIATION P/N 5684 "OR EQUAL" " FOR OPENING ON JANUARY 14, 1963. THE IFB WAS MODIFIED BY AMENDMENTS NOS. 1 TO 3, INCLUSIVE, CHANGING THE OPENING DATE TO FEBRUARY 2, 1963, AND REVISING THE REQUIREMENTS TO SPECIFY AS FOLLOWS:

CHART

UNIT

"QUANTITY PRICE AMOUNT

"1. FIRST ARTICLE "FOR TESTING"

28056966938

CRANKSHAFT ASSEMBLY, APPLICABLE

V32D2 5900 AUXILIARY POWER PLANT

IN ACCORDANCE WITH ANDOVER MOTORS

DRAWING NO. 5684 AND ALL DETAILS

THEREON PER NEW PARAGRAPH W

INCORPORATED HEREIN.

"2. 28056966938

CRANKSHAFT ASSEMBLY

IDENTICAL TO ITEM 1

AS APPROVED OR WAIVED.

BID "A" - FIRST ARTICLE REQUIRED 549 EACH

BID "B" - FIRST ARTICLE WAIVED 550 EACH

"NOTE: BIDDERS NOT ELIGIBLE FOR WAIVER OF FIRST ARTICLE REQUIREMENTS WILL SUBMIT BID UNDER ITEM 1 ABOVE AND COMPLETE BID "A" ABOVE. (SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF)

"BIDDERS ELIGIBLE FOR WAIVER OF FIRST ARTICLE REQUIREMENTS WILL COMPLETE BID "B" ONLY AND FURNISH PREVIOUS CONTRACT NUMBER AND DATE OF LAST DELIVERY. (SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF)"

IT IS PROVIDED IN EXHIBIT "A" INCORPORATED INTO THE IFB SCHEDULE AS FOLLOWS:

"EXHIBIT "A"

"CONDITIONS FOR WAIVER OF FIRST ARTICLE REQUIREMENTS

"FIRST ARTICLE REQUIREMENTS MAY BE WAIVED BY THE CONTRACTING OFFICER UNDER ANY OF THE FOLLOWING CONDITIONS:

"A. IF THE CONTRACT IS AWARDED TO A CONTRACTOR WHO HAS BEEN GRANTED PRIOR QUALIFICATION APPROVAL FOR THE ITEM. NEWLY-QUALIFIED CONTRACTORS NOT LISTED ON THE CURRENT QUALIFIED PRODUCTS LIST (QPL) FOR THE SPECIFICATION COVERING THE ITEM MAY SUBMIT A TRUE COPY OF THE GOVERNMENT AGENCY'S LETTER OF QUALIFICATION APPROVAL TO THE CONTRACTING OFFICER AS EVIDENCE OF QUALIFICATION.

"B. IF THE CONTRACT IS AWARDED TO A CONTRACTOR WHO HAS PREVIOUSLY BEEN GIVEN FIRST ARTICLE APPROVAL ON THE IDENTICAL ITEM, AND WHO PROPOSES TO REPRODUCE IDENTICAL ITEMS, USING THE SAME TOOLS, FACILITIES, DESIGN DATA AND COMPONENT TYPES PREVIOUSLY USED. WHEN MORE THAN 12 MONTHS HAVE ELAPSED SINCE THE COMPLETION OF A PRIOR CONTRACT, THIS CONDITION SHALL NOT APPLY AND FIRST ARTICLE WILL BE REQUIRED.'

THE "IFB SCHEDULE PROVISIONS" INCLUDE THE FOLLOWING:

"0. FIRST ARTICLE APPLICABILITY:

"BIDDERS WHO QUALIFY FOR WAIVER OF FIRST ARTICLE REQUIREMENTS (SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF) SHALL SUBMIT BID ON BID "B" , WHICH DOES NOT INCLUDE COMPLIANCE WITH THE ABOVE FIRST ARTICLE PROVISION.

"BIDS SUBMITTED UNDER BID "A" (FIRST ARTICLE, APPROVAL REQUIRED) OR UNDER BID "B" (FIRST ARTICLE, APPROVAL NOT REQUIRED) ARE EQUALLY ACCEPTABLE TO THE GOVERNMENT, AS APPLICABLE, AND AWARD WILL BE MADE THEREON WITH THE BEST INTEREST OF THE GOVERNMENT CONSIDERED.'

"V. NOTICE OF TOTAL SMALL BUSINESS SET-ASIDE (OCT. 1962)

"/A) RESTRICTION: 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. BIDS OR PROPOSALS RECEIVED FROM FIRMS WHICH ARE NOT SMALL BUSINESS CONCERNS SHALL BE CONSIDERED NONRESPONSIVE AND SHALL BE REJECTED.'

PARAGRAPHS "W" AND "X" OF THE IFB SCHEDULE PROVISIONS WERE DELETED BY AMENDMENT NO. 3 AND A NEW PARAGRAPH "Z" WAS ADDED AS FOLLOWS:

"Z. PROCUREMENT DATA LIST: THE FOLLOWING DRAWINGS ARE NECESSARY TO THIS PROCUREMENT AND ARE INCORPORATED HEREIN BY REFERENCE: (SEE NOTE 13, PAGE 6, OF THE IFB COVER PAGE.)

TABLE

"ANDOVER MOTORS DRAWING NO. 5684

DO. DO. DO. DO. 5472

DO. DO. DO. DO. 5686

DO. DO. DO. DO. 5411

DO. DO. DO. DO. 18070

DO. DO. DO. DO. 18002

DO. DO. DO. DO. 5473"

THE IFB COVER PAGE CONTAINS THE FOLLOWING STIPULATION:

"NOTE 4: FORMAL ADVERTISEMENT: BIDS SUBMITTED AS A RESULT OF THIS INVITATION WILL BE EVALUATED IN ACCORDANCE WITH THE REGULATIONS PERTAINING TO FORMAL ADVERTISING. AWARD OF CONTRACT SHALL BE IN ACCORDANCE WITH PARAGRAPH 8 OF THE TERMS AND CONDITIONS ON THE PRECEDING PAGE.'

AND PARAGRAPH 8 OF THE TERMS AND CONDITIONS PROVIDES IN SUBPARAGRAPH (A):

"8. AWARD OF CONTRACT.--- (A) THE CONTRACT WILL BE AWARDED TO THAT RESPONSIBLE BIDDER WHOSE BID, CONFORMING TO THE INVITATION FOR BIDS, WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED.'

THE RECORD DISCLOSES THAT THE SOON "AIR" COMPANY IS NOT A MANUFACTURER BUT IS A DEALER IN SURPLUS GOVERNMENT PROPERTY. SOON "AIR" SUBMITTED A BID UNDER ITEM 1 OF THE IFB FIRST ARTICLE FOR TESTING OF $112.76 AND QUOTED THE SAME UNIT PRICE ON ITEM 2, BID "A," FOR FURNISHING "ATLANTIC AVIATION P/N 5684," OR A TOTAL OF $62,018 FOR BOTH ITEMS, AND IS THE LOWEST BID RECEIVED. ATLANTIC AVIATION HAS SUBMITTED THE NEXT LOW BID ON ITEM 1, QUOTING A UNIT PRICE OF $114.60 AND A TOTAL OF $62,915.40 UNDER ITEM 2, BID "A," MAKING A TOTAL OF $63,030 FOR BOTH ITEMS. THE ONLY OTHER BID RECEIVED WAS SUBMITTED BY CLARK CABLE CORPORATION, CLEVELAND, OHIO, BASED ON A QUOTATION OF $119 PER UNIT.

