B-152757, JUL. 15, 1964

B-152757, JUL. 15, 1964

TO THE SECRETARY OF THE ARMY:

BY LETTER DATED DECEMBER 9, 1963, THE OFFICE OF THE CHIEF OF ENGINEERS FURNISHED THE REPORT REQUESTED BY OUR OFFICE ON OCTOBER 31, 1963, WITH RESPECT TO THE PROTEST OF ALGERNON BLAIR, INC., AGAINST LIMITED BIDDING UNDER INVITATIONS FOR BIDS NOS. ENG (NASA) 64-16, -17, AND -22.

WE NOTE THAT WHILE BLAIR WAS GIVEN AN OPPORTUNITY TO BID ON INVITATIONS NOS. -16 AND -17, IT DID NOT SUBMIT A BID WHEN THOSE INVITATIONS WERE OPENED ON DECEMBER 3 AND 27, 1963, RESPECTIVELY. ALSO, IT DOES NOT APPEAR THAT BLAIR REQUESTED PERMISSION TO BID ON NASA 64-22. THUS BLAIR'S PROTEST IS NO LONGER AN ISSUE. HOWEVER, THE GRAVEMEN OF BLAIR'S PROTEST WAS THAT IT WAS DISCRIMINATED AGAINST AS A SMALL BUSINESS CONCERN SINCE THE INVITATIONS WERE ISSUED UNDER THE PREQUALIFICATION OF BIDDERS PROCEDURE. IN VIEW THEREOF AND SINCE A SERIOUS QUESTION ARISES WHETHER THE PREQUALIFICATION PROCEDURE, AS IT MAY BE APPLIED TO SMALL BUSINESS CONCERNS, IS IN DIRECT CONFLICT WITH THE AUTHORITY OF THE SMALL BUSINESS ADMINISTRATION (SBA) UNDER 15 U.S.C. 637 (B) (7) TO MAKE CONCLUSIVE DETERMINATIONS OF SMALL BUSINESS CONCERNS' COMPETENCY TO PERFORM GOVERNMENT CONTRACTS, WE FEEL THAT IT IS INCUMBENT UPON OUR OFFICE TO CONSIDER THE MATTER.

UNDER THIS PROCEDURE, A BOARD FOR PREQUALIFICATION OF BIDDERS CONSIDERS THE QUALIFICATIONS OF EACH PROSPECTIVE BIDDER TO PERFORM A PARTICULAR CONSTRUCTION PROJECT AND RECOMMENDS THE INCLUSION OR NONINCLUSION OF EACH BIDDER ON A "PREQUALIFIED BIDDERS LIST" FOR THE PROJECT. THE FINAL DECISION AS TO INCLUSION OR NONINCLUSION ON SUCH LIST IS MADE BY THE DIVISION ENGINEER, MOBILE ENGINEER DISTRICT. THOSE BIDDERS NOT LISTED AS PREQUALIFIED ARE NOT CONSIDERED FOR AWARD. PRIME CONSTRUCTION CONTRACTORS DESIRING PREQUALIFICATION MUST FILE A STATEMENT PROVIDING INFORMATION NECESSARY FOR A PREQUALIFICATION DETERMINATION AS FOLLOWS:

"1. PRIME CONTRACTORS. THIS PREQUALIFICATION STATEMENT IS TO BE USED TO PROVIDE INFORMATION FOR THE PREQUALIFICATION OF PRIME CONSTRUCTION CONTRACTORS. THIS STATEMENT IS NOT TO BE USED BY SUPPLIERS, SUBCONTRACTORS OR SPECIALTY CONTRACTORS. A SEPARATE PREQUALIFIED BIDDERS LIST WILL BE PROPOSED. BIDS WILL NOT BE CONSIDERED FROM ORGANIZATIONS WHICH ARE NOT ON THE PREQUALIFIED BIDDERS LIST PRIOR TO THE ISSUANCE OF THE INVITATION TO BID FOR A PARTICULAR PROJECT.

"A. PREQUALIFICATION OF INDIVIDUAL PRIME CONTRACTOR. EACH INDIVIDUAL FIRM REQUESTING PREQUALIFICATION AS A POTENTIAL PRIME CONTRACTOR (OR EXPECTING TO BE A POTENTIAL PRIME CONTRACTOR AS A MEMBER OF A JOINT VENTURE) SHOULD SUBMIT THE COMPLETED STATEMENT.

"B. PREQUALIFICATION OF JOINT VENTURE. EACH MEMBER OF A JOINT VENTURE REQUESTING PREQUALIFICATION FOR A PARTICULAR PROJECT, MUST SUBMIT THE COMPLETED STATEMENT.

"C.THIS STATEMENT SHOULD BE MODIFIED PERIODICALLY TO REFLECT THE CURRENT CAPABILITIES OF YOUR ORGANIZATION. THIS IS ESPECIALLY IMPORTANT PRIOR TO EACH MAJOR CONSTRUCTION CONTRACT BIDDING FOR WHICH YOU REQUEST PREQUALIFICATION. THE INFORMATION MAY BE REVISED BY SUBMISSION OF A COMPLETE NEW STATEMENT, REVISION OF CERTAIN PAGES OR THE USE OF SUPPLEMENTAL SHEETS. (IT IS SUGGESTED THAT A COPY OF THE INFORMATION SUBMITTED BE RETAINED FOR YOUR RECORD.)

