B-157629, NOV. 18, 1965

B-157629: Nov 18, 1965

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TO MALAKER CORPORATION: FURTHER REFERENCE IS MADE TO YOUR TELEGRAM OF SEPTEMBER 8. INCLUDED ARE 11 FIRST ARTICLES. THE PROCUREMENT WAS A 100-PERCENT SET-ASIDE FOR SMALL BUSINESS CONCERNS. UPON A TECHNICAL EVALUATION IT WAS FOUND THAT THE PROPOSALS OF THE MALAKER CORPORATION. WERE TECHNICALLY ACCEPTABLE. IT IS REPORTED THAT IN VIEW OF THE LICENSING ARRANGEMENT. INVITATION FOR BIDS NO. 41-608-65-1008 WAS ISSUED ON JULY 6. TO THE THREE COMPANIES WHOSE TECHNICAL PROPOSALS WERE DETERMINED TO BE ACCEPTABLE UNDER STEP ONE. THE FOLLOWING THREE BIDS WERE RECEIVED AND OPENED ON AUGUST 13. YOU ALLEGED THAT D-VELCO WAS NOT A SMALL BUSINESS CONCERN. WAS IN FACT SUBMITTING A BID DICTATED BY A "BIG BUSINESS.

B-157629, NOV. 18, 1965

TO MALAKER CORPORATION:

FURTHER REFERENCE IS MADE TO YOUR TELEGRAM OF SEPTEMBER 8, 1965, AND SUBSEQUENT CORRESPONDENCE, PROTESTING AGAINST THE PROPOSED AWARD OF A CONTRACT TO D-VELCO MANUFACTURING OF ARIZONA BY THE KELLY AIR FORCE BASE, TEXAS, PURSUANT TO DEPARTMENT OF THE AIR FORCE INVITATION NO. 41-608-65- 1008.

AS PART OF A TWO-STEP PROCUREMENT THE SAN ANTONIO AIR MATERIEL AREA (SAAMA), KELLY AIR FORCE BASE, TEXAS, ISSUED A REQUEST FOR TECHNICAL PROPOSALS FOR THE MANUFACTURE OF 13 ITEMS PERTAINING TO F-101/102/106 CLOSED CYCLE INFRARED CELL COOLER SYSTEMS. INCLUDED ARE 11 FIRST ARTICLES, 1,421 PRODUCTION ARTICLES, TWO DEPOT AEROSPACE GROUND EQUIPMENT (AGE), 174 SETS OF FIELD LEVEL AGE, INITIAL SPARE PARTS AND DATA. THE PROCUREMENT WAS A 100-PERCENT SET-ASIDE FOR SMALL BUSINESS CONCERNS. UPON A TECHNICAL EVALUATION IT WAS FOUND THAT THE PROPOSALS OF THE MALAKER CORPORATION, D-VELCO MANUFACTURING OF ARIZONA AND KECO INDUSTRIES, INC., WERE TECHNICALLY ACCEPTABLE. D-VELCO PROPOSED TO PROVIDE A COOLING SYSTEM MANUFACTURED BY ITSELF UNDER A LICENSING AGREEMENT WITH THE GARRETT CORPORATION, A LARGE BUSINESS CONCERN. IT IS REPORTED THAT IN VIEW OF THE LICENSING ARRANGEMENT, THE CONTRACTING OFFICER ON JUNE 14, 1965, IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH 1-703 (B) (2) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) REQUESTED THE LOS ANGELES SMALL BUSINESS ADMINISTRATION (SBA) REGIONAL OFFICE TO DETERMINE D-VELCO'S SMALL BUSINESS STATUS. ON JUNE 29, 1965, THE SBA NOTIFIED THE CONTRACTING OFFICER THAT D-VELCO HAD BEEN DETERMINED TO BE A SMALL BUSINESS CONCERN.

UNDER STEP TWO, INVITATION FOR BIDS NO. 41-608-65-1008 WAS ISSUED ON JULY 6, 1965, TO THE THREE COMPANIES WHOSE TECHNICAL PROPOSALS WERE DETERMINED TO BE ACCEPTABLE UNDER STEP ONE. THE FOLLOWING THREE BIDS WERE RECEIVED AND OPENED ON AUGUST 13, 1965: (BID "A" INCLUDES THE ,CORRECTION OF DEFICIENCIES" CLAUSE).