IN ITS LETTER OF FEBRUARY 21, 1963, ATLANTIC ALLEGES THAT SOON "AIR" COMPANY BID $112.76 EACH AS COMPARED WITH ITS BID OF $114.60 LESS ONE HALF OF 1 PERCENT, AND THE PROCURING AGENCY KNEW THAT THE ITEMS REQUIRED HAD BEEN SOLD BY IT TO SOON "AIR" AS SURPLUS AT $4.25 EACH; THAT VIRTUALLY EVERY TIME ATLANTIC HAS BEEN A SUCCESSFUL BIDDER ON SIMILAR ITEMS IT RESULTED FROM NEGOTIATIONS UNDER RFP'S WHERE ATLANTIC HAS BEEN REQUIRED TO SUBMIT TO THOROUGH PRICE ANALYSIS AND AN EVENTUAL AWARD AT FAR BELOW THE AVERAGE NORMAL PROFIT RATE, AND THAT IN THIS INSTANCE "WE HAVE A SITUATION WHERE THIS AGENCY ISSUES AN IFB, KNOWING THE EXISTENCE OF THE SURPLUS AND THE $4.25 PRICE PAID, NO NEGOTIATIONS WILL TAKE PLACE, AND THE SURPLUS DEALER IS ENABLED TO MAKE A 2,600 PERCENT PROFIT OVER THE ORIGINAL PURCHASE PRICE.' ATLANTIC ALSO ALLEGES IN THIS LETTER THAT IT HAS BEEN "FORCED BY GOVERNMENT SURPLUS DUMPING AND REPURCHASE TO ATTEMPT TO BID AGAINST A "BUY-IT, DUMP-IT AS SURPLUS, AND BUY-IT-BACK AGAIN" TYPE OF OPERATION.' ATLANTIC CONTENDS "THAT THE PURPOSE OF THE PROCUREMENT STATUTES AND REGULATIONS IS TO GIVE ALL PERSONS EQUAL RIGHTS TO COMPETE FOR GOVERNMENT CONTRACTS" AND THAT "TO CREATE UNJUST COMPETITION AS A RESULT OF AN ACT OF THE GOVERNMENT AND NOT PERMIT COMPETITION ON A COMMON BASIS IS MANIFESTLY AN INJUSTICE.' ATLANTIC REFERS TO "THE BUY-AMERICAN ACT DESIGNED TO PROTECT AMERICAN MANUFACTURING SKILLS" AND ASSERTS ,THE TYPE OF COMPETITION WE ARE FACING IS FAR LOWER AS WE ARE FORCED TO BOW DOWN TO A GOVERNMENT CREATED INEQUITY; NAMELY, A GIVE-AWAY OF OUR OWN PRODUCTS AGAINST WHICH OUR SKILLED CRAFTSMEN ARE FORCED TO COMPETE.'

AS AN ILLUSTRATION OF THE ALLEGED ADMINISTRATIVE POLICY OR PRACTICE, ATLANTIC RELATES THAT RFP 40-604-63-428 WAS ISSUED BY THE SAME PROCUREMENT AGENCY FOR "FURNISHING 910 EACH ATLANTIC AVIATION CORPORATION P/N 6105 ROCKER ASSEMBLIES" ON WHICH ATLANTIC QUOTED A "PRICE OF $6.94 EACH/DISCOUNT 1/2 PERCENT)" AND AN AWARD WAS MADE TO SOON "AIR" AT A NET PRICE OF $6.85 EACH. ATLANTIC ALLEGES THAT IT WAS THE MANUFACTURER OF THE PARTS BID UPON AND SOON "AIR" "AGREED TO RESELL TO THE GOVERNMENT SURPLUS PARTS PURCHASED AT A FRACTION OF THEIR VALUE, UNDER A GOVERNMENT SUPERVISED SALE" POINTING OUT THAT THE "DIFFERENCE IN PRICE (WAS) ?06 PER UNIT.'

FURTHER EMPHASIZING THAT IT "HAS BEEN REPEATEDLY UNDERBID BY SURPLUS DEALERS SELLING FORMER GOVERNMENT MATERIAL (OUR PART NUMBERS) BACK TO THE GOVERNMENT" ATLANTIC ASSERTS THAT IT IS "A HIGHLY RATED SMALL BUSINESS CONCERN, HAS SUBSTANTIAL MANUFACTURING FACILITIES AVAILABLE FOR MASS PRODUCTION" AND THAT "WITH THESE FACILITIES ARE THE MANPOWER, SKILLS, AND DESIGN STAFF REQUIRED TO KEEP A VITAL FACILITY AVAILABLE IN THE EVENT OF A NATIONAL EMERGENCY.' IN ORDER "TO MAINTAIN A BALANCED SOURCE OF SUPPLY, IN THE INTEREST OF INDUSTRIAL MOBILIZATION," ATLANTIC CONTENDS "THE SKILLS OF OUR EMPLOYEES AND THEIR AVAILABILITY IN AN ACTIVE STATUS, ARE CRITICAL" AND THE ,KNOW HOW, PRODUCTION CAPABILITY, AND OPERATING FACILITIES, WHICH SHOULD BE READY IN A TIME OF CRITICAL NEED, MIGHT WELL WITHER AND NOT BE AVAILABLE DURING A NATIONAL CRISIS.' ATLANTIC ALSO CONTENDS THAT NEGOTIATION IS AUTHORIZED IN ORDER TO MAINTAIN VITAL FACILITIES IN BUSINESS OR TO MAKE THEM AVAILABLE IN THE EVENT OF A NATIONAL EMERGENCY AND THAT IN ADDITION "CLAUSE V OF IFB 40-604-63-2603 * * * IS VERY SPECIFIC IN STATING * * * "BIDS OR PROPOSALS UNDER THIS PROCUREMENT ARE SOLICITED FROM SMALL BUSINESS CONCERNS ONLY," " AND EMPHASIZES," "THIS ACTION IS BASED ON A DETERMINATION * * * 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 NCERNS.'"

"THIS MANNER OF SMALL BUSINESS SET ASIDE DETERMINATION," ATLANTIC POINTS OUT IN ITS LETTER OF MAY 24, 1963,"IS SET FORTH UNDER ASPR 1 706.1" AND "BOTH THE IFB AND ASPR 1-706.1 STATE THAT SET ASIDE SHALL BE DETERMINED WHEN SUCH ACTION IS DEEMED 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.' IN THIS LETTER ATLANTIC QUOTES SECTION 15 OF THE SMALL BUSINESS ACT OF 1958 WHICH ESTABLISHED THE SMALL BUSINESS ADMINISTRATION (SBA) AS A PERMANENT AGENCY, AND SECTION 8 (B) RELATING TO "THE DUTY OF THE ADMINISTRATION" AND URGES THAT SECTION 2 (A) WHICH SETS OUT THE "POLICY OF CONGRESS" "PLACES EMPHASIS ON THE NATION'S ECONOMIC WELL-BEING AND SECURITY BEING REALIZED ONLY IF THE ACTUAL AND POTENTIAL CAPACITY OF SMALL BUSINESS IS ENCOURAGED AND DEVELOPED.'

