B-160703, MAY 5, 1967

B-160703: May 5, 1967

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TO AMERICAN BOSCH ARMA CORPORATION: REFERENCE IS MADE TO YOUR PROTEST BY LETTER DATED JANUARY 17. NEGOTIATION OF THE PROCUREMENT WAS AUTHORIZED PURSUANT TO 10 U.S.C. 2304 (A) (14). WHICH IS HIGHLY TECHNICAL AND SPECIALIZED. WAS INITIALLY DEVELOPED AS A COMPONENT OF A SPECIFIC GUN FIRE CONTROL SYSTEM (GFCS) BUT HAS BEEN MODIFIED FOR USE IN OTHER GFCS-S. WHICH IS URGENT AND REQUIRES DELIVERIES COMMENCING IN AUGUST 1967. IS FOR THE ITEM WITH ADDITIONAL MODIFICATIONS. THE PROPOSALS RECEIVED FROM YOU AND BE LOCK WERE OPENED ON DECEMBER 7. WAS LOW. YOUR NET PRICE WAS $3. THAT IT IS YOUR UNDERSTANDING THAT THE DEPARTMENT OF THE NAVY BECAME A "V-LOAN GUARANTOR" ON BANK LOANS TOTALLING APPROXIMATELY FOUR AND ONE-HALF MILLION DOLLARS TO BE LOCK.

B-160703, MAY 5, 1967

TO AMERICAN BOSCH ARMA CORPORATION:

REFERENCE IS MADE TO YOUR PROTEST BY LETTER DATED JANUARY 17, 1967, AS SUPPLEMENTED BY YOUR LETTER OF JANUARY 31, AGAINST AWARD BY THE DEPARTMENT OF THE NAVY OF A CONTRACT FOR A QUANTITY OF STABLE ELEMENT MK 16 MODS 7 AND 8 TO BE LOCK INSTRUMENT CORPORATION (BE LOCK) UNDER REQUEST FOR PROPOSALS (RFP) NO. N00017-67-R-0053, ISSUED NOVEMBER 16, 1966, BY THE NAVAL ORDNANCE SYSTEMS COMMAND (NOSC).

NEGOTIATION OF THE PROCUREMENT WAS AUTHORIZED PURSUANT TO 10 U.S.C. 2304 (A) (14). THE SUPPORTING DETERMINATIONS AND FINDINGS (DANDF) INDICATES THAT THE ITEM, WHICH IS HIGHLY TECHNICAL AND SPECIALIZED, WAS INITIALLY DEVELOPED AS A COMPONENT OF A SPECIFIC GUN FIRE CONTROL SYSTEM (GFCS) BUT HAS BEEN MODIFIED FOR USE IN OTHER GFCS-S; THAT THE PROCUREMENT NEED, WHICH IS URGENT AND REQUIRES DELIVERIES COMMENCING IN AUGUST 1967, IS FOR THE ITEM WITH ADDITIONAL MODIFICATIONS; THAT ONLY YOU AND BE LOCK, AS PREVIOUS SUPPLIERS OF THE ITEM, CAN MEET THE DELIVERY SCHEDULE SINCE YOU CAN COMMENCE PRODUCTION WITHOUT DUPLICATION OF NECESSARY PREPARATION FOR MANUFACTURE AND ANY OTHER SOURCE WOULD REQUIRE AN EXTENDED PERIOD OF PREPARATION FOR MANUFACTURE, WHICH WOULD UNDULY DELAY DELIVERY. ACCORDINGLY, THE DANDF STATES, NEITHER FORMAL ADVERTISING NOR AWARD TO ANY SOURCE OTHER THAN YOU OR BE LOCK WOULD BE REASONABLE OR PRACTICABLE.

THE PROPOSALS RECEIVED FROM YOU AND BE LOCK WERE OPENED ON DECEMBER 7, 1966. BE LOCK, WITH A NET PRICE OF $2,153,810, WAS LOW. YOUR NET PRICE WAS $3,178,120, OR SLIGHTLY OVER ONE MILLION DOLLARS HIGHER THAN BE LOCK'S PROPOSAL.