CHART

D-VELCO BID A $4,874,865

B 4,739,614

MALAKER A 5,136,018

B 4,982,646

KECO A 9,456,018

B 9,087,543

IN A LETTER AND TELEGRAM DATED AUGUST 16, 1965, TO THE CONTRACTING OFFICE, YOU PROTESTED AGAINST THE MAKING OF ANY AWARD TO D-VELCO. YOU ALLEGED THAT D-VELCO WAS NOT A SMALL BUSINESS CONCERN, BUT WAS IN FACT SUBMITTING A BID DICTATED BY A "BIG BUSINESS," GARRETT CORPORATION, THROUGH A LICENSING AGREEMENT. BY LETTER DATED AUGUST 17, 1965, YOU FURTHER PROTESTED AGAINST ANY CONTRACT AWARD BEING MADE TO D-VELCO AND YOU CONTEND THAT D-VELCO WAS NONRESPONSIVE TO THE INVITATION FOR BIDS BECAUSE THAT FIRM DID NOT QUALIFY AS A MANUFACTURER WITHIN THE MEANING OF THE WALSH-HEALEY PUBLIC CONTRACTS ACT, 41 U.S.C. 35. YOU ALSO CONTENDED THAT D-VELCO WAS NOT A RESPONSIBLE BIDDER BECAUSE IT DID NOT QUALIFY AS A MANUFACTURER OF CRYOGENIC REFRIGERATORS.

THE RECORD INDICATES THAT ON AUGUST 20, 1965, SAAMA REQUESTED THE LOS ANGELES SBA REGIONAL OFFICE TO REVERIFY THAT D-VELCO QUALIFIED ASA SMALL BUSINESS CONCERN AS OF AUGUST 13, 1965, THE BID OPENING DATE; THAT THE SBA REGIONAL OFFICE REAFFIRMED ITS PRIOR DETERMINATION THAT D VELCO IS A SMALL BUSINESS CONCERN FOR THE PURPOSE OF THIS PROCUREMENT; THAT THE SIZE DETERMINATION MADE BY THE SBA REGIONAL OFFICE OF D-VELCO WAS APPEALED BY YOUR FIRM AND KECO INDUSTRIES INC., TO THE SBA SIZE APPEALS BOARD. BY A FINDING AND DECISION OF OCTOBER 2, 1965, THE SIZE APPEALS BOARD DETERMINED THAT D-VELCO QUALIFIES AS A SMALL BUSINESS CONCERN FOR GOVERNMENT PROCUREMENT OF CLOSED CYCLE CRYOGENIC REFRIGERATOR COOLING SYSTEMS FOR FIGHTER AIRCRAFT. YOUR FIRM AND KECO INDUSTRIES, INC., REQUESTED THE SBA SIZE APPEALS BOARD TO RECONSIDER ITS DECISION OF OCTOBER 2, 1965, AND ON OCTOBER 29, 1965, THAT BOARD AFFIRMED ITS DECISION OF OCTOBER 2, 1965.

THE RECORD INDICATES THAT ON AUGUST 23, 1965, THE PHOENIX CONTRACT MANAGEMENT DISTRICT WAS REQUESTED BY THE CONTRACTING OFFICER TO CONDUCT A FACILITIES CAPABILITY SURVEY ON D-VELCO; THAT THE REPORT OF THE SURVEY WAS AFFIRMATIVE IN ALL AREAS, SUCH AS TECHNICAL, PRODUCTION AND FINANCIAL CAPABILITY, QUALITY ASSURANCE, PURCHASING AND SUBCONTRACTING AND PERFORMANCE RECORD. IT IS REPORTED THAT IN LIGHT OF THE PROTESTS FILED BY YOUR FIRM AND THE TESTIMONY OF VARIOUS PARTIES BEFORE THE SBA SIZE APPEALS BOARD, THE CONTRACTING OFFICE DIRECTED THE PHOENIX CONTRACT MANAGEMENT DISTRICT TO VERIFY ITS PREVIOUS FINDINGS AS TO THE CAPABILITIES OF D-VELCO TO PERFORM THE PROPOSED CONTRACT. IN A REPORT DATED OCTOBER 8, 1965, THE FACILITY CAPABILITY SURVEY TEAM REAFFIRMED THE CONCLUSIONS STATED IN THE PREVIOUS REPORT AND IT CONCLUDED THAT D VELCO'S PLAN OF OPERATION AS IT RELATES TO BOTH PREPRODUCTION AND PRODUCTION PHASES IS ESSENTIALLY SOUND AND OFFERS AN EXCELLENT BASIS FOR SATISFACTORY CONTRACT PERFORMANCE.

