Skip to main content

B-158069, APR. 4, 1966, 45 COMP. GEN. 613

B-158069 Apr 04, 1966
Jump To:
Skip to Highlights

Highlights

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - SIZE - DETERMINATION - TWO -STEP PROCUREMENT PROCEDURE THE CONTROLLING POINT IN TIME FOR DETERMINING THE SIZE STATUS OF A CONCERN BIDDING ON A TOTAL SET-ASIDE FOR SMALL BUSINESS WHERE THE TWO-STEP FORMAL ADVERTISING PROCEDURES AUTHORIZED IN PARAGRAPH 2-501 OF THE ARMED SERVICES PROCUREMENT REGULATION ARE UTILIZED IS THE DATE OF AWARD PRESCRIBED IN PARAGRAPH 1 703 (B) OF THE REGULATION. LARGE" BUSINESS DURING THE PROTRACTED TIME INTERVAL BETWEEN STEPS ONE AND TWO IS NOT SUFFICIENT TO JUSTIFY AN EXCEPTION TO THE RULE THAT A SIZE STATUS IS FOR DETERMINATION AT THE TIME OF AWARD. BIDS - ACCEPTANCE TIME LIMITATION - REFUSAL TO EXTEND A CONTRACT AWARD TO A BIDDER WHO REFUSED TO EXTEND HIS OFFER BEYOND THE ORIGINAL ACCEPTANCE PERIOD STATED IN THE BID SUBMITTED UNDER THE SECOND STEP OF A TWO-STEP PROCUREMENT ON THE BASIS THAT SUBCONTRACTORS AND VENDORS WERE NOT COMMITTED BEYOND THAT TIME WOULD NOT BE BINDING ON THE OFFEROR.

View Decision

B-158069, APR. 4, 1966, 45 COMP. GEN. 613

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - SIZE - DETERMINATION - TWO -STEP PROCUREMENT PROCEDURE THE CONTROLLING POINT IN TIME FOR DETERMINING THE SIZE STATUS OF A CONCERN BIDDING ON A TOTAL SET-ASIDE FOR SMALL BUSINESS WHERE THE TWO-STEP FORMAL ADVERTISING PROCEDURES AUTHORIZED IN PARAGRAPH 2-501 OF THE ARMED SERVICES PROCUREMENT REGULATION ARE UTILIZED IS THE DATE OF AWARD PRESCRIBED IN PARAGRAPH 1 703 (B) OF THE REGULATION, THE TWO-STEP PROCUREMENT REGULATION NOT PRECLUDING USE OF THE PROCEDURE IN A TOTAL SMALL BUSINESS SET-ASIDE, AND PROVIDING FOR CONFORMITY TO TECHNICAL REQUIREMENTS IN STEP ONE, RESERVING FOR STEP TWO, THE DETERMINATION OF THE CAPACITY AND CREDIT OF ACCEPTABLE OFFERORS UNDER STEP ONE, ALONG WITH PRICE EVALUATION, AND THE FACT THAT THE SIZE STATUS OF AN OFFEROR SUBMITTING A PROPOSAL IN GOOD FAITH, CHANGED FROM A "SMALL" TO A ,LARGE" BUSINESS DURING THE PROTRACTED TIME INTERVAL BETWEEN STEPS ONE AND TWO IS NOT SUFFICIENT TO JUSTIFY AN EXCEPTION TO THE RULE THAT A SIZE STATUS IS FOR DETERMINATION AT THE TIME OF AWARD, OTHERWISE, THE PURPOSE OF A SET ASIDE WOULD BE THWARTED BY AWARDING A CONTRACT TO OTHER THAN A SMALL BUSINESS CONCERN. BIDS - ACCEPTANCE TIME LIMITATION - REFUSAL TO EXTEND A CONTRACT AWARD TO A BIDDER WHO REFUSED TO EXTEND HIS OFFER BEYOND THE ORIGINAL ACCEPTANCE PERIOD STATED IN THE BID SUBMITTED UNDER THE SECOND STEP OF A TWO-STEP PROCUREMENT ON THE BASIS THAT SUBCONTRACTORS AND VENDORS WERE NOT COMMITTED BEYOND THAT TIME WOULD NOT BE BINDING ON THE OFFEROR, AND SUCH AN AWARD AMOUNTING TO A COUNTEROFFER WHICH GIVES THE BIDDER AN OPTION TO ACCEPT OR REFUSE, CONTRARY TO THE PRINCIPLES OF COMPETITIVE BIDDING, PRECLUDES CONSIDERATION OF THE BID AFTER THE EXPIRATION OF THE BID ACCEPTANCE PERIOD.