IN A TELEGRAM DATED JANUARY 16, 1967, TO THE CONTRACTING OFFICER, YOU PROTESTED AGAINST AWARD TO BE LOCK, STATING THAT THE TOTAL LOGISTICS COSTS OF SUCH AN AWARD WOULD EXCEED THE TOTAL LOGISTICS COST OF AN AWARD TO YOU IN VIEW OF YOUR EXPERIENCE AND YOUR RECORD OF TIMELY DELIVERY, HIGH PERFORMANCES, AND RELIABILITY OF THE UNITS WHICH YOU HAD MANUFACTURED. SUPPORT OF YOUR POSITION, YOU MADE SEVERAL ALLEGATIONS CONCERNING BE LOCK'S RESPONSIBILITY, INCLUDING ITS INTEGRITY, ITS FINANCIAL CONDITION AND ITS PERFORMANCE ON TWO OTHER CONTRACTS FOR THE SAME BASIC PROCUREMENT ITEM.

WITH RESPECT TO BE LOCK'S FINANCES, YOU STATED THAT BECAUSE OF CERTAIN FINANCIAL PROBLEMS INCIDENT TO PERFORMANCE OF ITS GOVERNMENT CONTRACTS, THE GOVERNMENT MADE AN AWARD OF $977,400 TO BE LOCK "UNDER TITLE II" IN ORDER TO MAINTAIN A CRITICAL SOURCE OF SUPPLY; THAT IT IS YOUR UNDERSTANDING THAT THE DEPARTMENT OF THE NAVY BECAME A "V-LOAN GUARANTOR" ON BANK LOANS TOTALLING APPROXIMATELY FOUR AND ONE-HALF MILLION DOLLARS TO BE LOCK; AND THAT BE LOCK HAS A MINUS NET WORTH, WHEREAS THE AWARD IN QUESTION IS FOR MORE THAN TWO MILLION DOLLARS WITH A LIQUIDATED DAMAGE REQUIREMENT.

WITH REGARD TO BE LOCK'S PRIOR CONTRACTS, YOU STATE THAT IN SEPTEMBER 1962 BE LOCK WAS AWARDED A CONTRACT FOR THIRTEEN UNITS OF THE BASIC PROCUREMENT ITEM, BUT ITS PERFORMANCE WAS SUCH THAT THE DEPARTMENT OF THE NAVY CONTRACTED WITH YOU IN MARCH 1963 FOR FOUR UNITS IN ORDER TO ASSURE DELIVERY OF THE CRITICAL ITEMS, AND THAT BE LOCK HAS YET TO DELIVER ANY UNITS UNDER A 1965 CONTRACT.

CONCERNING BE LOCK'S INTEGRITY, YOU STATE THAT BE LOCK HAS BEEN NAMED CO- CONSPIRATOR IN A CRIMINAL INDICTMENT IN A UNITED STATES DISTRICT COURT.

IN YOUR LETTER OF JANUARY 31, 1967, TO OUR OFFICE, YOU SUPPLEMENTED YOUR PROTEST WITH VARIOUS SERVICE REPORTS PREPARED BY YOUR ENGINEERING PERSONNEL RELATING TO PERFORMANCE OF SEVERAL UNITS MANUFACTURED BY BE LOCK WHICH YOU HAVE SERVICED FOR THE DEPARTMENT OF THE NAVY. BASED UPON SUCH RECORDS, COVERING NECESSARY REPAIRS TO THE BE LOCK UNITS, YOU CONTEND THAT IN MAKING AWARD, THERE SHOULD BE CONSIDERED, IN ADDITION TO THE PROPOSAL PRICE, THE TOTAL LOGISTICS COST TO THE GOVERNMENT AND THE ADVERSE EFFECT UPON GUN FIRE CONTROL SYSTEMS OF AN IMPROPERLY OPERATING OR NONOPERATING UNIT. IN ADDITION, YOU FURNISHED OUR OFFICE WITH A COPY OF A DECEMBER 1966 FINANCIAL REPORT ON BE LOCK SHOWING A NET WORTH DEFICIT OF $314,757.

