B-162249, NOV. 13, 1967

B-162249: Nov 13, 1967

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WHERE PROCURING AGENT PROPOSED TO REJECT LOW BIDDER PRIMARILY BECAUSE OF POOR PERFORMANCE RECORD BUT REFERRED MATTER TO SBA FOR CERTIFICATE OF COMPETENCY AND WHERE SBA NOTIFIED PROCURING AGENCY OF PROPOSED AFFIRMATIVE ACTION ON COC AWARD WAS MADE. RECORD INDICATES THAT ACTIONS OF BOTH AGENCIES WERE IN COMPLIANCE WITH LAW AND REGULATIONS. TO SUNROC CORPORATION: REFERENCE IS MADE TO YOUR PROTEST BY LETTER DATED AUGUST 10. THE SOLICITATION WAS ISSUED PURSUANT TO A REQUISITION FROM THE DEPARTMENT OF THE ARMY BEARING MILITARY PRIORITY DESIGNATOR 5. THE USE OF NEGOTIATION WAS AUTHORIZED PURSUANT TO THE PUBLIC EXIGENCY AUTHORITY IN SECTION 302 (C) (2) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949.

B-162249, NOV. 13, 1967

BIDDERS - RESPONSIBILITY - SMALL BUSINESS DECISION TO SUNROC CORPORATION DENYING PROTEST AGAINST NEGOTIATED AWARD BY GSA TO HEAT EXCHANGERS, INC., FOR FURNISHING ELECTRIC CAFETERIA TYPE DRINKING WATER DISPENSERS FOR USE IN VIETNAM. WHERE PROCURING AGENT PROPOSED TO REJECT LOW BIDDER PRIMARILY BECAUSE OF POOR PERFORMANCE RECORD BUT REFERRED MATTER TO SBA FOR CERTIFICATE OF COMPETENCY AND WHERE SBA NOTIFIED PROCURING AGENCY OF PROPOSED AFFIRMATIVE ACTION ON COC AWARD WAS MADE, PROTEST MUST BE DENIED. RECORD INDICATES THAT ACTIONS OF BOTH AGENCIES WERE IN COMPLIANCE WITH LAW AND REGULATIONS.

TO SUNROC CORPORATION:

REFERENCE IS MADE TO YOUR PROTEST BY LETTER DATED AUGUST 10, 1967, AS SUPPLEMENTED BY A LETTER DATED SEPTEMBER 20, AGAINST THE AWARD BY THE GENERAL SERVICES ADMINISTRATION (GSA) OF CONTRACT NO. GS-00S-72290 TO HEAT EXCHANGERS, INC. (HE), BASED ON THE LOW OFFER SUBMITTED BY HE, A SMALL BUSINESS CONCERN, UNDER SOLICITATION NO. FPNME-L-97325-N-6-13 67, ISSUED JUNE 8, 1967, BY THE FEDERAL SUPPLY SERVICE, GSA, FOR THE FURNISHING OF 319 MECHANICALLY COOLED, ELECTRICALLY OPERATED, CAFETERIA TYPE DRINKING WATER DISPENSERS FOR USE IN VIETNAM.

THE SOLICITATION WAS ISSUED PURSUANT TO A REQUISITION FROM THE DEPARTMENT OF THE ARMY BEARING MILITARY PRIORITY DESIGNATOR 5, INDICATING URGENCY, AND REQUESTING SHIPMENT OF 160 UNITS WITHIN 60 DAYS AFTER RECEIPT OF ORDER AND THE REMAINING 159 UNITS WITHIN 90 DAYS AFTER RECEIPT OF ORDER. ACCORDINGLY, THE USE OF NEGOTIATION WAS AUTHORIZED PURSUANT TO THE PUBLIC EXIGENCY AUTHORITY IN SECTION 302 (C) (2) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED, 41 U.S.C. 252 (C) (2).

HE WAS THE LOW OFFEROR, AND THE AWARD WAS MADE ONLY AFTER THE SMALL BUSINESS ADMINISTRATION (SBA) HAD ISSUED A CERTIFICATE OF COMPETENCY (COC) TO HE, FOLLOWING THE CONTRACTING OFFICER'S PROPOSAL TO REJECT THE LOW OFFER ON THE BASIS THAT HE LACKED THE CAPACITY TO PERFORM THE CONTRACT AND WAS THEREFORE NONRESPONSIBLE. THE COC WAS REQUIRED TO BE ACCEPTED BY THE CONTRACTING OFFICER AS CONCLUSIVE OF HE'S CAPACITY, UNDER THE PROVISIONS OF SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT, AS AMENDED, 15 U.S.C. 637 (B) (7).