TO GEO SPACE CORPORATION, APRIL 4, 1966:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 18, 1965, IN WHICH YOU QUESTION THE APPLICABILITY OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-703 (B), RELATING TO THE CONTROLLING POINT IN TIME FOR DETERMINATION OF SIZE STATUS, TO A 100 PERCENT SMALL BUSINESS SET ASIDE WHERE TWO-STEP FORMAL ADVERTISING PROCEDURES PURSUANT TO ASPR 2 501 ARE UTILIZED.

THE PROCUREMENT IN QUESTION INVOLVES A REQUIREMENT FOR SIX EU-8 ANTENNA SYSTEMS, SPARE PARTS, AND 62 OPERATING MANUALS FOR THE AIR FORCE. STEPONE WAS A LETTER REQUEST FOR TECHNICAL PROPOSALS (LRFTP) ISSUED SEPTEMBER 21, 1964, AND DESIGNATED IFB-30-635-65-45. IT INCLUDED NOTICE THAT THE PROCUREMENT WAS A TOTAL SET-ASIDE FOR SMALL BUSINESS. SIX RESPONSIVE PROPOSALS WERE RECEIVED. EVALUATION OF THESE PROPOSALS INDICATED THE NEED FOR 17 CHANGES IN SPECIFICATIONS AND FIVE OF THE SIX ORIGINAL OFFERORS ACCEPTED THE CHANGES. ALL FIVE OF THESE PROPOSALS WERE DETERMINED TECHNICALLY ACCEPTABLE ON JULY 23, 1965.

ON SEPTEMBER 28, 1965, INVITATION FOR BIDS (IFB) NO. 04-606-66-64 WAS ISSUED AS THE SECOND STEP OF THE PROCUREMENT AND SENT TO THE FIVE ACCEPTABLE OFFERORS ON THE FIRST STEP. THE IFB ALSO INCLUDED NOTICE THAT THE PROCUREMENT WAS A TOTAL SET-ASIDE FOR SMALL BUSINESS. THE THREE BIDS RECEIVED AND OPENED ON THE CLOSING DATE OF OCTOBER 29, 1965, WERE AS FOLLOWS:

TABLE

GEO SPACE CORPORATION $233,250.00

AMERICAN ELECTRONIC LABORATORIES, INC. (AEL) 526,272.44

CUBIC CORPORATION 565,221.00

ALL THREE BIDS INCLUDED A 60-DAY ACCEPTANCE PERIOD.

