B-158002, FEB. 28, 1966

B-158002: Feb 28, 1966

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WAS RECEIVED FROM YOUR DIRECTOR OF PROCUREMENT AND PRODUCTION. THE SUBJECT ITEM OF THE PROCUREMENT IS A BASIC FLIGHT INSTRUMENT FOR THE PILOT. THE INDICATOR IS BEING USED ON THE UH-1 IROQUOIS AIRCRAFT. YOUR DEPARTMENT REPORTS THAT IT IS PLANNING TO ADOPT THE INSTRUMENT FOR USE ON OTHER AIRCRAFTS. WAS THE SUBJECT OF A BID PROTEST WHICH WAS CONSIDERED BY THIS OFFICE IN DECISION B-156620 DATED AUGUST 11. A LIKE AMOUNT WAS SET ASIDE FOR SMALL BUSINESS. ITEM 3 WAS STATED AS A REQUIREMENT CONTRACT. BIDDERS WERE FREE TO BID ON THE ITEMS SINGLY OR IN ANY COMBINATION. BIDS WERE OPENED ON NOVEMBER 5. LEAR-SIEGLER WAS LOW BIDDER ON ALL THREE ITEMS. WHILE ASTRONAUTICS AND CONSOLIDATED WERE THE NEXT TWO LOWEST BIDDERS.

B-158002, FEB. 28, 1966

TO THE SECRETARY OF THE ARMY:

WE REFER TO THE PROTEST OF ASTRONAUTICS CORPORATION OF AMERICA AND CONSOLIDATED AIRBORNE SYSTEMS, INCORPORATED, UNDER INVITATION FOR BIDS NO. AMC/T/23-204-66-28, ISSUED BY THE UNITED STATES ARMY AVIATION MATERIEL COMMAND ON OCTOBER 5, 1965, FOR ATTITUDE INDICATORS. A REPORT DATED DECEMBER 29, 1965, WAS RECEIVED FROM YOUR DIRECTOR OF PROCUREMENT AND PRODUCTION.

THE SUBJECT ITEM OF THE PROCUREMENT IS A BASIC FLIGHT INSTRUMENT FOR THE PILOT. IN OPERATION IT DISPLAYS THE DEGREE OF CLIMB OR DIVE AND THE DEGREE AND DIRECTION OF BANK OF THE AIRCRAFT. THE INDICATOR IS BEING USED ON THE UH-1 IROQUOIS AIRCRAFT, AND YOUR DEPARTMENT REPORTS THAT IT IS PLANNING TO ADOPT THE INSTRUMENT FOR USE ON OTHER AIRCRAFTS. THIS PROCUREMENT REPRESENTS THE SECOND "BREAKOUT" BUY FOR THE ITEM. THE FIRST SUCH BUY COVERED FISCAL YEAR 1965, AND WAS THE SUBJECT OF A BID PROTEST WHICH WAS CONSIDERED BY THIS OFFICE IN DECISION B-156620 DATED AUGUST 11, 1965.

ITEMS 1 AND 2 OF THE INVITATION CALLED FOR DEFINITE QUANTITIES OF 1063 AND 198 UNITS, RESPECTIVELY, AND A LIKE AMOUNT WAS SET ASIDE FOR SMALL BUSINESS. ITEM 3 WAS STATED AS A REQUIREMENT CONTRACT, ESTIMATED AT 1195 UNITS. BIDDERS WERE FREE TO BID ON THE ITEMS SINGLY OR IN ANY COMBINATION.