"2. EVALUATION. PROSPECTIVE CONTRACTOR'S SUBMITTALS WILL BE REVIEWED BY THE BOARD FOR PREQUALIFICATION OF BIDDERS. THE CRITERIA FOR EVALUATION WILL INCLUDE INVESTIGATION INTO THE AREAS LISTED IN THIS PARAGRAPH. EACH OF THESE AREAS, THE HISTORY AND PROSPECT OF PERFORMANCE MUST BE SATISFACTORY TO A DEGREE CONSISTENT WITH THE NATIONAL URGENCY OF THE PROGRAM.

"A. PERFORMANCE. RECORD OF PERFORMANCE AS TO TIME AND QUALITY.

"B. MANAGEMENT. AN ADEQUATE STAFF OF EXPERIENCED MANAGERIAL PERSONNEL VESTED WITH ADEQUATE AUTHORITY AND IMMEDIATELY AVAILABLE WHO WILL BE COMMITTED TO THE JOB.

"C. LABOR RELATIONS. A SATISFACTORY LABOR RELATIONS RECORD.

"D. EQUIPMENT. OWNERSHIP OR READY ACCESS TO FACILITIES AND EQUIPMENT REQUIRED FOR THE PERFORMANCE OF THE WORK BEING ADVERTISED.

"E. FINANCIAL. ADEQUATE FINANCIAL RESOURCES TO PROVIDE LIQUID ASSETS COMMENSURATE WITH PROJECT NEEDS AND FINANCIAL HISTORY WITH REGARD TO MEETING TRADE OBLIGATIONS, PAYROLL OBLIGATIONS, AND STATE AND FEDERAL TAX LIABILITIES.

"F. EXPERIENCE RECORD. EXPERIENCE IN WORK OF MAGNITUDE AND COMPLEXITY COMPARABLE TO THAT UNDER CONSIDERATION, AND EVIDENCE OF CONSTRUCTION SKILL AS TO THE MAIN FEATURES OF THE WORK.

"G. SUBCONTRACTS. A SATISFACTORY RECORD OF SUBCONTRACT MANAGEMENT. THIS WILL SHOW THAT AT LEAST 20 PERCENT OF THE VALUE OF WORK COMPLETED DURING THE PAST SIX YEARS (INCLUDING CURRENT PROJECTS) WAS PERFORMED WITH YOUR OWN FORCES.

"H. BUSINESS HISTORY. RECORD OF BUSINESS AND FINANCIAL "KNOW-HOW" AND INTEGRITY.

"I. ADMINISTRATION. RECORD OF CONTRACT ADMINISTRATION.

"3. JOINT VENTURES. BIDS WILL BE ACCEPTED ONLY FROM JOINT VENTURES WHICH ARE QUALIFIED UNDER ONE OF THE FOLLOWING CIRCUMSTANCES:

"A. PRIOR TO ADVERTISING. A JOINT VENTURE, FORMED PRIOR TO ISSUANCE OF INVITATIONS TO BID, MAY REQUEST TO BE PREQUALIFIED FOR A PARTICULAR PROJECT.

"B. AFTER ADVERTISING. A JOINT VENTURE, FORMED AFTER THE ISSUANCE OF THE INVITATIONS TO BID, FOR THE SPECIFIC PURPOSE OF BIDDING ON A PARTICULAR PROJECT, WILL BE CONSIDERED ELIGIBLE TO BID IF THE SPONSOR MANAGER MEMBER OF THE JOINT VENTURE IS PREQUALIFIED AT THE TIME OF ADVERTISING. IT IS DESIRABLE THAT EACH PARTICIPANT IN SUCH A JOINT VENTURE FILE A PREQUALIFICATION STATEMENT AT LEAST TEN (10) DAYS PRIOR TO BID OPENING TO FACILITATE AND EXPEDITE THE PROCEDURES OF THE PRE AWARD SURVEY.

"4.SUBCONTRACTORS. AFTER OPENING OF BIDS, A SPECIAL "PRE-AWARD"TYPE SURVEY WILL BE MADE BY THE CONTRACTING OFFICER OF SUBCONTRACTORS PROPOSED BY THE PRIME CONTRACTOR TO PERFORM IMPORTANT PORTIONS OF THE WORK.

"5. NOTIFICATION. CONTRACTORS WILL BE NOTIFIED OF THE DETERMINATION BY THE BOARD FOR PREQUALIFICATION OF BIDDERS. THE EVALUATION OF THE PREQUALIFICATION STATEMENT WILL BE AVAILABLE FOR REVIEW IN THIS OFFICE BY AUTHORIZED REPRESENTATIVES OF YOUR ORGANIZATION, TO THE EXTENT COMPATIBLE WITH BUSINESS INFORMATION AND SECURITY REGULATIONS. TO PRESERVE YOUR BUSINESS SECURITY, VERY LIMITED INFORMATION WILL BE AVAILABLE BY PUBLIC COMMUNICATION SYSTEMS.'