ON JANUARY 20, 1967, AWARD WAS MADE TO BE LOCK UPON RECOMMENDATION OF THE DIRECTOR OF THE CONTRACTS DIVISION, MOSC, AND APPROVAL OF THE COMMANDER, NOSC. THE SUPPORTING MEMORANDUM, ISSUED IN ACCORDANCE WITH THE PRE-AWARD PROCEDURES PRESCRIBED IN ARMED SERVICES PROCUREMENT REGULATION (ASPR) 2- 407.9 (B) (3), WHICH ARE FOLLOWED IN NEGOTIATED PROCUREMENTS PURSUANT TO ASPR 3-509, STATES THAT YOUR PROTEST HAD BEEN REVIEWED. IT IS FURTHER STATED THAT INFORMATION OF RECORD INDICATED THAT BE LOCK HAD A SATISFACTORY FINANCIAL CONDITION; THAT BE LOCK'S 1962 CONTRACT PERFORMANCE WAS NOT PERTINENT IN VIEW OF ITS SATISFACTORY PERFORMANCE OF ITS 1965 CONTRACT, THE DELIVERY DELAYS INVOLVED UNDER THE LATER CONTRACT BEING DUE TO GOVERNMENT ACTION; THAT REVISED DELIVERY SCHEDULES FOR THE PROCUREMENT IN QUESTION CALLED FOR DELIVERIES COMMENCING IN NOVEMBER 1967 RATHER THAN AUGUST 1967, AS ORIGINALLY CONTEMPLATED; AND THAT ANY FURTHER DELAY IN AWARDING THE CONTRACT WOULD SERIOUSLY JEOPARDIZE THE NAVY'S SHIPBUILDING PROGRAM INTENDED FOR DEPLOYMENT IN SUPPORT OF SOUTHEAST ASIA OPERATIONS. ON FEBRUARY 2, 1967, A NOTIFICATION OF THE AWARD WAS FURNISHED TO YOU, READING AS FOLLOWS:

"FOLLOWING A CAREFUL REVIEW OF THE INFORMATION IN YOUR PROTEST MESSAGE AND ADDITIONAL INFORMATION AVAILABLE TO THE COMMAND, A FULL CONSIDERATION HAS BEEN GIVEN TO YOUR PROTEST IN ACCORDANCE WITH APPROPRIATE REGULATION. AS A RESULT, THE CONTRACTING OFFICER HAS DETERMINED THAT AWARD OF THE CONTRACT RESULTING FROM RFQN0017-67-R-0053 WOULD BE MADE TO BE LOCK INSTRUMENT CORPORATION.'

IN A REPORT DATED APRIL 12, 1967, THE DEPARTMENT OF THE NAVY STATES THAT BE LOCK'S PERFORMANCE UNDER ITS PRIOR CONTRACTS HAS BEEN SATISFACTORY. WITH RESPECT TO THE 1962 CONTRACT, THE NAVY ADVISES THAT IT DOES NOT VIEW BE LOCK'S PERFORMANCE UNDER THIS CONTRACT AS THE "RECENT" PERFORMANCE WHICH IS TO BE CONSIDERED UNDER ASPR 1-902 IN DETERMINING A PROSPECTIVE CONTRACTOR'S RESPONSIBILITY. ADDITIONALLY, IT IS STATED THAT BE LOCK ENCOUNTERED PROBLEMS WHICH RESULTED IN DELIVERY DELAYS. SUCH PROBLEMS, HOWEVER ARE SAID TO HAVE CENTERED SIGNIFICANTLY AROUND GENUINE DIFFICULTIES WHICH BE LOCK MET IN PRODUCING FOR THE FIRST TIME ACCEPTABLE, COMPLEX HARDWARE IN ACCORDANCE WITH DRAWINGS GENERATED BY YOU, AS THE PRIOR SOLE PRODUCER, BUT BE LOCK ULTIMATELY PRODUCED AND DELIVERED THE HARDWARE IN ACCORDANCE WITH THE DRAWINGS WITH CERTAIN WAIVERS AND DEVIATIONS WHICH THE GOVERNMENT CONSIDERED COULD NOT DEGRADE THE PERFORMANCE OF THE EQUIPMENT. WITH REGARD TO THE 1965 CONTRACT, THE INFORMATION FURNISHED IS SIMILAR TO THAT SET FORTH IN THE CONTRACTS DIVISION MEMORANDUM OF JANUARY 20 JUSTIFYING THE AWARD TO BE LOCK; THAT IS, SLIPPAGE IN THE CONTRACT DELIVERY SCHEDULE IS CHARGEABLE TO GOVERNMENT ACTION ALONE, AND BE LOCK HAS BEEN PERFORMING SATISFACTORILY IN ACCORDANCE WITH A REVISED SCHEDULE ON WHICH BE LOCK AND THE GOVERNMENT HAVE AGREED.

