B-159202, JULY 29, 1966, 46 COMP. GEN. 102

B-159202: Jul 29, 1966

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THAT THE SERVICE INDUSTRY CLASSIFICATION SHOULD HAVE BEEN USED. IS BINDING ON THE PROCUREMENT OFFICIALS OF THE GOVERNMENT. TO DETERMINE WITHIN ANY INDUSTRY THE CONCERNS THAT ARE SMALL BUSINESS FOR THE PURPOSE OF GOVERNMENT PROCUREMENT. THE CONTRACTING OFFICER CONCLUDING THAT THERE WAS A REASONABLE EXPECTATION OF SMALL BUSINESS PARTICIPATION UNDER THE CORRECTED SIZE CLASSIFICATION FOR THE INTERIOR PAINTING PROCUREMENT. UNDER A SMALL BUSINESS SET-ASIDE THE FACT THAT AN UNSUCCESSFUL BIDDER DESPITE SELF-CERTIFICATION WAS NOT A SMALL BUSINESS CONCERN IS NOT OPEN TO QUESTION. A CONTRACT AWARD ON THE BASIS THAT THE UNIT PRICES OF THE LOW BIDDER UNDER A SMALL BUSINESS SET-ASIDE WERE NO HIGHER.

B-159202, JULY 29, 1966, 46 COMP. GEN. 102

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - SIZE - CLASSIFICATION PROPRIETY. A SMALL BUSINESS ADMINISTRATION DETERMINATION THAT A SHIP DOES NOT COME WITHIN THE DEFINITION OF "REAL PROPERTY" AND THAT INVITATIONS SOLICTING BIDS UNDER SMALL BUSINESS SET-ASIDES FOR PAINTING BOTH THE INTERIOR AND EXTERIOR OF SHIPS INCORRECTLY CITED THE SIZE STANDARD FOR THE CONSTRUCTION INDUSTRY THAT APPLIES TO CONTRACTS FOR PAINTING BUILDINGS, BRIDGES, ROADS, OR OTHER REAL PROPERTY, A DETERMINATION UPHELD ON APPEAL, AND THAT THE SERVICE INDUSTRY CLASSIFICATION SHOULD HAVE BEEN USED, IS BINDING ON THE PROCUREMENT OFFICIALS OF THE GOVERNMENT, 15 U.S.C. 632 AND 637/B) (6) EMPOWERING THE ADMINISTRATION TO PRESCRIBE BUSINESS SIZE STANDARDS FOR INDUSTRY, TO DETERMINE WITHIN ANY INDUSTRY THE CONCERNS THAT ARE SMALL BUSINESS FOR THE PURPOSE OF GOVERNMENT PROCUREMENT, AND TO CONSIDER APPEALS FROM INITIAL DETERMINATIONS OF PROCURING AGENCIES AS TO THE SIZE STANDARD APPLICABLE TO A PARTICULAR PROCUREMENT. CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - SET-ASIDES - ADMINISTRATIVE DETERMINATION. UPON DETERMINATION THAT THE INCORRECT SIZE STANDARD HAD BEEN USED UNDER TWO INVITATIONS SOLICITING BIDS FROM SMALL BUSINESS CONCERNS, ONE FOR PAINTING THE INTERIOR, THE OTHER THE EXTERIOR OF SHIPS, THE CONTRACTING OFFICER CONCLUDING THAT THERE WAS A REASONABLE EXPECTATION OF SMALL BUSINESS PARTICIPATION UNDER THE CORRECTED SIZE CLASSIFICATION FOR THE INTERIOR PAINTING PROCUREMENT, BUT UNABLE TO ARRIVE AT THE SAME CONCLUSION FOR THE EXTERIOR PAINTING CONTRACT, PROPERLY RETAINED THE SMALL BUSINESS SET-ASIDE ON THE INTERIOR PAINTING PROCUREMENT, IN VIEW OF THE FACT THAT THE STATUTORY POLICY, 10 U.S.C. 2301, FAVORS SMALL BUSINESS AWARDS. CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - SELF CERTIFICATION - UNSUCCESSFUL BIDDER. UNDER A SMALL BUSINESS SET-ASIDE THE FACT THAT AN UNSUCCESSFUL BIDDER DESPITE SELF-CERTIFICATION WAS NOT A SMALL BUSINESS CONCERN IS NOT OPEN TO QUESTION, PARAGRAPH 1-703/B) (1) AND (2) ARMED SERVICES PROCUREMENT REGULATION, NEITHER PROVIDING NOR CONTEMPLATING A PROTEST AGAINST THE SMALL BUSINESS STATUS OF A BIDDER OTHER THAN THE "APPARENTLY SUCCESSFUL BIDDER;, CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - PRICE REASONABLENESS. A CONTRACT AWARD ON THE BASIS THAT THE UNIT PRICES OF THE LOW BIDDER UNDER A SMALL BUSINESS SET-ASIDE WERE NO HIGHER, IN FACT LOWER OVERALL, THAN THE PRICES ACCEPTED ON PREVIOUS CONTRACTS SATISFIES THE REASONABLE PRICE CRITERIA OF PARAGRAPH 1-706.3/A) OF THE ARMED SERVICES PROCUREMENT REGULATION PROVIDING THAT "AN AWARD SHOULD NOT BE MADE UNDER A SMALL BUSINESS SET-ASIDE IF IT WILL RESULT IN THE PAYMENT OF AN UNREASONABLE PRICE BY THE GOVERNMENT;,

