B-157203, DEC. 29, 1965

B-157203: Dec 29, 1965

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INC.: REFERENCE IS MADE TO YOUR LETTER OF JULY 6. STATING THAT IT IS YOUR UNDERSTANDING THAT REGULATIONS REQUIRE SUCH REFERRAL ON AWARDS IN EXCESS OF $10. THE LOW BID SUBMITTED BY ALTON IRON WORKS ON INVITATION FOR BIDS 104- 820-65 WAS REJECTED AS THE BIDDER WAS CONSIDERED NON RESPONSIBLE AS THEY FAILED TO MEET THE REQUIREMENTS OF ASPR 1 903.1/III). AWARD WAS MADE TO MCNALLY BROTHERS MACHINE AND GEAR COMPANY WHICH WAS THE LOWEST RESPONSIVE RESPONSIBLE BIDDER. "2. NINE WERE COMPLETED IN A DELINQUENT STATUS. TWO WERE TERMINATED FOR DEFAULT. FOUR WERE COMPLETED ON TIME. SIX IN PROCESS WERE DELINQUENT. IT WAS DETERMINED THAT THE LOW BIDDER WAS NON-RESPONSIBLE DUE TO PERFORMANCE AND THE UNSATISFACTORY PERFORMANCE WAS NOT DUE TO A LACK OF CREDIT OR CAPACITY. "5.

B-157203, DEC. 29, 1965

TO ALTON IRON WORKS, INC.:

REFERENCE IS MADE TO YOUR LETTER OF JULY 6, 1965, REFERENCE E-5, PROTESTING AGAINST THE AWARD OF CONTRACT MADE UNDER INVITATION FOR BIDS NO. 104-820-65/403), ISSUED BY THE UNITED STATES NAVY SHIPS PARTS CONTROL CENTER, MECHANICSBURG, PENNSYLVANIA. YOU ALSO PROTEST THE REJECTION OF YOUR BID WITHOUT REFERRAL TO THE SMALL BUSINESS ADMINISTRATION FOR A CERTIFICATE OF COMPETENCY, STATING THAT IT IS YOUR UNDERSTANDING THAT REGULATIONS REQUIRE SUCH REFERRAL ON AWARDS IN EXCESS OF $10,000, EXCEPT IN CASES OF FRAUD OR LACK OF INTEGRITY.

IN ITS REPORT DATED JULY 29, 1965, THE PROCURING ACTIVITY STATED:

"1. THE LOW BID SUBMITTED BY ALTON IRON WORKS ON INVITATION FOR BIDS 104- 820-65 WAS REJECTED AS THE BIDDER WAS CONSIDERED NON RESPONSIBLE AS THEY FAILED TO MEET THE REQUIREMENTS OF ASPR 1 903.1/III). AWARD WAS MADE TO MCNALLY BROTHERS MACHINE AND GEAR COMPANY WHICH WAS THE LOWEST RESPONSIVE RESPONSIBLE BIDDER.

"2. PRE-AWARD SURVEYS (ENCL. 3 AND 4) CONDUCTED BY INSPECTOR OF NAVAL MATERIAL, GARDEN CITY, LONG ISLAND, NEW YORK, ADVISED THAT, ALTHOUGH ALTON IRON WORKS HAS THE FINANCIAL, TECHNICAL, PRODUCTIVE AND QUALITATIVE CAPABILITY TO PERFORM ON THIS CONTRACT, PAST PERFORMANCE INDICATES THAT MANAGEMENT LACKS THE ABILITY TO MEET CONTRACT DELIVERY REQUIREMENTS.

"3. PERFORMANCE ON CONTRACTS PROGRESSED BY THE INSPECTION OFFICE (SEE ENCL. 4) INDICATES A CONTINUED LACK OF EFFORT AND PERSEVERANCE ON THE PART OF THE CONTRACTOR TO MAINTAIN A SATISFACTORY PERFORMANCE RECORD. TWENTY-FIVE CONTRACTS PROGRESSED BY INSMAT GARDEN CITY, NINE WERE COMPLETED IN A DELINQUENT STATUS; TWO WERE TERMINATED FOR DEFAULT; FOUR WERE COMPLETED ON TIME; SIX IN PROCESS WERE DELINQUENT; AND ON FOUR THE DELIVERY DUE DATE HAD NOT PASSED. INSMAT REPORT RECOMMENDED THAT NO AWARD BE MADE TO ALTON IRON WORKS.

