B-157981, JAN. 10, 1966

B-157981: Jan 10, 1966

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INC.: FURTHER REFERENCE IS MADE TO YOUR TELEGRAM AND LETTER OF NOVEMBER 5 AND 22. PERSISTENT LABOR SURPLUS AREA CONCERNS WHICH ARE ALSO SMALL BUSINESS CONCERNS. SUBSTANTIAL LABOR SURPLUS AREA CONCERNS WHICH ARE ALSO SMALL BUSINESS CONCERNS. SMALL BUSINESS CONCERNS WHICH ARE NOT LABOR SURPLUS AREA CONCERNS. IT WAS FURTHER PROVIDED THAT WITHIN EACH OF THE ABOVE GROUPS. IT WAS PROVIDED THAT THE SET-ASIDE QUANTITIES WOULD BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED FOR THE NON-SET-ASIDE PORTION. ADJUSTED TO REFLECT TRANSPORTATION AND OTHER COST FACTORS WHICH WERE CONSIDERED IN EVALUATING BIDS ON THE NON-SET ASIDE PORTION. " AND "SMALL BUSINESS CONCERN" WERE INCLUDED IN THE RFP. A CONCERN SHALL BE DEEMED TO PERFORM A SUBSTANTIAL PROPORTION OF A CONTRACT IN PERSISTENT LABOR SURPLUS AREAS IF THE COSTS THAT THE CONCERN WILL INCUR ON ACCOUNT OF MANUFACTURING OR PRODUCTION PERFORMED IN SUCH AREAS (BY ITSELF OR ITS FIRST-TIER SUBCONTRACTORS) AMOUNT TO MORE THAN 50 PERCENT OF THE CONTRACT PRICE. "/II) "SUBSTANTIAL LABOR SURPLUS AREA CONCERN" MEANS A CONCERN THAT AGREES TO PERFORM.

B-157981, JAN. 10, 1966

TO LAKE SHORE, INC.:

FURTHER REFERENCE IS MADE TO YOUR TELEGRAM AND LETTER OF NOVEMBER 5 AND 22, 1965, RESPECTIVELY, WITH ENCLOSURES, PROTESTING AGAINST AWARD OF A CONTRACT TO A. C. HOYLE COMPANY BY THE DEFENSE CONSTRUCTION SUPPLY CENTER, COLUMBUS, OHIO, FOR THE SET-ASIDE PORTION UNDER REQUEST FOR PROPOSALS (RFP) NO. DSA-700-66-NEG-0089.

THE SUBJECT RFP, ISSUED JULY 30, 1965, REQUESTED PROPOSALS ON FURNISHING STATED QUANTITIES OF VANG AND TOPPING WINCHES, SPARES, AND RELATED DRAWINGS AND MANUALS. THE RFP ALSO INCLUDED A 50 PERCENT SET ASIDE FOR LABOR SURPLUS AREA CONCERNS AND, TO A LIMITED EXTENT, SMALL BUSINESS CONCERNS. ALSO, IT PROVIDED THAT NEGOTIATIONS FOR THE SET ASIDE PORTION WOULD BE CONDUCTED ONLY WITH RESPONSIBLE LABOR SURPLUS AREA CONCERNS (AND SMALL BUSINESS CONCERNS TO THE EXTENT INDICATED) WHO HAD SUBMITTED RESPONSIVE PROPOSALS ON THE NON-SET-ASIDE PORTION AT A UNIT PRICE WITHIN 120 PERCENT OF THE HIGHEST AWARD MADE ON THE NON SET-ASIDE PORTION, IN THE FOLLOWING ORDER OF RIORITY:

GROUP 1. PERSISTENT LABOR SURPLUS AREA CONCERNS WHICH ARE ALSO SMALL BUSINESS CONCERNS.

GROUP 2. OTHER PERSISTENT LABOR SURPLUS AREA CONCERNS.

GROUP 3. SUBSTANTIAL LABOR SURPLUS AREA CONCERNS WHICH ARE ALSO SMALL BUSINESS CONCERNS.

GROUP 4. OTHER SUBSTANTIAL LABOR SURPLUS AREA CONCERNS.

GROUP 5. SMALL BUSINESS CONCERNS WHICH ARE NOT LABOR SURPLUS AREA CONCERNS.