TO ALLAN, MILLER, GROEZINGER, KEESLING AND MARTIN, JULY 29, 1966:

WE REFER TO YOUR LETTER OF MAY 18, 1966, WITH ENCLOSURES, AND THE SUBSEQUENT CORRESPONDENCE ON BEHALF OF YOUR CLIENT, EUREKA MARINE COMPANY, PROTESTING THE SMALL BUSINESS SET-ASIDE AND THE AWARD MADE PURSUANT THERETO UNDER INVITATION FOR BIDS NO. 022866B3066 ISSUED BY THE NAVAL SUPPLY CENTER, OAKLAND, CALIFORNIA, ON MARCH 30, 1966.

THE INVITATION CALLED FOR BIDS ON AN ANNUAL CONTRACT FOR SERVICES AND MATERIAL FOR SURFACE PREPARATION AND PAINTING OF INTERIOR SURFACE AREAS OF SHIPS ASSIGNED TO SAN FRANCISCO, CALIFORNIA, AND THE SURROUNDING AREA. BIDDING WAS RESTRICTED TO SMALL BUSINESS CONCERNS, AND THE SIZE STANDARD CITED AS APPLICABLE WAS THAT FOR CONSTRUCTION INDUSTRIES, WHICH INCLUDED CONCERNS HAVING AVERAGE ANNUAL RECEIPTS NOT EXCEEDING $7,500,000. INDEFINITE QUANTITY CONTRACT WAS SPECIFIED, BUT ESTIMATED QUANTITIES WERE STATED FOR THE PURPOSE OF BID EVALUATION. THE ITEMS OF WORK (EACH ITEM DESCRIBING A SURFACE AREA) WERE LISTED UNDER TWO LOTS, WITH AWARD RESERVED FOR A SINGLE BIDDER ON EACH ENTIRE LOT OR FOR THE LOW AGGREGATE BIDDER ON BOTH LOTS I AND II.