THE CRITERIA THUS ESTABLISHED FOR DETERMINING PREQUALIFICATION ELIGIBILITY INCLUDE MANY OF THE MINIMUM STANDARDS OF RESPONSIBILITY SET OUT IN ASPR 1-903 WHICH A BIDDER MUST POSSESS IN ORDER TO BE CONSIDERED AS A RESPONSIBLE PROSPECTIVE CONTRACTOR. A COMPARISON BETWEEN ASPR 1-903 AND THE EVALUATION FACTORS FOR PREQUALIFICATION ELIGIBILITY REVEALS THAT SUBSTANTIALLY THE SAME ELEMENTS OF RESPONSIBILITY ARE INVOLVED, SUCH AS PAST PERFORMANCE RECORD, MANAGEMENT, FACILITIES, AND EXPERIENCE. ADDITION, THE PREQUALIFICATION PROCEDURE CONTEMPLATES THE DETERMINATION OF A BIDDER'S CAPACITY TO PERFORM IN STATED DOLLAR AMOUNTS; THAT IS, A BIDDER'S CURRENT CAPACITY IS DETERMINED BY SUBTRACTING HIS CURRENT COMMITMENTS FROM HIS TOTAL ANNUAL CAPACITY WHICH HAS BEEN DETERMINED AND EXPRESSED IN DOLLAR AMOUNTS. THIS TOO, IS ONE OF THE STANDARDS FOR DETERMINING A BIDDER'S RESPONSIBILITY UNDER ASPR 1-903.

THE ACTING DIRECTOR OF MILITARY CONSTRUCTION COMMENTED UPON THE PREQUALIFICATION PROCEDURE AS FOLLOWS:

"3. THE PREQUALIFICATION SYSTEM REFERRED TO IN THIS PROTEST IS A PROCEDURE WHICH WAS ADOPTED FOR USE BY THE CORPS OF ENGINEERS IN 1960. THAT TIME THE REQUIREMENTS OF THE INTERCONTINENTAL BALLISTIC MISSILES PROGRAM BECAME SO CRITICAL IT WAS EVIDENT THAT ONLY THE MOST CAPABLE CONTRACTORS COULD BE EXPECTED TO COMPLETE THE COMPLEX CONSTRUCTION WITHIN THE TIME FRAME ALLOWED. THE PREQUALIFICATION PROCEDURE ESTABLISHED ASSURED THE AVAILABILITY OF QUALIFIED CONTRACTORS FOR THESE PROJECTS. BECAUSE OF THE HIGH DOLLAR VALUE OF THE CONTRACTS TO BE AWARDED IN THE MISSILE PROGRAM ONLY LARGE FIRMS HAVE PARTICIPATED. HOWEVER, DUE TO THE URGENCY AND COMPLEXITY OF THE CONSTRUCTION WORK NOW BEING PERFORMED UNDER CORPS OF ENGINEER CONTRACTS FOR NASA THE USE OF THIS PREQUALIFICATION SYSTEM HAS BEEN EXTENDED TO THAT PROGRAM FOR THOSE PROJECTS OF AN EXTREMELY COMPLICATED AND URGENT NATURE. IN SOME INSTANCES SUCH AS THE CASE UNDER CONSIDERATION THE DOLLAR VOLUME OF THE CONSTRUCTION PROJECTS IN THAT PROGRAM FALL WITHIN THE FINANCIAL CAPACITY OF SMALL BUSINESS FIRMS.

"4. IT IS NOT THE PURPOSE OF THE CORPS OF ENGINEERS TO DEPRIVE SMALL BUSINESS FIRMS OF THE OPPORTUNITY TO PERFORM WORK FOR IT BY USE OF THE PREQUALIFICATION PROCEDURES AND WHERE A PROTEST SUBMITTED BY A SMALL BUSINESS FIRM BECAUSE OF ITS FAILURE TO QUALIFY TO BID ON AN INVITATION FOR BIDS CANNOT BE RESOLVED, PROCEDURES THAT WILL RESULT IN SMALL BUSINESS RECEIVING THE FULL PROTECTION GIVEN THEM UNDER THE SMALL BUSINESS ACT WILL BE FORMULATED AFTER COORDINATION WITH THE SMALL BUSINESS ADMINISTRATION.'

AS A GENERAL RULE, THE RESPONSIBILITY OF A BIDDER IS A MATTER FOR DETERMINATION BY THE CONTRACTING AGENCY, AND OUR OFFICE WILL NOT QUESTION SUCH DETERMINATION UNLESS IT IS ARBITRARY, CAPRICIOUS OR NOT BASED ON SUBSTANTIAL EVIDENCE. 37 COMP. GEN. 430; 38 ID. 131. WE HAVE NO OBJECTION TO THE USE OF THE PREQUALIFICATION PROCEDURE AS A MEANS TO ADMINISTRATIVELY DETERMINE THE RESPONSIBILITY OF PROSPECTIVE CONTRACTORS GENERALLY. SEE 38 COMP. GEN. 357. IN B-135504 DATED MAY 2, 1958, WE APPROVED THE ESTABLISHMENT OF A QUALIFIED MANUFACTURERS LIST FOR USE IN THE PROCUREMENT OF MILITARY CLOTHING FROM THE CUT-MAKE AND-TRIM INDUSTRY AND STATED:

"WE DO NOT QUESTION THE AUTHORITY OR THE PROPRIETY OF THE ESTABLISHMENT OF THE PROPOSED PROCEDURE, PARTICULARLY IN VIEW OF THE DIFFICULTIES EXPERIENCED BY THE MILITARY DEPARTMENTS, AS SET FORTH IN THE ASSISTANT SECRETARY'S LETTER AND AS FOUND IN THE RECENT CONGRESSIONAL HEARINGS CONCERNING PROCUREMENT OF MILITARY CLOTHING.