IT IS POINTED OUR FURTHER IN ATLANTIC'S LETTER OF MAY 24, 1963, NOT ONLY DOES CLAUSE V OF IFB-2603 APPARENTLY IN CONFORMANCE WITH THE LEGISLATIVELY PRESCRIBED POLICY,"STATE THAT THE SET ASIDE IS BASED ON A DETERMINATION THAT SUCH ACTION IS IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, ETC., BUT IT FURTHER STATES THAT THE REGULAR DEALER MUST AGREE TO FURNISH IN THE PERFORMANCE OF THE CONTRACT END ITEMS MANUFACTURED OR PRODUCED BY SMALL BUSINESS CONCERNS.' HOWEVER, ATLANTIC ASSERTS, A "SURPLUS DEALER, SOON "AIR," PURCHASED THESE ITEMS FROM A LARGE BUSINESS ORGANIZATION; NAMELY, THE UNITED STATES GOVERNMENT; " AND THE ITEMS "THEY PROPOSE TO RESELL TO THE GOVERNMENT WERE MADE SOME TIME PRIOR TO 1960 AND IN ALL PROBABILITY WERE MADE BY EITHER FAIRCHILD AIRCRAFT OR JACOBS AIRCRAFT ENGINE COMPANY (A WHOLLY OWNED SUBSIDIARY OF BARIUM STEEL) BOTH LARGE BUSINESS CONCERNS.' "IT IS OUR BELIEF," ATLANTIC STATES,"THAT NOT ONLY WERE THE PARTS PURCHASED AS SURPLUS FROM A LARGE ORGANIZATION, BUT THE WERE PRODUCED AND SOLD BY LARGE BUSINESS" BUT "WE DO NOT KNOW THE PRECISE ORIGINAL MANUFACTURER OR ORIGINAL SELLER OF THE ITEMS SOON "AIR" IS OFFERING.' IN SUPPORT OF ITS CONTENTION THAT THE SURPLUS DEALER, SOON "AIR," CANNOT "CONFORM TO THE ESSENTIAL REQUIREMENTS" OF THE IFB ATLANTIC POINTS OUT IN ITS LETTER OF MAY 24, 1963, THAT "IN KEEPING WITH THE INTENT OF THE SMALL BUSINESS ACT AND PARAGRAPH V OF THE INVITATION, PARAGRAPH M, FIRST ARTICLE APPROVAL IS INCORPORATED AS PART OF THIS INVITATION," AND THAT "FABRICATION AND REPRODUCTION OF ITEM 2" IS REQUIRED BY THE IFB, AS FOLLOWS:

"M. FIRST ARTICLE APPROVAL: (NOVEMBER 1958)

"/A) ITEM 1 IS DESIGNATED AS THE FIRST ARTICLE AND SHALL BE DELIVERED BY THE CONTRACTOR TO THE GOVERNMENT, ALL TRANSPORTATION CHARGES PREPAID, PURSUANT TO PARA.'R" , DELIVERY SCHEDULE, FOR FIRST ARTICLE ENGINEERING TEST AND APPROVAL. ESTIMATED FIRST ARTICLE TESTING TIME IS THIRTY (30) DAYS. THE CONTRACTOR WILL BE NOTIFIED IN WRITING, WHETHER OR NOT THE FIRST ARTICLE IS APPROVED. AFTER TESTING, SAID ARTICLE SHALL BE RETURNED TO THE CONTRACTOR, AT THE CONTRACTOR'S EXPENSE, IN THE THEN CONDITION FOR SUBMISSION AS A CONTRACT ITEM AFTER REPAIRS AND MODIFICATIONS, IF NECESSARY, HAVE BEEN MADE BY THE CONTRACTOR. PENDING WRITTEN APPROVAL OF THE FIRST ARTICLE, THE CONTRACTOR MAY PROCEED WITH FABRICATION AND REPRODUCTION OF ITEM 2, BUT SHALL MAKE NO DELIVERIES.'

ATLANTIC ALSO POINTS OUT THAT "ITEM 2 IS THE FULL PRODUCTION QUANTITY REQUESTED, EXCEPTING THE ONE (1) PREPRODUCTION MODEL SHOWN AS ITEM 1," AND CONTENDS "THE WORD "FABRICATION" IS SPECIFIC IN MEANING MANUFACTURE, CONSTRUCT, OR BUILD.' ATLANTIC ALSO MAKES REFERENCE TO THE FURTHER PROVISION IN EXHIBIT "A" OF THE IFB RELATING TO CONDITIONS FOR WAIVER OF THE FIRST ARTICLE REQUIREMENTS, SET OUT ABOVE, AND URGES THESE WAIVER CONDITIONS ARE "INAPPLICABLE TO EITHER SOON ,AIR" OR THIS CONCERN AS NEITHER COMPANY HAS FURNISHED THE EXACT ITEM WITHIN THE PAST TWELVE MONTHS.'

REGARDING THE PROFIT ASPECT ATLANTIC CITES EXISTING "GUIDELINES TO GOVERNMENT THINKING RELATIVE TO PERMISSIBLE PROFIT," I.E., THAT "COST TYPE CONTRACTS HAVE A STATUTORY 15 PERCENT PROFIT LIMITATION, TERMINATION FOR CONVENIENCE DETERMINATIONS HAVE AN AGGREGATE 6 PERCENT PROFIT, THE VINSON- TRAMMEL ACT A 10 PERCENT AND 12 PERCENT PROFIT, AND THE RECORDS OF THE RENEGOTIATION BOARD SHOW AN ACCEPTABLE PROFIT RANGE WITHIN A SIMILAR PATTERN.' INASMUCH AS THE PROCURING AGENCY KNOWS THAT THEY SOLD THE ITEM SOUGHT IN THIS IFB FOR $4.12 AS EVIDENCED BY COPIES OF THE CORRESPONDENCE ACCOMPANYING ITS LETTER, ATLANTIC STATES,"IT IS INCONCEIVABLE TO US THAT A BID WITH A KNOWN 2600 PERCENT PROFIT COULD BE CONSIDERED.'

DURING AN INFORMAL CONFERENCE IN OUR OFFICE ON MAY 16, 1963, AT ATLANTIC'S REQUEST, AN UNDERSTANDING WAS REACHED WITH MEMBERS OF OUR STAFF THAT THE QUESTION RAISED AS TO WHETHER SOON ,AIR" WAS ELIGIBLE AS A "SMALL BUSINESS CONCERN" SO AS TO QUALIFY FOR AN AWARD UNDER THE SMALL BUSINESS SET-ASIDE PROVISIONS OF THE IFB WAS A MATTER FOR DETERMINATION BY THE SMALL BUSINESS ADMINISTRATION. THE SIGNIFICANCE OF OBTAINING THIS DETERMINATION WAS ALSO EMPHASIZED IN SUBSEQUENT INFORMAL TELEPHONE CONVERSATIONS WITH ATLANTIC. FURTHERMORE, IN VIEW OF THE UNUSUAL FACTS AND CIRCUMSTANCES RELATED BY ATLANTIC, AND IN AN EFFORT TO FACILITATE OUR ULTIMATE ACTION ON THE PROTEST, COPIES OF ATLANTIC'S LETTERS OF FEBRUARY 21 AND MAY 24, 1963, WITH ACCOMPANYING PAPERS WERE TRANSMITTED TO THE SMALL BUSINESS ADMINISTRATION BY OUR LETTER OF JULY 17, 1963, IN WHICH WE REQUESTED THE ADMINISTRATION TO MAKE THE REQUIRED DETERMINATION AND TO ADVISE US THEREOF.