ON NOVEMBER 3, 1965, PRIOR TO ANY AWARD, THE PROCURING ACTIVITY RECEIVED A TELEGRAM, CONFIRMED BY LETTER THE FOLLOWING DAY, FROM AEL QUESTIONING YOUR STATUS AS A SMALL BUSINESS CONCERN. BOTH THE TELEGRAM AND LETTER, AS WELL AS A SUBSEQUENT TELEGRAM DATED NOVEMBER 9, 1965, AND CONFIRMING LETTER, SET FORTH THE BASIS UPON WHICH THE CHALLENGE WAS MADE, WHICH WAS THAT THE TOTAL EMPLOYMENT OF YOUR FIRM AND OTHER AFFILIATED UNDER COMMON OWNERSHIP WAS IN EXCESS OF THE APPLICABLE STANDARD OF 750. PURSUANT TO ASPR 1-703 (B) (1) THE CONTRACTING OFFICER FORWARDED THE PROTEST RECORD TO THE ATLANTA, GEORGIA, REGIONAL OFFICE OF THE SMALL BUSINESS ADMINISTRATION (SBA). THE MATTER WAS SUBSEQUENTLY TRANSFERRED TO THE HOUSTON, TEXAS, REGIONAL SBA OFFICE BECAUSE YOUR HOME OFFICE (OR THAT OF YOUR CONTROLLING PARENT WESTERN EQUITIES, INC.) IS LOCATED IN THAT REGION. PURSUANT TO SECTION 121.3-5 (B) OF ITS REGULATIONS, SBA SENT YOU SBA FORM 355, APPLICATION FOR SIZE DETERMINATION, FOR COMPLETION AND FILING WITHIN 3 DAYS, WHICH WAS EXTENDED TO NOVEMBER 22, 1965. WHEN THE FORM HAD NOT BEEN FILED BY NOVEMBER 23, SBA RULED, PURSUANT TO ITS REGULATIONS, THAT YOUR FIRM WAS OTHER THAN A SMALL BUSINESS FOR THE SUBJECT PROCUREMENT. ALTHOUGH YOU FILED AN APPEAL FROM THIS DETERMINATION ON DECEMBER 1, 1965, AND INDICATED THAT THE REQUIRED FORM WOULD BE FILED, SBA ADVISES THAT THE FORM HAD NOT BEEN FILED AS OF FEBRUARY 9, 1966, AND THAT ITS EARLIER RULING THEREFORE STANDS.

YOUR CONTENTION THAT THE DATE OF AWARD SHOULD NOT BE THE CONTROLLING POINT IN TIME FOR DETERMINATION OF SIZE STATUS, AS PROVIDED IN ASPR 1 703 (B), IN A TWO-STEP PROCUREMENT, IS BASED ON THE FOLLOWING POINTS:

1. OUR BID WAS MADE IN GOOD FAITH.

2. THIS BIDDER WAS INVITED TO MAKE HIS BID IN ACCORDANCE WITH TWO STEP FORMAL ADVERTISING AS SET FORTH IN PART 5 OF SECTION 11 OF THE ARMED SERVICES PROCUREMENT REGULATIONS AND THAT SINCE PARAGRAPH 2 503.2 (II) READS IN PART "BIDS WILL BE ACCEPTED AND CONSIDERED ONLY FROM THOSE FIRMS WHO HAVE SUBMITTED ACCEPTABLE TECHNICAL PROPOSALS PURSUANT TO THE FIRST STEP---" THAT HAVING MET THIS INVITATION REQUIREMENT WE SHOULD BE CONSIDERED WITHOUT PREJUDICE TO THE REQUIREMENTS OF ASPR 1-703 (B).

3. THAT WITHIN THE FRAMEWORK OF SUCH A TWO-STEP PROCUREMENT EXTENDED OVER SUCH A LONG PERIOD OF TIME THERE IS A DETRIMENTAL INCONSISTENCY BETWEEN THE PROVISIONS OF SECTION 1-703 (B) AND 2-503.2 (II).

4. THAT THIS DETRIMENT IN THE INSTANT CASE WORKS AGAINST BOTH THE GOVERNMENT AND THIS BIDDER.

5. THAT THE PROTRACTED TIME INTERVAL BETWEEN STEPS 1 AND 2 WAS NOT CONTROLLABLE BY THE CONTRACTOR AND SHOULD NOT BE USED TO HIS DETRIMENT.

6. THAT HAVING BID IN GOOD FAITH UNDER THE PROVISIONS OF ASPR SECTION 11, PART 5, THE CHALLENGE OF SIZE STATUS UNDER THE PROVISION OF ASPR 1-703 (B) AFTER BID OPENING IS INVALID SINCE THIS BIDDER'S BID WAS MADE UNDER THE INVITATION EXPRESSED IN ASPR 2-503.2 (II).