BIDS WERE OPENED ON NOVEMBER 5, 1965, LEAR-SIEGLER WAS LOW BIDDER ON ALL THREE ITEMS, WHILE ASTRONAUTICS AND CONSOLIDATED WERE THE NEXT TWO LOWEST BIDDERS. THE UNIT PRICES QUOTED BY THESE THREE BIDDERS WERE AS FOLLOWS:

TABLE

ITEM 1 ITEM 2 ITEM 3

LEAR-SIEGLER $ 689 $ 689 $ 689

CONSOLIDATED 712 860 734

ASTRONAUTICS 748 748 748

AWARD HAS BEEN MADE ON THE NON-SET-ASIDE PORTION OF ITEMS 1 AND 2 TO LEAR -SIEGLER. AN EARLY AWARD WAS NECESSARY IN ORDER TO AVOID POSSIBLE SHORTAGES OF THIS EQUIPMENT WITHIN THE NEXT FEW MONTHS.

BOTH ASTRONAUTICS AND CONSOLIDATED PROTEST THAT LEAR-SIEGLER WILL NOT BE ABLE TO MEET THE REQUIRED DELIVERY SCHEDULE AND THUS SHOULD NOT HAVE RECEIVED THE AWARD ON THESE ITEMS. THEY CONTEND THAT ANY SUPPLIER, LIKE LEAR-SIEGLER, REQUIRED TO MEET THE PREPRODUCTION PHASE OF THE WORK CANNOT POSSIBLY MAKE FIRST DELIVERY OF THE ITEMS WITHIN THE REQUIRED TIME OF 150 DAYS. ARTICLE 7 OF THE INVITATION SPECIFIED THE TIME OF FIRST DELIVERY ON ITEMS 1 AND 2 AS 150 DAYS AFTER AWARD. PRIOR TO FIRST DELIVERY THE CONTRACTOR IS REQUIRED TO OBTAIN APPROVAL OF PREPRODUCTION MODELS. THE INVITATION CALLS FOR SUBMISSION OF PREPRODUCTION SAMPLES FOR TESTING WITHIN 90 DAYS OF AWARD. (THERE IS A PROVISION FOR PREPRODUCTION WAIVER FOR PRIOR PRODUCERS.) THE TESTING PHASE IS SAID BY ASTRONAUTICS TO TAKE 90 DAYS. THIS WOULD MEAN THAT THE TOTAL PREPRODUCTION PHASE REQUIRES 180 DAYS WHILE FIRST DELIVERY IS REQUIRED IN 150 DAYS.

YOUR CONTRACTING OFFICER REPORTS THAT THE TESTING PROGRAM SHOULD ACTUALLY TAKE 70 TO 75 DAYS. HE STATES THAT ALTHOUGH LEAR-SIEGLER IS NOT ELIGIBLE FOR PREPRODUCTION WAIVER UNDER THIS SPECIFICATION, IN FACT IT HAS SUPPLIED THE ITEM IN THE PAST, WHEN THE INSTRUMENT CONTAINED TWO SEPARATE PIECES, AN INDICATOR AND A TRANSMITTER. HE SAYS THAT THE CONTRACTOR, BECAUSE OF ITS PAST EXPERIENCE, COULD READILY WORK ON THE PRODUCTION PHASE WHILE OBTAINING APPROVAL UNDER THE PREPRODUCTION PHASE. HE SEES NO PROBLEM OF DELIVERY FOR THE CONTRACTOR.

WE DO NOT QUESTION LEAR-SIEGLER'S ABILITY TO MEET THE REQUIRED 150 DAY FIRST DELIVERY, BUT IT IS EVIDENT THAT A NEW SUPPLIER WOULD HAVE DIFFICULTY IN MEETING THIS REQUIREMENT. WE QUESTION WHETHER A NEW SUPPLIER COULD BE EXPECTED TO PROCEED WITH THE PRODUCTION WORK WHILE AWAITING PRODUCT APPROVAL. ASPR-1305.2 (A) PROVIDES THAT DELIVERY SCHEDULES WHICH ARE TIGHT OR DIFFICULT OF ATTAINMENT ARE INIMICAL TO FULL COMPETITION, INCONSISTENT WITH SMALL BUSINESS POLICIES AND MAY RESULT IN HIGHER CONTRACT PRICES. IN OUR OPINION THE PREPRODUCTION REQUIREMENTS AND THE REQUIREMENT FOR THE FIRST PRODUCTION QUANTITY WERE NOT WELL COORDINATED. WE CAN ONLY CONCLUDE THAT EITHER TOO MUCH TIME WAS ALLOWED FOR THE PREPRODUCTION PHASE OR NOT ENOUGH TIME WAS ALLOWED FOR THE FIRST DELIVERY. NEVERTHELESS, IT DOES NOT APPEAR THAT ANY BIDDER WAS SUBSTANTIALLY PREJUDICED. ACCORDINGLY, WE FIND NO BASIS TO DISTURB THE AWARD ON THE NON-SET-ASIDE PORTION OF ITEMS 1 AND 2.