"4. ON THE BASIS OF THE FOREGOING FACTS, IT WAS DETERMINED THAT THE LOW BIDDER WAS NON-RESPONSIBLE DUE TO PERFORMANCE AND THE UNSATISFACTORY PERFORMANCE WAS NOT DUE TO A LACK OF CREDIT OR CAPACITY.

"5. MR. HOFFBERG OF ALTON IRON WORKS CONTACTED THIS OFFICE BY PHONE AND WAS ADVISED THAT THEIR BID WAS REJECTED DUE TO UNSATISFACTORY PERFORMANCE (ASPR 1-903.1/III) ). IT WAS DETERMINED THAT THEIR UNSATISFACTORY PERFORMANCE WAS NOT DUE TO A LACK OF CREDIT OR CAPACITY; THEREFORE, THE CASE WAS NOT SUBMITTED TO THE SMALL BUSINESS ADMINISTRATION. MR. HOFFBERG ADVISED THAT HE WISHED TO PROTEST THIS DETERMINATION AND WAS INFORMED TO SUBMIT HIS PROTEST IN WRITING TO THIS OFFICE AS SOON AS POSSIBLE.'

THE ARMED SERVICES PROCUREMENT REGULATION (ASPR 1-903.1/III) ( PROVIDES THAT A PROSPECTIVE CONTRACTOR MUST:

"/III) HAVE A SATISFACTORY RECORD OF PERFORMANCE (CONTRACTORS WHO ARE SERIOUSLY DEFICIENT IN CURRENT CONTRACT PERFORMANCE, WHEN THE NUMBER OF CONTRACTS AND THE EXTENT OF DEFICIENCY OF EACH ARE CONSIDERED, SHALL, IN THE ABSENCE OF EVIDENCE TO THE CONTRARY OR CIRCUMSTANCES PROPERLY BEYOND THE CONTROL OF THE CONTRACTOR, BE PRESUMED TO BE UNABLE TO MEET THIS REQUIREMENT.) PAST UNSATISFACTORY PERFORMANCE, DUE TO FAILURE TO APPLY NECESSARY TENACITY OR PERSEVERANCE TO DO AN ACCEPTABLE JOB, SHALL BE SUFFICIENT TO JUSTIFY A FINDING OF NONRESPONSIBILITY AND IN THE CASE OF SMALL BUSINESS CONCERNS, SHALL NOT REQUIRE SUBMISSION OF THE CASE TO THE SMALL BUSINESS ADMINISTRATION ...'

IN OUR RECENT DECISION TO YOU, B-156663, DATED OCTOBER 11, 1965, CONCERNING AN ARMY PROCUREMENT, BUT OTHERWISE QUITE SIMILAR TO THE PRESENT MATTER, WE SET FORTH THE REASONS REQUIRING THE DENIAL OF YOUR PROTEST IN THAT CASE. THE CONCLUSION THERE REACHED IS EQUALLY APPLICABLE TO THE PROCUREMENT CONSIDERED HERE. THE CONTRACTING OFFICER IN THE ARMY CASE FOUND YOUR ORGANIZATION NONRESPONSIBLE DUE TO POOR PAST PERFORMANCE AND THE UNSATISFACTORY PERFORMANCE RECORD WAS FOUND NOT DUE TO LACK OF CREDIT OR CAPACITY, JUST AS THE NAVY CONTRACTING OFFICER CONCLUDED IN THE PRESENT CASE.

WE FIND NO BASIS FOR REACHING A DIFFERENT CONCLUSION IN THIS MATTER.

THE PERTINENT REGULATIONS RELATIVE TO REFERRAL TO THE SMALL BUSINESS ADMINISTRATION FOR ISSUANCE OF A CERTIFICATE OF COMPETENCY WHERE SMALL BUSINESSES ARE CONCERNED, ARE CONTAINED IN THE ARMED SERVICES PROCUREMENT REGULATIONS, ASPR 1-705.4 (B), AS FOLLOWS:

"1-705.4CERTIFICATES OF COMPETENCY.