BID OPENING WAS SCHEDULED FOR APRIL 29, 1966. ON APRIL 14, 1966, THE CONTRACTING OFFICER WAS ADVISED BY THE SMALL BUSINESS ADMINISTRATION, REGIONAL OFFICE, SAN FRANCISCO, THAT THE SIZE STANDARD SPECIFIED IN THE INVITATION WAS INCORRECT. UNDER SBA REGULATIONS, THE CONSTRUCTION INDUSTRY CLASSIFICATION APPLIES TO CONTRACTS FOR PAINTING OF BUILDINGS, BRIDGES, ROADS, OR OTHER REAL PROPERTY. THE SBA REGIONAL OFFICE DETERMINED THAT A SHIP DOES NOT FALL WITHIN THE DEFINITION OF REAL PROPERTY. IT CONCLUDED THAT THE PROPER CLASSIFICATION FOR THE INVITATION WAS AS A SERVICE INDUSTRY, WHICH HAS A MAXIMUM SIZE STANDARD OF $1 MILLION DOLLARS AVERAGE ANNUAL GROSS INCOME. THE SBA ACTION HAD BEEN PROMPTED BY A PROTEST FILED BY ANOTHER INTERESTED CONCERN. ON APRIL 18, 1966, THE INVITATION WAS AMENDED TO CHANGE THE SIZE CLASSIFICATION FROM CONSTRUCTION TO SERVICE INDUSTRY. EUREKA MARINE APPEALED THE MATTER TO THE SIZE APPEAL BOARD, SBA, WASHINGTON, D.C; AND, PENDING THIS APPEAL, THE BID OPENING DATE ON IFB-3066 WAS RESET FOR MAY 20, 1966.

MEANWHILE, ANOTHER NAVAL SUPPLY CENTER PROCUREMENT WAS AFFECTED BY THE SBA RECLASSIFICATION. THE NAVAL SUPPLY CENTER HAD ALSO REQUESTED BIDS FOR EXTERIOR PAINTING OF SHIPS. THIS INVITATION (IFB-3029) HAD BEEN RESTRICTED TO SMALL BUSINESS (CONSTRUCTION) CONCERNS, AND BIDS HAD BEEN OPENED ON MARCH 30, 1966. EUREKA MARINE HAD BEEN THE LOW BIDDER ON THIS INVITATION. AS A RESULT OF THE SBA DETERMINATION REGARDING THE INTERIOR PAINTING PROCUREMENT, THE SUPPLY CENTER CANCELED THE EXTERIOR PAINTING PROCUREMENT. THE REQUIREMENT WAS THEN REISSUED WITHOUT ANY SMALL BUSINESS RESTRICTION. AT THIS TIME YOU PROTESTED THE ENTIRE MATTER TO THIS OFFICE.

ON MAY 13, 1966, THE SBA SIZE APPEAL BOARD DENIED EUREKA MARINE'S APPEAL. IT RULED THAT UNDER THE APPLICABLE SBA REGULATION (PARAGRAPH 121.3-8/A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION (REVISION 5), AS AMENDED) A SHIP DID NOT REASONABLY FALL WITHIN THE TERM "REAL PROPERTY", AND THEREFORE, THE CONSTRUCTION INDUSTRY SIZE STANDARD COULD NOT PROPERLY BE APPLIED TO A CONTRACT CALLING FOR THE PAINTING OF SHIPS.

THE EFFECT OF THE SBA SIZE APPEAL BOARD'S RULING WAS TO ELIMINATE EUREKA MARINE AS A SMALL BUSINESS CONCERN BIDDER ON THESE PAINTING CONTRACTS. COULD QUALIFY AS A SMALL BUSINESS CONCERN UNDER THE MORE LIBERAL CONSTRUCTION INDUSTRY STANDARD, BUT COULD NOT QUALIFY UNDER THE SERVICE INDUSTRY CLASSIFICATION. IN PAST YEARS THE NAVAL SUPPLY CENTER HAS CLASSIFIED THESE ANNUAL PAINTING CONTRACTS AS WITHIN THE CONSTRUCTION INDUSTRY CATEGORY. APPARENTLY THIS CLASSIFICATION HAD NOT BEEN CHALLENGED BEFORE, BECAUSE UNDER SBA REGULATIONS A CONTRACTING OFFICER'S CLASSIFICATION CONTROLS FOR A PROCUREMENT IN THE ABSENCE OF A PROTEST TO THE SBA. UNDER THE CONSTRUCTION INDUSTRY CLASSIFICATION, EUREKA MARINE HAD RECEIVED SEVERAL OF THESE ANNUAL CONTRACTS.