THERE IS A DISPUTE CONCERNING THE PRIORITY FOR NEGOTIATION OF THE SMALL BUSINESS SET-ASIDE PORTION OF ITEM 1 OF THE PROCUREMENT. THE INVITATION CONTAINED THE CLAUSE SET FORTH IN ASPR 1-706.6 ENTITLED "NOTICE OF PARTIAL SMALL BUSINESS SET ASIDE (NOV. 1964).' IT PROVIDES THAT THE SET-ASIDE IS TO BE AWARDED AT THE NON-SET-ASIDE AWARD PRICE. ELIGIBILITY FOR THE NEGOTIATION IS RESTRICTED TO SMALL BUSINESS CONCERNS WHICH BID WITHIN 120 PERCENT OF THE AWARD PRICE ON THE NON SET-ASIDE FOLLOWS: THE ORDER OF PRIORITY FOR THE NEGOTIATION IS ESTABLISHED AS FOLLOWS: GROUP 1, SMALL BUSINESS CONCERNS WHICH ARE ALSO PERSISTENT LABOR SURPLUS AREA CONCERNS; GROUP 2, SMALL BUSINESS CONCERNS WHICH ARE ALSO SUBSTANTIAL LABOR SURPLUS AREA CONCERNS; AND GROUP 3, SMALL BUSINESS CONCERNS WHICH ARE NOT LABOR SURPLUS CONCERNS. WITHIN EACH GROUP PRIORITY IS BASED ON THE BID PRICE, THE LOWEST BID BEING FIRST. A LABOR SURPLUS CONCERN INCLUDES A CONCERN WHICH AGREES TO PERFORM, OR CAUSE TO BE PERFORMED, A CONTRACT AWARDED TO IT AS A LABOR SURPLUS AREA CONCERN SUBSTANTIALLY IN AREAS OF PERSISTENT OR SUBSTANTIAL LABOR SURPLUS (AS DESIGNATED BY THE DEPARTMENT OF LABOR). CONCERN SHALL BE DEEMED TO PERFORM A CONTRACT SUBSTANTIALLY IN AREAS OF PERSISTENT OR SUBSTANTIAL LABOR SURPLUS "IF THE COST THAT IT INCURS ON ACCOUNT OF MANUFACTURING OR PRODUCTION (BY ITSELF OR ITS FIRST-TIER SUBCONTRACTORS) IN SUCH AREAS AMOUNT TO MORE THAN 50 PERCENT OF THE CONTRACT PRICE.' EACH BIDDER DESIRING TO BE CONSIDERED FOR AWARD AS A SMALL BUSINESS LABOR SURPLUS AREA CONCERN MUST IDENTIFY IN HIS BID THE GEOGRAPHICAL AREAS IN WHICH HE PROPOSES TO PERFORM, OR CAUSE TO BE PERFORMED, A SUBSTANTIAL PROPORTION OF THE PRODUCTION OF THE CONTRACT.