IT IS REPORTED THAT ON SEPTEMBER 7, 1965, THE OFFICE OF THE SECRETARY OF THE AIR FORCE REQUESTED THE DEPARTMENT OF LABOR TO MAKE A FINAL DETERMINATION ON D-VELCO'S ELIGIBILITY AS A MANUFACTURER UNDER THE WALSH- HEALEY PUBLIC CONTRACTS ACT OF PURPOSES OF AN AWARD OF THIS PROCUREMENT. BY LETTER DATED SEPTEMBER 15, 1965, THE DEPARTMENT OF LABOR, WAGE AND HOUR AND PUBLIC CONTRACTS DIVISIONS, NOTIFIED THE AIR FORCE THAT "D-VELCO MANUFACTURING COMPANY IS ELIGIBLE TO BE AWARDED THE CONTRACT UNDER THE WALSH-HEALEY PUBLIC CONTRACTS ACT.'

NO AWARD HAS BEEN MADE, BUT THE CONTRACTING OFFICE CONTEMPLATES MAKING AN AWARD TO D-VELCO. THE CONTRACTING OFFICER HAS DETERMINED THAT D-VELCO IS A RESPONSIBLE PROSPECTIVE CONTRACTOR WITHIN THE MEANING OF ASPR 1-902, AND THAT ITS BID, WHICH IT IS REPORTED HAS BEEN VERIFIED BY THE CORPORATION AS BEING CORRECT AS TO PRICE, IS RESPONSIVE TO THE REQUIREMENTS OF THE INVITATION FOR BIDS. THE DEPARTMENT OF AIR FORCE STATES THAT IN VIEW OF THE MANY RULINGS AND DECISIONS ALL ESTABLISHING THE ABILITY OF D-VELCO TO PERFORM THE CONTEMPLATED CONTRACT, ITS RECOMMENDATION IS THAT THE PROCUREMENT AGENCY BE AUTHORIZED TO PROCEED WITH THE AWARD TO D-VELCO.

IN YOUR LETTER OF OCTOBER 5, 1965, YOU STATE THAT D-VELCO IS A SMALL MACHINE SHOP AND THAT IT HAS HAD NO EXPERIENCE IN THE REFRIGERATION BUSINESS. YOU ALLEGE THAT D-VELCO COULD NOT POSSIBLY MANUFACTURE THE SOPHISTICATED AND COMPLICATED CRYOGENIC COOLER WITHOUT AN AFFILIATION WITH THE GARRETT CORPORATION, A BIG BUSINESS CONCERN WHICH, YOU STATE, INDUCED D-VELCO TO SUBMIT A BID ON THE COOLERS. YOU CONTEND THAT D-VELCO WAS NONRESPONSIVE TO THE INVITATION FOR BIDS BECAUSE THE FIRM DOES NOT QUALIFY AS A MANUFACTURER OF CRYOGENIC COOLERS OF THE JOULE-THOMSON DESIGN. IN A LETTER DATED OCTOBER 11, 1965, YOUR ATTORNEY CONTENDS THAT THE DEPARTMENT OF LABOR'S FINDING THAT D-VELCO IS A MANUFACTURER OF CRYOGENIC COOLERS OF THE JOULE THOMSON DESIGN WAS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE AND IS GROSSLY ERRONEOUS. IN VIEW OF YOUR CONTENTION, THE DEPARTMENT OF LABOR WAS REQUESTED BY OUR OFFICE TO FURNISH ITS COMMENTS AND VIEWS ON YOUR ALLEGATIONS AS TO THE ELIGIBILITY OF D-VELCO TO QUALIFY AS A MANUFACTURER UNDER THE WALSH-HEALEY PUBLIC CONTRACTS ACT. ON OCTOBER 26, 1965, THE ADMINISTRATOR, WAGE AND HOUR AND PUBLIC CONTRACTS DIVISIONS, DEPARTMENT OF LABOR, ADVISED OUR OFFICE AS FOLLOWS:

"THE DEPARTMENT OF THE AIR FORCE REFERRED THIS MATTER TO THE WHPC DIVISIONS FOR DECISION AFTER RULING ON THE FIRM'S ELIGIBILITY. THE MATERIALS SUBMITTED FOR CONSIDERATION, WHICH INCLUDE TWO LETTERS FROM THE MALAKER CORPORATION, OFFERED NO BASIS FOR OVERRULING THE AGENCY'S FINDING THAT D-VELCO MANUFACTURING COMPANY HAD MADE ALL ARRANGEMENTS TO PERFORM THE CONTRACT UNDER CONSIDERATION. ON THIS BASIS, IT SATISFIED THE REQUIREMENTS FOR ELIGIBILITY AS A MANUFACTURER SET FORTH IN CIRCULAR LETTER 8-61, A COPY OF WHICH IS ENCLOSED.'

CIRCULAR LETTER NO. 8-61 DATED JULY 6, 1961, TO WHICH THE ADMINISTRATOR REFERS, IS AS FOLLOWS:

"1. MANUFACTURER

"REGULATIONS PART 50-201, SECTION 50-201.101 (A) DEFINES A MANUFACTURER AS "A PERSON WHO OWNS, OPERATES, OR MAINTAINS A FACTORY OR ESTABLISHMENT THAT PRODUCES ON THE PREMISES THE MATERIALS, SUPPLIES, ARTICLES OR EQUIPMENT REQUIRED UNDER THE CONTRACT AND OF THE GENERAL CHARACTER DESCRIBED BY THE SPECIFICATIONS.'

"A BIDDER WHO DESIRES TO QUALIFY FOR AN AWARD AS A MANUFACTURER MUST SHOW BEFORE THE AWARD THAT HE IS (1) AN ESTABLISHED MANUFACTURER OF THE PARTICULAR GOODS OR GOODS OF THE GENERAL CHARACTER SOUGHT BY THE GOVERNMENT OR (2) IF HE IS NEWLY ENTERING INTO SUCH MANUFACTURING ACTIVITY THAT HE HAS MADE ALL NECESSARY PRIOR ARRANGEMENTS FOR (A) MANUFACTURING SPACE, (B) EQUIPMENT, AND (C) PERSONNEL TO PERFORM THE MANUFACTURING OPERATIONS REQUIRED FOR THE FULFILLMENT OF THE CONTRACT. A NEW FIRM WHICH, PRIOR TO THE AWARD OF A CONTRACT, HAS MADE SUCH DEFINITE COMMITMENTS IN ORDER TO ENTER A MANUFACTURING BUSINESS WHICH WILL LATER QUALIFY IT SHOULD NOT BE BARRED FROM RECEIVING THE AWARD BECAUSE IT HAS NOT YET DONE ANY MANUFACTURING. THIS INTERPRETATION IS NOT INTENDED, HOWEVER, TO QUALIFY A FIRM WHOSE ARRANGEMENTS TO USE SPACE, EQUIPMENT OR PERSONNEL ARE CONTINGENT UPON THE AWARD OF A GOVERNMENT CONTRACT.'

THE SUPREME COURT AND OUR OFFICE HAVE TAKEN THE POSITION--- IN VIEW OF THE AUTHORITY AND RESPONSIBILITY OF THE DEPARTMENT OF LABOR UNDER THE WALSH-HEALEY PUBLIC CONTRACTS ACT--- THAT THE DETERMINATION OF A BIDDER'S QUALIFICATIONS AS A MANUFACTURER WITHIN THE MEANING OF THE ACT AND ITS IMPLEMENTING REGULATIONS IS PRIMARILY THE RESPONSIBILITY OF THE CONTRACTING OFFICER SUBJECT TO REVIEW BY THE DEPARTMENT OF LABOR WHICH IS THE FINAL REVIEW AUTHORITY. SEE ENDICOTT JOHNSON CORPORATION V. PERKINS, 317 U.S. 501; B-148715, JUNE 25, 1962; B 147877, MAY 10, 1962; B-145015, MAY 8, 1961; 21 COMP. GEN. 9; DEPARTMENT OF LABOR RULINGS AND INTERPRETATIONS NO. 3, APRIL 30, 1953. SINCE THE DEPARTMENT OF LABOR DID NOT FIND, UPON REVIEW, THAT ON THE BASIS OF THE EVIDENCE PRESENTED THE CONTRACTING OFFICER'S DETERMINATION WAS ERRONEOUS, WE, THEREFORE, CANNOT QUESTION THE ADMINISTRATIVE DETERMINATION THAT D-VELCO QUALIFIES AS A MANUFACTURER FOR THE PURPOSES OF THIS PROCUREMENT. WE ARE, HOWEVER, OF THE OPINION THAT THE RECORD CONTAINS SUFFICIENT EVIDENCE TO SUPPORT SUCH A DETERMINATION.