ON SEPTEMBER 5, 1963, WE RECEIVED A COPY OF A LETTER DATED AUGUST 30, 1963, WHEREIN THE DIRECTOR, OFFICE OF SMALL BUSINESS SIZE STANDARDS, SMALL BUSINESS ADMINISTRATION, ADVISED ATLANTIC OF OUR REQUEST STATING IN PERTINENT PART:

"WE HAVE DETERMINED THAT THE SOON AIR COMPANY IS NOT THE MANUFACTURER OF THE ITEMS IT WOULD FURNISH TO THE GOVERNMENT IF AWARDED THE CONTRACT IN QUESTION. IT, THEREFORE, IS CONSIDERED AS A NONMANUFACTURER FOR SIZE DETERMINATION PURPOSES. A NONMANUFACTURER IS A SMALL BUSINESS IF, INCLUDING ITS AFFILIATES (1) ITS NUMBER OF EMPLOYEES DOES NOT EXCEED 500 PERSONS, AND (2) IN THE CASE OF GOVERNMENT PROCUREMENTS RESERVED FOR OR INVOLVING PREFERENTIAL TREATMENT OF SMALL BUSINESSES, IT WILL FURNISH IN THE PERFORMANCE OF THE CONTRACT, THE PRODUCTS OF A SMALL BUSINESS MANUFACTURER OR PRODUCER.

"WE HAVE BEEN ADVISED BY THE SOON AIR COMPANY THAT, IF AWARDED THE CONTRACT, IT WILL FURNISH ITEMS MANUFACTURED BY THE ATLANTIC AVIATION CORPORATION. THEREFORE, IN ORDER TO DETERMINE WHETHER THE SOON AIR COMPANY IS A SMALL BUSINESS, WE WILL HAVE TO DETERMINE WHETHER THE ATLANTIC AVIATION CORPORATION IS A SMALL BUSINESS CONCERN.

"IN VIEW OF THE ABOVE, IT IS REQUESTED THAT THE ATLANTIC AVIATION CORPORATION EXECUTE THE ENCLOSED SBA FORMS 355, APPLICATION FOR SIZE DETERMINATION, AND RETURN THEM TO THIS OFFICE NOT LATER THAN SEPTEMBER 6, 1963.'

IN HIS LETTER DATED SEPTEMBER 17, 1963, ADVISING US THE SMALL BUSINESS ADMINISTRATION HAD DETERMINED THAT THE SOON "AIR" COMPANY IS A SMALL BUSINESS FOR THE PURPOSES OF THIS PROCUREMENT, THE DIRECTOR, OFFICE OF SMALL BUSINESS SIZE STANDARDS OF THE ADMINISTRATION STATED AS FOLLOWS:

"WE UNDERSTAND THAT THE SOON "AIR" COMPANY IS A SURPLUS DEALER AND IS NOT THE MANUFACTURER OF THE ITEMS IT WILL FURNISH TO THE GOVERNMENT IN THE PERFORMANCE OF THE CONTRACT.

"ANY CONCERN WHICH SUBMITS A BID OR OFFER IN ITS OWN NAME ON A CONTRACT SET ASIDE FOR OR OTHERWISE INVOLVING PREFERENTIAL TREATMENT FOR SMALL BUSINESS (EXCEPT ON A CONSTRUCTION OR SERVICE CONTRACT), BUT WHICH PROPOSES TO FURNISH A PRODUCT NOT MANUFACTURED BY IT, IS A SMALL BUSINESS CONCERN IF, INCLUDING ITS AFFILIATES, (1) ITS NUMBER OF EMPLOYEES DOES NOT EXCEED 500 PERSONS AND (2) IT WILL FURNISH IN THE PERFORMANCE OF THE CONTRACT THE PRODUCTS OF A SMALL BUSINESS MANUFACTURER OR PRODUCER, WHICH PRODUCTS ARE MANUFACTURED OR PRODUCED IN THE UNITED STATES. SEE AMENDMENT 7 OF THE SMALL BUSINESS SIZE STANDARDS REGULATION (REVISION 3), AS AMENDED, COPY ENCLOSED.

"WE HAVE DETERMINED THAT THE SOON "AIR" COMPANY HAS NO AFFILIATES AND THAT ITS TOTAL AVERAGE EMPLOYMENT FOR THE PRECEDING FOUR QUARTERS IS EIGHT PERSONS. FURTHER, WE ARE ADVISED BY THE SOON ,AIR" COMPANY THAT THE MANUFACTURER OF THE ITEMS IT WILL FURNISH IN THE PERFORMANCE OF THE CONTRACT IS ATLANTIC. FINALLY, WE ARE ADVISED BY ATLANTIC THAT IT IS AFFILIATED WITH A HOLDING COMPANY, AERO INDUSTRIES, INCORPORATED, BOYERTOWN, PENNSYLVANIA, AND THAT THE TOTAL NUMBER OF EMPLOYEES OF ATLANTIC AND AERO INDUSTRIES, INCORPORATED, AND ALL OF THAT CONCERN'S OTHER AFFILIATES IS 146 PERSONS. THEREFORE, WE HAVE DETERMINED THAT IT IS A SMALL BUSINESS FOR THE PURPOSE OF GOVERNMENT PROCUREMENTS.

"SINCE THE SOON "AIR" COMPANY EMPLOYS FEWER THAN 500 PERSONS AND WILL FURNISH, IN THE PERFORMANCE OF THE CONTRACT, ITEMS MANUFACTURED BY A SMALL BUSINESS CONCERN (ATLANTIC), WE HAVE DETERMINED THAT THE SOON "AIR" COMPANY IS A SMALL BUSINESS FOR THE PURPOSE OF IFB NO. 40-604-63 2603.

"ATLANTIC TAKES THE POSITION THAT THE SOON "AIR" COMPANY SHOULD NOT BE CONSIDERED AS ELIGIBLE BECAUSE THE ITEMS TO BE FURNISHED BY IT WERE PURCHASED FROM THE GOVERNMENT. HOWEVER, IT SHOULD BE NOTED THAT, UNDER THE PRESENT SMALL BUSINESS SIZE STANDARDS REGULATION, THE ONLY REQUIREMENT IS THAT A DEALER FURNISH ITEMS WHICH WERE MANUFACTURED OR PRODUCED BY A SMALL BUSINESS MANUFACTURER OR PRODUCER. THESE REQUIREMENTS WERE MET IN THE INSTANT CASE.'

WITH RESPECT TO ATLANTIC'S CONTENTIONS CONCERNING THE PROVISIONS IN IFB 40-604-63-2603 NOTIFYING PROSPECTIVE BIDDERS THAT THE PROCUREMENT IS A TOTAL SMALL BUSINESS SET-ASIDE, IT IS STATED IN THE LETTER OF MAY 1, 1963, FROM YOUR DEPARTMENT THAT THIS CLAUSE "PROVIDES FOR THE SUBMISSION OF BIDS BY SMALL BUSINESS FIRMS ONLY AND PROVIDES FOR REJECTION OF BIDS SUBMITTED BY LARGE BUSINESS FIRMS.' IT IS STATED FURTHER THAT THE "NATIONAL" INTEREST EXPRESSED THEREIN DOES NOT PROVIDE FOR THE REJECTION OF BIDS SUBMITTED BY SMALL BUSINESS "SURPLUS FIRMS" AND IT IS CONCLUDED THAT "BIDS RECEIVED FROM BIDDERS OFFERING TO FURNISH SURPLUS PROPERTY COULD NOT BE REJECTED ON THIS GROUND.'