LEAR-SIEGLER, A LARGE BUSINESS CONCERN, IS NOT ELIGIBLE FOR THE SET ASIDE AWARDS. ASTRONAUTICS AND CONSOLIDATED ARE SMALL BUSINESS CONCERNS. ITEM 2, ASTRONAUTICS, AT $748 PER UNIT, WAS THE ONLY SMALL BUSINESS CONCERN WITHIN 120 PERCENT OF THE AWARD PRICE OF $689 PER UNIT, AND WE UNDERSTAND THAT IT HAS ACCEPTED AWARD OF THE SET-ASIDE ON THIS ITEM (198 UNITS AT $689 PER UNIT). BOTH ASTRONAUTICS AND CONSOLIDATED ARE WITHIN THE PRESCRIBED 120 PERCENT RANGE ON ITEM 1, AND ARE THE ONLY TWO BIDDERS ELIGIBLE FOR THE SET-ASIDE PORTION OF 1064 UNITS. THE DISPUTE CONCERNS ASTRONAUTICS' ORDER OF PRIORITY FOR THE NEGOTIATION. IT HAS FIRST PRIORITY FOR THE NEGOTIATION IF IT QUALIFIES AS A LABOR SURPLUS AREA CONCERN; OTHERWISE CONSOLIDATED, AS THE LOWER BIDDER, HAS FIRST PREFERENCE.

UNDER ARTICLE 15 (ON PAGE 20) OF ITS BID, ASTRONAUTICS REPRESENTED ITSELF AS A PERSISTENT LABOR SURPLUS AREA CONCERN. IT INCLUDED WITH ITS BID A LETTER DATED OCTOBER 26, 1965, STATING AS FOLLOWS:

"2. ASTRONAUTICS CORP. OF AMERICA, A SMALL BUSINESS CONCERN, WILL PERFORM OR CAUSE TO BE PERFORMED ON ACCOUNT OF MANUFACTURING OR PRODUCTION COSTS TO EXCEED 50 PERCENT OF THE CONTRACT PRICE IN THE PERSISTENT LABOR SURPLUS AREA OF HURLEY, WISCONSIN.'

YOUR DEPARTMENT CONDUCTED AN INVESTIGATION TO DETERMINE ASTRONAUTICS' PROPOSED PLAN OF PRODUCTION. IT DETERMINED THAT MILWAUKEE, WISCONSIN, WHERE THE BIDDER IS LOCATED, IS NOT A LABOR SURPLUS AREA BUT THAT HURLEY, WISCONSIN, IS CLASSIFIED AS AN AREA OF PERSISTENT LABOR SURPLUS. IT FOUND THAT ASTRONAUTICS PROPOSED TO SUBCONTRACT WITH THE ELECTRONICS INSTRUMENT CORPORATION OF HURLEY, WISCONSIN, A RECENTLY FORMED, WHOLLY-OWNED SUBSIDIARY OF ASTRONAUTICS. INFORMATION OBTAINED BY YOUR DEPARTMENT INDICATES THAT ELECTRONICS INSTRUMENT CORPORATION WOULD PERFORM WORK AND SERVICES HAVING A BILLING VALUE OF $401.18, WHICH AMOUNT IS WELL ABOVE 50 PERCENT OF THE $689 PER UNIT CONTRACT PRICE. OF THE $401.18 AMOUNT, HOWEVER, YOUR DEPARTMENT REPORTS THAT A "VERY MODEST ESTIMATE OF $100 $150," REPRESENTS THE COST OF VENDOR ITEMS, ITEMS TO BE PURCHASED FROM VARIOUS SUPPLIERS NOT LOCATED IN LABOR SURPLUS AREAS. (THE FILE CONTAINS A LETTER DATED OCTOBER 22, 1965, FROM ELECTRONIC INSTRUMENTS CORPORATION TO ASTRONAUTICS STATING THAT ELECTRONIC WOULD PROVIDE THE INDICATOR ASSEMBLIES TO ASTRONAUTICS AT A COST OF $401.18 EACH. A COST BREAKDOWN OF THE ASSEMBLIES IS INCLUDED WITH THE LETTER.

