B-152563, DEC. 31, 1963

B-152563: Dec 31, 1963

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TO AUTOMATIC: REFERENCE IS MADE TO YOUR COMMUNICATION OF RECENT DATE RELATIVE TO THE PROCEDURES UNDER WHICH THE DEFENSE SUPPLY AGENCY IS PROCURING FORK LIFT TRUCKS AND INDUSTRIAL TRACTORS. THE LATEST PROCUREMENTS ARE BEING ACCOMPLISHED BY THE SOLICITATION OF OFFERS UNDER REQUESTS FOR PROPOSALS AND BY THE NEGOTIATION OF CONTRACTS BASED UPON SUCH OFFERS. IN VIEW OF THE REQUIREMENT IN 10 U.S.C. 2304 (A) FOR PROCUREMENT BY FORMAL ADVERTISING WHENEVER USE OF SUCH METHOD IS FEASIBLE AND PRACTICABLE. THE REPORT TO THIS OFFICE FROM THE DEFENSE SUPPLY AGENCY ADVISES THAT THE ITEMS IN QUESTION ARE BEING PROCURED UNDER THE DEPARTMENT OF DEFENSE LABOR SURPLUS AREA PROGRAM. THIS PROGRAM WAS INITIATED ON A TRIAL BASIS BY MEMORANDUM DATED OCTOBER 22.

B-152563, DEC. 31, 1963

TO AUTOMATIC:

REFERENCE IS MADE TO YOUR COMMUNICATION OF RECENT DATE RELATIVE TO THE PROCEDURES UNDER WHICH THE DEFENSE SUPPLY AGENCY IS PROCURING FORK LIFT TRUCKS AND INDUSTRIAL TRACTORS.

SPECIFICALLY, YOUR COMPANY TOGETHER WITH OTHER MANUFACTURERS OF THESE ITEMS HAS ADVISED THAT WHILE IT HAS BEEN THE PRACTICE IN THE PAST TO PROCURE SUCH ITEMS UNDER FORMAL ADVERTISING PROCEDURES, THE LATEST PROCUREMENTS ARE BEING ACCOMPLISHED BY THE SOLICITATION OF OFFERS UNDER REQUESTS FOR PROPOSALS AND BY THE NEGOTIATION OF CONTRACTS BASED UPON SUCH OFFERS. IN VIEW OF THE REQUIREMENT IN 10 U.S.C. 2304 (A) FOR PROCUREMENT BY FORMAL ADVERTISING WHENEVER USE OF SUCH METHOD IS FEASIBLE AND PRACTICABLE, YOU REQUEST OUR REVIEW AND ADVICE ON THE PROPRIETY OF THE PROCEDURES CURRENTLY BEING FOLLOWED AND THE LEGALITY OF THE CONTRACTS AWARDED UNDER SUCH PROCEDURES.

THE REPORT TO THIS OFFICE FROM THE DEFENSE SUPPLY AGENCY ADVISES THAT THE ITEMS IN QUESTION ARE BEING PROCURED UNDER THE DEPARTMENT OF DEFENSE LABOR SURPLUS AREA PROGRAM. THIS PROGRAM WAS INITIATED ON A TRIAL BASIS BY MEMORANDUM DATED OCTOBER 22, 1962, FROM THE DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR PROCUREMENT, UNDER WHICH AN INITIAL TEST PROGRAM OF 85 SELECTED CASES WAS FIRST INSTITUTED. WHILE THE PROCUREMENTS INCLUDED IN SUCH PROGRAM WERE CONCLUDED ON JULY 15, 1963, A CONTINUANCE OF THE PROGRAM HAS BEEN AUTHORIZED PENDING CORRELATION OF THE RESULTS ON THE INITIAL CASES AND FINAL DETERMINATION AS TO ACCEPTANCE OR NONACCEPTANCE OF THE TEST PROCEDURE BY THE DEPARTMENT OF DEFENSE FOR OVER-ALL USE.

UNDER THE PROCEDURE ESTABLISHED FOR THE TEST PROGRAM, SELECTED PROCUREMENTS ESTIMATED TO EXCEED $200,000, IN WHICH SUBCONTRACTING NORMALLY RANGES FROM 25 PERCENT TO 40 PERCENT OF THE CONTRACT PRICE, ARE NEGOTIATED UNDER ASPR 3-201.2 (B) (I). AT LEAST AN INITIAL AND A SUBSEQUENT ROUND OF NEGOTIATIONS ARE CONDUCTED BASED UPON THE OFFERS RECEIVED. IF THE LOW EVALUATED OFFER IS SUBMITTED BY A LABOR SURPLUS AREA CONCERN, I.E., A CONCERN WHICH AGREES TO PERFORM THE SPECIFIED MINIMUM PERCENTAGE (25 PERCENT TO 40 PERCENT) OF THE CONTRACT PRICE IN LABOR SURPLUS AREAS, AWARD IS MADE TO THAT FIRM. IF THE LOW OFFEROR DOES NOT AGREE TO PERFORM THE SPECIFIED PERCENTAGE OF THE CONTRACT PRICE IN LABOR SURPLUS AREAS, LABOR SURPLUS AREA CONCERNS SUBMITTING PRICE PROPOSALS WITHIN 120 PERCENT OF THE LOW OFFEROR'S PRICE ARE GIVEN AN OPPORTUNITY TO MATCH THE PRICE OF THE LOW OFFEROR IN THE FOLLOWING ORDER:

(1) LABOR SURPLUS AREA FIRMS WHICH ARE ALSO SMALL BUSINESS CONCERNS, BEGINNING WITH THE LOWEST OFFEROR.

(2) OTHER LABOR SURPLUS AREA CONCERNS, BEGINNING WITH THE LOWEST OFFEROR.