IT WAS FURTHER PROVIDED THAT WITHIN EACH OF THE ABOVE GROUPS, NEGOTIATIONS WITH SUCH CONCERNS WOULD BE IN THE ORDER OF THEIR PROPOSALS ON THE NON-SET-ASIDE PORTION, BEGINNING WITH THE LOWEST RESPONSIVE PROPOSAL. ALSO, IT WAS PROVIDED THAT THE SET-ASIDE QUANTITIES WOULD BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED FOR THE NON-SET-ASIDE PORTION, ADJUSTED TO REFLECT TRANSPORTATION AND OTHER COST FACTORS WHICH WERE CONSIDERED IN EVALUATING BIDS ON THE NON-SET ASIDE PORTION. DEFINITIONS OF "LABOR SURPLUS AREA," "LABOR SURPLUS AREA CONCERN," AND "SMALL BUSINESS CONCERN" WERE INCLUDED IN THE RFP. THE TERM "LABOR SURPLUS AREA CONCERN" INCLUDED BOTH PERSISTENT LABOR SURPLUS AREA CONCERNS AND SUBSTANTIAL LABOR SURPLUS AREA CONCERNS DEFINED AS FOLLOWS:

"/I) "PERSISTENT LABOR SURPLUS AREA CONCERN" MEANS A CONCERN THAT AGREES TO PERFORM, OR CAUSE TO BE PERFORMED, A SUBSTANTIAL PROPORTION OF A CONTRACT IN PERSISTENT LABOR SURPLUS AREAS. A CONCERN SHALL BE DEEMED TO PERFORM A SUBSTANTIAL PROPORTION OF A CONTRACT IN PERSISTENT LABOR SURPLUS AREAS IF THE COSTS THAT THE CONCERN WILL INCUR ON ACCOUNT OF MANUFACTURING OR PRODUCTION PERFORMED IN SUCH AREAS (BY ITSELF OR ITS FIRST-TIER SUBCONTRACTORS) AMOUNT TO MORE THAN 50 PERCENT OF THE CONTRACT PRICE.

"/II) "SUBSTANTIAL LABOR SURPLUS AREA CONCERN" MEANS A CONCERN THAT AGREES TO PERFORM, OR CAUSE TO BE PERFORMED A SUBSTANTIAL PROPORTION OF A CONTRACT IN SUBSTANTIAL LABOR SURPLUS AREA. A CONCERN SHALL BE DEEMED TO PERFORM A SUBSTANTIAL PROPORTION OF A CONTRACT IN SUBSTANTIAL LABOR SURPLUS AREAS IF THE COSTS THAT THE CONCERN WILL INCUR ON ACCOUNT OF MANUFACTURING OR PRODUCTION PERFORMED IN SUBSTANTIAL AND PERSISTENT LABOR SURPLUS AREAS (BY ITSELF OR ITS FIRST TIER SUBCONTRACTORS) AMOUNT TO MORE THAN 50 PERCENT OF THE CONTRACT PRICE.'

FOR THE PURPOSE OF DETERMINING THE PRIORITY GROUP WITHIN WHICH A PARTICULAR OFFEROR FELL, THE RFP REQUIRED THOSE OFFERORS INTERESTED IN BEING CONSIDERED FOR THE SET-ASIDE PORTION TO "INDICATE . . . THE PLACE OF PERFORMANCE OF THE SET-ASIDE PORTION AND THE AMOUNT OF COSTS THAT THE BIDDER (OFFEROR) AND ITS FIRST-TIER SUB-CONTRACTOR WOULD INCUR ON ACCOUNT OF MANUFACTURING OR PRODUCTION AT EACH PLANT INDICATED.'

PROPOSALS WERE OPENED ON AUGUST 16, 1965, AND WERE EVALUATED AS FOLLOWS:

TABLE

A. C. HOYLE COMPANY $458,276.00

LAKE SHORE, INC. 531,072.50

SKAGIT CORPORATION 570,570.00

WESTERN GEAR CORPORATION 595,027.00

THE NON-SET-ASIDE PORTION OF THE PROCUREMENT WAS AWARDED TO HOYLE ON SEPTEMBER 24, 1965.