CONSOLIDATED STATED IN ITS BID THAT IT WAS NOT A LABOR SURPLUS CONCERN. IT CONTENDS THAT IT IS VIRTUALLY IMPOSSIBLE FOR ANY COMPANY TO QUALIFY AS A LABOR SURPLUS AREA CONCERN ON THIS PROCUREMENT. IT CONCLUDES FROM THE ASPR DEFINITION THAT ONLY THE LABOR CONTENT OF THE ITEM MANUFACTURED BY THE CONTRACTOR OR HIS SUBCONTRACTOR MAY BE CONSIDERED IN THE CALCULATION OF THE OVER 50 PERCENT FIGURE REQUIRED TO QUALIFY AS A LABOR SURPLUS AREA CONCERN AND THAT THE RAW MATERIAL CONTENT IS NOT INCLUDED IN THE CALCULATION.

YOUR DEPARTMENT AGREES WITH CONSOLIDATED ON THIS POINT. IN ITS VIEW "ASPR MEANS FOR THERE TO BE CONSIDERED ONLY THE LABOR AND OVERHEAD CONTENT OF THE ITEMS MANUFACTURED IN A LABOR SURPLUS AREA AND NOT THE RAW MATERIAL CONTENT. TO UNDERSTAND OTHERWISE WOULD SEEM TO INDICATE THE EXISTENCE OF A MEANS TO FRUSTRATE THE POLICY IN FAVOR OF AWARDING TO CONCERNS IN A SUBSTANTIAL LABOR SURPLUS OR UNEMPLOYMENT AREA, THE PURPOSE OF WHICH IS SIMPLY TO PROVIDE WORK IN SUCH AREAS.' ALSO, YOUR DEPARTMENT RECOGNIZES THAT ITS ESTIMATES OF THE OVERHEAD AND LABOR COSTS TO BE INCURRED AT HURLEY ARE SOMEWHAT SPECULATIVE, BUT POINTS OUT THAT THE ESTIMATES WERE BASED ON THE BEST INFORMATION IT COULD OBTAIN FROM ASTRONAUTICS.

IN THIS REGARD, YOUR DEPARTMENT REPORTS THAT IN FUTURE INVITATIONS INVOLVING LABOR SURPLUS SET-ASIDES, IT WILL REQUIRE THE SUBMISSION OF DETAILED INFORMATION WITH THE BID SUFFICIENT TO SUPPORT A FINDING AS TO THE COST OF PERFORMANCE TO BE INCURRED IN LABOR SURPLUS AREAS, AS SUGGESTED IN 41 COMP. GEN. 160, 165.

YOUR CONTRACTING OFFICER STATES THAT "BASED UPON AVCOM'S PRIOR EXPERIENCE WITH BOTH CONSOLIDATED AND ASTRONAUTICS, EACH IS AN EQUALLY ACCEPTABLE SOURCE. HOWEVER, WERE THE MATTER BEFORE ME FOR DETERMINATION (THE MATTER WAS PROTESTED TO THIS OFFICE BEFORE THE CONTRACTING OFFICER MADE HIS DETERMINATION), I WOULD HAVE TO CONCLUDE THAT ASTRONAUTICS SHOULD NOT BE GIVEN PRIORITY IN ORDER OF NEGOTIATIONS FOR THE SET-ASIDE PORTION BASED UPON ITS REPRESENTATION OF BEING A LABOR SURPLUS AREA CONCERN.' IN VIEW OF THIS STATEMENT, YOUR DEPARTMENT CONCLUDES THAT THE APPROPRIATE COURSE OF ACTION WOULD BE FOR US TO MAKE THE DETERMINATION OR AUTHORIZE THE CONTRACTING OFFICER TO EXERCISE HIS INDEPENDENT JUDGMENT IN THE MATTER. IN THIS CONNECTION, THE ATTORNEY FOR CONSOLIDATED NOTES THAT THE WORD "INCLUDES" IS PLACED IN ASPR 1-801.1 SO AS TO INDICATE THAT IT IS UP TO THE CONTRACTING OFFICER TO DETERMINE IF A BIDDER QUALIFIES AS A LABOR SURPLUS AREA CONCERN; AND THAT THE BIDDER MAY NOT QUALIFY MERELY BY MAKING A REPRESENTATION IN ITS BID THAT IT WILL PERFORM AS A LABOR SURPLUS AREA CONCERN.

