B-158479, MAY 12, 1966

B-158479: May 12, 1966

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TO AEL MANUFACTURING DIVISION OF ELECTROMAGNETIC TECHNOLOGY CORPORATION: FURTHER REFERENCE IS MADE TO COPIES OF YOUR LETTER AND TELEGRAM DATED FEBRUARY 3. RECEIPT IS ALSO ACKNOWLEDGED OF YOUR LETTER OF APRIL 1. THAT AWARD WILL BE MADE ONLY FOR ITEMS WHICH HAVE BEEN TESTED AND ARE QUALIFIED FOR INCLUSION IN THE APPLICABLE QUALIFIED PRODUCTS LIST (QPL). WERE SOLICITED. THREE BIDS WERE OPENED AND TABULATED ON THE ABSTRACT OF BIDS AS FOLLOWS: CHART BIDDER UNIT PRICE GENERAL ATRONICS CORP. $664.40 AEL MANUFACTURING (*) 740.00 DIVISION OF ELECTROMAGNETIC TECHNOLOGY CORP. INC. 806.00 (*) LARGE BUSINESS IT APPEARS THAT AWARD UNDER THIS INVITATION IS BEING WITHHELD BY THE DEPARTMENT OF THE NAVY PENDING OUR DECISION.

B-158479, MAY 12, 1966

TO AEL MANUFACTURING DIVISION OF ELECTROMAGNETIC TECHNOLOGY CORPORATION:

FURTHER REFERENCE IS MADE TO COPIES OF YOUR LETTER AND TELEGRAM DATED FEBRUARY 3, 1966, TO THE DEPARTMENT OF THE NAVY, BUREAU OF SHIPS (NOW KNOWN AS NAVAL SHIP SYSTEMS COMMAND), WASHINGTON, C., PROTESTING AGAINST THE PARTIAL SMALL BUSINESS SET-ASIDE UNDER INVITATION FOR BIDS NO. 600-605 -66-S. RECEIPT IS ALSO ACKNOWLEDGED OF YOUR LETTER OF APRIL 1, 1966.

THE ABOVE INVITATION, AS AMENDED, REQUESTED BIDS FOR FURNISHING 739 AN/USM-117 ( ( OSCILLOSCOPES, WITH A LIKE AMOUNT SET ASIDE FOR SMALL BUSINESS. THE INVITATION CONTAINED A CLAUSE ENTITLED "NOTICE--- QUALIFIED END PRODUCTS (DEC. 1965)" AND IT PROVIDES, IN SUMMARY, THAT AWARD WILL BE MADE ONLY FOR ITEMS WHICH HAVE BEEN TESTED AND ARE QUALIFIED FOR INCLUSION IN THE APPLICABLE QUALIFIED PRODUCTS LIST (QPL), MIL-O-23124 (SHIPS), AT THE TIME OF OPENING OF BIDS.

THE CONTRACTING OFFICER REPORTS THAT A TOTAL OF FOUR POTENTIAL SUPPLIERS, TWO SMALL AND TWO LARGE BUSINESSES, WERE SOLICITED. BY BID OPENING ON MARCH 17, 1966, THREE BIDS WERE OPENED AND TABULATED ON THE ABSTRACT OF BIDS AS FOLLOWS:

CHART

BIDDER UNIT PRICE

GENERAL ATRONICS CORP. $664.40

AEL MANUFACTURING (*) 740.00

DIVISION OF ELECTROMAGNETIC

TECHNOLOGY CORP.

LAVOIE LABORATORIES, INC. 806.00

(*) LARGE BUSINESS

IT APPEARS THAT AWARD UNDER THIS INVITATION IS BEING WITHHELD BY THE DEPARTMENT OF THE NAVY PENDING OUR DECISION.