SINCE THE OFFERS OF SKAGIT AND WESTERN GEAR WERE NOT WITHIN 120 PERCENT OF THE AWARD PRICE ON THE NON-SET-ASIDE PORTION, THEY WERE NOT ELIGIBLE TO PARTICIPATE IN THE SET-ASIDE. ADDITIONALLY, THE CONTRACTING OFFICER CONCLUDED THAT HOYLE DID NOT QUALIFY AS A LABOR SURPLUS AREA CONCERN FROM THE INFORMATION FURNISHED WITH ITS PROPOSAL. HOWEVER, HE WAS UNABLE TO DETERMINE THAT YOUR COMPANY WAS A LABOR SURPLUS AREA CONCERN, NOTWITHSTANDING THE INFORMATION IN YOUR PROPOSAL THAT 100 PERCENT OF THE COSTS INCURRED ON ACCOUNT OF MANUFACTURING OR PRODUCTION WOULD BE AT YOUR IRON MOUNTAIN, MICHIGAN, PLANT, SINCE THERE WAS NO INFORMATION AS TO YOUR SOURCES OF MATERIALS. HE THEREFORE REQUESTED A PRE-AWARD SURVEY OF YOUR COMPANY WITH A SPECIFIC REQUEST FOR INFORMATION CONCERNING YOUR SOURCES OF MATERIALS. THE REPORT ON SUCH SURVEY WAS RECEIVED ON SEPTEMBER 3, 1965, AND INDICATED THAT MORE THAN 50 PERCENT OF THE COSTS INCURRED WOULD BE FOR COMPONENTS ACQUIRED FROM FIRMS NOT IN DESIGNATED LABOR SURPLUS AREAS. PRIOR TO REACHING A FINAL DECISION AS TO WHETHER YOUR FIRM SHOULD BE PLACED IN A PRIORITY GROUP FOR THE PURPOSE OF NEGOTIATING THE SET-ASIDE PORTION OF THE PROCUREMENT, THE CONTRACTING OFFICER RECEIVED A CALL FROM YOUR MR. LEWIS TO INQUIRE ABOUT THE STATUS OF THE AWARDS UNDER THE SUBJECT RFP. ALTHOUGH THERE IS A DISPUTE CONCERNING THE DATE AND CONTENT OF THIS CALL, THE CONTRACTING OFFICER'S VERSION WILL BE CONSIDERED AT THIS POINT. THE FILE SUBMITTED TO THIS OFFICE IN RESPONSE TO OUR REQUEST FOR A REPORT ON YOUR PROTEST CONTAINS A MEMORANDUM OF WHAT PURPORTS TO BE A TELEPHONE CALL FROM MR. LEWIS TO THE CONTRACTING OFFICER ON SEPTEMBER 24, 1965, AT 2:30 P.M., THE SUBSTANCE OF WHICH IS AS FOLLOWS:

"I TOLD MR. LEWIS THAT AWARD HAD BEEN MADE TO A. C. HOYLE CO. AND THAT THEY WOULD ALSO BE IN LINE FOR THE SA PORTION MR. LEWIS WANTED TO KNOW IF THEY WOULD BE CONTACTED FOR PARTICIPATION IN THAT THEY WERE WITHIN 120 PERCENT OF LOW BIDDER. HE DID NOT EXPLAIN HOW HE GOT HIS FIGURES WHEN QUESTIONED. HE STATED HE WOULD FURNISH THE SA AT PRICES REVISED BY HIS WIRE. WHEN I EXPLAINED THAT ON THE SA POSITION, HE WOULD HAVE TO AGREE TO ACCEPTANCE OF THE SA AT THE HIGHEST AWARD PRICE ON THE NON-SA, I.E. IN THIS CASE ITEM 1 AND 2 AT $3,325.00 AND ITEM 3 AT 2,960.00, WOULD HE ACCEPT AND HE SAID "HELL NO** " I EXPLAINED THAT THIS WAS THE WAY SA WERE MADE, HE CLOSED THE CONVERSATION.'

SINCE THE CONTRACTING OFFICER INTERPRETED HIS CONVERSATION WITH MR. LEWIS, AS REPORTED ABOVE, TO MEAN THAT YOUR COMPANY WAS NOT INTERESTED IN AWARD OF THE SET-ASIDE PORTION IF IT HAD TO MEET THE AWARD PRICES FOR THE NON-SET ASIDE PORTION, AND IN VIEW OF THE SURVEY REPORT INDICATING YOUR COMPANY WOULD NOT QUALIFY AS A LABOR SURPLUS AREA CONCERN, HE ACCEPTED HOYLE'S OFFER FOR THE SET-ASIDE AT THE SAME PRICES IT WAS AWARDED THE NON- SET-ASIDE PORTION. AWARD TO HOYLE AS A SMALL BUSINESS CONCERN WITHIN GROUP 5 WAS MADE ON SEPTEMBER 30, 1965.