"THE PROPOSED PROCEDURE APPEARS TO BE FAIR AND REASONABLE AND, IF PROPERLY ADMINISTERED, IT WOULD APPEAR THAT RESPONSIBLE FIRMS WOULD NOT HAVE ANY DIFFICULTY IN QUALIFYING FOR PLACEMENT ON THE LISTS. ALTHOUGH THE PROCEDURE MAY BE SAID TO BE SOMEWHAT RESTRICTIVE OF COMPETITION, WE FEEL THAT IT IS NOT UNNECESSARILY RESTRICTIVE CONSIDERING THE CIRCUMSTANCES INVOLVED AND IT MAY, AS STATED BY THE ASSISTANT SECRETARY,INDUCE RESPONSIBLE FIRMS TO PARTICIPATE WHO HAVE BEEN RELUCTANT TO DO SO IN THE PAST DUE TO THE TIME REQUIRED FOR INVESTIGATION OF BIDDERS' RESPONSIBILITY AFTER THE OPENING OF BIDS AND PRIOR TO AWARD.

"IT IS TO BE UNDERSTOOD THAT THIS CONCURRENCE IN THE INAUGURATION OF THE PROPOSED PROCEDURE IS WITHOUT PREJUDICE TO ANY RIGHTS OF OUR OFFICE TO TAKE ACTION OR RAISE QUESTIONS WITH RESPECT TO ANY MATTERS WHICH MAY ARISE FROM OR IN CONNECTION WITH THE APPLICATION OR ADMINISTRATION OF SUCH PROCEDURE; OR THE EXTENSION OF SUCH PROCEDURE TO OTHER FIELDS OF PROCUREMENT.'

HOWEVER, THOSE TWO RESTRICTIONS ON COMPETITION DID NOT CONSTITUTE EXCEPTIONS TO THE STATUTORY AUTHORITY OF SBA TO DETERMINE THE COMPETENCY, AS TO CAPACITY AND CREDIT, OF SMALL BUSINESS CONCERNS TO PERFORM A SPECIFIC GOVERNMENT CONTRACT. RATHER, THEY WERE INTENDED TO APPLY TO SPECIAL, UNIQUE PROCUREMENT SITUATIONS IF NOT OTHERWISE CONTRARY TO LAW.

THE QUALIFIED MANUFACTURERS LIST PROCEDURE INSOFAR AS IT AFFECTS THE RESPONSIBILITY OF SMALL BUSINESS BIDDERS MUST BE REGARDED AS SUBJECT TO THE PROVISIONS OF THE SMALL BUSINESS ACT, PUB.L. 85-536. SECTION 8 (B) (7) OF THAT ACT, AS CODIFIED AT 15 U.S.C. 637 (B) (7), AUTHORIZES SBA:

"/7) TO CERTIFY TO GOVERNMENT PROCUREMENT OFFICERS, * * *, WITH RESPECT TO THE COMPETENCY, AS TO CAPACITY AND CREDIT, OF ANY SMALL BUSINESS CONCERN * * * TO PERFORM A SPECIFIC GOVERNMENT CONTRACT. IN ANY CASE IN WHICH A SMALL-BUSINESS CONCERN * * * HAS BEEN CERTIFIED BY OR UNDER THE AUTHORITY OF THE ADMINISTRATION TO BE A COMPETENT GOVERNMENT CONTRACTOR WITH RESPECT TO CAPACITY AND CREDIT ASTO A SPECIFIC GOVERNMENT CONTRACT, THE OFFICERS OF THE GOVERNMENT HAVING PROCUREMENT * * * POWERS ARE DIRECTED TO ACCEPT SUCH CERTIFICATION AS CONCLUSIVE, AND ARE AUTHORIZED TO LET SUCH GOVERNMENT CONTRACT TO SUCH CONCERN * * * WITHOUT REQUIRING IT TO MEET ANY OTHER REQUIREMENT WITH RESPECT TO CAPACITY AND CREDIT; * * *.'