IN THE EVENT NO LABOR SURPLUS AREA CONCERN AGREES TO MATCH THE PRICE OF THE LOW OFFEROR, AWARD IS MADE TO THE LOW OFFEROR.

WITHIN THE DEFENSE SUPPLY AGENCY WE ARE ADVISED THAT THIS PROGRAM IS CLOSELY CONTROLLED BY THE AGENCY'S SPECIAL ASSISTANT FOR ECONOMIC UTILIZATION. ALL PROCUREMENTS TO BE EFFECTED UNDER THESE PROCEDURES MUST RECEIVE HIS PRIOR APPROVAL AND EACH OF THOSE TO WHICH YOUR INQUIRY IS DIRECTED WAS SO APPROVED.

IN EFFECT THE ABOVE PROCEDURE WAS APPROVED BY THIS OFFICE IN OUR DECISION OF JUNE 1, 1962, B-148512, 41 COMP. GEN. 787, WHICH DENIED A PROTEST AGAINST AWARD TO AN OFFEROR WHO QUALIFIED AS A LABOR SURPLUS AREA CONCERN BASED UPON PERFORMANCE OF 50 PERCENT OF THE CONTRACT IN A LABOR SURPLUS AREA. AS INDICATED IN THAT DECISION 10 U.S.C. 2304 (A) (I) AUTHORIZES THE NEGOTIATION OF PROCUREMENTS WHEN THE HEAD OF AN AGENCY DETERMINES SUCH ACTION IS NECESSARY IN THE PUBLIC INTEREST DURING A PERIOD OF NATIONAL EMERGENCY DECLARED BY THE PRESIDENT. PURSUANT THERETO PARAGRAPH 3-201.3 (B) (I) OF THE ARMED SERVICES PROCUREMENT REGULATION AUTHORIZES THE NEGOTIATION OF PROCUREMENTS MADE IN KEEPING WITH LABOR SURPLUS SET-ASIDE PROGRAMS. IN VIEW THEREOF, AND SINCE THE LOWEST PRICE OBTAINABLE WAS TO BE ESTABLISHED THROUGH UNRESTRICTED SOLICITATION OF PROPOSALS WITH NO INDICATION THAT A PRICE DIFFERENTIAL WOULD BE PAID AS A RESULT OF AWARD TO A LABOR SURPLUS AREA CONCERN, OUR DECISION OF JUNE 1, 1962, HELD THAT THE PROCEDURE WAS NOT CONTRARY TO LAW.

THE ONLY DIFFERENCE BETWEEN THE PROCEDURES FOLLOWED IN THAT CASE AND THE PROCEDURES FOLLOWED IN THE CURRENT PROCUREMENTS IS THAT A BIDDER MAY QUALIFY AS A LABOR SURPLUS AREA CONCERN BY PERFORMING 25 PERCENT, RATHER THAN 50 PERCENT, OF THE CONTRACT IN LABOR SURPLUS AREAS. WHILE IT IS TRUE THAT ASPR 1-801.1 PRESENTLY DEFINES A LABOR SURPLUS AREA CONCERN AS ONE WHICH WILL INCUR COSTS OF MORE THAN 50 PERCENT OF THE CONTRACT PRICE IN AREAS OF SUBSTANTIAL AND PERSISTENT LABOR SURPLUS, SUCH DEFINITION DOES NOT OPERATE TO PRECLUDE THE INSTITUTION AND IMPLEMENTATION OF A PROPERLY AUTHORIZED TEST PROGRAM OF THE TYPE HERE INVOLVED.

IN THIS CONNECTION, WE HAVE REVIEWED THE RECORDS OF BOTH BID AND OFFER SOLICITATIONS ON RECENT PROCUREMENTS OF THE TYPES OF INDUSTRIAL TRUCKS TO WHICH YOUR COMMUNICATION REFERS. WE HAVE ALSO REVIEWED THE RECORD OF PRICES RECEIVED ON THE ITEMS ON BOTH AN ADVERTISED AND NEGOTIATED BASIS. BASED UPON SUCH REVIEW WE SEE NO BASIS ON WHICH IT MAY BE CONCLUDED THAT THE OPPORTUNITY WAS NOT GIVEN ALL MANUFACTURERS OF THESE ITEMS TO COMPETE UNDER THE TEST PROGRAM PROCEDURES, OR THAT THE TERMS UNDER WHICH OFFERS WERE SOLICITED OPERATED TO LIMIT THE NUMBER OF RESPONSIVE OFFERS RECEIVED, OR THAT THE PRICES OF OF NEGOTIATED CONTRACTS BASED UPON SUCH OFFERS INCLUDED ANY PRICE DIFFERENTIAL RESULTING FROM AWARD TO SURPLUS LABOR AREA CONCERNS.

UNDER THE CIRCUMSTANCES WE MUST CONCLUDE THAT NEGOTIATION OF THE PROCUREMENTS TO WHICH YOUR COMMUNICATION REFERS REPRESENTS A VALID EXERCISE OF THE CONTRACTING AUTHORITY OF THE DEFENSE SUPPLY AGENCY. THIS OFFICE THEREFORE WILL INTERPOSE NO OBJECTION TO THE PAST NEGOTIATION OF CONTRACTS UNDER THE TEST PROGRAM PROCEDURE, OR TO THE FUTURE NEGOTIATION OF CONTRACTS UNDER THE PROPOSED EXTENSION OF SUCH PROGRAM UNTIL SUCH TIME AS THE TEST RESULTS MAY BE FULLY EVALUATED AND THE TEST PROCEDURE IS EITHER REJECTED FOR FUTURE PROCUREMENTS OR THE REGULATIONS ARE AMENDED TO SPECIFICALLY AUTHORIZE USE OF SUCH PROCEDURE.