IT IS YOUR PRIMARY CONTENTION THAT THE PROVISIONS OF THE RFP CONCERNING NEGOTIATION OF THE SET-ASIDE PORTION OF THE PROCUREMENT WERE NOT COMPLIED WITH IN THAT ALTHOUGH YOU WERE APPARENTLY ELIGIBLE FOR AWARD OF THE SET- ASIDE PORTION AS A LABOR SURPLUS AREA CONCERN IN PRIORITY GROUP 1, YOU WERE NOT AFFORDED THE OPPORTUNITY TO NEGOTIATE FOR THE AWARD. IT IS YOUR ARGUMENT THAT THE TELEPHONE CONVERSATION BETWEEN MR. LEWIS AND THE CONTRACTING OFFICER WAS NEITHER NEGOTIATION NOR AN OFFER TO NEGOTIATE. WITH REGARD TO MR. LEWIS' CALL TO THE CONTRACTING OFFICER, YOU STATE THAT IT WAS MADE ON SEPTEMBER 27 AND YOU WERE ADVISED THAT YOUR PROPOSAL WAS $300 TO $400 HIGH PER UNIT AND THE ENTIRE QUANTITY OF THE PROCUREMENT WAS BEING AWARDED TO HOYLE. ALTHOUGH MR. LEWIS HAS ACKNOWLEDGED THAT HE DID TELL THE CONTRACTING OFFICER "WE WOULD NOT WANT IT AT SUCH A PRICE" HE DID NOT "NECESSARILY MEAN WE WOULD NOT TAKE IT . . .' AND THAT THIS WAS BUT A "PASSING COMMENT . . . PROMPTED BY MY ASTONISHMENT OF THE PRICE RANGE, AS WELL AS THE RECONCILING FEELING OF THE FACT THE JOB WAS LOST.' IT IS YOUR POSITION THAT NOTWITHSTANDING THIS "REMARK" BY MR. LEWIS, YOU SHOULD HAVE RECEIVED A FORMAL NOTIFICATION OF THE "ACTUAL PRICES OF COMPETITION AND REQUESTING IF WE DESIRED TO MEET SAME.' HAD THIS BEEN DONE, YOU STATE YOU WOULD HAVE HAD THE OPPORTUNITY TO REVIEW YOUR COSTS AND POSSIBLY GET BETTER PRICES FROM YOUR SUPPLIERS.

THE PRIMARY QUESTION RAISED BY YOUR PROTEST IS WHETHER THE AWARD OF THE SET-ASIDE TO HOYLE ON SEPTEMBER 30 RESULTED IN A VALID AND BINDING CONTRACT. PURSUANT TO PARAGRAPH 1-804.2 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), THE TERMS AND CONDITIONS OF THE REQUEST FOR PROPOSALS REQUIRED THAT NEGOTIATIONS FOR THE SET-ASIDE BE CONDUCTED WITH THOSE OFFERORS, IN THE ORDER OF PRIORITY THEREIN STATED, WHO SUBMITTED PROPOSALS ON THE NON-SET-ASIDE AT A UNIT PRICE NO GREATER THAN 120 PERCENT OF THE HIGHEST UNIT PRICE AT WHICH AWARD WAS MADE ON THE NON-SET-ASIDE. ADDITION, IT WAS PROVIDED THAT THE "SET-ASIDE PORTION SHALL BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED ON THE NON SET-ASIDE PORTION . . .' NEITHER THE RFP NOR ASPR REQUIRE OR PROVIDE FOR THE PROCEDURE OR METHOD OF CONDUCTING THE NEGOTIATIONS, BEYOND WHAT HAS BEEN STATED ABOVE. ALTHOUGH IT MAY REASONABLY BE IMPLIED THAT THE CONTRACTING OFFICER IS REQUIRED TO APPRIZE ALL ELIGIBLE OFFERORS OF HIS INTENTION TO NEGOTIATE AND OF THE AMOUNT ANY AWARD MAY NOT EXCEED, THERE IS NO REQUIREMENT THAT THIS INFORMATION BE CONVEYED BY ANY PARTICULAR FORM OF NOTIFICATION. AS LONG AS THE OFFERORS ARE MADE AWARE OF THESE THINGS, BY WHATEVER MEANS, THE CONTRACTING OFFICER WOULD APPEAR TO HAVE FULFILLED HIS OBLIGATION, AND IF A PARTICULAR OFFEROR INDICATES HE WILL NOT ACCEPT AWARD OF THE SET-ASIDE AT THE HIGHEST UNIT PRICE AWARDED ON THE NON-SET-ASIDE, NO FURTHER NEGOTIATIONS WITH THAT OFFEROR ARE CALLED FOR AND AWARD MAY THEN BE MADE TO ONE OF THE REMAINING ELIGIBLE OFFERORS.