IN CONSONANCE WITH THAT PROVISION OF LAW AND OUR DECISION AT 38 COMP. GEN. 864, ASPR 1-705.6 PROVIDES:

"/A) SBA HAS STATUTORY AUTHORITY TO CERTIFY THE COMPETENCY OF ANY SMALL BUSINESS CONCERN AS TO CAPACITY AND CREDIT. "CAPACITY" MEANS THE OVERALL ABILITY OF A PROSPECTIVE SMALL BUSINESS CONTRACTOR TO MEET QUALITY, QUANTITY, AND TIME REQUIREMENTS OF A PROPOSED CONTRACT AND INCLUDES ABILITY TO PERFORM, ORGANIZATION, EXPERIENCE, TECHNICAL KNOWLEDGE, SKILLS,"KNOW-HOW," TECHNICAL EQUIPMENT, AND FACILITIES. CONTRACTING OFFICERS SHALL ACCEPT SBA CERTIFICATES OF COMPETENCY AS CONCLUSIVE OF A PROSPECTIVE CONTRACTOR'S RESPONSIBILITY AS TO CAPACITY * * *.' THE EXTENT OF THE AUTHORITY OF SBA TO MAKE CONCLUSIVE DETERMINATION OF THE COMPETENCY OF SMALL BUSINESS BIDDERS HAS BEEN THOROUGHLY CONSIDERED BY OUR OFFICE. IN 37 COMP. GEN. 676 WE HELD THAT THE CERTIFICATE OF COMPETENCY IS NOT CONTROLLING WHEN A SMALL BUSINESS BIDDER IS DETERMINED NOT TO BE RESPONSIBLE BECAUSE OF LACK OF INTEGRITY, BECAUSE HE IS NOT A MANUFACTURER OR REGULAR DEALER, OR BECAUSE HE HAS BEEN DEBARRED FOR LABOR LAW VIOLATIONS. ALSO, IN 38 COMP. GEN. 289 WE HELD THAT A SMALL BUSINESS BIDDER'S NONRESPONSIBILITY DUE TO UNSATISFACTORY PERFORMANCE OF PRIOR CONTRACTS NOT ATTRIBUTABLE TO HIS LACK OF CAPACITY OR CREDIT NEED NOT BE SUBMITTED TO SBA FOR DETERMINATION WHETHER A CERTIFICATE OF COMPETENCY SHOULD BE ISSUED. HOWEVER, IN 40 COMP. GEN. 106 WE HELD THAT EXPERIENCE QUALIFICATIONS IN AN INVITATION ARE MATTERS OF RESPONSIBILITY INCLUDED WITHIN THE DEFINITION OF "CAPACITY" IN ASPR 1 705.6. IN DECISION B- 152027, DECEMBER 4, 1963, 43 COMP. GEN. 465, WE HELD THAT THE USE OF SAMPLES UNDER AN INVITATION FOR THE PURPOSE OF QUALIFYING SMALL BUSINESS BIDDERS ON THE GROUND OF CAPABILITY IS INCOMPATIBLE WITH THE AUTHORITY OF SBA TO MAKE FINAL DETERMINATIONS AS TO THE CAPACITY OF SMALL BUSINESS CONCERNS UNDER THE CERTIFICATE OF COMPETENCY PROCEDURE.

THE QUESTION WHETHER THE PROCEDURE FOR THE PREQUALIFICATION OF BIDDERS, AS ADMINISTERED BY THE CORPS OF ENGINEERS, CONFLICTS WITH THE STATUTORY AUTHORITY OF SBA TO MAKE CONCLUSIVE DETERMINATIONS AS THE CAPACITY AND CREDIT OF SMALL BUSINESS CONCERNS TO PERFORM A SPECIFIC GOVERNMENT CONTRACT IS OF VITAL INTEREST TO THE AGENCY CHARGED WITH THE STATUTORY RESPONSIBILITY OF PROTECTING THE INTERESTS OF SMALL BUSINESS CONCERNS IN GOVERNMENT PROCUREMENT. IN RESPONSE TO OUR INQUIRY OF NOVEMBER 7, 1963, THE ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION, AFTER RECEIVING AND CONSIDERING THE PREQUALIFICATION PROCEDURE ADVISED IN LETTER OF DECEMBER 19, 1963, THAT:

"IT IS OBVIOUS, THEREFORE, THAT THE PREQUALIFICATION OF BIDDERS PROCEDURE CONTEMPLATES AN INITIAL DETERMINATION OF RESPONSIBILITY OF A BIDDER. YOUR DECISIONS HAVE RECOGNIZED THAT SUCH ELEMENTS OF RESPONSIBILITY AS A BIDDER'S OVER-ALL ABILITY TO MEET QUALITY, QUANTITY, AND TIME REQUIREMENTS OF A PROCUREMENT, INCLUDING ABILITY TO PERFORM, ORGANIZATION, TECHNICAL EXPERIENCE, KNOWLEDGE, SKILLS,"KNOW HOW," TECHNICAL EQUIPMENT AND FACILITIES ALL RELATE TO CAPACITY OF A BIDDER AND ARE WITHIN THE COVERAGE OF A CERTIFICATE OF COMPETENCY. SEE 38COMP. GEN. 289 AND B-151121, SEPTEMBER 13, 1963.