IN ACCORDANCE WITH THE DECLARED POLICY OF CONGRESS, AS PRONOUNCED IN THE SMALL BUSINESS ACT, 15 U.S.C. 631 ET SEQ., "TO AID, COUNSEL, ASSIST, AND PROTECT, INSOFAR AS POSSIBLE, THE INTERESTS OF SMALL BUSINESS CONCERNS," TOTAL SET-ASIDES OF GOVERNMENT PROCUREMENTS ARE AUTHORIZED BY 15 U.S.C. 644, WHICH, IN PERTINENT PART, PROVIDES:

TO EFFECTUATE THE PURPOSES OF THIS CHAPTER, SMALL-BUSINESS CONCERNS WITHIN THE MEANING OF THIS CHAPTER SHALL RECEIVE ANY AWARD OF CONTRACT OR ANY PART THEREOF, AND BE AWARDED ANY CONTRACT FOR THE SALE OF GOVERNMENT PROPERTY, AS TO WHICH IT IS DETERMINED BY THE ADMINISTRATION AND THE CONTRACTING PROCUREMENT OR DISPOSAL AGENCY (1) TO BE IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, (2) TO BE IN THE INTEREST OF WAR OR NATIONAL DEFENSE PROGRAMS, (3) TO BE IN THE INTEREST OF ASSURING THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS FOR PROPERTY AND SERVICES FOR THE GOVERNMENT ARE PLACED WITH SMALL-BUSINESS CONCERNS, OR (4) TO BE IN THE INTEREST OF ASSURING THAT A FAIR PORTION OF THE TOTAL SALES OF GOVERNMENT PROPERTY BE MADE TO SMALL- BUSINESS CONCERNS; * * *.

IN RECOGNITION OF THE CONGRESSIONAL MANDATE, ASPR 1-702 (A) PROVIDES, IN PERTINENT PART, AS FOLLOWS:

(A) IT IS THE POLICY OF THE DEPARTMENT OF DEFENSE TO PLACE A FAIR PROPORTION OF ITS TOTAL PURCHASES AND CONTRACTS FOR SUPPLIES, RESEARCH AND DEVELOPMENT, AND SERVICES (INCLUDING BUT NOT LIMITED TO CONTRACTS FOR MAINTENANCE, REPAIRS AND CONSTRUCTION) WITH SMALL BUSINESS CONCERNS. EVERY EFFORT SHOULD BE MADE TO ENCOURAGE PARTICIPATION BY SUCH CONCERNS IN THE PROCUREMENT OF SUPPLIES AND SERVICES THAT ARE WITHIN THEIR CAPABILITIES. HEADS OF PROCURING ACTIVITIES AND HEADS OF FIELD PURCHASING AND CONTRACT ADMINISTRATION ACTIVITIES ARE RESPONSIBLE FOR THE EFFECTIVE IMPLEMENTATION OF THE SMALL BUSINESS PROGRAM WITHIN THEIR RESPECTIVE ACTIVITIES.

WITH RESPECT TO TOTAL SET-ASIDES, ASPR 1-706.5 PROVIDES, IN PERTINENT PART, AS FOLLOWS:

(A) (1) SUBJECT TO ANY APPLICABLE PREFERENCE FOR LABOR SURPLUS AREA SET- ASIDES AS PROVIDED IN 1-803 (A) (2), THE ENTIRE AMOUNT OF AN INDIVIDUAL PROCUREMENT OR A CLASS OF PROCUREMENTS, INCLUDING BUT NOT LIMITED TO CONTRACTS FOR MAINTENANCE, REPAIR, AND CONSTRUCTION, SHALL BE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION (SEE 1-701.1) IF THE CONTRACTING OFFICER DETERMINES THAT THERE IS REASONABLE EXPECTATION THAT BIDS OR PROPOSALS WILL BE OBTAINED FROM A SUFFICIENT NUMBER OF REASONABLE SMALL BUSINESS CONCERNS SO THAT AWARDS WILL BE MADE AT REASONABLE PRICES.