YOU QUESTION HE'S ABILITY TO MEET THE CONTRACT REQUIREMENTS. YOU STATE THAT HE HAS BEEN INVOLVED IN BANKRUPTCY PROCEEDINGS RECENTLY, HAS A HISTORY OF DEFAULT ON PAST GSA AND NAVY CONTRACTS, AND IS DELINQUENT ON A CURRENT GOVERNMENT CONTRACT. YOU FURTHER STATE THAT HE HAS NEVER MANUFACTURED THE ITEM IN QUESTION, WHICH REQUIRES A MINIMUM OF SIX MONTHS' TESTING TIME, AND YOU THEREFORE CONTEND IT WOULD BE IMPOSSIBLE FOR HE TO MEET THE CONTRACT DELIVERY REQUIREMENTS.

IN ADDITION, YOU ALLEGE THAT YOU RECEIVED CONFLICTING INFORMATION FROM GSA AND FROM THE SMALL BUSINESS ADMINISTRATION (SBA) REGARDING THE CERTIFICATE OF COMPETENCY (COC) PROCEDURES APPLICABLE TO AND EMPLOYED IN THIS CASE. SBA, YOU CLAIM, INFORMED YOU THAT IN LINE WITH SBA REGULATIONS AND PROCEDURES, GSA WAS NOTIFIED OF SBA'S INTENT TO TAKE AFFIRMATIVE ACTION ON HE'S APPLICATION FOR A COC TO PERFORM THE CONTRACT AND THAT THE COC WAS NOT ISSUED UNTIL AFTER GSA HAD FAILED TO AVAIL ITSELF OF SUCH OPPORTUNITY TO CONFER WITH SBA FOR A REVIEW OF THE MATTER PRIOR TO FINAL ACTION BY SBA. CONVERSELY, YOU ALLEGE, GSA INFORMED YOU THAT THE COC HAD BEEN ACCEPTED FROM SBA WITH RELUCTANCE, AND GSA DISCLAIMED ANY KNOWLEDGE OF SBA PROCEDURES PERMITTING A CONTRACTING AGENCY TO REQUEST AN SBA REVIEW PRIOR TO FINAL ACTION BY SBA.

IN YOUR LETTER OF AUGUST 10, YOU REQUESTED THAT THE CONTRACT, WHICH WAS AWARDED ON AUGUST 4, BE CANCELLED. IN YOUR LETTER OF SEPTEMBER 20, HOWEVER, YOU REFER TO A LETTER DATED SEPTEMBER 1 ADDRESSED TO OUR OFFICE BY SBA HEADQUARTERS, SETTING FORTH THE BASIS FOR THE SBA AREA OFFICE'S ACTION IN THIS CASE AND OUTLINING THE COC PROCEDURES, AND YOU STATE THAT IF HE DELIVERS THE REQUIRED EQUIPMENT WITHOUT WAIVER OF THE CONTRACT SPECIFICATION AND DELIVERY REQUIREMENTS, THEN IT WOULD APPEAR THAT THE SBA AWARD OF A COC TO HE WAS JUSTIFIED AND IN THE GOVERNMENT'S INTEREST.

THE FILE FORWARDED TO OUR OFFICE BY GSA INCLUDES PRE-AWARD REPORTS WHICH GSA OBTAINED REGARDING HE'S FINANCIAL RESPONSIBILITY AND ITS CAPACITY TO PERFORM THE CONTRACT.

THE HE FINANCIAL REPORTS INDICATE, AS YOU HAVE STATED, THAT ON APRIL 3, 1967, A PLAN OF ARRANGEMENT FOR CREDITORS OF HE WAS CONFIRMED PURSUANT TO CHAPTER IX OF THE BANKRUPTCY ACT, 11 U.S.C. 761. THE REPORTS ALSO SHOW, HOWEVER, THAT HE WAS RELEASED FROM DEBTOR IN POSSESSION STATUS IN CONNECTION WITH THE BANKRUPTCY PROCEEDINGS; THAT HE'S INCOME AND EXPENSE STATEMENT FOR THE MONTH OF MARCH 1967, SHOWING SALES OF $262,000 AND A NET PROFIT OF $23,000, SUPPORT ITS ESTIMATE OF AN ANNUAL VOLUME OF $2 MILLION IN BUSINESS FOR THE FISCAL YEAR COMMENCING MARCH 1, 1967; AND THAT AS OF APRIL 3, 1967, HE HAD CURRENT ASSETS OF $537,000, OR ABOUT TWO AND ONE- HALF TIMES ITS CURRENT LIABILITIES OF $203,000. IN THE LIGHT OF SUCH INFORMATION, GSA DETERMINED THAT IT COULD NOT REJECT HE'S OFFER ON THE BASIS OF LACK OF CREDIT.