WITH FURTHER REFERENCE TO BE LOCK'S 1962 CONTRACT, THE NAVY ADVISES THAT AN AWARD OF INCREASED COMPENSATION TO BE LOCK WAS BASED ON A DETERMINATION THAT BE LOCK WAS ESSENTIAL AS A CRITICAL SOURCE OF SUPPLY UNDER A GROUP OF FIXED-PRICE SUBCONTRACTS FOR MISSILE COMPONENTS HELD BY BE LOCK UNDER A PRIME CONTRACT WITH GENERAL DYNAMICS; THAT THE PURPOSE OF THE AWARD WAS TO OVERCOME A SITUATION IN WHICH BE LOCK, AT THE TIME, FOUND ITS FINANCES SO STRAIGHTENED AS TO JEOPARDIZE ITS ABILITY TO CARRY OUT THE SUBCONTRACTS; THAT WHILE THE 1962 CONTRACT WAS USED AS A VEHICLE TO MAKE AVAILABLE TO BE LOCK THE FUNDS ESSENTIAL TO ENABLE IT TO PERFORM THE MISSILE COMPONENT SUBCONTRACTS, THE AWARD DID NOT REFLECT, AND HAD NO RELATIONSHIP TO, THE CHARACTER OF BE LOCK'S PERFORMANCE OF THE CONTRACT; AND, THEREFORE, IT IS CONSIDERED THAT THE QUESTIONS YOU RAISE CONCERNING THE MATTER ARE NOT RELEVANT TO THE AWARD YOU NOW QUESTION.

WITH SPECIFIC REFERENCE TO BE LOCK'S FINANCIAL RESPONSIBILITY, IT IS STATED THAT CONSULTATION OF PUBLICLY AVAILABLE RELIABLE FINANCIAL STATISTICS BY NAVY FINANCIAL PERSONNEL WERE CONSTRUED AS INDICATING THAT BE LOCK HAD "TURNED THE CORNER" AND HAD ADEQUATE RESOURCES. SUCH STATISTICS, IT IS STATED, SHOW THAT BE LOCK, DESPITE NET LOSSES IN 1965, BEGAN TO SHOW NET PROFIT IN 1966 AND AT THE END OF 1966 HAD ANET WORKING CAPITAL OF OVER $2,800,000 (WHICH NAVY CONSIDERS AMPLE TO CARRY ON EXISTING WORK PLUS THE NEW CONTRACT) AS WELL AS A SUBSTANTIALLY NORMAL RATIO OF ASSETS TO LIABILITIES. IT IS ALSO STATED THAT SUCH PERSONNEL, BECAUSE OF THE V-LOAN TO BE LOCK SOME YEARS AGO, HAVE MAINTAINED A CLOSE CHECK ON BE LOCK'S FINANCIAL CONDITION, USING INFORMATION THAT IS NOT PUBLICLY AVAILABLE, AND THAT THEIR ESTIMATES WITH RESPECT TO BE LOCK'S FINANCIAL CAPACITY TEND TO CONSERVATISM DUE TO THE NEED TO PROTECT THE GOVERNMENT'S INVESTMENT REPRESENTED BY THE V LOAN. ACCORDINGLY, THE CONTRACTING OFFICER, AFTER CONSULTING WITH SUCH PERSONNEL PRIOR TO AWARD, AND IN ACCORD WITH THEIR VIEWS, CONCLUDED THAT BE LOCK MET THE ADEQUATE FINANCIAL RESOURCES REQUIREMENT IN ASPR 1-903.1 (I) FOR A RESPONSIBLE PROSPECTIVE CONTRACTOR, A CONCLUSION WHICH THE COMMANDER, NOSC, CONSIDERS SOUND AND REASONABLE.