"MOREOVER, THE PREQUALIFICATION PROCEDURE EMPLOYED BY THE CORPS OF ENGINEERS FURTHER CONTEMPLATES THE ESTABLISHMENT OF A BIDDER'S CAPACITY TO PERFORM IN STATED MONETARY AMOUNTS. A BIDDER'S TOTAL AMOUNT CAPACITY IS DETERMINED AND EXPRESSED IN MONETARY AMOUNTS. THE BIDDER'S CURRENT CAPACITY IS DETERMINED BY SUBTRACTING HIS CURRENT COMMITMENTS FROM HIS TOTAL ANNUAL CAPACITY. A BIDDER'S FINANCIAL CAPACITY, WHICH INCLUDES NET WORKING CAPITAL PLUS CREDIT TIME, MUST EQUAL 15 PERCENT OF HIS TOTAL ANNUAL CAPACITY. FOR EXAMPLE, IF A BIDDER HAS AN AVERAGE PLACEMENT CAPACITY OF $15 MILLION ANNUALLY AND HIS TOTAL AVAILABLE FUNDS ARE $1,500,000 THEN HIS TOTAL ANNUAL PLACEMENT CAPACITY WOULD BE REDUCED TO $10 MILLION TO AGREE WITH HIS FINANCIAL CAPACITY. THIS PROCEDURE, THEREFORE, ALSO CONTEMPLATES A DETERMINATION AS TO THE FINANCIAL CAPACITY AND CREDIT OF A BIDDER WHICH IS CLEARLY WITHIN THE SCOPE OF THE COC PROCEDURE.

"WE ARE, THEREFORE, OF THE OPINION THAT THE FINAL DETERMINATION OF THE RESPONSIBILITY OF A SMALL BUSINESS CONCERN AS TO "CAPACITY AND CREDIT" TO PERFORM A PARTICULAR PROCUREMENT RESTS WITH THIS AGENCY AND CANNOT BE THWARTED BY THE SIMPLE EXPEDIENT OF REFUSING TO PLACE A SMALL BUSINESS CONCERN ON THE PREQUALIFIED BIDDERS LIST. IN THE CASE OF A SMALL BUSINESS CONCERN, THE PREQUALIFICATION OF BIDDERS PROCEDURE IS IN DIRECT CONFLICT WITH SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT.'

SUBSEQUENT THERETO, WE MET WITH REPRESENTATIVES OF THE CORPS OF ENGINEERS AT THEIR REQUEST TO DISCUSS THE PREQUALIFICATION PROCEDURE AND ITS EFFECT UPON INTERESTED SMALL BUSINESS CONCERNS. THESE REPRESENTATIVES PRESENTED STRONG JUSTIFICATIONS FOR THE NEED FOR THE PROCEDURE IN CONTRACTING FOR MISSILE-SITE CONSTRUCTION WORK, AND REQUESTED THAT WE HOLD OUR DECISION IN ABEYANCE UNTIL THEY HAD AN OPPORTUNITY TO MEET WITH SBA OFFICIALS IN AN ATTEMPT TO DEVELOP MUTUALLY ACCEPTABLE PROCEDURES WHICH WOULD RESULT IN SMALL BUSINESS CONCERNS RECEIVING THE FULL PROTECTION GIVEN THEM UNDER THE SMALL BUSINESS ACT. BY LETTER DATED MAY 12, 1964, THE GENERAL COUNSEL OF SBA ADVISED US OF THE POSITION OF SBA, PRESUMABLY IN THE LIGHT OF ITS DISCUSSION WITH THE CORPS OF ENGINEERS. HIS COMMENTS WERE AS FOLLOWS:

"SINCE THE PURPOSE OF THE PREQUALIFICATION LIST IS TO ELIMINATE CONCERNS WITH THE PROCURING AGENCY DEEMS NOT TO POSSESS THE REQUISITE CAPACITY AND/OR CREDIT, THE USE OF SUCH LIST CANNOT CIRCUMVENT THE RIGHT GRANTED TO SMALL BUSINESS CONCERNS BY SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT TO HAVE THE QUESTION OF THEIR CAPACITY AND CREDIT DETERMINED BY THE SMALL BUSINESS ADMINISTRATION, WITH SUCH DETERMINATION CONCLUSIVE ON THE CONTRACTING OFFICER. THE COMMENTS TO OUR LETTER OF DECEMBER 19, 1963, TO YOU CONCERNING THIS ASPECT OF THE ISSUE ARE REAFFIRMED.

"HOWEVER, WE BELIEVE THAT THE QUESTION OF THE PROPRIETY OF THE USE OF THE PREQUALIFICATION LIST, INSOFAR AS SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT IS CONCERNED, CAN BE RESOLVED BY ADOPTION OF A PROCEDURE SIMILAR TO THAT IN EFFECT AT THE DEFENSE CLOTHING AND TEXTILE SUPPLY CENTER. WHEN THAT CENTER PROPOSES TO REFUSE A SMALL BUSINESS CONCERN THE RIGHT TO BID FOR REASONS RELATED TO CAPACITY OR CREDIT, IT REQUESTS THE RECOMMENDATION OF THE APPROPRIATE SMALL BUSINESS ADMINISTRATION REGIONAL OFFICE AS TO THE RESPONSIBILITY OF THE BIDDER. IF OUR REGIONAL OFFICE STATES THAT THE CONCERN APPEARS TO HAVE THE REQUISITE CAPACITY OR CREDIT,THE CONCERN IS PERMITTED TO SUBMIT A BID.