WITH RESPECT TO ATLANTIC'S CONTENTIONS THAT IT IS REQUIRED TO COMPLY WITH QUALITY CONTROL SPECIFICATIONS IN THE PERFORMANCE OF WORK CALLED FOR UNDER ITS CONTRACTS WITH THE AIR FORCE, WHEREAS OTHER FIRMS SUCH AS SURPLUS DEALERS ARE NOT REQUIRED TO DO SO, IT IS STATED IN THE LETTER OF MAY 1, 1963, THAT PARAGRAPH 1.2 OF QUALITY CONTROL SPECIFICATION MIL-Q-9858, AS ENDED,"PROVIDES FOR THE EXCLUSION OF SUPPLIES ORDERED TO SUPPLIER'S PART NUMBERS" AND ACCORDINGLY ,COMPLIANCE WITH MIL-Q 9858 WAS PROPERLY NOT REQUIRED UNDER THE TWO REQUESTS FOR PROPOSALS REFERRED TO ABOVE" BY ATLANTIC. IT IS POINTED OUT HOWEVER "UNDER THE CURRENT INVITATION FOR BIDS THE CRANKSHAFT ASSEMBLIES WILL BE FURNISHED IN ACCORDANCE WITH SPECIFIC DRAWINGS AND UNDER THESE CIRCUMSTANCES THE "SPECIFICATION MIL-Q- 9858 IS APPLICABLE.' THE CONTRACTING OFFICER STATES IN HIS STATEMENT OF FACTS AND CIRCUMSTANCES WHICH INCLUDES HIS "CONCLUSION AND RECOMMENDATION" THAT ,IN VIEW OF THIS IT IS QUESTIONABLE WHETHER SOON AIR CO. CAN QUALIFY AS A RESPONSIBLE BIDDER.' THE CONTRACTING OFFICER ALSO POINTS OUT "THIS CAN ONLY BE ASCERTAINED BY SECURING AN FCR IN ACCORDANCE WITH AFPI 1-905; " THAT A NEGATIVE FCRON SOON "AIR" "WOULD RESULT IN CONSIDERATION OF THE NEXT LOWEST BIDDER" AND HE RECOMMENDS THAT THE CONTRACT "BE AWARDED TO THE LOWEST RESPONSIBLE RESPONSIVE BIDDER.'

THE FACT THAT NEITHER THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) NOR THE AIR FORCE PROCUREMENT INSTRUCTION SPECIFICALLY COVERS THE GOVERNMENT REPROCUREMENT OF ITEMS SOLD BY THE GOVERNMENT IS ALSO POINTED OUT IN THE LETTER OF MAY 1, 1963, BY YOUR DEPARTMENT. IT IS STATED HOWEVER THAT AT ONE TIME THE AIR FORCE PROCUREMENT INSTRUCTION DID INCLUDE REGULATIONS RELATIVE TO THE PROCUREMENT OF SURPLUS ITEMS, NAMELY, AFPI 53- 1500 ET SEQ., OCTOBER 1, 1957, PARAGRAPH 53-1502.1, WHICH PROVIDED AS FOLLOWS:

"53-1502.1 PROCUREMENT BY FORMAL ADVERTISING. WHEN A CONTRACTING OFFICER HAS REASON TO BELIEVE THAT A PARTICULAR ITEM BEING CONSIDERED FOR PROCUREMENT HAS BEEN FORMERLY OWNED BY THE GOVERNMENT (RETAINED BY A CONTRACTOR PURSUANT TO THE TERMS OF SETTLEMENT OF A TERMINATED CONTRACT OR ACQUIRED THROUGH SALE OF GOVERNMENT SURPLUS PROPERTY), THE CONTRACTING OFFICER WILL INSERT THE FOLLOWING STATEMENT IN THE INVITATION FOR BID:

"IN THE EVENT THAT THE END PRODUCTS OR COMPONENT PARTS THEREOF TO BE FURNISHED UNDER THIS BID HAVE BEEN PREVIOUSLY GOVERNMENT-OWNED, HAVE BEEN RETAINED ON CONTRACT TERMINATION INVENTORY OR HAVE BEEN ACQUIRED BY THE BIDDER AT ANY SALE OF GOVERNMENT SURPLUS PROPERTY, SUCH FACT WILL BE STATED BY THE OFFERING BIDDER. IN ADDITION, IF ANY VALUE HAS BEEN ADDED TO SUCH PROPERTY BY MODIFICATION, OVERHAUL OR IMPROVEMENT SUCH FACT WILL BE STATED BY THE OFFERING BIDDER.'

IT IS ALSO STATED IN THE LETTER OF MAY 1, 1963, THAT THESE PROVISIONS "WERE DELETED FROM THIS INSTRUCTION DUE TO THE SERIOUS DIFFICULTIES ENCOUNTERED WHEN BIDS OFFERING SURPLUS PROPERTY AND BIDS OFFERING OTHER PROPERTY WERE RECEIVED UNDER THE SAME INVITATION.' THUS, IT REASONABLY MAY BE INFERRED THAT THE DELETION WAS MADE SO AS TO ELIMINATE THE RECEIPT OF BIDS FOR FURNISHING ,SURPLUS" ITEMS UNLESS SPECIFICALLY SOLICITED BY THE GOVERNMENT.

SECTION 2 OF THE SMALL BUSINESS ACT, 72 STAT. 384 (15 U.S.C. 631), WHICH INCLUDES A STATEMENT OF THE POLICY OF CONGRESS, PROVIDES AS FOLLOWS:

"SEC. 2. (A) THE ESSENCE OF THE AMERICAN ECONOMIC SYSTEM OF PRIVATE ENTERPRISE IS FREE COMPETITION. ONLY THROUGH FULL AND FREE COMPETITION CAN FREE MARKETS, FREE ENTRY INTO BUSINESS, AND OPPORTUNITIES FOR THE EXPRESSION AND GROWTH OF PERSONAL INITIATIVE AND INDIVIDUAL JUDGMENT BE ASSURED. THE PRESERVATION AND EXPANSION OF SUCH COMPETITION IS BASIC NOT ONLY TO THE ECONOMIC WELL-BEING BUT TO THE SECURITY OF THIS NATION. SUCH SECURITY AND WELL-BEING CANNOT BE REALIZED UNLESS THE ACTUAL AND POTENTIAL CAPACITY OF SMALL BUSINESS IS ENCOURAGED AND DEVELOPED. IT IS THE DECLARED POLICY OF THE CONGRESS THAT THE GOVERNMENT SHOULD AID, COUNSEL, ASSIST, AND PROTECT, INSOFAR AS IS POSSIBLE, THE INTERESTS OF SMALL- BUSINESS CONCERNS IN ORDER TO PRESERVE FREE COMPETITIVE ENTERPRISE, TO INSURE THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS FOR PROPERTY AND SERVICES FOR THE GOVERNMENT (INCLUDING BUT NOT LIMITED TO CONTRACTS FOR MAINTENANCE, REPAIR, AND CONSTRUCTION) BE PLACED WITH SMALL- BUSINESS ENTERPRISES, TO INSURE THAT A FAIR PROPORTION OF THE TOTAL SALES OF GOVERNMENT PROPERTY BE MADE TO SUCH ENTERPRISES, AND TO MAINTAIN AND STRENGTHEN THE OVERALL ECONOMY OF THE NATION.'