(B) CONTRACTS FOR TOTAL SMALL BUSINESS SET-ASIDES MAY BE ENTERED INTO BY CONVENTIONAL NEGOTIATION OR BY A SPECIAL METHOD OF PROCUREMENT KNOWN AS "SMALL BUSINESS RESTRICTED VERTISING.' THE LATTER METHOD SHALL BE USED WHEREVER POSSIBLE. * * * INVITATIONS FOR BIDS AND REQUESTS FOR PROPOSALS SHALL BE RESTRICTED TO SMALL BUSINESS CONCERNS. SMALL BUSINESS RESTRICTED ADVERTISING, INCLUDING AWARDS THEREUNDER, SHALL BE CONDUCTED IN THE SAME WAY AS PRESCRIBED FOR FORMAL ADVERTISING IN SECTION II EXCEPT THAT BIDS AND AWARDS SHALL BE RESTRICTED TO SMALL BUSINESS CONCERNS. BIDS RECEIVED FROM FIRMS WHICH DO NOT QUALIFY AS SMALL BUSINESS CONCERNS SHALL BE CONSIDERED AS NONRESPONSIVE AND SHALL BE REJECTED.

TURNING TO PART 2 OF ASPR, SECTION 2-501 PROVIDES AS FOLLOWS AS TO TWO- STEP FORMAL ADVERTISING:

TWO-STEP FORMAL ADVERTISING IS A METHOD OF PROCUREMENT DESIGNED TO EXPAND THE USE AND OBTAIN THE BENEFITS OF FORMAL ADVERTISING WHERE INADEQUATE SPECIFICATION PRECLUDE THE USE OF CONVENTIONAL FORMAL ADVERTISING. IT IS ESPECIALLY USEFUL IN PROCUREMENTS REQUIRING TECHNICAL PROPOSALS, ESPECIALLY THOSE FOR COMPLEX ITEMS. IT IS CONDUCTED IN TWO STEPS:

(I) STEP ONE CONSISTS OF THE REQUEST FOR, AND SUBMISSION, EVALUATION, AND IF NECESSARY, DISCUSSION OF A TECHNICAL PROPOSAL, WITHOUT PRICING, TO DETERMINE THE ACCEPTABILITY OF THE SUPPLIES OR SERVICES OFFERED. AS USED IN THIS CONTEXT, THE WORD "TECHNICAL" HAS A BROAD CONNOTATION AND INCLUDES ENGINEERING APPROACH, SPECIAL MANUFACTURING PROCESSES, AND SPECIAL TESTING TECHNIQUES. WHEN IT IS NECESSARY IN ORDER TO CLARIFY BASIC TECHNICAL REQUIREMENTS, RELATED REQUIREMENTS SUCH AS MANAGEMENT APPROACH, MANUFACTURING PLAN, OR FACILITIES TO BE UTILIZED MAY BE CLARIFIED IN THIS STEP. CONFORMING TO THE TECHNICAL REQUIREMENTS IS RESOLVED IN THIS STEP, BUT CAPACITY AND CREDIT, AS DEFINED IN 1-705.4, ARE NOT.

(II) STEP TWO IS A FORMALLY ADVERTISED PROCUREMENT CONFINED TO THOSE WHO SUBMITTED ACCEPTABLE TECHNICAL PROPOSALS IN STEP ONE. BIDS SUBMITTED IN STEP TWO ARE EVALUATED AND THE AWARDS MADE IN ACCORDANCE WITH PARTS 3 AND 4 OF THIS SECTION.

SECTION 2-502 SETS FORTH SEVERAL CONDITIONS THE EXISTENCE OF WHICH REQUIRE THE USE OF TWO-STEP FORMAL ADVERTISING PROCEDURES AND GOES ON TO STATE THAT:

(B) NONE OF THE FOLLOWING IN ITSELF PRECLUDES THE USE OF TWO-STEP FORMAL ADVERTISING:

(4) A TOTAL SMALL BUSINESS SET-ASIDE IS INVOLVED (SEE 1-706.5 (B) AND 1- 706.2).