AFTER THE MAY 13TH RULING, YOU CONTENDED TO THE CONTRACTING OFFICER THAT THE SET-ASIDE ON THE INTERIOR PAINTING PROCUREMENT SHOULD BE WITHDRAWN, JUST AS IT HAD BEEN WITHDRAWN ON THE EXTERIOR PAINTING PROCUREMENT. YOU ADVISED THAT TO YOUR KNOWLEDGE ONLY ONE CONCERN, NAMELY H AND H SHIPS SERVICE COMPANY, MIGHT BID AS A SMALL BUSINESS CONCERN, AND THAT EVEN THIS CONCERN HAD A DOUBTFUL STATUS AS SMALL BUSINESS. YOU CONCLUDED THAT THERE WAS NO REASONABLE CHANCE OF OBTAINING COMPETITION UNDER THE SET-ASIDE. THE CONTRACTING OFFICER DISAGREED, HOWEVER, AND REFUSED TO WITHDRAW THE SET-ASIDE.

THE TWO PROCUREMENTS PROCEEDED TO BID OPENING AS SCHEDULED. ON THE EXTERIOR PAINTING PROCUREMENT, WHERE THERE WAS NO SET-ASIDE, EUREKA MARINE WAS LOW BIDDER ONCE AGAIN, AND IT HAS RECEIVED THIS AWARD. THE REMAINING PROTEST THEREFORE CONCERNS IFB-3066, THE INTERIOR PAINTING PROCUREMENT.

BIDS ON IFB-3066 WERE OPENED ON MAY 20, 1966, AND WERE AS FOLLOWS:

TOTAL AGGRE)

TOTAL FOR TOTAL FOR GATE FOR

LOT I LOT II LOTS I AND II MERIDIAN MARINE SHIP SERVICE INC. $36,450.00 $273,350.00 $309,800.00 THE EUREKA MARINE CO. 32,175.00 314,845.00 347,020.00 H AND H SHIP SERVICE CO. 47,850.00 367,400.00 415,250.00 MERIDIAN AND H AND H SHIP SERVICE BOTH REPRESENTED THEMSELVES AS SMALL BUSINESS CONCERNS. EUREKA MARINE STATED THAT IT WAS A SMALL BUSINESS CONCERN UNDER THE CONSTRUCTION INDUSTRY STANDARD AND THAT IT WAS APPEALING THE SERVICE INDUSTRY CLASSIFICATION TO GENERAL ACCOUNTING OFFICE. ONE OTHER FIRM, MARTIN SHIPS SERVICE, SUBMITTED A BID, BUT THAT BID WAS RECEIVED UNACCEPTABLY LATE. IT IS REPORTED THAT MARTIN IS KNOWN TO BE A SMALL BUSINESS CONCERN. ON MAY 23, 1966, AWARD WAS MADE TO MERIDIAN FOR BOTH LOTS.

YOUR PROTEST STEMS, OF COURSE, FROM THE SBA RULING REGARDING THE INDUSTRY CLASSIFICATION APPLICABLE TO SHIP PAINTING CONTRACTS. YOU HAVE CONTENDED, BOTH TO SBA AND TO US, THAT THE CONSTRUCTION INDUSTRY CLASSIFICATION IS THE PROPER CLASSIFICATION TO APPLY ON THESE PROCUREMENTS.