THE INFORMATION WHICH GSA OBTAINED ON HE'S CAPACITY, HOWEVER, WAS NOT FAVORABLE. A PLANT FACILITIES REPORT REFLECTED UNSATISFACTORY PAST PERFORMANCES ON GOVERNMENT CONTRACTS, INCLUDING TWO GSA CONTRACTS ON WHICH DEFAULT ACTION HAD BEEN TAKEN. ACCORDINGLY, IN A LETTER DATED JULY 12 REFERRING THE MATTER TO THE SBA MIDWESTERN AREA OFFICE, PURSUANT TO THE COC PROCEDURES SET FORTH IN FEDERAL PROCUREMENT REGULATIONS (FPR) 1-1.708- 2, FOR DECISION WHETHER A COC WOULD BE ISSUED TO HE FOR THE PURPOSES OF THE PROCUREMENT, THE CONTRACTING OFFICER STATED THAT HE PROPOSED TO REJECT HE'S OFFER FOR LACK OF CAPACITY BASED ON THE UNFAVORABLE PLANT FACILITIES REPORT.

IN A LETTER DATED JULY 24, THE SBA AREA OFFICE CERTIFIED TO GSA THAT HE WAS COMPETENT, AS TO CAPACITY AND CREDIT, TO PERFORM THE PROPOSED PROCUREMENT, AND SUCH CERTIFICATION WAS THE BASIS FOR THE AUGUST 4 AWARD TO HE.

IN THE LETTER DATED SEPTEMBER 1, WHICH SBA ADDRESSED TO OUR OFFICE, IT IS STATED THAT THE CAPACITY AND CREDIT FACTORS WHICH CAUSED THE PAST DELINQUENCIES BY HE HAVE BEEN REMOVED AND THE COMPANY IS THEREFORE NOT EXPECTED TO EXPERIENCE THE SAME DIFFICULTIES IN THE PERFORMANCE OF THE CONTRACT. ALTHOUGH GSA QUESTIONED ONLY THE PRODUCTION CAPACITY OF HE, THE INVESTIGATION CONDUCTED BY SBA COVERED THE FINANCIAL RESPONSIBILITY OF HE ALSO, AND RESULTED IN A FINDING THAT HE HAS ADEQUATE FINANCES TO PERFORM THE CONTRACT AND HAS MADE ARRANGEMENTS WITH A BANK FOR ADDITIONAL FUNDS IF NEEDED. WITH REFERENCE TO THE NAVY CONTRACT, WHICH IS STILL IN EFFECT, SBA ASCERTAINED THAT DELIVERY OF THE CONTRACT ITEMS, VENTILATING UNITS, HAS BEEN DELAYED DUE TO HE'S INABILITY TO OBTAIN A QUALIFIED PRODUCTS LIST VALVE FROM A SUPPLIER, WHO IN TURN HAS DELAYED BECAUSE OF PRIME CONTRACT COMMITMENTS TO THE GOVERNMENT FOR THE SAME VALVE; HOWEVER, HE EXPECTS TO MAKE DELIVERY OF THE VENTILATING UNITS AFTER RECEIPT OF THE VALVES, WHICH WERE PROMISED FOR OCTOBER 1967.

CONCERNING THE TIME REQUIRED FOR TESTING A UNIT PRODUCED BY HE UNDER THE GSA CONTRACT, SBA REPORTS THAT UNDERWRITERS LABORATORIES, INC., ADVISED THAT UNDERWRITER APPROVAL COULD BE OBTAINED WITHIN APPROXIMATELY SIX WEEKS; THEREFORE, SBA FOUND THAT THIS REQUIREMENT DID NOT CONSTITUTE A SUFFICIENT GROUND FOR DENIAL OF A COC.