ASTRONAUTICS INTERPRETS THE ASPR (AND INVITATION) AS PROVIDING FOR THE INCLUSION OF THE TOTAL COST CHARGED THE BIDDER BY THE FIRST-TIER SUBCONTRACTOR. IT POINTS TO THE EXAMPLES CONTAINED IN ASPR 1-801.1 AS ILLUSTRATING THIS RESULT. THE EXAMPLES ARE SET FORTH AS FOLLOWS:

"EXAMPLE A. ABC COMPANY, MANUFACTURING IN A FULL EMPLOYMENT AREA, BIDS ON A CONTRACT AT $1,000. ABC COMPANY WILL INCUR THE FOLLOWING COSTS:

TABLE

DIRECT LABOR ---------------------------------------------------- $200

OVERHEAD -------------------------------------------------------- 200

PURCHASE OF MATERIALS FROM XYZ, WHICH MANUFACTURES THE MATERIALS

IN A LABOR SURPLUS AREA --------------------------------------- 510

ABC COMPANY QUALIFIES AS A LABOR SURPLUS AREA CONCERN.

EXAMPLE B. DEF COMPANY, MANUFACTURING IN A LABOR SURPLUS AREA,

BIDS ON A CONTRACT AT $1,000.

DEF COMPANY WILL INCUR THE FOLLOWING COSTS:

DIRECT LABOR ---------------------------------------------------- $200

OVERHEAD -------------------------------------------------------- 200

PURCHASE OF MATERIALS FROM UVW, WHICH IS LOCATED IN A LABOR

SURPLUS AREA BUT WHICH MERELY DISTRIBUTES THE MATERIALS FROM

STOCKS ON HAND (THE MATERIALS HAVING BEEN MANUFACTURED BY

UVW'S SUPPLIER) ----------------------------------------------- $550

DEF COMPANY DOES NOT QUALIFY AS A LABOR SURPLUS AREA CONCERN

REGARDLESS OF WHETHER UVW'S SUPPLIER MANUFACTURES IN A LABOR

SURPLUS AREA.

EXAMPLE C. GHI COMPANY, MANUFACTURING IN A LABOR SURPLUS AREA,

BID ON A CONTRACT AT $1,000. GHI COMPANY WILL INCUR THE FOLLOWING COSTS:

DIRECT LABOR ---------------------------------------------------- $230

OVERHEAD -------------------------------------------------------- 275

PURCHASE OF MATERIALS FROM RST, WHICH MANUFACTURES THE MATERIALS

IN A FULL EMPLOYMENT AREA ------------------------------------- 425

GHI COMPANY QUALIFIES AS A LABOR SURPLUS AREA CONCERN.'

IN ANY EVENT, THE ATTORNEY FOR ASTRONAUTICS HAS FURNISHED US WITH A COST BREAKDOWN INDICATING THAT ELECTRONIC INSTRUMENTS CORPORATION AT HURLEY WILL INCUR TOTAL LABOR AND OVERHEAD COSTS OF $353.51 (LABOR OF $201.93 AND OVERHEAD OF $151.58), OR OVER 50 PERCENT OF THE CONTRACT PRICE OF $689. HE ADDITIONALLY STATES THAT THE SUBCONTRACTOR WILL PURCHASE MATERIALS FROM MANUFACTURING SOURCES IN AREAS OF PERSISTENT LABOR SURPLUS IN THE TOTAL AMOUNT OF $161.87. (A LIST OF THESE PROPOSED PURCHASES IS PROVIDED.) ASKS THAT CONSIDERATION BE GIVEN TO THIS INFORMATION.