"/A) SBA HAS STATUTORY AUTHORITY TO CERTIFY THE COMPETENCY OF ANY SMALL BUSINESS CONCERN AS TO CAPACITY AND CREDIT. "CAPACITY" MEANS THE OVER-ALL 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 OR THE ABILITY TO OBTAIN THEM. CONTRACTING OFFICERS SHALL ACCEPT SBA CERTIFICATES OF COMPETENCY AS CONCLUSIVE OF A PROSPECTIVE CONTRACTOR'S CAPACITY (SEE 1- 903.1 (II) AND 1-903.2) AND CREDIT (SEE 1 903.1 (I) (, UNLESS THE CONTRACTING OFFICER HAS SUBSTANTIAL DOUBT AS TO THE FIRM'S ABILITY TO PERFORM, IN WHICH CASE THE PROCEDURES IN PARAGRAPH (E) APPLY.

"/B) IF A BID OR PROPOSAL OF A SMALL BUSINESS CONCERN IS TO BE REJECTED SOLELY BECAUSE THE CONTRACTING OFFICER HAS FOUND THE CONCERN TO BE NONRESPONSIBLE AS TO CAPACITY OR CREDIT, SBA SHALL BE NOTIFIED OF THE CIRCUMSTANCES. IF A PARTIAL SET-ASIDE IS INVOLVED AND THE BID OF A SMALL BUSINESS CONCERN ON THE UNRESERVED PORTION IS TO BE REJECTED FOR LACK OF CAPACITY OR CREDIT AND THE SAME SMALL BUSINESS CONCERN IS ENTITLED TO CONSIDERATION ON THE RESERVED PORTION OF THE SET-ASIDE IF A CERTIFICATE OF COMPETENCY IS ISSUED BY THE SBA, THE ENTIRE QUANTITY OF THE PROCUREMENT (RESERVED AND UNRESERVED) FOR WHICH THAT SMALL BUSINESS CONCERN MAY BE ENTITLED, IF COMPETENT, SHALL BE REFERRED TO SBAAND THE REFERRAL PAPERS SO NOTED, IN WHICH EVENT SBA MAY CERTIFY THE SMALL BUSINESS CONCERN FOR THE MAXIMUM QUANTITY FOR WHICH IT IS ELIGIBLE UNDER THE PROCUREMENT. THE AWARD SHALL BE WITHHELD UNTIL SBA ACTION CONCERNING ISSUANCE OF A CERTIFICATE OF COMPETENCY OR UNTIL 15 WORKING DAYS AFTER SBA IS SO NOTIFIED, WHICHEVER IS EARLIER, SUBJECT TO THE FOLLOWING:

(I) THIS PROCEDURE IS NOT MANDATORY WHERE THE CONTRACTING OFFICER CERTIFIES IN WRITING THAT AWARD MUST BE MADE WITHOUT DELAY, INCLUDES THIS CERTIFICATION AND SUPPORTING INFORMATION IN THE CONTRACT FILE, AND PROMPTLY FURNISHES A COPY TO THE SBA REPRESENTATIVE.

(II) THIS PROCEDURE DOES NOT APPLY TO PROPOSED AWARDS NOT EXCEEDING $2,500, AND FOR PROPOSED AWARDS EXCEEDING $2,500, BUT NOT EXCEEDING $10,000, ITS USE IS WITHIN THE DISCRETION OF THE CONTRACTING OFFICER.

(III) THIS PROCEDURE DOES NOT APPLY WHERE THE CONTRACTING OFFICER HAS FOUND A SMALL BUSINESS CONCERN NONRESPONSIBLE FOR A REASON OTHER THAN LACK OF CAPACITY OR CREDIT. THUS, IT DOES NOT APPLY WHERE A CONCERN DOES NOT SATISFY THE CRITERIA OF RESPONSIBILITY IN 1-903.1 (IV), (V), AND (VI). WHERE THE CONTRACTING OFFICER DETERMINES THAT A CONCERN DOES NOT MEET THE REQUIREMENTS OF 1-903.1 (III) AS TO A SATISFACTORY RECORD OF PERFORMANCE, THE PROCEDURE IS MANDATORY ONLY IF THE UNSATISFACTORY RECORD OF PERFORMANCE WAS DUE SOLELY TO INADEQUATE CAPACITY OR CREDIT.

(IV) A DETERMINATION BY A CONTRACTING OFFICER THAT A SMALL BUSINESS CONCERN IS NOT RESPONSIBLE FOR REASONS OTHER THAN DEFICIENCIES IN CAPACITY OR CREDIT (E.G., LACK OF INTEGRITY, BUSINESS ETHICS, OR PERSISTENT FAILURE TO APPLY NECESSARY TENACITY OR PERSEVERANCE TO DO AN ACCEPTABLE JOB) MUST BE SUPPORTED BY SUBSTANTIAL EVIDENCE DOCUMENTED IN THE CONTRACT FILE. (SEE 1-904.)