UNDER SECTIONS 3 AND 8/B//6) OF THE SMALL BUSINESS ACT OF 1958, 15 U.S.C. 632 AND 637/B//6), RESPECTIVELY, THE SMALL BUSINESS ADMINISTRATOR, ACTING THROUGH HIS AGENTS IN THE SMALL BUSINESS ADMINISTRATION, IS EMPOWERED TO PRESCRIBE SMALL BUSINESS SIZE STANDARDS FOR VARIOUS INDUSTRIES AND TO DETERMINE WITHIN ANY INDUSTRY THE CONCERNS WHICH ARE TO BE DESIGNATED SMALL BUSINESS CONCERNS FOR THE PURPOSE OF GOVERNMENT PROCUREMENT. THESE DETERMINATIONS ARE BINDING ON THE PROCUREMENT OFFICIALS OF THE GOVERNMENT. IN VIEW OF THESE PROVISIONS OF LAW, THIS OFFICE ORDINARILY WILL NOT QUESTION A SIZE STANDARD FIXED BY THE SMALL BUSINESS ADMINISTRATION. B-153108, FEBRUARY 5, 1964; 41 COMP. GEN. 649, 653. THE DETERMINATION OF WHAT SIZE STANDARD SHOULD BE APPLIED TO A PARTICULAR PROCUREMENT IS VESTED INITIALLY IN THE PROCURING AGENCY AND, UPON APPEAL, IN THE SBA, UNDER ITS POWER TO DETERMINE SIZE STANDARDS FOR GOVERNMENT PROCUREMENT. SEE ARMED SERVICES PROCUREMENT REGULATION 1-701.1; 1- 703/B//5) AND (6). YOUR PROTEST, THEREFORE, INSOFAR AS IT CONCERNS THE SBA DETERMINATION THAT THE SERVICE INDUSTRY CLASSIFICATION WAS APPLICABLE TO THE PROCUREMENT, MUST BE DENIED. IT MAY BE NOTED, HOWEVER, REGARDING THE SBA DETERMINATION THAT A SHIP SHOULD BE CONSIDERED AS PERSONAL PROPERTY RATHER THAN REAL PROPERTY, THIS OFFICE, IN CONNECTION WITH THE BUY AMERICAN ACT, 41 U.S.C. 10A, APPLICABILITY, CONCURRED IN A LONGSTANDING NAVY DEPARTMENT CLASSIFICATION OF "VESSELS" AS BEING ITEMS OF SUPPLY, I.E; PERSONAL PROPERTY. 42 COMP. GEN. 467, 475-78.

WITH REGARD TO THE REASONS FOR RETENTION OF THE SMALL BUSINESS SET ASIDE ON THE INTERIOR PAINTING PROCUREMENT BUT NOT ON THE EXTERIOR PAINTING PROCUREMENT, THE CONTRACTING OFFICER EXPLAINS THAT INTERIOR PAINTING DOES NOT REQUIRE AS MUCH NOR AS EXPENSIVE EQUIPMENT AS EXTERIOR PAINTING OF SHIPS. HE REPORTS THAT AFTER COMMUNICATING WITH THE REGIONAL OFFICE OF SBA TO OBTAIN A LIST OF POSSIBLE SMALL BUSINESS FIRMS THAT PERFORM SUCH WORK, HE FOUND THAT THERE WERE 23 SMALL BUSINESS CONCERNS, AND CONCLUDED THAT THERE WAS A REASONABLE EXPECTATION OF SMALL BUSINESS (SERVICE INDUSTRY) PARTICIPATION FOR THE INTERIOR PAINTING CONTRACT. HE WAS UNABLE TO CONCLUDE, HOWEVER, THAT THERE WAS A REASONABLE EXPECTANCY OF SMALL BUSINESS COMPETITION FOR THE EXTERIOR PAINTING CONTRACT. HE THEN EXTENDED THE BID OPENING DATE ON THE INTERIOR PAINTING PROCUREMENT TO ALLOW TIME FOR EUREKA MARINE TO APPEAL THE SERVICE CLASSIFICATION TO THE SBA SIZE APPEAL BOARD.

ACCORDINGLY, THE CONTRACTING OFFICER DID HAVE A REASONABLE BASIS FOR CONTINUING THE SMALL BUSINESS SET-ASIDE ON THE INTERIOR PAINTING PROCUREMENT. THE STATUTORY POLICY, AFTER ALL, IS IN FAVOR OF SMALL BUSINESS AWARDS, 10 U.S.C. 2301.