CONCERNING THE ALLEGED CRIMINAL INDICTMENT OF BE LOCK, THE NAVY REPORTS THAT AN INVESTIGATION HAS REVEALED THE CORPORATION WAS NOT NAMED AS A CO- DEFENDANT IN THE INDICTMENT IN QUESTION AND THAT THE INDIVIDUALS WHO WERE SO NAMED ARE NO LONGER ASSOCIATED WITH THE CORPORATION. ACCORDINGLY, IT WAS CONCLUDED THAT THE INDICTMENT DID NOT CONSTITUTE A VALID OBJECTION TO AWARD TO BE LOCK.

REGARDING THE MATTER OF LOGISTICS COSTS, IT IS NAVY'S POSITION THAT THE PERFORMANCE AND RELIABILITY OF YOU AND OF BE LOCK WERE THOROUGHLY CONSIDERED AND WERE DETERMINED TO BE COMPARABLE TO SUCH A DEGREE THAT IT WAS CONSIDERED TO BE IMPOSSIBLE FOR THE TOTAL LOGISTICS COSTS TO OFFSET THE $1,000,00 DIFFERENTIAL BETWEEN THE TWO PROPOSALS.

UNDER THE PROVISIONS OF SECTION I, PART 9, OF ASPR, WHICH APPLY TO BOTH ADVERTISED AND NEGOTIATED PROCUREMENTS, AN AFFIRMATIVE DETERMINATION AS TO THE RESPONSIBILITY OF A PROSPECTIVE CONTRACTOR IS A PREREQUISITE TO AWARD OF A CONTRACT, WITH CERTAIN EXCEPTIONS NOT PERTINENT HERE. ASPR 1-904. FURTHER, AMONG THE MINIMUM STANDARDS WHICH A RESPONSIBLE PROSPECTIVE CONTRACTOR MUST MEET ARE POSSESSION OF ADEQUATE FINANCIAL RESOURCES OR ABILITY TO OBTAIN SUCH RESOURCES DURING CONTRACT PERFORMANCE; ABILITY TO COMPLY WITH THE PROPOSED DELIVERY OR PERFORMANCE SCHEDULE; AND SATISFACTORY RECORDS OF PERFORMANCE AND INTEGRITY. ASPR 1-903. WITH SPECIFIC REFERENCE TO PERFORMANCE, ASPR 1-902 REQUIRES CONSIDERATION OF RECENT UNSATISFACTORY PERFORMANCE, AND ASPR 1-903.1/III) PRECLUDES A FAVORABLE RESPONSIBILITY DETERMINATION FOR A CONTRACTOR WHO IS SERIOUSLY DEFICIENT IN CURRENT CONTRACT PERFORMANCE AND PROVIDES THAT PAST UNSATISFACTORY PERFORMANCE, DUE TO FAILURE TO APPLY NECESSARY TENACITY OR PERSEVERANCE TO DO AN ACCEPTABLE JOB, SHALL BE SUFFICIENT TO JUSTIFY A FINDING OF NONRESPONSIBILITY. FURTHER, THE DEFENSE CONTRACT FINANCING REGULATIONS IN APPENDIX E, ASPR, REQUIRE, AMONG OTHER THINGS, THAT IN CONSIDERING THE FINANCIAL CAPACITY OR CREDIT OF A PROSPECTIVE CONTRACTOR, DUE REGARD BE GIVEN TO THE AVAILABILITY OF PROGRESS PAYMENTS, GUARANTEED LOANS, AND ADVANCE PAYMENTS, AND THAT THERE BE CONSIDERED, ALSO, THE JUDGMENT, SKILL AND INTEGRITY OF THE POTENTIAL CONTRACTOR, HIS REPUTATION AND EXPERIENCE, INCLUDING PRIOR WORK OF A SIMILAR NATURE,AS WELL AS ALL OTHER FACTORS SET FORTH IN THE ASPR PROVISIONS APPLICABLE TO THE PARTICULAR PROCUREMENT. ASPR E 211. SINCE THE DETERMINATION OF A BIDDER'S RESPONSIBILITY IS A MATTER OF JUDGMENT WHICH IS PRIMARILY THE RESPONSIBILITY OF THE CONTRACTING AGENCY, THIS OFFICE WILL NOT SUBSTITUTE ITS JUDGMENT FOR THAT OF THE CONTRACTING AGENCY WHERE THERE IS ANY SUBSTANTIAL BASIS FOR THE AGENCY'S DETERMINATION.