"THIS ACTION BY OUR REGIONAL OFFICE IS NOT A CERTIFICATE OF COMPETENCY AND DOES NOT PRECLUDE THE PROCURING AGENCY, AFTER BIDS ARE OPENED, FROM PROPOSING TO REJECT A CONCERN FOR LACK OF RESPONSIBILITY UNDER ASPR 1- 903. HOWEVER, IF SUCH REJECTION IS PROPOSED, THE CERTIFICATE OF COMPETENCY PROVISIONS OF SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT AS IMPLEMENTED BY ASPR 1-705.6 AND SECTION 124.16 OF SBA REGULATIONS WOULD BECOME APPLICABLE AND THE REFERRAL TO SBA AS PROVIDED BY THESE PROVISIONS MUST BE MADE.

"WE DO NOT PERCEIVE THAT THE APPLICABLE REGULATIONS CONTEMPLATE THE UTILIZATION OF THE CERTIFICATE OF COMPETENCY PROCEDURE PRIOR TO THE DETERMINATION OF THE LOW BIDDER. FOR THIS REASON, WE DO NOT BELIEVE A DENIAL PRIOR TO BIDDING WOULD PRECLUDE A CONTRACTING OFFICER FROM CONDUCTING A PREAWARD SURVEY AND DETERMINING THAT THE LOW BIDDER LACKS RESPONSIBILITY IN VIEW OF THE FACTS AS THEY THEN EXIST REGARDLESS OF ANY DETERMINATION MADE PREVIOUSLY, I.E., PRIOR TO BIDDING.

"MOREOVER, IT IS NOT ADMINISTRATIVELY FEASIBLE FOR THIS AGENCY TO PROCESS A CERTIFICATE OF COMPETENCY UNTIL BIDS ARE OPENED AND THE IDENTITY OF THE LOWEST BIDDER ASCERTAINED. AMONG THE REASONS THEREFOR IS THAT WE MUST CONSIDER THE TOTALITY OF THE FACTS, INCLUDING THE PRICE, SUPPLIERS, METHOD OF PERFORMANCE, ETC., AND THESE FACTORS MAY NOT BECOME SUFFICIENTLY IDENTIFIABLE PRIOR TO THE PREPARATION OR MAKING OF THE BID. WE SEE NO REASON WHY AN ARRANGEMENT SIMILAR TO THAT UTILIZED BY THE DEFENSE SUPPLY AGENCY CANNOT BE ADOPTED IN CONNECTION WITH THE PREQUALIFICATION OF BIDDERS PROCEDURE PROPOSED BY THE CORPS.'

THE QUALIFIED MANUFACTURERS LIST PROCEDURE UTILIZED BY THE DEFENSE CLOTHING AND TEXTILE SUPPLY CENTER (DCTSC), REFERRED TO ABOVE, HAS BEEN SUMMARIZED FOR OUR USE BY HEADQUARTERS, DEFENSE SUPPLY AGENCY, AS FOLLOWS:

"2. THE QML UTILIZED BY THE DEFENSE CLOTHING AND TEXTILE SUPPLY CENTER DOES NOT PERTAIN TO ANY SPECIFIC GOVERNMENT CONTRACT. IT IS A LIST OF POTENTIAL BIDDERS WHO HAVE BEEN PRE-QUALIFIED TO BID ON PROCUREMENTS INVOLVING ITEMS WITHIN SPECIFIC GROUPS. EXCEPT IN THE CASE OF A POSSIBLE COINCIDENCE, NO SPECIFIC PROCUREMENTS ARE EITHER OUTSTANDING OR CONTEMPLATED WHEN THE APPLICANT IS QUALIFIED FOR PLACEMENT ON THE LIST. SINCE ANY EVALUATION OF PLANT CAPACITY AND CREDIT CAN BE MADE ONLY IN RELATION TO A SPECIFIC QUANTITY OF A SPECIFIC ITEM TO BE DELIVERED WITHIN A SPECIFIC TIME, NEITHER THE APPLICANT'S ABILITY TO MANUFACTURE ANY PARTICULAR QUANTITY NOR HIS SPECIFIC FINANCIAL CAPACITY IS CONSIDERED IN THE QUALIFICATION PROCEDURE. IN ADDITION TO SATISFYING REQUIREMENTS WHOLLY UNRELATED TO "CAPACITY AND CREDIT," IT IS SUFFICIENT IF THE FIRM HAS MADE A PRODUCTION RUN OF A SIMILAR ITEM OF LIKE QUALITY WITHIN THE PERTINENT PERIOD, STILL HAS ADEQUATE FACILITIES FOR SUCH A PRODUCTION RUN, AND HAS ADEQUATE FINANCES TO REMAIN IN BUSINESS.

"3. ONLY THOSE FIRMS WHICH ARE ON THE QML FOR THE PERTINENT GROUP AT THE TIME OF BID OPENING ARE AUTHORIZED TO BID. ONLY THOSE FIRMS ARE FURNISHED INVITATIONS FOR BIDS. IF A FIRM WHICH IS NOT ON THE LIST SHOULD MANAGE TO OBTAIN THE REQUISITE DOCUMENTS AND SUBMIT A BID, IT WOULD BE DISREGARDED.