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

YOU CONTEND THAT THE DECISION OF THE SBA SIZE APPEALS BOARD TO THE EFFECT THAT D-VELCO HAS BEEN DETERMINED TO BE A SMALL BUSINESS CONCERN FOR PURPOSES OF THIS PROCUREMENT WAS GROSSLY ERRONEOUS IN LAW AND NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. YOU ALLEGE THAT IN DETERMINING THAT D- VELCO WAS A SMALL BUSINESS CONCERN, THE SBA SIZE APPEALS BOARD FAILED TO FOLLOW THE SMALL BUSINESS ADMINISTRATION REGULATIONS, PARTICULARLY SECTION 121.3-2 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATIONS, RELATING TO AFFILIATES. YOU STATE THAT THE BOARD HAS USED AN ERRONEOUS STANDARD IN INTERPRETING ITS OWN REGULATION AND IN DETERMINING WHETHER OR NOT AN AFFILIATION EXISTED BETWEEN D-VELCO AND THE GARRETT CORPORATION. IN HIS LETTER OF OCTOBER 11, 1965, YOUR ATTORNEY STATES:

"AT THE BOTTOM OF PAGE 3 OF ITS DECISION, THE BOARD MADE THE FOLLOWING VERY MATERIAL AND RELEVANT FINDING:

"* * * THERE IS NO DISPUTE THAT THE FIRST ELEVEN TEST ITEMS WILL BE COMPLETELY FABRICATED BY GARRETT.

"THAT FINDING ALONE UNDER THE SBA REGULATIONS PREVENTS D-VELCO FROM BEING A SMALL BUSINESS. SECTION 121.3-8 (B) OF THE SMALL BUSINESS SIZE STANDARDS REGULATIONS PROVIDES AS FOLLOWS:

* * * 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 OFFEROR, IS DEEMED TO BE A SMALL BUSINESS CONCERN WHEN:

"/1) IT IS A SMALL BUSINESS CONCERN WITHIN THE MEANING OF SUBSECTION (A) OF THIS SECTION (ITS NUMBER OF EMPLOYEES DOES NOT EXCEED 500 PERSONS), AND "/2) IN THE CASE OF GOVERNMENT PROCUREMENT RESERVED FOR OR INVOLVING THE PREFERENTIAL TREATMENT OF SMALL BUSINESS, 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.'

"AT THE HEARING BEFORE THE SMALL BUSINESS ADMINISTRATION BOARD, D VELCO'S REPRESENTATIVE TESTIFIED THAT D-VELCO HAD HAD NO EXPERIENCE IN THE TYPE OF PRODUCTION CALLED FOR UNDER THE IFB AND THAT IT COULD ONLY PERFORM THE CONTRACT WITH THE SUBSTANTIAL ASSISTANCE OF GARRETT, AN ADMITTED BIG BUSINESS. HE ALSO TESTIFIED THAT IT WAS IMPOSSIBLE FOR D VELCO TO DELIVER THE 11 FIRST ARTICLES UNLESS THEY WERE MANUFACTURED BY GARRETT (TR. 157, 158, 161, 249, 251).

"D-VELCO DID NOT DISCLOSE IN ITS BID OR AT ANY OTHER TIMES PRIOR TO THE HEARING BEFORE THE SMALL BUSINESS ADMINISTRATION BOARD THAT GARRETT WAS TO MANUFACTURE THE 11 FIRST ARTICLES (TR. 158). SECTION 121.3-8 (B) APPLIES WHEREVER A CONCERN IS NOT TO MANUFACTURE THE PROPOSED ITEMS. THE EVIDENCE BEFORE THE SMALL BUSINESS ADMINISTRATION BOARD NOT ONLY CLEARLY SHOWS THAT D-VELCO WAS NOT TO MANUFACTURE THE 11 FIRST ARTICLES, BUT THAT GARRETT WAS ALSO TO MANUFACTURE SUBSTANTIAL PARTS OF THE REMAINING UNITS (D-VELCO'S EXHIBIT 3 BEFORE THE SMALL BUSINESS ADMINISTRATION BOARD, A COPY OF WHICH IS ATTACHED).