IN THE LIGHT OF THE ADMINISTRATIVE REPORT TO THE EFFECT THAT BE LOCK'S PERFORMANCE UNDER BOTH ITS 1962 AND 1965 CONTRACTS FOR THE SAME BASIC PROCUREMENT ITEM HAS BEEN SATISFACTORY, NEITHER THE PROVISIONS OF ASPR 1- 902 RELATING TO RECENT UNSATISFACTORY PERFORMANCE NOR THE PROVISIONS OF ASPR 1-903.1/III) CONCERNING SERIOUSLY DEFICIENT CURRENT CONTRACT PERFORMANCE AND PAST UNSATISFACTORY PERFORMANCE ARE FOR APPLICATION. ACCORDINGLY, WE ARE UNABLE TO SAY THAT THE CONTRACTING OFFICER'S DETERMINATION THAT BE LOCK HAS MET THE SATISFACTORY PERFORMANCE STANDARD PRESCRIBED IN ASPR 1-903 WAS WITHOUT A SUBSTANTIAL BASIS.

CONCERNING BE LOCK'S FINANCIAL STATUS, THERE IS NO INDICATION IN THE RECORD, AND YOU DO NOT ALLEGE, THAT THERE WAS ANY IMPROPRIETY IN THE MAKING OF THE "TITLE II AWARD" TO BE LOCK, WHICH HAS BEEN ADMINISTRATIVELY IDENTIFIED AS AN EQUITABLE ADJUSTMENT (AUTHORIZED UNDER 50 U.S.C. 1431) UNDER THE 1962 CONTRACT, OR IN THE GUARANTY BY THE DEPARTMENT OF THE NAVY OF THE V-LOAN TO BE LOCK. CONVERSELY, THE DEPARTMENT'S REPORT INDICATES THAT A CLOSE CHECK HAS BEEN KEPT ON BE LOCK'S FINANCES TO SAFEGUARD THE GOVERNMENT'S V-LOAN INVESTMENT, AND IN REACHING THE CONCLUSION THAT BE LOCK HAS ADEQUATE FINANCIAL RESOURCES TO PERFORM THE CONTRACT, THE DEPARTMENT CONSULTED, IN ADDITION TO PUBLICLY AVAILABLE STATISTICS, INFORMATION OF A NON-PUBLIC NATURE WHICH WAS AVAILABLE TO THE DEPARTMENT AS A V-LOAN GUARANTOR. ACCORDINGLY, IT IS OUR VIEW THAT THE ADMINISTRATIVE DETERMINATION ON THIS ISSUE, ALSO, CANNOT BE SAID TO BE WITHOUT A SUBSTANTIAL BASIS. AS TO THE SIGNIFICANCE OF THE INDICTMENT TO WHICH YOU REFER, IN THE LIGHT OF THE INFORMATION IN THE DEPARTMENT'S REPORT THAT BE LOCK WAS NOT NAMED IN THE INDICTMENT AND THAT THE INDIVIDUALS CONCERNED ARE NO LONGER ASSOCIATED WITH BE LOCK, WE SEE NO BASIS ON WHICH A LACK OF INTEGRITY ON THE PART OF SUCH INDIVIDUALS MAY BE IMPUTED TO BE LOCK. THEREFORE, WE CONCUR WITH THE DEPARTMENT'S VIEW THAT THE INDICTMENT DOES NOT CONSTITUTE A VALID OBJECTION TO THE AWARD TO BE LOCK.

WITH REGARD TO LOGISTICS COSTS, THE DEPARTMENT'S STATEMENTS CONCERNING THE RESULTS OF ITS STUDY OF THE PERFORMANCE AND RELIABILITY BY YOU AND BY BE LOCK APPEAR TO BE RESPONSIVE TO YOUR CONTENTION ON THIS ISSUE.

IN THE LIGHT OF THE FOREGOING, WE FIND NO LEGAL BASIS TO QUESTION THE AWARD TO BE LOCK, AND, THEREFORE, YOUR PROTEST IS DENIED.