(V) IF THE CONTRACTING OFFICER HAS ANY DOUBT AS TO WHETHER THE UNSATISFACTORY RECORD OF PERFORMANCE CAN REASONABLY BE ATTRIBUTED SOLELY TO LACK OF CAPACITY OR CREDIT, HE SHALL FORWARD THE MATTER TO HIGHER AUTHORITY WITHIN HIS DEPARTMENT FOR RESOLUTION. THE DECISION OF SUCH HIGHER AUTHORITY SHALL BE FINAL.'

THE REGULATIONS CLEARLY SHOW THAT REFERRAL TO THE SMALL BUSINESS ADMINISTRATION, IRRESPECTIVE OF AMOUNT INVOLVED, IS NOT REQUIRED WHERE LACK OF RESPONSIBILITY IS DETERMINED TO BE DUE TO REASONS OTHER THAN DEFICIENCIES IN CAPACITY OR CREDIT.

THE RECORD ACCOMPANYING THE ADMINISTRATIVE RECORD CONTAINS AMPLE EVIDENCE THAT YOUR FIRM, NOTWITHSTANDING ITS FINANCIAL SOLIDITY AND ITS CAPABILITY OF PERFORMING THE INSTANT PROCUREMENT, HAD A POOR RECORD OF PERFORMANCE ON TIME; THAT IT WAS CONSISTENTLY DELINQUENT IN ITS DELIVERIES.

IN RESPONSE TO OUR REQUEST, THE SMALL BUSINESS ADMINISTRATION EXPRESSED ITS OPINION THAT THE CAUSES FOR THE DELAY IN PERFORMANCE WERE ATTRIBUTABLE TO CAPACITY OR CREDIT AND DID NOT CONSTITUTE A LACK OF PERSEVERANCE, AND THE QUESTION OF COMPETENCY TO PERFORM THIS CONTRACT SHOULD HAVE BEEN SUBMITTED TO THEM FOR DETERMINATION. ENCLOSED WITH THE SMALL BUSINESS ADMINISTRATION REPORT WERE TWO RECENT SBA PLANT SURVEYS AND REPORTS ON PROCUREMENTS WHERE ALTON WAS CERTIFIED AS HAVING THE CAPACITY AND CREDIT TO PERFORM. THE REPORT ACCOMPANYING ONE OF THESE SURVEYS CONTAINS AN ANALYSIS OF CAUSES FOR DELAY IN 19 THEN CURRENT ALTON CONTRACTS. THE REPORT INDICATES THAT THERE WERE EXTENUATING CIRCUMSTANCES OR THAT THE DELAY IN DELIVERY WAS NOMINAL IN EACH INSTANCE. THESE CONTRACTS ARE AMONG THE 26 CONSIDERED BY THE CONTRACTING OFFICER IN HIS DETERMINATION OF LACK OF GOOD MANAGEMENT. THE SUPPORTING PAPERS ACCOMPANYING THE CONTRACTING OFFICER'S REPORT SHOW AN ENTIRELY DIFFERENT PICTURE AS TO THE DELAYS. FOR INSTANCE, ON CONTRACT NO. N163-12576, THE SBA PAPERS STATE: "COMPLETED 11/10/64 DUE 10/30/64. CONTRACTING OFFICER IS PROCESSING AN EXTENSION OF DELIVERY TIME FOR THE 10 DAY LATENESS CAUSED BY REWORKING" WHEREAS THE NAVY PAPERS SHOW THAT ALL MATERIALS DELIVERED UNDER THIS CONTRACT WERE REJECTED AND THE CONTRACT WAS TERMINATED FOR DEFAULT. ON CONTRACT NO. N195-16893, THE SBA PAPERS STATE "DUE 1/7/65. CONTRACT 50 PERCENT COMPLETE. SHIPMENTS WILL BE MADE ON TIME" WHEREAS THE NAVY PAPERS SHOW THAT ALTHOUGH THE DUE DATE OF DELIVERY WAS EXTENDED TO APRIL 8, 1965, FOR A MONETARY CONSIDERATION TO THE GOVERNMENT, NO DELIVERIES HAD BEEN MADE AS OF MAY 10, 1965. THIS SAME SITUATION OCCURRED WITH REGARD TO CONTRACT NO. N195-17083. THE SBA PAPERS STATE THAT THE INFORMATION CONCERNING THE 19 CONTRACTS WAS TAKEN FROM YOUR RECORDS. IN VIEW OF THE ABOVE WE MUST CONSIDER THE OPINION OF THE SMALL BUSINESS ADMINISTRATION AS SUBJECT TO QUESTION AS IT IS BASED ON ERRONEOUS INFORMATION. THE FAILURE OF YOUR RECORDS TO DISCLOSE A TRUE PICTURE OF DELIVERY PERFORMANCES, IN OUR OPINION, IS ATTRIBUTABLE TO POOR MANAGEMENT, AND IS NOT ATTRIBUTABLE TO LACK OF CAPACITY OR CREDIT. SINCE IT APPEARS THAT THE SMALL BUSINESS ADMINISTRATION VIEW IS SUBJECT TO QUESTION, AND SINCE THE CONTRACTING OFFICER'S VIEW REMAINS UNCONTROVERTED, WE MUST APPROVE THE DECISION OF THE CONTRACTING OFFICER FINDING YOUR FIRM NONRESPONSIBLE FOR REASONS OTHER THAN CAPACITY OR CREDIT.