"IT IS SUBMITTED THAT SINCE D-VELCO IS NOT TO MANUFACTURE THE 11 FIRST ARTICLES AND SINCE THEY ARE NOT TO BE MANUFACTURED BY A SMALL BUSINESS MANUFACTURER, D-VELCO IS NOT A SMALL BUSINESS FOR THE PURPOSES OF THE PROCUREMENT INVOLVED, WITHIN THE MEANING OF THE TERM AS DEFINED BY SMALL BUSINESS SIZE STANDARDS SECTION 121.3-8 (B) NOW IN EFFECT.

"THE ABOVE QUOTED FINDING ON PAGE 3 OF THE SMALL BUSINESS ADMINISTRATION BOARD'S DECISION THAT THERE IS NO DISPUTE BUT WHAT THE 11 FIRST ARTICLES ARE TO BE COMPLETELY FABRICATED BY GARRETT, MAKES THE RELATIONSHIP BETWEEN GARRETT AND D-VELCO SUCH THAT IT CANNOT BE CONDONED OR APPROVED IN LAW. THE IFB FOR THE PROCUREMENT INVOLVED SPECIFICALLY PROVIDES THAT THE 11 FIRST ARTICLES MUST BE MANUFACTURED BY THE CONTRACTOR. THAT IS PLAINLY SHOWN BY THE FOLLOWING PROVISION OF THE IFB:

"PART III - FIRST ARTICLE APPROVAL AND TEST REPORT:

"/A) THE CONTRACTOR WILL MANUFACTURE SIX (6) EACH ITEM NR. 1 AND FIVE (5) EACH ITEM NR. 2 (FSN 4120 NC402850P). THESE ITEMS WILL BE DESIGNATED AS FIRST ARTICLES.

"HENCE, IF D-VELCO WERE TO BE AWARDED SUCH A CONTRACT, THE PRODUCTION OF THE 11 FIRST ARTICLES BY GARRETT WOULD BE A CLEAR BREACH OF CONTRACT. * *

IN VIEW OF YOUR CONTENTIONS, OUR OFFICE REQUESTED THE SBA TO FURNISH US ITS COMMENTS AND VIEWS REGARDING YOUR PROTEST AGAINST THE FINDINGS AND DECISIONS OF THE SBA SIZE APPEALS BOARD, APPROVED OCTOBER 2, 1965, HOLDING THAT D-VELCO WAS A SMALL BUSINESS CONCERN FOR THE PURPOSE OF BIDDING ON A PROCUREMENT OF CLOSED CYCLE CRYOGENIC REFRIGERATION COOLING SYSTEMS. ITS LETTER OF NOVEMBER 4, 1965, THE ACTING GENERAL COUNSEL OF SBA ADVISED OUR OFFICE AS FOLLOWS:

"MALAKER CORPORATION CONTENDS THAT THE DECISION OF THE SIZE APPEALS BOARD WAS GROSSLY ERRONEOUS IN LAW AND NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. SIMILAR CONTENTIONS WERE MADE IN A REQUEST FOR RECONSIDERATION OF THE BOARD'S DECISION IN ITS LETTERS DATED OCTOBER 7 AND OCTOBER 11, 1965, COPIES OF WHICH ARE ENCLOSED. MALAKER CORPORATION ALSO ALLEGES THAT THE MAJORITY OPINION DID NOT CONSIDER ALL APPROPRIATE FACTORS AS REQUIRED BY SECTION 121.3-2 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION IN DETERMINING "AFFILIATION" IN THIS CASE. IT ALLEGES FURTHER THAT SINCE THE FIRST ELEVEN ITEMS WERE TO BE MANUFACTURED BY THE GARRETT CORPORATION (A LARGE BUSINESS CONCERN), D-VELCO DID NOT PROPOSE TO FURNISH PRODUCTS OF A SMALL BUSINESS MANUFACTURER AS REQUIRED BY SECTION 121.3-8 (B) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION AND WAS THEREFORE NOT A SMALL BUSINESS CONCERN. THESE CONTENTIONS WERE ALL CONSIDERED AND REJECTED BY THE SIZE APPEALS BOARD IN A DECISION APPROVED OCTOBER 29, 1965, A COPY OF WHICH IS ENCLOSED.'