IN THE INSTANT CASE, THERE WERE ONLY TWO OFFERORS, YOU AND HOYLE, ELIGIBLE FOR AWARD OF THE SET-ASIDE PORTION. BASED UPON THE TELEPHONE CONVERSATION WITH MR. LEWIS, THE CONTRACTING OFFICER CONCLUDED THAT YOU WERE NOT INTERESTED IN AWARD OF THE SET-ASIDE AT THE FIGURE REQUIRED BY THE TERMS OF THE RFP. HE THEREFORE ACCEPTED THE ONLY REMAINING OFFER WHICH WAS IN ACCORDANCE WITH THE TERMS OF THE RFP. UNLESS THE CONTRACTING OFFICER WAS NOT JUSTIFIED IN CONCLUDING YOU WERE NOT INTERESTED IN THE SET -ASIDE, OR UNLESS YOU WERE NOT ADEQUATELY INFORMED OF THE PRICES YOU WOULD HAVE TO MEET, WE SEE NO BASIS UPON WHICH IT MAY BE SAID THAT THE AWARD WAS CONTRARY TO THE TERMS OF THE RFP OR REQUIREMENTS OF THE REGULATION. EVEN ACCEPTING YOUR VERSION OF THE TELEPHONE CONVERSATION, WE BELIEVE THAT THE CONTRACTING OFFICER REASONABLY INTERPRETED MR. LEWIS' REMARK THAT YOU DID "NOT WANT" THE AWARD AT "SUCH A PRICE" ($300 TO $400 LOWER THAN YOUR PROPOSAL) TO MEAN THAT YOU WERE NOT INTERESTED IN BEING FURTHER CONSIDERED FOR AWARD. WHILE IT WOULD CERTAINLY HAVE BEEN APPROPRIATE TO HAVE ADVISED YOU OF THE EXACT PRICE AT WHICH THE NON-SET ASIDE PORTION WAS AWARDED, ADVICE TO THE EFFECT THAT YOU WERE $300 TO $400 HIGH PER ITEM WAS, IN OUR OPINION, SUFFICIENTLY DEFINITE TO JUSTIFY A CONCLUSION BY THE CONTRACTING OFFICER THAT YOU COULD NOT MEET HOYLE'S PRICE. THE FACT THAT SUBSEQUENT TO THE AWARD YOU REVIEWED YOUR COSTS AND OBTAINED BETTER PRICES FROM YOUR SUPPLIERS AND WOULD NOW TAKE THE AWARD AT THE NON-SET-ASIDE CONTRACT PRICE IS NOT A SUFFICIENT BASIS FOR INVALIDATING AN OTHERWISE VALIDLY CONSUMMATED CONTRACT.

IN THESE CIRCUMSTANCES, WE MUST CONCLUDE THAT ACCEPTANCE OF THE HOYLE OFFER FOR THE SET-ASIDE PORTION ON SEPTEMBER 30, 1965, RESULTED IN CONSUMMATION OF A VALID AND BINDING CONTRACT. SINCE CANCELLATION OF THE CONTRACT WOULD THEREFORE AMOUNT TO A BREACH BY THE GOVERNMENT WHICH WOULD SUBJECT THE GOVERNMENT TO LIABILITY FOR DAMAGES (SEE 41 COMP. GEN. 788; 44 ID. 221, 223; AND WARREN BROTHERS ROADS COMPANY V. UNITED STATES, CT.CL. NO. 302-61, DECEMBER 17, 1965 AND CASES CITED), YOUR PROTEST MUST BE DENIED.