SECTION 3 OF THE SMALL BUSINESS ACT, 72 STAT. 384 (15 U.S.C. 632), DEFINES A SMALL BUSINESS AS ,ONE WHICH IS INDEPENDENTLY OWNED AND OPERATED AND WHICH IS NOT DOMINANT IN ITS FIELD OF PERATION" AND PROVIDES THAT IN ADDITION TO THIS CRITERIA "THE ADMINISTRATOR, IN MAKING A DETAILED DEFINITION, MAY USE THESE CRITERIA, AMONG OTHERS: NUMBER OF EMPLOYEES AND DOLLAR VOLUME OF BUSINESS.' SECTION 5 (B) (6) OF THE ACT, 72 STAT. 386 (15 U.S.C. 634), AUTHORIZES THE ADMINISTRATOR TO"MAKE SUCH RULES AND REGULATIONS AS HE DEEMS NECESSARY TO CARRY OUT THE AUTHORITY VESTED IN HIM PURSUANT TO THIS ACT," AND SECTION 8 (B) OF THE ACT, 72 STAT. 390 (15 U.S.C. 637), RELATING TO THE ADMINISTRATION'S PROCUREMENT AND PROPERTY DISPOSAL POWERS PROVIDES, IN MATERIAL PART, AS FOLLOWS: "/B) IT SHALL ALSO BE THE DUTY OF THE ADMINISTRATION AND IT IS HEREBY EMPOWERED, WHENEVER IT DETERMINES SUCH ACTION IS NECESSARY---

"/6) TO DETERMINE WITHIN ANY INDUSTRY THE CONCERNS, FIRMS, PERSONS, CORPORATIONS, PARTNERSHIPS, COOPERATIVES, OR OTHER BUSINESS ENTERPRISES WHICH ARE TO BE DESIGNATED ,SMALL-BUSINESS CONCERNS" FOR THE PURPOSE OF EFFECTUATING THE PROVISIONS OF THIS ACT. TO CARRY OUT THIS PURPOSE THE ADMINISTRATOR, WHEN REQUESTED TO DO SO, SHALL ISSUE IN RESPONSE TO EACH SUCH REQUEST AN APPROPRIATE CERTIFICATE CERTIFYING AN INDIVIDUAL CONCERN AS A "SMALL BUSINESS CONCERN" IN ACCORDANCE WITH THE CRITERIA EXPRESSED IN THIS ACT. ANY SUCH CERTIFICATE SHALL BE SUBJECT TO REVOCATION WHEN THE CONCERN COVERED THEREBY CEASES TO BE A "SMALL-BUSINESS CONCERN.' OFFICES OF THE GOVERNMENT HAVING PROCUREMENT OR LENDING POWERS, OR ENGAGING IN THE DISPOSAL OF FEDERAL PROPERTY OR ALLOCATING MATERIALS OR SUPPLIES, OR PROMULGATING REGULATIONS AFFECTING THE DISTRIBUTION OF MATERIALS OR SUPPLIES, SHALL ACCEPT AS CONCLUSIVE THE ADMINISTRATION'S DETERMINATION AS TO WHICH ENTERPRISES ARE TO BE DESIGNATED "SMALL-BUSINESS CONCERNS," AS AUTHORIZED AND DIRECTED UNDER THIS PARAGRAPH;

"/12) TO CONSULT AND COOPERATE WITH ALL GOVERNMENT AGENCIES FOR THE PURPOSE OF INSURING THAT SMALL-BUSINESS CONCERNS SHALL RECEIVE FAIR AND REASONABLE TREATMENT FROM SUCH AGENCIES; AND"

IN ACCORDANCE WITH THESE STATUTORY PROVISIONS, REGULATIONS CONTAINING DETAILED DEFINITIONS AND PROCEDURES HAVE BEEN PRESCRIBED BY THE ADMINISTRATION IN CHAPTER I, TITLE 13 OF THE CODE OF FEDERAL REGULATIONS. SECTION 121.3-1, PART 121 THEREOF RELATING TO "SMALL BUSINESS SIZE NDARDS," REVISION 3, PUBLISHED OCTOBER 3, 1962, 27 FR. 9757, STATES THAT THE PURPOSE OF THIS PART IS TO DEFINE "SMALL BUSINESS CONCERNS" AND ESTABLISH CRITERIA AND PROCEDURES FOR MAKING THE REQUIRED DETERMINATIONS, AS FOLLOWS:

"SEC. 121.3-1 PURPOSE.

"THIS PART DEFINES "SMALL BUSINESS CONCERNS" AND ESTABLISHES STANDARDS, CRITERIA AND PROCEDURES TO DETERMINE WHICH CONCERNS ARE "SMALL BUSINESS CONCERNS" WITHIN THE MEANING OF THE SMALL BUSINESS ACT, AS AMENDED (HEREINAFTER REFERRED TO AS THE "ACT"), AND THE SMALL BUSINESS INVESTMENT ACT OF 1958, AS AMENDED (HEREINAFTER REFERRED TO AS THE "INVESTMENT ACT").'

PROTESTS AND APPEALS RELATING TO DETERMINATIONS BY THE ADMINISTRATION ARE PROVIDED FOR UNDER SECTIONS 121.3-5 AND 121.3-6.

A "SMALL BUSINESS NONMANUFACTURER" DEFINITION IS INCLUDED IN SECTION 121.3-8, PROVIDING IN PART, AS FOLLOWS:

"SEC. 121.3-8 DEFINITION OF SMALL BUSINESS FOR GOVERNMENT PROCUREMENT.

"/A) SMALL BUSINESS DEFINITIONS. A SMALL BUSINESS CONCERN FOR THE PURPOSE OF GOVERNMENT PROCUREMENT IS A CONCERN, INCLUDING ITS AFFILIATES, WHICH IS INDEPENDENTLY OWNED AND OPERATED, IS NOT DOMINANT IN THE FIELD OF OPERATION IN WHICH IT IS BIDDING ON GOVERNMENT CONTRACTS, AND CAN FURTHER QUALIFY UNDER THE FOLLOWING CRITERIA:

"/1) GENERAL DEFINITION. ANY CONCERN (NOT OTHERWISE DEFINED IN THIS SECTION) IS SMALL IF: (I) ITS NUMBER OF EMPLOYEES DOES NOT EXCEED 500 PERSONS OR (II) IT IS CERTIFIED AS A SMALL BUSINESS CONCERN BY SBA PURSUANT TO PARAGRAPH (C) OF THIS SECTION.