THE RECORD INDICATES THAT YOUR FIRM REQUESTED THE SBA SIZE APPEALS BOARD TO RECONSIDER ITS DECISION OF OCTOBER 2, 1965. ON OCTOBER 29, 1965, THE BOARD DENIED YOUR MOTION FOR RECONSIDERATION AND IN ITS DECISION OF THAT DATE IT STATED AS FOLLOWS:

"THE MAJORITY OF THE BOARD IS NOT PERSUADED IT ERRED AS TO THE FACTS OR THE LAW AND AFFIRMS ITS ORIGINAL DECISION. THE MAJORITY DECISION TOOK INTO CONSIDERATION SECTION 121.3-2 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION IN MAKING ITS DECISION AND CONSIDERED ALL APPROPRIATE FACTORS HAVING A BEARING UPON THE QUESTION OF AFFILIATION.

"ALTHOUGH NOT PRESENTED BY THE APPELLANTS AND, THEREFORE, NOT EXPRESSLY STATED IN EITHER THE MAJORITY OR THE MINORITY OPINION, THE WRITERS OF BOTH HAD CONSIDERED THE EFFECT OF SECTION 121.3-8 (B) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION UPON THE ADMITTED FACT THAT D-VELCO PROPOSED TO HAVE THE "FIRST ARTICLES" OR "PREPRODUCTION MODELS" MANUFACTURED BY GARRETT CORPORATION. ALL MEMBERS OF THE BOARD, INCLUDING THE DISSENTING MEMBER, CONSIDERED THAT THERE WAS SUBSTANTIAL COMPLIANCE WITH SECTION 121.3-8 (B) OF THE REGULATION, SINCE, OF A TOTAL OF 1,433 COMPLETED UNITS TO BE MANUFACTURED UNDER THE PROPOSED CONTRACT, ONLY ELEVEN (OR 0.7 PERCENT) WERE TO BE MADE BY GARRETT CORPORATION AND THESE WERE FOR TESTING AND THIS ARRANGEMENT WAS PROPOSED BY D-VELCO SOLELY IN ORDER TO MEET THE SHORT DELIVERY SCHEDULE REQUIRED FOR THE FIRST ELEVEN ITEMS.'

IN A LETTER DATED NOVEMBER 2, 1965, YOUR ATTORNEY QUESTIONS THE CORRECTNESS OF THE BOARD'S DECISION OF OCTOBER 29, 1965. HE STATES THAT THE BOARD HAS OVERLOOKED THE SIGNIFICANCE OF THE FIRST ARTICLE CLAUSE OF THE INVITATION FOR BIDS WHICH PROVIDES THAT THE CONTRACTOR MUST MANUFACTURE THE 11 FIRST ARTICLES. YOU CONTEND THAT THE GARRETT CORPORATION, NOT D-VELCO, IS GOING TO MANUFACTURE THE 11 FIRST ARTICLES. CONTRARY TO YOUR CONTENTION THE DEPARTMENT OF THE AIR FORCE STATES IN ITS LETTER OF OCTOBER 20, 1965, AS FOLLOWS:

"* * * D-VELCO'S ORIGINAL PRODUCTION PLANS AS DISCLOSED AT THE SBA HEARINGS HAVE SINCE UNDERGONE SUBSTANTIAL REVISION. BY LETTER DATED OCTOBER 8, 1965, D-VELCO ADVISED SAAMA "... WE, AT D-VELCO, BELIEVE THAT DUE TO THE DELAY OF THE AWARD AND IN FURTHER CHECKING THAT WE CAN NOW ASSEMBLE AND ACCEPTANCE TEST THE BALANCE NINE (9) OF THE PREPRODUCTION UNITS. DURING THE ASSEMBLY AND TEST OF THE FIRST TWO PREPRODUCTION ITEMS, WE WILL HAVE OUR PEOPLE AT THE GARRETT CORPORATION, IN LOS ANGELES, WITNESSING THE ASSEMBLY AND TESTING OF THE FIRST TWO UNITS. WE HAVE ALSO REQUESTED OF THE GARRETT CORPORATION THAT DURING THE PHASES OF ASSEMBLY AND TESTING OF THE BALANCE NINE (9) UNITS THAT WE HAVE AT D-VELCO THEIR LIAISON ENGINEER AND ANY ONE OF THEIR PEOPLE WHO CAN HELP PREPARE OUR PEOPLE TO DO THE BEST POSSIBLE JOB FOR THE AIR FORCE. THE ELEVEN UNITS, IN THE WAY WE ARE PROPOSING, WE FEEL WILL BE TYPICAL IN MANUFACTURING, ASSEMBLY AND TESTING OF THE PREPRODUCTION UNITS.' IN ADDITION, D-VELCO INFORMED SBA, IN AN AFFIDAVIT DATED SEPTEMBER 20, 1965, AND SUBMITTED AT THE CLOSE OF THE SIZE APPEALS BOARD HEARINGS, THAT IT WOULD MANUFACTURE SOME PARTS FOR ALL UNITS, INCLUDING THE FIRST ELEVEN PREPRODUCTION UNITS. THE ABOVE PLAN FOR THE PRODUCTION OF PROTOTYPES IS ACCEPTABLE TO THE AIR FORCE AND CONSTITUTES SUBSTANTIAL COMPLIANCE WITH THE PROVISIONS OF THE FIRST ARTICLE CLAUSE OF THE IFB.'