CONCERNING THE COC PROCEDURES, SBA QUOTES AN EXCERPT FROM THE SBA NATIONAL DIRECTIVE ND 615-1 (CERTIFICATE OF COMPETENCY HANDBOOK) READING AS FOLLOWS:

"PRIOR TO COMMITTEE ACTION ON EVERY CASE COMING UNDER DELEGATED AUTHORITY, WHERE THE PA AND FA REPORTS INDICATE A PROBABLE AFFIRMATIVE ACTION, THE REGIONAL CERTIFICATE OF COMPETENCY REVIEW COMMITTEE SECRETARY, OR OTHER DESIGNEE, SHALL MAKE CONTACT, BY TELEPHONE OR PERSONAL VISIT, WITH THE PROCUREMENT OFFICIAL TO PROVIDE HIM AN OPPORTUNITY TO MEET WITH REGIONAL STAFF TO SUPPLY ANY FURTHER INFORMATION HE BELIEVES SIGNIFICANT. THIS SHALL BE DONE NO LATER THAN THE 12TH DAY.' IN THIS CONNECTION, IT IS STATED THAT THE CONTRACTING OFFICER WAS NOTIFIED BY TELEPHONE OF THE SBA AREA OFFICE'S PROPOSED AFFIRMATIVE RECOMMENDATION ON THE HE APPLICATION FOR A COC; THAT THE CONTRACTING OFFICER INFORMED SBA PERSONNEL THAT GSA HAD NO ADDITIONAL INFORMATION; AND THAT NO PROTEST WAS FILED BY GSA. MOREOVER, SBA POINTS OUT THAT ALTHOUGH SBA PROCEDURES ALSO PROVIDE FOR REFERRAL OF A COC PROCEEDING TO SBA HEADQUARTERS IN WASHINGTON, D. C., FOR FINAL ACTION UPON WRITTEN REQUEST OF A PROCURING OFFICER, NO SUCH REQUEST WAS MADE BY GSA IN THIS CASE. ACCORDINGLY, SBA VIEWS ITS DECISION TO ISSUE A COC IN THIS CASE TO THE LOW OFFEROR AS A PROPER EXERCISE OF THE AUTHORITY VESTED IN SBA BY SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT, AS AMENDED, SUPRA, TO CERTIFY WITH RESPECT TO THE COMPETENCY, AS TO CAPACITY AND CREDIT, OF ANY SMALL BUSINESS CONCERN TO PERFORM A SPECIFIC GOVERNMENT CONTRACT.

THE GSA REPORT ON THE MATTER STRESSES THE FACT THAT ITS PROPOSAL TO REJECT THE HE OFFER WAS BASED PRIMARILY ON THE FIRM'S POOR PERFORMANCE RECORD ON GOVERNMENT CONTRACTS. CONCERNING DELAY INCIDENT TO TESTING OF THE ITEM TO BE MANUFACTURED UNDER THE CONTRACT, GSA HAS FURNISHED A COPY OF A LETTER DATED AUGUST 17, APPROXIMATELY TWO WEEKS AFTER THE AWARD OF THE CONTRACT, IN WHICH HE ADVISED GSA THAT IT WAS SUBMITTING APPLICATIONS TO UNDERWRITERS LABORATORIES, INC., FOR TESTING AND LISTING BUT IN THE EVENT THE TESTS WERE NOT COMPLETED WITHIN THE USUAL SIX WEEKS, HE WOULD PERFORM ALL REQUIRED TESTS IN THE PRESENCE OF A GSA REPRESENTATIVE ON TEST EQUIPMENT WHICH HE HAS ON HAND.

WITH RESPECT TO THE PROCEDURES WHICH GSA FOLLOWED IN THIS CASE, IT IS STATED THAT IT IS GSA PRACTICE IN SUCH CIRCUMSTANCES TO FURNISH TO THE APPROPRIATE SBA OFFICE ALL OF THE INFORMATION IN THE GSA FILES AND TO STATE THE REASONS FOR GSA'S PROPOSAL TO REJECT THE BID (OR OFFER) OF ANY BIDDER (OR OFFEROR) FOUND NOT TO BE RESPONSIBLE WITH RESPECT TO CAPACITY AND CREDIT. ACCORDINGLY, GSA STATES, THE INFORMATION IN THIS CASE WAS FORWARDED TO THE SBA AREA OFFICE IN CHICAGO. GSA'S REPORT OF THE PROCEDURES SUBSEQUENTLY FOLLOWED BY BOTH GSA AND SBA IS IN ACCORD WITH THE INFORMATION CONTAINED IN SBA'S LETTER OF SEPTEMBER 1; THAT IS, THE CONTRACTING OFFICER REPORTEDLY RECEIVED TELEPHONIC ADVICE FROM THE SBA AREA OFFICE, PRIOR TO THE ISSUANCE OF THE COC, TO THE EFFECT THAT AFFIRMATIVE ACTION WAS CONTEMPLATED BY SBA; THE CONTRACTING OFFICER HAD NO ADDITIONAL INFORMATION RELATING TO HE'S CAPACITY AND CREDIT AND HE SO INFORMED SBA; AND THE COC WAS THEREAFTER ISSUED ON JULY 24 BY GSA AND ACCEPTED BY GSA, AS STATED ABOVE, IN ACCORDANCE WITH THE REQUIREMENTS OF THE SMALL BUSINESS ACT, SUPRA.