YOU STATE THAT YOUR FIRM HAS INVESTED A CONSIDERABLE SUM OF MONEY TO QUALIFY YOUR PRODUCT IN ACCORDANCE WITH GOVERNMENT REGULATIONS FOR THE QUALIFIED PRODUCTS LIST AND THAT AT THE TIME THIS INVESTMENT WAS MADE, THERE WAS NO INDICATION FROM THE GOVERNMENT THAT YOUR FIRM WOULD EVER BE PLACED IN AN UNFAIR COMPETITIVE POSITION. THE UNFAIR POSITION OF WHICH YOU COMPLAIN APPEARS TO HAVE RESULTED FROM A CHANGE IN YOUR STATUS FROM SMALL BUSINESS TO LARGE BUSINESS. IT IS REPORTED THAT AT THE TIME YOU QUALIFIED YOUR PRODUCT FOR THE QUALIFIED PRODUCTS LIST YOUR FIRM WAS A SMALL BUSINESS CONCERN. YOU STATE THAT THE INCLUSION OF A PARTIAL SMALL BUSINESS SET-ASIDE IN THIS INVITATION HAS EFFECTIVELY PRECLUDED COMPETITIVE BIDDING BY LARGE BUSINESSES BECAUSE SUCH CONCERNS MAY BID ONLY ON HALF OF THE REQUIRED QUANTITY OF OSCILLOSCOPES AND THAT THIS SITUATION COULD WELL RESULT IN GREATLY INCREASED PRICES TO THE GOVERNMENT. IN YOUR LETTER OF APRIL 1, 1966, YOU STATE THAT YOU HAVE JUST LEARNED THAT ONE OF THE THREE COMPANIES WHICH BID UNDER THIS INVITATION IS HAVING FINANCIAL DIFFICULTIES AND THAT THERE IS A POSSIBILITY THAT THERE WILL BE ONLY TWO FIRMS--- ONE LARGE AND ONE SMALL--- BIDDING ON FUTURE PROCUREMENTS OF THIS ITEM. YOU CONTEND THAT IF THE INVITATIONS COVERING THESE PROCUREMENTS CONTAIN A SMALL BUSINESS SET-ASIDE, THESE PROCUREMENTS BECOME FOR ALL PRACTICAL PURPOSES A SOLE-SOURCE PROCUREMENT. YOU REQUEST THAT THE PARTIAL SMALL BUSINESS SET-ASIDE IN THIS INVITATION BE WITHDRAWN AND THAT ALL QUALIFIED CONTRACTORS BE GIVEN AN EQUAL OPPORTUNITY TO BID ON THE ENTIRE QUANTITY OF OSCILLOSCOPES.

SECTION 15 OF THE SMALL BUSINESS ACT, 15 U.S.C. 644, PROVIDES THAT SMALL BUSINESS CONCERNS SHALL RECEIVE ANY AWARD OR CONTRACT OR ANY PART THEREOF AS TO WHICH IT IS DETERMINED 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. UNDER SECTION 15 OF THE ACT THE DETERMINATION AS TO WHETHER A PARTICULAR PROCUREMENT SHOULD BE SET ASIDE IS WITHIN THE JURISDICTION OF THE PROCURING AGENCY AND THE SMALL BUSINESS ADMINISTRATION. IMPLEMENTING THE STATUTORY MANDATE AS FAR AS THE DEFENSE ESTABLISHMENT IS CONCERNED IS SECTION 1, PART 7, OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR). WITH RESPECT TO PARTIAL SET ASIDES, ASPR 1-706.6 PROVIDES IN PERTINENT PART AS FOLLOWS:

"1-706.6 PARTIAL SET-ASIDES.

(A) SUBJECT TO ANY APPLICABLE PREFERENCE FOR LABOR SURPLUS AREA SET- ASIDES AS PROVIDED IN 1-803 (A) (II), A PORTION OF A PROCUREMENT, NOT INCLUDING CONSTRUCTION, SHALL BE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION (SEE 1-706.1) WHERE:

"/III) ONE OR MORE SMALL BUSINESS CONCERNS ARE EXPECTED TO HAVE THE TECHNICAL COMPETENCY AND PRODUCTIVE CAPACITY TO FURNISH A SEVERABLE PORTION OF THE PROCUREMENT AT A REASONABLE PRICE, EXCEPT THAT A PARTIAL SET-ASIDE SHALL NOT BE MADE IF THERE IS A REASONABLE EXPECTATION THAT ONLY TWO CONCERNS (ONE LARGE AND ONE SMALL) WITH TECHNICAL COMPETENCY AND PRODUCTIVE CAPACITY WILL RESPOND WITH BIDS OR PROPOSALS. BEFORE REACHING THIS CONCLUSION, THE CONTRACTING OFFICER SHALL CONSULT WITH THE SMALL BUSINESS SPECIALIST AND MAY MAKE ADVANCED INQUIRIES TO DETERMINE THE NUMBER OF INTERESTED CONCERNS. ANY DEVIATION FROM THIS PARTIAL SET-ASIDE PROCEDURE MUST BE APPROVED BY THE HEAD OF THE PROCURING ACTIVITY ON A CASE -BY-CASE BASIS.'

ALTHOUGH ASPR 1-706.1 (III) PROHIBITS A TOTAL SMALL BUSINESS SET ASIDE OF A QPL ITEM, UNLESS IT HAS BEEN CONFIRMED THAT NO LARGE BUSINESS ON THE QPL DESIRES TO PARTICIPATE IN THE PROCUREMENT, THERE IS NO PROHIBITION AGAINST PARTIAL SMALL BUSINESS SET-ASIDES.

THE DETERMINATION TO SET ASIDE A PORTION OF THIS PROCUREMENT FOR SMALL BUSINESS IS REPORTED TO HAVE BEEN BASED UPON A REASONABLE EXPECTATION THAT BIDS WOULD BE RECEIVED FROM THE TWO SMALL BUSINESS CONCERNS WHICH SUBMITTED BIDS IN RESPONSE TO THE PREVIOUS INVITATION FOR BIDS, NO. 600- 647-65-S, AND THAT AN AWARD WOULD BE MADE AT A FAIR AND REASONABLE PRICE. IN THAT CONNECTION, IT IS REPORTED THAT THE BID PRICE OF GENERAL ATRONICS CORP., THE LOWEST PRICE EVER OBTAINED IN THE PURCHASE OF THESE OSCILLOSCOPES, IS CONSIDERED REASONABLE.

THE PARTIAL SET-ASIDE OF THIS PROCUREMENT FOR SMALL BUSINESS CONCERNS APPEARS TO HAVE BEEN MADE WITHIN THE FRAMEWORK OF PERTINENT LAWS AND REGULATIONS ON THE BASIS OF A DETERMINATION AUTHORIZED TO BE MADE BY THE CONTRACTING OFFICER AND THE SMALL BUSINESS ADMINISTRATION. WE, THEREFORE, FIND NO LEGAL BASIS ON WHICH TO QUESTION THE DEPARTMENT'S DETERMINATION TO PROCURE A PORTION OF THE EQUIPMENT CALLED FOR IN THE INVITATION UNDERA PARTIAL SET-ASIDE FOR SMALL BUSINESS CONCERNS. THEREFORE, YOUR PROTEST MUST BE DENIED.

IN REGARD TO YOUR STATEMENT THAT BECAUSE OF FINANCIAL DIFFICULTIES NOW BEING EXPERIENCED BY ONE OF THE TWO SMALL BUSINESS CONCERNS BIDDING ON THIS EQUIPMENT, FUTURE PROCUREMENTS, WHICH HAVE BEEN PARTIALLY SET ASIDE FOR SMALL BUSINESS CONCERNS, MIGHT BECOME SOLE SOURCE PROCUREMENTS, IT APPEARS THAT SUCH A SITUATION WOULD BE PROHIBITED BY THE PROVISIONS OF ASPR 1-706.6 (A) (III), WHICH PROVIDES THAT NO PARTIAL SET-ASIDE OF A PROCUREMENT FOR SMALL BUSINESS CONCERNS WILL BE MADE "IF THERE IS A REASONABLE EXPECTATION THAT ONLY TWO CONCERNS (ONE LARGE AND ONE SMALL) WITH TECHNICAL COMPETENCY AND PRODUCTIVE CAPACITY WILL RESPOND WITH BIDS OR PROPOSALS.'