ONE OF THE FACTORS IN DETERMINING THE RESPONSIBILITY OF A BIDDER IS HIS APPARENT ABILITY TO PERFORM IN ACCORDANCE WITH THE REQUIREMENTS SET OUT IN THE INVITATION. THE DETERMINATION OF THE PROSPECTIVE CONTRACTOR'S ABILITY TO PERFORM IS PRIMARILY THE FUNCTION OF THE ADMINISTRATIVE OFFICERS CONCERNED, AND IN THE ABSENCE OF ANY SHOWING OF BAD FAITH OR LACK OF REASONABLE BASIS THEREFOR, THERE IS NO BASIS UPON WHICH WE MAY OBJECT. COMP. GEN. 430, 435. THE PROJECTION OF BIDDER'S ABILITY TO PERFORM IF AWARDED A CONTRACT IS OF NECESSITY A MATTER OF JUDGMENT. WHILE SUCH JUDGMENT SHOULD BE BASED ON FACT AND SHOULD BE ARRIVED AT IN GOOD FAITH, IT MUST PROPERLY BE LEFT LARGELY TO THE SOUND ADMINISTRATIVE DISCRETION OF THE CONTRACTING OFFICERS INVOLVED, SINCE THEY ARE IN THE BEST POSITION TO ASSESS RESPONSIBILITY, THEY MUST BEAR THE MAJOR BRUNT OF ANY DIFFICULTIES EXPERIENCED BY REASON OF THE CONTRACTOR'S LACK OF ABILITY, AND THEY MUST MAINTAIN THE DAY TO DAY RELATIONS WITH THE CONTRACTOR ON BEHALF OF THE GOVERNMENT.

IN VIEW OF WHAT HAS BEEN SAID ABOVE, WE DO NOT BELIEVE THAT IT WAS NECESSARY TO REFER THE QUESTION AS TO YOUR RESPONSIBILITY TO THE SMALL BUSINESS ADMINISTRATION FOR ISSUANCE OF A CERTIFICATE OF COMPETENCY. THAT CONNECTION, ASPR 1-705.6 PROVIDES THAT WHERE A SMALL BUSINESS CONCERN DOES NOT MEET THE REQUIREMENT AS TO A SATISFACTORY RECORD OF PERFORMANCE, THE SMALL BUSINESS ADMINISTRATION MUST BE NOTIFIED AND AWARD WITHHELD PENDING ISSUANCE OF A CERTIFICATE OF COMPETENCY ONLY WHEN THE PREVIOUS UNSATISFACTORY RECORD OF PERFORMANCE WAS DUE SOLELY TO INADEQUATE CAPACITY OR CREDIT. HERE THE CONTRACTING OFFICER DETERMINED THAT YOUR UNSATISFACTORY RECORD OF PERFORMANCE WAS NOT ATTRIBUTABLE TO INADEQUATE CAPACITY OR CREDIT BUT RATHER TO YOUR FAILURE TO MAINTAIN AN EFFECTIVE PRODUCTION CONTROL AND PURCHASING SYSTEM TO ASSURE COMPLIANCE WITH THE DELIVERY SCHEDULE, AND WE CANNOT SAY THAT HIS DETERMINATION AS TO THE CAUSE OF YOUR PRIOR POOR PERFORMANCE WAS ERRONEOUS.