"/B) DEFINITION OF SMALL BUSINESS NONMANUFACTURER. ANY CONCERN WHICH SUBMITS A BID OR OFFER IN ITS OWN NAME, OTHER THAN A CONSTRUCTION OR SERVICE CONTRACT, BUT WHICH PROPOSES TO FURNISH A PRODUCT NOT MANUFACTURED BY SAID BIDDER OR OFFERER, IS DEEMED TO BE A SMALL BUSINESS CONCERN WHEN:

"/1) IT IS A SMALL BUSINESS CONCERN WITHIN THE MEANING OF PARAGRAPH (A) OF THIS SECTION, AND

"/2) IN THE CASE OF GOVERNMENT PROCUREMENT RESERVED FOR OR INVOLVING THE PREFERENTIAL TREATMENT OF SMALL BUSINESSES, SUCH NONMANUFACTURER SHALL FURNISH IN THE PERFORMANCE OF THE CONTRACT THE PRODUCTS OF A SMALL BUSINESS MANUFACTURER OR PRODUCER WHICH PRODUCTS ARE MANUFACTURED OR PRODUCED IN THE UNITED STATES: * * *

"/D) SELF-CERTIFICATION BY A SMALL BUSINESS. IN THE SUBMISSION OF A BID OR PROPOSAL ON A GOVERNMENT PROCUREMENT, A CONCERN WHICH MEETS THE CRITERIA OF PARAGRAPH (A) OR (B) OF THIS SECTION MAY REPRESENT THAT IT IS A SMALL BUSINESS. IN THE ABSENCE OF A WRITTEN PROTEST OR OTHER INFORMATION WHICH WOULD CAUSE HIM TO QUESTION THE VERACITY OF THE SELF- CERTIFICATION, THE CONTRACTING OFFICER SHALL ACCEPT THE SELF CERTIFICATION AT FACE VALUE FOR THE PARTICULAR PROCUREMENT INVOLVED.'

BY AMENDMENT 4 OF REVISION 3, PUBLISHED APRIL 5, 1963, 28 F.R. 3323, EFFECTIVE JULY 1, 1963, SECTION 121.3-8 WAS REVISED, BUT THE DEFINITION OF A "SMALL BUSINESS NONMANUFACTURER" UNDER SUBSECTION (C) WAS "RESERVED" AND THEREFORE A NONMANUFACTURING SMALL BUSINESS CONCERN IS NOT DEFINED IN THE CURRENT REGULATION. HOWEVER, BY AMENDMENT 7 OF REVISION 3, PUBLISHED JUNE 28, 1963, 28 F.R. 6678, EFFECTIVE JULY 1, 1963, THE FOLLOWING NOTE WAS ADDED TO SECTION 121.3-8 (C) AS CONTAINED IN AMENDMENT 4:

"NOTE: ON APRIL 5, 1963, THERE WAS PUBLISHED IN THE FEDERAL REGISTER (28 F.R. 3358) A PROPOSED NEW DEFINITION OF A SMALL BUSINESS NONMANUFACTURER. INTERESTED PERSONS WERE REQUESTED TO FILE WRITTEN COMMENTS. UNTIL SUCH TIME AS THE COMMENTS ARE ANALYZED AND A NEW DEFINITION OF A SMALL BUSINESS NONMANUFACTURER IS ADOPTED, THE DEFINITION AS CONTAINED IN SEC. 121.3-8/B) (27 FR. 9757, PUBLISHED OCTOBER 3, 1962) SHALL BE APPLICABLE.'

THUS, IT IS SEEN THAT THE DETERMINATION IN THE ADMINISTRATION'S LETTER OF SEPTEMBER 17, 63,"THAT THE SOON "AIR" COMPANY IS A SMALL BUSINESS FOR THE PURPOSE OF IFB 40-604-63-2603" IS CONSISTENT WITH THE PROVISIONS OF SECTION 121.3-8/B) OF THE ADMINISTRATION'S REGULATIONS, AND THAT SECTION 8 (B) OF THE SMALL BUSINESS ACT SET OUT ABOVE EXPRESSLY PROVIDES THAT THE PROCURING AGENCY "SHALL ACCEPT AS CONCLUSIVE" SUCH DETERMINATIONS. ON THE BASIS OF THE CURRENT DELIBERATIONS OF THE ADMINISTRATION, POSSIBLY A NEW REVISED DEFINITION OF A "SMALL BUSINESS NONMANUFACTURER" MAY BE ADOPTED FOR APPLICATION IN THE FUTURE WHICH WILL REFLECT THE VIEWS OF ATLANTIC, WITH WHICH WE ARE INCLINED TO AGREE; THAT IS, IN CARRYING OUT THE STATUTORY PURPOSE AND INTENT OF THE SMALL BUSINESS ACT, CONSTRUED IN THE LIGHT OF ITS LEGISLATIVE HISTORY, AND CONSIDERING ALL OF THE PROVISIONS OF THE ACT AS A WHOLE, EXTENSION OF ASSISTANCE AND PREFERENTIAL CONSIDERATION TO DEALERS IN "SURPLUS" GOVERNMENT PROPERTY CAN HARDLY BE JUSTIFIED. HOWEVER THAT MAY BE, AND ALTHOUGH A PROCUREMENT SUCH AS HERE INVOLVED MAY BE SET ASIDE OR RESTRICTED TO SMALL BUSINESS CONCERNS AS PROVIDED BY THE ACT, NEVERTHELESS, IN ORDER TO WARRANT ACCEPTANCE UNDER A FORMALLY ADVERTISED PROCUREMENT OF GOVERNMENT REQUIREMENTS, A BID BY A "SMALL BUSINESS CONCERN" MUST BE RESPONSIVE TO THE INVITATION. THIS IS TO SAY, THE ESTABLISHED RULES PERTAINING TO FULL AND OPEN COMPETITION MUST BE MET IN AWARDING THE CONTRACT.

WHERE PUBLIC CONTRACTS ARE REQUIRED TO BE AWARDED ON THE BASIS OF ADVERTISING FOR BIDS AS PROVIDED BY 10 U.S.C. 2304 APPLICABLE TO THE INSTANT PROCUREMENT, IT IS WELL ESTABLISHED THAT THE INVITATIONS AND SPECIFICATIONS MUST BE SUCH AS TO PERMIT COMPETITION ON A COMMON BASIS WHICH INVOLVES THREE VITAL PRINCIPLES: (1) AN OFFERING TO THE PUBLIC, (2) AN OPPORTUNITY FOR COMPETITION, AND (3) A BASIS FOR AN EXACT COMPARISON OF BIDS. A REGULATION WHICH EXCLUDES OR IGNORES ANY OF THESE FACTORS DESTROYS THE DISTINCTIVE CHARACTER OF THE SYSTEM AND THWARTS THE PURPOSE OF ITS ADOPTION. SEE 43 AM.JR., PUBLIC WORKS AND CONTRACTS, SECTION 23 ET SEQ., AND 91 C.J.S., UNITED STATES, SECTION 87 ET SEQ., AND THE AUTHORITIES COLLECTED IN THESE ANNOTATIONS. SELECTION OF THE LOWEST RESPONSIBLE, RESPONSIVE BID INCLUDES ASCERTAINMENT OF THE BIDDER'S ABILITY TO RESPOND TO AND DISCHARGE ALL OF THE OBLIGATIONS WHICH HE IS EXPECTED AND REQUIRED TO ASSUME OR WHICH MAY BE DEMANDED UNDER THE ADVERTISED TERMS AND SPECIFICATIONS. CF. HANNAN V. BOARD OF EDUCATION, OKLA.SUP.CT. 1909, 107 P. 646, 30 L.R.A. (N.S.) 214. AND, AS THE COURT OF CLAIMS POINTED OUT IN NEW YORK MAIL AND NEWSPAPER TRANS.CO. V. UNITED STATES. 139 CT.CL. 751, DECIDED JULY 31, 1957, CERTIORARI DENIED BY THE SUPREME COURT, DECEMBER 16, 1957, A MATERIAL DEPARTURE FROM THE ADVERTISEMENT FOR PROPOSALS MAKES THE CONTRACT INVOLVED A NULLITY, CITING AT PAGE 757, UNITED STATES V. ELLICOTT, 223 U.S. 524, 543, WITH AN EXPLANATORY NOTE THAT THIS WAS A CASE WHERE THE OFFER OF THE CONTRACTOR SET AT NAUGHT THE PROVISIONS OF THE SPECIFICATIONS AND THE SUPREME COURT SAID IF THAT WERE ALLOWED THE CONTRACT WOULD BE "SO IRRESPONSIVE TO AND DESTRUCTIVE OF THE ADVERTISED PROPOSALS AS TO NULLIFY THEM, AND THEREFORE CAUSE IT TO RESULT THAT THE CONTRACT WAS ONE MADE WITHOUT COMPETITIVE BIDDING WHICH WAS NECESSARY TO GIVE IT VALIDITY.'