WITH RESPECT TO THE MATTER OF REQUESTING REFERRAL OF A COC CASE TO SBA HEADQUARTERS FOR FINAL ACTION WHEN THE FIELD OFFICE INDICATES TO GSA THAT AFFIRMATIVE ACTION IS CONTEMPLATED, GSA STATES THAT WHEN NO ADDITIONAL INFORMATION IS AVAILABLE, GSA TAKES NO FURTHER ACTION UNLESS THE CASE IS OF SUCH AN UNUSUAL NATURE THAT REVIEW AT THE CENTRAL OFFICE LEVEL IS WARRANTED; ACCORDINGLY, NO FURTHER ACTION WAS TAKEN IN THIS CASE. FURTHER, GSA STATES THAT IT IS NOT GSA PRACTICE IN SUCH CIRCUMSTANCES TO REVIEW ADDITIONAL INFORMATION COMPILED BY SBA IN PROCESSING A COC CASE, SINCE GSA HAS ALREADY STATED ITS POSITION AND THE DETERMINATION CONCERNING THE ISSUANCE OF A COC IS SOLELY THAT OF SBA.

WITH REFERENCE TO YOUR STATEMENTS CONCERNING PERFORMANCE BY HE OF THE CONTRACT, WE HAVE BEEN INFORMALLY ADVISED BY GSA THAT A SHIPMENT OF 100 UNITS WAS MADE ON SEPTEMBER 29; THAT A SECOND SHIPMENT OF 100 UNITS, WHICH WAS MADE ON OCTOBER 10, INCLUDED 60 UNITS WHICH HE HAD OFFERED TO SHIP ON OCTOBER 2 BUT WHICH IT HAD BEEN REQUESTED TO HOLD AND COMBINE WITH 40 ADDITIONAL UNITS IN ORDER TO MAKE A TOTAL SHIPMENT OF 100 UNITS; AND THAT THE REMAINING 119 UNITS WERE SHIPPED ON OCTOBER 26.

WHEN THE DEFECTS IN THE PAST PERFORMANCE OF GOVERNMENT CONTRACTS BY THE LOW RESPONSIVE AND OTHERWISE RESPONSIBLE BIDDER, WHO IS ALSO A SMALL BUSINESS CONCERN, ARE DUE TO THE FACTORS OF CAPACITY OR CREDIT, THE CONTRACTING AGENCY, WITH CERTAIN EXCEPTIONS SET FORTH IN THE PROCUREMENT REGULATIONS, MAY NOT REJECT THE BID INVOLVED WITHOUT FIRST SUBMITTING THE MATTER TO THE SMALL BUSINESS ADMINISTRATION FOR DETERMINATION WHETHER A CERTIFICATE OF COMPETENCY AS TO CAPACITY OR CREDIT WILL BE ISSUED TO THE BIDDER. 45 COMP. GEN. 642. FURTHER, SINCE A COC ISSUED BY SBA IS REQUIRED BY THE SMALL BUSINESS ACT TOBE ACCEPTED BY THE PROCURING OFFICIALS AS CONCLUSIVE AS TO THE BIDDER'S PRESENT CAPACITY AND CREDIT, A CONTRACTING AGENCY MAY NOT REJECT THE BID ON THE BASIS OF UNSATISFACTORY PERFORMANCE OF PRIOR CONTRACTS. 38 COMP. GEN. 289; 41 ID. 124.

FROM THE FOREGOING, IT IS APPARENT THAT GSA'S ACTIONS IN THIS CASE WERE IN ACCORD WITH THE PROCUREMENT REGULATIONS, THE PROVISIONS OF THE SMALL BUSINESS ACT, AS AMENDED, AND THE DECISIONS OF OUR OFFICE. FURTHER, WHILE OUR OFFICE WILL NOT UNDERTAKE TO QUESTION OR REVIEW THE ACTION TAKEN BY SBA WHEN A COC HAS BEEN ISSUED, IT MAY BE STATED THAT THE SBA RECORDS MADE AVAILABLE TO OUR OFFICE FURNISH NO INDICATION THAT ITS ACTION WAS ARBITRARY OR CAPRICIOUS.

IN THE CIRCUMSTANCES, WE FIND NO LEGAL BASIS TO QUESTION THE AWARD TO THE LOW OFFEROR, AND YOUR PROTEST IS THEREFORE DENIED.