THE PURPOSE OF THE LABOR SURPLUS AWARD PROGRAM IS TO PROVIDE WORK IN AREAS OF PERSISTENT AND SUBSTANTIAL UNEMPLOYMENT BY PLACING GOVERNMENT CONTRACTS ON SUCH AREAS. A CONTRACT IS CONSIDERED PLACED IN A LABOR SURPLUS AREA (AREA OF PERSISTENT OR SUBSTANTIAL UNEMPLOYMENT) WHERE THE CONTRACTOR AND ITS FIRST-TIER SUBCONTRACTOR WILL INCUR COSTS ON ACCOUNT OF MANUFACTURING OR PRODUCTION EXCEEDING 50 PERCENT OF THE CONTRACT PRICE IN LABOR SURPLUS AREAS. ASPR 1-801. WE HAVE REGARDED THE COST OF PURCHASED MATERIALS AS A COST OF PRODUCTION WITHIN THE MEANING OF THE ASPR PROVISION. 41 COMP. GEN. 160, 164; B-150676, FEBRUARY 7, 1963.

HOWEVER, WE DO NOT AGREE WITH ASTRONAUTICS THAT THE TOTAL COST CHARGED THE BIDDER BY A FIRST-TIER SUBCONTRACTOR LOCATED IN A LABOR SURPLUS AREA IS AUTOMATICALLY CONSIDERED AS A COST INCURRED ON ACCOUNT OF MANUFACTURING OR PRODUCTION BY THE BIDDER IN A LABOR SURPLUS AREA. THERE IS NO DISAGREEMENT ABOUT ALLOWING THE SUBCONTRACTOR'S DIRECT LABOR AND OVERHEAD COSTS. BUT THE BIDDER MAY NOT INCLUDE THE COST OF MATERIALS PURCHASED BY ITS FIRST-TIER SUBCONTRACTOR FROM CONCERNS LOCATED IN AREAS OF FULL EMPLOYMENT. THE COST OF THESE MATERIALS CANNOT BE CONSIDERED AS A COST INCURRED BY THE BIDDER OR ITS FIRST-TIER SUBCONTRACTOR ON ACCOUNT OF MANUFACTURING OR PRODUCTION IN A LABOR SURPLUS AREA. TO QUALIFY UNDER THE ASPR PROVISION THE MATERIALS MUST BE PURCHASED FROM A MANUFACTURER OR PRODUCER LOCATED IN A LABOR SURPLUS AREA. THIS APPLIES TO PURCHASES MADE BOTH BY THE BIDDER AND BY THE FIRST-TIER SUBCONTRACTOR.

IN THIS CONNECTION, WE FIND THAT THE EXAMPLES SET FORTH IN ASPR 1 801 ARE SOMEWHAT MISLEADING, AND SUGGEST THAT THE ENTIRE PARAGRAPH BE REVISED TO CLARIFY THE DEFINITION OF A LABOR SURPLUS AREA CONCERN.

A FURTHER POINT RAISED BY YOUR DEPARTMENT CONCERNS THE FACT THAT ELECTRONICS INSTRUMENT CORPORATION IS A WHOLLY-OWNED SUBSIDIARY OF ASTRONAUTICS. YOUR DEPARTMENT WOULD NOT RECOGNIZE A SUBCONTRACTUAL RELATIONSHIP BETWEEN A BIDDER AND ITS WHOLLY-OWNED SUBSIDIARY, BUT WOULD TREAT THE TWO CONCERNS AS ONE ENTITY IN DETERMINING THE BIDDER'S STATUS AS A LABOR SURPLUS CONCERN. IN VIEW OF WHAT HAS BEEN SAID ABOVE, THIS BECOMES IMMATERIAL IN THE PRESENT CASE.