UNDER THE FACTS AND CIRCUMSTANCES OF RECORD IN THIS PARTICULAR CASE IT HAS BEEN DETERMINED THAT SOON "AIR" IS A "SMALL BUSINESS CONCERN" UNDER THE SBA REGULATIONS. BUT, THE PRESCRIBED CRITERIA WHICH ENABLES IT TO SO QUALIFY, I.E., BY BEING A "SMALL BUSINESS NONMANUFACTURER," WOULD SEEM TO OPERATE AS A BAR TO THE AWARD OF A CONTRACT TO SOON "AIR" UNDER THE TERMS OF IFB 40-604-63-2603, BECAUSE SUCH AN AWARD APPARENTLY COULD NOT BE MADE BY AN EXACT COMPARISON OF BIDS RESULTING FROM COMPETITION ON A COMMON BASIS. IT WOULD SEEM, ON THE CONTRARY AS URGED BY ATLANTIC, THAT AN AWARD TO SOON "AIR" WOULD REQUIRE A MATERIAL DEPARTURE FROM THE ADVERTISED SPECIFICATIONS.

PURSUANT TO THE TERMS OF IFB 40-604-63-2603 THERE ARE TWO MAJOR REQUIREMENTS OR RESTRICTIONS ON THE BIDDING, BOTH OF WHICH MUST BE SATISFIED IN ORDER TO WARRANT RECEIPT OF THE CONTRACT AWARD. UNDER THE FIRST RESTRICTION ONLY BIDS SUBMITTED BY THOSE WHO MEET THE STANDARDS OF A "SMALL BUSINESS CONCERN" UNDER THE SMALL BUSINESS ACT MAY BE CONSIDERED. UNDER THE SECOND RESTRICTION, THE BIDDER MUST BE ABLE TO FURNISH THE ITEM MANUFACTURED IN ACCORDANCE WITH SPECIFICALLY IDENTIFIED DRAWINGS AND SUBJECT TO CERTAIN TESTING REQUIREMENTS. THESE TESTING REQUIREMENTS "MAY BE WAIVED BY THE CONTRACTING OFFICER" ONLY IF THE CONTRACT IS AWARDED TO A CONTRACTOR (1) "WHO HAS BEEN GRANTED PRIOR QUALIFICATION APPROVAL FOR THE ITEM" OR (2) "WHO HAS PREVIOUSLY BEEN GIVEN FIRST ARTICLE APPROVAL ON THE IDENTICAL ITEM, AND WHO PROPOSES TO REPRODUCE IDENTICAL ITEMS, USING THE SAME TOOLS, FACILITIES, DESIGN DATA AND COMPONENT TYPES PREVIOUSLY USED" AND, PROVIDED FURTHER, THAT NO "MORE THAN 12 MONTHS HAVE ELAPSED SINCE THE COMPLETION OF A PRIOR CONTRACT" IN WHICH EVENT THE FURNISHING OF A "FIRST ARTICLE WILL BE REQUIRED" FOR TESTING.

THUS, THE IFB DOES NOT PROVIDE FOR THE DELIVERY OF "SHELF" ITEMS, SUCH AS MIGHT HAVE BEEN FURNISHED BY MANUFACTURERS AND REGULAR DEALERS UNDER THE ORIGINAL SPECIFICATIONS PRIOR TO IFB AMENDMENT NO. 3, BUT CALLS FOR ITEMS PRODUCED BY CONTRACTORS PURSUANT TO THE SPECIFIC REQUIREMENTS OF THE ADVERTISED INVITATION. IT SEEMS ABUNDANTLY CLEAR FROM THE RECORD SUBMITTED THAT UNDER ITS BID OFFERING TO FURNISH "SURPLUS" ITEMS IT HAS ON HAND, SOON "AIR" DOES NOT PROPOSE TO MEET THESE ADVERTISED REQUIREMENTS AND, THEREFORE, THIS BID IS NOT RESPONSIVE TO THE IFB AND PROPERLY MAY NOT BE ACCEPTED. HENCE, WE ARE OF THE VIEW THAT ATLANTIC IS ENTITLED TO THE AWARD AS THE LOWEST RESPONSIBLE, RESPONSIVE BIDDER.

WITH RESPECT TO ATLANTIC'S ALLEGATIONS CONCERNING THE EXCESSIVE PROFIT OPPORTUNITIES WHICH APPARENTLY MAY BE AFFORDED IN CASES SUCH AS THIS WHERE PROPERTY SOLD AS "SURPLUS" IS REACQUIRED BY THE GOVERNMENT, WE RECOGNIZE THAT THE DIFFERENCE IN THE DISPOSAL PRICE OF A PARTICULAR ITEM AND THE PRICE AT WHICH IT MAY BE OFFERED TO AND REACQUIRED BY THE GOVERNMENT THEREAFTER GENERALLY MAY NOT REPRESENT THE PROFIT REALIZED BY THE SURPLUS DEALER OR SUPPLIER. AS IN THE CASE OF A MANUFACTURER'S DISTRIBUTOR OR REGULAR DEALER, THE DETERMINATION OF THE MARGIN OF PROFIT USUALLY INCLUDES, IN ADDITION TO THE ACTUAL OPERATING COSTS OF THE BUSINESS, CONSIDERATION OF THE ACQUISITION COST AND THE INCOME FROM SALES PERTAINING TO ALL ITEMS DISTRIBUTED OR SOLD DURING THE ACCOUNTING PERIOD.

AS INDICATED IN THE FIRST ENDORSEMENT DATED MARCH 27, 1963, FROM THE OFFICE OF THE COMMANDER, HEADQUARTERS AFLC, WRIGHT-PATTERSON AIR FORCE BASE, WHEN A NEED ARISES THAT CAN BE FILLED THROUGH SURPLUS CHANNELS, IT WOULD SEEM THAT APPROPRIATE CONTRACTING PROCEDURES ASSURING COMPETITION ON A COMMON BASIS SHOULD BE ADOPTED AND FOLLOWED WHEREBY INSPECTION DIFFICULTIES AND THE DETERMINATION OF REASONABLE REACQUISITION COSTS MAY BE RESOLVED IN A MANNER SERVING THE BEST INTERESTS OF THE UNITED STATES. IN THIS CONNECTION, WE UNDERSTAND THAT STEPS HAVE BEEN TAKEN ADMINISTRATIVELY BY YOUR DEPARTMENT TO GUARD AGAINST THE DISPOSAL AS "SURPLUS" OF ITEMS FOR WHICH THE GOVERNMENT MAY HAVE A CURRENT OR FORESEEABLE NEED.