AS NOTED, THE BIDS ON IFB-3066 (INTERIOR PAINTING) WERE OPENED ON MAY 20, 1966, FRIDAY, AND THE AWARD WAS MADE ON MAY 23, 1966, MONDAY. UPON BEING NOTIFIED OF THE AWARD, YOU CONTENDED TO THE CONTRACTING OFFICER THAT H AND H SHIP SERVICE, DESPITE ITS SELF-CERTIFICATION, WAS NOT A SMALL BUSINESS BIDDER. YOU ASKED THAT THE MATTER OF H AND H SHIP SERVICE'S SIZE STATUS BE SENT TO THE SBA, FOR THE PURPOSE OF PROVING THAT NO SMALL BUSINESS COMPETITION WAS IN FACT OBTAINED. YOU STATED THAT AT LEAST IN THE CASE OF LOT I, WHERE EUREKA MARINE'S BID WAS $4,275 LOWER THAN MERIDIAN'S BID, IT WAS EVIDENT THAT MERIDIAN HAD NOT OFFERED AN ACCEPTABLE PRICE. IT WAS YOUR CONCLUSION THAT THE AWARD TO MERIDIAN WAS MADE WITH UNDUE HASTE, AND THAT THE ENTIRE MATTER SHOULD BE REEXAMINED.

THE CONTRACTING OFFICER REPLIED THAT SINCE H AND H SHIP SERVICE WAS NOT "THE APPARENTLY SUCCESSFUL BIDDER", ITS SMALL BUSINESS STATUS WAS NOT OPEN TO QUESTION UNDER ASPR 1-703/B//1). HE DID NOT BELIEVE THAT EUREKA MARINE'S PRICES WERE PERTINENT, AS IT WAS NOT A QUALIFIED SMALL BUSINESS BIDDER ON THE PROCUREMENT. FINALLY, HE STATED THAT A PROMPT AWARD WAS NCESSARY IN ORDER TO MEET AN URGENT REQUIREMENT.

THE CONTRACTING OFFICER IS CORRECT, IN THAT THE ASPR NEITHER PROVIDES NOR CONTEMPLATES A PROTEST AGAINST THE SMALL BUSINESS STATUS OF A BIDDER OTHER THAN THE "APPARENTLY SUCCESSFUL IDDER;, SEE ASPR 1 703/B//1) AND (2). ANY EVENT, WHETHER OR NOT H AND H SHIP SERVICE WAS IN FACT A QUALIFIED SMALL BUSINESS BIDDER, THE PERTINENT CONSIDERATION BEFORE THE CONTRACTING OFFICER WAS WHETHER THE PRICES OFFERED BY MERIDIAN, THE LOW BIDDER, WERE REASONABLE. AN AWARD SHOULD NOT BE MADE UNDER A SMALL BUSINESS SET-ASIDE IF IT WILL RESULT IN THE PAYMENT OF AN UNREASONABLE PRICE BY THE GOVERNMENT. ASPR 1-706.3/A); 37 COMP. GEN. 147. IN THIS CONNECTION, WE HAVE BEEN FURNISHED WITH A COMPARISON OF PRICES FOR ITEMS IN LOT I ON CONTRACTS FOR THE FISCAL YEARS 1964, 1965 AND 1966. IT APPEARS THAT THE MERIDIAN UNIT PRICES ARE NO HIGHER, INDEED, ARE OVERALL LOWER, THAN THE PRICES ACCEPTED ON THE PREVIOUS YEAR CONTRACTS. FOR THE REASON STATED BY THE CONTRACTING OFFICER, EUREKA MARINE'S PRICES ON LOT I COULD NOT BE USED AS THE MEASURE OF REASONABLENESS. ON THE RECORD BEFORE US, WE MUST CONCLUDE THAT THE PROMPT AWARD TO MERIDIAN WAS JUSTIFIED. ACCORDINGLY, YOUR PROTEST AGAINST THIS AWARD IS DENIED.