"4. AFTER BID OPENING, THE CAPACITY AND CREDIT OF EVERY QUALIFIED BIDDER IN LINE FOR AWARD IS EVALUATED IN TERMS OF HIS ABILITY TO COMPLY WITH THE REQUIREMENTS OF THE PARTICULAR PROCUREMENT. BEFORE THE BID OF ANY AUTHORIZED SMALL BUSINESS BIDDER IS REJECTED FOR CAPACITY OR CREDIT, THE MATTER IS REFERRED TO THE SMALL BUSINESS ADMINISTRATION FOR APPLICATION OF THE COC PROCEDURE. IN THE EVENT THE SBA ISSUES A COC, IT IS HONORED.'

THIS PROCEDURE, IN ONE IMPORTANT ASPECT, IS DIFFERENT FROM THE ONE EMPLOYED BY THE CORPS OF ENGINEERS. THE DCTSC PROCEDURE DOES NOT PERTAIN TO ANY SPECIFIC GOVERNMENT PROCUREMENT BUT, RATHER, PROVIDES FOR THE QUALIFICATION OF INTERESTED FIRMS FOR PARTICULAR ITEMS OF CLOTHING PROCUREMENT WITHOUT REFERENCE TO ANY SPECIFIC CONTEMPLATED CONTRACTS. THE CORPS OF ENGINEERS PROCEDURE, ON THE OTHER HAND, HAS REFERENCE TO THE QUALIFICATIONS OF A PROSPECTIVE BIDDER TO PERFORM A PARTICULAR CONSTRUCTION CONTRACT. SBA IS AUTHORIZED BY 15 U.S.C. 637 (B) (7) TO CERTIFY THE COMPETENCY OF ANY SMALL BUSINESS CONCERN "TO PERFORM A SPECIFIC GOVERNMENT CONTRACT.' THIS CERTIFICATION AUTHORITY OF SBA SIGNIFICANTLY LIMITS THE AUTHORITY OF THE CONTRACTING OFFICER IN DETERMINING THE RESPONSIBILITY OF A SMALL BUSINESS BIDDER TO COMPETE EQUALLY WITH OTHER BIDDERS FOR A SPECIFIC GOVERNMENT CONTRACT. IN B- 151407, DATED SEPTEMBER 25, 1963, 43 COMP. GEN. 298, WE HELD:

"IT IS WELL SETTLED THAT THE DETERMINATION OF A BIDDER'S RESPONSIBILITY INVOLVES THE EXERCISE OF A CONSIDERABLE RANGE OF DISCRETION, AND OUR OFFICE HAS CONSISTENTLY ADHERED TO THE RULE THAT THE ADMINISTRATIVE DETERMINATION WILL NOT BE QUESTIONED UNLESS ARBITRARY, CAPRICIOUS OR NOT BASED ON SUBSTANTIAL EVIDENCE. 38 COMP. GEN. 131; 37 COMP. GEN. 430, 435. HOWEVER, WHERE, AS HERE, THE BIDDER IS A SMALL BUSINESS CONCERN, THE CONTRACTING OFFICER'S DETERMINATION OF RESPONSIBILITY IS SUBJECT, SO FAR AS CONCERNS CAPACITY AND CREDIT TO THE AUTHORITY OF THE SMALL BUSINESS ADMINISTRATION UNDER SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT, PUBLIC LAW 85-536, 15 U.S.C. 637 (B) (7) TO CERTIFY TO GOVERNMENT PROCUREMENT OFFICERS WITH RESPECT TO THE CAPACITY AND CREDIT OF A SMALL BUSINESS TO PERFORM A SPECIFIC GOVERNMENT PROCUREMENT CONTRACT. UNDER THE TERMS OF THE STATUTORY PROVISION THE PROCUREMENT OFFICERS OF THE GOVERNMENT ARE REQUIRED TO ACCEPT THE SBA CERTIFICATION AS CONCLUSIVE. THE TERM "CAPACITY AND CREDIT" HAS BEEN DEFINED AS THE OVER-ALL ABILITY OF THE BIDDER TO MEET QUALITY, QUANTITY, AND TIME REQUIREMENTS OF THE PROCUREMENT, INCLUDING ABILITY TO PERFORM, ORGANIZATION, TECHNICAL EXPERIENCE, KNOWLEDGE, SKILLS,"KNOW-HOW," TECHNICAL EQUIPMENT, AND FACILITIES. SEE ASPR 1 705.6 (A); 38 COMP. GEN. 864. IN SHORT, THE CERTIFICATE IS CONCLUSIVE AS TO WHETHER THE BIDDER CAN PERFORM.'

WE, THEREFORE, ARE OF THE OPINION THAT THE PREQUALIFICATION PROCEDURE OF THE CORPS OF ENGINEERS INSOFAR AS IT RELATES TO SPECIFIC GOVERNMENT PROCUREMENTS IS INCONSISTENT WITH THE STATUTORY AUTHORITY OF SBA CITED ABOVE UNLESS AMENDED TO PROVIDE FOR A PROCEDURE SUCH AS SET OUT IN THE SECOND PARAGRAPH OF THE ABOVE-QUOTED LETTER OF MAY 12, FROM THE SBA GENERAL COUNSEL.