THE CONGRESSIONAL MANDATE WITH RESPECT TO PLACING A FAIR PROPORTION OF THE GOVERNMENT'S BUSINESS WITH SMALL BUSINESS CONCERNS IS EXPRESSED AND IMPLEMENTED IN PART 1 OF ASPR. IT IS MANIFEST THAT CARRYING OUT THE POLICY ENUNCIATED THEREIN IS THE RESPONSIBILITY OF, AND WITHIN THE DISCRETION OF, THE PROCUREMENT PERSONNEL OF THE ACTIVITY CONCERNED. LONG AS THE EXERCISE OF THE RESPONSIBILITY AND DISCRETION THEREBY GRANTED IS WITHIN THE FRAMEWORK OF THE AUTHORITY EXPRESSED IN THE STATUTE AND APPLICABLE REGULATIONS, THERE IS NO BASIS UPON WHICH OUR OFFICE MAY PROPERLY OBJECT TO A DETERMINATION TO SET ASIDE A PROCUREMENT FOR SMALL BUSINESS CONCERNS, ADVERTISE AS PROVIDED FOR THEREIN, AND AWARD ANY CONTRACT IN ACCORDANCE THEREWITH. SINCE UNDER THE REGULATIONS GOVERNING TWO-STEP PROCUREMENT MATTERS OF CAPACITY AND CREDIT ARE NOT CONSIDERED IN THE EVALUATION OF THE TECHNICAL ACCEPTABILITY OF PROPOSALS SUBMITTED IN STEP ONE, SUCH MATTERS ARE NECESSARILY TO BE DETERMINED ALONG WITH PRICE EVALUATION IN STEP TWO, AND WE SEE NO BASIS FOR ANY EXCEPTION TO THE RULE OF ASPR 1-703 (B) THAT THE CONTROLLING POINT IN TIME FOR DETERMINATION OF SIZE STATUS IS THE DATE OF AWARD. OTHERWISE THE PURPOSE OF THE SET-ASIDE WOULD BE THWARTED, AS AWARD OF THE CONTRACT COULD BE TO OTHER THAN A SMALL BUSINESS CONCERN.

WE DO NOT BELIEVE THE FACT THAT YOU SUBMITTED YOUR PROPOSAL AND BID IN GOOD FAITH, AND THE FACT THAT THERE WAS A PROTRACTED TIME INTERVAL BETWEEN STEPS ONE AND TWO NOT CONTROLLABLE BY YOU DURING WHICH TIME YOUR STATUS MAY HAVE CHANGED FROM "SMALL" TO "LARGE" BUSINESS, ARE SUFFICIENT TO JUSTIFY AN EXCEPTION TO THE CLEAR REQUIREMENTS OF THE FOREGOING LAWS AND REGULATIONS.

SINCE YOUR FIRM DOES NOT QUALIFY AS A SMALL BUSINESS CONCERN, YOUR BID MUST BE CONSIDERED NONRESPONSIVE AND A REJECTED PURSUANT TO ASPR 1 706.5 (B). IT IS ALSO NOTED THAT YOU REFUSED TO EXTEND YOUR OFFER BEYOND THE ORIGINAL 60-DAY PERIOD WHICH EXPIRED DECEMBER 29, 1965, BECAUSE YOU DID NOT HAVE COMMITMENTS FROM YOUR SUBCONTRACTORS AND VENDORS BEYOND THAT TIME. THEREFORE, ACCEPTANCE OF YOUR OFFER AFTER THAT DATE WOULD NOT HAVE BEEN BINDING UPON YOU, BUT WOULD HAVE AMOUNTED TO A COUNTER-OFFER WHICH YOU WOULD HAVE HAD THE OPTION OF ACCEPTING OR REFUSING. SINCE THIS WOULD BE CONTRARY TO THE PRINCIPLES OF COMPETITIVE BIDDING, IT WOULD, IN EFFECT, PRECLUDE FURTHER CONSIDERATION OF YOUR BID EVEN IF IT WAS OTHERWISE ACCEPTABLE.

ACCORDINGLY, YOUR PROTEST MUST BE DENIED.

GAO Contacts

Office of Public Affairs