WE BELIEVE THAT THE ENTIRE MATTER OF THE SET-ASIDE AWARD MUST BE REFERRED BACK TO THE CONTRACTING OFFICER FOR A DETERMINATION WHETHER ASTRONAUTICS QUALIFIES AS A LABOR SURPLUS AREA CONCERN. ASTRONAUTICS REPRESENTED ITSELF AS A PERSISTENT LABOR SURPLUS CONCERN (GROUP 1 CONCERN), AND FURNISHED ALL THE INFORMATION REQUIRED BY THE INVITATION ON THIS MATTER. IT WISHES TO SUBMIT FURTHER INFORMATION IN SUPPORT OF ITS REPRESENTATION. WE HAVE HELD THAT ALTHOUGH A BIDDER MAY NOT BE PERMITTED TO CHANGE ITS PRIORITY FOR THE NEGOTIATION TO THE PREJUDICE OF OTHER BIDDERS, IT MAY FURNISH INFORMATION AFTER BID OPENING TO SHOW THAT IT WILL PERFORM IN A LABOR SURPLUS AREA AS REPRESENTED IN ITS BID. B-155522, DECEMBER 1, 1964 AND B-153267, JUNE 8, 1964. ACCORDINGLY, ASTRONAUTICS SHOULD BE PERMITTED TO FURNISH WHATEVER INFORMATION IT CAN IN SUPPORT OF ITS BID REPRESENTATION. WITH REGARD TO THE PROPOSED SUBCONTRACTOR AT HURLEY, THE LABOR AND OVERHEAD COSTS TO BE INCURRED AT HURLEY MAY BE CONSIDERED. NECESSARY TO THE DETERMINATION, COSTS OF MATERIALS PURCHASED BY THE SUBSIDIARY AT HURLEY MAY ALSO BE CONSIDERED TO THE EXTENT THE MATERIALS ARE TO BE PURCHASED FROM MANUFACTURERS OR PRODUCERS LOCATED IN LABOR SURPLUS AREAS.

IT IS THE BIDDER'S RESPONSIBILITY TO ESTABLISH ITS STATUS AS A LABOR SURPLUS AREA CONCERN. PRICE IS NOT A FACTOR IN MAKING THE SET-ASIDE AWARD. THE GOVERNMENT GRANTS A PRIORITY IN THE NEGOTIATION TO THE GROUP 1 BIDDER IN ORDER TO PLACE THE CONTRACT IN LABOR SURPLUS AREAS. THE CONTRACTING OFFICER, THEREFORE, MUST ASSURE HIMSELF THAT THE INFORMATION RECEIVED FROM THE BIDDER IS ACCURATE AND COMPLETE. IF, AFTER CONSIDERING THE INFORMATION SUBMITTED BY ASTRONAUTICS, YOUR CONTRACTING OFFICER IS SATISFIED THAT IT WILL PERFORM AS A LABOR SURPLUS AREA CONCERN, THEN IT IS ENTITLED TO PREFERENCE IN THE AWARD NEGOTIATION. OTHERWISE, CONSOLIDATED IS ENTITLED TO THE PREFERENCE.

ITEM 3 HAS NOT YET BEEN AWARDED. IT CALLS FOR AN INDEFINITE QUANTITY OF UNITS AS NEEDED AND CALLED FOR BY THE GOVERNMENT DURING A 24-MONTH PERIOD AFTER AWARD. NO FUNDS ARE TO BE OBLIGATED FOR THIS ITEM. THERE IS A QUESTION WHETHER AWARD ON THIS ITEM WOULD BE PROPER. WE RECEIVE OUR DECISION ON ITEM 3 AT THIS TIME, AND WILL ADVISE YOU FURTHER ON THE MATTER.

THERE IS ENCLOSED FOR YOUR INFORMATION A COPY OF A MEMORANDUM SUBMITTED HERE BY THE ATTORNEY FOR ASTRONAUTICS SETTING FORTH (PAGE 18) THE COSTS WHICH ARE ALLEGED WILL BE INCURRED BY THE ELECTRONIC INSTRUMENTS CORPORATION IN HURLEY, WISCONSIN.