UNDER 15 U.S.C. 637 (B) (6), SBA IS AUTHORIZED TO DETERMINE WHICH FIRMS WITHIN ANY INDUSTRY ARE TO BE DESIGNATED AS SMALL BUSINESS CONCERNS FOR PURPOSES OF GOVERNMENT PROCUREMENT. THIS PROVISION OF LAW FURTHER STATES THAT "OFFICES OF THE GOVERNMENT HAVING PROCUREMENT OR LENDING POWERS * * * 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.' REGULATIONS OF SBA, DEFINING A SMALL BUSINESS CONCERN, HAVE THE FORCE AND EFFECT OF LAW. OTIS STEEL PRODUCTS CORPORATION V. UNITED STATES, 316 F.2D 937. IN THE CASE OF SPRINGFIELD WHITE CASTLE COMPANY V. FOLEY, 230 F.SUPP. 77, 78 (1964), THE COURT, IN CONSIDERING AN ACTION TO DETERMINE WHETHER A DECISION BY SBA THAT THE PLAINTIFF WAS NOT A SMALL BUSINESS CONCERN WAS ERRONEOUS AND NOT SUPPORTED BY SUBSTANTIAL EVIDENCE, HELD IN PERTINENT PART:

"BEFORE EMBARKING ON A DISCUSSION OF THE FACTS IT SHOULD FIRST BE POINTED OUT THAT IF THE DETERMINATION OF THE ADMINISTRATOR IS SUPPORTED BY SUBSTANTIAL EVIDENCE, THEN THAT DECISION IS FINAL UNLESS ERRONEOUS AS A MATTER OF LAW. SEC. 1009, TITLE 5, U.S.C. IN THE PRESENT CASE THE PLAINTIFF DOES NOT QUARREL WITH THE VALIDITY OF THE REGULATIONS UNDER WHICH IT WAS DETERMINED THAT PLAINTIFF IS NOT A SMALL BUSINESS, BUT PLAINTIFF ASSERTS THAT THE FINDING OF THE ADMINISTRATOR IS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. WHILE THIS COURT MIGHT, IF MAKING THE ORIGINAL DETERMINATION, REACH A RESULT DIFFERENT THAN THAT REACHED BY THE ADMINISTRATOR, IF THE FINDING OF THE ADMINISTRATOR IS SUPPORTED BY SUBSTANTIAL EVIDENCE THEN THE FINDING OF THE ADMINISTRATOR MUST STAND AS FINAL. * * *"

INASMUCH AS IT APPEARS THAT THE SBA DETERMINATION THAT D-VELCO WAS A SMALL BUSINESS CONCERN WAS SUPPORTED BY SUBSTANTIAL EVIDENCE WE THINK ITS FINDING MUST BE CONSIDERED FINAL.

IN THE LIGHT OF THE HOLDINGS OF THE DEPARTMENT OF LABOR AND THE SBA, AS INDICATED IN THE PRECEDING PARAGRAPHS, WE FEEL THAT THE PROPOSED AWARD OF A CONTRACT TO D-VELCO MANUFACTURING OF ARIZONA PURSUANT TO THIS INVITATION IS JUSTIFIED AND, ACCORDINGLY, YOUR PROTEST MUST BE DENIED.